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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 June 30, 2000
[ ] 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 August 1, 2000, 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 - June 30, 2000 and December 31, 1999 3
Statements of Operations - six months ended June 30,
2000 and 1999 4
Statements of Cash Flows - six months ended June 30,
2000 and 1999 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
Clinicor, Inc.
Balance Sheet
- --------------------------------------------------------------------------------
June 30, December 31,
2000 1999
(Unaudited) (Note A)
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 29,436 $ 673,370
Accounts receivable, net 1,195,408 3,306,653
Prepaid and other current assets 319,366 350,037
------------ ------------
Total current assets 1,544,210 4,330,060
Property and equipment, net 931,761 1,083,927
Other assets, net 11,447 8,013
------------ ------------
Total assets $ 2,487,418 $ 5,422,000
============ ============
Liabilities, convertible preferred stock subject to redemption
and shareholders' deficit
Current liabilities:
Current portion of obligations under capital leases $ 332,060 $ 453,259
Accounts payable and accrued liabilities 1,164,615 2,422,548
Dividend Payable 700,952 400,778
Line of credit 261,559 948,586
Deferred revenue 1,445,773 825,061
------------ ------------
Total current liabilities 3,904,959 5,050,232
Obligations under capital leases, less current portion 37,828 144,975
------------ ------------
Total liabilities 3,942,787 5,195,207
Convertible preferred stock subject to redemption:
Class A convertible preferred stock, no par value,
5,181 shares authorized 4,788 and 4603 shares issued
and outstanding respectively, at liquidation value 4,788,000 4,603,000
Class B convertible preferred stock, no par value,
50,000 shares authorized, issued
and outstanding, at liquidation value 5,000,000 5,000,000
------------ ------------
Total convertible preferred stock subject to redemption 9,788,000 9,603,000
Shareholders' equity:
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 0 0
Deferred compensation 0 0
Accumulated deficit (11,247,539) (9,380,377)
------------ ------------
Total shareholders' deficit (11,243,369) (9,376,207)
------------ ------------
Total liabilities, convertible preferred stock subject to redemption
and shareholders' deficit $ 2,487,418 $ 5,422,000
============ ============
Note A: The balance sheet at December 31, 1999 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 June 30, Six Months Ended June 30
------------------------------------- ---------------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited)
----------------- ------------------ ---------------------------------
Service revenue:
Gross revenue $ 1,479,805 $ 3,337,979 $ 3,301,810 $ 6,528,294
Reimbursable costs 196,586 1,686,687 610,726 3,263,821
----------- ----------- ----------- -----------
Net service revenue 1,283,219 1,651,292 2,691,084 3,264,473
----------- ----------- ----------- -----------
Operating costs and expenses:
Direct costs 1,036,240 1,010,624 2,148,624 2,092,189
Selling, general and administrative 794,938 961,289 1,649,582 1,833,220
Depreciation and amortization 94,233 141,812 188,120 242,875
----------- ----------- ----------- -----------
Total operating costs and expenses 1,925,411 2,113,725 3,986,326 4,168,284
----------- ----------- ----------- -----------
Loss from operations (642,192) (462,433) (1,295,242) (903,811)
Other income and expenses:
Interest income 6,742 14,052 17,067 32,304
Interest expense 55,755 50,506 111,783 90,753
Other 7,239 2,105 7,970 13,361
----------- ----------- ----------- -----------
Other income and expenses (41,774) (34,349) (86,746) (45,088)
----------- ----------- ----------- -----------
Net loss $ (683,966) $ (496,782) $(1,381,988) $ (948,899)
=========== =========== =========== ===========
Net loss $ (683,966) $ (496,782) $(1,381,988) $ (948,899)
Preferred stock dividends (242,585) (235,074) (485,172) (470,148)
----------- ----------- ----------- -----------
Net loss applicable to common stock $ (926,551) $ (731,856) $(1,867,160) $(1,419,047)
=========== =========== =========== ===========
Net loss applicable to common
stock per share $ (0.22) $ (0.18) $ (0.45) $ (0.34)
=========== =========== =========== ===========
Weighted average number of common
shares equivalent outstanding 4,169,734 4,169,734 4,169,734 4,169,734
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
Clinicor, Inc.
Statement of Cash Flows
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Six Months Ended June 30,
------------------------------------
2000 1999
(Unaudited) (Unaudited)
--------------- ---------------
Operating activities:
Net loss $(1,381,988) $ (948,899)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 188,120 242,875
Noncash stock option compensation expense 11,100
Net changes in assets and liabilities:
Accounts receivable 2,111,245 (1,411,852)
Prepaid expenses and other assets 27,237 11,838
Accounts payable and accrued liabilities (1,257,933) 576,789
Deferred revenue 620,712 656,406
--------------- ---------------
Net cash provided (used) in operating activities 307,393 (61,743)
Investing activities:
Purchases of property and equipment (35,954) (122,610)
Financing activities:
Payments on capital leases (228,346) (152,885)
Net proceeds from issuing common stock 0 0
Net borrowings under line of credit (687,027) 755,576
Preferred stock dividends 0 (300,000)
--------------- ---------------
Net cash provided (used) in financing activities (915,373) 302,691
--------------- ---------------
Net decrease in unrestricted cash and cash equivalents (643,934) (681,662)
Unrestricted cash and cash equivalents at beginning of year 673,370 1,665,672
--------------- ---------------
Unrestricted cash and cash equivalents at end of period $ 29,436 $ 984,010
=============== ===============
Supplemental cash flow disclosures:
Interest paid $ 111,783 $ 90,753
=============== ===============
Non-cash financing activities:
Preferred Stock dividends $ 185,000 $ 170,000
=============== ===============
The accompanying notes are an integral part of these financial statements.
5
Clinicor, Inc.
Notes to Financial Statements
June 30, 2000
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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 six months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 2000 for the fiscal year ended December 31, 1999
(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 anti-dilutive.
At June 30, 2000 and June 30, 1999, stock options and warrants to purchase
2,798,411 and 1,957,631 shares of common stock, respectively; Class A
Convertible Preferred Stock convertible into 3,192,000 and 2,948,667 shares of
common stock, respectively; and Class B Convertible Preferred Stock convertible
into 1,818,182 and 1,818,182 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 - Recent Accounting Pronouncements
- -----------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, Revenue Recognition ("SAB 101"). SAB 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. Implementation of
SAB 101 is required in the second quarter of 2000. The Company is currently in
the process of evaluation the impact, if any, SAB 101 will have on its
consolidated financial position or results of operations
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 six months
ended June 30, 2000 and 1999, 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 18 to 48 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 $10.8
million at June 30, 2000 as compared to $4.0 million at December 31, 1999. Many
of the new contracts awarded in 2000, while as large or larger in size than the
contracts the Company has previously been awarded, are longer in average
duration, and are starting more slowly than expected, the effect of which will
result in the realization of less net service revenue in the early stages of
contract performance than in the past. This trend will have a negative impact
on revenues earned in 2000 and on the Company's liquidity during this period.
See "Liquidity and Capital Resources" below. 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 its
entire 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
8
commencement, progress or completion of drug development trials may cause
significant variations in quarterly operating results.
RESULTS OF OPERATIONS
Three months ended June 30, 2000 compared with three months ended June 30, 1999
- --------------------------------------------------------------------------------
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 June 30, 2000 and 1999, 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 June 30,
- -------------------------------------------------------------------------------
2000 1999
---- ----
Service revenue $ 1,479,805 $ 3,337,979
Reimbursable costs 196,586 1,686,687
------- ---------
Net service revenue 1,283,219 100.0% 1,651,292 100.0%
Operating costs and expenses:
Direct costs 1,036,240 80.8% 1,010,624 61.2%
Selling, general and administrative 794,938 61.9% 961,289 58.2%
Depreciation and amortization 94,233 7.3% 141,812 8.6%
------ -------
Total operating costs and expenses 1,925,411 150.0% 2,113,725 128.0%
--------- ---------
Loss from operations ( 642,192) -50.0% (462,433) -28.0%
Net interest income (expense) (41,774) - 3.3% (34,349) -2.1%
-------- --------
Net loss $ ( 683,966) -53.3% $ (496,782) -30.1%
============ ===========
Net service revenue decreased approximately $368,000 or 22%. The decrease
is primarily attributable to certain contract cancellations that occurred in the
third quarter of 1999, and to a decrease in the average net service revenues
generated by active trials, and to the timing of the start-up, the size and
average duration of the new trials that have been added to backlog in 2000.
Based upon the current backlog in net service revenues, quarterly revenues in
2000 are expected to continue to be less than those earned in 1999.
Reimbursable costs decreased to approximately 13% of gross revenue for the
three months ended June 30, 2000 as compared to 51% of gross revenue for the
same period in 1999. This decrease is a direct result of the contract mix for
which revenue was recognized during the respective periods.
Direct costs increased approximately $26,000 or 3%. As a percentage of net
service revenue, direct costs were approximately 81% for the three months ended
June 30, 2000 as compared to approximately 61% for the same period in 1999. The
increase in
9
this percentage is directly related to the reduction of net service revenues
during the respective periods.
Selling, general and administrative expenses decreased by approximately
$166,000 or 17%. Selling, general and administrative expenses were approximately
62% of net service revenue for the three months ended June 30, 2000, as compared
to 58% for the corresponding period in 1999. The increase in the percentage of
selling, general and administrative expenses to net service revenues is
primarily a result of the decline in net service revenues during the respective
periods.
Depreciation and amortization expenses decreased approximately $48,000
during the three months ended June 30, 2000 as compared to the comparable period
in 1999. Depreciation expense as a percentage of net service revenue decreased
to approximately 7% for the three months ended June 30, 2000, as compared to 9%
in the corresponding period of 1999.
Interest income decreased by approximately $7,000 during the three months
ended June 30, 2000 as compared to the comparable period in 1999. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $5,000 during the three months ended
June 30, 2000 as compared to the comparable period in 1999. 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 three months ended June 30, 2000 and 1999, due to the uncertainty
that the loss carryforwards will be utilized.
10
Six months ended June 30, 2000 compared with six months ended June 30, 1999
- ---------------------------------------------------------------------------
The following table sets forth, for the periods indicated, certain items
included in the Company's unaudited statement of operations for the six months
ended June 30, 2000 and 1999, 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 six months ended June 30,
- -------------------------------------------------------------------------------
2000 1999
---- ----
Service revenue $ 3,301,810 $ 6,528,294
Reimbursable costs 610,726 3,263,821
------- ---------
Net service revenue 2,691,084 100.0% 3,264,473 100.0%
Operating costs and expenses:
Direct costs 2,148,624 79.8% 2,092,189 64.1%
Selling, general and administrative 1,649,582 61.3% 1,833,220 56.2%
Depreciation and amortization 188,120 7.0% 242,875 7.4%
------- -------
Total operating costs and expenses 3,986,326 148.1% 4,168,284 127.7%
--------- ---------
Loss from operations (1,295,242) -48.1% (903,811) -27.7%
Net interest income (expense) (86,746) - 3.2% (45,088) -1.4%
-------- --------
Net loss $(1,381,988) -51.3% $ (948,899) -29.1%
============ ===========
Net service revenue decreased approximately $573,000, or 18%. The decrease
is primarily attributable to certain contract cancellations that occurred in the
third quarter of 1999, and to a decrease in the average net service revenues
generated by active trials, and to the timing of the start-up, the size and
average duration of the new trials that have been added to backlog in 2000.
Based upon the current backlog in net service revenues, quarterly revenues in
2000 are expected to continue to be less than those earned in 1999.
Reimbursable costs decreased to approximately 19% of gross revenue for the
six months ended June 30, 2000 as compared to 50% of gross revenue for the same
period in 1999. This decrease is a direct result of the contract mix for which
revenue was recognized during the respective periods.
Direct costs increased approximately $56,000 or 3%. As a percentage of net
service revenue, direct costs increased to approximately 80% of net service
revenue as compared to approximately 64% for the same period in 1999. The
increase in this percentage is directly related to the reduction of net service
revenues during the respective periods.
Selling, general and administrative expenses decreased approximately
$184,000 or 10%. Selling, general and administrative expenses increased to 61%
of net service revenue during the six months ended June 30, 2000 from 56% in the
corresponding
11
period in 1999. The increase in this percentage is directly related to the
reduction of net service revenues during the respective periods.
Depreciation and amortization expenses decreased approximately $55,000 or
23%. Depreciation and amortization expenses were approximately 7% of net
service revenue for the six months ended June 30, 2000 and in the prior period.
Interest income decreased by approximately $15,000 during the six months
ended June 30, 2000 as compared to the comparable period in 1999. This is
primarily the result of the decrease in the funds available for investment.
Interest expense increased by approximately $21,000 during the six months ended
June 30, 2000 as compared to the comparable period in 1999. 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 six months ended June 30, 2000 and 1999, 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 decreased to approximately $1,195,000
at June 30, 2000 from approximately $3,307,000 at December 31, 1999. Deferred
revenues increased to approximately $1,446,000 at June 30, 2000 from
approximately $825,000 at December 31, 1999. Cash collections from clinical
study contracts for the six months ended June 30, 2000, totaled approximately
$5,990,000 as compared with approximately $5,726,000 for the corresponding
period in 1999.
Net cash flow provided by operating activities was approximately $307,000
in the six months ended June 30, 2000, as compared to approximately $(862,000)
used in the corresponding period in 1999. The improvement in net cash provided
by operations in 2000 is primarily attributable to the increase in accounts
payable and deferred revenue during the six months ended June 30, 2000. Net
cash decreased by approximately $644,000 for the six months ended June 30, 2000,
primarily due to the reduction of $687,000 in borrowing on the Company's working
capital line of credit.
12
Investing activities are attributable to purchases of property and
equipment. There were no appreciable purchases made in the six months ended
June 30, 2000 as compared to approximately $123,000 in the comparable period of
1999.
Financing activities consist of net borrowings under the Company's $2.5
million revolving working capital line of credit. At June 30, 2000, there was
approximately $262,000 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 its Class B preferred stock agreement, the Company accrued
$300,000 for suspended dividend payments during the three months ended June 30,
2000. The Company suspended cash dividend payments in August 1999 in order to
maintain adequate working capital to fund its operations. As of August 1, 2000,
the Company had missed a total of five quarterly dividends payable to the Class
B preferred stockholder, representing aggregate payments of $750,000. The
Company's Articles of Incorporation provide that, in the event that the Company
misses a total of six consecutive quarterly dividend payments or fails to pay
cumulative dividends of $900,000 or more ("Class B Nonpayment Event"), then the
holders of the Class A and B preferred stock may assume voting control of the
Board of Directors of the Company. The Company intends to assess its ability to
pay preferred dividends on an ongoing basis. The Company believes it is
unlikely the next scheduled dividend payment will be made unless the Company
obtains external financing as discussed below.
As discussed above, the Company has experienced a trend toward contracts
that are longer in average duration than the contracts the Company has
previously entered into and that are expected to result in the realization of
less net service revenue in the early stages of contract performance than has
been the case in the past. Largely as a result of this trend and as a result of
certain contract cancellations that occurred in the third quarter of 1999, the
Company believes that net service revenue and cash flows from operations will
likely fall short of internal projections during the remainder of 2000. As a
result, management believes that existing capital resources, together with cash
flows from operations and borrowing capacity under its working capital line of
credit, will not be sufficient to fund operations through the balance of 2000.
The Company currently has no cash reserves. Until such time as the Company is
able to obtain additional external financing, it will fund its operations from
accounts receivable collections, from its working capital line of credit, from
increases in accounts payable and other liabilities, and from customer advance
payments. There can be no assurance that the Company will succeed in obtaining
external financing. The Company's ability to manage its cash flow depends in
part upon the success of the Company's ongoing marketing efforts and the
progress of clinical research projects currently underway, the timing of which
are of critical importance. Unless the Company obtains external financing in the
near term, it will be unable to satisfy its contractual commitments to
employees, vendors and other third parties, and this will have a material
adverse impact on its business, financial condition and future prospects.
13
The Company is actively seeking external financing, which may be in the
form of public or private issuances of equity or debt securities or bank
financing. There can be no assurance that debt or equity financing can be
obtained or obtained on terms acceptable to the Company. If additional funds are
raised through the issuance of equity securities, the Company's stockholders may
experience significant dilution. If the Company fails to obtain external
financing, this failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
Regardless of the availability of external financing, the Company intends
to continue to investigate strategies to preserve working capital. Such
strategies include deferring payment of future quarterly dividends on its Class
B Preferred Stock and reducing expenses to more closely align with our revised
revenue forecasts. In June 2000 the Company reduced is staff by approximately
9%. In addition, efforts are underway to reduce the size of the corporate
offices in Austin by approximately 33% by sub-leasing space.
In addition, to seeking external financing, the Company is pursuing other
strategic alternatives, which include seeking a buyer for the Company. The
Company does not believe that a sale or a reorganization of the Company would
likely generate any appreciable consideration for the holders of the Company's
common stock. The Company is also continuing to investigate the possibility of
acquiring other CROs to expand its contract backlog, to enhance its therapeutic
expertise, and to enhance the Company's attractiveness to an acquirer or outside
financing sources. Any such acquisition would also require additional external
financing. There can be no assurance that financing to fund either operations
or future acquisitions will be available on terms acceptable to the Company.
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.
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
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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 were Year 2000 ready
on September 1, 1999. In addition, certain Sponsor companies successfully
audited the Company's Year 2000 readiness plan.
Since January 1, 2000, the Company has not encountered any material Year
2000 issues. The Company has also not experienced any third party supplier or
client issues. The Company is alert to potential Year 2000 issues that may
arise in the future, but believes that there will be no material impact on
operations, liquidity or financial condition.
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, 1999.
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PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
Pursuant to its Class B preferred stock agreement, the Company is obligated
to pay quarterly dividends of $150,000 to the extent that funds are legally
available therefor. The Company suspended cash dividend payments in August 1999
in order to maintain adequate working capital to fund its operations. As of
August 1, 2000, the Company had missed a total of five quarterly dividends
payable to the Class B preferred stockholder, representing aggregate payments of
$750,000. The Company's Articles of Incorporation provide that, in the event
that the Company misses a total of six consecutive quarterly dividend payments
or fails to pay cumulative dividends of $900,000 or more, then the holders of
the Class A and B preferred stock may assume voting control of the Board of
Directors of the Company. The Company intends to assess its ability to pay
preferred dividends on an ongoing basis. The Company believes it is unlikely
that the next scheduled dividend payment will be made.
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: August 10 , 2000 By: /s/ Robert S. Sammis
------ ----------------------------------------
Robert S. Sammis
President
(Principal Executive Officer and
Principal Financial Officer)
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