<PAGE>
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB/A
(Amendment No. 2)
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 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 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)
--------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
--------------------
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
--- ---
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's gross revenue for fiscal year ended December 31, 1999: $14,780,184.
As of March 22, 2000, the aggregate market value of the common stock held by
non-affiliates of the Registrant, computed by reference to the last quoted price
at which such stock was sold on such date as reported on the Over-the-Counter
Bulletin Board was $2,385,353.
As of March 22, 2000, 4,169,734 shares of the Issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
================================================================================
<PAGE>
This Amendment No. 2 on Form 10-KSB/A is being filed to amend Item 7 of
Form 10-KSB. Item 7 as revised is set out below.
Item 7. Financial Statements
Index to Financial Statements:
Page
----
Report of PricewaterhouseCoopers LLP, Independent Accountants F-1
Balance Sheet - December 31, 1999 and 1998 F-2
Statement of Operations - Years ended December 31, 1999 and 1998 F-3
Statement of Shareholders' Equity - December 31, 1999 and 1998 F-4
Statement of Cash Flows - Years ended December 31, 1999 and 1998 F-5
Notes to Financial Statements F-6 - F-17
2
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CLINICOR, INC.
Date May 22, 2000 By /s/ Robert S. Sammis
---------------- ----------------------------------
Robert S. Sammis
President, Principal Executive
Officer
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Clinicor, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Clinicor, Inc. at December 31, 1999
and 1998, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 12, the Company has revised the financial statements as of
December 31, 1999 and 1998 to present $9,603,000 and $9,253,000, respectively,
of convertible preferred stock subject to redemption as convertible preferred
stock outside of shareholders' deficit.
PricewaterhouseCoopers LLP
February 25, 2000
F-1
<PAGE>
Clinicor, Inc.
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(as revised) (as revised)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 673,370 $ 1,665,672
Accounts receivable, net 3,306,653 2,272,376
Prepaid and other current assets 350,037 352,337
------------ ------------
Total current assets 4,330,060 4,290,385
Property and equipment, net 1,083,927 1,097,441
Other assets, net 8,013 1,717
------------ ------------
Total assets $ 5,422,000 $ 5,389,543
============ ============
Liabilities, convertible preferred stock
subject to redemption and shareholders'
Deficit
Current liabilities:
Current portion of obligations under
capital leases $ 453,259 $ 307,796
Accounts payable and accrued liabilities 2,422,548 1,313,911
Dividends payable 400,778 100,725
Line of credit 948,586 416,624
Deferred revenue 825,061 989,540
------------ ------------
Total current liabilities 5,050,232 3,128,596
Obligations under capital leases,
less current portion 144,975 324,376
------------ ------------
Total liabilities 5,195,207 3,452,972
Convertible preferred stock subject to
redemption:
Class A convertible preferred stock, no par
value, 5,181 shares authorized 4,603 and
4,253 shares issued and outstanding,
respectively, at liquidation value 4,603,000 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
------------ ------------
Total convertible preferred stock subject
to redemption 9,603,000 9,253,000
Shareholders' deficit:
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 - 718,683
Deferred compensation - (22,196)
Accumulated deficit (9,380,377) (8,017,086)
------------ ------------
Total shareholders' deficit (9,376,207) (7,316,429)
------------ ------------
Total liabilities, convertible preferred
stock subject to redemption and
shareholders' deficit $ 5,422,000 $ 5,389,543
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Clinicor, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Service revenue:
Gross revenue $ 14,780,184 $ 11,553,901
Reimbursable costs 7,156,951 4,235,221
------------ ------------
Net service revenue 7,623,233 7,318,680
Operating costs and expenses:
Direct costs 4,857,689 5,584,810
Selling, general and administrative 3,281,877 3,255,331
Depreciation and amortization 450,541 435,846
------------ ------------
Total operating costs and expenses 8,590,107 9,275,987
------------ ------------
Loss from operations (966,874) (1,957,307)
Other income and expenses:
Interest income 64,154 144,619
Interest expense (228,147) (128,514)
Other, net 16,446 -
------------ ------------
Other income (expense) (147,547) 16,105
------------ ------------
Net loss $ (1,114,421) $ (1,941,202)
============ ============
Net loss $ (1,114,421) $ (1,941,202)
Dividends on convertible preferred
stock subject to redemption (967,553) (923,437)
------------ ------------
Net loss applicable to common stock $ (2,081,974) $ (2,864,639)
------------ ------------
Basic/diluted earnings (loss) per share $ (0.50) $ (0.69)
============ ============
Weighted average common shares
outstanding 4,169,734 4,150,761
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Clinicor, Inc.
Statement of Shareholders' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 (as revised) 4,086,400 $ 4,086 $1,875,536 $ (66,892) $ (6,075,884) $ (4,263,154)
Common stock issued 83,334 84 41,584 - - 41,668
Amortization of deferred compensation - - - 22,196 - 22,196
Net loss - - - - (1,941,202) (1,941,202)
Cash dividends on convertible preferred
stock subject to redemption - - (600,000) - - (600,000)
Stock dividends on convertible preferred
stock subject to redemption - - (323,437) - - (323,437)
Stock option compensation adjustment - - (275,000) 22,500 - (252,500)
---------- ---------- --------- ------------ ------------ -----------
Balance at December 31, 1998 (as revised) 4,169,734 $ 4,170 $ 718,683 $ (22,196) $ (8,017,086) $(7,316,429)
========== ========== ========= ============ ============ ===========
Amortization of deferred compensation - - - 22,196 - 22,196
Net loss - - - - (1,114,421) (1,114,421)
Cash dividends on convertible preferred
stock subject to redemption - - (317,500) - - (317,500)
Stock dividends on convertible preferred
stock subject to redemption - - (350,053) - - (350,053)
Accrued dividends on convertible preferred
stock subject to redemption - - (51,130) - (248,870) (300,000)
---------- ---------- --------- ------------ ------------ -----------
Balance at December 31, 1999 (as revised) 4,169,734 $ 4,170 $ 0 $ 0 $ (9,380,377) $(9,376,207)
========== ========== ========= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Clinicor, Inc.
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (1,114,421) $ (1,941,202)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 450,541 435,846
Stock option compensation (benefit) expense 22,196 (230,309)
Net changes in assets and liabilities:
Accounts receivable (1,034,277) 200,553
Prepaid expenses and other assets (3,996) (96,558)
Accounts payable and accrued liabilities 1,108,637 322,909
Deferred revenue (164,479) (63,610)
------------ ------------
Net cash used in operating activities (735,799) (1,372,371)
------------ ------------
Investing activities:
Purchases of property and equipment (115,977) (39,592)
------------ ------------
Financing activities:
Payments on capital leases (354,988) (74,172)
Net proceeds from issuing common stock - 41,668
Dividends paid on convertible preferred
stock subject to redemption (317,500) (561,667)
Net borrowing under line of credit 531,962 416,624
------------ ------------
Net used in financing activities (140,526) (177,547)
------------ ------------
Net decrease in cash and cash equivalents (992,302) (1,589,510)
Cash and cash equivalents at beginning of year 1,665,672 3,255,182
------------ ------------
Cash and cash equivalents at end of year $ 673,370 $ 1,665,672
============ ============
Supplemental cash flow disclosures:
Interest paid $ 228,147 $ 128,514
============ ============
Non-cash financing activities:
Stock dividends issued on convertible
preferred stock subject to redemption $ 350,000 $ 323,000
============ ============
Accrued dividends on convertible
preferred stock subject to redemption $ 300,000 $ -
============ ============
Capital lease obligations $ 321,050 $ 592,240
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note l - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
Description of Business
Clinicor, Inc. ("Clinicor" or the "Company") is a contract research organization
serving companies in the pharmaceutical, biotechnology and medical device
industries. Clinicor manages, monitors and performs clinical trials which are
studies of investigational drugs and medical devices performed with human
patients to support sponsors' applications to the Food and Drug Administration
and other governmental authorities. The Company operates in one business
segment.
Use of Estimates
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.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of funds invested in short-term
interest bearing accounts. The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
Concentration of Credit Risk
Financial investments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of cash and cash equivalents and trade accounts receivable.
Excess cash is invested in high quality, short-term liquid money instruments
issued by highly-rated financial institutions. The majority of the Company's
customer base consists of large pharmaceutical and biotechnology companies.
Although the Company is directly affected by the well being of the
pharmaceutical industry, management does not believe significant credit risks
existed at December 31, 1999.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets ranging from three to five years. Repair
and maintenance costs are charged to expense as incurred.
F-6
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Revenue Recognition
Fixed price contract revenue is recognized using the percentage of completion
method based upon the ratio of services provided to date compared to total
services to be provided under each contract. Revenue from other contracts is
recognized as the services are provided. Losses on contracts, if any, are
accrued when they become probable.
Study contracts generally provide for payments based upon the achievement of
defined benchmarks. Deferred revenue represents amounts invoiced prior to
rendering the related services, while unbilled revenue represents the billing
value of services rendered prior to being invoiced. Substantially all the
deferred revenue and unbilled revenue will be earned and billed, respectively,
within one year.
Direct Costs
Direct costs are direct expenses of performing studies, including compensation
and related benefits for project personnel, investigator fees, patient stipends,
laboratories, advertising, labor, other clinical costs, and allocated overhead
expenses.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") under
which deferred tax assets and liabilities are provided on differences between
carrying value for financial reporting purposes and tax bases of assets and
liabilities using the enacted tax rates. A valuation allowance is recognized,
if on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents and trade accounts receivable and payable and debt approximate
fair values.
Comparative Information
Certain amounts related to the prior year have been reclassified to conform to
the current year presentation.
F-7
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 2 Accounts Receivable
- ---------------------------
Accounts receivable consisted of the following at December 31:
1999 1998
---- ----
Billed $2,255,332 $1,276,671
Unbilled 1,071,321 1,015,705
Allowance for
doubtful accounts (20,000) (20,000)
---------- ----------
$3,306,653 $2,272,376
========== ==========
Note 3 Property and Equipment
- ------------------------------
Property and equipment consisted of the following at December 31:
1999 1998
---- ----
Computer systems $1,091,459 $1,017,481
Leasehold improvements 421,596 421,596
Office equipment 391,383 436,053
Medical equipment 28,261 28,261
---------- ----------
1,932,699 1,903,391
Less accumulated
depreciation and
amortization 848,772 805,950
---------- ----------
$1,083,927 $1,097,441
========== ==========
Depreciation expense was $450,541 and $435,846 for the years ended December 31,
1999 and 1998, respectively.
Included in the December 31, 1999 and 1998 balances of equipment are $894,650
and $627,500, respectively, of assets acquired under capital leases.
Accumulated depreciation of these assets was $209,600 and $115,500 at December
31, 1999 and 1998, respectively, and depreciation expense was $141,200 and
$46,500 respectively, for the years ended December 31, 1999 and 1998.
F-8
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 4 Accounts Payable and Accrued Liabilities
- ------------------------------------------------
Accounts payable and accrued liabilities consisted of the following at December
31:
1999 1998
---- ----
Accounts payable trade $ 653,850 $1,111,371
Accrued investigators 1,572,235 77,872
Accrued other 196,463 124,668
---------- ----------
$2,422,548 $1,313,911
========== ==========
Note 5 Line of Credit
- ----------------------
The Company has a $2.5 million secured revolving credit facility with a national
banking institution which expires on December 19, 2001. Availability under the
line of credit is primarily based upon 85% of billed accounts receivable, less
current borrowings, and remaining availability approximated $1,551,400 at
December 31, 1999. The line of credit is repaid with the proceeds from
collections of accounts receivable; therefore, the line of credit is classified
as a current liability. The interest rate at December 31, 1999 on this credit
facility was 10.75%. Interest expense for this credit facility was $166,400 and
$110,300 for the years ended December 31, 1999 and 1998, respectively.
Note 6 Commitments and Contingencies
- -------------------------------------
The Company leases office space, computers and other equipment under non-
cancelable operating and capital lease agreements. These leases have expiration
dates ranging from 2000 through 2002. Rent expense under operating leases
totaled $425,100 and $439,500 for the years ended December 31, 1999 and 1998,
respectively.
F-9
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Future minimum lease payments under all leases as of December 31, 1999 are as
follows:
Capital Operating
Leases Leases
------- ---------
2000 $ 499,297 $ 558,911
2001 147,154 446,722
2002 7,880 --
2003 and thereafter -- --
--------- ----------
Total minimum lease payment $ 654,331 $1,005,633
==========
Less amounts representing
interest (56,097)
---------
Present value of net minimum
lease payments 598,234
Less current portion of
capital lease obligations (453,259)
---------
Obligations under capital
leases $ 144,975
=========
Note 7 Convertible Preferred Stock Subject to Redemption and Capital Stock
- ---------------------------------------------------------------------------
Class A Preferred Stock
On July 15, 1996, the Company issued to Oracle Partners, L.P. and certain
affiliates 3,500 shares of convertible Class A preferred stock subject to
redemption, no par value (the "Class A Preferred Stock"), for total
consideration of $3,500,000, which provided the Company net proceeds of
$3,180,177 after deducting offering costs of $319,823. Included in these
offering costs was $125,000 of expense to cancel certain preemptive rights held
by three shareholders. The Class A Preferred Stock carries a liquidation
preference of $1,000 per share. The Class A Preferred Stock provides for annual
cumulative dividends, which for a five-year period following issuance are
payable in kind and which accrue at the rate of 8% per annum. On the fifth
anniversary of the date of issuance, the dividend rate increases to 10% per
annum, and the rate thereafter increases by an additional 2% on each successive
anniversary date. Dividends accruing after the fifth anniversary date are
payable in cash. Through 1999, the Company issued Class A Preferred Stock
dividends of 1,103 shares.
The Class A Preferred Stock is redeemable at the option of the Company at any
time after July 15, 1998; there is no mandatory redemption. The Class A
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 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 December 31, 1999.
F-10
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Class B Convertible Preferred Stock Subject to Redemption
On November 25, 1997, the Company issued to Tandem Capital, a division of Sirrom
Capital Corporation, 50,000 shares of Class B Convertible Preferred Stock
subject to redemption, no par value ("Class B Preferred Stock"), for total
consideration of $5,000,000, which provided the Company net proceeds of
$4,637,132 after deducting offering costs of $362,868. The Class B Preferred
Stock carries a liquidation preference of $100 per share. The Class B Preferred
Stock provides for annual cumulative dividends of $12 per share payable
quarterly. The annual dividend rate of $12 per share will be increased by $2 per
share beginning on the fifth anniversary of the issuance and subsequently every
six months thereafter.
The Class B Preferred Stock cannot be redeemed during the first year of issuance
unless the Company has first offered to redeem all the Class A Preferred Stock.
After the first year and prior to the fifth anniversary of the original issue
date, the Company may redeem the Class B Preferred Stock, as long as the average
bid price of common stock exceeds $6.00 per share for each of the immediately
preceding 20 consecutive trading days.
The Class B Preferred Stock is convertible at any time into that number of
shares of common stock of the Company as is equal to the liquidation preference
divided by the conversion price which is initially set at $3.00 per share The
conversion price was reduced to $2.75 per share as of December 31, 1998,
pursuant to the agreement. The conversion price is subject to future
adjustments if certain events occur.
The holders of the Class A and B Preferred Stock have various additional rights,
including registration rights, pursuant to the Company's Articles of
Incorporation, as amended, and pursuant to various agreements entered into with
the holders of the Class A and B Preferred Stock. In addition, certain corporate
transactions, including mergers and consolidations in which a change of control
of the Company occurs, could under certain limited circumstances be deemed to be
liquidation events, which would require the Company to redeem the Series A and
Series B Preferred Stock to the extent funds are legally available therefor.
During 1999, the Company paid approximately $317,500 and accrued $300,000 in
dividends to Class B Preferred stockholders. The Company suspended cash
dividend payments in August 1999 in order to maintain adequate working capital
to fund its operations. The Company has missed a total of three quarterly
dividends payable to the Class B preferred stockholder, representing aggregate
payments of $450,000. The Company's Articles of Incorporation provide that, in
the event that the Company misses a total of six consecutive quarterly dividend
payments or fails to pay cumulative dividends of $900,000 or more ("Class B
Nonpayment Event"), then the holders of the Class A and B preferred stock may
assume voting control of the Board of Directors of the Company. The Company
intends to assess its ability to pay preferred dividends on an ongoing basis.
There can be no assurance that future dividend payments will be made.
The following table summarizes the activity of the convertible preferred stock
subject to redemption is as follows:
<TABLE>
<CAPTION>
Class A Class B
Convertible Preferred Convertible Preferred
Subject to Redemption Subject to Redemption
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 3,931 $3,931,000 50,000 $5,000,000
Stock dividends on convertible
preferred stock subject to
redemption 322 322,000 - -
------ ---------- ------ ----------
Balance at December 31, 1998 4,253 $4,253,000 50,000 $5,000,000
Stock dividends on convertible
preferred stock subject to
redemption 350 350,000 - -
------ ---------- ------ ----------
Balance at December 31, 1999 4,603 $4,603,000 50,000 $5,000,000
====== ========== ====== ==========
</TABLE>
Stock Option Plan
In December 1994, the Company and the shareholders approved the 1995 Directors,
Employees and Consultants Stock Option Plan (the "Option Plan"), which provides
for the grant of both incentive and non-qualified stock options to directors,
employees and certain other persons affiliated with the Company. The stock
options granted under the Option Plan are generally granted at the fair value of
the common stock on the date of the grant. The terms of each option (including
duration of the options, which is typically 5 to 10 years, and provisions as to
vesting) are determined by the Board of Directors at the time of grant and are
set forth in an option agreement between the Company and the optionee. At
December 31, 1999 and 1998, the Company had reserved 2,000,000 shares of common
stock under the Option Plan.
F-11
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company has adopted the disclosure only provision of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" and has
elected to continue to apply Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for the Option Plan. Accordingly, no compensation expense has been
recognized for option grants made at fair value and containing fixed vesting
terms. The Company has recorded deferred compensation equal to the fair value of
fixed option grants made to individuals other than employees and directors and
fixed option grants to employees made below fair value, as well as performance
based stock option grants. Amortization of deferred compensation, which is being
charged against income over the vesting period of the options, totaled $22,196
and $22,196 in 1999 and 1998, respectively.
During 1998, the Company reversed previously recognized compensation expense of
$252,000 resulting from employees' forfeiture of unvested stock options.
Of the 1,569,220 options outstanding at December 31, 1999, 100,000 have
performance based vesting provisions which allow these options to vest anytime
after January 1, 2000, if for any previous twelve-month period the Company
achieves revenues of $18 million or pre-tax earnings of $3 million. In early
1997, the vesting provisions of these options were modified such that all
options not previously vested will vest on February 27, 2000.
Had compensation cost of all stock option grants been determined based on their
fair value at the grant date consistent with the method prescribed by SFAS No.
123, the Company's pro forma net loss and loss per share would have been as
follows:
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------ ------------------
Net loss applicable As reported $(2,081,974) $(2,864,639)
to common stock Pro forma $(2,496,140) $(3,939,392)
Net loss applicable
to common stock As reported $ (0.50) $ (0.69)
per share Pro forma $ (0.60) $ (0.95)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999 and 1998, respectively; dividend yield of
zero for both years; expected volatility of 50% and 70%; risk-free interest rate
of 5.5% and 5.75%; and respective estimated lives of 5 years.
On May 18, 1998, the Board of Directors approved a proposal to reprice
outstanding employee stock options with exercise prices in excess of the fair
market value, except those shares held by outside directors of the Company. A
total of 787,500 options with an average exercise price of $4.43 were repriced
at $2.75 per share. At the time of the repricing, the fair market value of the
Company's stock was $2.00 per share.
F-12
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The following table summarizes the status of option grants outstanding at
December 31:
1999 1998
------------------ -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- --------- --------
Outstanding, beginning of year 1,079,620 $2.43 1,188,220 $3.25
Granted 619,500 $1.28 288,500 $2.69
Exercised (-) $ - (83,334) $ .50
Canceled (129,900) $2.55 (313,766) $2.32
--------- ---------
Outstanding, end of year 1,569,220 $1.97 1,079,620 $2.43
--------- ---------
Options exercisable at
year end 622,620 $1.99 422,620 $1.93
Weighted-average fair value of
options granted during year $.50 $1.24
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------------------------------
Weighted-
Average
Remaining
Range of Contractual Weighted- Weighted-
Exercise Prices Number Life Average Price Number Average Price
----------------------------------------------------------
(Years)
$1.00 to $1.25 455,000 4.99 $1.10 175,000 $1.07
$1.25 to $2.00 400,220 4.47 $1.46 164,720 $1.40
$2.75 686,500 4.91 $2.75 255,400 $2.75
$4.00 to 4.25 27,500 2.40 $4.16 27,500 $4.16
--------- -------
1,569,220 622,620
========= =======
F-13
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 8 Income Taxes
- --------------------
The difference between the tax expense (benefit) derived by applying the Federal
statutory income tax rate to the Company's net losses and the expense (benefit)
recognized is as follows:
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Benefit derived by applying the Federal statutory
income rate to net losses before income taxes $(378,903) $(660,009)
Permanent differences and other 18,891 106,813
Change in valuation allowance 360,012 766,822
--------- ---------
Income tax expense (benefit) $ - $ -
========= =========
</TABLE>
The components of the net deferred tax asset are:
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,678,598 $ 2,280,140
Fixed Assets 26,257 35,463
Accrued Wages - 29,750
Other 19,766 19,256
Valuation allowance (2,724,621) (2,364,609)
----------- -----------
Net deferred tax asset (liability) $ - $ -
=========== ===========
</TABLE>
The Company's net operating loss carryforward totaling $7,878,228 at December
31, 1999 expires in varying amounts through 2019. Under section 382 of the
Internal Revenue Code, changes in ownership exceeding certain levels can result
in an annual limitation on losses and tax credit carryforwards. Such limitation
may limit the Company's ability to fully utilize its carryforwards prior to
expiration.
F-14
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 9 Earnings per Share
- --------------------------
Basic EPS is computed by dividing net income (loss) applicable to common
stockholders by the weighted average number of common shares outstanding during
each period. Diluted EPS is computed by dividing net income (loss) applicable
to common stockholders by the weighted average number of common shares and
common share equivalents outstanding (if dilutive), during each period. The
number of common share equivalents outstanding is computed using the treasury
stock method.
The following is a reconciliation of the basic per share computations:
For the year ended December 31,
-------------------------------
1999 1998
-------------------------------
Loss from continuing operations $(1,114,421) $(1,941,202)
Less-Preferred stock dividends-Class A Preferred (350,053) (323,437)
Preferred stock dividends-Class B Preferred (317,500) (600,000)
Accrued stock dividends on Class B Preferred (300,000)
----------- -----------
Loss applicable to common shareholders $(2,081,974) $(2,864,639)
=========== ===========
Shares used in computing basic earnings per
share 4,169,734 4,150,761
Loss per share
Basic/Diluted $ (0.50) $ (0.69)
=========== ===========
At December 31, 1999, potentially dilutive securities, which are excluded from
the EPS computation as they would have an anti-dilutive effect, consisted of
stock options convertible into 1,569,220 shares of common stock; Series A
convertible preferred stock convertible into 3,068,667 shares of common stock;
Series B convertible preferred stock convertible into 1,818,182 shares of common
stock; and warrants convertible into 489,411 shares of common stock.
F-15
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 10 Segment Information and Significant Clients
- ----------------------------------------------------
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 statement supercedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. It
also requires disclosures about products and services, geographic areas and
major customers.
Management has chosen to organize the Company by geographic areas, and as a
result has determined that it has one reportable segment. All selling and
administrative expenses, interest income, interest expense, depreciation and
amortization are recorded in the United States. In addition, all identifiable
assets are located in the United States.
During the years ended December 31, 1999 and 1998, the Company's international
revenues were primarily attributable to one client. Following are the Company's
international sales by geographic area (in thousands):
For the Year Ended
December 31,
---------------------------
1999 1998
------------ ------------
Net Service Revenues:
United States $7,017 92% $6,601 90%
United Kingdom 606 8% 718 10%
------ ------
$7,623 100% $7,319 100%
====== ======
The Company has had up to four clients who each accounted for more than 10% of
the Company's revenues in a given year as follows:
1999 1998
------------------
Client A 53.1% 35.9%
Client B 4.2% 12.8%
Client C 8.0% 12.3%
Client D -% 10.0%
Additionally, at December 31, 1999 and 1998, certain clients had accounts
receivable and unbilled revenue balances with the Company which represented the
following amounts of total net accounts receivable and unbilled revenues:
1999 1998
------------------
Client A 76.0% 33.0%
Client B -% 25.0%
F-16
<PAGE>
Clinicor, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 11- Employee Benefit Plans
- -------------------------------
Employee 401(K) Plan
The Company's 401(k) Savings and Retirement Plan, effective January 1, 1996, is
a defined contribution retirement plan as described in Section 401(k) of the
Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan is intended to be
qualified under Section 401 (a) of the Code. All full time employees of the
Company are eligible to participate in the 401(k) Plan after approximately 90
days of employment. The 401(k) Plan provides that each participant make
elective contributions up to 15% of his or her compensation, subject to
statutory limits. The Company amended its plan, effective May 1, 1998, to
provide for employee matching contributions of 20% of the first 5% of
participating employee contributions. The Company made matching contributions
of $25,440 and $19,900 for 1999 and 1998, respectively.
Employee Stock Purchase Plan
In November 1998, the Company established an employee stock purchase plan. The
employees may make elective payroll deductions for the purchase of the Company's
stock. The Company disburses these payroll deductions once per month to a
brokerage firm, which purchases the Company stock in the stock market. The
Company pays all brokerage commissions which totalled $1,049 for 1999 and $29
for 1998, respectively.
Note 12- Revision
- -----------------
Previously, the Company classified its outstanding convertible preferred stock
as a component of shareholders' equity. As a result of the change in control
provision discussed in Note 7, the Company has revised the consolidated
financial statements to present the convertible preferred stock subject to
redemption as convertible preferred stock outside of shareholders' deficit. The
impact of this revision on shareholders' equity (deficit) is as follows:
December 31,
1999 1998
---- ----
Shareholders' equity, as previously reported $ 226,793 $ 1,936,571
Revision (9,603,000) (9,253,000)
----------- -----------
Shareholders' deficit, as revised $(9,376,207) $(7,316,429)
=========== ===========
F-17
