<PAGE>
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, 1997
--------------------------------------
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: 33-2205-D
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NEUROCORP., 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
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(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: 8,173,806 Shares as of June 30, 1997.
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART 1 - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS Page
number
Consolidated balance sheets at June 30, 1997 (unaudited)
and December 31, 1996 F-1
Consolidated statements of operations (unaudited)
for the three months ended June 30, 1997 and 1996 F-2
Consolidate statements of operations (unaudited)
for the six months ended June 30, 1997 and 1996 F-3
Consolidated statement of stockholders' equity (unaudited)
for the six months ended June 30, 1997 F-4
Consolidated statements of cash flows (unaudited)
for the six months ended June 30, 1997 and 1996 F-5 - F-6
Notes to consolidated financial statements F-7 - F-17
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS F-18 - F-28
PART II - OTHER INFORMATION F-29
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
JUNE 30, 1997 DECEMBER 31, 1996
----------------- -----------------
Current assets:
<S> <C> <C>
Cash $ 1,150,034 $ 1,851,114
Accounts receivable, net of allowance for
doubtful accounts of $468,000 at December 31, 1996 519,993 550,163
Inventory 22,594 29,356
Prepaid expenses and taxes 87,215 36,982
Deferred financing costs - 53,516
Other current assets 132,261 84,445
-------------- ------------
Total current assets 1,912,097 2,605,576
-------------- ------------
Equipment and fixtures, net 126,125 83,549
-------------- ------------
Other assets:
Database development costs, net 1,265,886 1,264,018
Computer system product development costs, net 434,204 496,518
Deferred registration costs 114,035 -
Other 220,549 130,703
-------------- ------------
Total other assets 2,034,674 1,891,239
-------------- ------------
Total assets $ 4,072,896 $ 4,580,364
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,055 $ 166,232
Accrued expenses 182,015 176,503
Stockholder notes and loans payable 106,680 858,687
Income taxes payable 2,016 6,400
Current portion of long-term debt - 38,715
Billings in excess of costs and estimated earnings
on uncompleted contracts 84,454 276,426
-------------- ------------
Total current liabilities 447,220 1,522,963
-------------- ------------
Long-term liabilities:
Stockholder notes and loans payable 650,000 -
Long-term debt - 15,502
Deferred income taxes 264,000 264,000
-------------- ------------
Total liabilities 1,361,220 1,802,465
-------------- ------------
Commitments and contingencies (Note 4)) - -
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 $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 8,173,806
and 7,723,806 issued and outstanding, respectively 47,374 46,924
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 3,847,037 3,246,987
Contributed capital 100,000 100,000
Accumulated deficit (1,654,235) (987,512)
-------------- ------------
Total stockholders' equity 2,711,676 2,777,899
-------------- ------------
Total liabilities and stockholders' equity $ 4,072,896 $ 4,580,364
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 311,513 $ 408,674
Cost of sales, including amortization expense
of $68,604 and $59,752, respectively 123,220 181,508
------------ ------------
Gross profit 188,293 227,166
Expenses:
General and administrative expenses 524,718 307,554
Research and development 34,653 17,218
------------ ------------
Total expenses 559,371 324,772
------------ ------------
Loss from operations before other income (expense)
and income tax expense (371,078) (97,606)
Other income (expense):
Interest income 10,292 2,251
Interest expense (30,659) (23,673)
------------ ------------
Loss before income tax benefit (391,445) (119,028)
Income tax (benefit) (1,300) -
------------ -------------
Net loss $ (390,145) $ (119,028)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (393,895) $ (122,778)
------------ ------------
------------ ------------
Loss per common equivalent share:
Primary:
Loss before income tax benefit $ (.05) $ (.02)
Income tax benefit - -
------------ ------------
Net loss $ (.05) $ (.02)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (.05) $ (.02)
------------ ------------
------------ ------------
Weighted average number of shares outstanding 8,173,806 7,151,563
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1997 1996
------------ ------------
Net sales $ 587,000 $ 791,122
Cost of sales, including amortization expense
of $135,805 and $128,800, respectively 293,063 382,894
------------ ------------
Gross profit 293,937 408,228
Expenses:
General and administrative expenses 844,765 521,650
Research and development 52,128 45,184
------------ ------------
Total expenses 896,893 566,834
------------ ------------
Loss from operations before other income (expense)
and income tax expense (602,956) (158,606)
Other income (expense):
Cumulative effect of change of accounting estimate - (125,745)
Interest income 21,708 5,940
Interest expense (77,975) (34,656)
------------ ------------
Loss before income tax expense (659,223) (313,067)
Income tax expense - -
------------ ------------
Net loss $ (659,223) $ (313,067)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (666,723) $ (320,567)
------------ ------------
------------ ------------
Loss per common equivalent share:
Primary:
Loss before income tax expense $ (.08) $ (.05)
Income tax expense - -
------------ ------------
Net loss $ (.08) $ (.05)
------------ ------------
------------ ------------
Net loss applicable to common shares $ (.08) $ (.05)
------------ ------------
------------ ------------
Weighted average number of shares outstanding 8,015,486 6,784,920
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements (unaudited).
F-3
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
PREFERRED STOCK CLASS B
SERIES 1 SERIES 2 COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 150,000 $ 150,000 250,000 $ 250,000 7,723,806
Accrued preferred stock
dividend - - - - -
Issuance of common stock
in connection with exercise
of warrants 400,000
Issuance of common stock
in connection with exercise
of stock option - - - - 50,000
Net loss for the six months
ended June 30, 1997 - - - - -
------------ ------------ ------------ -------------- ------------
Balances at June 30, 1997 150,000 $ 150,000 250,000 $ 250,000 8,173,806
=========== =========== ============ ============== ============
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN CONTRIBUTED (ACCUMULATED STOCKHOLDERS'
AMOUNT CAPITAL CAPITAL DEFICIT) EQUITY
--------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 $ 18,424 $3,246,987 $ 100,000 $ (987,512) $ 2,777,899
Accrued preferred stock
dividend - - - (7,500) (7,500)
Issuance of common stock
in connection with exercise
of warrants 400 599,600 - - 600,000
Issuance of common stock
in connection with exercise
of stock option 50 450 - - 500
Net loss for the six months
ended June 30, 1997 - - - (659,223) (659,223)
------------ ------------- ----------- -------------- ---------------
Balances at June 30, 1997 $ 18,874 $3,847,037 $ 100,000 $ (1,654,235) $ 2,711,676
============ ============= =========== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows for operating activities:
Net loss from operations $ (659,223) $ (313,067)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 169,225 143,582
Amortization of deferred financing costs 53,516 13,152
Cumulative effect of change in accounting estimate - 125,745
Decrease (increase) in:
Accounts receivable 30,170 (447,399)
Inventory 6,762 (4,898)
Prepaid expenses and taxes (50,233) 18,204
Other current assets (47,816) 17,057
Increase (decrease) in:
Accounts payable (94,177) 69,547
Accrued expenses (1,988) (28,586)
Income taxes payable (4,384) (6,997)
Billings in excess of costs and estimated earnings on
uncompleted contracts (191,972) (31,657)
------------- -------------
Net cash flows used for operating activities (790,120) (445,317)
------------- -------------
Cash flows for investing activities:
Purchase of equipment and fixtures (65,975) (13,458)
Database development costs capitalized (75,359) (57,703)
Patent cost capitalized - (2,150)
Computer system development costs capitalized - (2,277)
Other assets (101,027) -
Proceeds from sale of automobile 1,660 -
------------- --------------
Net cash flows used for investing activities (240,701) (75,588)
------------- --------------
Cash flows from financing activities:
Repayments of demand note - line of credit - (50,000)
Repayment of stockholders loans (102,007) (137,370)
Proceeds from stockholders loans - 365,000
Principal payments on long-term debt (54,217) (36,052)
Registration costs incurred (114,035) (25,046)
Proceeds from exercise of warrants and sale of common stock 600,000 400,000
------------- --------------
Net cash flows provided by financing activities 329,741 516,532
------------- --------------
Net decrease in cash (701,080) (4,373)
Cash at beginning of period 1,851,114 140,519
------------- --------------
Cash at end of period $ 1,150,034 $ 136,146
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-5
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1997 1996
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid for the six months for:
<S> <C> <C>
Interest $ 3,770 $ 8,880
----------- ----------
----------- ----------
Income taxes $ - $ -
----------- ----------
----------- ----------
Schedule of non-cash investing and financing activities:
Accrued dividends on Series 1 preferred stock $ 7,500 $ 7,500
----------- ----------
----------- ----------
Bank note liquidated in exchange for automobile $ 22,703 -
----------- ----------
----------- ----------
Issuance of restricted 66,000 shares of common stock
for deferred financing cost associated with a loan $ - $ 133,000
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 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, 1997 and December
31, 1996 represent the assets and liabilities of HZI and it's
affiliates and the results of their operations and cash flows. 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 one of its wholly-owed subsidiaries, 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 contract medical research services
(principally conducting clinical trials which include "special"
proprietary quantitative Pharmaco-electroencephalogram
(QPEEG-Registered Trademark- studies) for health agencies, other
contract research organizations and pharmaceutical companies (ii)
designing and subcontracting the manufacturing of proprietary
neuropsychiatric diagnostic testing software and equipment, which
currently is their Brain Function Monitoring Systems-Registered
Trademark- (BFM) and selling these to physicians, researchers and
hospitals and (iii) providing telephonic neurological diagnostic
testing services, including electroencephalogram ("EEG") and Dynamic
Brain Mapping-Registered Trademark- to physicians and hospitals known
as TeleMap-Registered Trademark-.
In January 1996, the Company created a new wholly-owed subsidiary
known as Memory Centers of America, Inc. ("MC Inc."). MC Inc. will
provide therapeutic services to people who suffer from memory
impairment. MC Inc. began full operations of the pilot program at the
end of the second quarter of 1996.
During the second quarter, the Company created a new division within
Neuro Corp. Ltd., called Tele-Neuro Pyschiatry ("TNP"). The TNP
division will be responsible for marketing Tele-Neuro Psychiatric
systems which are based on the Company's proprietary software and
hardware equipment. The TNP system will provide data communication
with off-site experts. Furthermore, the Company believes the new TNP
system will be useful for enhancing quality controls in research
programs. The Company is currently utilizing TNP systems at two MC
Inc. pilot centers.
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. See Note 4(b) for additional
information.
F-7
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
NOTE 1 - GENERAL (Cont'd)
The unaudited interim financial statements for the three and six
months ended June 30, 1997 and 1996 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 and six 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, 1996, included in
Form 10-KSB filed with the Securities and Exchange Commission.
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following at:
(Unaudited)
June 30, December 31
1997 1996
----------- -----------
Note payable due in thirty-six
(36) monthly installments of
$6,175 including interest at
prime plus 1% per annum
due May 1997. The note is
collateralized by equipment,
receivables and general
intangible assets and has been
personally guaranteed by certain
officers. $ - $ 31,289
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. - 22,928
Less: current portion - (38,715)
---------- -----------
Long-term portion $ - $ 15,502
---------- -----------
---------- -----------
Long-term debt matures as follows:
Year ended
December 31,
------------
1997 $ 38,715
1998 8,134
1999 7,368
-----------
$ 54,217
-----------
-----------
NOTE 3 - STOCKHOLDERS' EQUITY
a) 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
F-8
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
a) ISSUANCE OF WARRANTS (Cont'd)
per share and the Class C Warrants are exercisable at $2.75 per share,
and were to expire 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 SEC 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. During June 1997 the
Company's Board of Directors extended the June 30, 1997 expiration to
December 31, 1997. As described in Note 3(e), in February 1996, the
Company filed a registration statement in order to register such
warrants.
On March 12, 1997, two (2) shareholders exercised in the aggregate
200,000 Class B Warrants and 200,000 Class C Warrants, which resulted
in the Company receiving proceeds of $600,000 and issuing 400,000
shares of common stock.
b) 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.
F-9
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
b) STOCK OPTION PLAN TRANSACTIONS (Cont'd)
On September 19, 1995, the Company granted to its President and Vice
Chairman a 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.
On December 15, 1995, the Company granted orally 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. On March 26, 1997, the consultant exercised the
stock option and, the Company issued 50,000 shares of restricted
common stock pursuant to the terms of the oral stock option agreement
granted to a consultant on December 15, 1995.
On December 18, 1996, the Company granted qualified stock options to
MC Inc.'s CEO and President, and an Executive Vice-President of the
Company for the purchase of total of 500,000 shares of common stock
exercisable at the lower of $7.00 per share or the fair market value.
The options are exercisable upon vesting and expire on January 6,
2007. On January 6, 1997, 200,000 of such options vested, and the
remaining 300,000 options vest 50% on January 6, 1998 and 50% on
January 6, 1999.
c) 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. TAC and the Company have agreed to extend the due dates
of the above loans to June 30, 1997 or the date the Class B and C
warrants are exercised in their entirety prior to June 30, 1997.
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 fifty
percent (50%) of the fair value of the common stock issued on
July 19, 1995, the date of the agreement. Further, the letter
agreements give TAC the option to convert said loans into 550,000
shares of common stock.
F-10
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
On September 13, 1996 the Company borrowed from TAC $50,000,
which is payable from any future private placement proceeds.
Said loan bears interest at 9.5% per annum. Further the loan
agreement gives TAC the option to convert each $4.00 of debt into
one (1) unit. Each unit will consist of one (1) share of Common
Stock of the Company and two (2) Stock Purchase Warrants. Each
Warrant is exercisable into one (1) share of Common Stock of the
Company at $8.00 per share until August 31, 1997, thereafter
$10.00 per share. The Stock Purchase Warrants expire on August
31, 1998.
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
c) ISSUANCE OF COMMON STOCK AS CONSIDERATION FOR LOANS (Cont'd)
(i) (Cont'd)
Subsequent to year end, the above loans were extended to December
31, 1998 with a revised interest rate of 5% per annum.
Accordingly, as of June 30, 1997, such loans have been classified
as long term.
(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 10(f)), whichever comes first. As
additional consideration the Company issued 66,665 shares of
restrictive common stock. The Company has valued the common
stock at $133,333 or fifty percent (50%) of the fair market value
on May 24, 1996, the date of the transaction. The Company
recorded deferred financing cost and increased stockholders'
equity by $133,333, 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. During June 1997 the original
maturity date of May 24, 1997 was extended to December 15, 1998.
Accordingly, as of June 30, 1997, such loans have been classified
as long term.
d) 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 investors unrelated to the Company 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 canceled by the Company. The
Company has accounted for this as a $100,000 contribution of capital
based upon the fair market 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.
e) 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
F-11
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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 for such costs related to the
registration. Said costs have been deferred and will be charged to
additional paid in capital upon the successful completion of the
registration.
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
f) SALE OF COMMON STOCK
During December 1996, the Company sold 550,000 units for $2,001,068
pursuant to a private placement memorandum to three unrelated parties.
Each unit is comprised of one (1) share of common stock and two (2)
stock purchase warrants. Each warrant entitles the holder to purchase
one (1) share of common stock at $8.00 per share until August 31,
1997, thereafter $10 per share. The warrants expire August 31, 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
a) OPERATING LEASES
The Company leases its office facilities under a noncancellable
operating lease expiring during 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, 1996 is
as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1997 $ 92,557
1998 77,868
------------
$ 170,425
------------
------------
Rent expense under all operating leases for the six months ended June
30, 1997 and 1996 was $62,111 and $56,657, respectively.
b) CONCENTRATION OF CREDIT RISK
For the six months ended June 30, 1997 and 1996, approximately 80% and
60%, respectively, of net sales were derived from four and two
unrelated customers, respectively, who are in the pharmaceutical and
psychiatric industries. As of June 30, 1997 and December 31, 1996,
approximately 75% and 61% respectively, of accounts receivable are due
from three and two unrelated customers, respectively.
c) EMPLOYMENT AGREEMENTS
F-12
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
i) 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 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
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont'd)
c) EMPLOYMENT AGREEMENTS (Cont'd)
i) (Cont'd)
the term life insurance as provided for in the employment
agreement. Effective February 1, 1997, the Company has purchased
life insurance in accordance with the September 20, 1995
employment agreement. The Company has estimated the annual cost
for the initial policy year to be $20,000.
ii) On December 7, 1994, the Company entered into an employment
agreement with an 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.
iii) On December 31, 1996, the Company entered into an employment
agreement with its then Chief Financial Officer providing for a
base salary of $85,000 per year. The agreement expires on
January 1, 2000 and is renewable on a year to year basis
thereafter.
iv) On December 18, 1996, the Company and MC Inc. entered into an
employment agreement with the CEO and President of MC Inc. and an
Executive Vice President of the Company providing for a base
salary of $150,000 in year one, $225,000 in year two and
increasing by the Consumer Price Index ("CPI") change each year
thereafter. The agreement expires on January 1, 2000 and is
renewable on a year to
F-13
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
year basis thereafter. The agreement granted a qualified stock
options for a total purchase of 500,000 shares of common stock
exercisable at the lower of $7.00 per share or the fair market
value. The options are exercisable upon vesting and expire
January 6, 2007. On January 6, 1997, 200,000 of such options
vest and 150,000 options each vest on January 6, 1998 and 1999.
d) CONSULTING AGREEMENT
On July 1, 1995, the Company entered into a five (5) year consulting
agreement with an entity controlled by the Company's former President
and Vice Chairman. Said agreement provided for a fee of $75,000 per
annum. The agreement was amended on July 12, 1996 to provide for a
reduced fee of $30,000 per annum.
NOTE 5 - RELATED PARTY TRANSACTIONS
a) REVENUES FROM AFFILIATES
The Company charges NYI, as well as Manhattan Westchester Medical
Services, P.C. ("Manhattan Westchester") for the use of certain
employees and office and laboratory space (administration services) of
the Company. Manhattan Westchester is also under the common control
of the Company's Chairman. Net revenues from these affiliates for the
six months ended June 30, 1997 and 1996 amounted to $23,708 and
$24,361, 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 Westchester entered into an arrangement
whereby Manhattan Westchester would provide medical consulting
services to HZI's TeleMap business. This arrangement was suspended
during 1995 and reactivated during 1996. No services were provided by
Manhattan Westchester to HZI for the six months ended June 30, 1997
and 1996.
c) STOCKHOLDER NOTES AND LOANS PAYABLE
Stockholder notes and loans payable consisted of the following at:
JUNE
30, 1997 DECEMBER
(UNAUDITED) 31, 1996
------------ ---------
Non-interest bearing loans and
payables, except for $20,000 which
bears interest at 10% per annum
(See (i) below) $ 106,680 $ 108,687
Notes payable bearing an interest
of 5% to 9% (See (ii) and (iii)
below) 450,000 550,000
F-14
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Non-interest bearing loan payable
(See (iv) below) 200,000 200,000
------------ ------------
$ 756,680 $ 858,687
------------ ------------
------------ ------------
i) Stockholder loans payable relates to advances made to HZI and NYI
by its Chairman of the Board which are due on demand.
Furthermore, pursuant to the terms of a note dated January 30,
1996 amounting to $20,000, said note can be converted into 40,000
shares of common stock.
NOTE 5 - RELATED PARTY TRANSACTIONS (Cont'd)
c) STOCKHOLDER NOTES AND LOANS PAYABLE (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. TAC and the Company have agreed to extend the due dates
of the above loans to September 30, 1997 or the date the Class B
and C warrants are exercised in their entirety if prior to
September 30, 1997. 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 fifty percent (50%) of the fair value of the common
stock issued on July 19, 1995, the date of the agreement.
Further, the letter agreements give TAC the option to convert
said loans into 550,000 shares of common stock.
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. (See below for amended maturity
date).
On September 13, 1996 the Company borrowed from TAC $50,000,
which is payable from any future private placement proceeds.
Said loan bears interest at 9.5% per annum. Further the loan
agreement gives TAC the option to convert each $4.00 of debt into
one (1) unit. TAC and the Company have agreed to extend the due
dates of the above loans to September 30, 1997 or the date the
Class B and C Warrants are exercised in their entirety.
Each unit will consist of one (1) share of Common Stock of the
Company and two (2) Stock Purchase Warrants. Each Warrant is
exercisable into one (1) share of Common Stock of the Company at
$8.00 per share until August 31, 1997, thereafter $10.00 per
share. The Stock Purchase Warrants expire on August 31, 1998.
Subsequent to year end, the maturity dates on the above notes
were extended to December 31, 1998 with a revised interest rate
of 5% per annum. Accordingly, as of June 30, 1997, such amounts
have been classified as long term.
F-15
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
iii) On July 16, 1996 the Company entered into two loan agreements
amounting to $200,000 with two unrelated shareholders. Each loan
was for $100,000 and bear interest at 9% per annum and is due
within one (1) year, or from the proceeds of the Company's
securities including the exercise of Class B and C Warrants. On
April 30, 1997 the Company liquidated one loan obligation
amounting to $100,000 and extended the second loan maturity date
to December 15, 1998.
NOTE 5 - RELATED PARTY TRANSACTIONS (Cont'd)
c) STOCKHOLDER NOTES AND LOANS PAYABLE (Cont'd)
iv) 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 on the earlier of one (1) year from May 24, 1996
or out of the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants, whichever comes first.
As additional consideration the Company issued 66,666 shares of
restricted common stock. The Company issued and has valued the
common stock at $133,333 or fifty percent (50%) of the fair value
on May 24, 1996, the date of the transaction. The Company
recorded deferred financing cost and increased stockholders
equity by $133,333, 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. Subsequent to year end, the
original maturity date of May 24, 1997 was extended to December
15, 1998. Accordingly, as of June 30, 1997 such loans have been
classified as long term. For the six months ended June 30,1997
and 1996, amortization expense amounted to $53,515 and $13,152,
respectively. Further, the Company agreed to register said
shares (See Note 3(e)).
v) At June 30, 1997 and December 31, 1996, accrued interest related
to such notes and loans amounted to $54,985 and $36,376,
respectively, and is included in accrued expenses.
d) 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. As of March 31, 1997 such
options have not been exercised.
e) CONSULTING AGREEMENT
On July 1, 1995, the Company entered into a five (5) year consulting
agreement with an entity controlled by the Company's former President
and Vice Chairman. Said agreement provided for a fee of $75,000 per
annum. The agreement was amended on July 12, 1996 to provide for a
reduced fee of $30,000 per annum.
f) CAPITAL CONTRIBUTION
In December 1995, the Company sold 1,000,000 shares of common stock to
four
F-16
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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 canceled 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. (See Note 3(e)).
NOTE 5 - RELATED PARTY TRANSACTIONS (Cont'd)
g) DUE FROM AFFILIATES
The Company charges Manhattan Westchester for the use of certain
employees, laboratory space and management fees related to MC Inc.'s
services. Manhattan Westchester is under the common control of the
Company's Chairman. For the six months ended June 30, 1997 and 1996
such charges amounted to $38,803 and $11,144, respectively. At June
30, 1997 and December 31, 1996, amounts due from Manhattan Westchester
principally for management and administrative services amounted to
$73,238 and $33,495, respectively, which has been included in other
current assets.
F-17
<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. ("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 one of its wholly-owned subsidiaries, 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 contract medical research services
(principally conducting clinical trials which include "special"
proprietary quantitative Pharmaco-electroencephalogram
(QPEEG-Registered Trademark- studies) for health agencies, other
contract research organizations and pharmaceutical companies (ii)
designing and subcontracting the manufacturing of proprietary
neuropsychiatric diagnostic testing software and equipment, which
currently is their Brain Function Monitoring Systems-Registered
Trademark- ("BFM Systems") and selling these to physicians,
researchers and hospitals and (iii) providing telephonic neurological
diagnostic testing services, including electroencephalogram ("EEG")
and Dynamic Brain Mapping-Registered Trademark- to physicians and
hospitals known as TeleMap-Registered Trademark-.
In January 1996, the Company created a new wholly-owned subsidiary,
Memory Centers of America, Inc. ("MC Inc.") to provide therapeutic
services to people who suffer from memory impairment. MC Inc. began
full operations of the pilot program at the end of the second quarter
of 1996. Each facility is estimated to cost between $150,000 to
$200,000 for equipment, leasehold improvements and working capital
which includes administration costs. Revenues from this wholly owned
subsidiary are considered insignificant for the three and six months
ended June 30, 1997.
During the second quarter, the Company created a new division within
Neuro Corp. Ltd., called Tele-Neuro Pyschiatry ("TNP"). The TNP
division will be responsible for marketing Tele-Neuro Psychiatric
systems which are based on the Company's proprietary software and
hardware equipment. The TNP system will provide data communication
with off-site experts. Furthermore, the Company believes the new TNP
system will be useful for enhancing quality controls in research
programs. The Company is currently utilizing TNP systems at two MC
Inc. pilot centers.
THREE MONTHS JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1996
The Company recognized revenue and costs from its contracts under the
percentage of completion method. Cost of revenues include all direct
material and labor costs and those indirect costs related to contract
performance. General and administrative expenses are accounted for as
period costs and are, therefore, not included in the calculation of
the estimates to complete contracts in progress. Changes in each
contracts's 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. The
liability, "Billings in excess of contract revenues on uncompleted
contracts", represent billings in excess of revenues recognized.
Revenue from computer system sales, which include BFM Systems, are
recognized upon the shipment of the turnkey systems. Service revenues
such as TeleMap, are recognized
F-18
<PAGE>
as they are rendered.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996 (Cont'd)
The Company reported a net loss of $390,145 for the three months ended
June 30, 1997 as compared to a net loss of $119,028 for the three
months ended June 30, 1996.
Revenues for the three months ended June 30, 1997 and 1996 amounted to
$311,513 and $408,674, respectively. Revenues decreased by $97,161
or 24% for the three months ended June 30, 1997 as compared to the
three months ended June 30, 1996. Gross profit for the three months
ended June 30, 1997 and 1996 amounted to $188,293 and $227,166
respectively or a net decrease of $38,873. The gross profit
percentages for three months ended June 30, 1997 and 1996 amounted to
60% and 56%, respectively, or a net increase of 4%. The Company
includes in the cost of sale amortization of its database and computer
system product development costs. Commencing, January 1, 1996 the
Company revised its estimate of the useful life of the software
development cost from 17 years to 7 years. This change was made to
better reflect the estimated period during which the assets will
remain in service. For the three months ended June 30, 1997 and 1996
amortization charges amounted to $68,604 and $59,752, respectively,
resulting in a reduction of the Company's overall gross profit
percentage by 22% and 15%, respectively.
Furthermore, the net reduction of sales and gross profit during the
three months ended June 30, 1997 as compared to the three months ended
June 30, 1996 is attributable to the following:
1. The Company has not entered into any major multi million dollar
new long-term contracts since December 31, 1993 and major
contracts recorded prior to this period have been substantially
completed during the December 31, 1995 and 1994 year end. For
the years ended December 31, 1996 and 1995 the Company received
$759,000 and $516,000, respectively, or $1,275,000 of new
contracts. Revenues from contracts for the three months ended
June 30, 1997 as compared to the three months ended June 30, 1996
amounted to $181,228 and $271,103, respectively, or a net
decrease of $89,875. The contract division's low revenues for
the June 30, 1997 and 1996 quarters is attributable to the
Company's lack of major new contracts during the last three
years. Management believes that the drug research industry has
temporarily been negatively impacted due to consolidation in the
pharmaceutical industry, which has resulted in the reduction of
the available pool of new research contracts. The Company
believes that demand for more effective drugs with fewer negative
side effects, in the area of the Company's expertise will
continue to stimulate research activity in the long term.
The gross profit percentage from contracts for the three months
ended June 30, 1997 is 69% as compared to June 30, 1996 which was
59%. The increase in gross profit for the three months ended
March 31, 1997 as compared to the three months ended March 31,
1996, is a result of efficiencies introduced within the contract
division.
As of June 30, 1997 the Company contract division had a backlog
of approximately $355,000 from uncompleted contracts. The
Company expects to realize a minimum of $220,000 through the
remainder of 1997 from said contracts.
F-19
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996 (CONT'D)
1. (Cont'd)
The contract research division during the December 31, 1996 year
end performed significant work for a major foreign customer,
resulting in a large increase in their accounts receivable.
During the fourth quarter of the 1996 calendar year, the Company
completed the statistical report for the foreign customer and
collected the remaining portion of the outstanding receivable
from September 30, 1996 which amounted to $50,000. As of June
30, 1997, the receivable amounts from this foreign customer for a
second contract amounted to $220,700 and is expected to be
collected during the fourth quarter. The foreign customer has
amended the second contract to include additional patients, which
has resulted in a change of the estimated completion date from
December 1996 to during the fourth quarter 1997.
2. Net sales of BFM Systems for the three months ended June 30, 1997
and 1996 amounted to $28,884 and $82,085, respectively or a net
decrease of $53,201. Gross profit amounts for the three months
ended June 30, 1997 amounted to a negative $3,686 whereas for the
three months ended June 30, 1996, the gross profit amounted to
$59,922 or a net decrease of $63,608. As noted previously, the
Company changed its amortization of software development costs,
resulting in an increased charge to the BFM Systems division.
Amortization expense for three months ended June 30, 1997 and
1996 amounted to $25,043 and $18,462, respectively. During the
last twelve months for the period ended June 30, 1997, the
Company has not sold any major BFM Systems. The Company
management is revising its marketing strategy and believes the
lack of sales is temporary.
3. Revenues of the TeleMap division for the three months ended June
30, 1997 and 1996 amounted to $25,928 and $30,459, respectively.
Gross profit percentage for the three months ended June 30, 1997
and 1996 amounted to 45% and 69%, respectively due to an increase
in labor costs.
4. Pilot memory center management fees and other revenues for the
three months ended June 30, 1997 amounted to $6,000. However,
the Company, during the second quarter, reduced certain excess
revenue accruals recorded during the first quarter and thus
reduced second quarter revenues by $5,629 to $371. This revenue
was derived entirely from Manhattan Westchester Medical Services,
P.C. ("Manhattan Westchester") through a pilot program conducted
under the management of MC Inc.. Manhattan Westchester is a
medical practice that is controlled by the Company Chairman.
While MC Inc. does not receive any direct insurance
reimbursements, it does receive a management fee from Manhattan
Westchester. Insurance reimbursements are received by the
medical practice conducting the program based on rates
established by third party payors which are in turn based on the
number of visits and type of service performed.
5. The TNP division completed its first sale amounting to $75,102
during the second quarter ended June 30, 1997. Costs in
connection with this sale, principally amortization of software
development costs allocated to the TNP division from the BFM
Systems division amounted to $21,093. Gross profit on this sale
amounted to $54,009 or 72%.
F-20
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996 (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 products 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 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, 1997 were $524,718 as compared to the three months ended June 30,
1996 of $307,554 or an increase of $217,164 or 71%. The increase in
general and administrative expenses for the three months ended June
30, 1997 is due to the Company increasing its development costs for
its new subsidiary, MC Inc. by $249,678 as compared to the three
months ended June 30, 1996. The intended business of MC Inc. is to
manage and distribute through professional medical practitioners a
program that will evaluate and treat mild memory disturbances.
Research and development costs ("R&D") for the three months ended June
30, 1997 were $34,653 as compared to the three months ended June 30,
1996 of $17,218 or an increase of $17,435. The increase in R&D costs
is principally payroll allocated to R&D for new drug development.
Commencing July 19, 1995 through September 13, 1996, the Company
borrowed approximately $700,000 net of repayments from their
shareholders and their affiliates. These loans were used principally
to finance losses from operations. As a result of these additional
borrowings, interest expense for the three months ended June 30, 1997
as compared to the three months ended June 30, 1996 increased by
$6,984.
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, whichever comes first. As consideration for such loan the
company issued 66,665 shares of restricted common stock. The Company
has valued the common stock at $133,333 or fifty percent (50%) of the
fair value on May 24, 1996, the date of the transaction. The Company
recorded deferred financing costs and increased stockholders' equity
by $133,333 for this transaction. The deferred financing costs are
being amortized over one year, which was the maximum term of the loan,
or will be charged to operations if paid prior to May 24, 1997. The
implicit rate of interest for this loan is 67% per year before any
extensions. At the time of the loan from such stockholder, the
Company was unable to borrow at lower interest rates due to its
financial condition and the size of the loan. Accordingly, management
considered the importance to the Company of obtaining such funding
which in its opinion outweighed the cost, particularly since the costs
of issuing its securities did not impair the Company's cash flows
since such costs did not involve the outlay of Company funds. The
Company, during the second quarter ended June 30, 1997 negotiated an
extension of this loan to December 15, 1998.
F-21
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
SIX MONTHS JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996
The Company recognized revenue and costs from its contracts under the
percentage of completion method. Cost of revenues include all direct
material and labor costs and those indirect costs related to contract
performance. General and administrative expenses are accounted for as
period costs and are, therefore, not included in the calculation of
the estimates to complete contracts in progress. Changes in each
contracts's 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. The
liability, "Billings in excess of contract revenues on uncompleted
contracts", represent billings in excess of revenues recognized.
Revenue from computer system sales, which include BFM Systems, are
recognized upon the shipment of the turnkey systems. Service revenues
such as TeleMap, are recognized as they are rendered.
The Company reported a net loss of $659,223 for the six months ended
June 30, 1997 as compared to a net loss of $313,067 for the six months
ended June 30, 1996.
Revenues for the six months ended June 30, 1997 and 1996 amounted to
$587,000 and $791,122, respectively. Revenues decreased by $204,122
or 26% for the six months ended June 30, 1997 as compared to the six
months ended June 30, 1996. Gross profit for the six months ended
June 30, 1997 and 1996 amounted to $293,937 and $408,228, respectively
or a net decrease of $114,291. Gross profit percentage for six months
ended June 30, 1997 and 1996 amounted to 50% and 52%, respectively, or
a net decrease of 2%. The Company includes in the cost of sale
amortization of its database and computer system product development
costs. Commencing, January 1, 1996 the Company revised its estimate
of the useful life of the software development cost from 17 years to 7
years. This change was made to better reflect the estimated period
during which the assets will remain in service. For the six months
ended June 30, 1997 and 1996 amortization charges amounted to $135,805
and $128,800, respectively, resulting in a reduction of the Company's
overall gross profit percentage by 23% and 16%, respectively.
Furthermore, the net reduction of sales and gross profit during the
six months ended June 30, 1997 as compared to the six months ended
June 30, 1996 is attributable to the following:
1. The Company has not entered into any major new long-term (over
two years) contracts since December 31, 1993 and major contracts
recorded prior to this period have been substantially completed
during the December 31, 1995 and 1994 year end. For the years
ended December 31, 1996 and 1995 the Company received $759,000
and $516,000, respectively, or $1,275,000 of new contracts.
Revenues from contracts for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 amounted to
$393,100 and $476,964, respectively, or a net decrease of
$83,864. The contract division's low revenues for the June 30,
1997 and 1996 period is attributable to the Company's lack of
major new contracts during the last six years. Management
believes that the drug research industry has temporarily been
negatively impacted due to consolidation in the pharmaceutical
industry, which has resulted in the reduction of the available
pool of new research contracts. The Company believes that demand
for more effective drugs with fewer negative side effects, in the
area of the Company's expertise will continue to stimulate
research
F-22
<PAGE>
activity in the long term.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
SIX MONTHS JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996 (Cont'd)
1. (Cont'd)
The gross profit percentage from contracts for the six months
ended June 30, 1997 is 64% as compared to June 30, 1996 which
was 47%. The increase in gross profit for the six months ended
March 31, 1997 as compared to the six months ended June 30, 1996,
is a result of efficiencies introduced within the contract
division.
2. Net sales of BFM Systems for the six months ended June 30, 1997
and 1996 amounted to $53,278 and $232,685, respectively or a net
decrease of $179,407. Gross profit amounts for the six months
ended June 30, 1997 amounted to a negative $50,194 whereby for
the six months ended June 30, 1996, the gross profit amounted to
$140,967 or a net decrease of $191,161. As noted previously, the
Company changed its amortization of software development costs,
resulting in an increased charge to the BFM Systems division.
Amortization expense for six months ended June 30, 1997 and 1996
amounted to $70,617 and $89,200, respectively. During the last
twelve months for the period ended June 30, 1997, the Company has
not sold any major BFM systems. The Company management is
revising its marketing strategy and believes the lack of sales is
temporary.
3. Revenues of the TeleMap division for the six months ended June
30, 1997 and 1996 amounted to $50,520 and $56,446, respectively.
Gross profit percentage for the six months ended June 30, 1997
and 1996 amounted to 48% and 54%, respectively due to a slight
increase in labor costs.
4. Pilot memory centers revenue for the six months ended June 30,
1997 amounted to $15,000. This revenue was derived entirely from
Manhattan Westchester through a pilot program conducted under the
management of MC Inc.. Manhattan Westchester is a medical
practice that is controlled by the Company's Chairman. While MC
Inc. does not receive any direct insurance reimbursements, it
does receive a management fee from Manhattan Westchester.
Insurance reimbursements are received by the medical practice
conducting the program based on rates established by third party
payors which are in turn based on the number of visits and type
of service performed.
The TNP division completed its first sale amounting to $75,102
during the second quarter ended June 30, 1997. Costs in
connection with this sale, principally amortization of software
development costs allocated to the TNP division from the BFM
Systems division amounted to $21,093. Gross profit on this sale
amounted to $54,009 or 72%.
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 products 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 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.
F-23
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1996 (Cont'd)
General and administrative expenses for the six months ended June 30,
1997 were $844,765 as compared to the six months ended June 30, 1996
of $521,650 or an increase of $323,115 or 62%. The increase in
general and administrative expenses for the six months ended June 30,
1997 is due to the Company increasing its development costs for its
new subsidiary, Memory Centers of America, Inc. ("MC Inc.") by
$294,033 as compared to the six months ended June 30, 1996. The
intended business of MC Inc. is to manage and distribute through
professional medical practitioners a program that will evaluate and
treat mild memory disturbances.
Research and development costs ("R&D") for the six months ended June
30, 1997 were $52,128 as compared to the six months ended June 30,
1996 of $45,184 or an increase of $6,944.
Commencing July 19, 1995 through September 13, 1996, the Company
borrowed approximately $700,000 net of repayments from their
shareholders and their affiliates. These loans were used principally
to finance losses from operations. As a result of these additional
borrowings, interest expense for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 increased by $43,319.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 and December 31, 1996, the Company had working
capital of $1,464,877 and $1,082,613, respectively. The $382,264 net
increase in working capital for the six months ended June 30, 1997 as
compared to the year ending December 31, 1996 is the result of the
Company raising $600,000 from the exercise of warrants during March
1997. These funds were used to supplement the Company's working
capital. Furthermore, the Company, during the quarter ended June 30,
1997 obtained agreements to extend $650,000 of stockholder loans to
December 15, 1998, thereby increasing the Company's working capital by
said amount.
For the six months ended June 30, 1997 and 1996, the Company used cash
for operations of $790,120 and $445,317, respectively, resulting in
increased use of cash for operations by $344,803. The net increase
for the six months ended June 30, 1997 is the result of loss from
operations amounting to $659,223 as compared to the loss from
operations for the six months ended June 30, 1996 of $313,067. As
noted previously, the Company's sales for the six months ended June
30, 1997 were $204,122 less than the June 30, 1996 period, principally
from the BFM Systems division. Additionally, the Company changed its
amortization policy for computer system product development costs
effective January 1, 1996 resulting in an additional non-cash charge
to operation of $125,745 for the six months ended June 30, 1996.
F-24
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
The Company increased its development costs expenditures by $294,033
for its new subsidiary, MC Inc. for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996. The effect of
these items, excluding the non-cash charge to the June 30, 1996
operations for additional amortization resulting from the change in
the Company's amortization policy, increased the loss from operations
by $498,155.
For the six months ended June 30, 1997 and 1996 cash used by
investing activities amounted to $240,701 and $75,588, respectively,
or a net increase in use of cash of $165,138. The increased use in
cash for investing activities for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996 was attributable to
the following: (i) purchase of equipment and fixtures amounting to
$52,517, (ii) $17,656 increase in database development costs and (iii)
costs incurred in organizing memory centers amounting to approximately
$100,000. The increase in the database development costs was the
result of a large amount of EEG studies inputted into the database.
The Company during the six months ended June 30, 1997 purchased
equipment and incurred organization costs amounting to approximately
$165,975 principally for its new subsidiary MC Inc. The organization
costs expenditures were in connection with future operating sites,
legal documentation etc.
For the six months ended June 30, 1997 and 1996 cash provided by
financing activities amounted to $329,741 and $516,532, respectively.
For the six months ended June 30, 1997 the Company received $600,000
in connection with the exercise of 200,000 Class B and 200,000 Class C
warrants, which resulted in the Company issuing 400,000 shares of
common stock. During March 1996 the Company sold 1,000,000 shares of
common stock for $400,000 to foreign investors utilizing regulations
"S" guidelines. Furthermore, during the six months ended June 30,
1996 the Company repaid a line of credit which amounted to $50,000 and
borrowed from shareholder $227,630 net of repayments. On April 30,
1997 the Company repaid a shareholder loan amounting to $100,000. The
Company incurred registration costs for the six months ended June 30,
1997 and 1996 amounting to $114,035 and $25,046, respectively, in
connection with registering shares of common stock and warrants
pursuant to contractual obligations with certain stockholders. At
June 30, 1997 and 1996, the Company accrued $7,500 of dividends for
Series 1 preferred stock as required under terms of the preferred
stock.
At June 30, 1997 the Company's outstanding debt with respect to
borrowings amounted to $756,680. The Company expects to repay, and in
some cases is obligated to repay, such debt from the first proceeds
received upon the exercise of the Class B and C Warrants. If such
proceeds are insufficient, the Company expects to be able to make
repayments from internally generated funds or additional public or
private sales of its securities.
F-25
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENTS'S PLAN
Since 1974, the Company has conducted a series of research programs
and studies on memory-enhancing drugs. In these programs, a series of
tests have been used which may assist in the establishment of the
cause and degree of memory disturbances. Furthermore, the Company
provides telephonic services to assist in diagnosis of brain
disorders. These services were enhanced with new hardware and
software. The Company has been developing tele-neuropsychiatry
systems to be applied in multinational clinical trials. The existing
hardware/software for these systems was also modified to assist in the
diagnosis of memory disturbances. The Company also has databases that
contain data from patients in several diagnostic categories and from
the computer-analyzed EEG (CEEG-Registered Trademark-) profiles of
numerous neuropsychiatric medications. The databases related to
memory disturbances (e.g., age-associated memory disturbance and
different types of dementia, such as Alzheimer's) and to memory drugs
(e.g., cognitive activators, psychostimulants, anti-Alzheimers' drugs)
were prepared to assist doctors in the diagnosis and treatment of
memory disturbances.
All of this work set the stage to form a wholly-owned subsidiary, MC
Inc. To test the validity and reliability of the Company's
proprietary hardware and software in day to day practice and to
provide multi-disciplinary diagnostic and therapeutic help for people
who suffer from memory impairment, the Company has established three
"Memory Centers -TM- " in collaboration with Manhattan Westchester, in
New York City (Manhattan and Brooklyn) and Tarrytown, New York as
pilot centers. The Company intends to have 5 to 10 Memory Centers
opened by the calendar year end 1997. These centers are to be
operated under expert medical supervision which will include
up-to-date diagnostic tools so as to provide the best available
treatment. In January 1997, the Company hired an experienced
executive as President and CEO of MC Inc.
The intended development of these Memory Centers-TM- requires
substantial amounts of capital without any assurance that they will be
successful. Depending on size and location, the Company estimates
that each facility would require between $150,000 and $200,000 for
equipment, leasehold improvements, and working capital, including
corporate overhead attributable to operating the Memory Centers.
Therefore, the Company estimates that its short term capital
requirements for 10 fully functioning Memory Centers will be in the
range of $1,500,000 to $2,000,000.
During December 1996, the Company completed a private placement of its
securities which provided $2,001,618. Approximately 60% of the
proceeds of this private placement are intended to be used for the
initial development and expansion of Memory Centers-TM- , including
advertising, working capital and new management. The Company intends
to set up 100 centers within the next 5 years if additional capital
can be raised. Long term capital requirements for these centers based
on the same assumptions as set forth above, could range
F-26
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENTS'S PLAN (Cont'd)
from $15,000,000 to $20,000,000. The Company intends to raise such
capital through public and private sale of its securities as well as
by debt financing. Additionally the Company is exploring joint
ventures and strategic alliances with other companies. No assurance
can be given that such capital will be raised or that strategic
alliances or joint ventures will be formed.
The Company demonstrated and reported in a scientific periodical that
a double dose of a plant extract product sold by the Company's largest
customer has more CNS effects and thus, should be more therapeutically
effective than that of the current marketed dose. This customer has
made new commitments to the Company. In this connection the Company
received from this customer, as of December 31, 1996, $100,000 to
support the efforts of an Advisory Committee of a prominent
international health organization to develop an Alzheimer's Study
protocol, as well as commitments for $285,000 to continue its work on
the plant extract product. Management believes that this recent
significant support by the Company's largest customer will have a
positive effect on future business. The Company, during the fourth
quarter of 1996, also obtained a new contract ($140,000) from a U.S.
pharmaceutical company to conduct a QPEEG study.
In January, 1995, the Company entered into a joint venture arrangement
with Tena, Ltd. in Istanbul, Turkey, for the purpose of further
research and development of the Company's products and the marketing
and sales of its products in the Mid-East, former U.S.S.R. countries
and in other geographical areas in which the Company has no
distribution. Each project assigned to the joint venture requires a
statement of work to be completed, and a budget with funding
responsibility to be decided by the respective parties. The Company
entered into this joint venture anticipating that certain of its
products could be developed by the joint venture at a cost below that
attainable in the United States. While no development work has been
assigned to Tena to date, Tena is involved in marketing the Company's
products. Accordingly, there are at present no capital or other
funding requirements anticipated with respect to this venture.
The Company intends to submit 510(k) applications to the FDA between
the latter part of 1997 and mid 1998 with respect its EEG/EP
Amplifier, HZI Electrode Headset and Digital EEG System Software. Two
of the products require improved prototypes and the software product
is in the final testing stage. The aggregate cost for finishing the
products and completing the 510(k) applications is estimated at
$70,000, which funds will be derived from currently available working
capital raised in a recent private offering.
The Company will meet its future cash requirements for its general
corporate overhead for at least the next twelve months through cash
flow from operations based on its current contract backlog amounting
to $355,000 at June 30, 1997, future contracts currently under
negotiation and the balance of the $2,601,618 received during December
1996 and March 1997 as a result of selling units in a private
placement and the exercise of warrants as previously discussed.
F-27
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENTS'S PLAN (Cont'd)
The Company does not presently have any long term capital commitments
for its HZI and general corporate operations and does not expect to
have major capital expenditures for these activities.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("Act") provides
a safe harbor for forward-looking information made on behalf of the
Company. All statements, other than statements of historical facts,
which address the Company's expectations of sources of capital or
which express the Company's expectation for the future with respect to
financial performance or operating strategies can be identified as
forward-looking statements. Forward-looking Statements made by the
Company are based on knowledge of the environment in which it
operates, but because of the factors previously listed, as well as the
factors beyond the control of the Company, actual results may differ
materially from the expectations expressed in the forward-looking
statements.
F-28
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Defaults Upon Senior Securities:
None
ITEM 4 - Submission of Matters to a Vote of Security Holders:
None
ITEM 5 - Other Information:
None
ITEM 6 - Exhibits and Reports on Form 8-K:
a) Exhibits
None
b) Reports on Form 8-K
None
F-29
<PAGE>
SIGNATURE
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 18, 1997 By: /s/ Joseph J. DioGuardi
------------------------ ------------------------
Joseph J. DioGuardi
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 1 of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,150,034
<SECURITIES> 0
<RECEIVABLES> 519,993
<ALLOWANCES> 0
<INVENTORY> 22,594
<CURRENT-ASSETS> 1,912,097
<PP&E> 126,125
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,072,896
<CURRENT-LIABILITIES> 447,220
<BONDS> 0
<COMMON> 18,874
0
400,000
<OTHER-SE> 2,292,802
<TOTAL-LIABILITY-AND-EQUITY> 4,072,896
<SALES> 311,513
<TOTAL-REVENUES> 311,513
<CGS> 123,220
<TOTAL-COSTS> 123,220
<OTHER-EXPENSES> 559,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,367
<INCOME-PRETAX> (391,445)
<INCOME-TAX> (1,300)
<INCOME-CONTINUING> (390,145)
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<NET-INCOME> (390,145)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
