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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 0-21721
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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)
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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
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As of May 6, 1997, 4,086,400 shares of the Issuer's Common Stock, $0.001
par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
Page
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet - March 31, 1997 and
December 31, 1996 3
Statement of Operations - three
months ended March 31, 1997 and 1996 4
Statement of Cash Flows - three
months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operation 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CLINICOR, INC.
BALANCE SHEET
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MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (NOTE A)
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ASSETS
Current assets:
Cash, restricted cash and cash equivalents $ 1,369,349 $ 1,483,974
Accounts receivable 2,140,893 1,489,555
Prepaid and other current assets 179,069 143,992
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Total current assets 3,689,311 3,117,521
Property and equipment, net 1,246,624 1,118,877
Other assets 22,074 39,739
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TOTAL ASSETS $ 4,958,009 $ 4,276,137
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 10,870 $ 11,733
Accounts payable and accrued liabilities 2,024,644 1,088,061
Line of credit 1,000,000 850,000
Deferred revenue 87,656 35,000
Dividends payable 73,074 444
Notes payable to shareholders 181,000 181,000
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Total current liabilities 3,377,244 2,166,238
Obligations under capital leases, less current portion 13,511 16,047
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Total liabilities 3,390,755 2,182,285
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Shareholders' equity:
Common stock, $0.001 par value, 75,000,000 shares authorized,
4,086,400 shares issued and outstanding 4,086 4,086
Convertible preferred stock, no par value, 5,181 shares authorized,
3,631 shares issued and outstanding 3,631,000 3,631,000
Additional paid-in capital 2,346,285 2,418,915
Deferred compensation (185,323) (224,800)
Accumulated deficit (4,228,794) (3,735,349)
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Total shareholders' equity 1,567,254 2,093,852
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,958,009 $ 4,276,137
================== ==================
Note A: The balance sheet at December 31, 1996 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
CLINICOR, INC.
STATEMENT OF OPERATIONS
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THREE MONTHS ENDED MARCH 31,
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1997 1996
(UNAUDITED) (UNAUDITED)
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Service revenue:
Gross revenue $ 2,546,102 $ 854,658
Reimbursable costs 1,124,227 256,666
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Net service revenue 1,421,875 597,992
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Operating costs and expenses:
Direct costs 961,646 406,545
Selling, general and administrative 828,029 239,231
Depreciation and amortization 119,250 19,739
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Total operating costs and expenses 1,908,925 665,515
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Loss from operations (487,050) (67,523)
Other income and expenses:
Interest income 11,360 -
Interest expense 17,755 7,018
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Other income and expenses (6,395) (7,018)
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NET LOSS $ (493,445) $ (74,541)
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Net loss $ (493,445) $ (74,541)
Preferred stock dividends (72,630) -
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Net loss applicable to common stock $ (566,075) $ (74,541)
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NET LOSS APPLICABLE TO COMMON STOCK PER SHARE $ (0.14) $ (0.02)
================= =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES EQUIVALENT OUTSTANDING 4,086,400 3,965,459
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The accompanying notes are an integral part of these financial statements.
4
CLINICOR, INC.
STATEMENT OF CASH FLOWS
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THREE MONTHS ENDED MARCH 31,
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1997 1996
(UNAUDITED) (UNAUDITED)
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OPERATING ACTIVITIES:
Net loss $ (493,445) $ (74,541)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 119,250 19,739
Noncash stock option compensation expense 39,477 -
Net changes in assets and liabilities:
Accounts receivable (651,338) (203,383)
Prepaid expenses and other assets (17,412) (24,172)
Accounts payable and accrued liabilities 936,139 (110,720)
Deferred revenue 52,656 (10,000)
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Net cash used in operating activities (14,673) (403,077)
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INVESTING ACTIVITIES:
Purchases of property and equipment (256,473) (55,150)
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FINANCING ACTIVITIES:
Payments on capital leases (3,399) (6,081)
Net proceeds from issuing common stock - 309,850
Borrowings under line of credit 150,000 -
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Net cash provided by financing activities 146,601 303,769
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Net decrease in unrestricted cash and cash equivalents (124,545) (154,458)
Unrestricted cash and cash equivalents at beginning of year 474,134 267,281
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Unrestricted cash and cash equivalents at end of period $ 349,589 $ 112,823
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 19,135 $ 3,399
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The accompanying notes are an integral part of these financial statements.
5
CLINICOR, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
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NOTE 1 - BASIS OF PRESENTATION
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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-Q and Article 10 of Regulation S-X.
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 ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB filed on April
15, 1997 for the fiscal year ended December 31, 1996 (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
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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 antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("FAS 128") establishing a new methodology for
calculating earnings per share. FAS 128 must be adopted as of December 31, 1997,
and earlier adoption is not permitted. Had net income (loss) applicable to
common stock per share been determined under this new standard, there would have
been no change from amounts reported for the three month periods ended March 31,
1997 and 1996.
NOTE 3 - LINE OF CREDIT AND RESTRICTED CASH
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Included in cash, restricted cash and cash equivalents at March 31, 1997, is a
$1,019,760 certificate of deposit pledged as collateral for the $1,000,000
revolving line of credit. This certificate of deposit is excluded from cash and
cash equivalents for statement of cash flow purposes. Subsequent to March 31,
1997, the line of credit was not renewed and the certificate of deposit was
liquidated to pay off the balance on the line of credit.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information set forth and discussed below for the three months ended
March 31, 1997 is derived from the Condensed Financial Statements included
elsewhere herein. The financial information set forth and discussed below is
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 contract research organization ("CRO") providing Phase I
through Phase IV clinical trials management, patient recruiting, monitoring,
regulatory consulting and data management services for the pharmaceutical,
biotechnology and medical device industries ("sponsors"). 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
over one year 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 either
performance-based, 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
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. At March
31, 1997, the Company's gross revenue backlog was approximately $21.5 million,
as compared with approximately $16.5 million at December 31, 1996. 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 standard CRO industry practice.
Direct costs include project personnel costs and related 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 of
marketing and administrative personnel, professional services, facility costs,
and other overhead items.
8
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statement of operations for the three
months ended March 31, 1996 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.
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For the quarter ended March 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996
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Service revenues $2,546,102 $854,658
Reimbursable costs 1,124,227 256,666
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Net service revenue 1,421,875 100.0% 597,992 100.0%
Operating costs and expenses:
Direct costs 961,646 67.7% 406,545 68.0%
Selling, general and administrative 828,029 58.2% 239,231 40.0%
Depreciation and amortization 119,250 8.4% 19,739 3.3%
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Total operating costs and expenses 1,908,925 134.3% 665,515 111.3%
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Loss from operations ( 487,050) -34.3% (67,523) -11.3%
Net interest income (expense) ( 6,395) - .4% ( 7,018) -1.2%
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Net loss $( 493,445) -34.7% $(74,541) -12.5%
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Three months ended March 31, 1997 compared with three months ended March 31,
- ----------------------------------------------------------------------------
1996
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Net service revenues increased approximately $824,000, or 138%. 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.
Reimbursable costs increased approximately $867,000, from $257,000, or 30%
of gross revenue, for the three months ended March 31, 1996 to $1,124,000, or
44% of gross revenue, for the same period in 1997. This increase is a direct
result of the contract mix for which revenue was recognized during the
respective periods. Revenue during the first quarter of 1997 contained a higher
amount of reimbursable costs as compared to revenue during the first quarter of
1996. Part of this increase in the reimbursable cost component resulted from a
higher ratio of time and materials based contracts.
Direct costs increased approximately $555,000, or 137%. The increase in
direct costs is primarily attributable to the increase in project personnel
costs resulting from the addition of 35 full-time study, patient and data
management staff and the related overhead associated with the additional staff.
As a percentage of net service revenues, direct costs remained constant at
approximately 68%.
9
Selling, general and administrative expenses increased approximately
$589,000, or 246%, primarily due to an increase of approximately $275,000 in
related personnel costs resulting from the addition of 13 accounting,
information technology, marketing and administrative employees. During the
quarter, a noncash charge of approximately $40,000 for compensation expense was
recorded related to certain performance-based stock options. Professional fees
increased by approximately $100,000 due to costs associated with becoming a
public company and general corporate legal matters. Office expenses, which
include rent, supplies, and telecommunication costs, increased by approximately
$57,000 due to the increase in personnel. Selling, general and administrative
expenses increased to 58% of net service revenue from 40% in the prior quarter.
This increase is primarily attributable to the fact that the growth in personnel
exceeded the growth in net service revenue. Management expects this percentage
to decrease should the growth in net service revenues continue to increase in
the future.
Depreciation and amortization expenses increased approximately $100,000 or 504%.
This increase is primarily a result of the purchase of approximately $1.2
million in property, plant and equipment during the past 12 months. Included in
the capital purchases were additions to the Company's computer information
systems, facility expansion costs, and office furniture and equipment related to
the Company's growing staff and its move to a new corporate office.
The Company recorded no income tax benefit as a result of the net operating
losses for the three months ended March 31, 1996 and 1997 due to the uncertainty
that the loss carryforwards will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities improved to $15,000 net cash used
for the quarter ended March 31, 1997, from $403,000 net cash used in the quarter
ended March 31, 1996. The improvement was primarily attributable to the increase
in accounts payable exceeding the increase in accounts receivable by
approximately $285,000. Cash collections for the quarter ended March 31, 1997,
totaled approximately $1,900,000 as compared with $641,000 for the same quarter
in 1996. During the quarter ended March 31, 1997, purchases of property and
equipment increased by approximately $202,000 from the same period in 1996. This
increase was primarily related to the additional personnel hired to support the
increase in clinical trials and the growth in the Company's backlog.
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 increased
10
from approximately $1,490,000 at March 31, 1996 to approximately $2,141,000 at
March 31, 1997. The increase of approximately $651,000 is a result of the growth
in revenues and the timing of payments by sponsors.
Since its inception, the Company has financed its operations and growth
with proceeds from private placements of equity securities, advances from
shareholders and borrowing arrangements under capital lease obligations and
lines of credit. Investing activities have consisted of capital expenditures,
primarily for leasehold improvements, information systems, furniture and office
equipment. The Company expects purchases of property and equipment in 1997 to be
significantly less than 1996 levels.
The Company has completed three private placements of equity securities in
the past two years which raised approximately $5,684,000 in gross proceeds and
approximately $5,200,000 in net proceeds. The Company desires to complete a
private placement in 1997. The Company is in discussion with investment bankers
and other interested parties regarding such a transaction. However, the Company
has not entered into agreements with any financing sources and there can be no
assurance that the Company will be able to complete a private placement under
acceptable terms.
In September 1996, the Company obtained a $1,000,000 secured line of
credit with an independent financial institution of which $1,000,000 was
outstanding as of March 31, 1997. The line of credit was secured by a $1,000,000
certificate of deposit. This line was repaid in May 1997 with the proceeds from
the certificate of deposit which secured it.
Based on the increases in the Company's revenues, receivables and
backlog, the Company needs additional working capital to finance its business.
The Company's principal cash needs on both a short-term and long-term basis are
for the funding of its operations and capital expenditure requirements. Although
accounts receivables have increased, the Company has limited cash reserves. As a
result, the Company is funding its operations with cash generated from
operations, from the increase in accounts payable, from shareholder and officer
loans and from capital lease transactions. However, in order to fund its
business, the Company requires a working capital line of credit secured by
accounts receivable and equipment. The Company is in discussion with several
financial institutions in an effort to obtain such a line of credit. However,
the Company has not entered into agreements with any financing sources and there
can be no assurance that the Company will be able to obtain a line of credit
under acceptable terms.
Management believes that the proceeds from a private placement combined
with a working capital line of credit, if obtained, will be sufficient to fund
current operations and the expected continued growth of the backlog. Without
additional funding, the Company will have to rely on internally generated
working capital, which consists primarily of accounts receivable collections and
customer advance contract payments, in order to fund its operations. Because of
the uncertainty of the timing of receivable collections and advance contract
payments, delinquencies in payments to vendors and suppliers of services to the
Company could result.
11
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 its 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 the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
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.
12
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 May 20, 1997 By /s/ Thomas P. O'Donnell
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Thomas P. O'Donnell
Chairman of the Board, President
and Chief Executive Officer
Date May 20, 1997 By /s/ James W. Clark, Jr.
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James W. Clark, Jr.
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
13