<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 MARCH 31, 1998
----------------------------------
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: 10,813,806 SHARES AS OF MARCH 31, 1998
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS PAGE
NUMBER
<S> <C>
Consolidated balance sheets at March 31, 1998 (unaudited)
and December 31, 1997 1
Consolidated statements of operations (unaudited)
for the three months ended March 31, 1998 and 1997 2
Consolidated statement of stockholders' equity (unaudited)
for the three months ended March 31, 1998 3
Consolidated statements of cash flows (unaudited)
for the three months ended March 31, 1998 and 1997 4
Notes to consolidated financial statements 5 - 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13 - 19
PART II - OTHER INFORMATION 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
MARCH 31, 1998 DECEMBER 31, 1997
Current assets:
<S> <C> <C>
Cash $ 544,966 $ 1,597,825
Accounts receivable, net of allowance for doubtful accounts of
$5,547 at March 31, 1998 and $40,777 at December 31, 1997 768,354 650,505
Inventory 132,241 132,727
Prepaid expenses and taxes 193,284 152,979
Other current assets 74,302 61,629
------------------ ------------------
Total current assets 1,713,147 2,595,665
------------------ ------------------
Equipment and fixtures, net 277,255 236,002
------------------ ------------------
Other assets:
Database development costs, net 1,201,408 1,228,189
Computer system product development costs, net 340,731 371,888
Other 151,438 178,266
------------------ ------------------
Total other assets 1,693,577 1,778,343
------------------ ------------------
Total assets $ 3,683,979 $ 4,610,010
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,502 $ 271,129
Accrued expenses 280,382 215,252
Stockholder notes and loans payable 386,159 386,332
------------------ ------------------
Total current liabilities 728,043 872,713
------------------ ------------------
Long-term liabilities:
Deferred income taxes 240,000 240,000
------------------ ------------------
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
Common stock, $.001 par value, 100,000,000 shares authorized,
10,813,806 issued and outstanding 21,514 21,514
Additional paid-in capital 6,751,897 6,751,897
Accumulated deficit (4,207,475) (3,426,114)
------------------ ------------------
Total stockholders' equity 2,715,936 3,497,297
------------------ ------------------
Total liabilities and stockholders' equity $ 3,683,979 $ 4,610,010
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
1
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $ 165,414 $ 275,487
Cost of sales, including amortization expense
of $67,373 and $67,201, respectively 125,339 169,843
------------------ -----------------
Gross profit 40,075 105,644
------------------ -----------------
Expenses:
General and administrative expenses 812,965 321,347
Research and development - 17,475
------------------ -----------------
Total expenses 812,965 338,822
------------------ -----------------
Loss from operations before other income (expense)
and income tax expense (772,890) (233,178)
Other income (expense):
Interest income 5,980 11,416
Interest expense (10,701) (47,316)
------------------ -----------------
Total other income (expense) (4,721) (35,900)
------------------ -----------------
Loss before provision for income tax (777,611) (269,078)
Provision for income tax - -
------------------ ------------------
Net loss $ (777,611) $ (269,078)
================== ==================
Net loss applicable to common shares $ (781,361) $ (272,878)
================== =================
Loss per share:
Basic:
Net loss $ (.07) $ (.03)
================== =================
Net loss applicable to common shares $ (.07) $ (.03)
================== =================
Weighted average number of shares outstanding 10,813,806 7,819,959
================== =================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
PREFERRED STOCK ADDITIONAL TOTAL
CLASS B, SERIES 1 COMMON STOCK PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------------ ------------- ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 150,000 $ 150,000 10,813,806 $ 21,514 $ 6,751,897 $ (3,426,114) $ 3,497,297
Preferred stock
dividend - - - - - (3,750) (3,750)
Net loss for the
three months
ended March 31, 1998 - - - - - (777,611) (777,611)
------------ ------------- ------------ ------------ ------------ -------------- ------------
Balances at
March 31, 1998 150,000 $ 150,000 10,813,806 $ 21,514 $ 6,751,897 $ (4,207,475) $ 2,715,936
============ ============= ============ ============ ============ ============== ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------------ ------------------
Cash flows for operating activities:
<S> <C> <C>
Net loss from operations $ (777,611) $ (269,078)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 90,622 78,359
Amortization of deferred financing costs 6,832 33,334
Bad debt recovery (35,230) -
Decrease (increase) in:
Accounts receivable (82,619) (74,368)
Due from affiliates (12,673) (2,889)
Inventory 486 6,762
Prepaid expenses and taxes (20,949) (6,035)
Other current assets 13,386
Increase (decrease) in:
Accounts payable (192,431) (34,625)
Accrued expenses 61,207 (21,537)
Income taxes payable 1,725 3,300
Billings in excess of costs and estimated earnings on uncompleted contracts (18,920) (65,950)
------------------ -----------------
Net cash flows used for operating activities (979,561) (339,341)
------------------ -----------------
Cash flows for investing activities:
Purchase of equipment and fixtures (63,864) (32,973)
Database development costs capitalized (9,434) (55,267)
Other assets - (45,087)
Proceeds from sale of automobile - 1,660
------------------ -----------------
Net cash flows used for investing activities (73,298) (131,667)
------------------ -----------------
Cash flows from financing activities:
Principal payments on long-term debt - (18,054)
Registration costs incurred - (85,876)
Proceeds from exercise of warrants and sale of common stock - 600,000
------------------ -----------------
Net cash flows provided by financing activities - 496,070
------------------ -----------------
Net (decrease) increase in cash (1,052,859) 25,062
Cash at beginning of period 1,597,825 1,851,114
------------------ -----------------
Cash at end of period $ 544,966 $ 1,876,176
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10,701 $ 9,684
================== =================
Income taxes $ 3,350 $ 1,300
================== =================
Schedule of non-cash investing and financing activities:
Accrued dividends on Series 1 preferred stock $ 3,750 $ 3,750
================== =================
Bank note liquidated in exchange for automobile $ - $ 22,703
================== =================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(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").
The Company is primarily involved in two business. Through its
wholly-owned subsidiary, HZI, the Company sub-contracts
clinical research and performs data analysis for health
agencies, research organizations and pharmaceutical companies.
In addition, as an outgrowth of its research activities, the
Company also designs diagnostic testing software and equipment
for neuropsychiatric applications and performs neurological
testing services for hospital and physicians. Through its
wholly-owned subsidiary Memory Centers of America, Inc.
("MCAI") a Delaware corporation, the Company manages a group
of facilities which diagnose and treat memory disorders. MCAI
provides non-medical management of facilities as well as
education and consultation services to individuals who suffer
from memory impairment. Revenues from this wholly-owned
subsidiary were immaterial for the three months ended March
31, 1998 and 1997.
HZI assigns certain clinical research contracts to the New
York Institute for Medical Research, Inc. ("NYI"), a
not-for-profit private foundation that is controlled by board
members that also control the Company. TeleMap, Inc., is a
wholly-owned subsidiary of HZI and has no material business
operations.
The Company conducts its operations in Tarrytown, New York.
The Company's revenues consist of a concentration of
significant long-term contracts, thus leading to a limited
number of customers comprising a significant percentage of
revenues.
The unaudited interim financial statements for the three
months ended March 31, 1998 and 1997 included herein have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and,
in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) and
disclosures which are necessary for a fair presentation. The
results of operations for the three months ended are not
necessarily indicative of the results for the full year. For
further information, refer to the Company's audited financial
statements and footnotes thereto at December 31, 1997,
included in Form 10-KSB filed with the Securities and Exchange
Commission.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. For the years ended December 31, 1997 and 1996, the
Company incurred losses of $2,423,602 and $1,634,675.
Additionally, the Company generated negative cash flows from
operations of $2,568,380 and $897,382 for the years ended
December 1997 and 1996, respectively. The Company's ability to
continue as a going concern is currently dependent on its
ability to successfully attain profitability and positive cash
flows from operations as well as obtain capital or other
financing to fund future losses and intended expansion. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not
include adjustments relating to the recoverability and
realization of assets and classification of liabilities that
might be necessary should the Company be unable to continue in
operation.
5
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 2 - GOING CONCERN (Cont'd)
Managements plans to mitigate the Company's financial problems are
outlined below.
On April 7, 1998, the Company signed a Letter of Intent with
Pioneer Ventures Associates Limited Partnership ("Pioneer")
whereby the Company would receive a minimum of $2,000,000 to a
maximum of $4,500,000 in exchange for issuing cumulative
preferred stock convertible into common stock at $3 per share
with an 8% dividend. Prior to the Company receiving any funds,
Pioneer will perform due diligence which, if completed to its
satisfaction, will result in the Company receiving an initial
installment $2,000,000. Pioneer has imposed certain other
conditions which include requiring the Company to bring in a
new chief executive officer and the election of two (2)
Pioneer representatives to the Board of Directors.
The Company expects to receive $2,000,000 from Pioneer during
June 1998. During the due diligence process, Pioneer is
evaluating the capital requirements of MCAI and HZI's contract
research division and will invest up to a total of $4,500,000
based on terms and conditions to be agreed upon. The Company
is also exploring additional options to obtain capital or
financing.
Regarding current operations, in order to maintain its
liquidity and economic viability in the interim, the Company
is continuing its ongoing marketing efforts to obtain
contracts for its contract research division and has
implemented several measures to reduce current expenditures
such as partial salary deferrals for officers, reduction of
expenses and aggressive collection efforts on its receivables.
NOTE 3 - STOCKHOLDERS' EQUITY
a) ISSUANCE OF WARRANTS
Pursuant to the plan of reorganization on November 23, 1994
with HZI, the Board of Directors of the Company authorized the
issuance of Class B and Class C Warrants to all stockholders
of the Company of record as of November 1, 1994. The Warrants
were distributed on a 1 Warrant for 1 share of common stock
basis and comprised in the aggregate 800,000 Class B and
800,000 Class C Warrants, each of which was 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
are exercisable at $2.75 per share, and were to expire
September 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 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.
During 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 during the last quarter of 1997, the
expiration dates were extended to March 31, 1998. Lastly, on
March 31, 1998, an additional extension to September 30, 1998
for the exercise of such warrants was approved by the Board of
Directors.
6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
a) ISSUANCE OF WARRANTS (Cont'd)
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) SENIOR MANAGEMENT INCENTIVE PLAN
On November 23, 1994, the Company adopted an incentive stock
option plan that provides 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 statutory stock options
or non-statutory stock options. Options to purchase shares may
be granted under the incentive stock option plan to persons
who are employees or officers of the Company.
On September 19, 1995, December 15, 1995 and December 18,
1996, the Company granted 250,000, 50,000 and 500,000 options
respectively to purchase shares of common stock pursuant to
the Company's Incentive Plan. 250,000 options were granted to
the former President of the Company, 50,000 to a consultant,
and 500,000 options were granted to the former President of
MCAI. The exercise price of the options was fixed at $.10,
$.01 and the lower of $7.00 or fair market value per share
respectively. Such options expire between September 2002 and
January 2007.
c) ISSUANCE OF COMMON STOCK AS CONSIDERATION FOR LOANS
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 March 31, 1998, and
December 31, 1997 such loans have been classified as short
term.
d) PREFERRED STOCK
During December 1994, the Company issued two classes of
preferred stock for total consideration of $400,000. The first
class of 150,000 shares of cumulative non-convertible
preferred stock class B, series 1, no par value has a
liquidation preference of $1 per share. Dividends accrue on
such stock commencing January 1, 1996 at a rate of 10% of the
liquidation value and are payable semi-annually in cash or
stock. At March 31, 1998 and December 31, 1997, the Company
had accrued dividends of $5,000 and $1,250, respectively,
related to this preferred stock after a payment of $28,750 in
the form of common stock during December 1997.
7
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 3 - STOCKHOLDERS' EQUITY (Cont'd)
d) PREFERRED STOCK (Cont'd)
The second class of 250,000 shares of convertible, no par
value, preferred stock, Class B, Series 2, were converted into
common stock during November 1997.
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.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
a) OPERATING LEASES
The Company and its subsidiaries have entered into lease
agreements for administrative offices and certain equipment
under noncancellable operating leases expiring in various
dates through December 2002. The administrative office leases
contain a provision for additional rent which is equal to the
Company's pro rated share of future real estate taxes.
A schedule of future minimum rental payments at December 31, 1997
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1998 $ 171,515
1999 122,002
2000 115,572
2001 115,000
2002 115,000
--------------
$ 639,089
==============
</TABLE>
Rent expense under all operating leases for the three months
ended March 31, 1998 and 1997 was $41,007 and $28,821,
respectively.
b) CONCENTRATION OF CREDIT RISK
For the three months ended March 31, 1998 and 1997,
approximately 69% and 67%, respectively, of net sales were
derived from two unrelated customers who are in the
pharmaceutical and psychiatric industries. As of March 31,
1998 and December 31, 1997, approximately 76% and 90%
respectively, of accounts receivable are due from four
unrelated customers.
8
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont'd)
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. 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
transportation arrangements funded by the Company. Through
December 31, 1996, the Company's Chairman waived his right to
receive the term life insurance as provided for in the
employment agreement. For the three months ended March 31,
1998 and 1997 premiums paid on such policy amounted to $0 and
$4,831, respectively.
On May 7, 1998, pursuant to a board meeting, the
Chairman of the Board resigned as President and CEO
effective May 15, 1998. Accordingly, a director of the
Company was elected as the interim Chief Executive
Officer and President.
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. As of March 31, 1998 and December 31,
1997, the Board of Directors did not approve any bonus to
such individual. If the employee is terminated within the
contract period due to a 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) times 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. This agreement was later amended to document that
her official title and duties are Vice President,
Administration, and Special Assistant to the Chairman.
iv) On December 18, 1996, the Company and MCAI entered into an
employment agreement with the CEO and President of MCAI who
was also 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 vested and 150,000 options each vest
on January 6, 1998 and 1999. During March 1998, such
individual resigned from
9
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont'd)
c) EMPLOYMENT AGREEMENTS (Cont'd)
the Company and accordingly, lost the right to the options
which would have vested January 6, 1999.
v) On July 1, 1997, the Company entered into an employment
agreement with the Vice President of Technical Operations,
providing for a base salary of $80,000 per year with annual
increases. This agreement expires on July 1, 2000 and is
renewable for successive one-year terms thereafter.
vi) On July 1, 1997 MCAI and the Company entered into an
employment agreement with the Managing Director of MCAI. This
agreement provides for a base salary of $75,000 per year with
annual increases, expiring on July 1, 1999 and is renewable
on a year to year basis thereafter.
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. During March 1998, such individual became
the acting Chief Executive Officer of MCAI and his
compensation was increased to $10,000 per month pursuant to a
letter agreement with the chairman of the Company.
e) LETTER OF INTENT
On April 7, 1998, the Company signed a Letter of Intent with
Pioneer Ventures Associates Limited Partnership ("Pioneer")
whereby the Company would receive a minimum of $2,000,000 to a
maximum of $4,500,000 in exchange for issuing cumulative
preferred stock convertible into common stock at $3 per share
with an 8% dividend. Prior to the Company receiving any funds,
Pioneer will perform due diligence which, if completed to its
satisfaction, will result in the Company receiving an initial
installment $2,000,000. Pioneer has imposed certain other
conditions which include requiring the Company to bring in a
new chief executive officer and the election of two (2)
Pioneer representatives to the Board of Directors.
The Company expects to receive $2,000,000 from Pioneer during
June 1998. During the due diligence process, Pioneer is
evaluating the capital requirements of MCAI and HZI's contract
research division and will invest up to a total of $4,500,000
based on terms and conditions to be agreed upon.
10
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 5 - RELATED PARTY TRANSACTIONS
a) REVENUES FROM AFFILIATES
Manhattan Westchester Medical Services, P.C. ("Manhattan
Westchester") reimburses the Company for the use of certain
employees as well as office and laboratory space
(administration services) of the Company. The Company and
Manhattan Westchester also operate under an oral agreement
whereby the Company is paid $1,000 per month for each of the
Memory Centers operated by Manhattan Westchester. Manhattan
Westchester is 95% owned by the Company's Chairman. Net
revenues from Manhattan Westchester for the three months ended
March 31, 1998 and 1997 amounted to $12,675 and $21,252,
respectively. Effective March 1, 1998, such oral agreement was
terminated with Manhattan Westchester. The Company is
undergoing negotiations with an unrelated physician to provide
medical services relating to the Memory Centers.
b) STOCKHOLDER NOTES AND LOANS PAYABLE
Stockholder notes and loans payable consisted of the following at:
<TABLE>
<CAPTION>
MARCH
31, 1998 DECEMBER
(UNAUDITED) 31, 1997
----------- --------
<S> <C> <C>
Non-interest bearing loans and payables,
(See (i) below) $ 86,159 $ 86,332
Notes payable bearing an interest of
5% to 9% (See below) 300,000 300,000
-------------- --------------
$ 386,159 $ 386,332
============== ==============
</TABLE>
i) Stockholder loans payable relates to advances made to HZI and
NYI by its former Chairman of the Board which are due on
demand.
ii) On May 24, 1996, the Company entered into an agreement
with a shareholder to borrow $200,000. The note is
non-interest bearing and was 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 66,666 shares of
restricted common stock. During June 1997, the original
maturity date of May 24, 1997 was extended to December
15, 1998. Lastly, the Company agreed to include said
shares in its pending Registration Statement.
iii) On July 16, 1996, the Company entered into two loan
agreements amounting to $200,000 with two unrelated
shareholders. Each note was for $100,000, bears interest
at 9% per annum and was due at the earlier of one (1)
year or payable from any of the proceeds of a sale of
the Company's securities including the exercise of Class
B and C Warrants. On April 30, 1997, the Company
liquidated one note amounting to $100,000 and extended
the second note's maturity date to December 15, 1998.
11
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
At March 31, 1998 and December 31, 1997, accrued interest
related to such notes and loans amounted to $19,409 and
$17,309, respectively, and is included in accrued expenses.
NOTE 5 - RELATED PARTY TRANSACTIONS (Cont'd)
c) 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. During March 1998, such individual became
the acting Chief Executive Officer of MCAI and his
compensation was increased to $10,000 per month pursuant to a
letter agreement with the chairman of the Company.
d) DUE FROM AFFILIATES
Manhattan Westchester reimburses the Company for the use of
certain employees as well as office and laboratory space
(administration services) of the Company. The Company and
Manhattan Westchester also operate under an oral agreement
whereby the Company is paid $1,000 per month for each of the
Memory Centers controlled Manhattan Westchester. Manhattan
Westchester is 95% owned by the Company's Chairman. At March
31, 1998 and December 31, 1997, amounts due from Manhattan
Westchester, principally for management and administrative
services, amounted to $66,866 and $57,193, respectively, which
have been included in other current assets. Effective March 1,
1998, such oral agreement was terminated with Manhattan
Westchester. The Company is undergoing negotiations with an
unrelated physician to provide medical services relating to
the Memory Centers.
12
<PAGE>
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: (i) it
sub-contracts clinical research and performs data analysis for
health agencies, research organizations and pharmaceutical
companies, and (ii) it 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 owned subsidiaries, HZI
and Memory Centers(TM) of America, Inc. ("MCAI"), a Delaware
Corporation. In November 1994, the Company acquired all of the
issued and outstanding shares of HZI. HZI conducts contract
research, designs diagnostic software and equipment and
performs neurological testing services. In March 1996, the
Company established MCAI to provide non-medical management,
educational, consultation and marketing services to licensed
physicians and entities controlled by them. These physicians
offer professional diagnostic, preventive and treatment
services, through pilot facilities, Memory Centers(TM), to
persons who suffer from memory disturbances. MCAI, through
affiliated corporations, also supplies the medical equipment
used in Memory Centers(TM). There are currently four Memory
Centers(TM), two located in New York City (Manhattan and
Brooklyn), one in Tarrytown, New York, and one in Bakersfield,
California. These Memory Centers(TM) are operated under
management agreements with Manhattan Westchester Medical
Services (Manhattan, Brooklyn and Tarrytown), and the Truxton
Psychiatric Group PC (Bakersfield). During January 1998, the
Company commenced the construction of a signature Memory
Center in Manhattan, New York. The Company expects such Memory
Center to be completed by the early summer. Lastly, the
Company is expecting to open a sixth Memory Center by June
1998 in Boca Raton, Florida. Such Memory Center will be
operated through an existing clinic until the Company
constructs its own location. Under the terms of these
management agreements, MCAI supplies equipment, management,
marketing, data handling and personnel services for
physicians, and the physicians provide all medical services
and employ all clinical staff. Effective March 1, 1998, the
oral agreement with Manhattan Westchester was terminated. The
Company is undergoing negotiations with an unrelated physician
to provide medical services to the Memory Centers. MCAI is
compensated through fixed management fees for its managerial
services, and it is compensated for its billing services and
variable expenses, such as supplies, as they occur. These
agreements are for a fixed period of time, generally not less
than one year. MCAI began full operation of the pilot program
at the end of the second quarter of 1996. Each facility is
estimated to cost between $70,000 to $250,000 for equipment,
leasehold improvements and working capital which includes
administration costs. Revenues from this wholly-owned
subsidiary were $16,000 and $9,000 for the three months ended
March 31, 1998 and 1997, respectively.
13
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
During the second quarter of 1997, the Company created a new
division within NeuroCorp Ltd., called Tel-Neuro Psychiatry
("TNP"). The TNP division is responsible for marketing
Tele-Neuro Psychiatric systems which are based on the
Company's proprietary software and hardware equipment. The TNP
system provides data communication with off-site experts.
Furthermore, the Company believes the new TNP system is useful
for enhancing quality controls in research programs. The
Company is currently utilizing TNP systems in the four (4)
MCAI 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 has been 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.
Revenue from computer system sales, which include BFM Systems,
are recognized upon the shipment of the turnkey systems.
Service revenues are recognized as they are rendered on the
accrual basis of accounting.
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1997
The Company reported a net loss of $777,611 for the three months
ended March 31, 1998 as compared to a net loss of $269,078 for the
three months ended March 31, 1997.
Revenues for the three months ended March 31, 1998 and 1997
amounted to $165,414 and $275,487, respectively. Revenues decreased
by $110,073 or 40% for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997. Gross profit for
the three months ended March 31, 1998 and 1997 amounted to $40,075
and $105,644, respectively or a net decrease of $65,569. Gross
profit percentages for the three months ended March 31, 1998 and
1997, were 24% and 38%, respectively, or a net decrease of 14%. The
Company includes in the cost of sales 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 March 31, 1998
and 1997 amortization charges amounted to $67,373 and $67,201,
respectively. The decrease in gross profit is a result of no sales
of BFM equipment during the three months ended March 31, 1998 while
amortization charges related to BFM continue to be made.
Furthermore, the decrease in sales and gross profit during the
three months ended March 31, 1998 as compared to the three months
ended March 31, 1997 is attributable to the following:
14
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997 (Cont'd)
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 were substantially completed during
the December 31, 1995 and 1994 year end. For the years ended
December 31, 1997 and 1996, the Company received $405,700 and
$759,000, respectively, of new contracts. Revenues from contracts
for the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997 amounted to $131,215 and $211,872,
respectively, or a net decrease of $80,657. The contract division's
low revenues for the March 31, 1998 and 1997 quarters is
attributable to the Company's lack of major new contracts.
Management believes that the drug research industry has been
temporarily negatively impacted due to consolidation in the
pharmaceutical industry, which has resulted in the reduction of the
available pool to new research contracts. The Company believes that
demand for more effective central nervous system drugs with fewer
negative side effects will continue to stimulate the demand for
contract research on central nervous system drugs.
The gross profit percentage from contracts for the three
months ended March 31, 1998 is 44% as compared to the March
31, 1997 which was 51%. The decrease in gross profit for the
three months ended March 31, 1998, as compared to the three
months ended March 31, 1997, is primarily a result of
amortization charges related to contract research and the
reduced revenues of the contract research division.
As of March 31, 1998, the Company's contract research division
had a backlog of approximately $62,000 from uncompleted
contracts. The Company expects to realize 100% of such backlog
during the remainder of 1998.
The contract research division during 1997 and 1996 performed
significant work for a major foreign customer, resulting in a
large increase in their accounts receivable. As of March 31,
1998 the receivable amount from this foreign customer amounted
to approximately $221,000, of which $100,000 is expected to be
collected during the second quarter of 1998. The remaining
balance will be collected upon completion of the project's
final report.
2. Net sales of BFM Systems(R) for the three months ended March
31, 1998 and 1997 amounted to $0 and $24,394, respectively.
Gross profit amounts for the three months ended March 31, 1998
amounted to a negative $25,077 whereas for the three months
ended March 31, 1997 the gross profit amounted to a negative
$46,508 or a net increase of $21,431. Amortization expense
related to BFM Systems for three months ended March 31, 1998
and 1997 amounted to $26,950 and $45,574, respectively. The
Company management is revising its marketing strategy and
believes the lack of sales is temporary.
3. Revenues of the TeleMap(R) division for the three months ended
March 31, 1998 and 1997 amounted to $18,199 and $24,592,
respectively. Gross profit percentage for the three months
ended March 31, 1998 and 1997 amounted to 68% and 51%,
respectively due to a decrease in labor costs.
15
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997 (Cont'd)
4. Pilot Memory Center(TM)management fees for the three months ended
March 31, 1998 and 1997 amounted to $16,000 and $9,000,
respectively. $6,000 of this revenue for the three months ended
March 31, 1998 and all of the revenue for the three months ended
March 31, 1997 was derived from Manhattan Westchester Medical
Services, P.C. ("Manhattan Westchester") through a pilot program
conducted under the management of MCAI and $10,000 of the revenue
for the three months ended March 31, 1998 was from the Bakersfield
Memory Center. 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. Effective March 1,
1998, Manhattan Westchester will not be providing such medical
services to MCAI. The Company is undergoing negotiations with
unrelated physicians to provide medical services to MCAI.
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 the above, which
are not capitalized during the period, are charged to either
general and administrative or research and development
expense.
General and administrative expenses for the three months ended
March 31, 1998 were $812,965 as compared to the three months
ended March 31, 1997 of $321,347 or an increase of $491,618 or
153%. The increase in general and administrative expenses for
the three months ended March 31, 1998 is primarily due to the
Company increasing its development costs for its subsidiary,
MCAI, by $441,000 as compared to the three months ended March
31, 1997.
Research and development costs ("R&D") for the three months
ended March 31, 1998 were $0 as compared to the three months
ended March 31, 1997 of $17,345 or an decrease of $17,345. The
decrease in R&D costs is principally due to a concentration by
the Company on its contract research and the development of
Memory Centers.
During November and December 1997, the Company liquidated
several loans which were convertible into common stock. As a
result of these conversions, interest expense for the three
months ended March 31, 1998 as compared to the three months
ended March 31, 1997 decreased by $36,615.
16
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 and December 31, 1997, the Company had
working capital of $985,104 and $1,722,952, respectively. The
Company's cash balance at March 31, 1998 amounting to
approximately $545,000 is primarily made up of an influx of
$1,500,000 of capital on December 31, 1997. The Company's net
accounts receivable, which amounted to $768,354 at March 31,
1998 are expected to be collected prior to June 30, 1998,
except for $120,000 to be received upon completion of a
project's final report to a foreign customer, expected to be
completed prior to December 31, 1998. As of March 31, 1998, of
the Company current liabilities amounting to $728,043,
$300,000 represents stockholder loans which are not due until
December 31, 1998. The Company expects to repay the remaining
debt from internally generated funds or additional public or
private sales of its securities.
For the three months ended March 31, 1998 and 1997, the
Company used cash for operations of $979,561 and $339,341,
respectively, resulting in increased use of cash for
operations by $640,220. The net increase for the three months
ended March 31, 1998 is the result of loss from operations
amounting to $777,611 compared to the loss from operations for
the three months ended March 31, 1997 of $269,078.
For the three months ended March 31, 1998 and 1997 cash used
by investing activities amounted to $73,298 and $131,667,
respectively, or a net decrease in use of cash of $58,369. The
decrease use in cash for investing activities for the three
months ended March 31, 1998 as compared to the three months
ended March 31, 1997 was attributable to the following: (i)
purchase of equipment and fixtures amounting to $63,864 and
$32,973 for the three months ended March 31, 1998 and 1997
(ii) capitalized database development costs of $9,434 and
$55,268 for the three months ended March 31, 1998 and 1997
(iii) decrease in purchases of other assets to $0 for March
31, 1998 from $45,087 for the three months ended March 31,
1997. The decrease in the database development costs was the
result of a large amount of EEG studies inputted into the
database. The Company during the three months ended March 31,
1998 purchased equipment amounting to approximately $64,000,
principally for its subsidiary MCAI.
For the three months ended March 31, 1998 and 1997 cash
provided by financing activities amounted to $0 and $496,070,
respectively. For the three months ended March 31, 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. The
Company incurred registration costs for the three months ended
March 31, 1998 and 1997 amounting to $0 and $85,876,
respectively, in connection with registering shares of common
stock and warrants pursuant to contractual obligations with
certain stockholders. At March 31, 1998 and 1997, the Company
accrued $3,750 of dividends for Series 1 preferred stock as
required under the terms of the preferred stock.
MANAGEMENTS'S PLAN
The intended development of 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
$70,000 and $250,000 for equipment, leasehold improvements,
and working capital, including corporate overhead attributable
to operating the Memory Centers(TM). Therefore, the Company
estimated that its short term capital requirements for 30
fully functioning Memory Centers(TM) will be in the range of
$4,000,000 to $5,000,000.
17
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENTS'S PLAN (Cont'd)
The Company intends to set up 240 centers within the next 4
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 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. Addi tionally 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 ven tures will be formed.
As a result of a successful research project, the Company's
largest 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. 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(R) 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(R) in their multi-center drug trial.
QPEEG(R) is a proprietary method developed by HZI that
evaluates a drug's effect on the central nervous system using
computer analyzed EEG, ("CEEG(R)"). HZI statistically analyzes
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 this joint venture was signed in
September 1997 by Tena for two systems. However, this has
subsequently been reduced to one system.
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, if consummated, 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(TM) and Tele-Neuro psychiatric
diagnostic laboratory. A definitive agreement has been
negotiated and the joint venture will begin operating during
the second quarter of 1998. In September 1997, CoreCare
ordered two TNP systems in order to set up a Memory Center
(each at $95,800), 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 aspect of the joint venture can be
developed
18
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
MANAGEMENTS'S PLAN (Cont'd)
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 successfully obtained 510K approval for its EEG/EP
amplifier and is currently preparing its 510K application to
the FDA with respect to its 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 510K applications is estimated at $90,000,
which funds will be derived from currently available working
capital. A patent for a proprietary telephonic Test Dose(R)
system is being prepared and then a pre-marketing approval
will be sought.
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 Company's financial statements have been prepared assuming
that the Company will continue as a going concern. At December
31, 1997, the Company has an accumulated deficit of
$3,426,114. For the years ended December 31, 1997 and 1996,
the Company reported net losses of $2,423,602 and $1,634,675,
respectively. Additionally, the Company generated negative
cash flows from operations of $2,568,380 and $897,382 for the
years ended December 31, 1997 and 1996, respectively. Lastly,
for the three months ended March 31, 1998, the Company
generated a net loss of $777,611 and negative cash flows from
operations amounting to $979,561.
The Company's ability to continue as a going concern is
currently dependent on its ability to obtain an immediate
influx of cash. The company is currently negotiating with
Pioneer Ventures Associates Limited Partnership ("Pioneer")
for Pioneer to invest up to $4,500,000 pursuant to a letter of
intent dated April 7, 1998 as discussed below.
On April 7, 1998, the Company entered into a letter of intent
"(LOI") with Pioneer Ventures Associates Limited Partnership
("Pioneer"), whereby Pioneer would invest up to $4,500,000 in
the Company in return for cumulative convertible preferred
stock, 8% dividend, convertible at $3.00 per share into common
stock. Upon execution of a final contract, Pioneer will invest
$2,000,000. The remaining $2,500,000 investment to be
determined during the due diligence process which will also
establish mutually agreeable milestones to be achieved. In
connection with the LOI a new Chief Executive Officer will be
named and in addition, a marketing and financial team will be
assembled for the Company, and two seats on the Board of
Directors will be held by Pioneer representatives. The Company
will incur costs of $105,000 to complete this transaction. The
Company expects to complete this transaction by June 1998.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
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.
19
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
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:
On March 16, 1998, Jonathan E. Raven resigned as a Director and
Executive Vice President of the Company and President and Chief
Executive Officer of Memory Centers of America, Inc. ("MCAI"). In March
1998, Ronald Horowitz, a Director of the Company and Executive Vice
President of MCAI since June, 1997, became acting Chief Executive
Officer of MCAI, succeeding Mr. Raven.
Effective May 15, 1998, Dr. Turan M. Itil, a Director, Chairman of The
Board and Chief Executive Officer of the Company resigned as Chief
Executive Officer, and Kurt Itil, a Director and acting Chief Operating
Officer became interim Chief Executive Officer of the Company.
The Company is conducting a search to fill the office of Chief
Executive Officer of the Company, in replacement of the interim officer
currently holding this position.
ITEM 6 - Exhibits and Reports on Form 8-K:
a) Exhibits
None
b) Reports on Form 8-K
None
20
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
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: MAY 20, 1998 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 I 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 544,996
<SECURITIES> 0
<RECEIVABLES> 773,901
<ALLOWANCES> (5,547)
<INVENTORY> 132,241
<CURRENT-ASSETS> 1,713,147
<PP&E> 894,439
<DEPRECIATION> (617,184)
<TOTAL-ASSETS> 3,683,979
<CURRENT-LIABILITIES> 728,043
<BONDS> 0
0
150,000
<COMMON> 21,514
<OTHER-SE> 2,544,422
<TOTAL-LIABILITY-AND-EQUITY> 3,683,979
<SALES> 165,414
<TOTAL-REVENUES> 165,414
<CGS> 125,339
<TOTAL-COSTS> 125,339
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</TABLE>
