SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the Fiscal Year ended June 30, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ______ to _____
Commission file number 0-5186
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OCG TECHNOLOGY, INC.
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(Name of small business issuer in its charter)
DELAWARE 13-2643655
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 West 31st Street, New York, New York 10001
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 967-3079
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) had been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the closing sale price for such stock
on September 19, 1996 was $34,020,147. As of September 19, 1996 the Registrant
had 23,151,559 shares of Common Stock outstanding.
The Issuer's revenues for its most recent fiscal year: $746,006
Documents Incorporated by Reference: None
<PAGE>
Part I
Item 1. Description of Business
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General.
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OCG Technology, Inc. (which, together with its subsidiaries, unless
the context otherwise requires, is referred to as the "Company"): (i)
markets, updates, and expands the PrimeCare(TM) Patient Management System
(the "PrimeCare(TM) System"), a product of PrimeCare Systems, Inc. ("PSI"),
a wholly owned subsidiary of the Company; (ii) markets turnkey computer
systems and consulting services to providers of medical services through
Mooney-Edwards Enterprises, Inc. d/b/a Medical Information Systems
("MIS"), a wholly owned subsidiary of the Company; (iii) markets as a
service (the "CIG Service") and markets and manufactures as hardware, the
proprietary heart diagnostic instrument, known as the "Cardiointegraph",
which evaluates and interprets the electrical impulses of the heart. OCG
Technology, Inc. was incorporated as Data Display Systems, Inc. on July 3,
1969.
The Company's principal executive office is located at 450 West 31st
Street, New York, New York 10001 and its telephone number is (212) 967-3079.
PrimeCare(TM) Patient Management System
- ---------------------------------------
PSI, a Delaware corporation, was acquired by the Company as of May
16, 1994, through the issuance of 100,000 shares of the Series B Preferred
Stock of the Company (see Item 5, page 7). At the time of acquisition, PSI
owned a sole and exclusive worldwide license to use, market, sell,
manufacture and otherwise commercialize the PrimeCare(TM) System. The
System comprises a patient-centered integrated medical interview,
encounter documentation, patient and physician education, and chart
creation system which, in turn, creates a detailed electronic patient
record and provides an uncomplicated, standardized mechanism for
collecting and documenting all relevant clinical encounter data at minimal
cost and time.
The principal markets for the PrimeCare(TM) System are primary care
physicians, medical clinics and staff health maintenance organizations.
The PrimeCare(TM) System has harnessed the computer to bring efficiency
to the management of a medical practice. The PrimeCare(TM) System:
standardizes the patient record; assures consistency in patient care;
creates a patient database for clinical and outcomes research; offers,
both local and remote, means for utilization review and quality assurance
audits; improves the quality of care; increases efficiency and
productivity of the physician's practice; automatically generates a
problem list; incorporates patient care algorithms and clinical practice
guidelines; permits, both local and remote, on-line electronic retrieval
of patient record and hard copy print out with appropriate security
controls; enables rapid access to important patient data for clinical
care; contains and provides patient education, complaint oriented and
medication specific; provides physician education which is updated
frequently.
The PrimeCare(TM) System requires continual: (1) updates of medical
content; (2) additions and enhancements to expand the scope of the system;
and (3) incorporation of advances in both hardware and software technology
to maintain a "state of the art" system. The Company markets the
PrimeCare(TM) System as a service, on a pay for use basis, with a charge of
$1.50 per patient visit. This marketing method eliminates a significant
financial commitment to purchase the software, plus monthly maintenance
charges, and ties the cost directly to use. The financial benefits derived
by the physician from use of the PrimeCare(TM) System exceed $1.50 per
patient visit. The Company intends to interface the MIS billing system
(see MIS, below) with the PrimeCare(TM) System, which will enable the
automatic generation of patient billing. According to the American Medical
Association, there are over 650,000 physicians in the U.S. creating a very
large potential market for the System. The Company estimates that as many
as 250,000 of these physicians could use the system routinely.
On September 15, 1995, the Company entered into an agreement with the
Mount Sinai School of Medicine ("MSSM") which provides for the MSSM to
assume the task of updating and enhancing the medical content of the
PrimeCare(TM) System. Having concluded this agreement, the Company commenced
marketing the PrimeCare(TM) System. The Company currently has arrangements
with a number of dealers to sell the PrimeCare(TM) System and continues to
enlarge its network of independent dealers. However, no assurances can be
given that the physician population will contract for and use the
PrimeCare(TM) System.
Competition. The Company has not identified any competitive patient
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management system which embodies all the features of the PrimeCare(TM)
System. However, other companies market systems which may have some of the
features of the PrimeCare(TM) System and some companies market medical
office products which perform different functions than those performed by
the PrimeCare(TM) System. No assurances can be given that the PrimeCare(TM)
System is marketable or that another system will not be developed and, if
developed, may prove to be more marketable than the PrimeCare(TM) System.
Copyrights. The content of the PrimeCare(TM) System is protected by
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copyrights.
Medical Information Systems
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Mooney-Edwards Enterprises, Inc. d/b/a Medical Information Systems
("MIS"), a Florida corporation was acquired by the Company on June 25,
1992 (see Item 5, page 8). MIS has been a growing operation in a segment
of the medical field. MIS markets computer systems to providers of medical
services. The packages include hardware, software, staff training and
provides for an annual service contract. In addition to the basic accounts
receivable and insurance billing applications, MIS can provide the offices
with accounts payable, general ledger, payroll and word processing
programs. The service contracts provide for ongoing software upgrades,
continuing education and system maintenance.
The turnkey packages sold by MIS primarily use the "Medical Manager"
("MM") software program. MIS is the area dealer for MM which is reputed
to be the most widely used software package in the medical industry. MIS
also possesses a state of the art proprietary software program for medical
billing. The MIS software can handle multiple billing and payment entries
on one screen, whereas, MM is limited to one charge entry or payment
without changing the screen. The Company intended to complete that
development of a Users Guide, Reference Book and other marketing tools
during fiscal 1994 and to market the MIS software program nationally
through dealers. However, the Company altered its marketing plans when it
decided to acquire PrimeCare Systems, Inc. The Company decided that MIS
software should be interfaced with the PSI software so that billing by the
physician could be automated at the conclusion of the patient's visit.
Cardiointegraph
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The Company has developed a diagnostic instrument for the early
detection of coronary heart disease, known as the Cardiointegraph, which
takes the electrical impulses generated by a patient during the course of
a conventional electrocardiogram ("ECG") and through a series of
integrations and normalizations, displays these signals in a different
visual format, known as a Cardiointegram ("CIG"). In the Company's
opinion, a CIG provides the examining physician with a method for
identifying patients with apparently normal ECG's who may actually have
coronary heart disease. The Cardiointegraph employs a unique method, parts
of which are patented. The Company believes that the CIG does not compete
directly with any other diagnostic method. However, the CIG does compete
generally with other diagnostic methods, such as stress testing and
thallium perfusion stress tests. The Cardiointegram procedure is done at
rest, requires less doctor-time and costs significantly less than the
other available methods.
Studies have been completed which the Company believes confirm the
usefulness and efficacy of the Cardiointegraph. As a part of two studies,
the results of the Cardiointegram was compared with the results of
exercise stress testing. The concordance of the two tests was 87% in one
study and 88% in the other. Based on this data the Company believes that
the CIG is a cost effective, viable alternative to stress testing in many
instances. The apparent national concern with rising health-care costs and
growing efforts to contain and reduce these costs could prove to be a
stimulus to expand the use of the CIG service. However, there can be no
assurance that the CIG will benefit from this.
Marketing Although Cardiointegraphs were sold and end user
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purchasers (i.e. physicians, corporate and governmental medical
departments) appear to find the unit useful, the Company has been unable
to generate sufficient revenues to fund its operations or to operate at a
profit. The Company believes that lack of universal reimbursement for the
CIG has hindered its attempt to sell the CIG. The Company believes that
marketing the CIG technology as a service, with a minimal fee charged to
the physician per CIG generated, may free physicians from their general
reluctance to purchase medical diagnostic equipment not reimbursed by
Medicare. The Company commenced its plan to market the Cardiointegraph as
a service (See Item 6). To date, the Company has not derived substantial
revenues from offering the CIG on a fee per use basis.
Competition The Cardiointegraph is a diagnostic device which employs
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a unique method, parts of which are patented, for the diagnosis of coronary
heart disease. The Company believes that the CIG does not compete directly
with any other diagnostic method. However, the CIG does compete generally
with other diagnostic methods, such as stress testing and thallium
perfusion stress tests. The Cardiointegram procedure is done at rest,
requires less doctor-time and costs less than the other available
methods. In the past, the Company sold its product through medical
distributors, a sales and marketing method employed by other medical
equipment manufacturers.
Patent Protection The Company's business is dependent to some
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extent, upon patent protection of its method of signal analysis and its
application to the Cardiointegraph. The Company's primary patent expired
in November 1986. In June 1985 a new method patent was granted to the
Company which expires in the year 2002. This new patent covers the
Company's method for correctly detecting in a repeatable fashion the
proper base line which is essential to accurately compute the CIG. The
Company believes that this patent will adequately protect its competitive
position. Although certain of the Company's processes are of a
non-patentable nature, the Company believes that it has significant lead
time over potential competitors in the field of classifying and evaluating
data by this patented method and apparatus as a result of its know-how and
expertise which supplement the patent protection. "Cardiointegraph" is not
a registered trademark or trade name, however, the Company is not aware of
any other companies using such name or manufacturing such product. The
Company owns trademark registrations in the United States for "OCG".
Government Regulation
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The Company is operating in the medical field which is subject to
extensive federal, state and local regulations. The Cardiointegraph is a
"device" under the Food, Drug and Cosmetic Act of 1938, as amended (the
"ACT"). On December 29, 1981, the Company was formally advised by the Food
and Drug Administration ("FDA") that the Company had clearance to market
the Cardiointegraph, subject to the general controls and provisions of the
Act. The FDA designated the Cardiointegraph to be in regulatory class II.
The Company believes that it is presently in compliance with all federal,
state and local regulations.
Neither the PrimeCare(TM) System nor the MIS medical billing software
require FDA filings.
Research Contract
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Optronic Labs, Inc., a wholly owned subsidiary of the Company, which is
currently inactive, had been engaged by an unaffiliated limited partnership
under a research and development agreement to conduct a research and
development program to develop the processes and technology for the
commercial manufacture of an ambulatory heart monitoring system and an
improved system for the early detection of heart disease for a fee of
$2,025,000.
Pursuant to the terms of a technology assignment agreement, the Company
contracted to purchase the related technologies. Compensation for the
purchase is in the form of royalties at the rate of 7-1/2 percent of sales
of the related products for 17 years. As additional compensation the
Company pays royalties at the rate of 3 percent of Cardiointegraph sales
until the Partnership receives $2,750,000 and thereafter 1 percent of
Cardiointegraph sales until the Partnership receives an additional
$2,750,000. The Company currently has no intention of entering into
additional third party contracts for research and development. On July 1,
1985, the Company purchased the technology and began paying royalties as
discussed above. There were no royalty payments made for fiscal 1996 and
1995.
Employees
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The Company employs 4 non-salaried officers, all of whom are full time;
its subsidiary, MIS employs 8 salaried employees including officers, all
of whom are full time; and its subsidiary, PSI employs 13 salaried
employees including officers, 10 of whom are full time and 3 part time.
Item 2. Properties
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The Company utilizes space at 450 West 31st Street, New York, New York
where it maintains its executive and sales office. The space is owned by
a corporation whose president and one of its shareholders is the son of
the President of the Company. There is no lease or other written
commitment assuring continued use of the premises. No rent was charged in
1995 and 1996.
MIS leases office space in Pensacola, Florida from Mainstreet, Ltd. Rental
payments for the year ended June 30, 1996 were $17,725. The President and
Vice President of MIS have an ownership interest in Mainstreet, Ltd.
There is an oral agreement with Mainstreet, Ltd. that premises will be
available to MIS through June 30, 1997.
PSI leases approximately 2300 square feet of office space in Newport News,
VA. The lease is for a term of three years ending on July 31, 1997 at a
rental of $24,472 for fiscal 1997.
Item 3. Legal Proceedings
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NONE
Item 4. Submission of Matters to a Vote of Security Holders
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All of the information called for by this item is contained in Item 4 of
Part II of the Company's Form 10-QSB for the quarterly period ended March
31, 1996 which was filed with the Commission on May 14, 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
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Matters.
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The Company's Common Stock is quoted on NASDAQ (now NASDAQ Small Cap)
under NASDAQ symbol OCGT. The following table sets forth the range of high
and low closing prices for the Company's Common Stock for the periods
indicated. Prices represent quotations between dealers without adjustments
for retail markups, markdowns or commissions and may not represent actual
transactions.
Fiscal Year Ended June 30, 1995 High Low
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1st Quarter 17/32 1/4
2nd Quarter 1/2 1/4
3rd Quarter 1/2 1/4
4th Quarter 1/2 9/32
Fiscal Year Ended June 30, 1996 High Low
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1st Quarter 29/32 1/4
2nd Quarter 27/32 13/32
3rd Quarter 7/8 7/16
4th Quarter 1 15/16 23/32
As of June 30, 1996 there were approximately 1,438 record holders of the
Common Stock, including stockholders whose shares are registered in
"nominee" or "street" name. The closing bid price per share for the
Common Stock on September 19, 1996 was 1 15/32.
On May 1, 1996, the shareholders of the Company approved the increase in
the number of authorized shares of Common Stock from 25 million to 50
million.
The Company has never paid cash dividends on its Common Stock. Payment of
dividends are within the discretion of the Company's Board of Directors
and will depend, among other factors, on earnings, capital requirements
and the operating and financial condition of the Company. At the present
time, the Company's anticipated requirements are such that it intends to
follow a policy of retaining earnings, if any, in order to finance the
development of its business.
On July 12, 1984, a majority of the shareholders of the Company authorized
the amendment of the Certificate of Incorporation of the Company creating
a class of 1,000,000 shares of preferred stock, the relative rights,
preferences and designations of which could be determined by the Board of
Directors.
Effective June 10, 1996, the Company agreed with its Series B Preferred
shareholders to exchange 1,000,000 shares of its regular Common Stock for
all 100,000 shares of its Series B Preferred Stock outstanding.
Accordingly, all dividend rights for the Series B Preferred Stock
described hereafter have been rescinded. On May 3, 1994, pursuant to the
authority vested in the Company's Board, a series of Preferred Stock of
the Company was created out of the authorized but unissued shares of the
capital stock of the Company, and was designated Series B Preferred Stock,
to consist of a maximum of 100,000 shares, par value $.10 per share, of
which the preferences and other rights, and the qualifications,
limitations or restrictions thereof, includes the following: (1) subject
to the Company's Shareholders authorizing the Company's Board of
Directors to create a Series B Common Stock, any or all shares of the
Series B Preferred Stock shall be convertible at the option of the holder
or holders thereof into fully paid and nonassessable shares of Series B
Common Stock of the Company at the rate of ten (10) shares of Series B
Common Stock for each share of Series B Preferred; (2) the holders of
shares of Series B Preferred Stock shall have the right to vote for any
purpose on the same basis as the holders of the Company's Common Stock;
(3) Series B Dividends shall not be cumulative and shall be distributable
out of the aggregate of all cash dividends declared by the Company in any
year, and shall be calculated as follows: the aggregate amount of all
cash dividends declared and to be distributed by the Company to all
classes of its shareholders in a fiscal year shall be multiplied by a
fraction, the (A) numerator of which shall be an amount equal to fifty
(50%) percent of the net profits of the Company's subsidiary, PrimeCare
Systems, Inc. ("PSI") for the prior fiscal year; and the (B) denominator
of which shall be the sum of the said net profits of the Company
(including those of PSI) for such prior fiscal year. On May 20, 1994,
100,000 shares of Series B Preferred Stock were issued in conjunction with
the acquisition of PrimeCare Systems, Inc.
On June 10, 1992 pursuant to the authority vested in the Board of
Directors of the Company, a series of Preferred Stock of the Company was
created out of the authorized but unissued shares of the capital stock of
the Company, and was designated Series E Preferred Stock, to consist of a
maximum of 100,000 shares, par value $.10 per share, of which the
preferences and other rights, and the qualifications, limitations or
restrictions thereof, includes the following: (1) These shares are
non-convertible; (2) The holders of shares shall have the right to vote
for any purpose on the same basis as the holders of the Company's Common
Stock; (3) Series E Dividends shall not be cumulative and shall be
distributable out of the aggregate of all cash dividends declared by the
Company in any year, and shall be calculated as follows: the aggregate
amount of all cash dividends declared and to be distributed by the Company
to all classes of its shareholders in a fiscal year shall be multiplied by
a fraction, the (A) numerator of which shall be an amount equal to fifty
(50%) percent of the net profits of the Company's subsidiary,
Mooney-Edwards Enterprises, Inc. ("MIS") for the prior fiscal year; and
the (B) denominator of which shall be the sum of the said net profits of
the Company (including those of MIS) for such prior fiscal year; (4) The
Series E Preferred Stock may be redeemed, in whole or in part, at the
option of the Company, at the price of $30.00 per share, plus all accrued
and unpaid dividends thereon. On June 25, 1992, 100,000 shares of Series
E Preferred Stock were issued in conjunction with the acquisition of
Mooney-Edwards Enterprises, Inc. No dividends have been declared or paid
for the Series E Preferred Stock.
Item 6. Management's Discussion and Analysis or Plan of Operation
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Fiscal 1996 Compared to Fiscal 1995
Results of Operations
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Total revenues increased to $746,006 for the year ended June 30, 1996 from
$573,489 for 1995. Cost of sales increased $106,355. The increase in
revenues was primarily due to an increase in revenues from sales and
services of third party software products.
Marketing general and administrative expenses increased $1,381,144 for the
year ended June 30, 1996 as compared to 1995 due primarily to increased
expenses in marketing the PrimeCare(TM) Patient Management System and to the
recognition of $1,214,000 of non-cash expenses related to the issuance of
warrants to employees and outside consultants.
Interest
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Interest expense increased $1,192 to $1,247 for the year ended June 30,
1996 as compared to the year ended June 30, 1995.
Liquidity and Capital Resources
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At June 30, 1996 the Company had a current ratio of 1.70 to 1 compared to
.61 to 1 as of June 30, 1995. The increase in current assets primarily
resulted from the receipt of proceeds from the sale of Common Stock.
Although the net loss from operations for the year ended June 30, 1996 was
$2,468,752 most of the loss resulted from non-cash charges of
approximately $1,950,000, which accounted for 78% of the total loss from
operations. The Company has experienced recurring losses from operations
and has been unable to provide sufficient working capital from operations
and has relied significantly on the sale of equity interests in the
Company and loans from officers and shareholders to fund its operations.
The Company's auditors have included an explanatory paragraph regarding
the ability of the Company to continue as a "going concern".
Cash on hand and accounts receivable were $363,529 at June 30, 1996. In
the past, the Company's principal means of overcoming its cash shortfalls
from operations was from the sale of the Company's common stock. During
the year ended June 30, 1996, the Company raised $780,000 through the sale
of equity interests and the exercise of warrants. The Company intends to
provide additional working capital through the sale of equity interests in
the Company. Although, in the past, the Company has been able to provide
working capital through the sale of equity interests in the Company, there
can be no assurances that the Company will succeed in its efforts.
As of May 16, 1994, PrimeCare Systems, Inc. ("PSI") was acquired by the
Company. At that time, PSI owned a sole and exclusive worldwide license to
use, market, sell, manufacture and otherwise commercialize on the
PrimeCare(TM) Patient Management System. The System comprises a
patient-centered integrated medical interview, encounter documentation,
patient and physician education, and chart creation system which, in turn,
provides an uncomplicated, standardized mechanism for collecting and
documenting all relevant clinical encounter data at minimal cost and time.
The System also provides a data base and means for clinical and outcomes
research as well as a means for utilization review and quality assurance
audits. The Company has decided to market the System as a service, on a
pay for use basis, with a charge of $1.50 per patient visit. This
marketing method eliminates a significant financial commitment to purchase
the software, plus monthly maintenance charges for updates, and ties the
cost directly to use. The financial benefits derived by the physician
from use of the PrimeCare(TM) System exceed $1.50 cost per patient visit.
The Company intends to interface MIS's proprietary medical billing
software with the PrimeCare(TM) System, which will enable the automatic
generation of patient billing. According to the American Medical
Association, there are over 650,000 physicians in the U.S., creating a
very large potential market for the System. The Company estimates that as
many as 250,000 of these physicians could use the system routinely. It is
estimated that the average number of patient visits per month for a
primary care physician is between 500 and 600. Assuming 500 patients per
month at $1.50 per patient, use by 100 physicians would generate revenues
of $75,000 per month.
The medical content of the System is continually updated. On September 15,
1995, the Company entered into an agreement with the Mount Sinai School of
Medicine ("MSSM") which provides for the MSSM to assume the task of
updating and enhancing the medical content of the PrimeCare(TM) System.
Having concluded this agreement, the Company commenced marketing the
PrimeCare(TM) System. The Company currently has arrangements with a number
of dealers to sell the PrimeCare(TM) System and continues to enlarge its
network of independent dealers. However, no assurances can be given that
the physician population will contract for and use the PrimeCare(TM) System.
In the past, the Company sold its Cardiointegraph, a proprietary heart
diagnostic instrument for the early detection of coronary heart disease,
through medical distributors, a sales and marketing method employed by
other medical equipment manufacturers. Although Cardiointegraphs were
sold and the end user purchasers, (i.e., physicians and corporate and
governmental medical departments), appear to find the unit useful, the
Company has been unable to generate sufficient revenues to fund its
operations or to operate at a profit. The Company believes that lack of
universal reimbursement for the CIG has hindered its attempt to sell the
CIG.
The Company believes that marketing the CIG technology as a service, with
a minimal fee charged to the physician per CIG generated, may free the
physician from the general reluctance of physicians to purchase medical
diagnostic equipment not reimbursed by Medicare.
The Company licensed its CIG technology to Compumed, Inc. ("CMPD") to
enable CMPD to offer the CIG as a service to CMPD's customers who
subscribe to CMPD's service which interprets electrocardiographic (EKG)
signals transmitted telephonically to CMPD's central computer. During
March 1994, CMPD commenced offering the CIG service to CMPD's customers.
To date, the Company has not received significant revenues from CMPD for
the service. The Company is totally dependant upon CMPD for the marketing
effort to CMPD's customers. The Company does not believe that the service
will be marketed successfully by CMPD.
The Company believes that it could provide sufficient working capital from
operations through marketing the PrimeCare(TM) System, the MIS billing
system after interfacing it with the PrimeCare(TM) System, marketing the CIG
as a service and expanding the operations of MIS.
Currently, the Company has no lines of credit and has no material
commitments for capital expenditures outstanding.
Effects of Inflation
- --------------------
Most raw materials the Company uses in its manufacturing process have
declined or have remained stable with regard to cost. As such, inflation
has had little effect on the Company's operations.
Fiscal 1995 Compared to Fiscal 1994
Results of Operations
- ---------------------
Total revenues increased to $573,489 for the year ended June 30, 1995 from
$519,643 for 1994. Cost of sales increased $12,707. The increase in
revenues was due to an increase in revenues from sales and services of
third party software products.
Marketing general and administrative expenses increased $218,928 for the
year ended June 30, 1995 as compared to 1994 as a result of the Company's
acquisition of PSI in May 1994, which necessitated increases in various
services which were paid for through the issuance of the Company's Common
Stock.
Item 7. Financial Statements
--------------------
The following are included and filed under this Item and appear immediately
following the signature page on page 16:
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheet - June 30, 1996 F-2
Consolidated Statements of Operations -
Years ended June 30, 1996 and 1995 F-3
Consolidated Statements of Shareholders'
Equity - Years ended June 30, 1996 and 1995 F-4
Consolidated Statements of Cash Flows -
Years ended June 30, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
Item 8. Disagreements on Accounting and Financial Disclosure.
----------------------------------------------------
There were no disagreements on accounting and financial disclosure
during the years ended June 30, 1996 and 1995.
PART III
Item 9. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The directors and executive officers of the Company are:
Name Age Position
- ---------------- --- ----------------------
Edward C. Levine 69 President and Director
Jarema S. Rakoczy 54 Vice President and Director
Jeffrey P. Nelson 52 Secretary and Director
Erich W. Augustin 61 Executive Vice President,
Chief Financial Officer
and Director
Directors are elected at the annual stockholder's meeting and serve until
the next annual meeting. Officers are elected by the Board of Directors.
Edward C. Levine has been the President of the Company since 1976 and a
Director of the Company since 1973. Mr. Levine is a member of the Bar of
the State of New York.
Jarema S. Rakoczy, has served as a Director of the Company since August
1987, and a Vice President since March 1985, and has been with the Company
since January, 1983. Mr. Rakoczy has been self-employed as a sales and
marketing consultant since May of 1989. Mr. Rakoczy devotes all of his
professional time to the Company's affairs. Mr. Rakoczy served as Eastern
Manager at Hittman Medical Systems from September 1980 to December 1982;
as Regional Sales Manager at American Optical Medical Division from
February 1976 to September 1980; and as Vice President at Pratt
Electronics from June 1968 to November 1974.
Jeffrey P. Nelson, has served as a Director since November 1991 and as
Secretary of the Company since June 1992. Mr. Nelson served as Vice
President, Asset Based Finance Division, of Marine Midland Bank, NA from
December 1986 through 1990. Mr. Nelson was self-employed as a real estate
financing consultant from January 1991 through November 1991.
Erich W. Augustin became a Director on September 19, 1995 and joined the
Company as Executive Vice President and Chief Financial Officer on October
18, 1996. Mr. Augustin served as Senior Vice President and Chief
Financial Officer of the Chase Manhattan Bank of Connecticut, N.A., with
responsibility for all financial activities, including accounting, audit,
budget, planning, regulatory reporting and taxes, from August 1991 through
January 1995 at which time he retired. From January 1995 to June 30, 1995,
Mr. Augustin served as a consultant to the same institution. Mr. Augustin
served as Vice President and Director of Financial Accounting & Reporting
of the Chase Manhattan Corporation and the Chase Manhattan Bank, N.A. from
May 1976 through August 1991, responsible for worldwide financial
accounting and reporting for Senior Management, Shareholders and
Regulatory Agencies.
Item 10. Executive Compensation
----------------------
Compensation of Directors
- -------------------------
There are no standard or other arrangements for compensating
Directors. Directors serve without compensation.
Compensation of Officers
- ------------------------
The following table presents certain specific information regarding
the compensation of the Chairman and President of the Company who received
no other compensation than the compensation set forth in the following
tables. No Officer of the Company had total salary, bonus or other
compensation exceeding $100,000.
Summary Compensation Table (Fiscal 1996)
----------------------------------------
(a) (b) (c)
Long-term Compensation Awards
Fiscal Year Ended Securities Underlying
Name & Principal Position June 30, Options/SARs
- ------------------------- -------- ------------------------------
Edward C. Levine, 1996 -0-
President and Chief 1995 60,000 (1)
Executive Officer 1995 250,000
1994 180,000
[FN]
_______________
Notes: (1) These warrants were issued in 1990. In 1995, the exercise
price of these warrants was reduced by the Company from $1.00 per share to
$.50 per share.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION>
(a) (b) (c) (d) (e)
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($ / Share) Date
- ----------------- ------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Edward C. Levine -0- -0- N/A N/A
</TABLE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table sets forth certain information regarding the exercise
of stock options during the fiscal year ended June 30, 1996 and the fiscal
year ended value of unexercised options for the Company's named executive
officers.
<CAPTION>
Value of Unexercised
Shares Value Number of Unexercised In-the-Money Options at
Acquired on Realized Options at Fiscal Year-End Fiscal Year End
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---------------- ----------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Edward C. Levine -0- $ -0- 640,000 / 0 $617,000 / 0
Jarema S. Rakoczy -0- $ -0- 290,000 / 0 $292,125 / 0
Jeffrey P. Nelson -0- $ -0- 630,000 / 0 $613,375 / 0
Erich W. Augustin -0- $ -0- 245,000 / 0 $253,312 / 0
<FN>
_____________________
Notes: (1) Calculated based on the excess of the closing market price
of the Company's common stock as reported on the NASDAQ Stock market on
June 28, 1996 ($1.3125) over the option exercise price.
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth, as of September 19, 1996 certain
information with respect to Common Stock ownership of (i) each person
known by the Company to own beneficially more than 5% of the shares of the
Company's Common Stock, (ii) all directors, and (iii) all Officers and
Directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount & Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
- ------ ------------------ -------------------- --------
<S> <C> <C> <C>
Common Edward C. Levine 538,826 - direct 2.33%
450 W. 31st Street
New York, NY 10001
Common Jarema S. Rakoczy 81,450 - direct .35%
450 W. 31st Street
New York, NY 10001
Common Jeffrey P. Nelson 85,000 - direct .37%
450 W. 31st Sreet
New York, NY 10001
Common Erich W. Augustin -0- .00%
450 West 31st Street
New York, NY 10001
Common All directors and 705,276 - direct 3.05%
officers as a group
(4 Persons)
</TABLE>
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
On May 9, 1995 the Company authorized the issuance of, and thereafter
issued, 150,000 warrants to purchase shares of its Common Stock for
services rendered or to be rendered. Said Warrants were issued in
consideration of services to be rendered to the Corporation by Mr.
Augustin by serving as a Director and Treasurer of the Corporation which
services will become effective on the date PrimeCare Systems, Inc. the
Corporation's wholly owned subsidiary, executed a contract with the Mount
Sinai School of Medicine ("MSSM") for the MSSM to update the medical
content of the PrimeCare System. Exercise of these warrants by the holder
thereof was subject to the Shareholder approval of an increase in the
number of the Corporation's authorized shares of Common Stock, par value
$.01 per share, from twenty-five million to fifty million, which condition
has been met.
On April 5, 1995 the Company authorized the issuance of, and thereafter
issued, warrants to purchase shares of its Common Stock as follows:
Jeffrey P. Nelson, 200,000 warrants; Edward C. Levine, 250,000 warrants;
and Jarema S. Rakoczy, 100,000 warrants; for services rendered or to be
rendered. Exercise of these warrants by the holders thereof was subject to
Shareholder approval of an increase in the number of the Corporation's
authorized shares of Common Stock, par value $.01 per share, from twenty-
five million to fifty million, which condition has been met.
On May 3, 1994, the Company authorized and subsequently issued 200,000
shares of its Common Stock to officers, directors and former shareholders
of the Company's wholly owned subsidiary PrimeCare Systems, Inc. ("PSI"),
for services to be rendered to the Company during the three year period
following the acquisition.
On January 4, 1994, the Company authorized the issuance of, and thereafter
issued, warrants to purchase shares of its Common Stock as follows:
Jeffrey P. Nelson, 180,000 warrants; Edward C. Levine, 180,000 warrants;
William J. Bosso, 25,000 warrants; and Jarema S. Rakoczy, 40,000 warrants;
for services rendered or to be rendered and extended the date for exercise
of 60,000 warrants issued to Edward C. Levine from January 1994 until
January 1997.
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following documents are filed as part of this report.
(1) Exhibits
3(i).1 Certificate of Incorporation of Registrant filed
July 3, 1969 (incorporated by reference to Exhibit
3.1(a) to the Annual Report on Form 10-K for the
Year ended June 30, 1985).
3(i).2 Certificate of Amendment of Certificate of
Incorporation filed March 28, 1973 (incorporated by
reference to Exhibit 3.1(b) to the Annual Report on
Form 10-K for the Year ended June 30, 1985).
3(i).3 Certificate of Ownership and Merger filed June 21,
1974 (incorporated by reference to Exhibit 3.1(c)
to the Annual Report on Form 10-K for the Year
ended June 30, 1985).
3(i).4 Certificate of Change of Agent and location,
designated in the Certificate of Incorporation of
Registrant, filed December 16, 1976 (incorporated
by reference to Exhibit 3.1(d) to the Annual Report
on Form 10-K for the Year ended June 30, 1985).
* 3(i).5 Certificate of Amendment of Certificate of
Incorporation filed December 26, 1985.
* 3(i).6 Certificate of Correction filed to Correct A
Certain Error in the Certificate of Amendment of
Certificate of Incorporation filed March 26, 1986.
* 3(i).7 Certificate of Amendment of Certificate of
Incorporation filed August 18, 1987.
3(i).8 Certificate of Change of Agent and location of
Registrant filed April 9, 1991 (incorporated by
reference to Exhibit 3.1(j) to the Annual Report on
Form 10-K for the Year ended June 30, 1991).
3(i).9 Certificate of Correction filed to Correct Certain
Errors in the Certificate of Amendment of the
Certificate of Incorporation filed June 19, 1992
(incorporated by reference to Exhibit 3.1(l) to the
Annual Report on Form 10-K for the Year ended June
30, 1992).
3(i).10 Certificate of Amendment of Certificate of
Incorporation filed June 7, 1996.
3.(ii).1 By-laws of Registrant (incorporated by reference to
Exhibit 3.2 to the Annual Report on Form 10-K for
the Year ended June 30, 1985).
* 4.1 Certificate of Resolutions Creating Series A Convertible
Preferred Stock filed January 23, 1986.
* 4.2 Certificate of Correction filed to Correct Certain Errors
in the Certificate of Stock Designation filed March 26,
1986.
4.3 Certificate of Resolutions Creating Series E Convertible
Preferred Stock filed June 19, 1992. (incorporated by
reference to Exhibit II to the Current Report on Form 8-K
filed June 26, 1992)
4.4 Certificate of Resolutions Creating Series B Convertible
Preferred Stock filed May 3, 1994 (incorporated by
reference to Exhibit 4 to the Current Report on Form 8-K
filed June 1, 1994)
4.5 Certificate of Amendment No. 1 Filed to Modify the
Certificate of Designation Creating Series B Preferred
Stock filed August 30, 1996.
10.1 Technology Assignment Agreement dated as of December 19,
1983 by and between Biocard Partners and OCG Technology,
Inc. (incorporated by reference to Exhibit 10.1 to the
Annual Report on Form 10-K for the Year ended June 30,
1985).
10.2 License Agreement dated as of December 19, 1983 by and
between Biocard Partners and OCG Technology, Inc.
(incorporated by reference to Exhibit 10.1 to the Annual
Report on Form 10-K for the Year ended June 30, 1985).
10.3 Stock Purchase and Exchange Agreement, dated as of June
12, 1992, between the Registrant and Mooney-Edwards
Enterprises, Inc., D/B/A Medical Information Systems
(incorporated by reference to Exhibit I to the Current
Report on Form 8-K filed June 26, 1992).
10.4 Stock Purchase and Exchange Agreement, dated as of May
16, 1994, between the Registrant and PrimeCare Systems,
Inc. (incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K filed June 1, 1994)
21 Subsidiaries of Registrant. Optronic Labs, Inc., a New
York corporation; Mooney-Edwards Enterprises, Inc., a
Florida corporation; and, PrimeCare Systems, Inc., a
Delaware corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed in the fourth
quarter of fiscal 1996.
* Incorporated by reference to the Form 10-K for the Year
ended June 30, 1987.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCG TECHNOLOGY, INC.
By: /s/ Edward C. Levine
--------------------
Dated: September 25, 1996 Edward C. Levine,
President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
/s/ Edward C. Levine President and Director September 25, 1996
- -------------------- (Principal Executive Officer)
Edward C. Levine
/s/ Jeffrey P. Nelson Secretary and Director September 25, 1996
- ---------------------
Jeffrey P. Nelson
/s/ Jarema S. Rakoczy Vice President and Director September 25, 1996
- ---------------------
Jarema S. Rakoczy
/s/ Erich W. Augustin Executive Vice President and September 25, 1996
- --------------------- Director (Principal Financial
Erich W. Augustin and Accounting Officer)
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors
OCG Technology, Inc. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of OCG Technology,
Inc. and Subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity
for the years ended June 30, 1996 and 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of OCG Technology, Inc. and Subsidiaries as of June 30, 1996, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1996 and 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has experienced recurring losses from operations that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
New York, New York DALESSIO, MILLNER & LEBEN LLP
September 20, 1996 Certified Public Accountants
F-1
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
=========================================================================
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 318,088
Accounts receivable 45,441
Other, primarily due from officer of $29,838 35,606
------------
TOTAL CURRENT ASSETS 399,135
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $261,178 199,603
COVENANT NOT TO COMPETE, net of accumulated
amortization of $200,000 50,000
PROPRIETARY TECHNOLOGY, net of accumulated
amortization of $1,275,000 1,725,000
OTHER ASSETS, primarily due from officer of $25,108 29,233
------------
$ 2,402,971
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 208,299
Due to officer (non-interest bearing) 15,121
Note payable 11,344
------------
TOTAL CURRENT LIABILITIES 234,764
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized;
Series E, $.10 par value, 100,000 shares
issued and outstanding 10,000
Common stock, $.01 par value, 50,000,000 shares
authorized, 23,151,559 shares issued,
23,139,059 outstanding 231,515
Additional paid-in-capital 20,384,287
Deficit (18,381,343)
Unearned compensation (13,752)
------------
2,230,707
Less: Treasury stock, at cost (12,500 shares) (62,500)
------------
TOTAL SHAREHOLDERS' EQUITY 2,168,207
------------
$ 2,402,971
============
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-2
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
===========================================================================
<CAPTION>
Year Ended June 30,
------------------------------
1996 1995
------------- ---------------
S> <C> <C>
REVENUES:
Net sales of third party software
and support services $ 723,964 $ 571,503
Net sales of medical products 6,068 1,144
Fees charged to medical providers 15,974 842
----------- ------------
TOTAL REVENUES 746,006 573,489
COSTS AND EXPENSES:
Cost of sales 328,560 222,205
Marketing, general and administrative 2,152,757 771,613
Depreciation and amortization 732,194 728,420
Interest 1,247 55
---------- -----------
TOTAL COSTS AND EXPENSES 3,214,758 1,722,293
---------- -----------
NET LOSS $(2,468,752) $(1,148,804)
=========== ===========
NET LOSS PER COMMON SHARE $ (.12) $ (.06)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,226,848 19,092,084
=========== ===========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1996 AND 1995
=================================================================================================================================
<CAPTION>
Preferred Stock Common stock
$.10 par $.01 par Additional
---------------- -------------------- Paid-in Treasury Unearned
Shares Amount Shares Amount Capital Deficit Stock Compensation Total
------- ------- ---------- -------- ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 200,000 $ 20,000 18,660,612 $186,606 $18,087,415 $(14,763,787) $(62,500) $(64,687) $ 3,403,047
Issuance of stock for
services - - 2,500 25 756 - - - 781
Issuance of warrants
for services - - - - 17,000 - - - 17,000
Sale of stock and
conversion of warrants - - 1,847,647 18,476 316,524 - - - 335,000
Amortization of
unearned compensation - - - - - - - 26,248 26,248
Net loss - - - - - (1,148,804) - - (1,148,804)
------- ------ ---------- ------- ---------- ------------ ------- ------- ------------
Balance, June 30, 1995 200,000 20,000 20,510,759 205,107 18,421,695 (15,912,591) (62,500) (38,439) 2,633,272
Issuance of warrants
for services - - - - 1,214,000 - - - 1,214,000
Sale of stock and
conversion of warrants - - 1,640,800 16,408 748,592 - - - 765,000
Conversion of Series B
preferred stock (100,000) (10,000) 1,000,000 10,000 - - - - -
Amortization of
unearned compensation - - - - - - - 24,687 24,687
Net loss - - - - - (2,468,752) - - (2,468,752)
-------- -------- ---------- -------- ----------- ------------ --------- -------- -----------
Balance, June 30, 1996 100,000 $ 10,000 23,151,559 $231,515 $20,384,287 $(18,381,343) $(62,500) $(13,752) $ 2,168,207
======== ======== ========== ======== =========== ============ ========= ======== ===========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================================================
<CAPTION>
Year Ended June 30,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,468,752) $(1,148,804)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 732,194 728,420
Issuance of stock and warrants
for services 1,214,000 17,781
Amortization of unearned compensation 24,687 26,248
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (11,843) 2,436
Other assets (11,253) (22,646)
(Decrease) increase in:
Accounts payable and accrued expenses 60,061 72,094
---------- -----------
Total adjustments 2,007,846 824,333
---------- -----------
Net cash (used in) operating activities (460,906) (324,471)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from related party 50,000 -
Loans paid to related party (50,000) -
Proceeds from issuance of common stock 765,000 335,000
---------- -----------
Net cash provided by financing activities 765,000 335,000
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (37,651) (63,751)
---------- -----------
Net cash (used in) investing activities (37,651) (63,751)
---------- -----------
NET INCREASE (DECREASE) IN CASH 266,443 (53,222)
CASH, BEGINNING OF YEAR 51,645 104,867
---------- -----------
CASH, END OF YEAR $ 318,088 $ 51,645
========== ===========
Supplemental disclosures:
No cash was paid in 1996 and 1995 for interest and taxes.
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Business
--------
OCG Technology, Inc. and its subsidiaries (the "Company") are engaged in
the development, marketing, and distribution of software and diagnostic
cardiological products as follows:
PrimeCare Systems, Inc. ("PSI") was acquired in May 1994, and
has an exclusive license and assignment to use, market, sell,
manufacture, and distribute the PrimeCare Patient Management
Systems which is a PC-based software product providing among
other things, a standardized mechanism for collecting and
documenting patient data for physicians at a minimal cost and
time.
OCG Technology, Inc. ("OCG") is engaged in the development and
marketing, (by sale or lease) of a heart diagnostic instrument,
known as the cardiointegraph ("CIG") which evaluates and
interprets the electrical impulses of the human heart.
Mooney Edwards Enterprises, Inc. ("Mooney Edwards"), is engaged
in the development and distribution of third party as well as
proprietary turnkey computer software and support services for
the medical community for the processing of bills (including
insurance claims), bookkeeping, and office management.
The Company principally markets the PrimeCare Patient Management
System and CIG as services on a fee for use basis, which
management believes is a more effective means of generating
revenues as compared with the outright sale or license of the
Company's products.
Basis of presentation
---------------------
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company has experienced recurring losses from
operations that raises substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Management believes that the PrimeCare Patient Management System
will be attractive to physicians, managed care providers and
medical institutions. The Company entered into contracts with
various healthcare providers for use of the PrimeCare Patient
Management System. Management believes that the entry into the
target customer base of health care providers and medical
institutions provided by the PrimeCare Patient Management System
will also aid in the marketing of other products.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
------------------------------------------------------------
Basis of presentation (cont'd)
------------------------------
Management intends to sell debt and/or equity in order to continue the
operations of the business. There can be no assurance that the Company
will be able to raise sufficient capital to continue its operations and/or
generate adequate cash flow from operations.
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.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated.
Proprietary Technology
----------------------
The Proprietary Technology which arose from the acquisition of PSI is
being amortized over its estimated useful life of sixty (60) months on a
straight-line basis. The Proprietary Technology has been valued pursuant
to an independent valuation which is premised on estimated future
discounted cash flows. Due to inherent technical changes in technology
and the health care industry, management on an annual basis assesses the
estimate of future cash flows in relation to the valuation, and if
estimated future cash flows are insufficient to recover the Proprietary
Technology over its remaining useful life, an impairment loss will be
recognized.
Covenant not to compete
-----------------------
The covenant not to compete arose from the acquisition of Mooney Edwards
and is being amortized on a straight-line basis over the related contract
term of five (5) years.
Property, equipment, depreciation and amortization
--------------------------------------------------
Property and equipment are stated at cost. Machinery and equipment and
equipment held under fee for service arrangement are being depreciated on
a straight-line basis over its estimated useful life of five (5) years.
The leasehold improvements are being amortized over the shorter of the
life of the lease or the related life of the asset.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
- --------------------------------------------------------------
Revenue recognition
-------------------
The Company recognizes sales of computer software systems when delivery
has been made and substantially all of the services to be provided by the
Company have been completed.
The Company recognizes sales of the CIG when shipment is made against a
valid purchase order.
The Company recognizes revenues from fees charged to medical providers as
the services are provided.
Loss per common share
---------------------
Loss per share is based on the loss for each year divided by the weighted
average number of common shares outstanding during the year. The
inclusion of the effect of outstanding warrants and preferred stock would
be anti-dilutive.
Statements of cash flows
------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. There were no
cash equivalents at June 30, 1996 and 1995.
NOTE 2. PROPERTY AND EQUIPMENT
-------------------------------
Equipment held under fee for service arrangements $351,898
Machinery and equipment 75,070
Leasehold improvements 33,813
--------
460,781
Less: accumulated depreciation and amortization 261,178
--------
$199,603
========
Depreciation and amortization of property and equipment was $80,780 and
$78,420 for the years ended June 30, 1996 and 1995.
NOTE 3. ADVANCES TO OFFICERS
-----------------------------
At June 30, 1996, certain officers of Mooney Edwards have non-interest
bearing loans from the Company in the amount of $54,946 of which $29,838
has been classified as current, the balance $25,108 is included in other
assets.
NOTE 4. NOTE PAYABLE
--------------------
Note payable is unsecured, due on demand, and bears interest at 2% above
the prime rate per annum.
F-8
<PAGE>
NOTE 5. SHAREHOLDERS' EQUITY
-----------------------------
A) Preferred stock
---------------
On July 12, 1984, the shareholders of the Company approved the
creation of a class of 1,000,000 shares of preferred stock, and
authorized the Board of Directors to establish and designate the
number of shares and relative rights, preferences and limitations of
such preferred stock.
Series E Preferred Stock
------------------------
In June 1992, the Board of Directors designated 100,000 shares of
Preferred Stock as Series E Preferred Stock. These shares were
issued in conjunction with the acquisition of Mooney Edwards. These
shares: (i) are non-convertible with the right to vote on the same
basis as the holders of the Company's common stock, (ii) may be
redeemed in whole or in part at the option of the Company at a price
of $30 per share plus all accrued and unpaid dividends thereon, and,
(iii) have the right to dividends which are not cumulative and are
limited to a fraction of all cash dividends declared and to be
distributed by OCG to all classes of its shareholders in any fiscal
year, the (A) numerator of which shall be an amount equal to fifty
(50%) percent of the net profits of Mooney Edwards for the prior
fiscal year; and the (B) denominator of which shall be the sum of the
net profits of OCG (including those of Mooney Edwards) for such prior
fiscal year, and no more. No dividends to Series E Preferred
shareholders were due at June 30, 1996.
Series B Preferred Stock
------------------------
In May 1994, the Board of Directors designated 100,000 shares of
Preferred Stock as Series B Preferred Stock. These shares were
issued in conjunction with the Acquisition of PSI. These shares: (i)
were convertible at the option of a minimum of the holders of
two-thirds of the Series B Preferred Stock into ten (10) shares of the
Company's Series B common stock subject to the creation of the Series
B Common Stock by a vote of the Company's shareholders, (ii) had the
right to vote on the same basis as the holders of the Company's
common stock, (iii) had the right to dividends which are not
cumulative and are limited to a fraction of all cash dividends
declared and to be paid by OCG to all classes of its shareholders in
any fiscal year, the numerator of which shall be an amount equal to
fifty (50%) percent of the net profits of PSI for the prior fiscal
year, as defined and the denominator of which shall be the sum of the
consolidated net profits of the Company (including PSI) for such prior
F-9
<PAGE>
NOTE 5. SHAREHOLDERS' EQUITY (cont'd)
--------------------------------------
Series B Preferred Stock (cont'd)
--------------------------------
fiscal year as defined, provided however that the denominator shall
not be less then said net profits of PSI, which dividends shall be
payable on such date as may be established by the Company's Board of
Directors and are non-cumulative, in no event, so long as the Series
B Preferred Stock is outstanding shall any dividend whatsoever be
declared or paid on any other equity security or any redemption made
thereof, unless all unpaid accumulated and accrued dividends on the
Series B Preferred Stock shall have been paid, with the exception of
dividends payable in shares of the Company's common stock, and (iv)
the Series B Preferred shareholders had priority in liquidation to
the extent of any unpaid accumulated and accrued dividends. No
dividends to Series B Preferred shareholders were due at June 30,
1995.
On June 9, 1996, the Company at the request of all the Series B
shareholders amended and modified the Certificate of Designation
creating Series B Preferred Stock, so as to permit the said holders
to convert their Series B shares into the Company's common stock,
rather than into the Company's Series B Common Stock. On June 9,
1996, 100% of the holders converted their 100,000 shares of Series B
Preferred Stock into 1,000,000 shares of the Company's Common Stock.
B) Common Stock
------------
On June 7, 1996 the Company's Certificate of Incorporation was
amended, increasing the number of shares authorized from 25,000,000
to 50,000,000.
In fiscal 1995, the Company issued 2,500 shares of common stock for
services valued at $781 the quoted market price of the stock at the
time of issuance.
In fiscal 1995, the Company issued 130,000 shares of common stock for
$25,000 upon the exercise of 130,000 warrants.
In December 1994, the Company commenced a private placement of up to
1,200,000 shares of its common stock at $.17 per share to foreign
investors. The Company sold 1,117,647 shares for $190,000 in fiscal
1995. These shares were issued pursuant to the exemption provisions
of Regulation S of the Securities Act of 1933.
F-10
<PAGE>
NOTE 5. SHAREHOLDERS' EQUITY (cont'd)
--------------------------------------
In March 1995, the Company commenced a private placement of up to
1,500,000 shares of its common stock at $.20 per share. The Company
sold 600,000 shares for $120,000 in fiscal 1995. These shares were
issued pursuant to the exemption provisions of Regulation S of the
Securities Act of 1933.
In fiscal 1996, the Company sold 1,315,800 shares of common stock in
private placements at prices ranging from $.20 to $.95 per share
receiving net proceeds of $650,000. These shares were issued
pursuant to the exemption provisions of Regulation S of the
Securities Act of 1933.
C) Warrants
--------
At June 30, 1996, 4,396,000 shares of common stock were reserved for
issuance with respect to the following:
Exercise Number of
Expiration Price Common Shares
------------ ----------- -------------
January 1997 $0.45 575,000
June 1997 $0.45-$0.50 380,000
October 1997 $0.30 100,000
November 1997 $0.25 150,000
November 1997 $0.33 1,000,000
April 1998 $0.25 1,671,000
April 1998 $0.40 250,000
November 1998 $1.00 50,000
December 1998 $0.40 50,000
April 1999 $0.40 100,000
April 1999 $1.00-$1.53 70,000
---------
4,396,000
In fiscal 1995, the Company issued warrants to a consultant to
purchase 100,000 shares of common stock at an exercise price of $.30
which expires in October 1997. The quoted market price of the common
stock was in excess of the exercise price of the warrant at the time
of issuance, and accordingly the Company recognized $17,000 of
expense.
F-11
<PAGE>
NOTE 5. SHAREHOLDERS' EQUITY (cont'd)
- --------------------------------------
In April 1995, the Company's Board of Directors approved the issuance
of warrants to acquire 1,671,000 shares of the Company's common stock
at an exercise price of $.25. 1,150,000 of these warrants were to
certain officers of the Company and expire in April 1998. 521,000
expire in April 1997. These warrants were only exercisable upon the
vote of the shareholders of the Company to amend its Certificate of
Incorporation to increase its number of authorized common shares from
25,000,000 to 50,000,000, accordingly, the Company has not reserved
these shares for future issuance. In May 1996, the shareholders
voted and agreed to amend the Certificate of Incorporation. In June
1996, the Company's Certificate of Incorporation was amended and, the
Company recorded approximately $854,000 in expense reflecting the
difference between the quoted market price at the respective
measurement date(s) for these warrants and their exercise price.
Also in April 1995, the Company's Board of Directors took the
following actions: (in these instances the quoted market price of the
Company's common stock was not in excess of the warrant exercise
price at the time of amendment).
* Amended the exercise price of 130,000 warrants which expire
in June 1997 from $1.00 to $.50.
* Amended the exercise price of 350,000 warrants issued to a
relative of an officer and director with original exercise
prices ranging from $1.50-$1.25 to $.45 and extended the
expiration date of these warrants from June 1995 to June
1997.
* Extended the expiration date of 1,225,000 warrants issued
to certain officers and directors from November 1995 to
November 1997.
In fiscal 1996, the Company amended the exercise price and the
expiration on certain warrants to acquire the Company's common stock
issued to an employee and outside consultants. These amendments were
deemed to be a new issuance and the Company recorded an expense of
approximately $91,000 reflecting the excess of the quoted market
price over the exercise price at the date of amendment. The Company
received proceeds of $90,000 upon the exercise of certain of these
warrants totalling 225,000 shares of the Company's common stock.
F-12
<PAGE>
NOTE 5. SHAREHOLDERS' EQUITY (cont'd)
- --------------------------------------
In fiscal 1996, the Company issued warrants to employees and outside
consultants to acquire an aggregate of 570,000 shares of the
Company's common stock with various expiration dates through April
1999 at exercise prices ranging from $.40 to $1.00 per share. These
warrants were only exercisable upon the vote of the shareholders of
the Company to amend its Certificate of Incorporation to increase its
number of authorized common shares from 25,000,000 to 50,000,000. In
May 1996, the shareholders voted and agreed to amend the Certificate
of Incorporation. In June 1996 the Company's Certificate of
Incorporation was amended and, the Company recorded approximately
$269,000 in expense reflecting the difference between the quoted
market price at the respective measurement date(s) for these warrants
and their exercise price.
In fiscal 1996, warrants to acquire 100,000 shares of the Company's
common stock at an exercise price of $.25 per share were exercised
and the Company received proceeds of $25,000.
NOTE 6. COMMITMENTS
--------------------
A) Consulting Agreement
--------------------
In September 1995, PSI entered into a consulting agreement with a
major health care provider (the "Consultant") to provide advice for
changes necessary to assure the medical content of the PrimeCare
Patient Management System is current and accurate and meets the
criteria of currently accepted clinical practice. The Consultant
will also be furnishing and/or updating physician and patient
educational materials, additional diagnostic and follow-up programs
and algorithms, appropriate practice guidelines and suggesting
changes and/or additions to diagnostic and follow-up programs. PSI
has agreed that the compensation of the Consultant will be 15% of the
gross revenues actually received and collected by PSI from users of
the PrimeCare Patient Management System. The Company paid $2,000
under this agreement for the year ended June 30, 1996.
B) Royalty Agreement
-----------------
Pursuant to the terms of a research and development agreement with a
partnership, the Company is obligated to pay royalties at the rate of
7-1/2 percent of sales of the ambulatory heart monitoring unit
through 2002. As additional compensation, the Company pays royalties
of 3 percent of CIG sales until the partnership receives $2,750,000
and thereafter 1 percent of CIG sales until the partnership receives
an additional $2,750,000. There were no payments made under this
agreement in the years ended June 30, 1996 and 1995.
F-13
<PAGE>
NOTE 6. COMMITMENTS (cont'd)
- -----------------------------
C) Employment Agreements
---------------------
(i) In 1992, Mooney Edwards entered into employment agreements
with two (2) officers for a five (5) year period which
provides for compensation to each officer in an amount
equal to, but not to exceed, forty-five (45%) of Mooney
Edwards' Net Operating Income, as defined, and the issuance
of 50,000 shares of the Company's common stock.
(ii) In 1994, PSI entered into employment contract with an
officer for a sixty (60) month period expiring May 1999.
Future minimum salaries are as follows:
June 30,
-------
1997 $65,000
1998 $65,000
1999 $57,400
D) Rental Agreement
----------------
PSI has a non-cancelable operating lease for its offices which
expires in July 1997. Future minimum lease payments under this lease
are as follows:
June 30,
-------
1997 $19,578
1998 $ 1,638
Rent expense for the years ended June 30, 1996 and 1995 was
$36,480 and $35,467, respectively.
NOTE 7. INCOME TAXES
---------------------
At June 30, 1996, the Company had a net operating loss carryforward
of approximately $17,000,000 which will expire at various dates from
1997 through 2011 subject to certain limitations. The net operating
loss carryforward is offset by a 100% valuation allowance due to the
uncertainty as to its realization. The Company is delinquent in the
filing of its corporate income tax returns.
The Company has entered into numerous equity transactions which may
significantly limit the utilization of these operating losses,
pursuant to Internal Revenue Code Section 382. The Company has not
performed a study to determine the effects of Section 382, and
accordingly is unable to determine the annual limitations which may
be imposed pursuant to Section 382.
F-14
<PAGE>
NOTE 8. RELATED PARTY TRANSACTIONS
- -----------------------------------
A) The Company's officers served without compensation for the years
ended June 30, 1996 and 1995.
B) OCG utilized the physical facilities of a related party at no charge
to the Company in fiscal 1996 and 1995.
C) The Company received loans of $50,000 during the year from a related
party which were non-interest bearing and due on demand. As of June
30, 1996 all of these loans were paid.
D) Mooney Edwards leases its office space on a month to month basis,
from a partnership in which the officers of Mooney Edwards have an
ownership interest. Rent expense under this lease for the years
ended June 30, 1996 and 1995 was $17,725 in each year.
NOTE 9. ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED
---------------------------------------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets to be Disposed Of (FASB 121). FASB 121 is effective for
fiscal years beginning after December 15, 1995. This statement
requires that long lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Although presently the Company does not expect this
pronouncement to have a material impact on the financial statements,
events or circumstances may change (Note 1).
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (FASB
123). The Company is required to adopt the provisions of this
statement for its fiscal year ended June 30, 1997. This statement
encourages all entities to adopt a fair value based method of
accounting for employees stock options or similar equity instruments.
However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). Entities electing to remain with the accounting
in APB 25 must make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting defined in
this statement had been applied. It is currently anticipated that
the Company will continue to measure compensation costs in accordance
with APB 25 and provide the disclosures required by FASB 123.
F-15
<PAGE>
NOTE 10. SUBSEQUENT EVENTS
- --------------------------
A) In July 1996, the Company's Board of Directors approved the issuance
of 1,220,000 warrants to acquire 1,220,000 shares of the Company's
common stock at an exercise price of $1.09 which expire July 25,
1999. 560,000 of these warrants were issued to certain of its
Officers and Directors. (The quoted market price of the Company's
common stock was not in excess of the warrant exercise price on the
date of issuance.)
B) On July 30, 1996 the Company entered into an agreement with a
consultant whereby the consultant will demonstrate and promote the
PrimeCare Patient Management System to parties designated by the
Company. The consultant shall receive 60,000 warrants to acquire
60,000 shares of the Company's common stock at an exercise price of
$1.00 which expire July 1, 2000. 5,000 of these warrants shall be
issued upon execution of the agreement and 5,000 warrants shall be
issued on the 1st day of October, January, April and July while the
agreement is in effect. (The quoted market price of the Company's
common stock was not in excess of the warrant exercise price on the
date of issuance.)
F-16
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OCG TECHNOLOGY, INC.
OCG TECHNOLOGY, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: By the unanimous consent of the directors of OCG
TECHNOLOGY, INC., a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and seeking
the approval of the majority of the shareholders of said
corporation to adopt such amendment to the Certificate of
Incorporation. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the Corporation elects to amend its Certificate
of Incorporation by changing Paragraph FOURTH thereof to read in
its entirety as follows:
"FOURTH: (a) The aggregate number of shares
which the Corporation shall have authority to
issue shall be fifty-one million (51,000,000)
shares, divided into fifty million
(50,000,000) shares of Common Stock, par value
one cent ($.01) per share (hereinafter, the
"Common Stock") and one million (1,000,000)
shares of Preferred Stock, par value ten cents
($.10) per share (hereinafter, the "Preferred
Stock").
(b) There may be more than one
series of either or both of the Preferred
Stock and/or Common Stock; the Board of
Directors is authorized to determine and alter
the rights, preferences, privileges and
restrictions granted to, or imposed upon, a
wholly unissued class of Preferred Stock
and/or a wholly unissued class of Common
Stock."
SECOND: That thereafter, pursuant to resolution of its Board
of Directors, a meeting of the stockholders of the Corporation was
duly called and held, upon notice duly given in accordance with
Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Sections 222 and 242 of the General
Corporation Law of the State of Delaware.
FORTH: That the capital of the Corporation shall be
increased under or by reason of said amendment.
IN WITNESS WHEREOF, said OCG TECHNOLOGY, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be
signed by Edward C. Levine, its President, and attested to by
Jeffrey P. Nelson, its Secretary, this 2nd day of May, 1996.
OCG TECHNOLOGY, INC.
By: /s/ Edward C. Levine
----------------------
Edward C. Levine,
President
ATTEST:
By: /s/ Edward C. Levine
---------------------
Jeffrey P. Nelson,
Secretary
(CORPORATE SEAL)
CERTIFICATE OF AMENDMENT No.1 FILED TO MODIFY
THE CERTIFICATE OF DESIGNATION CREATING SERIES
B PREFERRED STOCK OF OCG TECHNOLOGY, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON MAY 19, 1994
OCG TECHNOLOGY, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
1. The name of the corporation is OCG Technology, Inc.
2. That a Certificate of Designation was filed by the
Secretary of State of Delaware on May 19, 1994 and that said
Certificate requires modification and amendment as permitted by
subsection (F) of Section 103 of the General Corporation Law of the
State of Delaware.
3. The modifications and amendments of said Certificate to be
made are located in Sections 4, 5 and 6 to substitute the issuance
of the Common Stock, par value $.01 per share instead of Series B
Common Stock, par value $.01 per share upon any conversion of the
Corporation's Series B Preferred Stock, par value $.10 per share.
4. To accomplish the foregoing correction, Sections
4, 5 and 6 of the Certificate of Stock Designation are hereby
amended to read as follows:
"4.Conversion.
----------
(a) General. Subject to any conditions herein
contained, not less than all of the shares of the Series B Preferred
Stock shall be converted at any time at the option of not less than
all of the holders thereof into fully paid and nonassessable shares
of Common Stock, par value $.01 per share, of the Corporation upon
surrender to the Corporation or its designee of all of the
certificates representing the shares to be so converted, together
with a written notice of election to convert, and, upon receipt by
the Corporation or its designee of such notice and of such
surrendered certificates with any appropriate endorsement thereon
(as may be prescribed by the Board of Directors), each such holder
shall be entitled to receive a certificate or certificates
representing the shares of Common Stock into which such shares of
Series B Preferred Stock are convertible, and each such holder shall
be deemed to be a holder of record of such shares of Common Stock as
of the time of such receipt by the Corporation or its designee.
(b) Basis for Conversion. The basis for such
conversion shall be ten shares of Common Stock for each share of
Series B Preferred Stock which is converted. In connection with
effecting any transfer to the Corporation for cancellation of any
Series B Preferred Stock upon conversion of the same into Common
Stock, the Corporation may, but shall not be obliged to, issue a
certificate or certificates for fractions of a share of Common
Stock; in lieu thereof, the Corporation may pay cash equal to the
fair value of such share of Common Stock as determined by the Board
of Directors of the Corporation. Except as may otherwise be
provided by law, shares of Series B Preferred Stock which have been
converted shall be retired and restored to the status of authorized
but unissued shares.
(c) Reservation of Common Stock for Issuance Upon
Conversion. Except as such requirement may otherwise be dispensed
with by law, the Board of Directors of the Corporation shall at all
times reserve a sufficient number of authorized but unissued shares
of Common Stock, which shall be issued only in satisfaction of the
conversion rights and privileges of the outstanding shares of Series
B Preferred Stock, as aforesaid.
(d) Reorganization, Reclassification Consolidation,
Merger and Sale of Assets. If any capital reorganization or
reclassification of the capital stock of the Corporation, or any
consolidation or merger of the Corporation with another corporation,
or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of shares
of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby
each holder of Series B Preferred Stock shall thereafter have the
right to receive, upon the basis and upon the terms and conditions
specified in this paragraph and in lieu of shares of Common Stock of
the Corporation immediately theretofore receivable upon the
conversion of a share of Series B Preferred Stock, such share or
shares of the stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
stock immediately theretofore receivable upon conversion of a share
of Series B Preferred Stock, had such reorganization,
reclassification, consolidation, merger or sale not taken place, and
in any such case appropriate provision shall be made with respect to
the rights and interest of the holders of shares of Series B
Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Conversion
Rate and of the number of shares receivable upon the conversion of
Series B Preferred Stock) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion of a share or Series B
Preferred Stock. The Corporation will not effect any such
consolidation, merger or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation
or merger (if other than the Corporation), or the corporation
purchasing such assets, shall, by written instrument in form and
substance satisfactory to holders of a majority of the outstanding
Series B Preferred Stock (who shall not unreasonably withhold or
delay their approval) mailed or delivered to the addresses of such
holders appearing on the books of the Corporation, assume the
obligation to deliver to such holders such share or shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive. Upon each such
adjustment of the basis for conversion, the Corporation shall give
written notice thereof by first class mail, postage prepaid,
addressed to the holders of shares of Series B Preferred Stock at
the addresses of such holders as shown on the books of the
Corporation. The notice shall state the conversion rate resulting
from such adjustment and set forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) Notice. In case at any time:
(i) the Corporation shall declare any cash dividend
upon its shares of Common Stock payable at a rate in
excess of the rate of the last cash dividend
theretofore paid,
(ii) the Corporation shall declare any dividend upon
its Common Stock payable in stock or authorize any
other distribution (other than regular cash dividends)
to the holders of its Common Stock,
(iii) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any
additional shares of stock or any class or other
rights,
(iv) there shall be any capital reorganization, or
a reclassification of the capital stock of the
Corporation or consolidation or merger of the
Corporation with, or sale of all or substantially all
of its assets to, another corporation, or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation,
then, in any one or more of said cases, the Corporation shall give,
by first class mail, postage prepaid, addressed to the holders of
Series B Preferred Stock at the addresses of such holders as shown
on the books of the Corporation, (A) at least 20 days' prior written
notice of the date on which the books of the Corporation shall close
and a record date shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (B) in the case of
any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 20 days'
prior written notice of the date when the same shall take place.
Each such notice shall be in accordance with the foregoing clause
(A) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders
of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date
on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. The
failure to give any such notice shall not invalidate any such corpo-
rate action.
(f) Further Adjustments to Basis for Conversion. If
any event occurs as to which, in the opinion of the Board of
Directors, the other provisions of this Section 4 are not strictly
applicable or, if strictly applicable, would not fairly protect the
conversion rights of the holders of Series B Preferred Stock in
accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in
the application of such provisions, in accordance with such
essential intent and principles, so as to protect such conversion
rights as aforesaid, but in no event shall any such adjustment have
the effect of reducing the basis for conversion as otherwise
determined except in the event of a combination of shares.
(g) Dissolution, Liquidation and Winding Up. In the
event of a judicial or non-judicial dissolution, liquidation or
winding-up of the Corporation, the conversion rights and privileges
of the holders of Series B Preferred Stock shall terminate on a
date, as fixed by the Board of Directors of the Corporation, not
more than sixty (60) days and not less than ten (10) days before the
date of such dissolution.
(h) References to Common Stock. The reference to
Common Stock in this Section shall be deemed to include shares of
any class into which said Common Stock may be changed.
5. Common Stock. The term "Common Stock" shall mean the
class of Common Stock, par value $.01 per share, currently
authorized by the Corporation's Certificate of Incorporation.
6. Voting Rights.
The holders of shares of the Series B Preferred Stock
shall have the right to vote for any purpose on the same basis as
the holders of the Corporation's Common Stock."
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be signed by Edward C. Levine, its President, and
attested to by Jeffrey P. Nelson, its Secretary, this 30th day of
July 1996.
/s/Edward C. Levine
---------------------------
Edward C. Levine, President
Attest:
/s/Jeffrey P. Nelson
----------------------------
Jeffrey P. Nelson, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INDEPENDENT AUDITOR'S REPORT OF DALESSIO, MILLNER & LEBEN LLP, DATED
SEPTEMBER 20, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 318,088
<SECURITIES> 0
<RECEIVABLES> 45,441
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 399,135
<PP&E> 199,603
<DEPRECIATION> 261,178
<TOTAL-ASSETS> 2,402,971
<CURRENT-LIABILITIES> 234,764
<BONDS> 0
0
10,000
<COMMON> 231,515
<OTHER-SE> 1,926,692
<TOTAL-LIABILITY-AND-EQUITY> 2,402,971
<SALES> 746,006
<TOTAL-REVENUES> 746,006
<CGS> 328,560
<TOTAL-COSTS> 3,214,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,247
<INCOME-PRETAX> (2,468,752)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,468,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,468,752)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
