UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 [X] 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: 7,107,141 Shares as of March 31,
1996.
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Page
number
------
Consolidated balance sheets (Unaudited) at March 31,
1996 and December 31, 1995 F-1
Consolidated statements of operations (Unaudited) for
the three months ended March 31, 1996 and 1995 F-2
Consolidated statements of stockholders' equity
(Unaudited) for the three months ended March 31, 1996 F-3
Consolidated statements of cash flows (Unaudited)
for the three months ended March 31, 1996 and 1995 F-4 - F-5
Notes to consolidated financial statements F-5 - F-16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17-22
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
--------- ------------
ASSETS
------
Current assets:
Cash $96,550 $140,519
Accounts receivable, net of allowance for
doubtful accounts of $57,556 and $39,920,
respectively 967,570 716,650
Stock subscription receivable 266,667 -
Inventory 36,947 29,985
Due from affiliates 94,453 88,943
Prepaid expenses and taxes 28,869 53,314
Costs in excess of billings on uncompleted
contracts 1,918 28,833
------------- ---------
Total current assets 1,492,974 1,058,244
------------- ---------
Equipment and fixtures, net 74,997 81,066
------------- ---------
Other assets:
Database development costs, net 1,298,038 1,312,346
Computer system product development costs, net 733,513 744,536
Other 134,720 133,220
------------- ---------
Total other assets 2,166,271 2,190,102
------------- ---------
Total assets $ 3,734,242 $3,329,412
============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Demand note - line of credit $ - $50,000
Accounts payable 235,498 152,465
Accrued expenses 73,419 175,712
Stockholder notes and loans payable 492,327 386,979
Income taxes payable 1,296 8,293
Current portion of long-term debt 88,820 90,227
Billings in excess of contract revenues
on uncompleted contracts 268,978 201,333
------------- ---------
Total current liabilities 1,160,338 1,065,009
Long-term liabilities:
Long-term debt 21,737 37,734
Deferred income taxes 309,000 309,000
------------- ---------
Total liabilities 330,737 346,734
------------- ---------
Commitments and contingencies (Note 12) - -
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 7,107,141 and 6,107,141 issued and
outstanding, respectively 46,307 45,307
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 966,306 592,352
Contributed capital 100,000 100,000
Retained earnings 759,054 808,510
------------- ---------
Total stockholders' equity 2,243,167 1,917,669
------------- ---------
Total liabilities and stockholders' equity $ 3,734,242 $3,329,412
============= =========
F-1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- -------
Net revenues $ 382,448 $352,744
Cost of revenues, including amortization expense
of $179,308 and $43,923, respectively 182,548 45,612
-------- -------
Gross profit 199,900 307,132
Expenses:
General and administrative 214,096 184,113
Research and development 27,966 67,521
-------- -------
(Loss) income from operations (42,162) 55,498
Other income (expense):
Gain on disposal of vehicle - 31,280
Interest income 3,689 5,159
Interest expense (10,983) (4,719)
-------- -------
(Loss) income before provision for income taxes (49,456) 87,218
Provision for income taxes - 26,421
-------- -------
Net (loss) income $ (49,456) $60,797
========= =======
Earnings per common equivalent share:
Primary:
(Loss) income before provision for taxes (.01) .01
Provision for income taxes - (Nil)
--------- -------
Net (loss) income $ (.01) $ .01
========= =======
Weighted average number of shares outstanding:
Primary 6,218,251 5,400,000
========= =========
See accompanying notes to consolidated financial statements (Unaudited).
F-2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE><CAPTION>
Preferred Stock Class B Additional
Series 1 Series 2 Common Stock Paid-in Contributed
Shares Amount Shares Amount Shares Amount Capital Capital
-------- -------- ------- ---------- --------- -------- --------- ---------
<S> <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
Sale of common stock - - - - 1,000,000 1,000 399,000 -
Cost associated with the
registration for selling
shareholders - - - - - - (25,046) -
Net (loss) - - - - - - - -
--------- --------- ---------- --------- ------------ -------- --------- ---------
Balance at March 31, 1996 $ 150,000 $ 150,000 $ 250,000 $ 250,000 $ 7,107,141 $ 17,807 $ 966,306 $ 100,000
========= ========= ========= ========= ============ ======== ========= =========
<CAPTION>
Total
Retained Stockholders'
Earnings Equity
--------- ----------
<S> <C> <C>
Balance at
December 31, 1995 $808,510 $1,917,669
Sale of common stock - 400,000
Cost associated with the
registration for selling
shareholders - (25,046)
Net (loss) (49,456) (49,456)
--------- ----------
Balance at March 31, 1996 $759,054 $2,243,167
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements (Unaudited).
F-3
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- --------
Cash flows from operating activities:
Net (loss) income $ (49,456) $60,797
Adjustments to reconcile net (loss) income to net
cash (used for) provided by operating activities:
Depreciation and amortization 52,020 56,036
Deferred income taxes - 15,000
Gain on disposal of vehicle - (31,280)
Changes in operating assets and liabilities:
Accounts receivable (250,920) 74,833
Inventory (6,962) -
Due from affiliates (5,510) (32,006)
Prepaid taxes and expenses 24,444 (9,277)
Costs in excess of billings on uncompleted contracts 26,915 (17,005)
Accounts payable 83,032 25,632
Accrued expenses (102,293) (11,357)
Income taxes payable (6,997) 20,942
Billings in excess of contract revenues on
uncompleted contracts 67,645 (286,929)
--------- --------
Net cash flows used for operating activities (168,082) (134,614)
--------- --------
Cash flows from investing activities:
Purchase of equipment and fixtures - (13,695)
Database development costs capitalized (18,692) (27,985)
Computer system product development costs
capitalized (1,277) (55,135)
Patent costs (2,150) -
Proceeds from vehicle insurance claim - 34,271
--------- -------
Net cash flows used for investing activities (22,119) (62,544)
--------- -------
Cash flows from financing activities:
Principal payments on long-term debt (17,404) (17,778)
Stockholder loans, net of advances 105,348 (127)
Repayment of demand note - line of credit (50,000) -
Proceeds from sale of common stock 133,334 -
Deferred registration cost (25,046) -
--------- -------
Net cash flows provided by (used for) financing
activities 146,232 (17,905)
--------- -------
Net decrease in cash (43,969) (215,063)
Cash at beginning of period 140,519 336,505
--------- -------
Cash at end of period $ 96,550 $121,442
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,225 $ 5,480
========= =======
Income taxes $ 545 $ 4,216
========= =======
Schedule of non-cash investing and financing
activities:
666,666 shares of common stock subscribed by
investors $ 266,667 $ -
========= =======
See accompanying notes to consolidated financial statements (unaudited).
F-4
<PAGE>
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 have been restated
to give effect retroactively 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 March 31, 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 three months
ended March 31, 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. It
is anticipated that MCA will be fully operational 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 three months ended
March 31, 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.
NOTE 2 - DEMAND NOTE - LINE OF CREDIT
F-5
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
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:
<TABLE><CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
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. $ 81,937 $ 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. 28,620 30,246
-------- -----------
110,557 127,961
Less: current portion 88,820 90,227
-------- ----------
Long-term portion $ 21,737 $ 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
=============
</TABLE>
F-6
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY
a) Amendment to Certificate of Incorporation
-----------------------------------------
In connection with the reverse acquisition of HZI (See Note 11g), 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 retroactive
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 11e below.
F-7
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 11g, 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-8
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 parties on 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 retroactively
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-9
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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-10
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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.
At March 31, 1996, the stock subscription receivable of $266,667 was
for the sale of common stock on March 25, 1996. The stock
subscription receivable was paid in full on April 2, 1996.
k) Issuance of common stock as consideration for loan
--------------------------------------------------
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.
F-11
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
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.
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 three months ended
March 31, 1996 and 1995 was $34,434 and $52,309, respectively.
F-12
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Cont'd)
b) Concentration of credit risk
----------------------------
For the three months ended March 31, 1996 and 1995, approximately 52%
and 80%, respectively, of net sales were derived from two and one
unrelated customer, respectively, who are in the pharmaceutical
industry. As of March 31, 1996 and December 31, 1995, approximately
33% 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 three months ended March 31, 1996 the Company's Chairman
waived $51,008 of his base annual salary. Additionally, the
Company's Chairman waived his right to receive the term life
insurance as provided for in the employment agreement.
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.
F-13
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Cont'd)
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 three months ended March 31,
1996 and 1995 amounted to $18,325 and $53,703, 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 three months
ended March 31, 1995 amounted to approximately $5,000.
c) Stockholder notes and loans
---------------------------
March 31, December 31,
1996 1995
--------- ----------
Non-interest bearing loans and payables
(See i below) $ 129,208 $155,381
Notes payable bearing an interest of
7.5% to 10% (See ii below) 350,000 225,000
Accrued interest (See ii below) 13,119 6,598
--------- --------
$ 492,327 $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.
F-14
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (Cont'd)
c) Stockholder notes and loans (Cont'd)
---------------------------
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 the Reg. "S" transaction.
d) Due from affiliates
-------------------
Due from affiliates represent amounts due to HZI which are unsecured
demand obligations amounting to the following:
March 31, December 31,
1996 1995
--------- -------------
Due from Manhattan West $ 73,963 $ 68,855
Academia 20,490 20,088
--------- ---------
$ 94,453 $ 88,943
========= =========
Academia Medicine Psychiatric Foundation, Inc. ("Academia") is a not-
for-profit entity under the control of one of the Company's majority
stockholders.
F-15
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (Cont'd)
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.
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 March 31, 1996 and
December 31, 1995, amounts due from Manhattan West for these services
amounted to $73,963 and $68,855, respectively.
F-16
<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.
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.
Three months ended March 31, 1996 as compared to the three months
-----------------------------------------------------------------
ended March 31, 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 turnkey systems. Service revenues such as
TeleMap, are recognized as they are rendered.
Revenues for the three months ended March 31, 1996 and 1995 amounted
to $382,448 and $352,744, respectively. The gross profits for the
three months ended March 31, 1996 and 1995 amounted to $199,900 and
$307,132, respectively or a net decrease of $107,232. The gross
profit percentages for the three months ended March 31, 1996 and 1995
amounted to 52% and 87%, respectively, or a net decrease of 35%.
17
<PAGE>
NEUROCORP. LTD. AND SUBSIDIARIES
(Formarly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
The net reduction of gross profit during the three months ended March
31, 1996 as compared to the three months ended March 31 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
quarter of 1996 the Company received $475,000 of new contracts
which should be completed during 1996. Revenues from contracts
for the three months ended March 31, 1996 as compared to the three
months ended March 31, 1995 amounted to $205,861 and $286,929,
respectively, or a net decrease of $81,068. The decrease in
revenues from contracts for the three months ended March 31, 1996
is attributable to the Company completing significant contracts
during the three months ended March 31, 1995 which have not been
replaced in 1996. Gross profit from contracts for the three
months ended March 31, 1996 as compared to the three months ended
March 31, 1995 amounted to $64,720 and $250,397, respectively or a
net decrease of $185,677. The gross profit percentage from
contracts for the three months ended March 31, 1996 is 31% as
compared to March 31, 1995 which was 87%. The decrease in the
gross profit is attributable to a lower gross profit percentage
for contracts in progress in 1996 versus contracts in progress in
1995 which had a higher utilization of Company personnel.
As of March 31, 1996 the Company had a backlog of contracts to
perform of approximately $755,000. The Company expects to
recognize a minimum of $500,000 of revenues from the backlog
during the remaining portion of 1996.
2. Net sales of BFM Systems for the first quarter of 1996 amounted to
$150,600. The Company did not have any sales of the BFM Systems
during the first quarter of 1995. The gross profit percentage on
these sales amounted to 64%. The majority of the BFM Systems were
sold to a Turkish distributor who is a niece to the Company's
Chairman.
3. Revenues of the TeleMap division for the three months ended March
31, 1996 and 1995 amounted to $25,987 and $65,815, respectively,
or net decrease of $39,828. The gross profit percentages for the
three months ended March 31, 1996 and 1995 amounted to 64% and
86%, respectively. The decrease in sales for the three months
ended March 31, 1996 as compared to the three months ended March
31, 1995 is attributable to the Company discontinuing business
with customers who were previously delinquent in payments. The
Company anticipates a reversal of the decrease in comparative
sales of the TeleMap division by year end.
18
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (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 March
31, 1996 were $214,096 as compared to the three months ended March
31, 1995 of $184,113 or an increase of $29,983 or 16%. The increase
in general and administrative expenses for the three months ended
March 31, 1996 is due to the Company incurring approximately $23,000
of initial costs for its new subsidiary, Memory Centers of America,
Inc. ("MCA"). MCA will sell therapeutic services to people who
suffer from memory impairment utilizing a non-medical environment.
Further during the three months ended March 31, 1996 as compared to
the three months ended March 31, 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 $24,595 resulting in the
Company absorbing more payroll costs during the March 31, 1996
quarter. Additionally, during the three months ended March 31, 1996
as compared to the three months ended March 31, 1995 the Company
reduced the cost of developing the database and computer system
product by $63,151 resulting in the related payroll cost being
absorbed in general and administrative. Offsetting the above cost
increases in general and administrative costs, the Chairman of the
Company waived $51,008 of his base salary for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995.
The personnel described above are being utilized in the current
quarter to work on proposals for additional contracts. In the March
1995 quarter the same personnel were working and assisting on the
finalization of the BFM product.
Research and development costs ("R&D") for the three months ended
March 31, 1996 were $27,966 as compared to the three months ended
March 31, 1995 of $61,521 or a decrease of $39,555. The decrease in
R&D costs is due to reductions in fixed cost for the R&D department.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Three months ended March 31, 1996 as compared to the three months
-----------------------------------------------------------------
ended March 31, 1995
--------------------
At March 31, 1996 and December 31, 1995, the Company had working
capital of $332,636 and a working capital deficiency of $6,765,
respectively. The $339,401 net increase in working capital for the
three months ended March 31, 1996 is attributable to accounts
receivable and stock subscription receivables increasing by $517,551.
Offsetting this increase in working capital for the three months
ended March 31, 1996 as compared to the year ending December 31, 1995
are increases in stockholders loans and billings in excess of
contract revenues on uncompleted contracts of $172,993. The increase
in accounts receivable is the result of increased sales by the BFM
Division. The stock subscription receivable of $266,667 is the
result of the Company selling 666,667 shares of common stock, which
was collected on April 2, 1996.
19
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
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.
During the first quarter of 1996 the Company received a large payment
from a European customer in connection with a new contract. The
Company initially started work on this contract during the end of the
March 1996 quarter which resulted in a timing difference between
revenues earned by the Company and payment for those services.
Hence, billings in excess of contract revenues on uncompleted
contracts were increased by this timing difference.
For the three months ended March 31, 1996 net cash decreased by
$43,969. For the three months ended March 31, 1996 and 1995, the
Company used cash for operations of $168,082 and $134,614,
respectively, resulting in increased cash used in operations of
$33,468. The net increase for the three months ended March 31, 1996
is the result of accounts receivables increasing by $325,753 from
increased sales of BFM Systems and a net favorable decrease of
$398,494 in the long-term contract related accounts at March 31, 1996
as compared to the March 31, 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, 1996 quarter, as
previously discussed. The Company has not replaced these significant
high gross profit contracts which has resulted in the Company showing
a loss of $49,456 for the three months ended March 31, 1996 as
compared to net income of $60,797 for the three months ended March
31, 1995.
For the three months ended March 31, 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
$22,119 and $62,544, respectively, or a net favorable decrease in the
use of cash of $40,425. 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 $63,151 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.
20
<PAGE>
For the three months ended March 31, 1996 and 1995 cash provided by
financing activities amounted to $146,232, as compared to cash used
by financing activities of $17,905 for the three months ended March
31, 1995. For the three months ended March 31, 1996 the Company
received $133,334 in connection with the sale of 333,333 shares of
common stock to investors and borrowed from shareholders
approximately $100,000 net of accrued interest paid on previous
loans. Furthermore, during the three months ended March 31, 1996 the
Company repaid its balance of the line of credit which amounted to
$50,000. As discussed in Note 4(m) of the March 31, 1996 financial
statements, the Company expended $25,046 to register common shares
and warrants pursuant to previous contractual obligations with
certain stockholders. On March 25, 1996 the Company and two foreign
individuals entered into a stock subscription agreement for 666,667
shares of common stock at $.40 per share. This stock subscription
agreement and the 333,333 shares previously described were sold to
foreign investors under Regulation "S" guidelines. The subscription
receivable of $266,667 was paid by these investors on April 2, 1996.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
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 is setting up 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.
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 these compounds.
The Company is currently developing its own Web Site page on the
World Wide Web to offer to provide data base services to interested
parties for psychotropic drug research and development.
<PAGE>
The new and successful developments in conjunction with the Company's
largest customer not only bring a new contract, cash and revenues,
but also opened doors for substantial revenue-bringing long-term
contracts. The Memory Centers should also have a positive impact on
the Company's cash flow.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
The funds obtained from the sale of stock in the first quarter of
1996 are now being invested in programs which are expected to
generate immediate revenues, such as the Memory Center program 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.
22
<PAGE>
FORM 10-QSB
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.
-----------------------------------
(Registrant)
June 6, 1996 S/ Turan M. Itil, M.D
- -------------- -----------------------------------
Date By: Turan M. Itil, M.D.
Chief Executive Officer and
Director
