UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------------------------------
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: 33-14042-NY
--------------------------------------------------------
NeuroCorp. (formerly Tamarac Ventures, Ltd.)
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0446395
- ------------------------------ ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 White Plains Road, Tarrytown, New York 10591
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 631-3315
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 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 [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 7,173,807 Shares as of June 30, 1996.
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
Consolidated balance sheets (Unaudited) at June 30, 1996 and
December 31, 1995 F-1
Consolidated statements of operations (Unaudited) for the
three months ended June 30, 1996 and 1995 F-2
Consolidated statements of operations (Unaudited) for the six
months ended June 30, 1996 and 1995 F-3
Consolidated statements of stockholders' equity (Unaudited)
for the six months ended June 30, 1996 F-4
Consolidated statements of cash flows (Unaudited) for the
three months ended June 30, 1996 and 1995 F-5
Notes to consolidated financial statements F-6 - F-18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19 - 26
</TABLE>
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash $136,146 $140,519
Accounts receivable, net of allowance for
doubtful accounts of $57,556 and $39,920, respectively
1,164,049 716,650
Inventory 34,883 29,985
Due from affiliates 94,130 88,943
Prepaid expenses and taxes 35,110 53,314
Deferred financing cost 120,181 -
Costs in excess of billings on uncompleted contracts 2,487 28,833
--------- ---------
Total current assets 1,586,986 1,058,244
--------- ---------
Equipment and fixtures, net 81,042 81,066
--------- ---------
Other assets:
Database development costs, net 1,304,049 1,312,346
Computer system product development costs, net 722,213 744,536
Other 138,172 133,220
--------- ---------
Total other assets 2,164,434 2,190,102
--------- ---------
Total assets $3,832,462 $3,329,412
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Demand note - line of credit $- $ 50,000
Accounts payable 222,012 152,465
Accrued expenses 134,500 175,712
Stockholder notes and loans payable 627,235 386,979
Income taxes payable 1,296 8,293
Current portion of long-term debt 72,609 90,227
Billings in excess of contract revenues
on uncompleted contracts 169,676 201,333
--------- ---------
Total current liabilities 1,227,328 1,065,009
--------- ---------
Long-term liabilities:
Long-term debt 19,300 37,734
Deferred income taxes 309,000 309,000
--------- ---------
Total liabilities 1,555,628 1,411,743
--------- ---------
Commitments and contingencies (Note 5) - -
Stockholders' equity:
Preferred stock authorized 5,000,000
shares issued, as follows: - -
Cumulative Preferred stock, class B,
series 1, no par value, issued and
outstanding 150,000 shares, full
liquidation value of $150,000 150,000 150,000
Convertible Preferred stock, class B,
series 2, no par value, issued and
outstanding 250,000 shares, full
liquidation value $250,000 250,000 250,000
Common stock, $.001 par value, 100,000,000
shares authorized 7,173,807 and 6,107,141
issued and outstanding, respectively 46,374 45,307
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 1,099,572 592,352
Contributed capital 100,000 100,000
Retained earnings 659,388 808,510
--------- ---------
Total stockholders' equity 2,276,834 1,917,669
--------- ---------
Total liabilities and stockholders' equity $3,832,462 $3,329,412
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements (Unaudited).
F-1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1996 1995
---------- ----------
Net sales $ 408,674 $ 436,134
Cost of sales, including amortization expense
of $45,790, and $46,110, respectively 162,146 162,379
---------- ----------
Gross profit 246,528 273,755
Research and development 17,218 6,741
General and administrative expenses 307,554 298,904
---------- ----------
Loss from operations (78,244) (31,890)
Other income (expense):
Interest income 2,251 2,654
Interest and financing expenses (23,673) (3,455)
---------- ----------
Loss before provision for income taxes (99,666) (32,691)
Provision for income taxes - 15,983
---------- ----------
Net loss $ (99,666) $ (48,674)
========== ==========
Earnings per common equivalent share:
Primary:
Loss before provision for taxes $ (.01) $ (.01)
Provision for income taxes Nil Nil
---------- ----------
Net loss $ (.01) $ (.01)
========== ==========
Weighted average number of shares outstanding 7,151,563 5,447,619
========== ==========
See accompanying notes to consolidated financial statements (Unaudited).
F-2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1996 1995
---------- ----------
Net sales $ 791,122 $ 788,878
Cost of sales, including amortization expense
of $91,900, and $90,033, respectively 344,694 207,991
---------- ----------
Gross profit 446,428 580,887
Research and development 45,184 74,262
General and administrative expenses 521,650 483,017
---------- ----------
(Loss) income from operations (120,406) 23,608
Other income (expense):
Gain on disposal of vehicle - 31,280
Interest income 5,940 7,813
Interest expense (34,656) (8,174)
---------- ----------
(Loss) income before provision for income taxes (149,122) 54,527
Provision for income taxes - 42,404
---------- ----------
Net (loss) income $ (149,122) $ 12,123
========== ==========
Earnings per common equivalent share:
Primary:
Income before provision for taxes $ (.02) $ .01
Provision for income taxes Nil (.01)
---------- ----------
Net (loss) income $ (.02) $ Nil
========== ==========
Weighted average number of shares outstanding 6,784,920 5,423,809
========== ==========
See accompanying notes to consolidated financial statements (Unaudited).
F-3
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Class B Additional Total
Series 1 Series 2 Common Stock Paid-in Contributed Retained Stockholders'
Shares Amount Shares Amount Shares Amount Capital Capital Earnings Equity
------ ------ ------ ------ ------ ------ ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 150,000 $150,000 250,000 $250,000 6,107,141 $16,807 $592,352 $100,000 $808,510 $1,917,669
Sale of common stock - - - - 1,000,000 1,000 399,000 - - 400,000
Cost associated with the
registration for selling
shareholders - - - - - - (25,046) - - (25,046)
Issuance of 66,666 shares
of common stock in lieu of
deferred financing cost
for a loan - - - - 66,666 67 133,266 - - 133,333
Net (loss) - - - - - - - - (149,122) (149,122)
-------- -------- -------- -------- ---------- ------- ---------- -------- -------- ----------
Balance at
June 30, 1996 $150,000 $150,000 $250,000 $250,000 $7,173,807 $17,874 $1,099,572 $100,000 $659,388 $2,276,834
======== ======== ======== ======== ========== ======= ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements (Unaudited).
F-4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1996 1995
---------- ----------
Cash flows for operating activities:
(Loss) income from operations $ (149,122) $ 12,123
Adjustments to reconcile net (loss) income to net cash
provided by (used for) operating activities:
Depreciation and amortization 105,382 114,263
Amortization of deferred financing cost 13,152 -
Deferred income taxes - 22,000
Gain on disposal of vehicle - (31,280)
Reclassification of equipment to inventory - 5,523
Changes in operating assets and liabilities:
Accounts receivable (447,399) (156,929)
Due from affiliates (5,187) (32,596)
Inventory (4,898) (10,610)
Prepaid taxes and expenses 18,204 16,681
Cost in excess of billings on
uncompleted contracts 26,346 7,786
Accounts payable 69,547 76,723
Accrued expenses (41,212) 73,992
Income taxes payable (6,997) (9,899)
Billings in excess of contract revenues on
uncompleted contracts
(31,657) (335,938)
---------- ----------
Net cash flows used for operating activities (453,841) (248,161)
---------- ----------
Cash flows from investing activities:
Purchase of equipment and fixtures (13,458) (13,695)
Database development costs capitalized (57,703) (64,940)
Computer system development costs capitalized (2,277) (110,874)
Patients costs capitalized (2,150) -
Proceeds from insurance on vehicle - 34,271
---------- ----------
Net cash flows used for investing activities (75,588) (155,238)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt - -
Principal payments on long-term debt (36,052) (38,126)
Proceeds from (repayment) of demand
note payable - line of credit (50,000) 50,000
Net repayments of loans 240,256 1,727
Deferred registration costs (25,046) -
Proceeds from sale of common stock 400,000 100,000
Employee loans and advances (4,102) -
---------- ----------
Net cash flows provided by financing activities 525,056 113,601
---------- ----------
Net decrease in cash (4,373) (289,798)
Cash at beginning of period 140,519 336,505
---------- ----------
Cash at end of period $ 136,146 $ 46,707
========== ==========
Supplemental disclosures of cash flow information:
See accompanying notes to consolidated
financial statements (Unaudited).
Cash paid during the year for:
Interest $ 8,880 $ 6,844
========= =========
Income taxes $ - $ 44,913
========== ==========
Schedule of non-cash investing and financing activities:
Issuance of 66,666 shares of restrictive
common stock for deferred financing
cost for a loan $ 133,333 $ -
========== ==========
F-5
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 1 - GENERAL
NeuroCorp, Ltd. (the "Company") was incorporated in the State of
Nevada on March 18, 1987. On November 23, 1994 the Company entered
into an agreement and a plan of reorganization with HZI Research
Center, Inc. ("HZI") to exchange 100% of HZI's outstanding common
stock for 4,600,000 post-split $.001 par value common shares of the
Company. Simultaneously, the Company effectuated a 1 for 50 reverse
stock split thereby reducing its outstanding common shares from
40,000,000 to 800,000. The financial statements give effect to the
reverse stock split. This transaction has been accounted for as a
reverse acquisition of HZI, whereby its assets and liabilities have
been recorded at their historical costs. Prior to this transaction
the Company had no significant assets, liabilities or operations.
Accordingly, the financial statements at June 30, 1996 and December
31, 1995 represent the assets and liabilities of HZI and it's
affiliates and the results of their operations and cash flows for
the six months ended June 30, 1996 and 1995. All costs incurred in
connection with the reverse acquisition have been charged to
additional paid-in capital at the completion of the transaction. On
the closing date, the Company's Board of Directors were replaced by
directors designated by HZI and the Company changed its name from
Tamarac Ventures, Ltd. to NeuroCorp, Ltd.
The Company, through its wholly-owned subsidiary, HZI, is primarily
involved in three inter-related businesses all of which involve the
interaction or utilization of the Company's proprietary software,
databases and medical devices for the diagnosis and treatment of
brain-related disorders. The three businesses are as follows: (i)
performing long-term contract services for medical research for
major domestic and international pharmaceutical firms (ii) designing
and producing proprietary neuropsychiatric diagnostic testing
equipment, which currently is their Brain Functioning Monitor (BFM)
system (iii) providing interactive diagnostic testing services and
analysis to physicians and hospitals via the telephone, this service
is known as TeleMap.
In January 1996, the Company created a new wholly-owned subsidiary
Memory Centers of America, Inc. ("MCA"). MCA will provide
therapeutic services to people who suffer from memory impairment.
MCA began operation's at the end of the second quarter of 1996.
The Company conducts its operations in Tarrytown, New York. The
Company's revenues consist of a concentration of significant long-
term contracts, thus leading to a limited number of customers
comprising a significant percentage of revenues.
The unaudited interim financial statements for the six months ended
June 30, 1996 and 1995 included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of the
Company, reflect all adjustments (consisting only of normal
recurring adjustments) and disclosures which are necessary for a
fair presentation. The results of operations for the three months
ended are not necessarily indicative of the results for the full
year. For further information, refer to the Company's audited
financial statements and footnotes thereto at December 31, 1995,
included in Form 10-KSB filed with the Securities and Exchange
Commission.
F-6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 2 - DEMAND NOTE - LINE OF CREDIT
The $50,000 balance outstanding at December 31, 1995 represents
borrowings by HZI under a $100,000 secured line of credit agreement
with a bank. The agreement entered into on April 26, 1995 requires
HZI to pay interest monthly at one percent (1%) above the prime rate
and said principal balance is due on demand. The demand note is
secured by equipment, receivables and general intangibles. The
outstanding balance was repaid in full during March 1996.
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following at:
June 30, December 31,
1996 1995
---- ----
Note payable due in thirty-six (36) monthly
installments of $6,175 including interest at
prime plus 1% per annum due April 1997. The
note is collateralized by equipment, receivables
and general intangible assets and has been
personally guaranteed by certain officers.
$65,514 $97,715
Note payable due in forty-eight (48) monthly
installments of $768 including interest at
9.5% per annum due November 1999. The note
is collateralized by a Company vehicle. 26,395 30,246
--------- -------
91,909 127,961
Less: current portion 72,609 90,227
-------- --------
Long-term portion $ 19,300 $ 37,734
======== ========
Long-term debt matures as follows:
Year ended
December 31,
1995
-----------
1996 $90,227
1997 21,587
1998 8,073
1999 8,074
-----
$127,961
========
F-7
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY
a) Amendment to Certificate of Incorporation
-----------------------------------------
In connection with the reverse acquisition of HZI (See Note 4g), on
November 23, 1994, the Company amended its Certificate of
Incorporation to change its name from Tamarac Ventures, Ltd. to
NeuroCorp, Ltd. Further, the Company reduced its authorized common
stock from 200,000,000 shares to 100,000,000 shares and authorized
5,000,000 shares of preferred stock of which 400,000 of the
5,000,000 shares of the preferred stock has been deemed to be Class
B, Series 1 and Series 2. Accordingly, the financial statements
give effect to these items.
b) Discount on common stock
------------------------
On April 30, 1987, 30,000,000 shares of common stock, par value
$.001, were issued at $.00005 per share for total consideration of
$1,500, or a discount of $28,500. According to Nevada counsel, the
laws of the State of Nevada provide for a discount on original issue
capital stock whether or not that stock carries a par value so long
as the action is ratified by the Board of Directors and is otherwise
in compliance with applicable laws. These shares are deemed to be
fully paid and non-assessable, even though issued below par.
c) Initial public offering
-----------------------
On September 28, 1987, the Company completed its public offering of
4,000,000 units at $.05 per unit resulting in net proceeds of
$178,509. Each unit consisted of one (1) share of common stock,
$.001 par, and one (1) common stock purchase warrant. The warrants
expired unexercised thirty-six months after the effective date of
the offering.
d) Options to officers
-------------------
In 1985 and 1991, four (4) employees of HZI were granted an option
to buy a total of twenty (20) shares or then ten (10)% of the stock
of HZI at a price of $10 per share. Such options were available to
the respective individuals as long as they remained employees of
HZI.
In November 1992, all four (4) employees exercised their option to
buy HZI's common stock. These new shareholders simultaneously
transferred their shares to the voting trust, per Note 4e below.
F-8
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
e) Voting trust agreement
----------------------
In January 1992, the shareholders of HZI entered into an agreement
whereby all shares of HZI were transferred into a voting trust. The
trust was created for the purpose of granting the trustee the
exclusive right to vote upon the shares contained in the trust. The
trust has a life of twenty (20) years and for the first ten (10)
years the Company's current chairman is the trustee. Thereafter,
HZI's president who is the son of the Company's chairman becomes the
trustee. The trustee has the exclusive right to vote all such
shares subject to any limitations in the HZI Certificate of
Incorporation. Commencing with the reverse acquisition as discussed
in Note 4g, the original members of the voting trust transferred
their newly issued shares in the Company to the voting trust.
f) Issuance of warrants
--------------------
As part of the acquisition, the Board of Directors of the Company
have authorized the issuance of Class B and Class C Warrants to all
stockholders of the Company who were stockholders of record as of
November 1, 1994. The Warrants were distributed on a 1 Warrant for
1 share of common stock basis (post reverse stock split) and
comprised in the aggregate 800,000 Class B and 800,000 Class C
Warrants, each of which is exercisable into one share of Common
Stock of the Company. The Class B Warrants are exercisable at $2.25
per share and the Class C Warrants are exercisable at $2.75 per
share, and expire on June 30, 1996. The shares of Common Stock
underlying the Warrants must be registered with the Securities and
Exchange Commission (SEC) prior to the Warrants becoming
exercisable. The Company may, at its sole discretion, undertake to
file a registration statement with the Securities and Exchange
Commission wherein the Company will register the Warrants and the
shares of Common Stock underlying the Warrants. However, until such
time as said registration statement is filed and becomes effective,
the Warrants will not be exercisable. The number of shares
underlying the Warrants, and the exercise price of the Warrants, may
be adjusted downward or upward at any time by the Company's Board of
Directors. Further, the Warrants are redeemable by the Company at
any time upon thirty days written notice, at a price of $.001 per
Warrant.
In January 1996, the Company's Board of Directors reduced the
exercise price of the Class B and Class C warrants from $2.25 to
$1.00 per share and from $2.75 to $2.00 per share, respectively and
the expiration dates were extended to June 30, 1997. In February
1996, the Company filed with SEC to register these warrants.
F-9
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
g) Reverse acquisition of subsidiary
---------------------------------
On November 23, 1994, the Company entered into an agreement and a
plan of reorganization with HZI to exchange 100% of HZI's
outstanding common stock for 4,600,000 post-split $.001 par value
common shares of the Company. Such transaction superseded the
Letter of Intent entered into between the partieson March 18, 1994.
Simultaneously, the Company effectuated a 1 for 50 reverse stock
split thereby reducing its outstanding common shares from 40,000,000
to 800,000. The financial statements have been restated to give
effect to the reverse stock split.
All costs incurred in connection with the acquisition have been
charged to additional paid-in capital at the completion of the
transaction. On the closing date, the Company's Board of Directors
were replaced by directors designated by HZI.
Pursuant to the March 18, 1994 Letter of Intent, between the Company
and HZI, the Company agreed, with the assistance of others, to
arrange for certain financing for HZI within a specified time
period. On March 24, 1994, a bridge loan was made for $75,000 by
Trinity American Corporation ("TAC") a stockholder of the Company,
to HZI, pursuant to the agreement. The financing that was to be
arranged for HZI was not timely arranged, based upon the terms of
the agreement HZI was not responsible for the repayment of the
bridge loan. This transaction has been recorded as a forgiveness of
debt in the year ended December 31, 1994.
On November 23, 1994 TAC contributed $400,000 to the Company's
capital account with no further issuance of common stock. In
December 1994, the Company and TAC reached an agreement whereby in
consideration for the $400,000 paid on November 23, 1994 two classes
of preferred stock were issued to TAC. The first class of 150,000
shares of cumulative non-convertible preferred stock class B, series
1, no par value has a liquidation preference of $1 per share.
Dividends accrue on such stock commencing January 1, 1996 at a rate
of 10% of the liquidation value and are payable semi-annually in
cash or stock. Dividends are payable based on the average closing
bid price of the stock 30 consecutive days prior to the date the
dividend becomes payable. Further, the Company may redeem such
shares at any time for $3 per share.
The second class of 250,000 shares of convertible no par value
preferred stock, class B series 2, can be converted into common
stock. The conversion feature provides that between January 1,
through June 30, 1996 that one (1) share of preferred stock can be
converted into two (2) shares of common stock. After June 30, 1996
the conversion feature is reduced to five (5) shares of preferred
stock to one (1) share of common stock. Further, the Company can at
its option force a conversion of such stock if the closing bid price
for the Company's common stock is at least 2 5/8 for thirty (30)
consecutive trading days.
F-10
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
h) Stock Option Plan Transactions
------------------------------
On November 23, 1994, the Company adopted an incentive stock option
plan that will provide for the granting of options to purchase up to
1,500,000 shares of the Company's common stock that are intended to
qualify either as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or a non-statutory stock
option plan. Options to purchase shares may be granted under the
statutory stock option plan to persons who are employees or officers
of the Company. If the Company adopts a non-statutory stock option
plan, options shall be granted to, employees, officers, non-employee
directors, and consultants to the Company.
The stock option plan provides for its administration by a committee
chosen by the Board of Directors. The committee shall have full
discretionary authority to determine the number of shares to be
granted, the grantees receiving the options, the exercise period,
and the exercise price for which options will be granted. In the
case of statutory stock option plans, the committee's authority to
establish the terms and conditions of such options, including, but
not limited to their exercise price, shall be subject to
restrictions imposed by Section 422 of the Internal Revenue Code.
On September 19, 1995, the Company granted to its President and Vice
Chairman a non-qualified stock option to purchase 250,000 shares of
common stock at an exercised price of $.10 per share. This option
expires seven (7) years from the date of grant and the underlying
common shares related to the stock option are restricted. At the
date of grant the Company recorded compensation expense of $50,000
based upon the fair value of the stock option at that date.
In December 1995, the Company granted a consultant a non-qualified
stock option to purchase 50,000 shares of common stock at $.01 per
share. The underlying common shares related to the stock option are
restricted. At the date of grant the Company recorded a consulting
fee of $16,875 based upon the fair value of the stock option on that
date.
i) Sale of shares by former principal shareholder
----------------------------------------------
Pursuant to a Stock Purchase Agreement dated October 25, 1994, the
then principal shareholder and President of the Company agreed to
sell 556,000 of his post-split shares of the Company's common stock
to TAC, for a purchase price of $40,000. Such shares were
transferred to TAC immediately upon the completion of the Company's
acquisition of HZI. Further, TAC has the right to transfer a
portion of the shares purchased to other nonaffiliated persons
through a sale of all or a part of the shares to offshore investors
pursuant to Regulation S of the Securities Act of 1933, as amended.
TAC has the right, on one occasion, to demand that the Company file
a registration statement, at TAC's expense, as to all of the shares
of the Company's common stock held by TAC.
F-11
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
j) Sale of common stock
--------------------
On April 14, 1995, March 2, 1996 and March 25, 1996, the Company
sold 57,143, 333,333 and 666,667 shares of common stock for
$100,000, $133,333 and $266,667, respectively, to foreign investors
utilizing Regulation "S" guidelines. Said shares have not been
registered under the Securities Act of 1933 (the "Act"), hence the
shares cannot be sold, transferred, assigned or hypothecated unless
they are either registered under the Act or sold pursuant to an
applicable exemption from registration.
k) Issuance of common stock as consideration for loans
---------------------------------------------------
(i) On July 19, September 14, October 12, 1995 and February 26,
1996, the Company and the Chairman of the Board entered into a
letter agreement with TAC to borrow $100,000, $40,000, $60,000
and $75,000, respectively. The $100,000 and $60,000 loans have
an interest rate of 9% per annum, respectively, and were due in
six months from the date of issuance including accrued
interest, respectively. The $40,000 and $75,000 loans have an
interest rate of 10% and are due within 90 days and six months,
respectively, from the date of issuance including accrued
interest. The due date for the $100,000 note has been extended
to July 1996. The due date for the $40,000 and $60,000 loans
have been extended to June 1996. As additional consideration
for the $100,000 loan, the Company agreed to issue 49,998
shares of restricted common stock to TAC. The Company has
recorded the additional consideration as interest expense, with
a cost of $14,061, which is based upon the fair value of the
stock issued on the date of the agreement. TAC and the Company
have only agreed to extend the above loans to June 30, 1997, or
in the event the Class B and C warrants are exercised in its
entirety prior to June 30, 1997.
Further, the letter agreements give TAC the option to convert
said loans into 550,000 shares of non-dilutive common stock,
whereby the Company's Chairman has agreed to satisfy this
conversion feature by contributing shares from his personal
common stock holdings.
On February 5, 1996, the Company borrowed from TAC an
additional $50,000 which is due on demand. Said loan has an
interest of 10% and was repaid during April, 1996.
F-12
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
k) Issuance of common stock as consideration for loans (cont'd)
---------------------------------------------------
ii) On May 24, 1996, the Company entered into an agreement with a
shareholder to borrow $200,000. The loan is non-interest
bearing and is payable within one (1) year or is payable out of
the first proceeds resulting from any exercise of outstanding
Class B and Class C warrants (See Note 4f), whichever comes
first. As additional consideration the Company issued 66,666
shares of restrictive common stock. The Company has valued the
common stock at $133,332 or fifty percent (50%) of the fair
market value at the time of transaction. The Company recorded
deferred financing cost and increased stockholders' equity by
$133,332, respectively for this transaction. The deferred
financing cost is being amortized over one year, which is the
maximum term of the loan, or will be charged to operations if
paid prior to May 24, 1997. See Note 6c. Further, the Company
has agreed to register said shares. See Note 4m.
l) Sale of common stock and capital contribution
---------------------------------------------
In December 1995, the Company sold 1,000,000 post-split shares of
.001 par value common stock to four unrelated investors for
$250,000. As a condition of the sale the Company's Chairman agreed
to contribute 400,000 shares of the Company's common stock owned by
him to the Company and to then have them cancelled by the Company.
The Company has accounted for this as a $100,000 contribution of
capital based upon the fair value of the stock at the date of
contribution. The Company agreed to file a registration statement
in February 1996 as one of the conditions of the sale, as described
below.
m) Registration of common stock
----------------------------
During February, 1996, the Company commenced registering common
shares and warrants pursuant to certain registration rights, and
other contractual obligations incurred by the Company in connection
with the issuance of such common shares and warrants pursuant to the
HZI acquisition agreement signed in November 1994 and the sale of
common shares in December 1995. The Company will not receive any of
the proceeds from the sale of the common shares or warrants since
all respective shares are being offered by the selling stockholders.
The Company has also agreed to pay $25,046 of cost related to the
registration.
F-13
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) Operating leases
----------------
The Company leases its office facilities under a noncancellable
operating lease expiring in 1998. The lease contains a provision
for additional rent which is equal to the Company's pro rated share
of future real estate taxes. In addition, the Company has a
noncancellable operating lease for office equipment expiring in
1997.
A schedule of future minimum rental payments at December 31, 1995 is
as follows:
Year ended December 31,
-----------------------
1996 $110,490
1997 92,557
1998 77,868
--------
$280,915
========
Rent expense under all operating leases for the six months ended
June 30, 1996 and 1995 was $56,657 and $84,863, respectively.
b) Concentration of credit risk
----------------------------
For the six months ended June 30, 1996 and 1995, approximately 60%
and 58%, respectively, of net sales were derived from two unrelated
customer, who are in the pharmaceutical industry. As of June 30,
1996 and December 31, 1995, approximately 52% and 54% of accounts
receivable is due from two unrelated customers.
c) Employment Agreements
---------------------
1) On September 20, 1995, the Company's Chairman of the Board
entered into an employment agreement providing for a base
salary of $250,000 per year. The agreement is for an initial
term of 10 years and is renewable on a month to month basis
thereafter. The agreement provides that on each anniversary
date the Chairman's salary shall be increased in good faith
subject to negotiations between the Chairman and the Company.
The Company has agreed to review the services rendered by the
Chairman at least annually and, at the discretion of the Board
of Directors award a cash bonus or make a contribution to a
deferred compensation plan. Further, the agreement provides
for a term life insurance policy amounting to $1,000,000
payable to the Chairman's designated beneficiary and also
provides for a vehicle and driver funded by the Company. For
the six months ended June 30, 1996, the Company's Chairman
waived his right to receive the term life insurance as provided
for in the employment agreement. As noted in the March 31,
1996 financial statement the Company's Chairman waived $51,008
of his base salary for the three months ended March 31, 1996.
During the three months ended June 30, 1996, the Board of
Directors and the Company's Chairman have agreed to acknowledge
that he is entitled to the salary that was previously waived,
which resulted in an additional charge to operations for the
second quarter of $51,208.
F-14
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (cont')
c) Employment Agreements (cont'd)
---------------------
2) On December 7, 1994, the Company entered into an employment
agreement with its Executive Vice President providing for a base
salary of $100,000 per year. The agreement expires on January 1,
2000 and is renewable on a year to year basis thereafter. The
agreement provides that on January 1 of each year the Executive Vice
President shall be entitled to a 10% salary increase and an annual
bonus equal to at least fifty percent (50%) of his base salary
subject to the Board of Directors approval. If the employee is
terminated within the contract period due to the change in control
of the Company as defined in the Securities Exchange Act of 1934,
under Sections 13(d) and 14(d), said Executive Vice President shall
be entitled to a lump sum payment equal to five (5) time his gross
annual compensation, in effect at date of termination.
Additionally, for the three year period after the date of
termination, the Company is obligated to provide the employee with
life and health insurance benefits substantially similar to those
which the Executive Vice President was receiving prior to the date
of termination.
d) Consulting agreement
--------------------
On July 1, 1995, the Company entered into a five (5) year consulting
agreement with a Corporation controlled by the Company's President
and Vice Chairman. Said agreement provides for a fee of $75,000 per
annum.
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Revenues from affiliates
------------------------
The Company charges NYI, as well as Manhattan Westchester Medical
Services, P.C. ("Manhattan West") for the use of certain employees
and office and laboratory space of the Company. Manhattan West is
also under the common control of the Company's Chairman. Net
revenues from these affiliates for the six months ended June 30,
1996 and 1995 amounted to $24,361 and $107,480, respectively.
The above transactions between HZI and NYI have been eliminated in
the consolidated financial statements.
b) Services provided by affiliates
-------------------------------
During 1994 HZI and Manhattan West entered into an arrangement
whereby Manhattan West will provide medical consulting services to
HZI's TeleMap business. This arrangement was discontinued during
1995 and is now being performed by the Company's personnel.
Services provided by Manhattan West to HZI for the six months ended
June 30, 1995 amounted to approximately $5,000.
F-15
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (cont'd)
c) Stockholder notes and loans
---------------------------
June 30, December 31,
1996 1995
-------- --------
Non-interest bearing loans and
payables (See i below) $108,012 $155,381
Notes payable bearing an
interest of 7.5% to 10%
(See ii below) 300,000 225,000
Non-interest bearing loan
payable (See iii below) 200,000 -
Accrued interest (See ii below) 19,223 6,598
-------- --------
$627,235 $386,979
======== ========
i) Stockholder notes and loans payable relates to advances made to
HZI and NYI by its Chairman of the Board which are due on
demand.
ii) On July 19, September 14, October 12, 1995 and February 26,
1996, the Company and the Chairman of the Board entered into a
letter agreement with TAC to borrow $100,000, $40,000, $60,000
and $75,000, respectively. The $100,000 and $60,000 loans have
an interest rate of 9% per annum, respectively, and were due in
six months from the date of issuance including accrued
interest, respectively. The $40,000 and $75,000 loans have an
interest rate of 10% and are due within 90 days and six months,
respectively, from the date of issuance including accrued
interest. The due date for the $100,000 note has been extended
to July 1996. The due date for the $40,000 and $60,000 loans
have been extended to June 1996. As additional consideration
for the $100,000 loan, the Company agreed to issue 49,998
shares of restricted common stock to TAC. The Company has
recorded the additional consideration as interest expense, with
a cost of $14,061, which is based upon the fair value of the
stock issued on the date of the agreement. Further, the letter
agreements give TAC the option to convert said loans into
550,000 shares of non-dilutive common stock, whereby the
Company's Chairman has agreed to satisfy this conversion
feature by contributing shares from his personal common stock
holdings.
On February 5, 1996, the Company borrowed from TAC an
additional $50,000 which is due on demand. Said loan has an
interest of 10% and was repaid during April, 1996.
On November 16, 1995, the Company entered into a letter
agreement with SRS Partners, a partnership that is affiliated
with TAC to borrow $25,000. The loan bears interest at a rate
of 9% and is due within six months or out of the proceeds of
the first funding of a Reg. "S" transaction.
F-16
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (cont'd)
c) Stockholder notes and loans (cont'd)
---------------------------
iii) On May 24, 1996, the Company entered into an agreement with a
shareholder to borrow $200,000. The loan is non-interest
bearing and is payable within one (1) year or is payable out of
the first proceeds resulting from any exercise of outstanding
Class B and Class C warrants, (Note 4f) whichever comes first.
As additional consideration the Company issued 66,666 shares of
restrictive common stock. The Company has valued the common
stock at $133,332 or fifty percent (50%) of the fair market
value at the time of the transaction. The Company recorded
deferred financing cost and increased stockholders equity by
$133,332, respectively for this transaction. The deferred
financing cost are being amortized over one year, which is the
maximum term of the loan, or will be charged to operations if
paid prior to May 24, 1997. Further, the Company has agreed to
register said shares. See Note 4m.
d) Due from affiliates
-------------------
Due from affiliates represent amounts due to HZI which are unsecured
demand obligations amounting to the following:
June 30, December 31,
1996 1995
-------- --------
Due from Manhattan West $ 73,238 $ 68,855
Academia 20,892 20,088
-------- --------
$ 94,130 $ 88,943
======== ========
Academia Medicine Psychiatric Foundation, Inc. ("Academia") is a
not-for-profit entity. One of the Company's majority stockholders is
one of nine Directors of the Board.
e) Shareholder transactions
------------------------
On September 19, 1995 the Company granted to its Vice Chairman a
non-qualified stock option to purchase 250,000 shares of common
stock at an exercised price of $.10 per share. This option expires
seven (7) years from the date of grant and the underlying common
shares related to the option are restricted. At the date of grant
the Company recorded compensation expense of $50,000 based upon the
fair value of the stock option at that date.
f) Consulting agreement
--------------------
On July 1, 1995, the Company entered into a five (5) year consulting
agreement with a Corporation controlled by the Company's President
and Vice Chairman. Said agreement provides for a fee of $75,000 per
annum.
F-17
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (cont'd)
g) Capital contribution
--------------------
In December 1995, the Company sold 1,000,000 shares of common stock
to four unrelated investors for $250,000. As a condition of the
sale the Company's Chairman agreed to contribute 400,000 shares of
the Company's common stock owned by him to the Company and to then
have them cancelled by the Company. The Company has accounted for
this as a $100,000 contribution of capital based upon the fair value
of the stock at the date of contribution. The Company agreed to
file a registration statement in February, 1996 as one of the
conditions of the sale.
h) Due from affiliates
-------------------
The Company charges NYI and Manhattan West for the use of certain
employees and laboratory space. NYI and Manhattan West are under
the common control of the Company's Chairman. At June 30, 1996 and
December 31, 1995, amounts due from Manhattan West for these
services amounted to $73,238 and $68,855, respectively.
F-18
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NeuroCorp., Ltd. ("the Company") was incorporated in the State of
Nevada on March 18, 1987. On November 23, 1994, in connection with
the reverse acquisition of HZI Research Center, Inc. and Subsidiary
("HZI") the Company amended its Certificate of Incorporation to
change its name from Tamarac Ventures, Ltd. to NeuroCorp., Ltd.
Further, the Company reduced its authorized common stock from
200,000,000 shares to 100,000,000 shares and authorized 5,000,000
shares of preferred stock.
The Company, through its wholly-owned subsidiary, HZI, is primarily
involved in three inter-related businesses all of which involve the
interaction or utilization of the Company's proprietary software,
databases and medical devices for the diagnosis and treatment of
brain-related disorders. The three businesses are as follows: (i)
performing long-term contract services for medical research for
major domestic and international pharmaceutical firms (ii) designing
and producing proprietary neuropsychiatric diagnostic testing
equipment, which currently is their Brain Functioning Monitor (BFM)
(iii) providing interactive diagnostic testing services and analysis
to physicians and hospitals via the telephone, this service is known
as TeleMap.
In January 1996, the Company created a new wholly-owned subsidiary
Memory Centers of America, Inc. ("MCA"). MCA will provide
therapeutic services to people who suffer from memory impairment.
MCA began full operation's of the pilot program at the end of the
second quarter of 1996, and is currently not a significant business
segment of the Company.
On November 23, 1994, in connection with its acquisition of HZI, the
Company changed its fiscal year end from September 30 to December 31
so as to conform with HZI's fiscal year end of December 31.
RESULTS OF OPERATIONS
Three months ended June 30, 1996 as compared to the three months
----------------------------------------------------------------
ended June 30, 1995
-------------------
Long-term contract revenues are recognized on the percentage of
completion method by multiplying total estimated contract revenue by
the percentage of completion. Changes in each contracts
performance, conditions and estimated profitability including those
arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. In
addition, losses are recognized in full when determinable.
Revenue from computer system sales, which include BFM, are
recognized upon the delivery of the software or turnkey systems.
Service revenues such as TeleMap and MCA, are recognized as they are
rendered.
Revenues for the three months ended June 30, 1996 and 1995 amounted
to $408,674 and $436,134, respectively. The gross profits for the
three months ended June 30, 1996 and 1995 amounted to $246,528 and
$273,755, respectively or a net decrease of $27,227. The gross
profit percentages for the three months ended June 30, 1996 and 1995
amounted to 60% and 63%, respectively, or a net decrease of 3%.
19
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Three months ended June 30, 1996 as compared to the three months
----------------------------------------------------------------
ended June 30, 1995 (Cont'd)
-------------------
The net reduction of gross profit during the three months ended June
30, 1996 as compared to the three months ended June 30 of 1995 is
attributable to the following:
1. The Company has not entered into any major new long-term
contracts since December 31, 1993 and major contracts recorded
prior to this period have been substantially completed during
the year ended December 31, 1994. At the end of 1995 and
during the first and second quarter of 1996 the Company
received $561,000 of new contracts which should be completed
during 1996. Revenues from contracts for the three months
ended June 30, 1996 as compared to the three months ended June
30, 1995 amounted to $271,103 and $114,814, respectively, or a
net increase of $129,289. The increase in revenues from
contracts for the three months ended June 30, 1996 is
attributable to the Company commencing work on new contracts
entered into during 1995 and 1996. During the three months
ended June 30, 1995 the Company just started work on two new
contracts and the majority of the second quarter revenues was
from a major contract started in 1994 that is still ongoing.
Gross profit from contracts for the three months ended June 30,
1996 as compared to the three months ended June 30, 1995
amounted to $160,736 and $37,279, respectively or a net
increase of $123,457. The gross profit percentage from
contracts for the three months ended June 30, 1996 is 59% as
compared to June 30, 1995 which was 32%. The increase in the
gross profit is attributable to a low gross profit contract
that dominated the second quarter 1995 contract research
division revenues. Of the $114,814 revenues earned during the
second quarter 1995, $99,073 is attributable to this low gross
profit contract.
As of June 30, 1996 the Company had a backlog of contracts to
perform of approximating $600,000. The Company expects to
recognize a minimum of $450,000 of revenues from the backlog
during the remaining portion of 1996.
2. Net sales of BFM Systems for the second quarter of 1996 and
1995 amounted to $82,085 and $268,490, respectively, or a net
decrease in sales of $186,405. The second quarter of 1995 was
the initial start of a new generation of BFM Systems of which
the Company believes was well received. The majority of the
BFM Systems sold during the second quarter of 1995 were to Beta
sites who are utilizing the new systems in worldwide studies
being supervised by the contract research division. Gross
profit for the three months ended June 30, 1996 and 1995 were
73% and 83%, respectively, or net decrease of 10%. The
majority of the BFM Systems sold during the three months ended
June 30, 1995 were assembled for the Beta sites in the previous
year, and these costs were being amortized by the Company until
the date of sale. Hence, the unamortized costs on these
machines are part of the cost of goods sold which resulted in
lower costs, yielding a higher than normal gross profit.
3. Revenues of the TeleMap division for the three months ended
June 30, 1996 and 1995 amounted to $30,459 and $25,829,
respectively, or net increase of $4,630. The gross profit
percentages for the three months ended June 30, 1996 and 1995
amounted to 69% and 58%, respectively. The increase in gross
profit for the three months ended June 30, 1996 as compared to
the three months ended June 30, 1995 is attributable to the
Company utilizing internal staff as opposed to highly paid
outside consultants.
20
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Three months ended June 30, 1996 as compared to the three months
----------------------------------------------------------------
ended June 30, 1995 (Cont'd)
-------------------
General and administration expenses include overhead, administration
salaries, selling and consulting costs. Further, the Company
classifies the costs of planning, designing and establishing the
technological feasibility of its computer system product as research
and development costs and charges those costs to expense when
incurred. After technological feasibility has been established,
costs of producing a marketable product and its prototype are
capitalized. Capitalized database and computer system development
costs are composed of mainly of payroll and other direct employee
costs. Costs associated with above, which are not capitalized
during the period are charged to either general and administrative
or research and development expense.
General and administrative expenses for the three months ended June
30, 1996 were $307,554 as compared to the three months ended June
30, 1995 of $298,904 or an increase of $8,650 or 3%. The increase
in general and administrative expenses for the three months ended
June 30, 1996 is due to the Company incurring approximately $38,000
of initial costs for its new subsidiary, Memory Centers of America,
Inc. ("MCA"). Further during the three months ended June 30, 1996
as compared to the three months ended June 30, 1995 the Company
reduced its administration billings to Manhattan Westchester Medical
Services, P.C., a medical practice that is controlled by the
Company's Chairman. ("Manhattan Westchester") by $8,503 resulting in
the Company absorbing more payroll costs during the June 30, 1996
quarter. Additionally, during the three months ended June 30, 1996
as compared to the three months ended June 30, 1995 the Company
reduced the capitalized cost of developing the database and computer
system product by $52,673 resulting in the related payroll cost
being incurred for general and administrative. During the first
quarter of 1996 the Company's Chairman waived part of his base
salary which was reinstated by the Board of Directors during the
second quarter. Therefore, the Company absorbed during the second
quarter of 1996 as compared to the second quarter of 1995 an
additional salary charge amounting to $51,008 for the Company's
Chairman. Offsetting the above cost increases in general and
administrative costs, the Company has reduced its payroll,
professional and consulting fees, and has curtailed overseas travel
principally in connection with the Company's involvement in a
worldwide contract and marketing of its BFM Systems for the three
months ended June 30, 1996 as compared to the three months ended
June 30, 1995.
Research and development costs ("R&D") for the three months ended
June 30, 1996 were $17,218 as compared to the three months ended
June 30, 1995 of $6,741 or an increase of $10,477. The increase in
R&D costs is due to the Company assigning more personnel to its
Oxiracetam feasibility study and BFM Systems projects.
Interest and deferred financing expenses for the three months ended
June 30, 1996 were $23,673 as compared to the three months ended
June 30, 1995 of $3,455 or an increase of $20,218. The increase is
attributable to the Company charging operations during the second
quarter of 1996 for $13,150 for amortization of deferred financing
cost resulting from a $200,000 shareholder loan discussed in the
liquidity and capital resources section. Additionally, the Company
has increased its debt from shareholders which has resulted in
increased interest expense of approximately $6,900 during the second
quarter 1996 as compared to the second quarter of 1995.
21
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Six months ended June 30, 1996 as compared to the six months ended
------------------------------------------------------------------
June 30, 1995
-------------
Revenues for the six months ended June 30, 1996 and 1995 amounted to
$791,122 and $788,878, respectively. The gross profits for the six
months ended June 30, 1996 and 1995 amounted to $446,428 and
$580,887, respectively or a net decrease of $134,459. The gross
profit percentages for the six months ended June 30, 1996 and 1995
amounted to 56% and 74%, respectively, or a net decrease of 18%.
The net reduction of gross profit during the six months ended June
30, 1996 as compared to the six months ended June 30 of 1995 is
attributable to the following:
1. Revenues from contracts for the six months ended June 30, 1996
as compared to the six months ended June 30, 1995 amounted to
$476,964 and $428,743, respectively, or a net increase of
$48,221. The increase in revenues from contracts for the six
months ended June 30, 1996 is attributable to the Company
commencing work on new contracts entered into during 1995 and
1996. During the six months ended June 30, 1995 a majority of
these new contracts were still in negotiations. Gross profit
from contracts for the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995 amounted to
$225,456 and $287,676, respectively or a net decrease of
$67,220. The gross profit percentage from contracts for the
six months ended June 30, 1996 is 47% as compared to June 30,
1995 which was 67%. The decrease in the gross profit is
attributable to a lower gross profit on contracts in progress
during six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. During the first quarter of 1995
the contract research division was working on a major high
gross profit contract, which impacted positively on the six
months ended June 30, 1995.
2. Net sales of BFM Systems for the first and second quarter of
1996 and 1995 amounted to $232,685 and $268,490, respectively,
or a net decrease of $35,805. The gross profit percentage on
these sales for the six months ended June 30, 1996 and 1995
amounted to 77% and 82%, respectively or net decrease of 5%.
The second quarter of 1995 started the initial sales of the
Company's new generation of BFM Systems. The majority of these
1995 sales were to Beta sites who are utilizing the new systems
in worldwide studies being supervised by the contract research
division. As discussed previously in three months analysis,
these Beta site machinery had a cost basis that was amortized
in the previous year, resulting in higher than normal gross
profits.
22
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Six months ended June 30, 1996 as compared to the six months ended
------------------------------------------------------------------
June 30, 1995 (Cont'd)
-------------
3. Revenues of the TeleMap division for the six months ended June
30, 1996 and 1995 amounted to $56,446 and $91,644,
respectively, or net decrease of $35,198. The gross profit
percentages for the six months ended June 30, 1996 and 1995
amounted to 54% and 78%, respectively. The decrease in sales
for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995 is attributable to the Company
discontinuing business with customers who were previously
delinquent in their payments. The Company anticipates a
reversal of the decrease in comparative sales of the TeleMap
division by year end. The gross profit decrease for the six
months ended June 30, 1996 as compared to the six months ended
June 30, 1995, is partially the result of the Company absorbing
more overhead on less sales and increase in labor costs
resulting from the Company's allocation of personnel in
connection with further improvement of its high quality
controls.
General and administrative expenses for the six months ended
June 30, 1996 were $521,650 as compared to the six months ended
June 30, 1995 of $483,017 or an increase of $38,633 or 8%. The
increase in general and administrative expenses for the six
months ended June 30, 1996 is due to the Company incurring
approximately $61,000 of initial costs for its new subsidiary,
Memory Centers of America, Inc. ("MCA"). Further during the
six months ended June 30, 1996 as compared to the six months
ended June 30, 1995 the Company reduced its administration
billings to Manhattan Westchester Medical Services, P.C., a
medical practice that is controlled by the Company's Chairman.
("Manhattan Westchester") by $33,098 resulting in the Company
absorbing more payroll costs during the June 30, 1996 period.
Additionally, during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995 the Company
reduced the capitalized cost of developing the database and
computer system product by $115,835 resulting in additional
payroll cost being incurred in general and administrative.
Offsetting the above cost increases in general and
administrative costs, of the Company has reduced its payroll,
professional and consulting fees, and has curtailed overseas
travel principally in connection with the Company's involvement
in a worldwide contract, and marketing of its BFM System, for
the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995.
Research and development costs ("R&D") for the six months ended
June 30, 1996 were $45,184 as compared to the six months ended
June 30, 1995 of $74,262 or a decrease of $29,078. The
decrease in R&D costs is due to reductions in fixed cost for
the R&D department.
23
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Six months ended June 30, 1996 as compared to the six months ended
------------------------------------------------------------------
June 30, 1995
-------------
At June 30, 1996 and December 31, 1995, the Company had working
capital of $359,968 and a working capital deficiency of $6,765,
respectively. The $366,733 net increase in working capital for the
six months ended June 30, 1996 is attributable to accounts
receivable and deferred financing cost increasing by $567,580.
Offsetting this increase in working capital for the six months ended
June 30, 1996 as compared to the year ending December 31, 1995 are
increases in stockholders loans of $327,324. The increase in
accounts receivable is the result of increased sales by the BFM
Division and the contract research division earned revenues
exceeding amounts billed. Deferred financing cost of $120,181 is
the result of the Company borrowing from a shareholder, a $200,000
interest free loan and as additional consideration, issuing 66,666
shares of restricted common stock, which was valued at 50% of the
fair market value on the date of the loan. During February 1996 the
Company borrowed from Trinity American Corporation ("TAC") $125,000
to supplement its working capital position. During early April 1996
the Company repaid TAC $50,000.
For the sixmonths ended June 30, 1996 net cash decreased by $4,373.
For the six months ended June 30, 1996 and 1995, the Company used
cash for operations of $453,841 and $248,161, respectively,
resulting in increased cash used in operations of $205,680. The net
increase for the six months ended June 30, 1996 is the result of
accounts receivables increasing by $290,470 from increased sales of
BFM Systems and a net favorable decrease of $322,841 in the long-
term contract related accounts at June 30, 1996 as compared to the
June 30, 1995 quarter. The net decrease in long-term contract
accounts is the result of the Company reducing its backlog of large
contracts during the March 31, 1995 quarter. The Company has not
replaced these significant high gross profit contracts which has
resulted in the Company showing a net loss of $149,122 for the six
months ended June 30, 1996 as compared to net income of $12,123 for
the six months ended June 30, 1995.
For the six months ended June 30, 1996 and 1995 cash used by
investing activities mainly in connection with cost incurred for the
development of databases and computer system products, amounted to
$75,588 and $155,238, respectively, or a net favorable decrease in
the use of cash of $79,650. The Company during the three months
ended March 31, 1995 received a $34,271 payment from its insurance
carrier on an automobile that was destroyed in an accident. During
1996 the Company reduced its payments by $115,834 for database and
computer system product development costs as compared to 1995. As
noted in the December 31, 1995 Management Discussions and Analysis,
future capitalization of computer system product development costs
primarily in connection with the BFM system will be substantially
reduced during the 1996 period, as compared to 1995 due to the
Company completing at the end of 1995 the final programming of its
BFM Systems which has resulted in minimal capitalization of BFM
programming costs.
24
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
-------------------------------
Six months ended June 30, 1996 as compared to the six months ended
------------------------------------------------------------------
June 30, 1995 (Cont'd)
-------------
For the six months ended June 30, 1996 and 1995 cash provided by
financing activities amounted to $525,056 and $113,601,
respectively. For the six months ended June 30, 1996 the Company
received $400,000 in connection with the sale of 333,333 shares of
common stock to investors and borrowed from shareholders
approximately $240,000 net of accrued interest. Furthermore, during
the six months ended June 30, 1996 the Company repaid a line of
credit which amounted to $50,000. As discussed in Note 4(m) of the
June 30, 1996 financial statements, the Company expended $25,046 to
register shares of common stock and warrants pursuant to previous
contractual obligations with certain stockholders.
The Company intends to meet its future cash requirements through
earnings from operations, short term borrowings and the sale of
stock.
MANAGEMENT'S PLANS
------------------
Since 1991, the Company has conducted a series of research programs
and was planning to develop Memory Centers with the Company's
largest customer. The data of these studies have now been analyzed
and publications were started. These new publications demonstrated
the usefulness and the power of the Company's proprietary method
(Quantitative Pharmaco-EEG = QPEEG) for this customer. This method,
which was developed by the Chairman of the Company, helps to assess
the pharmacological effects of drugs on the human central nervous
system (CNS), thus helping to establish the bioavailability of a CNS
drug and its CNS-effective dose. It predicts the clinical-
therapeutic dose of a compound and its possible therapeutic use in
different clinical diagnostic conditions. The Company showed that
the herbal product of this customer is more effective in the 240mg
daily dose than the presently used 120mg.
Thus, the Company's largest customer renewed their interest to
continue to work with the Company. The Company received a $400,000
new contract from this customer to further analyze the previous data
as well as the data of the ongoing depression research.
Negotiations suggest that large collaborative studies may be
initiated in the near future. Because of this and because of the
new private investors' interest, the Company decided to develop
Memory Centers by itself. The Company has started a new wholly-
owned subsidiary, Memory Centers of America, Inc. A pilot project
was initiated in the first quarter of 1996 in collaboration with
Manhattan Westchester Medical Services, P.C., the Chairman's
professional corporation which already has the required equipment
and know-how. MCA commenced full operations of the pilot program
during the latter part of the second quarter of 1996, and the
results of those operations are not meaningful a significant part of
the Company's operations at June 30, 1996.
The Company is also developing an Alzheimer's research program and a
Teleneuropsychiatry developmental program. The Company also
invested in a feasibility study to develop two Alzheimer's drugs
(oxiracetam and L-a-GFC). As a result, the Company is negotiating
for a license to develop and market one of these compounds.
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENT'S PLANS (Cont'd)
------------------
The Company has developed its own Web Site page on the World Wide
Web and intends to offer to provide data base services to interested
parties for psychotropic drug research and development.
The Company believes that the new and successful developments in
conjunction with the Company's largest customer will not only bring
new contracts providing additional cash and revenues, but will also
open new doors for substantialrevenue-bringing long-term contracts.
The Memory Centers should also have a positive impact on the
Company's cash flow in the future.
The funds obtained from the sale of stock in the first six months of
1996 are now being invested in programs which are expected to
generate immediate revenues, such as the Memory Center project and a
program for advertising the telephonic services.
The Company projects another five (5) BFM system sales through its
Turkish distributor. An additional 3-6 systems (estimated at
approximately $180,000) may be sold to centers who may develop the
Alzheimer's program sponsored by an international healthcare
organization.
The Company is trying to obtain a contract pursuant to the Company
preparing data and analysis of previous studies which will be the
basis for a worldwide Alzheimer's research program, anticipated to
be monitored by the Company. The approximate size for the
Alzheimer's program is $4 million. If the contract is obtained, it
is projected that $500,000 of revenue will be realized in 1996.
26
<PAGE>
[ NOTE: THERE WAS NO HARD COPY FOR THE PAGES BELOW ]
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEUROCORP, LTD.
DATE: August 13, 1996 BY: /s/ Aileen A. Kunitz
------------------- --------------------------------
Aileen A. Kunitz
Chief Financial Officer
(Ms. Kunitz is the Principal
Financial Officer and has been
duly authorized to sign on
behalf of the Registrant)
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 136,146
<SECURITIES> 0
<RECEIVABLES> 1,164,049
<ALLOWANCES> (57,556)
<INVENTORY> 0
<CURRENT-ASSETS> 1,586,986
<PP&E> 81,042
<DEPRECIATION> (105,382)
<TOTAL-ASSETS> 3,832,462
<CURRENT-LIABILITIES> 1,227,328
<BONDS> 0
0
400,000
<COMMON> 46,374
<OTHER-SE> 1,099,592
<TOTAL-LIABILITY-AND-EQUITY> 3,832,462
<SALES> 408,674
<TOTAL-REVENUES> 408,674
<CGS> 162,146
<TOTAL-COSTS> 307,554
<OTHER-EXPENSES> 17,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,673
<INCOME-PRETAX> (99,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,666)
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<NET-INCOME> (99,666)
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