<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, 1999
[ ] 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 1, 1999, 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
--- ---
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Operations - three and six months ended June 30,
1999 and 1998 4
Statements of Cash Flows - six months ended June 30,
1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 7
PART II
OTHER INFORMATION
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Clinicor, Inc.
Balance Sheet
==========================================================================================================================
June 30 December 31,
1999 1998
(Unaudited) (Note A)
------------------- ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 984,010 $ 1,665,672
Accounts receivable, net 3,684,228 2,272,376
Prepaid and other current assets 337,628 352,337
------------------- -------------------
Total current assets 5,005,866 4,290,385
Property and equipment, net 1,137,395 1,097,441
Other assets, net 4,588 1,717
------------------- -------------------
Total assets $ 6,147,849 $ 5,389,543
=================== ===================
Liabilities and shareholders' equity
Current liabilities:
Current portion of obligations under capital leases $ 413,374 $ 307,796
Accounts payable and accrued liabilities 1,991,572 1,414,636
Line of credit 1,172,200 416,624
Deferred revenue 1,645,946 989,540
------------------- -------------------
Total current liabilities 5,223,092 3,128,596
Obligations under capital leases, less current portion 226,135 324,376
------------------- -------------------
Total liabilities 5,449,227 3,452,972
Shareholders' equity:
Class A convertible preferred stock, no par value,
5,181 shares authorized 4,423 and 4,253 shares issued
and outstanding, respectively , at liquidation value 4,423,000 4,253,000
Class B convertible preferred stock, no par value,
50,000 shares authorized, issued
and outstanding, at liquidation value 5,000,000 5,000,000
Common stock, $0.001 par value, 75,000,000 shares
authorized, 4,169,734 and 4,169,734 shares issued
and outstanding, respectively 4,170 4,170
Additional paid-in capital 248,534 718,683
Deferred compensation (11,098) (22,196)
Accumulated deficit (8,965,984) (8,017,086)
------------------- -------------------
Total shareholders' equity 698,622 1,936,571
------------------- -------------------
Total liabilities and shareholders' equity $ 6,147,849 $ 5,389,543
=================== ===================
</TABLE>
Note A: The balance sheet at December 31, 1998 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>
<TABLE>
<CAPTION>
Clinicor, Inc.
Statement of Operations
==============================================================================================================================
Three Months Ended June 30, Six Months Ended June 30
-------------------------------------- -----------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited)
----------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Service revenue:
Gross revenue $ 3,337,979 $ 3,324,249 $ 6,528,294 $ 6,191,445
Reimbursable costs 1,686,687 1,276,989 3,263,821 1,945,269
----------------- ------------------- ----------------- ----------------
Net service revenue 1,651,292 2,047,260 3,264,473 4,246,176
----------------- ------------------- ----------------- ----------------
Operating costs and expenses:
Direct costs 1,010,624 1,390,532 2,092,189 3,241,859
Selling, general and administrative 961,289 828,417 1,833,220 1,654,469
Depreciation and amortization 141,812 108,457 242,875 213,813
----------------- ------------------- ----------------- ----------------
Total operating costs and expenses 2,113,725 2,327,406 4,168,284 5,110,141
----------------- ------------------- ----------------- ----------------
Loss from operations (462,433) (280,146) (903,811) (863,965)
Other income and expenses:
Interest income 14,052 37,996 32,304 75,605
Interest expense 50,506 26,561 90,753 41,572
Other 2,105 0 13,361 0
----------------- ------------------- ----------------- ----------------
Other income and expenses (34,349) 11,435 (45,088) 34,033
----------------- ------------------- ----------------- ----------------
Net loss $ (496,782) $ (268,711) $ (948,899) $ (829,932)
================= =================== ================= ================
Net loss $ (496,782) $ (268,711) $ (948,899) $ (829,932)
Preferred stock dividends (235,074) (228,606) (470,148) (457,212)
----------------- ------------------- ----------------- ----------------
Net loss applicable to common stock $ (731,856) $ (497,317) $ (1,419,047) $ (1,287,144)
================= =================== ================= ================
Net loss applicable to common
stock per share $ (0.18) $ (0.12) $ (0.34) $ (0.31)
================= =================== ================= ================
Weighted average number of common
shares equivalent outstanding 4,169,734 4,148,488 4,169,734 4,131,261
================= =================== ================= ================
</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,
-----------------------------------
1999 1998
(Unaudited) (Unaudited)
------------- -------------------
<S> <C> <C>
Operating activities:
Net loss $ (948,899) $ (829,932)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 242,875 213,813
Noncash stock option compensation expense 11,100 (241,409)
Net changes in assets and liabilities:
Accounts receivable (1,411,852) 468,939
Prepaid expenses and other assets 11,838 (65,066)
Accounts payable and accrued liabilities 576,789 5,161
Deferred revenue 656,406 (365,281)
------------- ---------------
Net cash used in operating activities (861,743) (813,775)
Investing activities:
Purchases of property and equipment (122,610) (21,069)
Financing activities:
Payments on capital leases (152,885) (21,628)
Net proceeds from issuing common stock 0 41,667
Net borrowings under line of credit 755,576 330,613
Preferred stock dividends (300,000) (261,667)
------------- ---------------
Net cash provided by financing activities 302,691 88,985
------------- ---------------
Net decrease in unrestricted cash and cash equivalents (681,662) (745,859)
Unrestricted cash and cash equivalents at beginning of year 1,665,672 3,255,182
------------- ---------------
Unrestricted cash and cash equivalents at end of period $ 984,010 $ 2,509,323
============= ===============
Supplemental cash flow disclosures:
Interest paid $ 90,753 $ 34,442
============= ===============
Non-cash financing activities:
Preferred Stock dividends $ 170,000 $ 157,000
============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
June 30, 1999 (Unaudited)
================================================================================
Note l - 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 months and six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1999 for the fiscal year ended December 31, 1998
(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, 1999 and June 30, 1998, stock options and warrants to purchase
1,957,631 and 2,001,706 shares of common stock, respectively; Class A
Convertible Preferred Stock convertible into 2,948,667 and 2,724,667 shares of
common stock, respectively; and Class B Convertible Preferred Stock
convertible into 1,818,182 and 1,666,667 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.
6
<PAGE>
ITEM 2. 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, 1999 and 1998, 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 project management, clinical monitoring, patient
recruitment, data management, biostatistical analysis, medical affairs,
regulatory affairs, quality assurance and other consultation 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 net service 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 net service revenue backlog was approximately $8.0
million at June 30, 1999 as compared to $4.4 million at December 31, 1998. 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 fees, 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 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, 1999 compared with three months ended June 30, 1998
- --------------------------------------------------------------------------------
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, 1999 and 1998, 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,
------------------------------
- --------------------------------------------------------------------------------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Service revenue $ 3,337,979 $ 3,324,249
Reimbursable costs 1,686,687 1,276,989
------------ -----------
Net service revenue 1,651,292 100.0% 2,047,260 100.0%
Operating costs and expenses:
Direct costs 1,010,624 61.2% 1,390,532 67.9%
Selling, general and administrative 961,289 58.2% 828,417 40.5%
Depreciation and amortization 141,812 8.6% 108,457 5.3%
------------ -----------
Total operating costs and expenses 2,113,725 128.0% 2,327,406 113.7%
------------ -----------
Loss from operations ( 462,433) -28.0% (280,146) -13.7%
Net interest income (expense) (34,349) - 2.1% 11,435 0.6%
------------ -----------
Net loss $( 496,782) -30.1% $(268,711) -13.1%
============ ===========
</TABLE>
Net service revenue decreased approximately $396,000 or 19%. The decrease
is primarily attributable to the decline in contract backlog during 1998
resulting from contract cancellations and less new business being added due to a
restructuring of our business development efforts. During 1999, our new
business development staff and new marketing initiatives have increased contract
backlog by over 80%. If this trend continues for the remainder of 1999,
management expects net service revenue to increase on a quarter-to-quarter basis
commencing next quarter.
Direct costs decreased approximately $380,000 or 27%. Most of the decrease
in direct costs is due to reductions of staff and related overhead that occurred
during 1998 as a result of contract cancellations. Due to the increase in
contract backlog in 1999, new staff is now being added. As a percentage of net
service revenue, direct costs were approximately 61% for the three months ended
June 30, 1999 as compared to approximately 68% for the same period in 1998.
Management's goal is to maintain direct costs at approximately 60% of net
service revenue.
9
<PAGE>
Selling, general and administrative expenses increased by approximately
$133,000 or 16%. The primary cause of this increase is the expansion of our
business development staff and new marketing and promotion initiatives. This
has resulted in the expansion of our contract backlog by 80% in 1999. Selling,
general and administrative expenses were approximately 58% of net service
revenue for the three months ended June 30, 1999, as compared to 40% for the
corresponding period in 1998. If net service revenue begins to increase over
the next few quarters as management expects due to the 1999 growth in backlog,
this percentage would be expected to decrease in the future to 30% of net
service revenue.
Depreciation and amortization expenses increased approximately $33,000
during the three months ended June 30, 1999 as compared to the comparable period
in 1998. Depreciation expense as a percentage of net service revenue increased
to approximately 9% for the three months ended June 30, 1999, as compared to 5%
in the corresponding period of 1998. The increase is primarily related to the
implementation in 1998 of an Oracle database on a Unix network server to support
project management, patient recruitment, data management and the accounting
department. Depreciation expense is expected to decrease in the future to
approximately 5% of net service revenue if net service revenue increases as
expected based upon the 1999 growth in contract backlog.
Interest income decreased by approximately $24,000 during the three months
ended June 30, 1999 as compared to the comparable period in 1998. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $24,000 during the three months
ended June 30, 1999 as compared to the comparable period in 1998. This increase
is primarily the result of utilization of the Company's working capital line of
credit.
The Company recorded no income tax benefit as a result of the net operating
losses for the three months ended June 30, 1999 and 1998, due to the uncertainty
that the loss carryforwards will be utilized.
10
<PAGE>
Six months ended June 30, 1999 compared with six months ended June 30, 1998
- ---------------------------------------------------------------------------
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, 1999 and 1998, 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,
--------------------------------
- --------------------------------------------------------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Service revenue $ 6,528,294 $6,191,445
Reimbursable costs 3,263,821 1,945,269
---------- ---------
Net service revenue 3,264,473 100.0% 4,246,176 100.0%
Operating costs and expenses:
Direct costs 2,092,189 64.1% 3,241,859 76.3%
Selling, general and administrative 1,833,220 56.2% 1,654,469 39.0%
Depreciation and amortization 242,875 7.4% 213,813 5.0%
---------- ---------
Total operating costs and expenses 4,168,284 127.7% 5,110,141 120.3%
---------- ---------
Loss from operations ( 903,811) -27.7% (863,965) -20.3%
Net interest income (expense) (45,088) -1.4% 34,033 0.8%
---------- ---------
Net loss $( 948,899) -29.1% $(829,932) -19.5%
========== =========
</TABLE>
Net service revenue decreased approximately $981,700, or 23%. The decrease
is primarily attributable to the decline in contract backlog during 1998
resulting from contract cancellations and less new business being added due to a
restructuring of our business development efforts. During 1999, our new
business development staff and new marketing initiatives have increased contract
backlog by over 80%. If this trend continues for the remainder of 1999,
management expects net service revenue to increase on a quarter-to-quarter basis
commencing next quarter.
Direct costs decreased approximately $1,150,000 or 35%. The decrease in
direct costs is primarily due to reductions of staff and related overhead that
occurred during 1998 as a result of contract cancellations. Due to the increase
in contract backlog in 1999, new staff is now being added. As a percentage of
net service revenue, direct costs decreased to approximately 64% of net service
revenue as compared to approximately 76% for the same period in 1998.
Management's goal is to reduce direct costs to approximately 60% of net service
revenue.
Selling, general and administrative expenses increased approximately
$179,000 or 11%. The primary cause of this increase is the expansion of our
business development staff and new marketing and promotion initiatives. This
has resulted in the expansion of our contract backlog by 80% in 1999. Selling,
general and administrative expenses increased to 56% of net service revenue
during the six months ended June 30, 1999 from
11
<PAGE>
39% in the corresponding period in 1998. If net service revenue begins to
increase over the next few quarters as management expects based upon the 1999
growth in backlog, this percentage is expected in the future to decrease to 30%
of net service revenue.
Depreciation and amortization expenses increased approximately $29,000 or
14%. Depreciation and amortization expenses increased to 7% of net service
revenue for the six months ended June 30, 1999 as compared to 5% in the prior
period. The increase is primarily related to the implementation in 1998 of an
Oracle database on a Unix network server to support project management, patient
recruitment, data management and the accounting department in 1998. Depreciation
expense is expected in the future to decrease to approximately 5% of net service
revenue if net service revenue increases as expected based upon the 1999 growth
in contract backlog.
Interest income decreased by approximately $43,000 during the six months
ended June 30, 1999 as compared to the comparable period in 1998. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $49,000 during the six months
ended June 30, 1999 as compared to the comparable period in 1998. This increase
is primarily the result of utilization of the Company's working capital line of
credit.
The Company recorded no income tax benefit as a result of the net operating
losses for the six months ended June 30, 1999 and 1998, 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.
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 the level of
accounts receivable. Accounts receivable increased to approximately $3,684,000
at June 30, 1999 from approximately $2,270,000 at December 31, 1998. The
significant increase in the balance of accounts receivable at June 30, 1999 is
due to the recent start of a large clinical trial that includes significant
levels of reimbursed costs. Cash collections from clinical study contracts for
the six months ended June 30, 1999, totaled approximately $5,360,000 as compared
with approximately $6,290,000 for the corresponding period in 1998.
12
<PAGE>
Net cash flow used in operating activities was approximately $862,000 in
the six months ended June 30, 1999, as compared to approximately $814,000 in the
corresponding period in 1998. The continuation of the negative trend in net
cash used in operations in 1999 is primarily attributable to the net loss
incurred during the six months ended June 30, 1999. Net cash decreased by
approximately $682,000 for the six months ended June 30, 1999.
Investing activities are attributable to purchases of property and
equipment and they increased to approximately $123,000 in the six months ended
June 30, 1999 as compared to approximately $21,000 in the comparable period of
1998. This increase is primarily due to the development of an enterprise
software application, CorDat@, which provides the Company's sponsors with an
Intranet web connection to Clinicor's Oracle database applications.
Financing activities consist of net borrowings under the Company's
revolving working capital line of credit. At June 30, 1999, there was
approximately $1,170,000 in outstanding borrowings. The line of credit provides
a borrowing base primarily determined as a percentage of billed accounts
receivable up to a maximum borrowing amount of $2,500,000.
Pursuant to the preferred stock terms contained in the Company's Articles
of Incorporation, the Company paid $300,000 in dividends to the holder of its
Class B Preferred Stock during the six months ended June 30, 1999. In order to
maintain adequate working capital levels to finance the 1999 growth in contract
backlog, the Company and its Preferred Class B stockholder have agreed to
suspend cash dividend payments during the remainder of 1999. The agreement also
provides for the dividend payments to re-commence on February 1, 2000 and for
all accrued and unpaid dividends to be brought current by May 1, 2000, if the
Company determines that its working capital is adequate to do so.
Management believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit, will be sufficient to fund its operations in 1999. Should anticipated
growth in contract backlog levels and net service revenue not occur as expected
during the remainder of 1999 or should pending projects be delayed or cancelled,
the Company will be required to seek additional external financing in early
2000. Such external financing might be in the form of public or private
issuances of equity or debt securities or bank financing. There can be no
assurance that such financing can be obtained or obtained on terms acceptable to
the Company. Regardless of the availability of external financing, the Company
intends to continue to investigate strategies to preserve working capital.
13
<PAGE>
YEAR 2000
Information systems are an integral part of the services the Company
provides. Since many computer and software systems were designed to handle
dates with just two digits to represent the year applicable to a transaction,
these systems may not operate properly when the last two digits of the year
become "00". For example, on January 1, 2000, these systems may interpret "00"
as the year 1900 not 2000. If the computer equipment and software used in the
operation of the Company do not correctly recognize date information when the
year changes to 2000, there could be an adverse impact on the Company's
operations.
The Company began its assessment of the Year 2000 issue from an internal
perspective in late 1997. The Company decided to change its information
technology ("IT") systems including those relating to clinical operations, data
management operations and financial operations, to Year 2000 compliant software
applications on an Oracle database platform in the first quarter of 1998. These
new systems were implemented to improve management's control of the organization
and increase operating efficiency. The installation of these software systems
was substantially completed by December 31, 1998, and they are currently in
production. The Company estimates that it has spent approximately $750,000 on
its hardware and software systems to accommodate the Oracle database and related
software applications. These expenditures were primarily financed through
operating and capital leases.
The Company has also reviewed and tested its non-IT systems such as fax
machines and telephone systems without experiencing any material failures. The
Company intends to perform an integrated systems test in the third quarter to
assure itself that all IT and non-IT systems will be fully capable of handling
the Year 2000 issue.
The Company is in the process of contacting its principal clients
concerning the state of their Year 2000 readiness. Until that effort is
completed, the Company cannot be assured that those other systems will be Year
2000 compliant on time and is unable to estimate the impact of such a failure.
The Company believes that its most likely worst case Year 2000 scenarios
would relate to problems with the systems of unrelated third parties rather than
the Company's internal systems or those of its clients. It is clear that the
Company has the least ability to assess and remediate the Year 2000 problems of
third parties. The Company believes the risks are greatest with infrastructure
(e.g. electricity supply and water service), telecommunications and
transportation systems.
The Company is not in a position to identify or to avoid all possible
scenarios; however, the Company is currently assessing scenarios. This
contingency planning will continue through 1999 as the Company learns more about
the preparations and vulnerabilities of third parties regarding Year 2000
issues. Due to the large number of variables involved, the Company cannot
provide an estimate of the damage it might suffer if any of these scenarios were
to occur.
14
<PAGE>
As we get closer to December 31, 1999, certain of the Company's customers
may decide to delay starting or awarding new clinical trials as a part of a
general restriction of awarding new clinical trials. Should any of the
Company's customers adopt such a strategy, this would have a material adverse
impact of the Company's future operating results.
Based on currently available information, management does not believe that
the Year 2000 issues discussed above related to internal systems will have a
material adverse impact on the Company's financial condition or overall trends
in results of operations. However, it is uncertain to what extent the Company
may be affected by such matters. In addition, there can be no assurance that
the failure to ensure Year 2000 capability by a customer or other third party
would not have a material adverse effect on the Company's financial condition or
overall trends in results of 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.
Forward-looking statements in this Form 10-QSB include those relating to future
growth in the Company's contract backlog levels and net service revenue. 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, 1998.
15
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
The Company made the following sales of its Preferred Stock during the six
months ended June 30, 1999. None of the sales involved the use of underwriters.
Amount of
Date of Sale Class of Securities Total
or Issuance Securities (Shares) Purchasers Consideration
- -------------- ----------------- ---------- ---------- -------------
June 1999 Class A Preferred 170 4 entities dividend
The issuances described above 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,
1999.
In addition to the issuances described above, during fiscal 1999 the Company
has granted options to certain employees, officers and directors of the Company
under the Company's Director, Employee and Consultant Stock Option Plan to
acquire an aggregate of 468,500 shares of the Company's Common Stock at exercise
prices ranging from $1.125 to $1.50 per share. The options are subject to
various vesting provisions. Those options that are currently exercisable were
granted in reliance upon an exemption under Section 4(2) of the Securities Act
of 1933.
Item 3. Defaults Upon Senior Securities.
The Company and the holder of its Class B Preferred Stock have mutually
agreed to suspend payment of scheduled August 1 and November 1 quarterly
dividends, each in the amount of $150,000, in order to conserve working capital
to finance the growth in the Company's contract backlog. The suspension of the
dividend does not constitute a default under the Class B Preferred Stock terms.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources."
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held on May 13,
1999. At the meeting, the holders of the Company's Common Stock and Class A
Preferred Stock elected five directors of the Company. The holders of Common
Stock elected Messrs. Robert S. Sammis and James W. Clark Jr. and Dr. Rosina
Maar as directors; and the holders of Class A Preferred Stock elected Dr. Zola
P. Horovitz and Mr. Joel P. Liffmann as directors.
16
<PAGE>
In the election of directors by the holders of the Company's Common Stock,
there were 2,626,680 votes for Messrs. Robert S. Sammis and James W. Clark Jr.
and Dr. Rosina Maar, 25,000 votes against these nominees and 1,000 votes
abstaining. In the election of directors by the holders of the Company's Class
A Preferred Stock, there were 2,835,333 votes for Dr. Zola P. Horovitz and Mr.
Joel P. Liffmann, no votes against either nominee and no abstentions.
The only other matter voted on at the Annual Meeting was the ratification of
the appointment of PricewaterhouseCoopers, LLP, independent accountants, as
auditors for the fiscal year ending December 31, 1999. There were 7,152,680
votes for the ratification and 2,000 votes against the ratification.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10(s) Letter Agreement dated July 29, 1999 by and between the Company and
Finova Mezzanine Capital, Inc.
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.
17
<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, 1999 By: /s/ Robert S. Sammis
-------------------------------------
Robert S. Sammis
President
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ James W. Clark, Jr.
-------------------------------------
James W. Clark, Jr.
Vice President and Chief Financial
Officer (Principal Financial Officer)
18
<PAGE>
[LOGO OF CLINICOR APPEARS HERE]
EXHIBIT 10(s)
July 29, 1999
Finova Mezzanine Capital, Inc.
Attention: Hal Bishop
500 Church Street, Suite 200
Nashville, Tennessee 37219
Gentlemen:
Reference is made to the Preferred Stock Purchase Agreement between Sirrom
Capital Corporation and Clinicor, Inc. (the "Company") dated November 7, 1997
and to the Articles of Incorporation of the Company, as amended, which Articles
describe the obligation of the Company to pay dividends, out of funds legally
available therefor, to Finova Mezzanine Capital, Inc. (formerly Sirrom Capital
Corporation), the holder of its Class B Preferred Stock ("Finova"). Our
agreement is as follows:
1. The dividends that would otherwise be payable by the Company to Finova
on August 1, 1999 and November 1, 1999 will be suspended and will not be paid,
but will accrue. The Company intends to include language in the form attached
hereto as Exhibit A in its report on Form 10-QSB to be filed on or before August
---------
15, 1999. Finova acknowledges that language substantially in such form is
acceptable to it.
2. The parties acknowledge that in agreeing to forego the August 1 and
November 1 dividend payments, Finova is not waiving any of its rights under
Section B(3)(c) of Section 2 of Article VI of the Company's Articles of
Incorporation. Any dividend payments that are not made (whether on August 1,
1999, November 1, 1999 or thereafter) will be counted in determining whether
Finova is entitled to the special voting rights set forth in Section B(3)(c) of
Section 2 of Article VI.
3. The Company will pay to Finova the February 1, 2000 dividend in the
amount of $150,000 and will pay to Finova on May 1, 2000 all dividends then
accrued and unpaid, to the extent in each case that the Board of Directors of
the Company determines, in the exercise of its good faith discretion, that on
such dates funds are legally available for the payment of dividends in those
amounts. Finova understands and acknowledges that, in order for such dividends
to be paid, the Board must determine that the test set forth in Section
78.288(2)(a) of the Nevada General Corporation Law has been met.
<PAGE>
Finova Mezzanino Capital
July 29, 1999
Page 2
4. In consideration of Finova's agreement hereunder, the Company agrees
to pay to Finova, on or before August 16, 1999, a fee in the amount of $17,500
and agrees to reimburse legal fees of counsel for Finova in the amount of
approximately $8,000.
The Company is in agreement with the foregoing. If Finova is also in agreement,
please cause a duly authorized officer of Finova to execute and return one copy
of this letter to us.
Very truly yours,
CLINICOR, INC.
By: /s/ James W. Clark, Jr.
------------------------------------------------------
James W. Clark, Jr.
Vice President and Chief Financial Officer
Agreed to and accepted this
30/th/ day of July, 1999:
-------- ----
Finova Mezzanine Capital, Inc.
By: /s/ Bruce A. Dicks
------------------------------------
Name: Bruce A. Dicks
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
Exhibit A
---------
Item 3. Defaults Upon Senior Securities.
The Company and the holder of its Class B Preferred Stock have mutually agreed
to suspend payment of scheduled August 1 and November 1 quarterly dividends,
each in the amount of $150,000, in order to conserve working capital to finance
the growth in the Company's contract backlog. The suspension of the dividend
does not constitute a default under the Class B Preferred Stock terms. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CLINICOR,
INC. FINANCIAL STATEMENTS AS OF JUNE 30, 1999, AND FOR THE 3- AND 6-MONTH
PERIODS ENDED JUNE 30, 1999, AND THE ACCOMPANYING NOTES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 984,010 984,010
<SECURITIES> 0 0
<RECEIVABLES> 3,684,228 3,684,228
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,005,866 5,005,866
<PP&E> 2,183,412 2,183,412
<DEPRECIATION> 1,046,017 1,046,017
<TOTAL-ASSETS> 6,147,849 6,147,849
<CURRENT-LIABILITIES> 5,223,092 5,223,092
<BONDS> 226,135<F1> 226,135<F1>
0 0
9,423,000 9,423,000
<COMMON> 4,170 4,170
<OTHER-SE> (8,728,548) (8,728,548)
<TOTAL-LIABILITY-AND-EQUITY> 6,147,849 6,147,849
<SALES> 1,651,292 3,264,473
<TOTAL-REVENUES> 1,651,292 3,264,473
<CGS> 1,010,624 2,092,189
<TOTAL-COSTS> 2,113,725 4,168,284
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (34,349)<F2> (45,088)<F2>
<INCOME-PRETAX> (496,782) (948,899)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (496,782) (948,899)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (496,782) (948,899)
<EPS-BASIC> (0.18) (0.34)
<EPS-DILUTED> (0.18) (0.34)
<FN>
<F1>Consists of capitalized lease obligations, excluding current portions.
<F2>Net interest expense is net of interest revenue.
</FN>
</TABLE>
