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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, 1999
[_] 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 November 3, 1999, 4,169,734 shares of the Issuer's Common Stock,
$.001 par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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TABLE OF CONTENTS
Page
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Balance Sheets - September 30, 1999 and December 31, 1998 3
Statements of Operations - three and nine months ended September 30,
1999 and 1998 4
Statements of Cash Flows - nine months ended September 30,
1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 7
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Clinicor, Inc.
Balance Sheet
- --------------------------------------------------------------------------------
September 30, December 31,
1999 1998
(Unaudited) (Note A)
------------------- ------------------
Assets
Current assets:
Cash and cash equivalents $ 970,437 $ 1,665,672
Accounts receivable, net 2,571,086 2,272,376
Prepaid and other current assets 442,435 352,337
----------------- -----------------
Total current assets 3,983,958 4,290,385
Property and equipment, net 1,027,084 1,097,441
Other assets, net 6,305 1,717
----------------- -----------------
Total assets $ 5,017,347 $ 5,389,543
================= =================
Liabilities and shareholders' equity
Current liabilities:
Current portion of obligations under capital leases $ 420,353 $ 307,796
Accounts payable and accrued liabilities 2,120,867 1,414,636
Line of credit 656,978 416,624
Deferred revenue 1,209,254 989,540
----------------- -----------------
Total current liabilities 4,407,452 3,128,596
Obligations under capital leases, less current portion 119,270 324,376
----------------- -----------------
Total liabilities 4,526,722 3,452,972
Shareholders' equity:
Class A convertible preferred stock, no par value,
5,181 shares authorized 4,423 and 4,253 shares issued
and outstanding, respectively , at liquidation value 4,423,000 4,253,000
Class B convertible preferred stock, no par value,
50,000 shares authorized, issued
and outstanding, at liquidation value 5,000,000 5,000,000
Common stock, $0.001 par value, 75,000,000 shares
authorized, 4,169,734 shares issued
and outstanding 4,170 4,170
Additional paid-in capital 8,582 718,683
Deferred compensation (5,549) (22,196)
Accumulated deficit (8,939,578) (8,017,086)
----------------- -----------------
Total shareholders' equity 490,625 1,936,571
----------------- -----------------
Total liabilities and shareholders' equity $ 5,017,347 $ 5,389,543
================= =================
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date, but does not include all
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 September 30, Nine Months Ended September 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- -------------
Service revenue:
Gross revenue $ 4,737,041 $ 2,374,007 $ 11,265,335 $ 8,565,452
Reimbursable costs 2,396,117 800,135 5,659,938 2,745,404
-------------- -------------- -------------- -------------
Net service revenue 2,340,924 1,573,872 5,605,397 5,820,048
Operating costs and expenses:
Direct costs 1,341,649 1,236,629 3,552,171 4,478,488
Selling, general and administrative 793,748 794,648 2,508,635 2,449,117
Depreciation and amortization 135,613 107,063 378,488 320,876
-------------- -------------- -------------- -------------
Total operating costs and expenses 2,271,010 2,138,340 6,439,294 7,248,481
-------------- -------------- -------------- -------------
Income (loss) from operations 69,914 (564,468) (833,897) (1,428,433)
Other income and expenses:
Interest income 17,650 33,637 49,954 109,242
Interest expense 64,055 29,638 154,808 71,210
Other 2,897 0 16,258 0
-------------- -------------- -------------- -------------
Other income and expenses (43,508) 3,999 (88,596) 38,032
-------------- -------------- -------------- -------------
Net income (loss) $ 26,406 $ (560,469) $ (922,493) $ (1,390,401)
============== ============== ============== =============
Net income (loss) $ 26,406 $ (560,469) $ (922,493) $ (1,390,401)
Preferred stock dividends (239,952) (233,113) (710,100) (690,325)
-------------- -------------- -------------- -------------
Net loss applicable to common stock $ (213,546) $ (793,582) $ (1,632,593) $ (2,080,726)
============== ============== ============== =============
Net loss applicable to common
stock per share $ (0.05) $ (0.19) $ (0.39) $ (0.50)
============== ============== ============== =============
Weighted average number of common
shares equivalent outstanding 4,169,734 4,169,734 4,169,734 4,144,367
============== ============== ============== =============
4
Clinicor, Inc.
Statement of Cash Flows
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Nine Months Ended September 30,
----------------------------------------
1999 1998
(Unaudited) (Unaudited)
----------------- ------------------
Operating activities:
Net loss $ (922,493) $ (1,390,401)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 378,488 320,876
Noncash stock option compensation expense 16,650 (235,859)
Net changes in assets and liabilities:
Accounts receivable (298,708) 342,906
Prepaid expenses and other assets (94,686) (86,585)
Accounts payable and accrued liabilities 466,130 (139,206)
Deferred revenue 219,713 (294,238)
----------------- ------------------
Net cash used in operating activities (234,906) (1,482,507)
Investing activities:
Purchases of property and equipment (147,912) (29,999)
Financing activities:
Payments on capital leases (252,771) (32,967)
Net proceeds from issuing common stock 0 41,667
Net borrowings under line of credit 240,354 782,336
Preferred stock dividends (300,000) (411,667)
----------------- -----------------
Net cash provided by financing activities (312,417) 379,369
----------------- -----------------
Net decrease in unrestricted cash and cash equivalents (695,235) (1,133,137)
Unrestricted cash and cash equivalents at beginning of year 1,665,672 3,255,182
----------------- -----------------
Unrestricted cash and cash equivalents at end of period $ 970,437 $ 2,122,045
================= =================
Supplemental cash flow disclosures:
Interest paid $ 154,809 $ 71,210
================= =================
Non-cash financing activities:
Preferred Stock dividends $ 170,000 $ 157,000
================= =================
5
Clinicor, Inc.
Notes to Financial Statements
September 30, 1999 (Unaudited)
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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 SB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB filed on March 30, 1999 for the fiscal year ended December 31, 1998
(Commission File No. 0-21721).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain amounts related to the prior year have been reclassified to conform to
the current year presentation.
Note 2 - Net Loss per Share
- ---------------------------
Net loss applicable to common stock per share has been calculated by dividing
the Company's net loss applicable to common stock by the weighted average number
of shares of the Company's outstanding common stock. Common stock equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive.
At September 30, 1999 and September 30, 1998, stock options and warrants to
purchase 2,007,131 and 1,905,706 shares of common stock, respectively; Class A
Convertible Preferred Stock convertible into 2,948,667 and 2,724,667 shares of
common stock, respectively; and Class B Convertible Preferred Stock
convertible into 1,818,182 and 1,666,667 shares of common stock, respectively,
were not included in the calculation of basic/diluted earnings per share because
the effect of including these options, warrants and convertibles would have been
anti-dilutive.
6
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, 1999 and 1998, are derived from the Condensed Financial
Statements included elsewhere herein. The financial information set forth and
discussed below are unaudited but in the opinion of management reflects all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such information. The Company's results of operations for a
particular quarter may not be indicative of results expected during other
quarters or for the entire year.
OVERVIEW
The Company is a fully integrated contract research organization ("CRO")
serving the pharmaceutical, biotechnology and medical device industries
("sponsors"). The Company designs, manages and monitors clinical trials in North
America and Europe and provides integrated clinical and product development
services, including project management, clinical monitoring, patient
recruitment, data management, biostatistical analysis, medical affairs,
regulatory affairs, quality assurance and other consultation services for its
sponsors. The Company generates substantially all of its revenue from services
related to the clinical testing of new pharmaceutical, medical device and
biotechnology products. The Company commenced operations in September 1992 and
has achieved its growth through internal development.
The Company's contracts for services generally vary from a few months to
several years in duration. A portion of the contract fee is typically required
to be paid when the contract is initiated, with the balance payable in
installments over the contract's duration. The installment payments are based on
performance or the achievement of milestones, relating payment to previously
negotiated events such as patient enrollment, patient completion or delivery of
databases, or periodic, based on personnel fees and actual expenses, typically
billed on a monthly basis.
In accordance with the terms of the Company's contracts, sponsors may
terminate or delay the performance of a contract, potentially causing the
Company to experience periods of excess capacity and reductions in service
revenue and net income. Trials may be terminated or delayed for a variety of
reasons, including unexpected or undesired results, production problems
resulting in shortages of the product or delays in supplying the product,
adverse patient reaction to the product, or the sponsor's decision to de-
emphasize a particular trial. If a trial is terminated, the contract generally
provides for a short continuation or wind-down period, as the Company manages
required investigator obligations through the termination date. Therefore, the
Company is typically entitled to all amounts owed for work performed through the
notice of termination and all costs associated with termination of the study. In
addition, contracts may require the payment of a separate early termination fee,
the amount of which usually declines as the trial progresses.
7
Revenue from contracts is recognized as work is performed. Some contracts
contain a fixed price per patient plus either fixed or variable fees for
additional service components such as monitoring, project management,
advertising, travel, data management, consulting and report writing. Other
contracts are time and materials based. Payments received on contracts in excess
of amounts earned are recorded as deferred revenue.
The Company's net service revenue backlog consists of anticipated service
revenue from clinical trials and other services that have not been completed and
that generally specify completion dates within 24 months. To qualify as
"backlog" anticipated projects must be represented by contracts or letter
agreements or must be projects for which the Company has commenced a significant
level of effort based upon sponsor commitment and approval of a written budget.
Once work commences, service revenue is recognized over the life of the
contract. The Company's net service revenue backlog was approximately $3.5
million at September 30, 1999 as compared $8.0 million at June 30, 1999. During
the third quarter, sponsor contract cancellations of approximately $3.1 million
primarily caused the decline. The Company believes that its backlog at any given
date is not necessarily a meaningful predictor of future results, and no
assurances can be given that the Company will fully realize all of its backlog
as service revenue.
Reimbursable costs can include patient and investigator stipends,
Institutional Review Board fees, laboratory fees, medical supplies, patient
recruitment advertising, travel and consulting fees. Reimbursable costs that are
paid to the Company directly by the client, and for which the Company does not
bear the risk of economic loss, are deducted from gross service revenue in
accordance with CRO industry practice.
Direct costs include project personnel costs and related allocated overhead
costs such as rent, supplies, postage, express delivery and telecommunications,
as well as study-related costs not reimbursed by clients. Selling, general and
administrative expenses consist primarily of compensation and benefits for
marketing and administrative personnel, professional services, facility costs,
and other allocated overhead items.
QUARTERLY RESULTS
Quarterly operating results are subject to variation, and are expected to
continue to be subject to variation, as a result of factors such as delays in
initiating or completing significant drug development trials and any termination
of drug development trials. Delays and terminations are the result of actions by
sponsors or regulatory authorities and are not controllable by the Company.
Since a large part of the Company's operating costs are relatively fixed while
revenue is subject to fluctuation, minor variations in the commencement,
progress or completion of drug development trials may cause significant
variations in quarterly operating results.
8
RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared with three months ended September
- --------------------------------------------------------------------------------
30, 1998
- --------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statements of operations for the three
months ended September 30, 1999 and 1998, and the percentage of net service
revenue for each item. Any results or trends illustrated in the following table
may not be indicative of future results or trends.
- -----------------------------------------------------------------------------------------------
For the quarter ended September 30,
- -----------------------------------------------------------------------------------------------
1999 1998
---- ----
Service revenue $ 4,737,041 $ 2,374,007
Reimbursable costs 2,396,117 800,135
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Net service revenue 2,340,924 100.0% 1,573,872 100.0%
Operating costs and expenses:
Direct costs 1,341,649 57.3% 1,236,629 78.6%
Selling, general and administrative 793,748 33.9% 794,648 50.5%
Depreciation and amortization 135,613 5.8% 107,063 6.8%
----------- -----------
Total operating costs and expenses 2,271,010 97.0% 2,138,340 135.9%
----------- -----------
Income (loss) from operations 69,914 3.0% (564,468) -35.9%
Net interest income (expense) (43,508) - 1.9% 3,999 0.3%
----------- -----------
Net income (loss) $ 26,406 1.1% $ (560,469) -35.6%
=========== ===========
Net service revenue increased approximately $767,000 or 49%. The increase
is primarily attributable to new contracts that commenced during the quarter.
However, during the quarter, the Company learned that portions of those
contracts would be delayed or cancelled which caused an overall decline in
contract backlog. The positive revenue growth trend experienced during the
third quarter cannot be sustained in future quarters unless there is growth in
contract backlog.
Direct costs decreased approximately $105,000 or 8%. Most of the decrease
in direct costs is due to reductions of staff and related overhead that occurred
during 1998 as a result of contract cancellations. As a percentage of net
service revenue, direct costs were approximately 57% for the three months ended
September 30, 1999 as compared to approximately 79% for the same period in 1998.
Selling, general and administrative expenses remained approximately the
same. Selling, general and administrative expenses decreased to approximately
34% of net service revenue for the three months ended September 30, 1999, as
compared to 50% for
9
the corresponding period in 1998. The percentage decrease is primarily
attributable to the growth in net service revenues during the period.
Depreciation and amortization expenses increased approximately $29,000
during the three months ended September 30, 1999 as compared to the comparable
period in 1998. Depreciation expense as a percentage of net service revenue
decreased to approximately 6% for the three months ended September 30, 1999, as
compared to 7% in the corresponding period of 1998.
Interest income decreased by approximately $16,000 during the three months
ended September 30, 1999 as compared to the comparable period in 1998. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $34,000 during the three months
ended September 30, 1999 as compared to the comparable period in 1998. This
increase is primarily the result of utilization of the Company's working capital
line of credit.
The Company recorded no income tax or income tax benefit as a result of the
net operating income or losses for the three months ended September 30, 1999 and
1998, due to the uncertainty that the loss carryforwards will be utilized.
10
Nine months ended September 30, 1999 compared with nine months ended September
- ------------------------------------------------------------------------------
30, 1998
- --------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statement of operations for the nine months
ended September 30, 1999 and 1998, and the percentage of net service revenue for
each item. Any results or trends illustrated in the following table may not be
indicative of future results or trends.
- ------------------------------------------------------------------------------------------
For the nine months ended September 30,
- ------------------------------------------------------------------------------------------
1999 1998
---- ----
Service revenue $ 11,265,335 $ 8,565,452
Reimbursable costs 5,659,938 2,745,404
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Net service revenue 5,605,397 100.0% 5,820,048 100.0%
Operating costs and expenses:
Direct costs 3,552,171 63.4% 4,478,488 76.9%
Selling, general and administrative 2,508,635 44.7% 2,449,117 42.1%
Depreciation and amortization 378,488 6.8% 320,876 5.5%
------------ -----------
Total operating costs and expenses 6,439,294 114.9% 7,248,481 124.5%
------------ -----------
Loss from operations (833,897) -14.9% (1,428,433) -24.5%
Net interest income (expense) (88,596) -1.6% 38,032 0.6%
------------ -----------
Net loss $ ( 922,493) -16.5% $(1,390,401) -23.9%
============ ===========
Net service revenue decreased approximately $215,000 or 4%. The decrease is
primarily attributable to the decline in contract backlog during 1998 resulting
from contract cancellations and less new business being added due to a
restructuring of our business development efforts. During 1999, our new business
development staff and new marketing initiatives increased contract backlog by
over 80% in the second quarter. However, contract cancellations were received
during the third quarter that negated those gains.
Direct costs decreased approximately $926,000 or 21%. The decrease in
direct costs is primarily due to reductions of staff and related overhead that
occurred during 1998 as a result of contract cancellations. As a percentage of
net service revenue, direct costs decreased to approximately 63% of net service
revenue as compared to approximately 77% for the same period in 1998.
Selling, general and administrative expenses increased approximately
$60,000 or 2%. The primary cause of this increase is the expansion of our
business development staff and new marketing and promotion initiatives. Selling,
general and administrative expenses increased to 45% of net service revenue
during the nine months ended September 30, 1999 from 42% in the corresponding
period in 1998.
11
Depreciation and amortization expenses increased approximately $58,000 or
18%. Depreciation and amortization expenses increased to 7% of net service
revenue for the nine months ended September 30, 1999 as compared to 5% in the
prior period. The increase is primarily related to the implementation in 1998 of
an Oracle database on a Unix network server to support project management,
patient recruitment, data management and the accounting department in 1998.
Interest income decreased by approximately $59,000 during the nine months
ended September 30, 1999 as compared to the comparable period in 1998. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $84,000 during the nine months ended
September 30, 1999 as compared to the comparable period in 1998. This increase
is primarily the result of utilization of the Company's working capital line of
credit.
The Company recorded no income tax benefit as a result of the net operating
losses for the nine months ended September 30, 1999 and 1998, due to the
uncertainty that the loss carryforwards will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and internal
growth with proceeds from private placements of equity securities, advances from
shareholders and borrowing arrangements under capital lease obligations and bank
lines of credit. Investing activities have consisted of capital expenditures,
primarily for leasehold improvements, information systems, furniture and office
equipment.
Typically, cash flows from contracts include a payment at the time a
contract commences and the balance in installments over the contract's duration,
in some cases on a milestone completion basis. Consequently, cash receipts do
not necessarily correspond to costs incurred and revenue recognized on
contracts. The Company's cash flow is influenced by changes in the level of
accounts receivable. Accounts receivable increased to approximately $2,570,000
at September 30, 1999 from approximately $2,270,000 at December 31, 1998. The
increase in the balance of accounts receivable at September 30, 1999 is due to
the recent start of a large clinical trial that includes significant levels of
reimbursed costs. Cash collections from clinical study contracts for the nine
months ended September 30, 1999, totaled approximately $11,252,000 as compared
with approximately $8,600,000 for the corresponding period in 1998.
Net cash flow used in operating activities was approximately $235,000 in
the nine months ended September 30, 1999, as compared to approximately
$1,483,000 in the corresponding period in 1998. The improvement in net cash
used in operations in 1999 of approximately $1,248,000 is primarily attributable
the Company generating net income during the three months ended September 30,
1999 and increased levels of deferred revenue. Net cash decreased by
approximately $695,000 for the nine months ended September 30, 1999 as compared
to a decrease of approximately $1,130,000 in the year earlier period.
12
Investing activities are attributable to purchases of property and
equipment and they increased to approximately $148,000 in the nine months ended
September 30, 1999 as compared to approximately $30,000 in the comparable period
of 1998. This increase is primarily due to the development of an enterprise
software application, CorDat@, which provides the Company's sponsors with an
Intranet web connection to Clinicor's Oracle database applications.
Financing activities consist of net borrowings under the Company's
revolving working capital line of credit. At September 30, 1999, there was
approximately $657,000 in outstanding borrowings. The line of credit provides a
borrowing base primarily determined as a percentage of billed accounts
receivable up to a maximum borrowing amount of $2,500,000.
Pursuant to the preferred stock terms contained in the Company's Articles
of Incorporation, the Company paid $300,000 in dividends to the holder of its
Class B Preferred Stock during the nine months ended September 30, 1999. In
order to maintain adequate working capital levels, the Company and its Preferred
Class B stockholder have agreed to suspend cash dividend payments during the
remainder of 1999. The agreement also provides for the dividend payments to re-
commence on February 1, 2000 and for all accrued and unpaid dividends to be
brought current by May 1, 2000, if the Company determines that its working
capital is adequate to do so.
Management believes that its existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit, will be sufficient to fund its operations in 1999. Should anticipated
growth in contract backlog levels and net service revenue not occur, or should
pending projects be delayed or cancelled, the Company will be required to seek
additional external financing in early 2000. Such external financing might be in
the form of public or private issuances of equity or debt securities or bank
financing. There can be no assurance that such financing can be obtained or
obtained on terms acceptable to the Company. Regardless of the availability of
external financing, the Company intends to continue to investigate strategies to
preserve working capital.
YEAR 2000
Information systems are an integral part of the services the Company
provides. Since many computer and software systems were designed to handle
dates with just two digits to represent the year applicable to a transaction,
these systems may not operate properly when the last two digits of the year
become "00". For example, on January 1, 2000, these systems may interpret "00"
as the year 1900 not 2000. If the computer equipment and software used in the
operation of the Company do not correctly recognize date information when the
year changes to 2000, there could be an adverse impact on the Company's
operations.
13
The Company began its assessment of the Year 2000 issue from an internal
perspective in late 1997. The Company decided to change its information
technology ("IT") systems including those relating to clinical operations, data
management operations and financial operations, to Year 2000 compliant software
applications on an Oracle database platform in the first quarter of 1998. These
new systems were implemented to improve management's control of the organization
and increase operating efficiency. The installation of these software systems
was substantially completed by December 31, 1998, and they are currently in
production. The Company estimates that it has spent approximately $750,000 on
its hardware and software systems to accommodate the Oracle database and related
software applications. These expenditures were primarily financed through
operating and capital leases.
The Company has also reviewed and tested its non-IT systems such as fax
machines and telephone systems without experiencing any material failures. The
Company performed an integrated systems test on August 21, 1999 to assure itself
that all IT and non-IT systems will be fully capable of handling the Year 2000
issue. That test was successful and the Company's systems are now Year 2000
ready. In addition, the Company's Year 2000 readiness plan has been successfully
audited by certain Sponsor companies.
The Company is in the process of contacting its principal clients
concerning the state of their Year 2000 readiness. Until that effort is
completed, the Company cannot be assured that those other systems will be Year
2000 compliant on time and is unable to estimate the impact of such a failure.
The Company believes that its most likely worst case Year 2000 scenarios
would relate to problems with the systems of unrelated third parties rather than
the Company's internal systems or those of its clients. It is clear that the
Company has the least ability to assess and remediate the Year 2000 problems of
third parties. The Company believes the risks are greatest with infrastructure
(e.g. electricity supply and water service), telecommunications and
transportation systems.
The Company is not in a position to identify or to avoid all possible
scenarios; however, the Company is currently assessing scenarios. This
contingency planning will continue through 1999 as the Company learns more about
the preparations and vulnerabilities of third parties regarding Year 2000
issues. Due to the large number of variables involved, the Company cannot
provide an estimate of the damage it might suffer if any of these scenarios were
to occur.
As we get closer to December 31, 1999, certain of the Company's customers
may decide to delay starting or awarding new clinical trials as a part of a
general restriction of awarding new clinical trials. Should any of the
Company's customers adopt such a strategy, this would have a material adverse
impact of the Company's future operating results.
14
Based on currently available information, management does not believe that
the Year 2000 issues discussed above related to internal systems will have a
material adverse impact on the Company's financial condition or overall trends
in results of operations. However, it is uncertain to what extent the Company
may be affected by such matters. In addition, there can be no assurance that
the failure to ensure Year 2000 capability by a customer or other third party
would not have a material adverse effect on the Company's financial condition or
overall trends in results of operations.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-QSB, in other SEC filings or
written materials, or orally by the Company or it representatives may constitute
"forward-looking" statements within the meaning of the federal securities laws.
Forward-looking statements in this Form 10-QSB include those relating to future
growth in the Company's contract backlog levels and net service revenue. The
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from the anticipated results expressed in
the Company's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business include the factors discussed in "Risk Factors" under Item 1 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
15
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
The Company and the holder of its Class B Preferred Stock have agreed to
suspend payment of scheduled August 1, 1999 and November 1, 1999 quarterly
dividends, each in the amount of $150,000, in order to conserve working capital.
The suspension of the dividend does not constitute a default under the Class B
Preferred Stock terms. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition-Liquidity and Capital Resources."
Item 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.
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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 5, 1999 By: /s/ Robert S. Sammis
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Robert S. Sammis
President
(Principal Executive Officer)
Date: November 5, 1999 By: /s/ James W. Clark, Jr.
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James W. Clark, Jr.
Vice President and Chief Financial Officer
(Principal Financial Officer)
17