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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, 1998
[ ] 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)
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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 13, 1998, 4,136,400 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 - March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations - three months ended March 31,
1998 and 1997 4
Condensed Statements of Cash Flows - three months ended March 31,
1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
CLINICOR, INC.
BALANCE SHEET
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MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED) (NOTE A)
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ASSETS
Current assets:
Cash, restricted cash and cash equivalents $ 3,085,720 $ 3,255,182
Accounts receivable, net 2,400,629 2,472,928
Prepaid and other current assets 186,300 129,823
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Total current assets 5,672,649 5,857,933
Property and equipment, net 934,640 1,029,122
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TOTAL ASSETS $ 6,607,289 $ 6,887,055
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 48,252 $ 45,929
Accounts payable and accrued liabilities 921,293 991,002
Dividends payable 178,894 61,955
Line of credit 572,669 --
Deferred revenue 1,195,907 1,053,150
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Total current liabilities 2,917,015 2,152,036
Obligations under capital leases, less current portion 55,206 68,173
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Total liabilities 2,972,221 2,220,209
Shareholders' equity:
Class A convertible preferred stock, no par value, 5,181 shares authorized,
3,930 shares issued and outstanding 3,930,000 3,930,000
Class B convertible preferred stock, no par value, 50,000 shares authorized,
issued and outstanding 5,000,000 5,000,000
Common stock, $0.001 par value, 75,000,000 shares authorized,
4,136,400 and 4,086,400 shares issued and outstanding, respectively 4,136 4,086
Additional paid-in capital 1,376,881 1,875,536
Deferred compensation (38,843) (66,892)
Accumulated deficit (6,637,106) (6,075,884)
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Total shareholders' equity 3,635,068 4,666,846
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,607,289 $ 6,887,055
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Note A: The balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date, but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
The accompanying notes are an integral part of these financial statements.
3
CLINICOR, INC.
STATEMENT OF OPERATIONS
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THREE MONTHS ENDED MARCH 31,
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1998 1997
(UNAUDITED) (UNAUDITED)
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Service revenue:
Gross revenue $ 2,867,196 $ 2,546,102
Reimbursable costs 668,280 1,124,227
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Net service revenue 2,198,916 1,421,875
Operating costs and expenses:
Direct costs 1,851,327 961,646
Selling, general and administrative 826,053 828,029
Depreciation and amortization 105,356 119,250
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Total operating costs and expenses 2,782,736 1,908,925
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Loss from operations (583,820) (487,050)
Other income and expenses:
Interest income 37,609 11,360
Interest expense 15,011 17,755
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Other income and expenses 22,598 (6,395)
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NET LOSS $ (561,222) $ (493,445)
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Net loss $ (561,222) $ (493,445)
Preferred stock dividends (228,606) (72,630)
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Net loss applicable to common stock $ (789,828) $ (566,075)
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BASIC/DILUTED EARNINGS PER SHARE $ (0.19) $ (0.14)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES EQUIVALENT OUTSTANDING 4,124,654 4,086,400
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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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1998 1997
(UNAUDITED) (UNAUDITED)
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OPERATING ACTIVITIES:
Net loss $ (561,222) $ (493,445)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 105,356 119,250
Noncash stock option compensation expense (246,951) 39,477
Net changes in assets and liabilities:
Accounts receivable 72,299 (651,338)
Prepaid expenses and other assets (56,477) (17,412)
Accounts payable and accrued liabilities (69,709) 936,139
Deferred revenue 142,756 52,656
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Net cash used in operating activities (613,948) (14,673)
INVESTING ACTIVITIES:
Purchases of property and equipment (10,874) (256,473)
FINANCING ACTIVITIES:
Payments on capital leases (10,643) (3,399)
Net proceeds from issuing common stock 5,000 --
Net borrowings under line of credit 572,669 150,000
Preferred stock dividends (111,667) --
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Net cash provided by financing activities 455,359 146,601
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Net decrease in unrestricted cash and cash equivalents (169,463) (124,545)
Unrestricted cash and cash equivalents at beginning of year 3,255,182 474,134
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Unrestricted cash and cash equivalents at end of period $ 3,085,719 $ 349,589
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 15,092 $ 19,135
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The accompanying notes are an integral part of these financial statements.
5
CLINICOR, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (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-QSB and Item 310(b) of Regulation SB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB filed on March
30, 1998 for the fiscal year ended December 31, 1997 (Commission File No.
0-21721).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain amounts related to the prior year have been reclassified to conform to
the current year presentation.
NOTE 2 - NET INCOME (LOSS) PER SHARE
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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 anti-dilutive.
At March 31, 1998 and March 31, 1997, stock options and warrants to purchase
1,930,274 and 936,440 shares of common stock, respectively; Class A Convertible
Preferred Stock convertible into 2,620,000 and 2,420,666 shares of common stock,
respectively; and Class B Convertible Preferred Stock convertible into
1,666,667 and 0 shares of common stock, respectively, were not included in the
calculation of basic/diluted earnings per share because the effect of including
these options, warrants and convertibles would have been anti-dilutive.
NOTE 3 - REPORTING COMPREHENSIVE INCOME
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In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." The new standard, which is effective for financial statements issued
for periods ending after December 15, 1997, established standards for reporting,
in addition to net income, comprehensive income and its components including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Upon adoption, the Company is also required to reclassify financial
statements for earlier periods provided for comparative purposes. The Company
adopted this standard in the first quarter of 1998. The difference between the
Company's net income as reported and comprehensive income is immaterial for
disclosure.
NOTE 4 - SEGMENT REPORTING
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In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which the company adopted in the first
quarter of 1998. The standard establishes requirements for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Under SFAS
No. 131, operating segments are to be determined consistent with the way
management organizes and evaluates financial information internally for making
operating decisions and assessing performance. The disclosure provisions of
this standard are not applicable for interim periods in the year of adoption.
The adoption of this new standard is not expected to have a material impact on
the Company's consolidated balance sheet or statement of income.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The information set forth and discussed below for the three months ended
March 31, 1998 and 1997, 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 fully integrated contract research organization ("CRO")
serving the pharmaceutical, biotechnology and medical device industries
("sponsors"). The Company designs, manages and monitors clinical trials in
North America and Europe and provides integrated clinical and product
development services, including patient recruitment, data management,
biostatistical analysis, regulatory affairs, medical device and other
consultation and quality assurance/quality control ("QA/QC") services for its
sponsors. The Company generates substantially all of its revenue from services
related to the clinical testing of new pharmaceutical, medical device and
biotechnology products. The Company commenced operations in September 1992 and
has achieved its growth through internal development.
The Company's contracts for services generally vary from a few months to
several years in duration. A portion of the contract fee is typically required
to be paid when the contract is initiated, with the balance payable in
installments over the contract's duration. The installment payments are based
on performance or the achievement of milestones, relating payment to previously
negotiated events such as patient enrollment, patient completion or delivery of
databases, or periodic, based on personnel fees and actual expenses, typically
billed on a monthly basis.
In accordance with the terms of the Company's contracts, sponsors may
terminate or delay the performance of a contract, potentially causing the
Company to experience periods of excess capacity and reductions in service
revenue and net income. Trials may be terminated or delayed for a variety of
reasons, including unexpected or undesired results, production problems
resulting in shortages of the product or delays in supplying the product,
adverse patient reaction to the product, or the sponsor's decision to de-
emphasize a particular trial. If a trial is terminated, the contract generally
provides for a short continuation or wind-down period, as the Company manages
required investigator obligations through the termination date. Therefore, the
Company is typically entitled to all amounts owed for work performed through the
notice of termination and all costs associated with termination of the study.
In addition, contracts may require the payment of a separate early termination
fee, the amount of which usually declines as the trial progresses.
7
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 $12.6 million at March 31,
1998 as compared to $14.0 million at December 31, 1997. The Company believes
that its backlog at any given date is not necessarily a meaningful predictor of
future results, and no assurances can be given that the Company will fully
realize all of its backlog as service revenue.
Reimbursable costs can include patient and investigator stipends,
Institutional Review Board fees, laboratory and medical supplies, patient
recruitment advertising, travel and consulting fees. Reimbursable costs that
are paid to the Company directly by the client, and for which the Company does
not bear the risk of economic loss, are deducted from gross service revenue in
accordance with CRO industry practice.
Direct costs include project personnel costs and related allocated overhead
costs such as rent, supplies, postage, express delivery and telecommunications,
as well as study-related costs not reimbursed by clients. Selling, general and
administrative expenses consist primarily of compensation and benefits for
marketing and administrative personnel, professional services, facility costs,
and other allocated overhead items.
QUARTERLY RESULTS
Quarterly operating results are subject to variation, and are expected to
continue to be subject to variation, as a result of factors such as delays in
initiating or completing significant drug development trials and any termination
of a drug development trials. Delays and termination's are the result of
actions by sponsors or regulatory authorities and are not controllable by the
Company. Since a large part of the Company's operating costs are relatively
fixed while revenue is subject to fluctuation, minor variations in the
commencement, progress or completion of drug development trials may cause
significant variations in quarterly operating results.
8
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared with three months ended March 31,
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1997
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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 March 31, 1998 and 1997, and the percentage of net service revenue
for each item. Any results or trends illustrated in the following table may not
be indicative of future results or trends.
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For the quarter ended March 31,
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1998 1997
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Service revenues $ 2,867,196 $ 2,546,102
Reimbursable costs 668,280 1,124,227
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Net service revenue 2,198,916 100.0% 1,421,875 100.0%
Operating costs and expenses:
Direct costs 1,851,327 84.2% 961,646 67.6%
Selling, general and administrative 826,053 37.6% 828,029 58.2%
Depreciation and amortization 105,356 4.8% 119,250 8.4%
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Total operating costs and expenses 2,782,736 126.6% 1,908,925 134.2%
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Loss from operations (583,820) -26.6% (487,050) -34.2%
Net interest income (expense) 22,598 1.0% (6,395) - .4%
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Net loss $ (561,222) -25.6% $ (493,445) -34.6%
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Net service revenues increased approximately $ 777,000, or 55%. The
increase is primarily attributable to an increase in the average size of
clinical trials and to the decrease in reimbursed costs.
Reimbursable costs decreased to approximately 23% of gross revenue for the
three months ended March 31, 1998 as compared to 44% of gross revenue for the
same period in 1997. This decrease is a direct result of the contract mix for
which revenue was recognized during the respective periods. Contracts in
process during the first quarter of 1998 contained a lower percentage of
reimbursable costs as compared to those in the first quarter of 1997 primarily
because there was a higher ratio of time and materials based contracts in 1998.
Direct costs increased approximately $890,000, or 93%. Most of the
increase in direct costs is due to additions of full-time study, patient and
data management staff and related overhead which occurred during 1997. As a
percentage of net service revenues, direct costs were approximately 84% for the
three months ended March 31, 1998 as compared to approximately 68% for the same
period in 1997. Management expects that direct costs as a percentage of net
service revenue will approximate 70% for the calendar year of 1998, which is
approximately the level experienced for 1997. Staffing levels were increased
9
in 1997 in anticipation of certain sponsor programs which were scheduled to
commence in 1997 but which were delayed or cancelled. The delayed programs are
not scheduled to commence until the second half of 1998 and 1999.
Selling, general and administrative expenses remained approximately the
same during the first quarter of 1998 as compared to the comparable period in
1997. During the quarter, the company expensed $300,000 related to the
separation of the former chief executive officer. This expense was partially
offset by $252,500 due to the related termination of stock options. Selling,
general and administrative expenses were approximately 38% of net service
revenue for the three months ended March 31, 1998, as compared to 58% for the
corresponding period in 1997. This improvement in the percentage of selling,
general and administrative expenses to net service revenues is a result of
these costs being controlled while net service revenues grew by 55%. Management
expects to reduce this ratio to 35% for the calendar year of 1998 as compared to
approximately 50% in 1997.
Depreciation and amortization expenses decreased approximately $13,000
during the three months ended March 31, 1998 as compared to the comparable
period in 1997. The Company has committed to invest approximately $750,000 to
implement an Oracle database on a Unix network server to support study
management, patient management, data management and the accounting department.
This Oracle database and network equipment is being installed in the second
quarter of 1998. Depreciation expense is expected to increase to approximately
7% of net service revenues once this installation is completed.
Interest income increased by approximately $26,000 during the three months
ended March 31, 1998 as compared to the comparable period in 1997. This is
primarily the result of the increase in the funds available for investment
resulting from the sale of preferred stock in late 1997.
The Company recorded no income tax benefit as a result of the net operating
losses for the three months ended March 31, 1998 and 1997, due to the
uncertainty that the loss carryforwards will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and internal
growth with proceeds from private placements of equity securities, advances from
shareholders and borrowing arrangements under capital lease obligations and
lines of credit. Investing activities have consisted of capital expenditures,
primarily for leasehold improvements, information systems, furniture and office
equipment.
Typically, cash flows from contracts include a payment at the time a
contract commences and the balance in installments over the contract's duration,
in some cases on a milestone completion basis. Consequently, cash receipts do
not necessarily correspond to costs incurred and revenue recognized on
contracts. The Company's cash flow is
10
influenced by changes in levels of accounts receivable. Accounts receivable
decreased to approximately $2,400,000 at March 31, 1998 from approximately
$2,470,000 at December 31, 1997. Cash collections from clinical study contracts
for the three months ended March 31, 1998, totaled approximately $3,000,000 as
compared with approximately $1,900,000 for the corresponding period in 1997.
Net cash flow used in operating activities was approximately $300,000 for
the three months ended March 31, 1998, as compared to approximately $15,000 in
the corresponding period in 1997. The continuation of the negative trend in net
cash used in operations in 1998 is primarily attributable to the net loss
incurred for the three months ended March 31, 1998. Net cash decreased by
approximately $170,000 for the three months ended March 31, 1998. The net cash
operating loss for the first quarter of 1998 was primarily financed with the
proceeds from a working capital line of credit.
Investing activities are attributable to purchases of property and
equipment and they declined to approximately $11,000 in the three months ended
March 31, 1998 as compared to approximately $256,000 in the comparable period of
1997. The Company has committed to invest approximately $750,000 in Oracle
database software and a Unix network system during the next 6 months. This
investment will be financed with operating and capital leases.
Management believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit and lease lines of credit, will be sufficient to fund its operations in
1998. In the future, the Company may acquire businesses to expand its contract
backlog and to enhance its therapeutic expertise. Any such acquisition would
require additional external financing, and the Company may seek such funds from
public or private issuance's of equity, debt securities, or bank financing.
There can be no assurance that such financing will be available on terms
acceptable to the Company.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-QSB, in other SEC filings or
written materials, or orally by the Company or it representatives may constitute
"forward-looking" statements within the meaning of the federal securities laws.
The Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results
expressed in the Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the factors discussed in "Risk
Factors" under Item 1 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
11
PART II
OTHER INFORMATION
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 13, 1998 By /s/ ROBERT S. SAMMIS
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Robert S. Sammis
President and Principal Executive Officer
Date May 13, 1998 By /s/ JAMES W. CLARK, JR.
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James W. Clark, Jr.
Vice President and Chief Financial Officer
(Principal Financial Officer)
13