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 September 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
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 10591
(Address of principal executive offices) (Zip Code)
(914) 631-3315
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be
filed by section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a
court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date:
8,173,806 Shares as of September 30, 1997.
NEUROCORP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART 1 - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
Page
number
Consolidated balance sheets at September 30, 1997
(unaudited)and December 31, 1996 1
Consolidated statements of operations (unaudited)
for the three months ended September 30, 1997 and 1996 2
Consolidate statements of operations (unaudited)
for the nine months ended September 30, 1997 and 1996 3
Consolidated statement of stockholders' equity (unaudited)
for the nine months ended September 30, 1997 4
Consolidated statements of cash flows (unaudited)
for the nine months ended September 30, 1997 and 1996 5 - 6
Notes to consolidated financial statements 7 - 17
ITEM 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 18 - 26
PART II - OTHER INFORMATION 27
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September December
30, 1997 31, 1996
---------- ----------
Current assets:
Cash $ 314,952 $1,851,114
Accounts receivable, net of allowance for
doubtful accounts of $24,301 at September
30, 1997 and $468,000 at December 31, 1996 909,153 550,163
Inventory 95,448 29,356
Prepaid expenses and taxes 74,034 36,982
Deferred financing costs - 53,516
Other current assets 62,632 84,445
---------- ----------
Total current assets 1,456,219 2,605,576
---------- ----------
Equipment and fixtures, net 173,383 83,549
---------- ----------
Other assets:
Database development costs, net 1,248,275 1,264,018
Computer system product development costs, net 403,047 496,518
Deferred registration costs 114,035 -
Other 280,071 130,703
---------- ----------
Total other assets 2,045,428 1,891,239
---------- ----------
Total assets $3,675,030 $4,580,364
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 172,890 $ 166,232
Accrued expenses 169,695 176,503
Stockholder notes and loans payable 106,506 858,687
Income taxes payable 2,004 6,400
Current portion of long-term debt - 38,715
Billings in excess of costs and estimated
earnings on uncompleted contracts 83,080 276,426
---------- ----------
Total current liabilities 534,175 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 1,448,175 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 (2,139,056) (987,512)
---------- ----------
Total stockholders' equity 2,226,855 2,777,899
---------- ----------
Total liabilities and stockholders' equity $3,675,030 $4,580,364
========== ==========
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1996
---------- ----------
Net sales $ 439,431 $ 194,593
Cost of sales, including amortization expense
of $68,197 and $45,300 respectively 173,103 143,939
---------- ----------
Gross profit 266,328 50,654
Expenses:
General and administrative expenses 708,366 289,753
Research and development 36,789 26,051
Cumulative effect of change in accounting
estimate - 182,235
---------- ----------
Total expenses 745,155 498,039
---------- ----------
Loss from operations before other income
(expense) and income tax expense (478,827) (447,385)
Other income (expense):
Interest income 5,420 2,587
Interest expense (7,499) (45,282)
---------- ----------
Loss before income tax benefit (480,906) (490,080)
Income tax (benefit) (165) -
---------- ----------
Net loss $ (481,071) $ (490,080)
========== ==========
Net loss applicable to common shares $ (484,821) $ (493,830)
========== ==========
Loss per common equivalent share:
Primary:
Loss before income tax benefit $ (.06) $ (.07)
Income tax benefit - -
---------- ----------
Net loss $ (.06) $ (.07)
========== ==========
Net loss applicable to common shares $ (.06) $ (.07)
========== ==========
Weighted average number of shares outstanding 8,173,806 7,173,807
========== ==========
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1996
----------- ----------
Net sales $ 1,026,431 $ 985,715
Cost of sales, including amortization expense
of $204,591 and $135,900 respectively 466,166 488,633
----------- ----------
Gross profit 560,265 497,082
Expenses:
General and administrative expenses 1,553,296 811,403
Research and development 88,917 71,235
Cumulative effect of change of accounting
estimate - 182,235
----------- ----------
Total expenses 1,642,213 1,064,873
----------- ----------
Loss from operations before other income
(expense) and income tax expense (1,081,948) (567,791)
Other income (expense):
Interest income 27,128 8,527
Interest expense (85,474) (79,938)
----------- ----------
Loss before income tax expense (1,140,294) (639,202)
Income tax expense - -
Net loss $(1,140,294) $ (639,202)
Net loss applicable to common shares $(1,151,544) $ (650,452)
Loss per common equivalent share:
Primary:
Loss before income tax expense $ (.14) $ (.09)
Income tax expense - -
Net loss $ (.14) $ (.09)
Net loss applicable to common shares $ (.14) $ (.10)
Weighted average number of shares outstanding 8,068,250 6,924,548
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Addi- Total
Preferred Stock Class B tional Contri- (Accu- Stock-
Series 1 Series 2 Common Stock Paid-in buted mulated holders'
Shares Amount Shares Amount Shares Amount Capital Capital Deficit) Equity
------- -------- ------- -------- --------- ------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 150,000 $150,000 250,000 $250,000 7,723,806 $18,424 $3,246,987 $100,000 $ (987,512) $2,777,899
Accrued preferred
stock dividend - - - - - - - - (11,250) (11,250)
Issuance of common
stock in connection
with exercise of
warrants - - - - 400,000 400 599,600 - - 600,000
Issuance of common
stock in connection
with exercise of
stock option - - - - 50,000 50 450 - - 500
Net loss for the
nine months ended
September 30, 1997 - - - - - - - - (1,140,294) (1,140,294)
------- -------- ------- -------- --------- ------- ---------- -------- ----------- ----------
Balances at September
30, 1997 150,000 $150,000 250,000 $250,000 8,173,806 $18,874 $3,847,037 $100,000 $(2,139,056) $2,226,855
======= ======== ======= ======== ========= ======= ========== ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1996
----------- ----------
Cash flows for operating activities:
Net loss from operations $(1,140,294) $ (639,202)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 235,329 160,311
Amortization of deferred financing costs 53,516 46,485
Cumulative effect of change in accounting
estimate - 182,235
Decrease (increase) in:
Accounts receivable (358,990) (471,009)
Inventory (66,092) (4,898)
Prepaid expenses and taxes (37,052) 19,286
Other current assets 21,813 16,369
Increase (decrease) in:
Accounts payable 6,658 54,850
Accrued expenses (6,808) 5,409
Income taxes payable (4,396) (6,997)
Billings in excess of costs and estimated
earnings on uncompleted contracts (193,346) (26,960)
----------- ----------
Net cash flows used for operating activities (1,489,662) (664,121)
----------- ----------
Cash flows for investing activities:
Purchase of equipment and fixtures (132,983) (28,365)
Database development costs capitalized (95,376) (71,682)
Patent cost capitalized - (2,150)
Computer system development costs capitalized - (2,277)
Other assets (149,368) -
Proceeds from sale of automobile 1,660 -
----------- ----------
Net cash flows used for investing activities (376,067) (104,474)
----------- ----------
Cash flows from financing activities:
Employee loans and advances - (2,800)
Repayments of demand note - line of credit - (50,000)
Repayment of stockholders loans (102,181) (96,520)
Proceeds from stockholders loans - 575,000
Principal payments on long-term debt (54,217) (54,068)
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 329,567 746,566
----------- ----------
Net decrease in cash (1,536,162) (22,029)
Cash at beginning of period 1,851,114 140,519
----------- ----------
Cash at end of period $ 314,952 $ 118,490
=========== ==========
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1996
----------- ----------
Supplemental disclosures of cash flow
information:
Cash paid for the nine months for:
Interest $ 23,413 $ 11,691
=========== ==========
Income taxes $ - $ 8,526
=========== ==========
Schedule of non-cash investing and financing
activities:
Accrued dividends on Series 1 preferred stock $ 11,250 $ 11,250
=========== ==========
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 $ - $ 133,333
=========== ==========
See accompanying notes to consolidated financial statements (unaudited).
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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
September 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 is primarily involved in two business: it
performs contract medical research for health agencies,
research organizations and pharmaceutical companies,
and it owns, operates or manages a group of facilities
that diagnose and treat memory disorders. In addition,
as an outgrowth of its research activities, the Company
also designs diagnostic testing software and equipment
for neuropsychiatric applications and the Company
perform neurological testing services for hospital and
physicians. The Company conducts these activities
through two wholly-owned subsidiaries. In November
1994, the Company acquired all of the issued and
outstanding shares of HZI Research Center, Inc., a New
York corporation ( HZI ). HZI conducts contract
research, designs diagnostic software and equipment and
performs neurological testing services. In March 1996,
the Company established Memory Centers of America,
Inc., a Delaware corporation ( MCAI ). MCAI owns and
operates a network of pilot facilities, Memory
Centers , that treat memory disorders. MCAI 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 nine months ended September 30, 1997.
During the second quarter of 1997, the Company created
a new division within Neuro Corp. Ltd., called Tele-
Neuro Psychiatry ( TNP ). The TNP division will be
responsible for marketing Tele-Neuro Psychiatry 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
MCAI 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
The unaudited interim financial statements for the
three and nine months ended September 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 nine 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)
September 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 April 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 as discussed in Note 1, the
Board of Directors of the Company 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 were
exercisable at $2.25 per share and the Class C Warrants
were 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 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.
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 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.
On December 18, 1996, the Company granted qualified
stock options to MCAI s CEO and President, and an
Executive Vice-President of the Company for the
purchase of 500,000 shares of common stock exercisable
at the lower of $7.00 per share or fair market value.
The options are exercisable upon vesting and expire
January 6, 2007. 200,000 of such options vest on
January 6, 1997, 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 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 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.
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
September 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,
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
were amortized over one year, which is the maximum
term of the loan. During June 1997 the original
maturity date of May 24, 1997 was extended to
December 15, 1998. Accordingly, as of September
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 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.
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 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 nine
months ended September 30, 1997 and 1996 was $94,680
and $91,811, respectively.
b) Concentration of credit risk
For the nine months ended September 30, 1997 and 1996,
approximately 44% and 62%, respectively, of net sales
were derived from three and two unrelated customers,
respectively, who are in the pharmaceutical and
psychiatric industries. As of September 30, 1997 and
December 31, 1996, approximately 54% and 61%
respectively, of accounts receivable are due from
three and two unrelated customers, respectively.
c) Employment Agreements
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.
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 MCAI entered
into an employment agreement with the CEO and
President of MCAI 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 year basis thereafter.
The agreement provides for 500,000 qualified stock
options for purchase of common stock exercisable at
the lower of $7.00 per share or 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 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 under the common control of the
Company's Chairman. Net revenues from Manhattan
Westchester for the nine months ended September 30,
1997 and 1996 amounted to $23,803 and $24,361,
respectively.
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 medical consulting
services were provided by Manhattan Westchester to HZI
for the nine months ended September 30, 1997.
c) Stockholder notes and loans payable
Stockholder notes and loans payable consisted of the
following at:
September
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) $106,506 $108,687
Notes payable bearing an
interest of 5% to 9% (See
(ii) and (iii) below) 450,000 550,000
Non-interest bearing loan
payable (See (iv) below) 200,000 200,000
-------- --------
$756,506 $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.
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.
During 1997, 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
September 30, 1997, such amounts have been
classified as long term.
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.
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 September 30, 1997 such loans
have been classified as long term. For the nine months
ended September 30,1997 and 1996, amortization expense
amounted to $53,515 and $44,444, respectively.
Further, the Company agreed to register said shares
(see Note 3(e)).
v) At September 30, 1997 and December 31, 1996,
accrued interest related to such notes and loans
amounted to $62,061 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 September 30, 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 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)).
g) Due from affiliates
The Company charges Manhattan Westchester for the use
of certain employees, laboratory space and management
fees related to MCAI s services. Manhattan Westchester
is under the common control of the Company's Chairman.
At September 30, 1997 and December 31, 1996, amounts
due from Manhattan Westchester principally for
management and administrative services amounted to
$13,764 and $33,495, respectively, which have been
included in other current assets.
NOTE 6 - SUBSEQUENT EVENT
During October 1997, the Company received an additional
$600,000 of capital in connection with the exercise of
its Class B and C Warrants.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company was incorporated in the State of Nevada on
March 18, 1987 with the name Tamarac Ventures, Ltd. 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 to NeuroCorp, Ltd. and to reduce its
authorized common stock from 200,000,000 shares to
100,000,000 shares and to authorize 5,000,000 shares of
preferred stock.
The Company is primarily involved in two businesses: it
performs contract medical research services for health
agencies, research organizations and pharmaceutical
companies, and it owns, operates or manages a group of
facilities that diagnose and treat memory disorders.
In addition, as an outgrowth of its research
activities, the Company also designs diagnostic testing
software and equipment for neuropsychiatric
applications and the Company performs neurological
testing services for hospitals and physicians. The
Company conducts these activities through two wholly-
owed subsidiaries. In November 1994, the Company
acquired all of the issued and outstanding shares of
HZI Research Center, Inc., a New York corporation
( HZI ). HZI conducts contract research, designs
diagnostic software and equipment and performs
neurological testing services. In March 1996, the
Company established Memory Centers of America, Inc., a
Delaware corporation ( MCAI ). MCAI owns and operates
a network of pilot facilities, Memory Centers , that
treat memory disorders. MCAI began full operation of
the pilot program at the end of the second quarter of
1996. The Company will only own and operate the non-
medical aspects of a memory center and will not provide
any medical services. 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 nine months ended September 30, 1997.
During the second quarter, the Company created a new
division within NeuroCorp Ltd., called Tel-Neuro
Psychiatry ( 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 MCAI pilot centers. In September
1997, Drs. Itil and Le Bars and Mr. Eralp received a
patent for certain data collection, analysis and
transmission procedures that the TNP system relies
upon. This patent will be assigned to the Company.
The Company recognizes 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.
Three months ended September 30, 1997 as compared to
the three months ended September 30, 1996
The Company reported a net loss of $481,071 for the
three months ended September 30, 1997 as compared to a
net loss of $490,080 for the three months ended
September 30, 1996.
Revenues for the three months ended September 30, 1997
and 1996 amounted to $439,431 and $194,593,
respectively. Revenues increased by $244,838 or 125%
for the three months ended September 30, 1997 as
compared to the three months ended September 30, 1996.
Gross profit for the three months ended September 30,
1997 and 1996 amounted to $266,328 and $50,654,
respectively or a net increase of $215,674. 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 September 30, 1997 and 1996 amortization
charges amounted to $68,197 and $45,300, respectively.
The Company has not entered into any new major multi
million dollar 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 September 30, 1997 as compared to the
three months ended September 30, 1996 amounted to
$85,047 and $133,984, respectively, or a net decrease
of $48,937. The contract division s low revenues for
the September 30, 1997 and 1996 quarters is
attributable to the Company s lack of major new
contracts. Management believes that the contract
research industry has been temporarily 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 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 September 30, 1997, the receivable
amounts from this foreign customer for a second
contract amounted to approximately $220,000 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.
Three months ended September 30, 1997 as compared to
the three months ended September 30, 1996 (Cont d)
Net sales of BFM Systems for the three months ended
September 30, 1997 and 1996 amounted to $14,978 and
none, respectively. Gross profit amounts for the three
months ended September 30, 1997 amounted to a negative
$72,264 whereas for the three months ended September
30, 1996, the gross profit amounted to a negative
$35,856 or a net decrease of $36,408. 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 September 30, 1997 and
1996 amounted to $35,770 and $44,600, respectively.
During the last twelve months for the period ended
September 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.
Revenues of the TeleMap division for the three months
ended September 30, 1997 and 1996 amounted to $45,981
and $34,933, respectively. Gross profit percentage for
the three months ended September 30, 1997 and 1996
amounted to 25% and 36%, respectively due to an
increase in labor costs.
Pilot memory center management fees and other revenues
for the three months ended September 30, 1997 amounted to
$6,000. This revenue was derived entirely from Manhattan
Westchester Medical Services, P.C. ( Manhattan
Westchester ) through a pilot program conducted under the
management of MCAI. Manhattan Westchester is a medical
practice that is controlled by the Company Chairman.
While MCAI 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 fourth sale during the
third quarter ended September 30, 1997. Total sales for
the three months ended September 30, 1997 amounted to
$287,425.
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.
Three months ended September 30, 1997 as compared to the
three months ended September 30, 1996 (Cont d)
General and administrative expenses for the three months
ended September 30, 1997 were $708,366 as compared to the
three months ended September 30, 1996 of $289,753 or an
increase of $418,613 or 144%. The increase in general and
administrative expenses for the three months ended
September 30, 1997 is due to the Company increasing its
development costs for its new subsidiary, MCAI by
$260,686 as compared to the three months ended September
30, 1996. The intended business of MCAI 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 September 30, 1997 were $36,789 as compared
to the three months ended September 30, 1996 of $26,051
or an increase of $10,738. 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 September 30, 1997 as
compared to the three months ended September 30, 1996
decreased by $37,783.
Nine months ended September 30, 1997 as compared to the
nine months ended September 30, 1996
The Company reported a net loss of $1,140,294 for the
nine months ended September 30, 1997 as compared to a net
loss of $639,202 for the nine months ended September 30,
1996.
Revenues for the nine months ended September 30, 1997 and
1996 amounted to $1,026,431 and $985,715, respectively.
Revenues increased by $40,716 or 4% for the nine months
ended September 30, 1997 as compared to the nine months
ended September 30, 1996. Gross profit for the nine
months ended September 30, 1997 and 1996 amounted to
$560,265 and $497,082, respectively or a net increase of
$63,183. Gross profit percentage for nine months ended
September 30, 1997 and 1996 amounted to 55% and 50%,
respectively, or a net increase of 5%. 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 nine months ended
September 30, 1997 and 1996 amortization charges amounted
to $204,591 and $135,900, respectively, resulting in a
reduction of the Company s overall gross profit
percentage by 20% and 14%, respectively.
Furthermore, the variation of sales and gross profit
during the nine months ended September 30, 1997 as
compared to the nine months ended September 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 nine
months ended September 30, 1997 as compared to the
nine months ended September 30, 1996 amounted to
$383,059 and $611,698, respectively, or a net decrease
of $228,639. The contract division s low revenues for
the September 30, 1997 and 1996 period is attributable
to the Company s lack of major new contracts during
the last nine 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
nine months ended September 30, 1997 is 58% as
compared to September 30, 1996 which was 48%. The
increase in gross profit for the nine months ended
September 30, 1997 as compared to the nine months
ended September 30, 1996, is a result of efficiencies
introduced within the contract division.
2. Net sales of BFM Systems for the nine months ended
September 30, 1997 and 1996 amounted to $68,256 and
$232,685, respectively or a net decrease of $164,429.
Gross profit amounts for the nine months ended
September 30, 1997 amounted to a negative $122,458
whereby for the nine months ended September 30, 1996,
the gross profit amounted to $141,938 or a net
decrease of $264,396. 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 nine months
ended September 30, 1997 and 1996 amounted to $106,387
and $133,800, respectively. The Company management is
revising its marketing strategy and believes the lack
of sales is temporary.
3. Revenues of the TeleMap division for the nine months
ended September 30, 1997 and 1996 amounted to $96,501
and $91,379, respectively. Gross profit percentage for
the nine months ended September 30, 1997 and 1996
amounted to 41% and 47%, respectively due to a slight
increase in labor costs.
4. Pilot memory centers revenue for the nine months ended
September 30, 1997 amounted to $21,000. This revenue
was derived entirely from Manhattan Westchester
through a pilot program conducted under the management
of MCAI. Manhattan Westchester is a medical practice
that is controlled by the Company s Chairman. While
MCAI 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 fourth sale during the
third quarter 1997. The total cumulative sales for the
TNP division amounted to $382,512.
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 nine
months ended September 30, 1997 were $1,553,296 as
compared to the nine months ended September 30, 1996
of $811,403 or an increase of $741,893 or 91%. The
increase in general and administrative expenses for
the nine months ended September 30, 1997 is due to the
Company increasing its development costs for its new
subsidiary, MCAI by $436,608 as compared to the nine
months ended September 30, 1996. The intended business
of MCAI 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 nine
months ended September 30, 1997 were $88,917 as
compared to the nine months ended September 30, 1996
of $71,235 or an increase of $17,682.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 and December 31, 1996, the
Company had working capital of $922,044 and
$1,082,613, respectively.
For the nine months ended September 30, 1997 and 1996,
the Company used cash for operations of $1,489,662 and
$664,121, respectively, resulting in increased use of
cash for operations by $825,541. The net increase for
the nine months ended September 30, 1997 is the result
of loss from operations amounting to $1,140,294
compared to the loss from operations for the nine
months ended September 30, 1996 of $639,202.
For the nine months ended September 30, 1997 and 1996
cash used by investing activities amounted to $376,067
and $104,474, respectively, or a net increase in use
of cash of $271,593. The increased use in cash for
investing activities for the nine months ended
September 30, 1997 as compared to the nine months
ended September 30, 1996 was attributable to the
following: (i) purchase of equipment and fixtures
amounting to $104,618 (ii) $23,694 increase in
database development costs and (iii) costs incurred in
organizing memory centers amounting to approximately
$149,368. 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
nine months ended September 30, 1997 purchased
equipment and incurred organization costs amounting to
approximately $130,642 principally for its new
subsidiary MCAI.
For the nine months ended September 30, 1997 and 1996
cash provided by financing activities amounted to
$329,567 and $746,566, respectively. For the nine
months ended September 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 nine months ended September 30, 1996 the
Company repaid a line of credit which amounted to
$50,000 and borrowed from shareholders $478,480 net of
repayments. On April 30, 1997 the Company repaid a
shareholder loan amounting to $100,000. The Company
incurred registration costs for the nine months ended
September 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
September 30, 1997 and 1996, the Company accrued
$11,250 of dividends for Series 1 preferred stock as
required under terms of the preferred stock.
MANAGEMENTS S PLAN
The intended development of Memory Centers 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
estimated 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 ,
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 assumption as set fourth
above, could range 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 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 central nervous system 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 the 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. 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 September 1997, the
Company obtained another contract in the amount of
$230,708 pursuant to which a U.S. pharmaceutical
company will use QPEEG in their multi-center drug
trial. QPEEG is a methodology developed by HZI that
evaluates a drug s effect on the central nervous
system using computer analyzed EEG. HZI statistically
analyzed the before and after effects of a drug and
correlates the changes with information in HZI s
psychotropic drug data base to determine the optimal
time or dosage window to yield particular central
nervous system effects.
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
area 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. However, during the second quarter of 1997,
Tena ordered a TNP system, including a full BFM
system, in order to set up a Memory Center in
Istanbul, Turkey. A letter of intent in connection
with the joint venture was signed in September 1997.
On September 4, 1997, the Company signed an agreement
with the CoreCare Corporation, a regional provider of
mental health care services, to form a joint venture.
The joint venture, which will be 50% owned by the
Company, will be located at Kirkbride Center, a large
medical complex being developed in Philadelphia.
Within the Kirkbride Hospital complex, the agreement
contemplates that the joint venture will establish a
Memory Center and tele-neuropsychiatric diagnostic
laboratory. The joint venture will also include a 30
bed VIP-Neuropsychiatry clinic, Phase I in-patient
drug research unit and a contract research site
management venture.
The joint venture has not yet begun operations.
However, as the first step of the joint venture, in
September 1997, the Company sold two TNP systems (each
at $95,800), to CoreCare in order to set up a Memory
Center and a TNP diagnostic laboratory. The various
aspects of the joint venture will require additional
development and capital. Accordingly, there can be no
assurance that any aspects of the joint venture can be
developed within a reasonable amount of time or that
any of these will be successful, or that capital will
be found to develop any of these ventures.
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 $90,000, 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 $270,000
at September 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. During
October 1997, the Company received an additional
$600,000 of capital in connection with the exercise of
its Class B and C Warrants.
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.
The Private Securities Litigation Reform Act of 1995
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 environmental 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.
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
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: November 19, 1997 By: /S/ Joseph J. DioGuardi
Joseph J. DioGuardi
Chief Financial Officer
