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                   U. S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                              -------------------

                                  FORM 10-KSB

(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
                  For the fiscal year ended December 31, 1997
[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                          Commission File No. 0-21721

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                                CLINICOR, INC.
                (Name of Small Business Issuer in Its Charter)

                     NEVADA                                      88-0309093
        (State or Other Jurisdiction of                       (I.R.S. Employer
         Incorporation or Organization)                      Identification No.)

1717 WEST SIXTH STREET, SUITE 400, AUSTIN, TEXAS                    78703
     (Address of Principal Executive Offices)                     (Zip Code)

                                (512) 344-3300
               (Issuer's Telephone Number, Including Area Code)

                              -------------------

           Securities registered under Section 12(b) of the Exchange

   Act: None Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, $.001 par value
                               (Title of Class)

                              -------------------

   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
                                                                       --   --

   Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

   Issuer's gross revenues for fiscal year ended December 31, 1997:  $10,856,562

   As of March 10, 1998, the aggregate market value of the common stock held by
non-affiliates of the Registrant, computed by reference to the last quoted price
at which such stock was sold on such date as reported on the Over-the-Counter
Bulletin Board was $6,804,083.

   As of March 10, 1998, 4,136,400 shares of the Issuer's Common Stock were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III (Items 9, 10, 11 and
12) hereof.

   Transitional Small Business Disclosure Format (check one):  Yes    No X
                                                                   --    --
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                               TABLE OF CONTENTS
                                                                            Page
                                                                            ----
                                    PART I

 Item 1.   Description of Business.........................................    3
 Item 2.   Description of Property.........................................   12
 Item 3.   Legal Proceedings...............................................   12
 Item 4.   Submission of Matters to a Vote of
             Security Holders..............................................   12

                                    PART II

 Item 5.   Market For Common Equity and Related
             Shareholder Matters...........................................   13
 Item 6.   Management's Discussion and Analysis or
            Plan of Operation..............................................   14
 Item 7.   Financial Statements............................................   18
 Item 8.   Changes in and Disagreements With Accountants on
             Accounting and Financial Disclosure...........................   19

                                   PART III

 Item 9.   Directors, Executive Officers, Promoters and Control
            Persons; Compliance With Section 16(a) of the Exchange Act.....   19
 Item 10.  Executive Compensation..........................................   19
 Item 11.  Security Ownership of Certain Beneficial
            Owners and Management..........................................   19
 Item 12.  Certain Relationships and Related Transactions..................   19
 Item 13.  Exhibits List and Reports on Form 8-K...........................   20

           Signatures......................................................   24
           Audited Financial Statements....................................  F-1

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                                    PART I


ITEM 1.        DESCRIPTION OF BUSINESS

GENERAL

        Clinicor, Inc. (together with its predecessor, described below,
"Clinicor" or the "Company") is a fully-integrated contract research
organization ("CRO") serving the pharmaceutical, biotechnology and medical
device industries. 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 and control ("QA/QC") services for its
clients. 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, a Nevada corporation, was formed in December 1993. A
predecessor company, also named Clinicor, Inc. (the "Predecessor Company"), was
formed as a Texas corporation in September 1992 and merged into the Nevada
corporation in February 1995. References herein to "Clinicor" or the "Company"
denote the existing Nevada corporation and the Predecessor Company.

        The Company performs and manages clinical trials in North America from
its corporate headquarters in Austin, Texas. The Company also maintains a
regional clinical service office in San Antonio, Texas and a regional sales
office in Bridgewater, New Jersey. The Company's European operations are
headquartered in offices in Windsor, England.

        The Company's principal executive offices are located at 1717 West 6th
Street, Suite 400, Austin, Texas 78703, and its telephone number is (512)
344-3300.

BUSINESS

        The Company designs, manages and monitors clinical trials in North
America and Europe and provides clinical and product development services,
including patient recruitment, data management, biostatistical analysis,
regulatory affairs, medical device and other consultation and QA/QC services for
its clients. The Company provides centralized patient recruitment services on a
nationwide basis using its patient recruiting department and computer database
system located in Austin, Texas. In the CRO industry, this service is typically
an ancillary one, offered outside of the standard CRO services model by
investigative sites or site management organizations ("SMOs"). Clinicor is one
of a small number of CROs that has integrated this service into its services
model.

NEW PRODUCT DEVELOPMENT

        Before a new pharmaceutical, biotechnology, medical device or diagnostic
product may be marketed, it generally must undergo extensive testing and
regulatory review to determine that it is safe and effective. This development
process consists of two stages, pre-clinical and clinical. In the pre-clinical
stage, the sponsor of the new product conducts laboratory analyses and animal
tests, generally over a one to three year period, to determine the basic
biological activity and clinical processes and safety of the product. Upon
successful completion of the pre-clinical phase, the product undergoes a series
of clinical tests in humans, including healthy volunteers as well as patients
with the targeted disease or condition. These tests are generally longer in
duration, at times averaging from two to six years. In the United States,
pre-clinical and clinical testing must comply with the requirements of Good
Clinical Practices ("GCP") and other standards promulgated by the Food and Drug
Administration ("FDA") and other federal and state governmental authorities. GCP
stipulates procedures which are designed to ensure

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the quality and integrity of data obtained from clinical testing and to protect
the rights and safety of clinical subjects.

        In the United States, a sponsor must file an Investigational New Drug
Application ("IND"), an Investigational Device Exemption ("IDE") or other filing
with the FDA before the commencement of human testing of an investigational
product. The filing includes pre-clinical testing results and sets forth the
sponsor's plans for conducting human clinical trials. The design of these plans,
also referred to as study "protocols," is critical to the success of the
development effort because the protocol must correctly anticipate the data and
results that the FDA will require before approving the product.

        Human trials usually start on a small scale to assess safety and then
expand to larger trials to test for both safety and efficacy. Trials are usually
grouped into four phases, with multiple trials generally conducted within each
phase. Trials may be local or international and multi-center.

               Phase I. Phase I trials are usually conducted on healthy
volunteers, typically 20 to 80 persons, to develop basic safety data relating to
toxicity, metabolism, absorption and other pharmacological actions.

               Phase II. Phase II trials are conducted on a relatively small
number of subjects, typically 100 to 200 patients, who suffer from the product's
targeted disease or condition. Phase II trials offer the first evidence of
clinical efficacy, as well as additional safety data.

               Phase III. Phase III trials are typically conducted on a larger
population of several hundred to several thousand patients who suffer from the
targeted disease or condition. Phase III trials are designed to measure safety
and efficacy on a large scale as well as side effects. Before granting an
approval to market, the FDA generally requires completion of two pivotal,
multi-site Phase III trials to demonstrate and confirm safety and efficacy.

               Phase IV. As a condition of granting marketing approval, the FDA
may require that a sponsor continue to conduct additional clinical trials, known
as Phase IV post-submission trials, to monitor long-term risks and benefits,
study different dosage levels, or evaluate different safety and efficacy
parameters in target patient populations. In addition, Phase IV trials may be
necessary to support a sponsor's promotional claims, expanded indications or
comparative trials.

        Clinical trials often represent the most expensive and time-consuming
part of the overall development process. The information generated during these
trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. After the completion of Phase III trials, the sponsor of a
new product must submit a New Drug Application ("NDA") or other approval to
market application to the FDA. This application is a comprehensive filing that
includes, among other things, the results of all pre-clinical and clinical
studies, information about the product's composition, and the sponsor's plans
for formulating, producing, packaging and labelling the product.

        A clinical trial is a scientific experiment to test the efficacy and
safety of an investigational product in accordance with a detailed plan as
documented in the protocol. The investigational product is administered to
patients who meet specific inclusion/exclusion criteria. Typically, the
investigational product is compared to another approved product and/or a
placebo. Usually, neither the patient nor the physician investigator knows which
patients receive which substance, although that information is readily available
if needed. The protocol will specify when, how often and how much of the study
product a patient will receive, how often they will be examined by the
investigator during the study (i.e., the number and frequency of patient visits)
and what measurements and assessments will be made and recorded at each patient
visit. The resulting data is recorded in source documents and transcribed into
Case Report Forms ("CRFs"). The recorded data is monitored to verify its
accuracy and consistency with source documents. The data from the CRFs is
entered into a computer database for biostatistical analysis.

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PATIENT RECRUITMENT MODEL

        Traditionally, clinical trials have been managed by pharmaceutical
companies' in-house staffs of Clinical Research Associates ("CRAs") who in turn
subcontract (outsource) the actual performance of the trials to physician
investigators serving as investigational sites. The investigators enroll
qualified patients into studies from their practices one-by-one. Administrative
tasks are handled by a clinical coordinator, typically a nurse who has
additional duties within the physician's practice. The advent of managed care
has made this approach increasingly inefficient due to greater separation of
specialist investigators from the patient populations.

        The function of CRAs is primarily to monitor compliance of the
investigative site with the protocol and adherence to GCP. If investigational
sites fail to produce qualified patients, they must be replaced with additional
sites to reach overall and minimal per site patient recruitment quotas in order
to maintain statistical validity.

        The major full-service CROs have organized themselves along the same
lines as pharmaceutical companies. They generally employ the same traditional
methodology of subcontracting patient recruitment and the actual performance of
the clinical trials to investigational sites. The Company also manages studies
utilizing this traditional approach. However, for studies not requiring critical
care or hospital confinement, the Company also utilizes a patient recruitment
model on a nationwide basis to expedite patient enrollment, speed study
completion and improve the quality and uniformity of study data.

        The Company's model removes the physician investigator as the primary
source of study patients. Rather than relying on the patient population of one
or more investigators in a particular city, the Company's approach is to recruit
from all of the potential study patients in an entire geographic area. Patients
are recruited via advertising, referral programs and other means. Potential
patients call the Company's centralized patient recruiting department where
personnel prescreen, schedule and capture relevant data on each patient included
in the Company's customized patient database system.

        For certain therapeutic specialties, the Company assembles a number of
patients to enter a study in group clinics which are generally scheduled on
evenings and weekends. This approach works particularly well for studies
involving chronic medical conditions. A group clinic may include from as few as
ten to over 300 patients. The Company contracts with a physician to serve as the
independent investigator, and the Company staffs the clinic with experienced,
part-time Company employees who perform all of the study coordinator functions.

SERVICES

        The Company's services include clinical trials management, patient
recruitment, clinical data management, biostatistical analysis, regulatory
affairs, medical device and other consultation and QA/QC, and product
registration services. The Company will provide these products separately or as
an integrated, "turn-key" package. Services from each of these categories can be
utilized for the development and preparation of a variety of regulatory filings,
e.g., NDA, Premarket Approval Applications ("PMA"), and Product License
Applications ("PLA").

        Clinical Trials Management Services. The Company offers complete
services for the design, placement, performance, patient recruitment, monitoring
and management of clinical trial programs. The Company has performed services in
connection with trials in many therapeutic areas. The Company has the ability to
examine a product's existing pre-clinical and clinical data for the purpose of
designing protocols for clinical trials in order to demonstrate the product's
safety and efficacy in the treatment of the targeted disease.

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        The Company manages every aspect of trials in Phases I through IV,
including design of operations manuals, identification and recruitment of trial
investigators, initiation of sites, recruitment of patients, site monitoring
visits to determine compliance with protocol procedures, adherence to GCP and
proper collection of data, data management, biostatistical analysis,
interpretation of trial results and report preparation. The Company's current
projects involve Phase I, II, III and IV clinical trials. The Company does not
own or maintain a Phase I facility for the confinement of study subjects.

        The Company assists clients with one or more of the following steps of
clinical trials:

        . Study Protocol. The protocol defines the disease and treatment the
study seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol defines: (i) the targeted patient population; (ii) the
frequency and type of laboratory and clinical measures that are to be recorded
and analyzed; (iii) the number of patients required to produce a statistically
significant result; (iv) the period of time over which the measurements must be
recorded; and (v) the frequency and dosage of drug or other product
administration.

        . Case Report Forms. Once the study protocol has been finalized, special
forms for recording study-specific data must be developed. These forms are
called CRFs. Study data are transcribed onto CRFs from original source
documents. The CRF for one patient in a given study may consist of as many as
100 pages or more.

        . Site and Investigator Recruitment. The drug or other product is
administered to patients by investigators at hospitals, academic centers,
clinics or other locations, referred to as sites. Potential investigators may be
identified by the sponsor or the CRO. The investigators are then solicited to
participate in the study. Generally, the Company locates properly qualified
investigators who contract directly with the Company.

        . Patient Recruitment and Enrollment. One of the Company's main
competitive strengths is its ability to quickly and efficiently recruit patients
using mass marketing techniques and a centralized patient management system. The
clinical trial's success depends upon the rapid recruitment of patients that
meet all of the trial criteria. Patients are prescreened for eligibility by
personnel using an on-line computer scheduling and database system which
captures relevant data for each patient. Prospective patients are required to
review information about the study drug or other product and possible side
effects and sign an informed consent to record their knowledge and acceptance of
potential risks. Patients also undergo a medical examination performed by the
investigator to determine whether they meet the requirements of the study
protocol. Patients then receive the study drug or other product and are examined
by the investigator as specified by the study protocol.

        . Study Monitoring and Data Collection. As patients are examined and
tests are conducted in accordance with the study protocol, data are recorded on
source documents and laboratory reports and are then transcribed onto CRFs. The
data are collected from study sites by specially trained CRAs. CRAs visit sites
regularly to ensure that the CRFs are completed correctly and are consistent
with the underlying source documents and that all data specified in the protocol
are collected. The CRAs take completed CRFs to the study coordinating site,
where the CRFs are reviewed for consistency and accuracy before the information
is entered into an electronic database.

        . QA/QC. The Company can provide quality assurance and control audit
services to its sponsors. These services involve auditing all aspects of the
preclinical and clinical trial process for regulatory compliance with FDA
rules, regulations and guidelines.

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        . Medical Writing. The results of biostatistical analysis of data
collected during the trial, together with other clinical data, are included in a
final report generated for inclusion in regulatory documents.

        . Medical Affairs. Throughout the course of a clinical trial, the
Company may provide various medical and research services, including medical
monitoring of clinical trials, interpretation of clinical trial results, and
preparation of clinical study reports.

        Clinical Data Management and Biostatistical Services. The Company's data
management professionals assist in the design of protocols and CRFs, as well as
training manuals and training sessions for investigational staff, to ensure that
data are collected in an organized and consistent format. Databases are designed
according to the analytical specifications of the project and the particular
needs of the client. Prior to data entry, the Company's personnel screen CRFs
for errors, omissions and other deficiencies. The Company provides clients with
data abstraction, data review and coding, data entry, database verification and
editing, and problem data resolution.

        The Company's biostatistics professionals provide biostatistical
consulting and plans, database design, data analysis, biostatistical reporting,
and assistance in all phases of drug development. These professionals develop
and review protocols, design appropriate analysis plans and design report
formats to address the objectives of the study protocol as well as the client's
individual objectives. Working with the programming staff, biostatisticians
perform appropriate analyses and produce tables, graphs, listings and other
applicable displays of results according to the analysis plan. Biostatisticians
assist clients before panel hearings at the FDA.

        These services are utilized by clients to process data that have
previously been collected by either the client itself or the Company as part of
a distinct phase in the drug development process. The Company believes that its
data management and biostatistical services capabilities can be utilized by a
client more effectively when packaged as part of its total clinical trials
management services. This permits a faster and less costly clinical trial
process, because the data is collected and analyzed more rapidly. The Company
emphasizes this data management and biostatistical integration as a "turn-key"
approach in its marketing efforts.

        Product Registration Services. The Company provides comprehensive
product registration services in the United States and Europe. The Company
provides regulatory strategy formulation, document preparation, and Good
Manufacturing Practice consultation. The Company also acts as liaison with the
FDA and other regulatory agencies. Although these services have not generated
material revenue to date, the Company offers them in order to provide a full
range of services for its clients.

        The Company works closely with clients to devise regulatory strategies
and comprehensive product development programs. The Company's scientific and
regulatory affairs experts review existing published literature, assess the
scientific background of a product, assess the competitive and regulatory
environment, identify deficiencies and define the steps necessary to obtain
registration in the most expeditious manner. Through this service, the Company
helps its clients determine the feasibility of developing a particular product
or product line.

        The Company's scientific and regulatory affairs professionals have
experience in the analysis, preparation and submission of regulatory documents
covering a wide range of products, including drugs and over-the-counter
products. The Company also offers the preparation of regulatory documentation
for submission to regulatory authorities.

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RISK FACTORS

        Portions of this report contain certain "forward-looking" statements
within the meaning of the federal securities laws. In addition, the Company and
its representatives may from time to time make oral and other written
forward-looking statements. 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 set forth below.

        Operating History; Unprofitability. The Company was organized in
September 1992. As of December 31, 1997, the Company had an accumulated deficit
of $6,075,884 and had reported net losses since its organization, including net
losses of $1,177,226, $1,966,196 and $2,340,535 for the years ended December 31,
1995, 1996 and 1997, respectively. There can be no assurance that the Company
will be able to operate profitably in the future. See the discussion in the
remainder of this Item 1, below.

        Loss or Delay of Clinical Research Contracts. Clients of the Company
generally have the right to terminate a clinical research contract upon 60 to 90
days notice, potentially causing periods of excess capacity and reductions in
service revenue and net income. Contracts may be terminated for various reasons,
including unexpected or undesired results, inadequate patient enrollment or
investigator recruitment, production problems resulting in shortages of the
drug, adverse patient reactions to the drug, or the client's decision to
de-emphasize a particular trial. Clinical trials may often be delayed for
similar reasons. The loss or delay of a large contract or the simultaneous loss
or delay of multiple contracts could result in unplanned periods of excess
capacity, thereby materially and adversely affecting the Company's backlog,
revenue and profitability. In most instances, if a contract is terminated, the
Company is entitled to receive revenue earned to date. However, in the case of
fixed-price contracts, the Company bears the risk of cost overruns. See
"Description of Business--Clients" and the discussion in the remainder of this
Item 1, below.

        Dependence on Certain Industries and Clients. The Company provides
services primarily to the pharmaceutical, medical device and biotechnology
industries. Accordingly, the Company's service revenue is substantially
dependent on these industries' expenditures on research and development.
Although these expenditures are large, the number of potential CRO clients is
relatively limited, and concentrations of business in the CRO industry are not
uncommon. In fiscal 1996, the Company's top five clients accounted for 75% of
the Company's revenue. In fiscal 1997, the Company's top three clients accounted
for 57% of the Company's revenue. The Company is likely to continue to derive a
substantial portion of its revenue from a relatively limited number of major
projects or clients. The loss of business from a significant client could have a
material adverse effect on the Company. Additionally, the Company's operations
could be materially and adversely affected by, among other factors, any economic
downturn in the pharmaceutical, medical device or biotechnology industries, any
decrease in their research and development expenditures, or a change in the
governmental regulations pursuant to which these industries operate.
Furthermore, management believes that the Company has benefited to date from the
increasing tendency of pharmaceutical, medical device and biotechnology
companies to outsource the performance and analysis of clinical research
projects to independent outside organizations. A reversal or slowing of this
trend could have a material adverse effect on the Company. See "Description of
Business--Clients."

        Impact of Government Regulation; Compliance with Regulatory Standards.
The market for the Company's services depends upon the comprehensive government
regulation of the drug development process. In the United States, the historical
trend has been in the direction of continued or increased regulation by the FDA
and other governmental agencies, although the FDA recently announced regulatory
changes intended to streamline the approval process for biotechnology products
by applying the same standards as are in effect for conventional drugs. Changes
in regulation, including a relaxation in

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regulatory requirements or the introduction of simplified drug approval
procedures, could materially and adversely affect the demand for the services
offered by the Company. In addition, failure on the part of the Company to
comply with applicable regulations could result in the termination of ongoing
research or the disqualification of data, either of which could have a material
and adverse affect on the Company, including damage to the Company's reputation
in the CRO industry. See "Description of Business--Government Regulation."

        Competition; Industry Consolidation. The CRO industry is not capital
intensive and the financial costs of entry into this industry are relatively
low. The industry, therefore, is highly fragmented with many small,
limited-service providers in addition to several medium-sized CROs and a few
large, full-service CROs with global operations. Clinicor competes primarily
against other CROs, pharmaceutical companies' in-house research departments,
SMOs, and academic centers, many of which have substantially greater financial
and other resources than the Company. CROs generally compete on the basis of
previous experience, medical and scientific expertise in specific therapeutic
areas, the quality of contract research, the ability to organize and manage
large-scale trials on a global basis, the ability to manage large and complex
medical databases, the ability to provide biostatistical analysis and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. There can be no assurance that the Company will
be able to compete favorably in these areas. Competitive pressures have resulted
in an increasing consolidation of the CRO industry, which is likely to result in
heightened competition among the larger CROs for both clients and acquisition
candidates. In addition, consolidation within the CRO and pharmaceutical
industries as well as a trend by pharmaceutical companies to outsource among
fewer CROs and to develop preferred provider relationships has led to heightened
competition for CRO contracts. Increased competition may lead to price and other
forms of competition that may materially and adversely affect the Company's
business. See "Description of Business--Competition."

        Fluctuation in Quarterly Operating Results; Potential Volatility of
Stock Price. The Company's quarterly operating results have fluctuated as a
result of factors such as client delays in implementing particular clinical
trials and the costs associated with start-up operations. Because a high
percentage of the Company's operating costs are relatively fixed while revenue
recognition is subject to fluctuation, minor variations in the timing of
contracts or the progress of clinical trials may cause significant variations in
quarterly operating results. Results of one quarter are not necessarily
indicative of results for future quarters. In addition, the market price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in earnings
estimates by analysts, market conditions in the industry, prospects of health
care reform, changes in government regulation and general economic conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have been unrelated to the operating
performance of particular companies. These market fluctuations may adversely
affect the market price of the Company's Common Stock. Investors in the
Company's Common Stock must be willing to bear the risk of such fluctuations in
earnings and stock price.

        Potential Liability from Operations. Clinical trials involve the testing
of approved and experimental drugs on human volunteers pursuant to study
protocols. Such testing involves a risk of liability for personal injury or
death to participants due to, among other reasons, possible unforeseen adverse
reactions or side effects. The Company may be subject to claims in the event of
personal injury or death of persons participating in clinical trials.
Additionally, the Company, on behalf of its clients, contracts with physicians
who render professional services, including the administration of the substance
being tested, to trial participants. As a result, the Company may be subject to
claims arising from professional malpractice of such physicians.

        The Company attempts to manage its liability risk through contractual
indemnification provisions with clients and its physician investigators. The
contractual indemnifications generally do not protect the

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Company against certain of its own actions such as negligence. The contractual
arrangements are subject to negotiation with clients, and the terms and scope of
such indemnification vary from client to client and from trial to trial.
Although most of the Company's clients are large, well-capitalized companies,
the financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may not have the financial
ability to fulfill its indemnification obligations. The financial position of
the Company could be materially and adversely affected if it were required to
pay damages or incur defense costs in connection with an uninsured or
inadequately insured claim that is beyond the scope of an indemnity provision or
where the indemnifying party does not fulfill its indemnification obligations.

        The Company currently maintains an errors and omissions professional
liability insurance policy. There can be no assurance that this insurance
coverage will be adequate or that insurance coverage will continue to be
available on terms acceptable to the Company. The Company has not experienced
any claims to date arising out of any clinical trial managed or monitored by it.

        Potential Adverse Impact of Health Care Reform. In the last several
years, several comprehensive health care reform proposals have been introduced
in the U.S. Congress. The intent of the proposals was, generally, to expand
health care coverage for the uninsured and control growing health care costs.
While none of the proposals were adopted, health care reform may again be
addressed by the U.S. Congress. Implementation of government health care reform
may adversely affect research and development expenditures by pharmaceutical and
biotechnology companies, resulting in a decrease of the business opportunities
available to the Company. See "Description of Business--Clients." Management is
unable to predict the likelihood of health care reform proposals being enacted
into law or the effect such law would have on the Company.

        Dependence on Personnel. The Company relies on a number of key
executives, including Robert S. Sammis, its President and Secretary, upon whom
the Company maintains key man life insurance, and James W. Clark, Jr., its Vice
President of Finance, Treasurer and Chief Financial Officer. The loss of the
services of any of the Company's key executives could have a material adverse
effect on the Company. The Company's performance also depends on its ability to
attract and retain qualified professional, scientific and technical operating
staff. See "Description of Business--Services." The level of competition among
employers for skilled technical and scientific personnel, particularly those
with M.D., Ph.D. or equivalent degrees, is high. There can be no assurance the
Company will be able to continue to attract and retain sufficient numbers of
qualified personnel.

        Management of Business Expansion; Need for Improved Systems; Expansion
of Foreign Operations. Since the Company was organized, its business and
operations have experienced substantial expansion. The Company believes that
such expansion places a strain on operational, human and financial resources. In
order to manage such expansion, the Company must continue to improve on its
operating, administrative and information systems, accurately predict its future
personnel and resource needs to meet client contract commitments, track the
progress of ongoing client projects and attract and retain qualified management,
professional, scientific and technical operating personnel. Expansion of foreign
operations also may involve the additional risks of adjusting to differences in
foreign business practices, hiring and retaining qualified personnel, and
overcoming language and cultural barriers. Failure of the Company to meet the
demands of and to manage expansion of its business and operations could have a
material adverse effect on the Company's business.

        Risks Associated with Future Acquisitions. The Company has not made any
acquisitions to date but intends to review acquisition opportunities in 1998. If
the Company were to make one or more acquisitions, these acquisitions would
involve numerous risks, such as the difficulties and expenses that would be
incurred in connection with the acquisition and the subsequent assimilation of
the operations and services of the acquired companies and the diversion of
management's attention from other business concerns.

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CLIENTS

        The Company has performed or is currently performing studies for 34
different clients, including seven of the 25 largest pharmaceutical companies in
the world. All of the Company's foreign-based clients have operations in the
United States. The Company's revenues have historically been derived primarily
from services performed in the United States.

        The Company derives a significant portion of its revenue from a
relatively limited number of projects or clients. Concentrations of business in
the CRO industry are typical, and the Company is likely to experience such
concentrations in 1998 and future years. In 1996, five clients each accounted
for more than 10% of the Company's total revenue, or 23%, 17%, 13%, 11% and 11%.
In 1997, three clients each accounted for more than 10% of the Company's total
revenue, or 11%, 24%, and 22%, respectively. The Company's total revenues for
1996 and 1997 were provided from 18 and 21 separate clients, respectively.

COMPETITION

        The Company primarily competes against in-house departments of
pharmaceutical companies, other full service CROs, and, to a lesser extent, SMOs
and academic centers. Some of these competitors have substantially greater
capital, technical and other resources than the Company. CROs generally compete
on the basis of previous experience, medical and scientific expertise in
specific therapeutic areas, quality of contract research, ability to organize
and manage large-scale trials on a global basis, ability to manage large,
complex medical databases, ability to provide biostatistical analysis and
regulatory services, ability to recruit investigators, ability to rapidly
recruit patients, ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence,
financial viability and price. The Company believes that it competes favorably
in these areas, except that it does not have a significant international
presence.

        The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited-service providers to several large, full-service
CROs with global operations. Some of the largest CROs are Quintiles
Transnational Corporation, Covance, Inc., Parexel International Corporation, PPD
Pharmaco, Inc. and ClinTrials Research, Inc. The trend toward consolidation in
the CRO and pharmaceutical industries has resulted in heightened competition
among the larger CROs for clients and acquisition candidates. In addition,
pharmaceutical companies in recent years have tended to outsource among fewer
CROs and to designate a limited number of CROs as "preferred providers." If the
Company does not succeed in developing preferred provider relationships with
major pharmaceutical companies, the Company's ability to retain existing
sponsors and to attract new business could be materially and adversely affected.

GOVERNMENT REGULATION

        The clinical investigation of new pharmaceutical, biotechnology and
medical device products is highly regulated by governmental agencies. The
purpose of these regulations is to ensure that only those products which have
been proven to be safe and effective are made available to the public. The FDA
has set forth regulations and guidelines that pertain to applications to
initiate trials of products, approval and conduct of studies, report and record
retention, informed consent, applications for the approval of new products, and
post-marketing requirements. Pursuant to these regulations, CROs that assume
obligations of a drug sponsor are required to comply with applicable regulations
and are subject to regulatory action for failure to comply with such
regulations. In the United States, the historical trend has been in the
direction of increased regulation by the FDA, although the FDA in the last four
years has made some modifications to expedite certain processes and recent
legislative initiatives have been proposed to accelerate that trend.

                                       11
<PAGE>

        The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries can be less
comprehensive than regulation present in the United States. The Company is
obligated to comply with FDA regulations governing such activities as selecting
qualified investigators, obtaining required forms from investigators, recruiting
patients, verifying that patient informed consent is obtained, monitoring the
validity and accuracy of data, verifying drug/device accountability, and
instructing investigators to maintain records and reports. The Company must also
maintain records for each study for specified periods for inspection by the
study sponsor and the FDA. The FDA has the authority to audit the Company's
compliance with Federal regulations and guidelines, and if such audits document
that the Company has failed to adequately comply, it could have a material
adverse effect on the Company. In addition, the Company's failure to comply with
applicable regulations could possibly result in termination of ongoing research
or the disqualification of data, either of which could have a material adverse
effect on the Company, including, without limitation, damage to the Company's
reputation.

INTELLECTUAL PROPERTY

        The Company has registered CLINICORx(R) as a service mark with the
United States Patent and Trademark Office.

EMPLOYEES

        At December 31, 1997, the Company had approximately 230 employees,
approximately 95 of whom were full time.


ITEM 2.        DESCRIPTION OF PROPERTY

        The Company leases approximately 21,634 square feet in Austin, Texas.
The Company believes it will not encounter any unusual difficulty obtaining
additional leased office space at acceptable terms and rates if required for
future expansion. The Company also has short term leases of office space in San
Antonio, Texas, Bridgewater, New Jersey and Windsor, England.


ITEM 3.        LEGAL PROCEEDINGS

        None


ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        On November 24, 1997, at a special meeting of the shareholders of the
Company, the holders of the Company's Common Stock and Convertible Preferred
Stock approved an amendment to the Company's Articles of Incorporation (i) to
create a new class of Preferred Stock, which was denominated "Class B
Convertible Preferred Stock," (ii) to increase the number of the authorized
shares of the Company to 75,055,181 to add 50,000 shares of Class B Convertible
Preferred Stock and (iii) to redesignate the existing class of Convertible
Preferred Stock as Class A Convertible Preferred Stock and to modify certain
other terms of the Class A Convertible Preferred Stock. A total of 2,761,182
shares of the Company's Common Stock, or 68% of the outstanding stock of that
class, and 3,776 of the Company's Convertible Preferred Stock, or 100% of that
class, were represented at the special meeting in person or by proxy. Of the
shares represented at the meeting, 2,756,992 shares of the Common Stock and
3,776 shares of the Convertible Preferred Stock voted in favor of the amendments
to the Articles of

                                       12
<PAGE>

Incorporation, 300 shares of the Company's Common Stock voted against the
amendments and 3,890 shares of the Company's Common Stock abstained from voting.


                                    PART II


ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

        The Company's Common Stock has, since March 1995, traded on the
Over-the-Counter Bulletin Board ("OTCBB"). Set forth below for the fiscal
quarters indicated are the range of high and low bids of the Common Stock on the
OTCBB:


                             1996                            1997
                             ----                            ----

                       High          Low               High         Low

First Quarter         2-1/4         1-1/2              8-3/8        4

Second Quarter        4-5/8         1-7/8              6-5/16       3-3/4

Third Quarter         4             2-5/8              5-3/4        3-1/16

Fourth Quarter        4-3/8         3-1/16             4-7/8        3-7/8


The foregoing quotations, which were obtained from Prophet Information Services,
Inc., reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.

        As of March 10, 1998, there were 51 shareholders of record of the
Company's Common Stock.

        The Company has never paid dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company is
prohibited from paying dividends on its Common Stock without the consent of the
holders of the Company's Preferred Stock.

        The Company has made the following sales of its Common Stock and
Preferred Stock during the fiscal year ended December 31, 1997. None of the
sales have involved the use of underwriters.

<TABLE>
<CAPTION>
                                              Amount of
     Date of Sale           Class of         Securities                             Total
     or Issuance           Securities         (Shares)         Purchasers       Consideration
     -----------           ----------        ----------        ----------       -------------
<S>                    <C>                   <C>               <C>              <C>
1. June 1997           Class A Preferred          145          4 entities          dividend

2. November 1997       Class B Preferred       50,000          1 entity          $ 5,000,000

3. December 1997       Class A Preferred          154          4 entities          dividend
</TABLE>

        The issuances described in items 1 and 3 above were scheduled dividends
on the Company's outstanding shares of Class A Convertible Preferred Stock. The
Class A Convertible Preferred Stock terms provide for semi-annual dividends,
which are payable in kind at the rate of 8% per annum. The Company does not
believe that payment of these dividends constitutes a separate sale and believes
that, to the extent the issuance may be deemed to be a sale, it is exempt
pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 thereunder.
Certificates representing securities issued in payment of the dividends bore
restrictive legends. For a description of the terms of the Class A Convertible
Preferred Stock, see Note 8 of Notes to Financial Statements.

                                       13
<PAGE>

        Sales pursuant to item 2 above were made in reliance upon Section 4(2)
of the Securities Act of 1933 and Rule 506 thereunder. A Form D was timely filed
with respect thereto. The purchaser was an accredited institutional investment
fund. Extensive due diligence was conducted in connection with the sale by its
purchaser and its legal counsel. The certificate representing securities issued
pursuant to item 1 bore a restrictive legend. For a description of the terms of
the Class B Convertible Preferred Stock, see Note 8 of Notes to Financial
Statements.

        In connection with the issuance described in item 2 above, the Company
issued a warrant to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $5.50 per share to The Robinson-Humphrey Company, LLC
("Robinson-Humphrey"). The warrant was issued in reliance upon an exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Robinson-Humphrey is an institutional accredited investor. The warrant is not
transferable except upon compliance with all applicable securities laws.

        In connection with a loan to the Company from Oracle Partners, L.P.
("Oracle") in July 1997, one of the holders of the Company's Class A Convertible
Preferred Stock, the Company issued to Oracle a warrant to purchase 200,000
shares of the Company's Common Stock at an exercise price of $5.50 per share.
The warrant is subject to anti-dilution protection and other adjustments to the
exercise price in certain events. The warrant exercise price was adjusted to
$5.17 per share (with a corresponding increase in the number of shares
purchasable thereunder to 212,766) in connection with the issuance of Class B
Convertible Preferred Stock pursuant to item 1 above. The warrant was originally
issued in reliance upon an exemption pursuant to Section 4(2) of the Securities
Act of 1933, as amended. Oracle is an institutional accredited investor.
Extensive due diligence was conducted by Oracle and its counsel in connection
with the loan transaction of which the warrant issuance was a part. The warrant
is not transferable except upon compliance with all applicable securities laws.


ITEM 6.        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 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'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

                                       14
<PAGE>

through the termination date. 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.

     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 $14.0 million at December 31,
1997 and approximately $16.5 million at December 31, 1996. The Company believes
that its backlog at any given date is not necessarily a meaningful predictor of
future results, and no assurances can be given that the Company will fully
realize all of its backlog as service revenue.

     Reimbursable costs can include patient and investigator stipends,
Institutional Review Board fees, laboratory and medical supplies, patient
recruitment advertising, travel and consulting fees. Reimbursable costs that are
paid to the Company directly by the client, and for which the Company does not
bear the risk of economic loss, are deducted from gross service revenue in
accordance with 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.

RESULTS OF OPERATIONS

Year ended December 31, 1997 compared to the year ended December 31, 1996

     The following table sets forth, for the periods indicated, certain items
included in the Company's audited statements of operations for the years ended
December 31, 1997 and 1996, and the percentage of net service revenue for each
item. Any results or trends illustrated in the following table may not be
indicative of future results or trends.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                  For the year ended December 31,
                                                                  -------------------------------
                                                            1997                                   1996
                                                ----------------------------------------------------------------------
<S>                                             <C>                     <C>              <C>                    <C>
Gross revenues                                  $10,856,562                              $3,581,402
Reimbursable costs                                3,790,416                                 781,354
                                                 ----------                               ---------
Net service revenue                               7,066,146             100.0%            2,800,048             100.0%

Operating costs and expenses:
   Direct costs                                   5,052,698              71.5%            1,990,798              71.1%
   Selling, general and administrative            3,549,622              50.2%            2,623,278              93.7%
   Depreciation and amortization                    474,464               6.7%              157,597               5.6%
                                                    -------                                 -------
Total operating costs and expenses                9,076,784             128.4%            4,771,673             170.4%
                                                  ---------                               ---------

Loss from operations                             (2,010,638)            -28.4%           (1,971,625)            -70.4%
Net interest income (expense)                      (329,897)             -4.7%                5,429               0.1%
                                                   -------                                    -----
Net loss                                        $(2,340,535)            -33.1%          $(1,966,196)            -70.3%
                                                ===========                             ===========
</TABLE>


     Net service revenues increased approximately $4,266,000, or 152%. The
increase is primarily attributable to an increase in the volume and size of
clinical trials and, to a lesser extent, an increase in data management
services.

     Reimbursable costs increased to approximately 35% of gross revenue for
1997, as compared to 22% of gross revenue for 1996. This increase is a direct
result of the contract mix for which revenue was recognized during the
respective periods. Contracts in process during 1997 contained a higher
percentage of reimbursable costs as compared to those in 1996. Part of this
increase in the reimbursable cost component resulted from a higher ratio of time
and materials based contracts.

     Direct costs increased approximately $3,062,000, or 154%. The increase in
direct costs is consistent with the percentage increase in net service revenues
for the year ended December 31, 1997. Most of the increase in direct costs is
due to additions of full-time study, patient and data management staff and
related overhead. As a percentage of net service revenues, direct costs were
approximately 71% for both 1997 and 1996. Management had expected that direct
costs as a percentage of net service revenue would have approximated 65% for the
year ended December 31, 1997. Staffing levels were increased in 1997 in
anticipation of additional growth in contract backlog and certain sponsor
programs which were scheduled to commence in the third quarter of 1997 but which
were delayed until 1998.

     Selling, general and administrative expenses increased approximately
$926,000 or 35%, primarily due to increased personnel and related costs
resulting from the addition of accounting, information technology, marketing and
administrative employees. Office expenses, which include rent, supplies, and
telecommunication costs, increased due to the increase in personnel. During
1997, a noncash charge of approximately $158,000 for compensation expense was
recorded related to certain performance-based stock options, as compared to
$535,000 in 1996. Selling, general and administrative expenses were
approximately 50% of net service revenue for 1997, as compared to 94% for 1996.
This improvement in the percentage of selling, general and administrative
expenses to net service revenues is a result of the growth in net service
revenues exceeding the growth in these expenses.

     Depreciation and amortization expenses increased approximately $317,000 or
201%. This increase is primarily a result of the purchase of approximately
$1,100,000 in property, plant and equipment during the last half of 1996.
Included in the capital purchases were additions to the Company's computer

                                       16
<PAGE>

information systems, facility expansion costs, and office furniture and
equipment related to the Company's growing staff and its move to a new corporate
office in December 1996.

     Interest expense increased by approximately $323,000 ($180,000 of which was
a noncash charge related to the issuance of a warrant described below). This
increase is directly related to the term loan entered into in July 1997 with
Oracle Partners, L.P. The term note required interest of 10%, the issuance of a
warrant for 200,000 shares of common stock with a term of five years at $5.50
per share, and issuance costs of approximately $90,000. The Company determined
the fair market value of the warrants to be $180,000 which, along with the
issuance costs, were amortized over the term of the loan.
This loan was repaid in November, 1997.

     The Company recorded no income tax benefit as a result of the net operating
losses for the years ended December 31, 1997 and 1996, 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 leases 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 influenced by changes in levels of
accounts receivable, net of amounts billed representing unearned revenue.
Accounts receivable increased to approximately $2,490,000 at December 31, 1997
from approximately $1,490,000 at December 31, 1996. The increase of
approximately $1,000,000 is a result of the growth in revenues and the timing of
payments by sponsors. Deferred or unearned revenue increased by approximately
$1,000,000 during 1997. The increase in deferred revenue offset the negative
cash effect of the increase in accounts receivable. Cash collections from
clinical study contracts for 1997 totaled approximately $10,860,000 as compared
with $2,700,000 for 1996.

     Net cash flow used in operating activities was approximately $1,557,000 for
1997, as compared to approximately $2,000,000 in 1996. The improvement of
approximately $443,000 is the result of the increase of deferred revenue during
1997. The operating losses which continued in 1997 were due to increased
staffing and overhead levels incurred in 1997 in anticipation of higher levels
of net service revenues being earned in 1997. Certain clinical trials under
contract were delayed or reduced in scope during 1997 which negatively impacted
1997 earnings and contract backlog levels. Expected growth in contract backlog
did not occur in 1997. As a result, the operating losses did not improve in
1997. Management intends to control future staff expansion and overhead cost
increases until the growth of net service revenues absorbs the current level of
excess capacity.

     Net cash increased by approximately $2,780,000 during 1997. The improvement
in net cash for 1997 was primarily a result of the net proceeds of approximately
$4,600,000 from the November, 1997 sale to Tandem Capital, a division of Sirrom
Capital Corporation ("Tandem"), of $5,000,000 of 12% Class B Convertible
Preferred Stock. The proceeds from this transaction were used to repay a
$1,000,000 short term loan from Oracle Partners, L.P.

     Investing activities are attributable to purchases of property and
equipment and were approximately $229,000 in 1997 as compared to approximately
$1,100,000 in 1996. In addition, the Company utilized operating and capital
leases in 1997 to provide approximately $400,000 of property and equipment
additions. During 1998, the Company plans to implement an Oracle database on a
Unix network server to support study management, patient recruitment, data
management and accounting departments. The

                                       17
<PAGE>

Oracle project is expected to improve operational efficiency and support future
growth. The Company expects to invest approximately $750,000 in the Oracle
project during the next 12 months.

     The Company in December, 1997 entered into a loan agreement with a national
banking institution to provide a $2,500,000 working capital line of credit
secured by accounts receivable. The purpose of this line of credit is to provide
the Company with additional working capital to fund its accounts receivable.

     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 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 issuances
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 Management's Discussion and Analysis or Plan of
Operation 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 "Risk Factors" discussed in
Item 1 above.

RECENT PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," both of which will be effective for
the Company's 1998 fiscal year. SFAS No. 130 will require companies to present
certain items as separate components of stockholders' equity. SFAS No. 131 will
require companies to report certain financial and descriptive information about
their reportable operating segments. Management does not believe that the effect
of implementing these standards will materially impact the Company's financial
statements.


ITEM 7.       FINANCIAL STATEMENTS

Index to Financial Statements:
                                                                            Page
                                                                            ----
     Report of Price Waterhouse LLP, Independent Accountants                F-1

     Balance Sheet - December 31, 1997 and 1996                             F-2

     Statement of Operations - Years ended December 31, 1997 and 1996       F-3

     Statement of Shareholders' Equity - December 31, 1997 and 1996         F-4

     Statement of Cash Flows - Years ended December 31, 1997 and 1996       F-5

     Notes to Financial Statements                                    F-6 - F-15

                                       18
<PAGE>

ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

     On December 2, 1996, the Company dismissed BDO Seidman, LLP as its
independent public accountant and retained Price Waterhouse LLP. The decision to
change accountants was approved by the Company's Board of Directors. There were
no disagreements with BDO Seidman on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to BDO Seidman's satisfaction, would have caused it to
make reference to the subject matter of the disagreement in connection with its
report.


                                   PART III

     The Company plans to file with the Securities and Exchange Commission a
definitive proxy statement for its 1998 Annual Meeting of Shareholders (the
"Proxy Statement") not later than April 30, 1998, and certain information
included therein is incorporated herein by reference.


ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The information regarding the Company's directors and executive officers
required by this Item is incorporated by reference to the sections in the
Company's Proxy Statement entitled "Election of Directors" and "Management."

     The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than ten percent of the Common Stock of the Company required by this
Item is incorporated by reference to the section in the Company's Proxy
Statement entitled "Compliance Under Section 16(a) of the Securities Exchange
Act of 1934."


ITEM 10.      EXECUTIVE COMPENSATION

     The information regarding compensation of directors and executive officers
of the Company required by this Item is incorporated by reference to the section
in the Company's Proxy Statement entitled "Executive Compensation."


ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information regarding security ownership of certain beneficial owners
and management required by this Item is incorporated herein by reference to the
section in the Company's Proxy Statement entitled "Ownership of Common Stock and
Preferred Stock."


ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information regarding certain relationships and related transactions
required by this Item is incorporated by reference to the section in the
Company's Proxy Statement entitled "Certain Transactions."

                                       19
<PAGE>

ITEM 13.      EXHIBITS LIST AND REPORTS ON FORM 8-K

(a)  EXHIBITS.

             2      Not applicable

             3(a)   Articles of Incorporation, as previously amended
                    (incorporated herein by reference to Exhibit 3(a) filed
                    with the Registration Statement on Form 10-SB, as amended,
                    declared effective January 13, 1997) and as amended by the
                    Certificate of Amendment of Articles of Incorporation
                    filed with the Secretary of State of Nevada on November
                    24, 1997

             3(b)   Amended and Restated Bylaws, as amended (incorporated
                    herein by reference to Exhibit 3(b) filed with the
                    Registration Statement on Form 10-SB, as amended, declared
                    effective January 13, 1997 and Exhibit 3(a) to the
                    registrant's Quarterly Report on Form 10-QSB as filed with
                    the Securities and Exchange Commission on August 13, 1997)

             4(a)   Stock Purchase Agreement dated as of July 15, 1996 between
                    the registrant and Oracle Partners, L.P., Quasar
                    International Partners, C.V., Oracle Institutional
                    Partners, L.P. and GSAM Oracle Fund, Inc. (incorporated
                    herein by reference to Exhibit 4(a) filed with the
                    Registration Statement on Form 10-SB, as amended, declared
                    effective January 13, 1997)

             4(b)   Articles of Incorporation of the registrant, as amended,
                    incorporated herein by reference to Exhibit 3(a)

             4(c)   Amended and Restated Bylaws of the registrant, as amended,
                    incorporated herein by reference to Exhibit 3(b)

             4(d)   Terms of Warrants issued by the registrant (incorporated
                    herein by reference to Exhibit 4(d) filed with the
                    Registration Statement on Form 10-SB, as amended, declared
                    effective January 13, 1997)

             4(e)   Sales Agent Warrant dated May 20, 1996 issued to SJ
                    Capital, Inc. (incorporated herein by reference to Exhibit
                    4(f) filed with the Registration Statement on Form 10-SB,
                    as amended, declared effective January 13, 1997)

             4(f)   Warrant to purchase shares of the registrant's common
                    stock issued to Oracle Partners, L.P. on July 1, 1997
                    (incorporated herein by reference to Exhibit 4(a) to the
                    registrant's Quarterly Report on Form 10-QSB as filed with
                    the Securities and Exchange Commission on August 13, 1997)

             4(g)   Preferred Stock Purchase Agreement dated November 7, 1997
                    between the registrant and Sirrom Capital Corporation
                    d/b/a Tandem Capital (incorporated herein by reference to
                    Exhibit 4(a) to the registrant's Quarterly Report on Form
                    10-QSB as filed with the Securities and Exchange
                    Commission on November 14, 1997)

             4(h)   Registration Rights Agreement dated as of November 25,
                    1997 between the registrant and Sirrom Capital Corporation
                    d/b/a Tandem Capital



                                       20
<PAGE>

             4(i)   Amended and Restated Registration Rights Agreement dated
                    as of November 25, 1997 between the registrant, Oracle
                    Partners, L.P., Quasar International Partners, C.V.,
                    Oracle Institutional Partners, L.P. and GSAM Oracle Fund,
                    Inc.

             4(j)   Lock-Up Agreement dated as of November 25, 1997 between the
                    registrant, O'Donnell Family Limited Partnership, Messrs.
                    Robert S. Sammis and Thomas P. O'Donnell, Oracle Partners,
                    L.P., Quasar International Partners, C.V., Oracle
                    Institutional Partners, L.P., GSAM Oracle Fund, Inc. and
                    Sirrom Capital Corporation d/b/a Tandem Capital

             4(k)   Warrant to purchase shares of the registrant's common
                    stock issued to The Robinson-Humphrey Company, LLC on
                    November 25, 1997

             9      Not applicable

             10(a)  Voting and Pre-Merger Agreement dated February 14, 1995
                    among the registrant, Thomas P. O'Donnell, Robert S. Sammis
                    and Steven J. Dell, M.D. (incorporated herein by reference
                    to Exhibit 10(a) filed with the Registration Statement on
                    Form 10-SB, as amended, declared effective January 13, 1997)

             10(b)  Voting and Pre-Merger Agreement dated February 14, 1995
                    among the registrant, Thomas P. O'Donnell, Robert S. Sammis
                    and William M. Ramsdell, M.D. (incorporated herein by
                    reference to Exhibit 10(b) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(c)  Voting and Pre-Merger Agreement dated February 14, 1995
                    among the registrant, Thomas P. O'Donnell, Robert S. Sammis
                    and David Shulman, M.D. (incorporated herein by reference to
                    Exhibit 10(c) filed with the Registration Statement on Form
                    10-SB, as amended, declared effective January 13, 1997)

             10(d)  Sales Agent Agreement effective September 15, 1995 between
                    the registrant and SJ Capital, Inc. (incorporated herein
                    by reference to Exhibit 10(d) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(e)  Option Agreement dated March 5, 1996 between the
                    registrant and Randolph J. Haag (incorporated herein by
                    reference to Exhibit 10(j) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(f)  Stock Option Agreement dated February 27, 1995 between the
                    registrant and Robert S. Sammis (incorporated herein by
                    reference to Exhibit 10(m) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(g)  Employment Agreement dated July 15, 1996 between the
                    registrant and Robert S. Sammis (incorporated herein by
                    reference to Exhibit 10(o) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(h)  Unsecured Note dated October 1, 1995 executed by the
                    registrant and payable to Robert Sammis (incorporated
                    herein by reference to Exhibit 10(q) filed with the
                    Registration Statement on Form 10-SB, as amended, declared
                    effective January 13, 1997)



                                       21
<PAGE>

             10(i)  Letter Agreement dated August 21, 1996 between the
                    registrant and Zola P. Horovitz (incorporated herein by
                    reference to Exhibit 10(s) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(j)  Lease dated October 23, 1996 between the registrant and
                    Lake Austin Commons, Ltd. (incorporated herein by
                    reference to Exhibit 10(t) filed with the Registration
                    Statement on Form 10-SB, as amended, declared effective
                    January 13, 1997)

             10(k)  First Amendment to Office Lease Agreement dated November
                    21, 1996 between the registrant and Lake Austin Commons,
                    Ltd. (incorporated herein by reference to Exhibit 10(u) to
                    the registrant's Annual Report on Form 10-KSB as filed
                    with the Securities and Exchange Commission on April 15,
                    1997)

             10(l)  Agreement Regarding Option Grant effective January 1, 1997
                    between the registrant and Robert S. Sammis (incorporated
                    herein by reference to Exhibit 10(x) to the registrant's
                    Annual Report on Form 10-KSB as filed with the Securities
                    and Exchange Commission on April 15, 1997)

             10(m)  Stock Option Agreement dated May 12, 1997 between the
                    registrant and James W. Clark, Jr. (incorporated herein by
                    reference to Exhibit 10(a) to the registrant's Quarterly
                    Report on Form 10-QSB as filed with the Securities and
                    Exchange Commission on August 13, 1997)

             10(n)  Employment Agreement effective June 1, 1997 between the
                    registrant and James W. Clark, Jr. (incorporated herein by
                    reference to Exhibit 10(a) to the registrant's Quarterly
                    Report on Form 10-QSB as filed with the Securities and
                    Exchange Commission on November 14, 1997)

             10(o)  Loan and Security Agreement effective December 19, 1997
                    between the registrant and NationsCredit Commercial
                    Corporation, through its NationsCredit Commercial Funding
                    Division

             10(p)  Employment Agreement effective March 17, 1998 between the
                    registrant and Susan Krivacic

             10(q)  Amended and Restated 1995 Director, Employee and Consultant
                    Stock Option Plan

             11     Not applicable

             13     Not applicable

             16     Letter on Change in Certifying Accountant (incorporated
                    herein by reference to Exhibit 16 filed with the
                    Registration Statement on Form 10-SB, as amended, declared
                    effective January 13, 1997)

             18     Not applicable

             21     Not applicable

             22     Not applicable

             23     Not applicable



                                       22
<PAGE>

             24     Not applicable

             27     Financial Data Schedule

             99     Not applicable


(b)     REPORTS ON FORM 8-K.

        No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this report.

                                       23
<PAGE>

                                  SIGNATURES

        In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                        CLINICOR, INC.


Date  March 30, 1998                    By  /s/ ROBERT S. SAMMIS
    ------------------                    --------------------------------------
                                          Robert S. Sammis
                                          President, Principal Executive Officer
                                          and Secretary


        In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


         Signature                            Title                    Date
         ---------                            -----                    ----

/s/ ROBERT S. SAMMIS            President, Principal Executive    March 30, 1998
----------------------------     Officer, Secretary, Director     --------------
(Robert S. Sammis)


/s/ JAMES W. CLARK, JR.           Vice President of Finance,      March 30, 1998
----------------------------     Principal Financial Officer,     --------------
(James W. Clark, Jr.)                 Treasurer, Director



/s/ ARTHUR P. HAAG                           Director             March 30, 1998
----------------------------                                      --------------
(Arthur P. Haag)


/s/ JOSEPH L. DOWLING                        Director             March 30, 1998
----------------------------                                      --------------
(Joseph L. Dowling)


/s/ ZOLA P. HOROVITZ                         Director             March 30, 1998
----------------------------                                      --------------
(Zola P. Horovitz, Ph.D.)


/s/ CRAIG MACNAB                             Director             March 30, 1998
----------------------------                                      --------------
(Craig Macnab)

                                       24
<PAGE>

                       Report of Independent Accountants


To the Board of Directors and
  Shareholders of Clinicor, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Clinicor, Inc. at December 31, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.



PRICE WATERHOUSE LLP

Austin, Texas
March 13, 1998

                                                                             F-1
<PAGE>

CLINICOR, INC.
BALANCE SHEET
================================================================================

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,       DECEMBER 31,
                                                                                             1997               1996
                                                                                        -----------        -----------
<S>                                                                                   <C>                <C>
ASSETS

Current assets:
    Cash, restricted cash and cash equivalents                                          $ 3,255,182        $ 1,483,974
    Accounts receivable, net                                                              2,472,928          1,489,555
    Prepaid and other current assets                                                        129,823            143,992
                                                                                        -----------        -----------
      Total current assets                                                                5,857,933          3,117,521

Property and equipment, net                                                               1,029,122          1,118,877

Other assets                                                                                   --               39,739
                                                                                        -----------        -----------
      TOTAL ASSETS                                                                      $ 6,887,055        $ 4,276,137
                                                                                        ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Current portion of obligations under capital leases                                 $    45,929        $    11,733
    Accounts payable and accrued liabilities                                              1,052,957          1,088,505
    Line of credit                                                                             --              850,000
    Deferred revenue                                                                      1,053,150             35,000
    Notes payable to shareholders                                                              --              181,000
                                                                                        -----------        -----------
      Total current liabilities                                                           2,152,036          2,166,238

Obligations under capital leases, less current portion                                       68,173             16,047
                                                                                        -----------        -----------
      Total liabilities                                                                   2,220,209          2,182,285
                                                                                        -----------        -----------

Commitments and contingencies (Note 7)

Shareholders' equity :
    Class A convertible preferred stock, no par value, 5,181 shares authorized,
      3,930 and  3,631 shares issued and outstanding, respectively                        3,930,000          3,631,000
    Class B convertible preferred stock, no par value, 50,000 shares
      authorized, 50,000 and 0  issued and outstanding, respectively                      5,000,000               --
    Common stock, $0.001 par value, 75,000,000 shares authorized,
      4,086,400 and 4,086,400 shares issued and outstanding, respectively                     4,086              4,086
    Additional paid-in capital                                                            1,875,536          2,418,915
    Deferred compensation                                                                   (66,892)          (224,800)
    Accumulated deficit                                                                  (6,075,884)        (3,735,349)
                                                                                        -----------        -----------
      Total shareholders' equity                                                          4,666,846          2,093,852
                                                                                        -----------        -----------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $ 6,887,055        $ 4,276,137
                                                                                        ===========        ===========
</TABLE>

                                                                             F-2
<PAGE>

CLINICOR, INC.
STATEMENT OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>
                                                                                     TWELVE MONTHS ENDED DECEMBER 31,
                                                                                     --------------------------------
                                                                                            1997             1996
                                                                                     ---------------    -------------
<S>                                                                                   <C>               <C>
Service revenue:
    Gross revenue                                                                       $ 10,856,562    $  3,581,402
    Reimbursable costs                                                                     3,790,416         781,354
                                                                                        ------------    ------------
      Net service revenue                                                                  7,066,146       2,800,048

Operating costs and expenses:
    Direct costs                                                                           5,052,698       1,990,798
    Selling, general and administrative                                                    3,549,622       2,623,278
    Depreciation and amortization                                                            474,464         157,597
                                                                                        ------------    ------------
      Total operating costs and expenses                                                   9,076,784       4,771,673
                                                                                        ------------    ------------
Loss from operations                                                                      (2,010,638)     (1,971,625)

Other income and expenses:
    Interest income                                                                           37,274          49,851
    Interest expense                                                                        (367,171)        (44,422)
                                                                                        ------------    ------------
      Other income and expenses                                                             (329,897)          5,429
                                                                                        ------------    ------------
NET LOSS                                                                                $ (2,340,535)   $ (1,966,196)
                                                                                        ============    ============

Net loss                                                                                $ (2,340,535)   $ (1,966,196)
Preferred stock dividends and conversion discount                                         (2,027,880)       (131,444)
                                                                                        ------------    ------------
Net loss applicable to common stock                                                     $ (4,368,415)   $ (2,097,640)
                                                                                        ============    ============

BASIC/DILUTED EARNINGS PER SHARE                                                        $      (1.07)   $      (0.52)
                                                                                        ============    ============

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING                                                                           4,086,400       4,059,433
</TABLE>

                                                                             F-3
<PAGE>

CLINICOR, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
                                          CONVERTIBLE CONVERTIBLE                   ADDITIONAL
                                           PREFERRED   PREFERRED    COMMON   STOCK   PAID-IN     DEFERRED   ACCUMULATED
                                             STOCK A     STOCK B    SHARES  AMOUNT   CAPITAL   COMPENSATION   DEFICIT      TOTAL
                                          ----------- ----------- --------- ------ ----------- ------------ ----------- ------------

<S>                                       <C>         <C>         <C>       <C>    <C>          <C>        <C>          <C>
Balance at December 31, 1995              $        -  $           3,939,000 $3,939 $1,938,499   $(150,000) $(1,769,153) $    23,285

Common stock issued in connection with
   the continuation of the Company's
   private placement dated
   September 15, 1995                              -           -    135,400    135    309,715           -            -      309,850
Common stock issued on May 20, 1996                -           -     12,000     12     11,988           -            -       12,000
Convertible preferred stock issued on
   July 15, 1996, 3,500 shares, net        3,500,000           -          -      -   (319,823)          -            -    3,180,177
Deferred stock option compensation                 -           -          -      -    609,980    (609,980)           -            -
Amortization of deferred compensation              -           -          -      -          -     535,180            -      535,180
Net loss                                           -           -          -      -          -           -   (1,966,196)  (1,966,196)
Dividends on convertible preferred stock     131,000           -          -      -   (131,444)          -            -         (444)
                                          ----------  ----------  --------- ------ ----------   ---------  -----------   ----------

Balance at December 31, 1996              $3,631,000  $        -  4,086,400 $4,086 $2,418,915   $(224,800) $(3,735,349)  $2,093,852

Convertible preferred stock issued  on
   November 25,1997, 50,000 shares, net            -   5,000,000          -      -   (362,868)          -            -    4,637,132
Amortization of  deferred compensation             -           -          -      -          -     157,908            -      157,908
Warrants issued in connection with
   debt obtained                                   -           -          -      -    180,000           -            -      180,000
Net loss                                           -           -          -      -          -           -   (2,340,535)  (2,340,535)
Dividend on preferred stock                        -           -          -      -    (61,511)          -            -      (61,511)
Dividends on convertible preferred stock     299,000           -          -      -   (299,000)          -            -            -
                                          ----------  ----------  --------- ------ ----------   ---------  -----------   ----------
Balance at December 31, 1997              $3,930,000  $5,000,000  4,086,400 $4,086 $1,875,536   $ (66,892) $(6,075,884)  $4,666,846
                                          ==========  ==========  ========= ====== ==========   =========  ===========   ==========
</TABLE>

                                                                             F-4
<PAGE>

CLINICOR, INC.
STATEMENT OF CASH FLOWS
================================================================================

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                             ----------------------------
                                                                                 1997             1996
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
OPERATING ACTIVITIES:

 Net loss                                                                    $(2,340,535)     $(1,966,196)
 Adjustments to reconcile net loss to cash used in operating activities:
   Depreciation and amortization                                                 474,464          157,597
   Noncash stock option compensation expense                                     157,908          535,180
   Accretion of debt discount                                                    180,000                -
   Allowance for doubtful accounts                                                20,000                -
   Net changes in assets and liabilities:
     Accounts receivable                                                      (1,003,373)        (856,015)
     Prepaid expenses and other assets                                            14,169         (169,716)
     Accounts payable and accrued liabilities                                    (97,503)         290,975
     Deferred revenue                                                          1,018,150          (10,000)
                                                                             -----------      -----------

 Net cash used in operating activities                                        (1,576,720)      (2,018,175)
                                                                             -----------      -----------

  INVESTING ACTIVITIES:
    Purchases of property and equipment                                         (228,718)      (1,094,040)
                                                                             -----------      -----------

  FINANCING ACTIVITIES:
    Payments on capital leases                                                   (29,486)         (23,119)
    Repayments of shareholder loans                                             (181,000)               -
    Proceeds from term loan                                                    1,000,000                -
    Repayment of term loan                                                    (1,000,000)               -
    Net proceeds from issuing common stock                                             -          321,850
    Net proceeds from issuing preferred stock                                  4,637,132        3,180,177
    Borrowings (repayments) under line of credit                                (850,000)         850,000
    Restricted cash securing line of credit                                    1,009,840       (1,009,840)
                                                                             -----------      -----------

  Net cash provided by financing activities                                    4,586,486        3,319,068
                                                                             -----------      -----------

  Net increase in unrestricted cash and cash equivalents                       2,781,048          206,853
  Unrestricted cash and cash equivalents at beginning of year                    474,134          267,281
                                                                             -----------      -----------

  Unrestricted cash and cash equivalents at end of year                      $ 3,255,182      $   474,134
                                                                             ===========      ===========

  SUPPLEMENTAL CASH FLOW DISCLOSURES:

    Interest paid                                                            $   206,388      $    29,942
                                                                             ===========      ===========

    Non-cash financing activities:
      Preferred stock dividends and conversion discount                      $ 1,965,667      $   131,000
                                                                             ===========      ===========
      Capital lease obligations                                              $   115,808      $         -
                                                                             ===========      ===========
</TABLE>

                                                                             F-5
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         Note 1 - Organization and Summary of Significant Accounting Policies

         Description of Business

         Clinicor, Inc. ("Clinicor" or the "Company") is a contract research
         organization serving companies in the pharmaceutical, biotechnology and
         medical device industries. Clinicor manages, monitors and performs
         clinical trials which are studies of investigational drugs and medical
         devices performed with human patients to support sponsors' applications
         to the Food and Drug Administration and other governmental authorities.
         The Company operates in one business segment.

         Basis of Presentation

         On February 27, 1995, Clinicor was merged into a non-reporting publicly
         held, inactive Nevada corporation in a reverse merger transaction (the
         "Merger") which has been accounted for as a "pooling of interests." The
         surviving corporation assumed the name Clinicor, Inc., and effective
         January 13, 1997, became a publicly reporting company.

         Use of Estimates

         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.

         Cash, Restricted Cash and Cash Equivalents

         Cash and cash equivalents consist primarily of funds invested in
         short-term interest bearing accounts. The Company considers all highly
         liquid investments purchased with initial maturities of three months or
         less to be cash equivalents.

         Included in cash, restricted cash and cash equivalents at December 31,
         1996, is a $1,009,840 certificate of deposit pledged as collateral for
         the $1,000,000 revolving line of credit discussed in Note 4. This
         certificate of deposit is excluded from cash and cash equivalents for
         statement of cash flow purposes.

         Concentration of Credit Risk

         Financial investments which potentially expose the Company to
         concentrations of credit risk, as defined by Statement of Financial
         Accounting Standards No. 105, consist primarily of trade accounts
         receivable.

         The majority of the Company's customer base are large pharmaceutical
         companies. Although the Company is directly affected by the well being
         of the pharmaceutical industry, management does not believe significant
         credit risks existed at December 31, 1997.

         Property and Equipment

         Property and equipment is stated at cost, net of accumulated
         depreciation and amortization. Depreciation is calculated on the
         straight-line method over the estimated useful lives of the assets
         ranging from three to five years. Repair and maintenance costs are
         charged to expense as incurred.

                                                                             F-6
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------



         Revenue Recognition

         Fixed price contract revenue is recognized using the percentage of
         completion method based upon the ratio of services provided to date
         compared to total services to be provided under each contract. Revenue
         from other contracts is recognized as the services are provided. Losses
         on contracts, if any, are accrued when they become probable.

         Study contracts generally provide for payments based upon the
         achievement of defined benchmarks. Deferred revenue represents amounts
         invoiced prior to rendering the related services, while unbilled
         revenue represents the billing value of services rendered prior to
         being invoiced. Substantially all the deferred revenue and unbilled
         revenue will be earned and billed, respectively, within one year.

         Direct Costs

         Direct costs are direct expenses of performing studies, including
         compensation and related benefits for project personnel, investigator
         fees, patient stipends, laboratories, advertising, labor, other
         clinical costs, and allocated overhead expenses.

         Income Taxes

         The Company accounts for income taxes in accordance with Statement of
         Financial Accounting Standards No. 109, "Accounting for Income Taxes"
         ("SFAS 109") under which deferred tax assets and liabilities are
         provided on differences between carrying value for financial reporting
         purposes and tax bases of assets and liabilities using the enacted tax
         rates. A valuation allowance is recognized, if on the weight of
         available evidence, it is more likely than not that some portion or all
         of the deferred tax asset will not be realized.

         Earnings Per Share

         The Company has adopted Statement of Financial Accounting Standards
         ("SFAS") No. 128, "Earnings per Share". This statement establishes new
         standards for computing and presenting earnings per share ("EPS") and
         requires restatement of all prior-period EPS data.

         Recent Pronouncements

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
         130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure
         about Segments of an Enterprise and Related Information", both of which
         will be effective for the Company's 1998 fiscal year. SFAS No. 130 will
         require companies to present certain items as separate components of
         stockholders' equity. SFAS No. 131 will require companies to report
         certain financial and descriptive information about their reportable
         operating segments. Management does not believe that the effect of
         implementing these standards will materially impact the Company's
         financial statements.

         Fair Value of Financial Instruments

         The carrying amounts of the Company's financial instruments, including
         cash and cash equivalents and trade accounts receivable and payable
         approximate fair values.

         Comparative Information

         Certain amounts related to the prior year have been reclassified to
         conform to the current year presentation.

                                                                             F-7
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         Note 2 - Accounts Receivable

         Accounts receivable consisted of the following at December 31:


                                       1997                     1996
                                  ------------------     ------------------


            Billed               $         1,259,614    $         1,145,076

            Unbilled                       1,233,314                344,479

            Allowance for
            doubtful accounts                (20,000)                     -
                                  ------------------     ------------------
                                 $         2,472,928    $         1,489,555
                                  ==================     ==================



         Note 3 - Property and Equipment

         Property and equipment consisted of the following at December 31:


                                             1997                    1996
                                    -------------------      ------------------
   Computer systems           $                 720,509   $             549,596
   Leasehold improvements                       416,511                 413,404
   Office equipment                             512,171                 331,220
   Medical equipment                             57,987                  57,987
                                    -------------------      ------------------
                                              1,707,178               1,352,207
   Less accumulated
   depreciation and
   amortization                                 678,056                 233,330
                                    -------------------      ------------------
                                 $            1,029,122   $           1,118,877
                                    ===================      ==================

         Depreciation expense was $444,726 and $153,914 for the years ended
         December 31, 1997 and 1996, respectively.

         Included in the December 31, 1997 and 1996 balances of equipment are
         $163,000 and $64,000, respectively, of assets acquired under capital
         leases. Accumulated depreciation of these assets was $69,000 and
         $35,000 at December 31, 1997 and 1996, respectively, and depreciation
         expense was $46,790 and $25,871, respectively, for the years ended
         December 31, 1997 and 1996.

                                                                             F-8
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         Note 4 - Accounts Payable and Accrued Liabilities

         Accounts payable and accrued liabilities consisted of the following at
December 31:

                                            1997             1996
                                        ------------------------------
   Accounts payable trade               $   537,204        $   545,638
   Accrued legal and professional            31,906            277,000
   Accrued investigators                    293,877                  -
   Accrued other                            189,970            265,867
                                          ---------          ---------
                                        $ 1,052,957        $ 1,088,505
                                          =========          =========

         Note 5 - Long-term Debt

         At December 31, 1996, the Company had a $1,000,000 secured revolving
         line of credit with a bank. Interest on the line accrues at the rate
         the bank offers on certificates of deposit for a similar term and
         amount, plus 150 basis points (6.22% at December 31, 1996). The line
         was collateralized by a $1,009,840 certificate of deposit at December
         31, 1996. The Company had drawn $850,000 on this line of credit as of
         December 31, 1996. This line was repaid in May, 1997 with the proceeds
         from the certificate of deposit which secured it.

         On July 1, 1997, the Company entered into a six month term loan with
         its Class A Preferred Stockholder. The loan terms required the payment
         of interest at 10%. In connection with negotiating the loan, the
         Company issued a warrant to purchase 200,000 shares of Clinicor's
         common stock at $5.50 per share. The warrant exercise price was
         adjusted to $5.17 per share and the shares purchasable were adjusted to
         212,766 in connection with the issuance of the Class B Preferred Stock
         (Note 8). The warrants are immediately exercisable and expire five
         years from the date of issuance. The Company valued the warrant at
         $180,000 and reflected such amount as a discount to the related debt.
         This discount was amortized using the effective interest method over
         the six month term of the related debt. Total interest expense
         recognized in 1997 related to this loan was approximately $314,750. The
         loan was repaid on November 25, 1997.

         On December 30, 1997, the Company entered into a four-year, $2.5
         million secured revolving credit facility with a national banking
         institution. The interest rate at December 31,1997 on this credit
         facility was 10.75%. There were no amounts outstanding under this
         credit facility and unused availability approximated $500,000 at
         December 31, 1997.

         Note 6 - Notes Payable to Shareholders

         Certain shareholders, including an officer and director, advanced
         $181,000 to the Company during 1995 under the terms of unsecured demand
         notes of the Company. The notes bear interest at 8% and at December 31,
         1996, accrued interest payable in connection with these notes totaled
         $19,217. These notes and related accrued interest were paid in 1997.

         Note 7 - Commitments and Contingencies

         The Company leases office space, computers and other equipment under
         noncancellable operating and capital lease agreements. These leases
         have expiration dates ranging from 1997 through 2001. Rent expense
         under operating leases totaled $423,000 and $81,000 for the years ended
         December 31, 1997 and 1996, respectively. During December 1996, the
         Company leased 21,634 square feet of new office space to house its
         expanding operations.

                                                                             F-9
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         Future minimum lease payments under all leases as of December 31, 1997
were as follows:


                                       Capital             Operating
                                       Leases                Leases

                                     ---------             ---------
                         1998      $    56,481           $   508,345
                         1999           49,288               467,850
                         2000           18,748               400,395
                         2001                -               348,438
          2002 and thereafter                -                     -
                                     ---------            ----------
  Total minimum lease payments         124,517           $ 1,725,028
                                                          ==========
  Less amounts representing
   interest                            (10,415)
                                     ---------
  Present value of net minimum
   lease payments                      114,102
  Less current portion of capital
   lease obligations                    45,929
                                     ---------
                                    $   68,173
                                     =========


         The Company and an officer and director whom the Company has
         indemnified were involved in a lawsuit brought by a former employer.
         Amounts expended during 1996 relating to the settlement and associated
         legal fees aggregated $243,000. This matter was resolved and the
         settlement paid in May 1997.

         Note 8 - Capital Stock

         Class A Preferred Stock

         On July 15, 1996, the Company issued to Oracle Partners, L.P. and
         certain affiliates 3,500 shares of convertible Class A preferred stock,
         no par value (the "Class A Preferred Stock"), for total consideration
         of $3,500,000, which provided the Company net proceeds of $3,180,177
         after deducting offering costs of $319,823. Included in these offering
         costs was $125,000 of expense to cancel certain preemptive rights held
         by three shareholders. The Class A Preferred Stock carries a
         liquidation preference of $1,000 per share. The Class A Preferred Stock
         provides for annual cumulative dividends, which for a five-year period
         following issuance are payable in kind and which accrue at the rate of
         8% per annum. On the fifth anniversary of the date of issuance, the
         dividend rate increases to 10% per annum, and the rate thereafter
         increases by an additional 2% on each successive anniversary date.
         Dividends accruing after the fifth anniversary date are payable in
         cash. Through 1997, the Company issued Class A Preferred Stock
         dividends of 430 shares.

         The Class A Preferred Stock is redeemable at the option of the Company
         at any time after July 15, 1998; there is no mandatory redemption. The
         Class A Preferred Stock is convertible into that number of shares of
         Common Stock of the Company as is equal to the liquidation preference
         of the Class A Preferred Stock being

                                                                            F-10
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

         converted, divided by a "conversion value," which is initially $1.50
         and which is subject to adjustment if certain events occur. No such
         events had occurred as of December 31, 1997.

         Class B Preferred Stock

         On November 25, 1997, the Company issued to Tandem Capital, a division
         of Sirrom Capital Corporation, 50,000 shares of Class B Convertible
         Preferred Stock, no par value ("Class B Preferred Stock"), for total
         consideration of $5,000,000, which provided the Company net proceeds of
         $4,637,132 after deducting offering costs of $362,868. The Class B
         Preferred Stock carries a liquidation preference of $100 per share. The
         Class B Preferred Stock provides for annual cumulative dividends of $12
         per share payable quarterly. The annual dividend rate of $12 per share
         will be increased by $2 per share beginning on the fifth anniversary of
         the issuance and subsequently every six months thereafter.

         The Class B Preferred Stock cannot be redeemed during the first year of
         issuance unless the Company has first offered to redeem all Class A
         Preferred Stock. After the first year and prior to the fifth
         anniversary of the original issue date, the Company may redeem the
         Class B Preferred Stock, as long as the average bid price of the Common
         Stock exceeds $6.00 per share for each of the immediately preceding 20
         consecutive trading days.

         The Class B Preferred Stock is convertible at any time into that number
         of shares of common stock of the Company as is equal to the liquidation
         preference divided by the conversion price which is initially set at
         $3.00 per share, which is subject to future adjustment if certain
         events occur. No such events have occurred as of December 31, 1997.

         The $3.00 conversion price represented a discount from the market price
         of Clinicor common stock at the date of issuance of the Class B
         Preferred Stock. As a result, $1,666,667 of the proceeds, representing
         the conversion discount, was allocated to additional paid in capital.
         The carrying amount of the Class B Preferred Stock was accreted to
         redemption value during 1997 as a charge to paid in capital. The
         conversion discount is reflected as a reduction of income available to
         common shareholders in the 1997 earnings per share calculation (Note
         10).

         The holders of the Class A and B Preferred Stock have various
         additional rights, including registration rights, pursuant to the
         Company's Articles of Incorporation, as amended, and pursuant to
         various agreements entered into with the holders of the Class A and B
         Preferred Stock.

         Stock Option Plan

         In December 1994, the Company and the shareholders approved the 1995
         Directors, Employees and Consultants Stock Option Plan (the "Option
         Plan"), which provides for the grant of both incentive and
         non-qualified stock options to directors, employees and certain other
         persons affiliated with the Company. The stock options granted under
         the Option Plan are generally granted at the fair value of the Common
         Stock on the date of grant. The terms of each option (including
         duration of the options, which is typically 5 to 10 years, and
         provisions as to vesting) are determined by the Board of Directors at
         the time of grant and are set forth in an option agreement between the
         Company and the optionee. At December 31, 1997 and 1996, the Company
         had reserved 2,000,000 shares of Common Stock under the option plan.

         The Company adopted Statement of Financial Accounting Standards No. 123
         (Accounting for Stock-Based Compensation) effective January 1, 1996 and
         has elected to continue to apply APB No. 25 and related interpretations
         in accounting for the Option Plan. Accordingly, no compensation expense
         has been recognized for option grants made at fair value and containing
         fixed vesting terms. The Company has recorded deferred compensation
         equal to the fair value of fixed option grants made to individuals
         other than employees and directors and fixed option grants to employees
         made below fair value, as well as performance based stock

                                                                            F-11
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         option grants. Amortization of deferred compensation, which is being
         charged against income over the vesting period of the options, totaled
         $157,908 and $535,180 in 1997 and 1996, respectively.

         Of the 1,188,220 options outstanding at December 31, 1997, 212,720 have
         performance based vesting provisions which allow for 108,481 of such
         options to vest anytime after January 1, 1998, if for any previous
         twelve-month period the Company achieves revenues of $12 million or
         pre-tax earnings of $2 million. The remaining 104,239 of these options
         vest anytime after January 1, 1999, if for any previous twelve-month
         period the Company achieves revenues of $18 million or pre-tax earnings
         of $3 million. In early 1997, the vesting provisions of these options
         were restated to make clear that all of the options that have not
         previously vested will vest on February 27, 2000.

         Had compensation cost of all stock option grants been determined based
         on their fair value at the grant date consistent with the method
         prescribed by SFAS No. 123, the Company's net loss and loss per share
         would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                     For the Year Ended        For the Year Ended
                                                      December 31, 1997         December 31, 1996
                                                     ------------------         -----------------
<S>                        <C>                       <C>                       <C>
  Net loss applicable        As reported                    $(4,368,415)              $(2,097,640)
   to common stock            Pro forma                     $(4,739,726)              $(1,759,388)

  Net loss applicable
   to common stock           As reported                         $(1.07)                   $(0.52)
   per share                  Pro forma                          $(1.16)                   $(0.43)
</TABLE>

         The fair value of each option grant is estimated on the date of grant
         using Black-Scholes option pricing model with the following weighted
         average assumptions used for grants in 1997 and 1996, respectively;
         dividend yield of zero for both years; expected volatility of 55% and
         60%; risk-free interest rate of 6.1 and 6.0 percent; and respective
         lives of 5 and 4 years.

                                                                            F-12
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


  A summary of option grants is presented below at December 31:
<TABLE>
<CAPTION>

                                                          1997                                   1996
                                          ----------------------------------      --------------------------------
                                                              Weighted                              Weighted
                                                               Average                              Average
                                                               Exercise                              Exercise
                                                Shares         Price                   Shares        Price
                                          ----------------  ----------------      --------------  ----------------
<S>                                       <C>               <C>                   <C>             <C>
  Outstanding, beginning of  year                  487,720       $      1.05             427,720       $      1.09
     At market                                     710,500              4.73              10,000              1.50
     Below market                                        -                 -              50,000              1.00
  Exercised                                              -                 -                   -                 -
  Canceled                                         (10,000)             1.50                   -                 -
                                          ----------------                        --------------
  Outstanding at end of year                     1,188,220       $      3.25             487,720       $      1.05
                                          ================                        ==============
  Options exercisable at
   year end                                        265,168       $      1.25             173,334       $       .76
  Weighted-average fair value of
   options granted during year:

      At market                                $      2.66                        $          .81
      Below market                             $         0                        $          .90
</TABLE>
  The following table summarizes information about stock options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
                                    Options Outstanding                                            Options Exercisable
                          -------------------------------------------------------------- ---------------------------------------
                                                     Weighted-
                                                      Average
                                                     Remaining
  Range of                                          Contractual             Weighted-                              Weighted-
   Exercise Prices          Number                     Life              Average Price           Number         Average Price
                          --------------------  -----------------      -----------------    --------------    ------------------
                                                      (Years)
<S>                       <C>                   <C>                     <C>                  <C>               <C>
      $0.10                         50,000                   1.24           $       0.10            50,000        $         0.10

  $1.00 to $1.25                   427,720                   2.48           $       1.15           181,668        $         1.04

  $4.00 to $4.25                    57,500                   7.10           $       4.08            33,500        $         4.13

  $4.68 to $4.88                   653,000                   6.59           $       4.79                 -                     -
                          ----------------                                                  --------------
                                 1,188,220                                                         265,168
                          ================                                                  ==============
</TABLE>

                                                                            F-13
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------

         Common Stock Warrants

         A discussed in Note 4, the Company issued a warrant in 1997 to purchase
         a total of 200,000 shares of Clinicor common stock in conjunction with
         obtaining the term loan. In addition, the Company issued a warrant in
         1997 to purchase a total of 100,000 shares of Clinicor common stock at
         $5.50 per share for professional services in connection with the Class
         B Preferred Stock offering.

         Note 9 - Income Taxes

         At December 31, 1997, the Company had a net operating loss carryforward
         of approximately $4,800,000 for federal tax purposes. The carryforward
         along with smaller temporary differences including depreciation and
         miscellaneous accruals result in a deferred tax asset of approximately
         $1,600,000. This asset has been fully reserved through a valuation
         allowance. Due to sales of stock in 1997 and 1996, the annual
         utilization of these loss carryforwards will be limited under Internal
         Revenue Code Section 382

         Note 10 - Earnings per Share

         Earnings per share have been calculated in accordance with the
         provisions of SFAS No. 128. All prior years' earnings per share data
         have been restated to reflect the provisions of SFAS No. 128. The
         implementation of the standard has resulted in the presentation of a
         basic EPS calculation in the consolidated financial statements as well
         as a diluted EPS calculation. Basic EPS is computed by dividing net
         income (loss) applicable to common stockholders by the weighted average
         number of common shares outstanding during each period. Diluted EPS is
         computed by dividing net income (loss) applicable to common
         stockholders by the weighted average number of common shares and common
         share equivalents outstanding (if dilutive), during each period. The
         number of common share equivalents outstanding is computed using the
         treasury stock method.

         The following is a reconciliation of the basic per share computations:

<TABLE>
<CAPTION>
                                                                 For the year ended December 31,
                                                                ---------------------------------
                                                                   1997                 1996
                                                                ---------------------------------
<S>                                                             <C>                 <C>
  Loss from continuing operations                               $(2,340,535)         $(1,966,196)
  Less-Preferred stock dividends-Class A  Preferred                (299,702)            (131,444)
           Preferred stock dividends-Class B Preferred              (61,511)                   -
           Accretion of discount on Class B Preferred            (1,666,667)                   -
                                                               ----------------------------------
  Loss applicable to common shareholders                        $(4,368,415)         $(2,097,640)
                                                               ==================================
  Shares used in computing basic earnings per share               4,086,400            4,059,433
  Loss per share
      Basic/Diluted                                                  $(1.07)              $(0.52)
                                                               ==================================
</TABLE>

  At December 31, 1997, potentially dilutive securities consisted of stock
  options convertible into 1,188,220 shares of common stock; Series A
  convertible preferred stock convertible into 2,620,000 shares of common stock;
  Series B convertible preferred stock convertible into 1,666,667 shares of
  common stock; and warrants convertible into 758,720 shares of common stock.

                                                                            F-14
<PAGE>

Clinicor, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------


         Note 11 - Significant Clients

         The Company has had up to five clients who each accounted for more than
         10% of the Company's revenues as follows:


                                       1997                       1996
                                ----------------            ---------------
         Client A                      3%                         13%
         Client B                     11%                         17%
         Client C                     24%                         23%
         Client D                      4%                         11%
         Client E                      -                          11%
         Client F                     22%                          -

         Additionally, at December 31, 1997 and 1996, certain clients had
         accounts receivable and unbilled revenue balances with the Company
         which represented the following amounts of total net accounts
         receivable and unbilled revenues:


                                       1997                       1996
                                ----------------            ---------------
         Client A                     18%                          -
         Client B                      -                          19%
         Client C                     18%                          -
         Client D                      7%                         14%
         Client E                     10%                          -
         Client F                     11%                          -
         Client G                      -                          36%

         Note 12 - Employees' Savings Plan

         The Company's 401(k) Savings and Retirement Plan, effective January 1,
         1996, is a defined contribution retirement plan as described in Section
         401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k)
         Plan is intended to be qualified under Section 401(a) of the Code. All
         full time employees of the Company are eligible to participate in the
         401(k) Plan after approximately 90 days of employment. The 401(k) Plan
         provides that each participant make elective contributions up to 15% of
         his or her compensation, subject to statutory limits. The Company did
         not make contributions to the 401(k) Plan for the year ended December
         31, 1997 and 1996.

                                                                            F-15