<PAGE>
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission File No. 0-21721
--------------------
CLINICOR, INC.
(Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0309093
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1717 WEST SIXTH STREET, SUITE 400, AUSTIN, TEXAS 78703
(Address of Principal Executive Offices) (Zip Code)
(512) 344-3300
(Issuer's Telephone Number, Including Area Code)
--------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of August 10, 1998, 4,169,734 shares of the Issuer's Common Stock, $.001
par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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TABLE OF CONTENTS
Page
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets - June 30, 1998 and December 31, 1997 3
Condensed Statements of Operations - six months ended
June 30, 1998 and 1997 4
Condensed Statements of Cash Flows - six months ended June 30,
1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II
OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
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Clinicor, Inc.
Balance Sheet
<TABLE>
<CAPTION>
================================================================================================================================
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED) (NOTE A)
------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,509,323 $ 3,255,182
Accounts receivable, net 2,003,989 2,472,928
Prepaid and other current assets 194,889 129,823
------------------- -------------------
Total current assets 4,708,201 5,857,933
Property and equipment, net 836,387 1,029,122
------------------- -------------------
Total assets $ 5,544,588 $ 6,887,055
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 47,019 $ 45,929
Accounts payable and accrued liabilities 996,163 991,002
Dividends payable 100,500 61,955
Line of credit 330,613 -
Deferred revenue 687,869 1,053,150
------------------- -------------------
Total current liabilities 2,162,164 2,152,036
Obligations under capital leases, less current portion 45,455 68,173
------------------- -------------------
Total liabilities 2,207,619 2,220,209
Shareholders' equity:
Class A convertible preferred stock, no par value, 5,181 shares authorized,
4,087 and 3,930 shares issued and outstanding, respectively 4,087,000 3,930,000
Class B convertible preferred stock, no par value, 50,000 shares authorized,
issued and outstanding 5,000,000 5,000,000
Common stock, $0.001 par value, 75,000,000 shares authorized,
4,169,734 and 4,086,400 shares issued and outstanding, respectively 4,170 4,086
Additional paid-in capital 1,184,908 1,875,536
Deferred compensation (33,293) (66,892)
Accumulated deficit (6,905,816) (6,075,884)
------------------- -------------------
Total shareholders' equity 3,336,969 4,666,846
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,544,588 $ 6,887,055
=================== ===================
</TABLE>
Note A: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CLINICOR, INC.
STATEMENT OF OPERATIONS
===================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30
---------------------------------------------------------------------------
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ------------------- -----------------------------------
<S> <C> <C> <C> <C>
Service revenue:
Gross revenue $ 3,324,249 $ 2,850,789 $ 6,191,445 $ 5,396,891
Reimbursable costs 1,276,989 958,609 1,945,269 2,082,836
----------------- ------------------- ----------------- ----------------
Net service revenue 2,047,260 1,892,180 4,246,176 3,314,055
----------------- ------------------- ----------------- ----------------
Operating costs and expenses:
Direct costs 1,390,532 1,223,686 3,241,859 2,185,332
Selling, general and administrative 828,417 896,156 1,654,469 1,724,185
Depreciation and amortization 108,457 125,109 213,813 244,359
----------------- ------------------- ----------------- ----------------
Total operating costs and expenses 2,327,406 2,244,951 5,110,141 4,153,876
----------------- ------------------- ----------------- ----------------
Loss from operations (280,146) (352,771) (863,965) (839,821)
Other income and expenses:
Interest income 37,996 9,371 75,605 20,731
Interest expense 26,561 13,749 41,572 31,504
----------------- ------------------- ----------------- ----------------
Other income and expenses 11,435 (4,378) 34,033 (10,773)
----------------- ------------------- ----------------- ----------------
NET LOSS $ (268,711) $ (357,149) $ (829,932) $ (850,594)
================= =================== ================= ================
Net loss $ (268,711) $ (357,149) $ (829,932) $ (850,594)
Preferred stock dividends (228,606) (72,628) (457,212) (145,258)
----------------- ------------------- ----------------- ----------------
Net loss applicable to common stock $ (497,317) $ (429,777) $ (1,287,144) $ (995,852)
================= =================== ================= ================
NET LOSS APPLICABLE TO COMMON
STOCK PER SHARE $ (0.12) $ (0.11) $ (0.31) $ (0.24)
================= =================== ================= ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES EQUIVALENT OUTSTANDING 4,148,488 4,086,400 4,131,261 4,086,400
================= =================== ================= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CLINICOR, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
====================================================================================================================
SIX MONTHS ENDED JUNE 30,
---------------------------------------
1998 1997
(UNAUDITED) (UNAUDITED)
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (829,932) $ (850,594)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 213,813 244,359
Noncash stock option compensation expense (241,409) 78,954
Net changes in assets and liabilities:
Accounts receivable 468,939 (733,316)
Prepaid expenses and other assets (65,066) 80,444
Accounts payable and accrued liabilities 5,161 1,054,325
Deferred revenue (365,281) 32,928
------------------ ------------------
Net cash used in operating activities (813,775) (92,900)
INVESTING ACTIVITIES:
Purchases of property and equipment (21,069) (270,525)
FINANCING ACTIVITIES:
Payments on capital leases (21,628) (9,901)
Net proceeds from issuing common stock 41,667 -
Payments on shareholder loans - (105,000)
Proceeds from certificate of deposit - 1,000,000
Net borrowings under line of credit 330,613 (850,000)
Preferred stock dividends (261,667) -
------------------ ------------------
Net cash provided by financing activities 88,985 35,099
------------------ ------------------
Net decrease in unrestricted cash and cash equivalents (745,859) (328,326)
Unrestricted cash and cash equivalents at beginning of year 3,255,182 474,134
------------------ ------------------
Unrestricted cash and cash equivalents at end of period $ 2,509,323 $ 145,808
================== ==================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 34,442 $ 37,710
================== ==================
Non-cash financing activities:
Preferred stock dividends $ 157,000 $ 145,000
================ ================
Capital lease obligations $ - $ 84,005
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CLINICOR, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation SB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB
filed on March 30, 1998 for the fiscal year ended December 31, 1997 (Commission
File No. 0-21721).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain amounts related to the prior year have been reclassified to conform to
the current year presentation.
NOTE 2 - NET INCOME (LOSS) PER SHARE
- ------------------------------------
Net loss applicable to common stock per share has been calculated by dividing
the Company's net loss applicable to common stock by the weighted average number
of shares of the Company's outstanding common stock. Common stock equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive.
At June 30, 1998 and June 30, 1997, stock options and warrants to purchase
2,001,706 and 1,263,940 shares of common stock, respectively; Class A
Convertible Preferred Stock convertible into 2,724,667 and 2,517,333 shares of
common stock, respectively; and Class B Convertible Preferred Stock
convertible into 1,666,667 and 0 shares of common stock, respectively, were not
included in the calculation of basic/diluted earnings per share because the
effect of including these options, warrants and convertibles would have been
anti-dilutive.
NOTE 3 - REPORTING COMPREHENSIVE INCOME
- ---------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." The new standard, which is effective for financial statements issued
for periods ending after December 15, 1997, established standards for reporting,
in addition to net income, comprehensive income and its components including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Upon adoption, the Company is also required to reclassify financial
statements for earlier periods provided for comparative purposes. The Company
adopted this standard in the first quarter of 1998. The difference between the
Company's net income as reported and comprehensive income is immaterial for
disclosure.
NOTE 4 - SEGMENT REPORTING
- --------------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which the company adopted in the first
quarter of 1998. The standard establishes requirements for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Under SFAS No. 131, operating segments are to be determined consistent with the
way management organizes and evaluates financial information internally for
making operating decisions and assessing performance. The disclosure provisions
of this standard are not applicable for interim periods in the year of adoption.
The adoption of this new standard is not expected to have a material impact on
the Company's consolidated balance sheet or statement of income.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth and discussed below for the three and six months
ended June 30, 1998 and 1997, are derived from the Condensed Financial
Statements included elsewhere herein. The financial information set forth and
discussed below are unaudited but, in the opinion of management, reflects all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such information. The Company's results of operations for a
particular quarter may not be indicative of results expected during other
quarters or for the entire year.
OVERVIEW
The Company is a fully integrated contract research organization ("CRO")
serving the pharmaceutical, biotechnology and medical device industries
("sponsors"). The Company designs, manages and monitors clinical trials in
North America and Europe and provides integrated clinical and product
development services, including patient recruitment, data management,
biostatistical analysis, regulatory affairs, medical device and other
consultation and quality assurance and quality control ("QA/QC") services for
its sponsors. The Company generates substantially all of its revenue from
services related to the clinical testing of new pharmaceutical, medical device
and biotechnology products. The Company commenced operations in September 1992
and has achieved its growth through internal development.
The Company's contracts for services generally vary from a few months to
several years in duration. A portion of the contract fee is typically required
to be paid when the contract is initiated, with the balance payable in
installments over the contract's duration. The installment payments are based
on performance or the achievement of milestones, relating payment to previously
negotiated events such as patient enrollment, patient completion or delivery of
databases, or periodic, based on personnel fees and actual expenses, typically
billed on a monthly basis.
In accordance with the terms of the Company's contracts, sponsors may
terminate or delay the performance of a contract, potentially causing the
Company to experience periods of excess capacity and reductions in service
revenue and net income. Trials may be terminated or delayed for a variety of
reasons, including unexpected or undesired results, production problems
resulting in shortages of the product or delays in supplying the product,
adverse patient reaction to the product, or the sponsor's decision to de-
emphasize a particular trial. If a trial is terminated, the contract generally
provides for a short continuation or wind-down period, as the Company manages
required investigator obligations through the termination date. Therefore, the
Company is typically entitled to all amounts owed for work performed through the
notice of termination and all costs associated with termination of the study.
In addition, contracts may require the payment of a separate early termination
fee, the amount of which usually declines as the trial progresses.
7
<PAGE>
Revenue from contracts is recognized as work is performed. Some contracts
contain a fixed price per patient plus either fixed or variable fees for
additional service components such as monitoring, project management,
advertising, travel, data management, consulting and report writing. Other
contracts are time and materials based. Payments received on contracts in
excess of amounts earned are recorded as deferred revenue.
The Company's gross revenue backlog consists of anticipated service revenue
from clinical trials and other services that have not been completed and that
generally specify completion dates within 24 months. To qualify as "backlog"
anticipated projects must be represented by contracts or letter agreements or
must be projects for which the Company has commenced a significant level of
effort based upon sponsor commitment and approval of a written budget. Once
work commences, service revenue is recognized over the life of the contract. The
Company's gross revenue backlog was approximately $8.8 million at June 30, 1998
as compared to $14.0 million at December 31, 1997. The decline in gross revenue
backlog reflects the impact of a major clinical study which was cancelled in
June of approximately $4.3 million because the Sponsor's drug did not meet the
Sponsor's performance expectations. The Company's sales efforts for the quarter
generated approximately $4.1 million in new contract backlog which was not
sufficient to offset both the cancellation and earned gross revenue of
approximately $3.3 million during the second quarter. The Company believes that
its backlog at any given date is not necessarily a meaningful predictor of
future results, and no assurances can be given that the Company will fully
realize all of its backlog as service revenue.
Reimbursable costs can include patient and investigator stipends,
Institutional Review Board fees, laboratory and medical supplies, patient
recruitment advertising, travel and consulting fees. Reimbursable costs that
are paid to the Company directly by the client, and for which the Company does
not bear the risk of economic loss, are deducted from gross service revenue in
accordance with CRO industry practice.
Direct costs include project personnel costs and related allocated overhead
costs such as rent, supplies, postage, express delivery and telecommunications,
as well as study-related costs not reimbursed by clients. Selling, general and
administrative expenses consist primarily of compensation and benefits for
marketing and administrative personnel, professional services, facility costs,
and other allocated overhead items.
QUARTERLY RESULTS
Quarterly operating results are subject to variation, and are expected to
continue to be subject to variation, as a result of factors such as delays in
initiating or completing significant drug development trials and any termination
of a drug development trials. Delays and terminations are the result of actions
by sponsors or regulatory authorities and are not controllable by the Company.
Since a large part of the Company's operating costs are relatively fixed while
revenue is subject to fluctuation, minor variations in the commencement,
progress or completion of drug development trials may cause significant
variations in quarterly operating results.
8
<PAGE>
RESULTS OF OPERATIONS
Three months ended June 30, 1998 compared with three months ended June 30, 1997
- -------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statements of operations for the three
months ended June 30, 1998 and 1997, and the percentage of net service revenue
for each item. Any results or trends illustrated in the following table may not
be indicative of future results or trends.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
FOR THE QUARTER ENDED JUNE 30,
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
----------- -----------
Service revenues $ 3,324,249 $ 2,850,789
Reimbursable costs 1,276,989 958,609
----------- -----------
Net service revenue 2,047,260 100.0% 1,892,180 100.0%
Operating costs and expenses:
Direct costs 1,390,532 67.9% 1,223,686 64.7%
Selling, general and administrative 828,417 40.5% 896,156 47.4%
Depreciation and amortization 108,457 5.3% 125,109 6.6%
----------- -----------
Total operating costs and expenses 2,327,406 113.7% 2,244,951 118.7%
----------- -----------
Loss from operations ( 280,149) -13.7% (352,771) -18.7%
Net interest income (expense) 11,435 .6% ( 4,378) -0.2%
----------- -----------
Net loss $( 268,711) -13.1% $( 357,149) -18.9%
=========== ===========
</TABLE>
Net service revenues increased approximately $ 155,000, or 8%. The
increase is primarily attributable to an increase in the average size of
clinical trials.
Direct costs increased approximately $167,000, or 14%. Most of the
increase in direct costs is due to additions of full-time study, patient and
data management staff and related overhead which occurred during 1997. As a
percentage of net service revenues, direct costs were approximately 68% for the
three months ended June 30, 1998 as compared to approximately 65% for the same
period in 1997.
Selling, general and administrative expenses decreased by approximately
$68,000 or 8%. Selling, general and administrative expenses were approximately
40% of net service revenue for the three months ended June 30, 1998, as
compared to 47% for the corresponding period in 1997. This improvement in the
percentage of selling, general and administrative expenses to net service
revenues is a result of these costs being controlled while net service revenues
grew by 8%.
Depreciation and amortization expenses decreased approximately $17,000
during the three months ended June 30, 1998 as compared to the comparable period
in 1997. Depreciation expense as a percentage of net service revenue declined to
approximately
9
<PAGE>
5% for the three months ended June 30, 1998, as compared to 7% in the
corresponding period of 1997. The Company has committed to invest approximately
$750,000 to implement an Oracle database on a Unix network server to support
study management, patient management, data management and the accounting
department. This Oracle database and network equipment installation is being
completed in the third quarter of 1998. Depreciation expense is expected to
increase to approximately 7% of net service revenues once this installation is
completed.
Interest income increased by approximately $29,000 during the three months
ended June 30, 1998 as compared to the comparable period in 1997. This is
primarily the result of the increase in the funds available for investment
resulting from the sale of preferred stock in late 1997. Interest expense
increased by approximately $13,000 during the three months ended June 30, 1998
as compared to the comparable period in 1997. This increase is primarily the
result of utilization of the Company's working capital line of credit which was
put in place in late 1997.
The Company recorded no income tax benefit as a result of the net operating
losses for the three months ended June 30, 1998 and 1997, due to the uncertainty
that the loss carryforwards will be utilized.
Six months ended June 30, 1998 compared with six months ended June 30, 1997
- ---------------------------------------------------------------------------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statement of operations for the six months
ended June 30, 1998 and 1997, and the percentage of net service revenue for each
item. Any results or trends illustrated in the following table may not be
indicative of future results or trends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
----------- -----------
Service revenues $ 6,191,445 $ 5,396,891
Reimbursable costs 1,945,269 2,085,836
----------- -----------
Net service revenue 4,246,176 100.0% 3,314,055 100.0%
Operating costs and expenses:
Direct costs 3,241,859 76.3% 2,185,332 65.9%
Selling, general and administrative 1,654,469 39.0% 1,724,185 52.0%
Depreciation and amortization 213,813 5.0% 244,359 7.4%
----------- -----------
Total operating costs and expenses 5,110,141 120.3% 4,153,876 125.3%
----------- -----------
Loss from operations ( 863,965) -20.3% (839,821) -25.3%
Net interest income (expense) 34,033 .8% ( 10,773) -0.4%
----------- -----------
Net loss $( 829,832) -19.5% $( 850,594) -25.7%
=========== ===========
</TABLE>
10
<PAGE>
Net service revenues increased approximately $930,000, or 28%. The
increase is primarily attributable to an increase in the volume and size of
clinical trials and, to a lesser extent, an increase in data management and
consulting engagements.
Direct costs increased approximately $1,057,000, or 48%. The increase in
direct costs is primarily attributable to the increase in project personnel
costs resulting from additional full-time study, patient and data management
staff and related associated overhead. As a percentage of net service revenues,
direct costs increased to approximately 76% of net service revenue as compared
to approximately 66% for the same period in 1997. Staffing levels were increased
in 1997 in anticipation of certain sponsor programs which were scheduled to
commence in 1997 but which were delayed in 1997 and canceled in June 1998.
Management expects that direct costs as a percentage of net service revenue will
approximate 70% for the calendar year of 1998, which is approximately the level
experienced for 1997.
Selling, general and administrative expenses decreased approximately
$70,000 or 4%. Selling, general and administrative expenses decreased to 39% of
net service revenue during the six months ended June 30, 1998 from 52% in the
corresponding period in 1997. This decrease is primarily attributable to lower
costs and expenses combined with the growth in net service revenue. Management
expects this percentage to further decrease should the growth in net service
revenues continue in the future.
Depreciation and amortization expenses decreased approximately $30,000 or
12%. Depreciation and amortization expenses decreased to 5% of net service
revenues for the six months ended June 30, 1998 as compared to 7% in the prior
period. Depreciation expenses will increase in the third and fourth quarters of
1998 based upon the completion of the installation of the Oracle database
project and is expected to increase to approximately 7% of net service revenues.
The Company recorded no income tax benefit as a result of the net operating
losses for the six months ended June 30, 1998 and 1997, due to the uncertainty
that the loss carryforwards will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and internal
growth with proceeds from private placements of equity securities, advances from
shareholders and borrowing arrangements under capital lease obligations and bank
lines of credit. Investing activities have consisted of capital expenditures,
primarily for leasehold improvements, information systems, furniture and office
equipment.
11
<PAGE>
Typically, cash flows from contracts include a payment at the time a
contract commences and the balance in installments over the contract's duration,
in some cases on a milestone completion basis. Consequently, cash receipts do
not necessarily correspond to costs incurred and revenue recognized on
contracts. The Company's cash flow is influenced by changes in levels of
accounts receivable. Accounts receivable decreased to approximately $2,000,000
at June 30, 1998 from approximately $2,470,000 at December 31, 1997. Cash
collections from clinical study contracts for the six months ended June 30,
1998, totaled approximately $6,300,000 as compared with approximately $4,697,000
for the corresponding period in 1997.
Net cash flow used in operating activities was approximately $800,000 for
the three months ended June 30, 1998, as compared to approximately $93,000 in
the corresponding period in 1997. The continuation of the negative trend in net
cash used in operations in 1998 is primarily attributable to the net loss
incurred for the six months ended June 30, 1998. Net cash decreased by
approximately $745,000 for the six months ended March 31, 1998.
Investing activities are attributable to purchases of property and
equipment and they declined to approximately $21,000 in the six months ended
June 30, 1998 as compared to approximately $270,000 in the comparable period of
1997. The Company has committed to invest approximately $750,000 in Oracle
database software and a Unix network system during the next 3 months. This
investment will be financed with operating and capital leases.
Financing activities consist of net borrowings under the Company's
revolving working capital line of credit. At June 30, 1998, there was
approximately $330,000 in outstanding borrowings and a remaining availability of
$2,170,000 under the line of credit. Pursuant to its Class B preferred stock
agreement, the Company paid approximately $260,000 in dividends during the six
months ended June 30, 1998.
Management believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit and lease lines of credit, will be sufficient to fund its operations in
1998. In the future, the Company may acquire businesses to expand its contract
backlog and to enhance its therapeutic expertise. Any such acquisition would
require additional external financing, and the Company may seek such funds from
public or private issuance's of equity, debt securities, or bank financing.
There can be no assurance that such financing will be available on terms
acceptable to the Company.
12
<PAGE>
YEAR 2000
Information systems are an integral part of the services and products the
Company provides. The Company is assessing the Year 2000 issue from an
internal, supplier and customer perspective. The Company is in the process of
installing new software systems that will be completed by December 31, 1998,
which are Year 2000 compliant. Although the Company believes at this time that
neither the costs nor expenses of the Year 2000 issue will be material to the
Company, the ultimate costs and expenses are currently unknown and such costs
or the consequences of failure to correct any Year 2000 issues could have a
material impact on the Company's financial condition, business or operations.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-QSB, in other SEC filings or
written materials, or orally by the Company or it representatives may constitute
"forward-looking" statements within the meaning of the federal securities laws.
The Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results
expressed in the Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the factors discussed in "Risk
Factors" under Item 1 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company made the following sales of its Common Stock and Preferred Stock
during the six months ended June 30, 1998. None of the sales involved the use
of underwriters.
Amount of
Date of Sale Class of Securities Total
or Issuance Securities (Shares) Purchasers Consideration
- ------------------ ----------------- ----------- ------------- -------------
1. February 1998 Common Stock 50,000 2 individuals $ 5,000.00
1. May 1998 Common Stock 33,334 1 individual $36,667.40
2. June 1998 Class A Preferred 157 4 entities dividend
The sales pursuant to items 1 and 2 above were made upon exercise of options
under the Company's Amended and Restated 1995 Director, Employee and Consultant
Stock Option Plan and were made in reliance upon Regulation 701 promulgated
under the Securities Act of 1933.
The issuances described in item 3 were scheduled dividends on the Company's
outstanding shares of Class A Convertible Preferred Stock. The Class A
Convertible Preferred Stock terms provide for semi-annual dividends, which are
payable in kind at the rate of 8% per annum. The Company does not believe that
payment of these dividends constitutes a separate sale and believes that, to the
extent the issuance may be deemed to be a sale, it is exempt pursuant to Section
4(2) of the Securities Act of 1933 and Rule 506 thereunder. Certificates
representing securities issued in payment of the dividends bore restrictive
legends. The Class A Convertible Preferred Stock is convertible into that
number of shares of Common Stock of the Company as is equal to the liquidation
preference of the Class A Convertible Preferred Stock being converted, divided
by a "conversion value," which is initially $1.50 and which is subject to
adjustment if certain events occur. No such events had occurred as of June 30,
1998.
In addition to the issuances described above, during this period the Company
granted options to certain directors of the Company to acquire up to 25,000
shares of the Company's Common Stock at an exercise price of $2.00 per share.
The options are exercisable immediately. The options were granted in reliance
upon an exemption under Section 4(2) of the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on May 19,
1998. At the meeting, the holders of the Company's Common Stock and Preferred
Stock elected five directors of the Company. On March 30, 1998, the Board of
Directors of the Company had voted, effective as of the Annual Meeting of
Shareholders, to fix the size of the Board at five members. The holders of
Common Stock elected Messrs. Robert S. Sammis and James W. Clark Jr. as
directors; the holders of Class A Preferred Stock elected Dr. Zola P. Horovitz
and Mr. Joseph L. Dowling as directors; and the holders of Class B Preferred
Stock elected Mr. Craig Macnab as a director.
As to the election of the directors by the holders of the Company's Common
Stock, there were 2,464,650 votes for the election of Messrs. Robert S. Sammis
and James W. Clark Jr. as directors, 28,200 votes against these nominees and
789,836 votes abstaining. As to the election of the directors by the holders of
the Company's Class A Preferred Stock, there were 2,620,000 votes for the
election
14
<PAGE>
of Dr. Zola P. Horovitz and Mr. Joseph L. Dowling as directors, no votes against
either nominee and no abstentions. As to the election of the director by the
holders of the Company's Class B Preferred Stock, there were 1,667 votes for the
election of Mr. Craig Macnab as a director, no votes against the nominee and no
abstentions.
Also at the Annual Meeting, the holders of the Company's Common Stock and
Convertible Preferred Stock approved an amendment to the Company's Articles of
Incorporation (i) to increase the number of the authorized shares of the Company
to 75,155,181 to add 100,000 shares of Class C Preferred Stock and (ii) to
authorize the Board of Directors of the Company, subject to certain limitations
prescribed by Nevada law, without further action by the holders of the Company's
Common Stock, to issue shares of Class C Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. A total of 2,449,759
shares of the Company's Common Stock, or 59.2% of the outstanding stock of that
class, 3,930 shares of the Company's Class A Convertible Preferred Stock, or
100% of that class, and 50,000 shares of the Company's Class B Convertible
Preferred Stock, or 100% of that class, were represented at the annual meeting
in person or by proxy. Of the shares represented at the meeting, 2,357,139
shares of the Common Stock, 3,930 shares of the Class A Convertible Preferred
Stock, and 50,000 shares of the Class B Convertible Preferred Stock voted in
favor of the amendments to the Articles of Incorporation, 87,120 shares of the
Company's Common Stock voted against the amendments and 5,500 shares of the
Company's Common Stock abstained from voting.
The final matter voted on at the Annual Meeting was the ratification of the
appointment of Price Waterhouse, LLP, independent accountants, as auditors for
the fiscal year ending December 31, 1998. As to this ratification, there were
2,463,650 votes by the holders of the Common Stock, 2,620,000 votes by the
holders of the Class A Preferred Stock, and 1,667 votes by the holders of the
Class B Preferred Stock for the ratification, 28,500 votes by the holders of the
Common Stock against the ratification and 790,536 votes by the holders of the
Common Stock abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
3(a) Certificate of Amendment of Articles of Incorporation filed with the
Secretary of State of Nevada on May 22, 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fiscal quarter covered by this
report.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CLINICOR, INC.
Date August 13, 1998 By /s/ ROBERT S. SAMIS
--------------------------------------
Robert S. Sammis
President
(Principal Executive Officer)
Date August 13, 1998 By /s/ JAMES W. CLARK, JR.
--------------------------------------
James W. Clark, Jr.
Vice President and Chief Financial
Officer
(Principal Financial Officer)
16
<PAGE>
EXHIBIT 3(a)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
MAY 22 1998
NO. C15780-93
---------
/s/DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CLINICOR, INC.
The undersigned, being the President and Assistant Secretary of CLINICOR,
INC., do certify and set forth:
1. The name of the Corporation is CLINICOR, INC.
2. Section 1 and the first paragraph of Section 2 of Article VI of the
Articles of Incorporation of the Corporation shall be amended to read in their
entirety as follows:
Section 1. Authorized Shares. The aggregate number of shares which
-----------------
the Corporation shall have authority to issue is 75,155,181, of which (a)
75,000,000 shares shall be designated "Common Stock", par value $.001 per
share, (b) 5,181 shares shall be designated "Class A Convertible Preferred
Stock", without par value, (c) 50,000 shares shall be designated "Class B
Convertible Preferred Stock", without par value, and (d) 100,000 shares
shall be designated "Class C Serial Preferred Stock", without par value.
The "Class A Convertible Preferred Stock" is sometimes referred to as the
"Class A Preferred Stock", the "Class B Convertible Preferred Stock" is
sometimes referred to as the "Class B Preferred Stock", and both of such
classes of stock are sometimes referred to collectively as the "Convertible
Preferred Stock." The "Class C Serial Preferred Stock" is sometimes
referred to as the "Class C Preferred Stock." The "Convertible Preferred
Stock" and "Class C Preferred Stock" are sometimes referred to collectively
as the "Preferred Stock".
Section 2. Relative Rights. Subject to the rights of the holders of
---------------
the Preferred Stock, the Common Stock shall be entitled to dividends out of
funds legally available therefor, when, as and if declared and paid to the
holders of Common Stock, and upon liquidation, dissolution or winding up of
the Corporation, to share ratably in the assets of the Corporation
available for distribution to the holders of Common Stock. Except as
otherwise provided herein or by law, the holders of the Common Stock shall
have full voting rights and powers and each share of Common Stock shall be
entitled to one vote. The following is a statement of the initial
designations, preferences, limitations and relative rights in respect of
the shares of each class of Convertible Preferred Stock of the Corporation
and the rights of the Board of Directors to designate the voting powers,
designations, preferences, limitations, restrictions and relative or other
rights of each series of Class C Preferred
<PAGE>
Stock and to alter the voting powers, designations, preferences,
limitations, restrictions and relative or other rights of the Convertible
Preferred Stock. Unless otherwise indicated, references to "Sections"
contained herein shall refer to subdivisions of this Section 2 of Article
VI.
3. The last sentence of Section A(3)(a) and Section B(2)(a) of Section 2
of Article VI of the Articles of Incorporation shall be amended to read in its
entirety as follows:
In any event, if the assets of the Corporation available for distribution
to the holders of Convertible Preferred Stock shall exceed the distribution
required to be made to the holders of Class A Preferred Stock and the Class
B Preferred Stock as herein described, such excess assets shall be
distributed pro-rata among the holders of Common Stock, subject to the
rights of the holders of any Class C Preferred Stock.
4. There shall be added a new Subsection C of Section 2 of Article VI of
the Articles of Incorporation, which shall read in its entirety as follows:
C. Class C Preferred Stock.
-----------------------
The Board of Directors of the Corporation is authorized at any
time, and from time to time, to provide for the issuance of shares of Class
C Preferred Stock in one or more series. For each series, the Board of
Directors shall determine, by resolution or resolutions adopted prior to
the issuance of any shares thereof, the voting powers, designations,
preferences, limitations, restrictions and relative or other rights
thereof, including but not limited to the following relative rights and
preferences, as to which there may be variations among different series:
1. The rate and manner of payment of dividends, if any;
2. Whether shares may be redeemed and, if so, the redemption
price and the terms and conditions of redemption;
3. The amount payable for shares in the event of liquidation,
dissolution or other winding up of the Corporation;
4. Sinking fund provisions, if any, for the redemption or
purchase of shares;
5. The terms and conditions, if any, on which shares may be
converted or exchanged;
6. Voting rights, if any; and
2
<PAGE>
7. Any other rights or preferences of such shares, to the full
extent now or hereafter permitted by the laws of the State of Nevada.
The Board of Directors shall have the authority to determine the
number of shares that will comprise each series.
Each series of Class C Preferred Stock may be subordinate or
senior to or pari passu with the Class A Preferred Stock and the Class B
Preferred Stock, as the Board of Directors may determine. The resolution
or resolutions of the Board of Directors setting forth the voting powers,
designations, preferences, limitations, restrictions and relative or other
rights of any series of Class C Preferred Stock may also modify the voting
powers, designations, preferences, limitations, restrictions and relative
or other rights of the Convertible Preferred Stock.
Prior to the issuance of any shares of a series, but after
adoption by the Board of Directors of the resolution establishing such
series, the appropriate officers of the Corporation shall file such
documents with the State of Nevada as may be required by law.
Notwithstanding anything herein to the contrary, no series of
Class C Preferred Stock may be established unless the resolutions setting
forth the voting powers, designations, preferences, limitations,
restrictions and relative or other rights of such series of Class C
Preferred Stock (including any modification of the voting powers,
designations, preferences, limitations, restrictions and relative or other
rights of the Convertible Preferred Stock) are approved, in the case of
each and every series of Class C Preferred Stock, by the affirmative vote
or consent of the holders of at least two-thirds of the shares of Class A
Preferred Stock at the time outstanding, voting separately as a class, and
by the affirmative vote or consent of the holders of at least a majority of
the shares of Class B Preferred Stock then outstanding, voting separately
as a class.
5. The amendment effected herein was authorized by resolutions adopted at
a meeting on March 30, 1998 of the Board of Directors pursuant to Section 78.315
of the Nevada Revised Statutes, declaring the advisability thereof and calling a
meeting of the shareholders for the purpose of considering and voting on the
proposed amendment.
6. The number of shares of the Corporation outstanding and entitled to
vote on the amendment to the articles of incorporation at the time of adoption
was 4,136,400 shares of Common Stock with one (1) vote per share, 3,930 shares
of Class A Convertible Preferred Stock with six hundred sixty-six and two-thirds
(666-2/3) votes per share, and 50,000 shares of Class B Convertible Preferred
Stock with thirty-three and one-third (33-1/3) votes per share. The foregoing
amendment was adopted by the shareholders of the corporation on May 19, 1998.
3
<PAGE>
7. The number of shares of each class voted for and against such
amendment, respectively was:
NUMBER OF SHARES VOTED
----------------------
CLASS FOR AGAINST
----- --- -------
Common Stock 2,357,139 87,120
Class A Convertible Preferred Stock 3,930 -0-
Class B Convertible Preferred Stock 50,000 -0-
IN WITNESS WHEREOF, we have executed this Certificate on this 20th day of
----
May, 1998.
CLINICOR, INC.
By: /s/ Robert S. Sammis
--------------------------------------
Robert S. Sammis, President
/s/ Lori Melton
- -----------------------------------
Lori Melton, Assistant Secretary
STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
This instrument was acknowledged before me on the 20th day of May, 1998, by
----
Robert S. Sammis as President of Clinicor, Inc.
/s/ Marilyn S. Deavours
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
- --------------------------
MARILYN S. DEAVOURS
SEAL NOTARY PUBLIC
STATE OF TEXAS
COMM. EXP. 05-22-2001
- --------------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Clinicor,
Inc. financial statements as of June 30, 1998, and for the 3- and 6-month
periods ended June 30, 1998 and the accompanying notes AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
*Identify the financial statement(s) to be referenced in the legend:
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 2,509,323 2,509,323
<SECURITIES> 0 0
<RECEIVABLES> 2,003,989 2,003,989
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,708,201 4,708,201
<PP&E> 1,728,257 1,728,257
<DEPRECIATION> 891,871 891,871
<TOTAL-ASSETS> 5,544,588 5,544,588
<CURRENT-LIABILITIES> 2,162,164 2,162,164
<BONDS> 45,455<F1> 45,455<F1>
0 0
9,087,000 9,087,000
<COMMON> 4,087 4,087
<OTHER-SE> (5,750,031) (5,750,031)
<TOTAL-LIABILITY-AND-EQUITY> 5,544,588 5,544,588
<SALES> 2,047,260 4,246,176
<TOTAL-REVENUES> 2,047,260 4,246,176
<CGS> 1,390,532 3,241,859
<TOTAL-COSTS> 2,327,406 5,110,141
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,435<F2> 34,033<F2>
<INCOME-PRETAX> (268,711) (829,932)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (268,711) (829,932)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (268,711) (829,932)
<EPS-PRIMARY> (0.12) (0.24)
<EPS-DILUTED> (0.12) (0.24)
<FN>
<F1> Consists of capitalized lease obligations, excluding current portions.
<F2> Net interest expense is net of interest revenue.
</FN>
</TABLE>
