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 [No Fee Required]
For the Fiscal Year ended June 30, 1997
[ ] 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
------------
OCG TECHNOLOGY, INC.
----------------------------------------------
(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
---------------------------------------- --------
(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
--------------------------------------
(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 30, 1997 was $19,535,597. As of September 30, 1997 the Registrant
had 24,515,259 shares of Common Stock outstanding.
The Issuer's revenues for its most recent fiscal year: $842,815
Documents Incorporated by Reference: None
<PAGE>
Part I
Item 1. Description of Business
-----------------------
General.
- --------
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 (see Item 5, page 7). PSI owns all right, title and interest in and to
the PrimeCare(TM) System. The System comprises a patient-centered integrated
medical interview, encounter documentation, patient education and physician
reference materials, 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; promotes 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 reference materials.
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 has completed development of
the Windows 95/NT version of the PrimeCare(TM) System and has also completed
an interface which enables the PrimeCare(TM) System to communicate with other
systems used in medical facilities. This provides a method for these other
systems to transfer information to the PrimeCare(TM) System, such as patient
demographics and appointment scheduling. The Company intends to continue to
expand the interface capabilities to enable the PrimeCare(TM) System to
transfer information (such as billing information including E&M codes, ICD9
codes and CPT codes) to these other systems. The Company has ceased supporting
its DOS version of the PrimeCare(TM) System.
Medical content. 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.
Marketing. 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. One such benefit is the elimination of
the need to dictate, transcribe and then review the transcription of the
entire patient record. Transcribing costs range between $4 and $7 per page.
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.
The Company has commenced marketing the Windows 95/NT version of the
PrimeCare(TM) System. The Company currently has arrangements with dealers to
sell the PrimeCare(TM) System and continues to enlarge its network of
independent dealers. A program has been commenced to recruit distributors who
currently sell, install and service medical office and billing systems to
medical facilities, to market the PrimeCare(TM) System. MIS (see "Medical
Information Systems" below) is the first of such dealer to be recruited and
has licensed and installed the Windows 95/NT version of the PrimeCare(TM)
System in medical facilities on a pay per use basis. However, no assurances
can be given that a significant number of the physician population will
contract for and use the PrimeCare(TM) System.
Competition. The Company has not identified any competitive patient
------------
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
----------
copyrights.
Medical Information Systems
- ---------------------------
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. As stated
above MIS is now also marketing the PrimeCare(TM) System to its current
customers and other medical facilities.
Cardiointegraph
- ---------------
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 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 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 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
- ---------------------
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
- -----------------
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 1997 and 1996.
Employees
- ---------
The Company employs 4 non-salaried officers, all of whom are full time; its
subsidiary, MIS employs 9 salaried employees including officers, all of whom
are full time; and its subsidiary, PSI employs 12 salaried employees including
officers, 8 of whom are full time and 4 part time.
Item 2. Properties
----------
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 1997 and 1996.
MIS leases office space in Pensacola, Florida from Mainstreet, Ltd. Rental
payments for the year ended June 30, 1997 were $17,853. 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, 1998.
PSI leases approximately 2300 square feet of office space in Newport News, VA.
The lease expires on July 31, 1999 and bears an annual rental of $24,993.
Item 3. Legal Proceedings
-----------------
NONE
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
NONE
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
-----------------------------------------------------------------
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, 1996 High Low
- ------------------------------- -------- ------
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
Fiscal Year Ended June 30, 1997 High Low
- ------------------------------- -------- ------
1st Quarter 1-25/32 31/32
2nd Quarter 1-27/32 13/16
3rd Quarter 1-1/8 27/32
4th Quarter 1-1/16 11/16
As of June 30, 1997 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 30, 1997 was 25/32.
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
---------------------------------------------------------
Fiscal 1997 Compared to Fiscal 1996
Results of Operations
- ---------------------
Total revenues increased to $ 842,815 for the year ended June 30, 1997 from
$746,006 for 1996. Cost of sales increased $77,132. 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 decreased $979,849 for the
year ended June 30, 1997 as compared to 1996 due primarily to the difference
in non-cash expenses related to the issuance of warrants to employees and
outside consultants.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997 the Company had a current ratio of 2.01 to 1 compared to 1.70
to 1 as of June 30, 1996. 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, 1997 was $1,481,963 most of
the loss resulted from non-cash charges of $1,136,767, which accounted for 76%
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, accounts receivable and notes receivable were $379,459 at June 30,
1997. 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, 1997, the Company received $623,205 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. PSI owns all right, title and interest in and to the PrimeCare(TM)
Patient Management System. The System comprises a patient-centered integrated
medical interview, encounter documentation, patient education and physician
reference materials, 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
completed development of the Windows 95/NT version of the PrimeCare(TM) System
and has also completed an interface which enables the PrimeCare(TM) System to
communicate with other systems used in medical facilities. This provides a
method for these other systems to transfer information to the PrimeCare(TM)
System, such as patient demographics and appointment scheduling. The Company
intends to continue to expand the interface capabilities to enable the
PrimeCare(TM) System to transfer information (such as billing information
including E&M codes, ICD9 codes and CPT codes) to these other systems. The
Company has ceased supporting its DOS version of the PrimeCare(TM) System.
The medical content of the System is also 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
andenhancing the medical content of the PrimeCare(TM) System.
The Company markets 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. 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 Company has commenced marketing the Windows 95/NT version of the
PrimeCare(TM) System. The Company currently has arrangements with dealers to
sell the PrimeCare(TM) System and continues to enlarge its network of
independent dealers. A program has been commenced to recruit distributors who
currently sell, install and service medical office and billing systems to
medical facilities, to market the PrimeCare(TM) System. MIS is the first of
such dealer to be recruited and has licensed and installed the Windows 95/NT
version of the PrimeCare(TM) System in medical facilities on a pay per use
basis. However, no assurances can be given that a significant number of 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. During this fiscal
year, the Company has not received 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 Windows 95/NT version of the PrimeCare(TM)
System 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 1996 Compared to Fiscal 1995
Results of Operations
- ---------------------
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.
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, 1997 F-2
Consolidated Statements of Operations -
Years ended June 30, 1997 and 1996 F-3
Consolidated Statements of Changes in Shareholders'
Equity - Years ended June 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows -
Years ended June 30, 1997 and 1996 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, 1997 and 1996.
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 70 President and Director
Jarema S. Rakoczy 55 Vice President and Director
Jeffrey P. Nelson 53 Secretary and Director
Erich W. Augustin 62 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 December 1994 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
$100,000.
Summary Compensation Table (Fiscal 1997)
----------------------------------------
(a) (b) (c)
Long-term Compensation Awards
Fiscal Year EndedSecurities Underlying
Name & Principal Position June 30, Options/SARs
- ------------------------- ----------- -----------------------------
Edward C. Levine, 1997 350,000
President and Chief 1996 -0-
Executive Officer 1995 250,000
<TABLE>
Option Grants in Last Fiscal Year
---------------------------------
<CAPTION>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted Fiscal Year ($/Share) Expiration Date
- ---------------- ------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Edward C. Levine 150,000 12.43% $1.00 July 25, 1999
200,000 16.57% $1.09 January 14, 2000
</TABLE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table sets forth certain information regarding the exercise of
stock options during the fiscal year ended June 30, 1997 and the fiscal year
ended value of unexercised options for the Company's named executive officers.
<CAPTION> Value of Unexercised
Shares Value Number of Unexercised In-the-money Options at
Acquired on Realized Options at Fiscal Year-End Fiscal Year End (1)
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
-------------- ------------ -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
E. C. Levine -0- $ -0- 750,000 / 0 $188,000 / 0
J. S. Rakoczy 40,000 $19,200 310,000 / 0 $117,000 / 0
J. P. Nelson 180,000 $86,400 700,000 / 0 $205,000 / 0
E. W. Augustin 20,000 $ 8,600 475,000 / 0 $110,500 / 0
<FN>
____________________
Notes: (1) Calculated based on the excess of the closing market price of
the Company's common stock as reported on the NASDAQ Stock market on June 30,
1997 ($.75) over the option exercise price.
</FN>
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth, as of September 30, 1997 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.
Name and Address of Amount & Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
- ------ ------------------- -------------------- --------
Common Edward C. Levine 538,826 - direct 2.20%
450 W. 31st St
New York, NY 10001
Common Jarema S. Rakoczy 109,600 - direct .45%
450 W. 31st St
New York, NY 10001
Common Jeffrey P. Nelson 178,000 - direct .73%
450 W. 31st St
New York, NY 10001
Common Erich W. Augustin 6,000 - direct .02%
450 West 31st Street
New York, NY 10001
Common All directors and 832,426 - direct 3.45%
officers as a group
(4 Persons)
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
On July 25, 1996 the Company authorized the issuance of, and thereafter
issued, warrants to purchase shares of its Common Stock as follows: Edward C.
Levine 200,000 warrants; Erich W. Augustin 150,000 warrants; Jeffrey P. Nelson
150,000 warrants; and Jarema S. Rakoczy 60,000 warrants; all at $1.09 per
share.
On January 15, 1997 the Company authorized the issuance of, and thereafter
issued, warrants to purchase shares of its Common Stock as follows: Edward C.
Levine 150,000 warrants; Erich W. Augustin 100,000 warrants; Jeffrey P. Nelson
100,000 warrants; all at $1.00 per share.
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
1997.
* Incorporated by reference to the Form 10-KSB for the Year ended June 30,
1987.
** Incorporated by reference to the Form 10-KSB for the Year ended June 30,
1996.
<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: October 10, 1997 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 October 10, 1997
- --------------------
Edward C. Levine (Principal Executive Officer)
/s/ Jeffrey P. Nelson Secretary and Director October 10, 1997
- ---------------------
Jeffrey P. Nelson
/s/ Jarema S. Rakoczy Vice President and Director October 10, 1997
- ---------------------
Jarema S. Rakoczy
/s/ Erich W. Augustin Executive Vice President and October 10, 1997
- ---------------------
Erich W. Augustin Director (Principal Financial
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, 1997, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for
the years ended June 30, 1997 and 1996. 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, 1997, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1997 and 1996, 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.
/s/Dalessio, Millner & Leben LLP
-----------------------------
New York, New York DALESSIO, MILLNER & LEBEN LLP
October 8, 1997 Certified Public Accountants
SM-O5128
F-1
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 167,996
Accounts receivable 87,963
Notes receivable - related parties 123,500
Other 8,825
-------------
TOTAL CURRENT ASSETS 388,284
-------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $353,122 194,835
PROPRIETARY TECHNOLOGY, net of accumulated
amortization of $1,879,863 1,314,647
OTHER ASSETS, primarily due from officers of $112,946 117,139
-------------
$ 2,014,905
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 166,944
Due to officer (non-interest bearing) 15,121
Note payable - related party 11,344
-------------
TOTAL CURRENT LIABILITIES 193,409
-------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized;
Series E Preferred Stock, $.10 par value, 100,000 shares
issued and outstanding 10,000
Common stock, $.01 par value, 50,000,000 shares
authorized, 24,515,259 shares issued,
24,502,759 outstanding 245,152
Additional paid-in-capital 21,521,150
Deficit (19,863,306)
Subscription receivable (29,000)
-------------
1,883,996
Less: Treasury stock, at cost (12,500 shares) (62,500)
-------------
TOTAL SHAREHOLDERS' EQUITY 1,821,496
-------------
$ 2,014,905
=============
See Accompanying Notes to Consolidated Financial Statements
F-2
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
---------------------
1997 1996
REVENUES:
Net sales of third party software
and support services $ 793,549 $ 723,964
Net sales of medical products 3,861 6,068
Fees charged to medical providers 45,405 15,974
------------ ------------
TOTAL REVENUES 842,815 746,006
COSTS AND EXPENSES:
Cost of sales 405,692 328,560
Marketing, general and administrative 1,172,908 2,152,757
Depreciation and amortization 748,220 732,194
Interest - net (2,042) 1,247
------------ ------------
TOTAL COSTS AND EXPENSES 2,324,778 3,214,758
------------ ------------
NET LOSS $ (1,481,963) $ (2,468,752)
============ ============
NET LOSS PER COMMON SHARE $ (.06) $ (.12)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,716,575 21,226,848
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1997 AND 1996
<CAPTION>
Preferred Stock Common stock Additional
$.10 par $.01 par Paid-in Subscription Treasury Unearned
Shares Amount Shares Amount Capital Deficit Receivable Stock Compensation Total
<S>
Balance, <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 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
Issuance of
stock for
services - - 38,000 380 35,745 - - - - 36,125
Issuance of
warrants
for services - - - - 338,670 - - - - 338,670
Sale of stock
and conversion
of warrants - - 1,325,700 13,257 762,448 - (29,000) - - 746,705
Amortization of
unearned
compensation - - - - - - - - 13,752 13,752
Net loss - - - - - (1,481,963) - - - (1,481,963)
------ ----- ---------- -------- ----------- ------------ ------- ------- ------ -----------
Balance,
June 30, 1997 100,000 $10,000 24,515,259 $245,152 $21,521,150 $(19,863,306) $(29,000) $(62,500) $ - $ 1,821,496
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,
1997 1996
<S> ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net loss $ (1,481,963) $ (2,468,752)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 748,220 732,194
Issuance of stock and warrants for services 374,795 1,214,000
Amortization of unearned compensation 13,752 24,687
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (42,522) (11,843)
Other assets (62,538) (11,253)
(Decrease) increase in:
Accounts payable and accrued expenses (41,355) 60,061
------------- -------------
Total Adjustments 990,352 2,007,846
------------- -------------
Net cash (used in) operating activities (491,611) (460,906)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from related party - 50,000
Loans paid to related party - (50,000)
Proceeds from issuances of common stock 623,205 765,000
------------- -------------
Net cash provided by financing activities 623,205 765,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (87,176) (37,651)
Capitalized software development costs (194,510) -
------------- -------------
Net cash (used in) investing activities (281,686) (37,651)
------------- -------------
NET (DECREASE) INCREASE IN CASH (150,092) 266,443
CASH, BEGINNING OF YEAR 318,088 51,645
------------- -------------
CASH, END OF YEAR $ 167,996 $ 318,088
============= =============
Supplemental disclosures:
No cash was paid in 1997 and 1996 for interest and income taxes.
See Accompanying Notes to Consolidated Financial Statements
F-5
</TABLE>
<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. PSI owns, markets,
sells, manufactures, and distributes the PrimeCare Patient Management System
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, 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.
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 its other products.
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.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
- ------------------------------------------------------------
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.
In fiscal 1997, the Company capitalized $194,510 related to the development of
a Windows 95 version of the system.
Property, Equipment, Depreciation and Amortization
- --------------------------------------------------
Property and equipment are stated at cost. Machinery and equipment and
equipment held under fee for service arrangements are being depreciated on a
straight-line basis over their estimated useful life of five (5) years.
Leasehold improvements are being amortized over the shorter of the life of the
lease or the related life of the asset.
Asset Impairment
- ----------------
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,". SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS No.
121 also addresses the accounting for long-lived assets that are expected to
be disposed of. There was no effect on the financial statements from the
adoption of SFAS No. 121.
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.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
- ------------------------------------------------------------
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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per
share (EPS), replacing the presentation of currently required primary EPS with
a presentation of Basic EPS, for entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of operations. Under this new standard, Basic EPS
is computed based on the weighted average shares outstanding and excludes any
potential dilution; Diluted EPS reflects potential dilution from the exercise
or conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS, SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of
the adoption of this statement to be material to previously reported EPS
amounts.
Stock Based Compensation
- ------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
" Accounting for Stock Issued to Employees" (APB25) and related
Interpretations in accounting for options and warrants issued to employees.
As a result, compensation is recorded for the excess of the fair market value
of the stock on the date of the grant, over the exercise price of the
options/warrant.
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, 1997 and 1996.
NOTE 2. PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following:
Equipment held under fee for service arrangements $ 351,898
Machinery and equipment 162,246
Leasehold improvements 33,813
----------
547,957
Less: accumulated depreciation and amortization (353,122)
----------
$ 194,835
==========
Depreciation and amortization of property and equipment was $91,945 and
$80,780 for the years ended June 30, 1997 and 1996, respectively.
F-8
<PAGE>
NOTE 3. ADVANCES TO OFFICERS
- -----------------------------
At June 30, 1997, certain officers of Mooney Edwards have non-interest bearing
loans from the Company in the amount of $112,946 which is included in other
assets.
NOTE 4. NOTES RECEIVABLE
- ------------------------
Demand notes receivable of $82,000 were issued by two Officers/Directors of
the Company in connection with their January 1997 exercise of warrants for the
purchase of common stock. These demand notes receivable are collateralized by
common stock of the Company owned by these individuals and bear interest at
the prime rate. As of October 8, 1997, only one note for $29,000 remains
outstanding.
An additional demand note for $90,500 was issued to a relative of an Officer
and Director of the Company in connection with the exercise of warrants for
the purchase of common stock. This note receivable has been fully paid as of
October 8, 1997.
NOTE 5. NOTE PAYABLE - RELATED PARTY
- ------------------------------------
Note payable is to a relative of an Officer and Director of the Company, is
unsecured, due on demand, and bears interest at 2% above the prime rate per
annum.
NOTE 6. SHAREHOLDERS' EQUITY
- -----------------------------
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, 1997.
F-9
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
- -------------------------------------
Series B Preferred Stock (cont'd)
- ---------------------------------
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 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.
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.
Common Stock
- ------------
On June 7, 1996, the Company's Certificate of Incorporation was amended, increas
ing the number of shares authorized from 25,000,000 to 50,000,000.
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.
In fiscal 1997, the Company sold 68,400 shares of the Company's common stock
for $0.95 per share, the gross proceeds of which were $65,000.
In fiscal 1997, the Company sold 352,300 shares of common stock in a private
placement to individuals, all of whom were "accredited investors", at a price
of $.85 per share receiving net proceeds of $299,455. These shares were
issued pursuant to the exemption provisions of Regulation S of the Securities
Act of 1933.
F-10
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
- --------------------------------------
Common Stock (cont'd)
- ---------------------
In fiscal 1997, the Company issued 38,000 shares of common stock to various
persons for public relations and planning and marketing services rendered.
The Company reflected expenses of $36,125 in the statement of operations for
the year ended June 30, 1997.
Warrants
The Company accounts for warrants granted to employees and directors under APB
No. 25. Had compensation costs of these warrants been determined consistent
with SFAS No. 123, the Company's net loss per share would have been as
follows:
1997 1996
------------ ------------
Net loss as reported....................... $(1,481,963) $(2,468,752)
Net loss pro forma......................... $(2,177,978) $(2,563,324)
Primary loss per share as reported......... $ (.06) $ (.12)
Primary loss per share pro forma........... $ (.09) $ (.12)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
All transactions with individuals other than those considered employees, as
set forth within the scope of APB No. 25, have been accounted for under the
provisions of SFAS No. 123 during fiscal 1997.
Warrants issued for services generally vest immediately. Warrant activity for
the years ended June 30, 1997 and 1996 is summarized as follows:
1997 1996
--------- ---------
Outstanding at beginning of year 4,396,000 4,326,000
Warrants granted 1,900,000 520,000
Warrants exercised (905,000) (325,000)
Warrants canceled (75,000) (125,000)
--------- ---------
Outstanding at end of year 5,316,000 4,396,000
The fair value of each warrant grant is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted average
assumptions:
1997 1996
---- ----
Risk-free interest rate 5.8% 5.65%
Expected dividend yield - -
Expected lives 3 3
Expected stock price violatility 130% 123%
F-11
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
- --------------------------------------
Warrants (cont'd)
- -----------------
At June 30, 1997, 5,316,000 shares of common stock were reserved for future
issuance with respect to the following warrants:
Number of
Expiration Exercise Price Common Shares
- ----------- -------------- -------------
October 1997 $0.30 100,000
November 1997 $0.25 150,000
November 1997 $0.33 975,000
April 1998 $0.25 1,671,000
April 1998 $0.40 250,000
August 1998 $1.00 15,000
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
July 1999 $1.09 1,220,000
January 2000 $1.00 475,000
July 2000 $1.00 60,000
July 1999 - October 2001 $0.84-$1.69 130,000
---------
5,316,000
=========
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. 700,000 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. 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.
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.
F-12
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
- -------------------------------------
Warrants (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.
In fiscal 1997, the Company issued 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. 845,000 of these warrants were issued to employees and directors of the
Company.
In fiscal 1997, the Company entered into an agreement with a consultant to
demonstrate and promote the PrimeCare Patient Management System. 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. 25,000 of these warrants were issued in fiscal 1997 and 5,000 warrants
shall be issued on the 1st day of October, January, April and July while this
agreement is in effect.
In fiscal 1997, the Company issued warrants to acquire 475,000 shares of the
Company's common stock at an exercise price of $1.00 which expire in January
2000. 350,000 of these warrants were issued to officers and directors of the
Company.
In fiscal 1997, for services rendered in accord with the terms of a consulting
agreement, warrants were issued to purchase a total of 120,000 shares of the
Company's common stock at exercise prices ranging between $0.84 and $1.69 with
the exercise of said warrants expiring between July 1, 1999 and June 1, 2000.
The Company reflected a total expense of $24,000 for the year ended June 30,
1997.
In fiscal 1997, the Company issued warrants to acquire 25,000 shares of the
Company's common stock to consultants an exercise price of $1.00 with various
dates of expiration through October 2001.
In fiscal 1997, warrants were exercised to purchase 285,000 shares of the
Company's common stock for $130,000.
In fiscal 1997, warrants were exercised to purchase 390,000 shares of the
Company's common stock for $177,750 consisting of cash of $95,750 and demand
notes of $82,000 (see Note 4 Notes Receivable).
F-13
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
- --------------------------------------
In fiscal 1997, warrants were exercised to purchase 230,000 shares of the
Company's common stock for $103,500 consisting of cash of $13,000 and a demand
note of $90,500 (see Note 4 Notes Receivable).
NOTE 7. 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 $-0- and $2,000 under this agreement for
the years ended June 30, 1997 and 1996, respectively.
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, 1997 and 1996.
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. This agreement has expired
and the parties are negotiating a new agreement.
(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,
--------
1998 $65,000
1999 $57,400
F-14
<PAGE>
NOTE 7. COMMITMENTS (cont'd)
- -----------------------------
D) Rental Agreement
- -----------------------
PSI has a non-cancelable operating lease for its offices which expires in July
1999. Future minimum lease payments under this lease are as follows:
June 30,
--------
1998 $24,993
1999 $24,993
2000 $ 2,083
Rent expense for the years ended June 30, 1997 and 1996 was $42,708 and
$36,480, respectively.
NOTE 8. INCOME TAXES
- ---------------------
At June 30, 1997, the Company had a net operating loss carryforward of
approximately $11,500,000 which will expire at various dates from 1998 through
2012 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 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.
NOTE 9. RELATED PARTY TRANSACTIONS
- -----------------------------------
A) The Company's officers served without cash compensation for the years
ended June 30, 1997 and 1996.
B) OCG utilized the physical facilities of a related party at no charge to
the Company in fiscal 1997 and 1996.
C) The Company received loans of $50,000 during the fiscal 1996 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,
1997 and 1996 was $17,853 and $17,725, respectively.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The carrying value of financial instruments classified as current assets or
liabilities approximated fair value at June 30, 1997 due to the short-term
maturity of these instruments.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INDEPENDENT AUDITORS' REPORT OF DALESSIO, MILLNER & LEBEN LLP, DATED
OCTOBER 8, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 167,996
<SECURITIES> 0
<RECEIVABLES> 211,463<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 388,284
<PP&E> 194,835
<DEPRECIATION> 353,122
<TOTAL-ASSETS> 2,014,905
<CURRENT-LIABILITIES> 193,409
<BONDS> 0
0
10,000
<COMMON> 245,152
<OTHER-SE> 1,566,344
<TOTAL-LIABILITY-AND-EQUITY> 2,014,905
<SALES> 842,815
<TOTAL-REVENUES> 842,815
<CGS> 405,692
<TOTAL-COSTS> 2,324,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,042)
<INCOME-PRETAX> (1,481,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,481,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,481,963)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1>"RECEIVABLES" contains $123,500 in Notes receivable from related parties.
</FN>
</TABLE>
