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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 September 30, 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 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 November 14, 1997, 4,086,400 shares of the Issuer's Common Stock, $.001
par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
Page
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations - nine months ended September 30,
1997 and 1996 4
Condensed Statements of Cash Flows - nine months ended September 30,
1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II
OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
Clinicor, Inc.
Balance Sheet
==================================================================================================================================
The following unaudited pro forma condensed balance sheet at September 30, 1997 gives effect to the issuance of 50,000 shares of
12% Class B Preferred Stock to Tandem Capital for $5,000,000. The transaction, which is subject to shareholder approval of the
authorization of a second class of preferred stock, is expected to close on or before November 30, 1997. An unaudited pro forma
statement of operations has not been provided as the impact of this transaction on historical results of operations is not
considered meaningful. See Note 3 to the Notes to Financial Statements .
Pro forma
September 30, September 30, December 31,
1997 1997 1996
(Unaudited) (Unaudited) (Note A)
------------------- ---------------- -------------------
ASSETS
Current assets:
Cash, restricted cash and cash equivalents $ 160,098 $ 3,960,098 $ 1,483,974
Accounts receivable 2,737,103 2,737,103 1,489,555
Prepaid and other current assets 371,246 371,246 143,992
------------------- ---------------- -------------------
TOTAL CURRENT ASSETS 3,268,447 7,068,447 3,117,521
Property and equipment, net 1,126,103 1,126,103 1,118,877
Other assets 6,744 6,744 39,739
------------------- ---------------- -------------------
Total assets $ 4,401,294 $ 8,201,294 $ 4,276,137
=================== ================ ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 43,278 $ 43,278 $ 11,733
Accounts payable and accrued liabilities 1,883,695 1,883,695 1,088,061
Line of credit - - 850,000
Term loan 910,000 - -
Deferred revenue 507,786 507,786 35,000
Dividends payable 77,496 77,496 444
Notes payable to shareholders 76,000 76,000 181,000
------------------- ---------------- -------------------
Total current liabilities 3,498,255 2,588,255 2,166,238
Obligations under capital leases, less current portion 81,136 81,136 16,047
------------------- ---------------- -------------------
Total liabilities 3,579,391 2,669,391 2,182,285
------------------- ---------------- -------------------
Shareholders' equity:
Convertible preferred stock, no par value, 5,181 shares authorized,
3,776 shares issued and outstanding 3,776,000 3,776,000 3,631,000
Class B convertible preferred stock, no par value, 50,000 shares
authorized, issued and outstanding - 5,000,000 -
Common stock, $0.001 par value, 75,000,000 shares authorized,
4,086,400 shares issued and outstanding 4,086 4,086 4,086
Additional paid-in capital 2,385,576 2,185,576 2,418,915
Deferred compensation (106,369) (106,369) (224,800)
Accumulated deficit (5,237,390) (5,327,390) (3,735,349)
------------------- ---------------- -------------------
Total shareholders' equity 821,903 5,531,903 2,093,852
------------------- ---------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,401,294 $ 8,201,294 $ 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
===================================================================================================================================
Three Months Ended September 30, Nine Months Ended September 30
---------------------------------------- ---------------------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------- ------------------
Service revenue:
Gross revenue $ 2,837,949 $ 884,254 $ 8,234,840 $ 2,441,788
Reimbursable costs 975,294 168,002 3,058,130 490,426
------------------- ------------------- ------------------- ------------------
Net service revenue 1,862,655 716,252 5,176,710 1,951,362
------------------- ------------------- ------------------- ------------------
Operating costs and expenses:
Direct costs 1,430,288 558,860 3,615,620 1,371,545
Selling, general and administrative 798,090 491,534 2,522,425 1,041,531
Depreciation and amortization 118,300 49,479 362,659 100,551
------------------- ------------------- ------------------- ------------------
Total operating costs and expenses 2,346,678 1,099,873 6,500,704 2,513,627
------------------- ------------------- ------------------- ------------------
Loss from operations (484,023) (383,621) (1,323,994) (562,265)
Other income and expenses:
Interest income 15 26,672 20,746 26,672
Interest expense 167,289 6,534 198,793 25,445
------------------- ------------------- ------------------- ------------------
Other income and expenses (167,274) 20,138 (178,047) 1,227
------------------- ------------------- ------------------- ------------------
Net loss $ (651,297) $ (363,483) $ (1,502,041) $ (561,038)
=================== =================== =================== ==================
Net loss $ (651,297) $ (363,483) $ (1,502,041) $ (561,038)
Preferred stock dividends (77,496) (59,889) (222,754) (59,889)
------------------- ------------------- ------------------- ----------------
Net loss applicable to common stock $ (728,793) $ (423,372) $ (1,724,795) $ (620,927)
=================== =================== =================== ==================
Net loss applicable to common
stock per share $ (0.18) $ (0.10) $ (0.42) $ (0.15)
=================== =================== =================== ==================
Weighted average number of common
shares equivalent outstanding 4,086,400 4,086,400 4,086,400 4,042,638
=================== =================== =================== ==================
The accompanying notes are an integral part of these financial statements.
4
Clinicor, Inc.
Statement of Cash Flows
=====================================================================================================================
Nine Months Ended September 30,
---------------------------------------
1997 1996
(Unaudited) (Unaudited)
------------------ ------------------
Operating activities:
Net loss $ (1,502,041) $ (561,038)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 362,659 100,551
Noncash stock option compensation expense 118,431 -
Accretion of debt discount 90,000 -
Net changes in assets and liabilities:
Accounts receivable (1,247,548) (408,421)
Prepaid expenses and other assets (194,259) (25,865)
Accounts payable and accrued liabilities 795,634 (354,019)
Deferred revenue 472,786 (10,000)
------------------ ------------------
Net cash used in operating activities (1,104,338) (1,258,792)
------------------ ------------------
Investing activities:
Purchases of property and equipment (235,524) (666,760)
------------------ ------------------
Financing activities:
Payments on capital leases (19,174) (19,106)
Issuance costs - (264,786)
Net proceeds from issuing common stock - 321,850
Proceeds from issuing preferred stock - 3,500,000
Net proceeds from line of credit - 650,000
Proceeds from issuing warrants 180,000 -
Proceeds from term loan 820,000 -
Payments on shareholder loans (105,000) -
Proceeds from certificate of deposit 1,000,000 -
Net repayment of line of credit (850,000) -
------------------ ------------------
Net cash provided by financing activities 1,025,826 4,187,958
------------------ ------------------
Net decrease in unrestricted cash and cash equivalents (314,036) 2,262,406
Unrestricted cash and cash equivalents at beginning of year 474,134 267,281
------------------ ------------------
Unrestricted cash and cash equivalents at end of period $ 160,098 $ 2,529,687
================== ==================
Supplemental cash flow disclosures:
Interest paid $ 88,480 $ 14,585
================== ==================
Non-cash financing activities:
Preferred stock dividends $ 145,000 $ -
================== ==================
Capital lease obligations $ 115,808 $ -
================== ==================
The accompanying notes are an integral part of these financial statements.
5
CLINICOR, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
================================================================================
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and nine-month periods ended September 30, 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
- ------------------------------------
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- and nine-month periods
ended September 30, 1997 and 1996.
NOTE 3 - SUBSEQUENT EVENT & PRO FORMA BALANCE SHEET
- ---------------------------------------------------
The Company has entered into an agreement with Tandem Capital, a division of
Sirrom Capital Corporation, regarding its purchase of $5,000,000 of 12% Class B
Convertible Preferred Stock, convertible into shares of Clinicor Common Stock at
$3.00 per share. The transaction is subject to shareholder approval of amended
articles of incorporation to authorize a second series of preferred stock.
Proxy materials for the Special Meeting of shareholders were mailed on or about
November 10, 1997 and the Special Meeting is scheduled for November 24, 1997.
Shareholders representing a majority of the common shares outstanding, including
members of management, and the Company's current preferred shareholders have
indicated they will vote in favor of the financing. The Tandem transaction is
expected to close on or before November 30, 1997. The proceeds of this
transaction will be used to repay the Oracle term loan and for working capital.
A pro forma balance sheet as of September 30, 1997 has been prepared to give
effect to the issuance of Class B preferred stock for $5,000,000 as noted
above. Pro forma adjustments are made to reflect the repayment of the term loan
of $1,000,000, the estimated issuance costs of $200,000 and the write-off of
$90,000 related to the discount on the term debt.
The Company has executed a commitment letter with a national banking institution
to provide a $2,500,000 working capital line of credit secured by accounts
receivable. This commitment is conditioned upon execution of final loan
documents and the successful completion of the preferred stock transaction
noted above. The purpose of this line of credit is to provide the Company with
additional working capital to fund its growing accounts receivable. There can
be no assurance that the Company will be able to finalize such a line of credit
under acceptable terms.
6
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 nine months
ended September 30, 1997 and 1996, are 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, data management and biostatistics 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. The
Company's gross revenue backlog was approximately $16.5 million at September 30,
1997, and 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 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 for
marketing and administrative personnel, professional services, facility costs,
and other overhead items.
8
RESULTS OF OPERATIONS
Three months ended September 30, 1997 compared with three months ended September
- --------------------------------------------------------------------------------
30, 1996
- ---------
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 September 30, 1997 and 1996, 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.
- --------------------------------------------------------------------------------------
For the quarter ended September 30,
- --------------------------------------------------------------------------------------
1997 1996
---- ----
Service revenues $ 2,837,949 $ 884,254
Reimbursable costs 975,294 168,002
----------- -----------
Net service revenue 1,862,655 100.0% 716,252 100.0%
Operating costs and expenses:
Direct costs 1,430,288 76.8% 558,860 78.0%
Selling, general and administrative 798,090 42.9% 491,534 68.6%
Depreciation and amortization 118,300 6.3% 49,479 6.9%
----------- -----------
Total operating costs and expenses 2,346,678 126.0% 1,099,873 153.5%
----------- -----------
Loss from operations (484,023) -26.0% (383,621) -53.5%
Net interest income (expense) (167,274) - 9.0% 20,138 2.8%
----------- -----------
Net loss $ (651,297) -35.0% $ (363,483) -50.7%
============ ===========
Net service revenues increased approximately $1,146,000, or 160%. 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
services.
Reimbursable costs increased to approximately 34% of gross revenue for the
three months ended September 30, 1997 as compared to 19% of gross revenue for
the same period in 1996. This increase is a direct result of the contract mix
for which revenue was recognized during the respective periods. Contracts in
process during the third quarter of 1997 contained a higher percentage of
reimbursable costs as compared to those in the third quarter of 1996. Part of
this increase in the reimbursable cost component resulted from a higher ratio of
time and materials based contracts.
9
Direct costs increased approximately $871,000, or 156%. The increase in
direct costs is consistent with the percentage increase net service revenues for
the three months ended September 30, 1997. Most of the increase in direct costs
is due to additions of full-time study, patient and data management staff and
related overhead. As a percentage of net service revenues, direct costs were
approximately 77% for the three months ended September 30, 1997 as compared to
approximately 78% for the same period in 1996. Management had expected that
direct costs as a percentage of net service revenue would have approximated 65%
for the three months ended September 30, 1997, which is the level experienced in
the second quarter of 1997. Staffing levels were increased in 1997 in
anticipation of three sponsor programs which were scheduled to commence in the
third quarter of 1997 but which were delayed. Two of the programs are delayed
until the first quarter of 1998. One of the programs began in the fourth quarter
of 1997.
Selling, general and administrative expenses increased approximately
$307,000 or 62%, primarily due to increased personnel costs resulting from the
addition of 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 due to costs associated with becoming a
public company and general corporate legal matters. Office expenses, which
include rent, supplies, and telecommunication costs, increased due to the
increase in personnel. Selling, general and administrative expenses were
approximately 43% of net service revenue for the three months ended September
30, 1997, as compared to 69% for the corresponding 1996 period. This improvement
in the percentage of selling, general and administrative expenses to net service
revenues is a result of the growth in net service revenues exceeding the growth
in expenses.
Depreciation and amortization expenses increased approximately $69,000 or
140%. This increase is primarily a result of the purchase of approximately $1.2
million in property, plant and equipment during the last half of 1996. 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 in December
1996.
Interest expense increased by approximately $161,000. This increase is
directly related to the term loan entered into in July 1997 with the Company's
preferred stockholder, Oracle Partners, L.P. The term note requires interest of
10%, the issuance of a warrant for 200,000 shares of common stock with a term of
five years at $5.50 per share, and issuance costs of approximately $90,000. The
Company determined the fair market value of the warrants to be $180,000 which,
along with the issuance costs, must be amortized over the six-month term of the
loan.
The Company recorded no income tax benefit as a result of the net operating
losses for the three months ended September 30, 1997 and 1996, due to the
uncertainty that the loss carryforwards will be utilized.
10
Nine months ended September 30, 1997 compared with nine months ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statements of operations for the nine months
ended September 30, 1997 and 1996, 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.
- --------------------------------------------------------------------------------------
For the nine months ended September 30,
- --------------------------------------------------------------------------------------
1997 1996
---- ----
Service revenues $ 8,234,840 $2,441,788
Reimbursable costs 3,058,130 490,426
------------ -----------
Net service revenue 5,176,710 100.0% 1,951,362 100.0%
Operating costs and expenses:
Direct costs 3,615,620 69.9% 1,371,545 70.3%
Selling, general and administrative 2,522,425 48.7% 1,041,531 53.4%
Depreciation and amortization 362,659 7.0% 100,551 5.1%
------------ -----------
Total operating costs and expenses 6,500,704 125.6% 2,513,627 128.8%
------------ -----------
Loss from operations (1,323,994) -25.6% (562,265) -28.8%
Net interest income (expense) (178,047) - 3.4% 1,227 .0%
------------ -----------
Net loss $(1,502,041) -29.0% $ (561,038) -28.8%
============ ===========
Net service revenues increased approximately $3,225,000, or 165%. 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
services.
Reimbursable costs increased to approximately 37% of gross revenue for the
nine months ended September 30, 1997 as compared to approximately 20% of gross
revenue for the same period in 1996. This increase is a direct result of the
contract mix for which revenue was recognized during the respective periods.
Contracts in process during the first nine months of 1997 contained a higher
percentage of reimbursable costs as compared to those in the corresponding
period of 1996. Part of this increase in the reimbursable cost component
resulted from a higher ratio of time and materials based contracts in 1997.
11
Direct costs increased approximately $2,244,000, or 164%. The increase in
direct costs is consistent with the percentage increase in net service revenues
for the nine months ended September 30, 1997. Most of the increase in direct
costs is due to additions of full-time study, patient and data management staff
and related overhead. As a percentage of net service revenues, direct costs
remained constant at approximately 70%. Management had expected that direct
costs as a percentage of net service revenue would have approximated 65% or less
for the nine months ended September 30, 1997, which is the level experienced in
the second half of 1997. Staffing levels were increased in 1997 in anticipation
of three sponsor programs which were scheduled to commence in the third quarter
of 1997 but which were delayed. Two of the programs are delayed until the first
quarter of 1998. One of the programs began in the fourth quarter of 1997.
Management expects the percentage of direct costs to net service revenue to
decline should net service revenues continue to increase in the future.
Selling, general and administrative expenses increased approximately
$1,481,000 or 142%. These increased expenses primarily related to the growth in
marketing and administrative personnel and related costs. In addition, legal
expenses increased due to the costs of becoming a public reporting company.
During the nine months ended September 30, 1997, a noncash charge of
approximately $118,000 for compensation expense was recorded related to certain
performance-based stock options. Office expenses, which include rent, supplies,
and telecommunication costs increased due to the increase in personnel and the
Company's move to larger corporate office facilities in December 1996. Selling,
general and administrative expenses declined to 49% of net service revenue from
53% in the prior period. This modest decrease is primarily attributable to the
growth in net service revenue exceeding the growth in personnel costs.
Management expects this percentage to continue to decrease should the growth in
net service revenues continue to increase in the future.
Depreciation and amortization expenses increased approximately $262,000 or
260%. This increase is primarily a result of the purchase of approximately $1.2
million in property, plant and equipment during the last half of 1996. 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 in December
1996.
Interest expense increased by approximately $173,000. This increase is
directly related to the term loan entered into in July 1997 with the Company's
preferred stockholder, Oracle Partners, L.P. The term note requires interest of
10%, the issuance of a warrant for 200,000 shares of common stock with a term of
five years at $5.50 per share, and issuance costs of approximately $90,000. The
Company determined the fair market value of the warrants to be $180,000 which,
along with the issuance costs, must be amortized over the six-month term of the
loan.
The Company recorded no income tax benefit as a result of the net operating
losses for the nine months ended September 30, 1997 and 1996, due to the
uncertainty that the loss carryforwards will be utilized.
12
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operating activities was approximately $1,104,000 for
the nine months ended September 30, 1997, as compared to approximately
$1,259,000 in the corresponding period in 1996. The continuation of the negative
trend in net cash used in operations in 1997 is primarily attributable to the
net loss incurred for the seven months ended July 31, 1997. The Company began to
operate at a break-even level of cash from operations in August 1997. Management
expects this trend to continue to improve if net service revenues continue to
increase in the future and if the increase in operating costs continues to be
controlled. Net cash decreased by approximately $314,000 for the nine months
ended September 30, 1997. The net cash operating loss for the nine months ended
September 30, 1997 was primarily financed with the proceeds of the term loan
discussed below. The remaining decrease was largely attributable to purchases of
property and equipment of $236,000 which were not financed. The Company has
begun to utilize operating leases to provide property and equipment additions
instead of utilizing working capital. During the nine months ended September 30,
1997, purchases of property and equipment decreased by approximately $430,000
from the same period in 1996.
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 to approximately $2,737,000
at September 30, 1997 from approximately $1,490,000 at December 31, 1996. The
increase of approximately $1,247,000 is a result of the growth in revenues and
the timing of payments by sponsors. Cash collections for the nine months ended
September 30, 1997, totaled approximately $7,417,000 as compared with $2,023,000
for the corresponding period in 1996.
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
lines of credit. Investing activities have consisted of capital expenditures,
primarily for leasehold improvements, information systems, furniture and office
equipment.
On July 1, 1997, the Company entered into a six-month term loan
agreement with Oracle Partners, L.P. ("Oracle"). Oracle is the Company's
current preferred stockholder. The term loan is secured by all the assets of
the Company and was put into place to supplement the Company's working capital
while the Company pursued efforts to complete a private placement of equity
securities and a permanent working capital line of credit, both of which are
discussed below.
13
The Company has entered into an agreement with Tandem Capital, a division
of Sirrom Capital Corporation ("Tandem"), regarding its purchase of $5,000,000
of 12% Class B Convertible Preferred Stock, convertible into shares of Clinicor
Common Stock at $3.00 per share. The transaction is subject to shareholder
approval of amended articles of incorporation to authorize a second series of
preferred stock. Proxy materials for the Special Meeting of shareholders were
mailed on or about November 10, 1997 and the Special Meeting is scheduled for
November 24, 1997. Shareholders representing a majority of the common shares
outstanding, including members of management, and the Company's current
preferred shareholder have indicated they will vote in favor of the financing.
The Tandem transaction is expected to close on or before November 30, 1997. The
proceeds of this transaction will be used to repay the Oracle term loan and for
working capital.
The Company has entered into a commitment letter with a national banking
institution to provide a $2,500,000 working capital line of credit secured by
accounts receivable. This commitment is conditioned upon execution of final
documents and the successful completion of the preferred stock transaction noted
above. The purpose of this line of credit is to provide the Company with
additional working capital to fund its growing accounts receivable. However,
there can be no assurance that the Company will be able to finalize such a line
of credit under acceptable terms.
Management believes that the proceeds from the proposed private placement
of preferred stock or from the working capital line of credit, if obtained, will
be sufficient to fund current operations and the expected growth of accounts
receivable. Without the additional funding, the Company would 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. In addition, either the private placement or a permanent working
capital line of credit will have to be completed by December 31, 1997, in order
for the Company to repay the Oracle term loan when due. The term loan can be
extended at the lender's option for an additional three months.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-QSB, in other SEC filings or
written materials, or orally by the Company or it representatives may constitute
"forward-looking" statements within the meaning of the federal securities laws.
The Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results
expressed in the Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the factors discussed in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996.
14
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 7, 1997, the Company and Sirrom Capital Corporation d/b/a Tandem
Capital ("Tandem") executed a Preferred Stock Purchase Agreement pursuant to
which Tandem agreed to purchase 50,000 shares of a newly-created class of
preferred stock of the Company, to be designated "Class B Convertible Preferred
Stock," for $5 million. Closing of the transaction is contingent upon
shareholder approval of an amendment to the Company's Articles of Incorporation
that would authorize the issuance of the Class B Convertible Preferred Stock and
modify certain terms of the Company's existing preferred stock, which is to be
redesignated Class A Preferred Stock. A special meeting of shareholders has
been scheduled for November 24, 1997, to vote upon the amendment, and proxy
materials have been mailed to shareholders of record as of September 26, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
4(a) Preferred Stock Purchase Agreement dated November 7, 1997 between the
registrant and Sirrom Capital Corporation d/b/a Tandem Capital
10(a) Employment Agreement effective June 1, 1997 between the registrant
and James W. Clark, Jr.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fiscal quarter covered by this
report.
15
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 November 14, 1997 By /s/ Thomas P. O'Donnell
--------------------------------------
Thomas P. O'Donnell
Chairman of the Board and Chief
Executive Officer
Date November 14, 1997 By /s/ James W. Clark, Jr.
--------------------------------------
James W. Clark, Jr.
Vice President and Chief Financial
Officer (Principal Financial Officer)
16