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 30,1998
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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
---------------------------------------- ----------
(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 December 24, 1998 was $8,948,665. As of December 24, 1998 the Registrant
had 29,828,224 shares of Common Stock outstanding.
The Issuer's revenues for its most recent fiscal year: $815,213
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 "OCGT"): (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 OCGT; (ii) OCGT markets, updates, and expands the
CodeComplierTM, software which automatically computes Medicare's Evaluation
& Management ("E&M") codes and was designed to be used in conjunction with
OCGT's PrimeCareTM System; (iii) 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 OCGT; (iv) OCGT 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.
OCGT'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 OCGT as of May 16,
1994. PSI owns all right, title and interest in the PrimeCareTM System,
which is protected by copyrights. The PrimeCareTM System is a
patient-centered, interactive, computer program that brings efficiencies to
the patient/physician encounter while improving the standard of care and
reducing costs. Patients interact directly with the PrimeCareTM System,
during what is usually waiting time. A detailed patient history is obtained
without taking any of the physician's time. Patients are seated at a
computer and answer complaint-specific questions by using just the number
keys to indicate answers that apply to them; no typing or computer skills
are required. The software also has bilingual capabilities, allowing
Spanish-speaking patients to interact in their preferred language. When the
patient questionnaire is completed, the PrimeCareTM System creates a
preliminary report for the physician to review before examining the patient.
The preliminary report contains the patient's current problems, medications
and allergies, all positive and significant negative subjective responses,
vital signs and a list of the diagnostic considerations triggered by the
patient's responses. By freeing up the time physicians would normally have
to spend asking patient history questions and recording responses,
PrimeCareTM permits physicians to see more patients in less time , while
improving the quality of care. The PrimeCareTM System is also easy for the
physician to understand and use . The same simple key stroke process lets
the physician document: his physical findings, his assessment, the treatment
plan, the prescribed medications and select patient education materials. At
the conclusion of the encounter a final report of the visit , patient
educational materials, and prescriptions are printed for the patient.
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 reference materials.
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<PAGE>
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. OCGT 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 systems to transfer information to the PrimeCare(TM) System, such as
patient demographics and appointment scheduling. OCGT has also completed its
side of 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. OCGT has ceased supporting its
DOS version of the PrimeCare(TM) System. The Windows 95/NT version of the
PrimeCare(TM) System software is year 2000 compliant. The foregoing
statement is a Year 2000 Readiness Disclosure.
OCGT has also completed other enhancements and features to the
operation of the PrimeCare(TM) System which includes:
(1) The addition of voice command recognition capability enables
the physician to use voice commands instead of keystrokes or mouse clicks
to document normal & abnormal physical findings, the assessment, select
tests, treatment plan, prescriptions, drug interaction checks, patient
education materials to be dispensed and schedule follow-up visits.
(2) As an additional option, a touch screen may be used by the
patient and physician instead of the key board, mouse or voice command
recognition. All keystrokes, mouse clicks or voice commands are duplicated
by the touch screen hardware and software.
(3) The PrimeCareTM System can now use Microsoft's SQL Server, in
addition to Interbase, as a database. This expands the flexibility of the
PrimeCareTM System since it enables medical facilities that are using MS SQL
Server database for practice management systems and other software to add
PrimeCareTM without purchasing an additional database. Both databases
support distributed processing in local and wide area networks.
(4) OCGT has recently introduced PrimeCareTM on the Web, which is
a secure Internet enhanced version of the PrimeCareTM System. PrimeCareTM on
the Web enables the patient to complete one, or more, detailed medical
history questionnaires that relate to the patient's chief complaint, as
selected by their physician. The patient, using a unique ID and password,
can securely and anonymously complete the questionnaire(s) from the comfort
of their home, workplace, school, vacation site or even while waiting to see
their physician, if Internet capability is available. The medical report
generated for the physician contains the patient's responses, and a list of
differential diagnoses associated with the patient's responses. The report
highlights the significant diagnoses and enables the physician to choose an
appropriate preliminary course of action, e.g., "go to the emergency room of
XYZ Hospital", or "take two aspirin", etc. All questions and answers are
encrypted and all communications use secure digital certificates.
Medical content.
--------------- On September 15, 1995, PSI 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.
---------- OCGT has commenced marketing the Windows 95/NT version of
the PrimeCareTM System. The marketing of the PrimeCareTM System was
initiated in the northwest Florida area through MIS (see below).
Installations were limited to two sites to enable both PSI and MIS to review
and evaluate the procedures established for installation and training. This
initial commercial marketing of the PrimeCareTM System has been very
successful. In the first medical practice in which the PrimeCareTM System
was installed efficiency substantially improved. The number of patients seen
during normal office hours increased by two patients per hour through use of
the PrimeCareTM System . At the same time, the documentation of the patient
record and the quality of care greatly improved. This was substantiated
during a periodic review of the medical records of this medical practice,
conducted by a large nationally known managed health care plan (the "Plan"),
an insurance carrier with whom the physician has contracted. The Plan's
reviewer evaluated the medical records maintained by this medical practice
and gave a score of 100, based on a scale of 0 to 100. The reviewer's
comments stated: "There has been a recent improved documentation product
called PrimeCare that will greatly improve the quality of care and
continuity of care for the patients." Based on information and experience
learned during the initial marketing program, OCGT made modifications and
improvements to enhance the PrimeCareTM System.
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<PAGE>
Thereafter, a program was commenced to recruit distributors to
market the PrimeCare(TM) System. The type of distributors sought by OCGT
are those who currently sell, install and service medical office and billing
systems to medical facilities. MIS (see "Medical Information Systems" below)
is the first of such dealers 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. Having reached the point in product development
where a full marketing effort was desirable, OCGT during January 1998
engaged an experienced healthcare professional whose primary responsibility
was to review existing plans and to modify and enhance these plans to
develop a comprehensive sales and marketing program and thereafter carry-out
this program. These marketing and sales programs have been completed,
including creation and printing of new product literature, and a new exhibit
booth. The completed plans call for the PrimeCareTM System to be marketed
primarily through the following business models:
(a) recruitment of value added resellers ("VARs") and
authorized dealers
(b) direct sales to large at-risk healthcare entities
(c) private labeling opportunities
Full product roll-out commenced in the end of May at a medical conference in
San Antonio where OCGT participated as an exhibitor. Exhibiting the
PrimeCareTM System and CodeComplierTM at selected health care industry
conventions is a component of the marketing and sales program. OCGT appeared
as an exhibitor at two health care industry conventions in the month of
October. Several VARs, who sell, install, and service, billing systems to
medical facilities, have agreed to market the PrimeCareTM System. However,
no assurances can be given that OCGT's marketing plan will succeed.
OCGT markets the PrimeCareTM System as a service, on a pay for use
basis, with a maximum charge of $2.00 per patient visit. This charge per
patient visit has been increased from $1.50. 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.
Physician users have stated that the financial benefits derived by the
physician from use of the PrimeCareTM System exceeds the $2.00 cost 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. OCGT estimates that
as many as 250,000 of these physicians could use the PrimeCareTM System
routinely.
Competition.
------------ OCGT 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.
Copyrights.
----------The content of the PrimeCare(TM) System is protected by
copyrights.
The CodeComplierTM
- ------------------
OCGT has completed development of software which computes the E&M
code. Designed to be used in conjunction with the PrimeCareTM System,
CodeComplierTM takes the guess work out of E&M compliance. As each item of
information is entered into and collected by the PrimeCareTM System during
the patient encounter, the CodeComplierTM organizes the data in the proper
classification and using the 1997 HCFA guidelines, automatically calculates
the applicable E&M code.
Marketing.
--------- Since the CodeComplierTM automatically calculates the
applicable E&M code from data collected by the PrimeCareTM System during
the patient encounter, it totally eliminates the time and effort which
would otherwise be required by physician office personnel to complete this
task. The marketing strategy is to offer the CodeComplierTM to medical
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<PAGE>
facilities interested in the PrimeCareTM System. OCGT markets the
CodeComplierTM as a service, on a pay for use basis, with a maximum charge
of $1.00 per patient visit. This pricing method conforms to OCGT's
philosophy of tying the product's cost directly to its use. OCGT believes
that the saving in labor costs and other financial benefits derived by the
physician from use of the CodeComplierTM far exceeds the $1.00 cost per
patient visit. However, no assurances can be given that OCGT's marketing
plan will succeed.
Copyrights.
----------- The content of the CodeComplierTM is protected by
copyrights.
Medical Information Systems
- ---------------------------
Mooney-Edwards Enterprises, Inc. d/b/a Medical Information Systems
("MIS"), a Florida corporation was acquired by OCGT on June 25, 1992. 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 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
- ---------------
OCGT 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 OCGT'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
Cardiointegram procedure is done at rest, requires less doctor-time and
costs significantly less than the other available methods.
Studies have been completed which OCGT 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 OCGT 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, OCGT has been unable to generate sufficient
revenues to fund its operations or to operate at a profit. OCGT believes
that lack of universal reimbursement for the CIG has hindered its attempt to
sell the CIG. OCGT 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. OCGT commenced its plan to market the
Cardiointegraph as a service (See Item 6). To date, OCGT has not derived
substantial revenues from offering the CIG on a fee per use basis and there
can be no assurance that OCGT will ever be able to market the CIG.
Competition.
----------- The Cardiointegraph is a diagnostic device which
employs a unique method, parts of which are patented, for the diagnosis of
coronary heart disease. OCGT 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, OCGT sold its product through medical distributors, a sales and
marketing method employed by other medical equipment manufacturers.
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<PAGE>
Patent Protection.
------------------ OCGT's business is dependent to some extent, upon
patent protection of its method of signal analysis and its application to
the Cardiointegraph. OCGT's primary patent expired in November 1986. In
June 1985 a new method patent was granted to OCGT which expires in the year
2002. This new patent covers OCGT's method for correctly detecting in a
repeatable fashion the proper base line which is essential to accurately
compute the CIG. OCGT believes that this patent will adequately protect its
competitive position. Although certain of OCGT's processes are of a
non-patentable nature, OCGT 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, OCGT is not aware of any other
companies using such name or manufacturing such product. OCGT owns
trademark registrations in the United States for "OCG".
Government Regulation
- ---------------------
OCGT 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, OCGT was formally advised by the Food and Drug
Administration ("FDA") that OCGT 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. OCGT
believes that it is presently in compliance with all federal, state and
local regulations.
Neither the PrimeCare(TM) System, the CodeComplierTM nor the MIS
medical billing software require FDA filings.
Employees
- ---------
OCGT employs 7 full time employees, 4 of whom are non-salaried
officers, its subsidiary, MIS employs 8 salaried employees including
officers, all of whom are full time; and its subsidiary, PSI employs 10
salaried employees including officers, 8 of whom are full time and 2 part time.
Item 2. Properties
----------
OCGT 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 OCGT. There is no lease or other written commitment assuring
continued use of the premises. No rent was charged in 1997 and 1996. In
1998, warrants to purchase 200,000 shares of OCGT's common stock, par value
$.01 per share, at the exercise price of $.65 per share, were issued in lieu
of the payment of rent and other services for fiscal 1999.
MIS leases office space in Pensacola, Florida from Mainstreet, Ltd. Rental
payments for the year ended June 30, 1998 were $18,559. 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, 1999.
PSI leases approximately square feet of office space in Newport News, VA.
The lease bears an annual rental of $39,071 until July 31, 1999 at which
time it increases to an annual rental of $41,024 until expiration on May 31,
2001.
Item 3. Legal Proceedings
-----------------
NONE
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of the Stockholders, of record on May 6, 1998, of OCG
Technology, Inc., was held on June 23, 1998, for the following purposes:
1. Election of Directors. The following four Directors, consisting
of all of the Directors of the Company, were elected to serve until the next
Annual Meeting of the Stockholders and thereafter, until their successors
are elected and qualified:
Name Votes "FOR" Votes "WITHHELD"
- ----------------- ---------- ----------------
Erich W. Augustin 23,777,534 745,550
Edward C. Levine 24,015,884 507,200
Jeffrey P. Nelson 24,019,784 503,300
Jarema S. Rakoczy 24,307,234 215,850
Wynne B. Stern, Jr., Esq. 24,308,534 214,550
Louis Evan Teichholz, M.D. 24,308,534 214,550
2. To ratify the appointment of Dalessio, Millner & Leben
as auditors for the current fiscal year.
FOR: 24,382,444 AGAINST: 55,250 ABSTAIN: 299,940
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
OCGT's Common Stock is quoted on the OTC Bulletin Board under
the symbol OCGT. Prior to February 19, 1998 OCGT's Common Stock
was 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 OCGT's Common Stock for the periods
indicated, on the market it was trading on at that time. Prices
represent quotations between dealers without adjustments for
retail markups, markdowns or commissions and may not represent
actual transactions.
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
Fiscal Year Ended June 30, 1998 High Low
------------------------------- ------- -----
1st Quarter 15/16 15/32
2nd Quarter 25/32 13/32
3rd Quarter 7/8 3/8
4th Quarter 15/16 19/32
As of June 30, 1998 there were approximately 1,410 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 December 24, 1998 was
5/16.
OCGT has never paid cash dividends on its Common Stock. Payment
of dividends are within the discretion of OCGT's Board of
Directors and will depend, among other factors, on earnings,
capital requirements and the operating and financial condition
of OCGT. At the present time, OCGT'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 OCGT
authorized the amendment of the Certificate of Incorporation of
OCGT 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.
On June 10, 1992 pursuant to the authority vested in the Board
of Directors of OCGT, a series of Preferred Stock of OCGT was
created out of the authorized but unissued shares of the capital
stock of OCGT, 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 OCGT'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 OCGT in any year, and shall be calculated as
follows: the aggregate amount of all cash dividends declared
and to be distributed by OCGT 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 OCGT'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 OCGT (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 OCGT, 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 ever been declared or paid
for the Series E Preferred Stock.
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Item 6. Management's Discussion and Analysis or Plan of Operation
Fiscal 1998 Compared to Fiscal 1997
General
-------
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere herein. The following discussion
contains predictions, estimates and other forward-looking
statements that involve a number of risks and uncertainties
While this outlook represents OCGT's current judgment on the
future direction of the business, such risks and uncertainties
could cause actual results to differ materially from any future
performance suggested herein.
OCGT has experienced recurring losses from operations and has
relied on the sale of equity interests in OCGT to fund its
operations. If necessary, OCGT intends to provide additional
working capital through the sale of equity interests in OCGT.
Although, in the past, OCGT has been able to provide working
capital through the sale of equity interests in OCGT, there can
be no assurances that OCGT will succeed in its efforts, which
creates a doubt about its ability to continue as a going
concern.
Results of Operations
---------------------
Total revenues decreased to $815,213 for the year ended June 30,
1998 from $842,815 for 1997. The decrease in revenues was
primarily due to a decrease in sales revenues from resale of
third party computer equipment. Cost of sales decreased $54,900 as a
result of the reduction in cost of the computer equipment.
Marketing general and administrative expenses increased $232,822
for the year ended June 30, 1998 as compared to 1997 due
primarily to the increase in marketing and corporate expenses
related to the PrimeCareTM System and CodeComplierTM.
In 1998 OCGT took a charge of $525,000 to write off the
balance of Proprietary Technology as a result of the
discontinuance of the DOS version of the PrimeCare System.
Liquidity and Capital Resources
-------------------------------
At June 30, 1998 OCGT had a current ratio of 4.5 to 1 compared
to 2 to 1 as of June 30, 1997. 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, 1998 was $2,214,768 most of the loss
resulted from non-cash charges of approximately $1,505,180,
which accounted for 68% of the total loss from operations.
Included in the loss was the charge of $525,000 to write off the
balance of Proprietary Technology discussed above. The
Proprietary Technology, which was being written off over sixty
months, arose from OCGT's acquisition of PSI.
Cash on hand and accounts receivable were $519,703 at June 30,
1998. In the past, OCGT's principal means of overcoming its
cash shortfalls from operations was from the sale of OCGT's
common stock. During the year ended June 30, 1998, OCGT
received $1,746,650 in cash and demand notes through the sale of
equity interests and the exercise of warrants.
PSI, a Delaware corporation, was acquired by OCGT as of May
16, 1994. PSI owns all right, title and interest in the
PrimeCareTM System, which is protected by copyrights. The
PrimeCareTM System is a patient-centered, interactive, computer
program that brings efficiencies to the patient/physician
encounter while improving the standard of care and reducing
costs. Patients interact directly with the PrimeCareTM System,
during what is usually waiting time. A detailed patient history
is obtained without taking any of the physician's time. Patients
are seated at a computer and answer complaint-specific questions
by using just the number keys to indicate answers that apply to
them; no typing or computer skills are required. The software
also has bilingual capabilities, allowing Spanish-speaking
patients to interact in their preferred language. When the
patient questionnaire is completed, the PrimeCareTM System
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<PAGE>
creates a preliminary report for the physician to review before
examining the patient. The preliminary report contains the
patient's current problems, medications and allergies, all
positive and significant negative subjective responses, vital
signs and a list of the diagnostic considerations triggered by
the patient's responses. By freeing up the time physicians would
normally have to spend asking patient history questions and
recording responses, PrimeCareTM permits physicians to see more
patients in less time , while improving the quality of care. The
PrimeCareTM System is also easy for the physician to understand
and use . The same simple key stroke process lets the physician
document: his physical findings, his assessment, the treatment
plan, the prescribed medications and select patient education
materials. At the conclusion of the encounter a final report of
the visit , patient educational materials, and prescriptions are
printed for the patient.
The principal markets for the PrimeCare(TM) System are
ambulatory/outpatient medical facilities, such as, 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 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. On September 15, 1995, PSI 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. OCGT
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 systems to transfer information to the PrimeCare(TM)
System, such as patient demographics and appointment scheduling.
OCGT has also completed its side of 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. OCGT has ceased supporting its
DOS version of the PrimeCare(TM) System.
OCGT has also completed other enhancements and features to
the operation of the PrimeCare(TM) System which includes:
(1) The addition of voice command recognition capability
enables the physician to use voice commands instead of
keystrokes or mouse clicks to document normal & abnormal
physical findings, the assessment, select tests, treatment plan,
prescriptions, drug interaction checks, patient education
materials to be dispensed and schedule follow-up visits.
(2) As an additional option, a Touch screen may be used
by the patient and physician instead of the key board, mouse or
voice command recognition. All keystrokes, mouse clicks or voice
commands are duplicated by the touch screen hardware and
software.
(3) The PrimeCareTM System can now use Microsoft's SQL
Server, in addition to Interbase, as a database. This expands
the flexibility of the PrimeCareTM System since it enables
medical facilities that are using MS SQL Server database for
practice management systems and other software to add
PrimeCareTM without purchasing an additional database. Both
databases support distributed processing in local and wide area
networks.
(4) OCGT has introduced PrimeCareTM on the Web, which
is a secure Internet enhanced version of the PrimeCareTM System.
PrimeCareTM on the Web enables the patient to complete one, or
more, detailed medical history questionnaires that relate to the
patient's chief complaint, as selected by their physician. The
-10-
<PAGE>
patient, using a unique ID and password, can securely and
anonymously complete the questionnaire(s) from the comfort of
their home, workplace, school, vacation site or even while
waiting to see their physician, if Internet capability is
available. The medical report generated for the physician
contains the patient's responses, and a list of differential
diagnoses associated with the patient's responses. The report
highlights the significant diagnoses and enables the physician
to choose an appropriate preliminary course of action.
OCGT has commenced marketing the Windows 95/NT version of
the PrimeCareTM System. The marketing of the PrimeCareTM System
was initiated in the northwest Florida area through MIS (see
below). Installations were limited to two sites to enable both
PSI and MIS to review and evaluate the procedures established
for installation and training. This initial commercial marketing
of the PrimeCareTM System has been very successful. In the first
medical practice in which the PrimeCareTM System was installed
efficiency radically improved. The number of patients seen
during normal office hours increased two patients per hour
through use of the PrimeCareTM System . At the same time, the
documentation of the patient record and the quality of care
greatly improved. This was substantiated during a periodic
review of the medical records of this medical practice,
conducted by a large nationally known managed health care plan
(the "Plan"), an insurance carrier with whom the physician has
contracted. The Plan's reviewer evaluated the medical records
maintained by this medical practice and gave a score of 100,
based on a scale of 0 to 100. The reviewer's comments stated:
"There has been a recent improved documentation product called
PrimeCare that will greatly improve the quality of care and
continuity of care for the patients." Based information and
experience learned during the initial marketing program, OCGT
made modifications and improvements to enhance the PrimeCareTM
System.
Thereafter, a program was commenced to recruit
distributors to market the PrimeCare(TM) System. The type of
distributors sort by OCGT are those who currently sell, install
and service medical office and billing systems to medical
facilities. MIS (see "Medical Information Systems" below) is the
first of such dealers 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. Having reached the
point in product development where a full marketing effort was
desirable, OCGT during January 1998 engaged an experienced
healthcare professional whose primary responsibility was to
review existing plans and to modify and enhance these plans to
develop a comprehensive sales and marketing program and
thereafter carry-out this program. These marketing and sales
program has been completed, including creation and printing of
new product literature, and a new exhibit booth. The completed
plans call for the PrimeCareTM System to be marketed primarily
through the following business models:
(a) recruitment of value added resellers ("VARs") and
authorized dealers
(b) direct sales to large at-risk healthcare entities
(c) private labeling opportunities
Full product roll-out commenced in the end of May at a
medical conference in San Antonio where OCGT participated as an
exhibitor. Exhibiting OCGT's products at selected health care
industry conventions is a component of the marketing and sales
program. OCGT appeared as an exhibitor at two health care
industry conventions in the month of October. Several VARs, who
sell, install, and service, billing systems to medical
facilities, have agreed to market the PrimeCareTM System.
However, no assurances can be given that OCGT's marketing plan
will succeed.
OCGT markets the PrimeCareTM System as a service, on a pay
for use basis, with a maximum charge of $2.00 per patient visit.
This charge per patient visit has been increased from $1.50.
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.
Physician users have stated that the financial benefits derived
by the physician from use of the PrimeCareTM System exceeds the
$2.00 cost 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.
-11-
<PAGE>
The CodeComplierTM
------------------
OCGT has completed development of software which computes
the E&M code. Designed to be used in conjunction with the
PrimeCareTM System, CodeComplierTM takes the guess work out of
E&M compliance. As each item of information is entered into and
collected by the PrimeCareTM System during the patient
encounter, the CodeComplierTM organizes the data in the proper
classification and using the 1997 HCFA guidelines, automatically
calculates the applicable E&M code.
Since the CodeComplierTM automatically calculates the
applicable E&M code from data collected by the PrimeCareTM
System during the patient encounter, it totally eliminates the
time and effort which would otherwise be required by physician
office personnel to complete this task. The marketing strategy
is to offer the CodeComplierTM to medical facilities interested
in the PrimeCareTM System. OCGT markets the CodeComplierTM as a
service, on a pay for use basis, with a maximum charge of $1.00
per patient visit. This pricing method conforms to OCGT's
philosophy of tying the product's cost directly to its use. OCGT
believes that the saving in labor costs and other financial
benefits derived by the physician from use of the
CodeComplierTM far exceeds the $1.00 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 PrimeCareTM System and the
CodeComplierTM (the "Systems"). OCGT estimates that as many as
250,000 of these physicians could use the Systems 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 patient visits per month at a combined total fee for the
Systems of $2.00 per visit, each 100 physicians using the
Systems could generate revenues of $1,200,000 per year for OCGT.
However, no assurances can be given that a significant number of
physicians will contract for and use the PrimeCareTM System and
the CodeComplierTM.
OCGT's wholly owned subsidiary, Mooney-Edwards Enterprises,
Inc. d/b/a Medical Information Systems ("MIS"), a Florida
corporation was acquired by OCGT on June 25, 1992. 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 appointment scheduling, 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.
In the past, OCGT sold its Cardiointegraph ("CIG"), 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 for ten
consecutive fiscal years and the end user purchasers (i.e.,
physicians and corporate and governmental medical departments)
appear to find the unit useful, the CIG business segment has
been unable to generate sufficient revenues to fund its
operations or to operate at a profit. OCGT believes that lack
of universal reimbursement for the CIG has hindered its attempt
to sell the CIG.
OCGT 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.
OCGT believes that it could provide sufficient working capital
from operations through marketing the Window 95/NT version of
-12-
<PAGE>
the PrimeCareTM System, CodeComplierTM, PrimeCareTM on the Web
and expanding the operations of MIS.
Currently, OCGT has no lines of credit and has no material
commitments for capital expenditures outstanding.
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 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
Item 7. Financial Statements
----------------------------
The following are included and filed under this Item and appear
immediately following the signature page on page 19:
PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheet - June 30, 1998 F-2
Consolidated Statements of Operations -
Years ended June 30, 1998 and 1997 F-3
Consolidated Statements of Shareholders'
Equity - Years ended June 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows -
Years ended June 30, 1998 and 1997 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, 1998 and 1997.
-13-
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant.
The directors and executive officers of OCGT are:
Name Age Position
---------------- --- ----------------------
Edward C. Levine 71 President and Director
Jarema S. Rakoczy 56 Vice President and Director
Jeffrey P. Nelson 54 Secretary and Director
Erich W. Augustin 64 Executive Vice President, Chief
Financial Officer and Director
Wynne B. Stern, Jr. 65 Director
Louis Evan Teichholz 56 Director
Michael G. Eckstein 50 Executive Vice President
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 OCGT 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 OCGT since August
1987, and a Vice President since March 1985, and has been with
OCGT 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 OCGT'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 of OCGT since
November 1991 and as its Secretary since June 1992 and an
Executive Vice President since November 1997. 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 OCGT 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.
Wynne B. Stern, Jr., Esq. served as a director of OCGT from May
18, 1998 to December 6, 1998. Mr. Stern is a member of the Bars
of the States of New York and Florida. He has maintained an
office for the practice of law in the City of New York since 1961.
Louis Evan Teichholz, M.D., served as a director of OCGT from
May 18, 1998 to December 6, 1998. Dr. Teichholz joined the
Hackensack University Medical Center, Hackensack New Jersey, in
January of 1996, and serves as both the Chief of Cardiology and
-14-
<PAGE>
as the Medical Director of Cardiac Services. Dr. Teichholz is
also Clinical Professor of Medicine at the University of
Medicine and Dentistry of New Jersey - New Jersey Medical
School. In the five year period prior to joining the
Hackensack University Medical Center, Dr. Teichholz served as
Vice Chairman of the Department of Medicine and Associate
Director of the Cardiovascular Institute of the Mount Sinai
Medical Center, New York, New York. Dr. Teichholz was also a
Professor of Medicine at the Mount Sinai School of Medicine.
Michael G. Eckstein has been an Executive Vice President of OCGT
since January 8, 1998. Mr. Eckstein was the President of EDI For
Healthcare, a technology consulting company specializing in
systems, networking and EDI applications for the healthcare and
insurance industries. His personal experience includes over
twenty years of designing and implementing information
management solutions for healthcare providers and payers. Since
1983 he has been the CEO of three successful software - EDI
networking companies, including the technology subsidiary of PA
Blue Shield. Through his leadership, these three companies have
automated over 3,000 physicians, hospitals, and laboratories
across the United States. Mr. Eckstein is a member of the
Healthcare Information and Management Systems Society, and
serves on the National Information Infrastructure Task Force for
the "information superhighway". He is also a member of the
Healthcare Informatics Telecom Network Board of Directors, and
is the author or many articles and symposiums related to
healthcare EDI technology, value-added networks and application
software solutions.
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 OCGT who received no other compensation than the
compensation set forth in the following tables. No Officer of
OCGT had total salary, bonus or other compensation exceeding
$100,000.
Summary Compensation Table (Fiscal 1998)
----------------------------------------
(a) (b) (c)
Fical Long-term Compensation Awards
Year Ended Securities Underlying
Name & Principal Position June 30, Options/SARs
------------------------- ---------- -----------------------------
Edward C. Levine, 1998 200,000
President and Chief 1997 350,000
Executive Officer 1996 -0-
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise of
Options/SARs Employees in Base Price
Name Granted Fiscal Year ($/Share Expiration Date
- ------------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Edward C. Levine 200,000 16.30% $.65 March 8, 2001
</TABLE>
-15-
<PAGE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table sets forth certain information regarding the
exercise of stock options during the fiscal year ended June 30,
1998 and the fiscal year ended value of unexercised options for
OCGT's named executive officers.
<CAPTION>
Value of Unexercised
Share Value Number of Unexercised In-the-money Options at
Acquired on Realized Options at Fiscal Year-End Fical Year End (1)
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------- ----------- -------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
E.C. Levine -0- $ 0 550,000/0 $0/0
J.S. Rakoczy 250,000 82,750 90,000/0 0/0
J.P. Nelson 450,000 145,850 400,000/0 0/0
E.W. Augustin 225,000 87,175 250,000/0 0/0
W.B. Stern 400,000 123,950 175,000/0 0/0
L.E. Teichholz -0- 0 175,000/0 0/0
M.G. Eckstein -0- 0 100,000/0 0/0
- ------------------
<FN>
Notes: (1) Calculated based on the excess of the closing market price of
OCGT's common stock as reported on the NASDAQ Stock market on June 30, 1998
($.60) over the option exercise price.
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 24, 1998 certain information
with respect to Common Stock ownership of (i) each person known by OCGT to
own beneficially more than 5% of the shares of OCGT'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 1.81%
450 W. 31st St
New York, NY 10001
Common Jarema S. Rakoczy 448,000 - direct 1.50%
450 W. 31st St
New York, NY 10001
Common Jeffrey P. Nelson 480,000 - direct 1.61%
450 W. 31st St
New York, NY 10001
Common Erich W. Augustin 166,000 - direct .56%
450 West 31st Street
New York, NY 10001
Common Wynne B. Stern, Jr. 656,000 - direct 2.20%
450 West 31st Street
New York, NY 10001
Common Louis Evan Teichholz 296,000 - direct .99%
450 West 31st Street
New York, NY 10001
Common All directors and 2,584,826 - direct 8.67%
officers as a group
(7 Persons)
-16-
<PAGE>
Item 12. Certain Relationships and Related Transactions
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase shares of its Common Stock as follows: Edward C. Levine
200,000 warrants; Jeffrey P. Nelson 150,000 warrants; Jarema S. Rakoczy
30,000 warrants; Wynne B. Stern, Jr.75,000 warrants; and Louis Evan
Teichholz 75,000 warrants; all at $.65 per share.
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase 200,000 shares of its common stock at $.65 per share
to Masterdisk Corporation in payment of the use of space and administrative
support services for the year ended March 31, 1999. A shareholder and
officer of Masterdisk Corporation is the son of OCGT's President.
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase 100,000 shares of its common stock at $.80 per share
to Michael G. Eckstein.
On January 15, 1997 OCGT 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; and Louis Evan Teichholz 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 1998.
* 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.
-18-
<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: January 6, 1999 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 January 6, 1999
- --------------------
Edward C. Levine (Principal Executive Officer)
/s/ Jeffrey P. Nelson Secretary and Director January 6, 1999
- ---------------------
Jeffrey P. Nelson
/s/ Jarema S. Rakoczy Vice President and Director January 6, 1999
- ---------------------
Jarema S. Rakoczy
/s/ Erich W. Augustin Executive Vice President and January 6, 1999
- ---------------------
Erich W. Augustin Director (Principal Financial
and Accounting Officer)
-19-
<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, 1998, and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity for the years ended June 30, 1998 and 1997. 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, 1998, and the consolidated
results of their operations and their cash flows for the years ended June 30,
1998 and 1997, 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/Dalesio, Millner & Leben LLP
--------------------------------
New York, New York DALESSIO, MILLNER & LEBEN LLP
October 22, 1998 Certified Public Accountants
F-1
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 475,323
Accounts receivable 44,380
Notes receivable - related parties 177,500
Prepaid expenses and other current assets 115,114
-------------
TOTAL CURRENT ASSETS 812,317
-------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation 156,079
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $51,804 280,552
OTHER ASSETS, primarily due from officers 109,701
------------
$ 1,358,649
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 135,619
Due to officer (non-interest bearing) 24,242
Note payable - related party 11,344
Due to affiliate 7,000
------------
TOTAL CURRENT LIABILITIES 178,205
------------
COMMITMENTS AND CONTINGENCIES
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, 50,000,000 shares authorized;
$.01 par value, 29,828,224 shares outstanding;
29,815,724 shares issued 298,282
Additional paid-in-capital 23,542,486
Accumulated deficit (22,078,074)
Subscriptions receivable (529,750)
------------
1,242,944
Less: Treasury stock, at cost (12,500 shares) (62,500)
------------
TOTAL SHAREHOLDERS' EQUITY 1,180,444
------------
$ 1,358,649
============
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,
1998 1997
<S> <C> <C>
REVENUES:
Net sales of third party software and support services $ 795,399 $ 793,549
Fees charged to medical providers 19,814 45,405
Net sales of medical products - 3,861
----------- -----------
TOTAL REVENUES 815,213 842,815
----------- -----------
COSTS AND EXPENSES:
Cost of sales 350,792 405,692
Marketing, general and administrative 1,405,730 1,172,908
Depreciation and amortization 757,670 748,220
Write-off of proprietary technology 525,000 -
Interest - net (9,211) (2,042)
----------- -----------
TOTAL COSTS AND EXPENSES 3,029,981 2,324,778
----------- -----------
NET LOSS $(2,214,768) $(1,481,963)
=========== ===========
BASIC AND FULLY DILUTED NET LOSS PER SHARE $ (.08) $ (.06)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 26,613,209 23,716,575
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1998 AND 1997
Preferred Stock Common stock Additional
$.10 par $.01 par Paid-in Accumulated Subscriptions Treasury Unearned
Shares Amount Shares Amount Capital Deficit Receivable Stock Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1, 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 at
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
Issuance of
stock for
services - - 104,250 1,043 68,457 - - - - 69,500
Issuance of
warrants
for services - - - - 258,316 - - - - 258,316
Sale of
stock and
conversion
of warrants - - 5,208,715 52,087 1,694,563 - (500,750) - - 1,245,900
Net loss - - - - - (2,214,768) - - - (2,214,768)
------- ------- ---------- -------- ----------- ------------- ---------- --------- ---------- -----------
Balance at
June 30, 1998 100,000 $10,000 29,828,224 $298,282 $23,542,486 $(22,078,074) $(529,750) $(62,500) $ - $ 1,180,444
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1998 1997
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net loss $(2,214,768) $(1,481,963)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debts 6,152 -
Depreciation and amortization 757,670 748,220
Write-off of proprietary technology 525,000 -
Issuance of stock and warrants for services 216,358 374,795
Amortization of unearned compensation - 13,752
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 37,431 (42,522)
Prepaid expenses and other assets 8,696 (62,538)
(Decrease) increase in:
Accounts payable and accrued expenses (23,396) (41,355)
Due to affiliate 7,000 -
Due to officer 1,192 -
------------
Total adjustments 1,536,103 990,352
------------ ------------
Net cash used in operating activities (678,665) (491,611)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (68,061) (87,176)
Capitalized software development costs (137,847) (194,510)
------------ ------------
Net cash used in investing activities (205,908) (281,686)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 1,039,400 623,205
Collection of stock subscription receivable 152,500 -
------------ ------------
Net cash provided by financing activities 1,191,900 623,205
------------ ------------
NET INCREASE (DECREASE) IN CASH 307,327 (150,092)
CASH, BEGINNING OF YEAR 167,996 318,088
------------ ------------
CASH, END OF YEAR $ 475,323 $ 167,996
============ ============
<FN>
Supplemental disclosures:
No cash was paid in 1998 and 1997 for interest and income taxes.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
OCG Technology, Inc. and its subsidiaries ("OCG") 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 (the "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.
Mooney Edwards Enterprises, Inc. ("Mooney Edwards"), is engaged
in the development and distribution of third party computer software
and support services for the medical community for the processing of
bills (including insurance claims), bookkeeping, and office
management.
OCG Technology, Inc. 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.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements have been prepared
assuming that OCG will continue as a going concern. OCG 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 System will be attractive to physicians, managed
care providers and medical institutions. OCG has entered into contracts with
several healthcare providers for use of the System.
Management intends to sell debt and/or equity in order to continue the
operations of the business. There can be no assurance that OCG will be able
to raise sufficient capital to continue its operations and/or generate adequate
cash flow from operations.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of OCG and its
subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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. Significant estimates made
by management include, but are not limited to, future gross System revenues,
the economic useful life of the System, and changes in software and hardware
technology.
Property, Equipment and Depreciation
- ------------------------------------
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.
Proprietary Technology
- ----------------------
The proprietary technology originally arose from the acquisition of PSI and was
being amortized over its estimated useful life of sixty (60) months on a
straight-line basis. 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 carrying value of the proprietary
technology, and if estimated future cash flows are insufficient to recover the
proprietary technology over its remaining useful life, an impairment loss is
recognized.
In the fourth quarter of fiscal 1998, OCG discontinued the marketing of the
System on a DOS platform and accordingly the carrying value of the proprietary
technology in the amount of $525,000 was written off as this amount represented
costs associated with the DOS platform.
Amortization of proprietary technology was $600,000 for the years ended June
30, 1998 and 1997, respectively.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Capitalized Software Costs
- --------------------------
Management believes that technological feasibility of the System has been
demonstrated. Accordingly, certain product enhancements have been
capitalized. Such capitalized amounts are amortized commencing with product
introduction over the greater of the ratio of current gross revenue for a
product to the total expected gross revenue over the life of that product,
or the straight line method over the remaining estimated economic life of
sixty (60) months. The unamortized capitalized costs by product are reduced
to an amount not to exceed the future net realizable value by product at each
balance sheet date. Future net realizable value is determined through sales
forcasts based on existing and anticipated sales agreements. Although it
is possible that management's estimate for the future net realizable value
could change in the near future, management is not currently aware of any
events that would result in a change to its estimate which would be material
to OCG's financial position or its results of operations.
In fiscal 1998 and 1997, OCG capitalized $137,847 and $194,510 related to the
development of its Windows 95 version of the System.
Amortization of capitalized software costs was $46,941 and $4,863, for the
years ended June 30, 1998 and 1997, respectively.
Revenue Recognition
- -------------------
OCG recognizes sales of computer software systems when delivery has been
made and substantially all of the services to be provided by OCG have been
completed.
OCG recognizes revenues from fees charged to medical providers for the use of
the System as the services are provided.
OCG recognizes sales of the CIG when shipment is made against a valid
purchase order.
Net Loss Per Share
- ------------------
In 1998, OCG adopted Statement of Financial Accounting Standards No. 128
("FAS 128") that requires the reporting of both basic and diluted earnings per
share. Basic net loss per share is computed by dividing net loss available to
common shareowners by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Prior year's loss per
share was not effected by the adoption of FAS 128. Potentially dilutive
securities are excluded from the fully diluted loss per share calculation
for 1998 and 1997 because their effect would be antidilutive.
F-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Accounting for Stock Based Compensation
- ---------------------------------------
OCG has chosen to adopt the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), and to continue to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"). Under APB 25, OCG has not
recognized compensation expense with respect to such awards because the
exercise price of options and warrants granted to employees has approximated
the fair market value of the common stock at the respective grant dates.
Research and Development
- ------------------------
Research and development costs are expensed as incurred.
Concentrations and Other Risks
- ------------------------------
A significant position of OCG's revenues are derived from the resale of a third
party software program. If OCG should loose the right to sell this software,
it would result in a material decrease in revenues.
The market for the System is characterized by, among other things, rapid
technological developments, evolving industry standards, changes in customer
requirements, frequent new product introductions and enhancements. Sales of
the System could be adversely affected by changes in the relationships between
medical provides, patients and insurance companies.
OCG's credit concentrations are limited due to the wide variety of customers in
the health care industry and the geographic areas into which OCG's systems and
services are sold.
Cash
- ----
OCG 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, 1998 and 1997. As of June 30, 1998, OCG had cash balances at a major
brokerage institution in excess of Federal Deposit Insurance Coverage.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1997 financial statements in
order to conform with the current year presentation.
F-9
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
New Accounting Pronouncements
- -----------------------------
SOP 98-4, Software Revenue Recognition, is effective for fiscal years beginning
after December 15, 1997. This Statement provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and establishes certain criteria for revenue recognition. OCG is
currently assessing the impact that the revenue recognition criteria stated in
this pronouncement will have on its consolidated financial statements.
NOTE 2. NOTES RECEIVABLE
Demand notes receivable of $707,250 were issued by various individuals
including Officers and Directors of OCG in connection with their fiscal 1998
exercise of warrants for the purchase of common stock. These demand notes
receivable are collateralized by common stock of OCG owned by these
individuals and bear interest after six months at the prime rate. Subsequent
to June 30, 1998, $177,500 of the notes have been repaid (see Note 6).
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Equipment held under fee for service arrangements $366,675
Machinery and equipment 215,532
--------
582,207
Less: accumulated depreciation 426,128
--------
$156,079
========
Depreciation expense was $106,817 and $91,945 for the years ended June 30,
1998 and 1997, respectively.
NOTE 4. OTHER ASSETS
Other assets consists of the following:
Due from officers (non-interest bearing) $105,512 (a)
Other assets 4,189
--------
$109,701
(a) Due from officers have no specified repayment date.
NOTE 5. NOTE PAYABLE - RELATED PARTY
Note payable is to a relative of an Officer and Director of OCG, is unsecured,
due on demand, and bears interest at 2% above the prime rate per annum.
F-10
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY
Preferred Stock
- ---------------
On July 12, 1984, the shareholders of OCG 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 OCG's common stock,
(ii) may be redeemed in whole or in part at the option of OCG 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, 1998 and 1997.
Common Stock
- -----------
In fiscal 1998, OCG sold 2,062,715 shares of common stock in private placements
for $839,650, which was exempt from registration under the Securities Act of
1933, to individuals, all of whom were "accredited investors". These shares
are not registered.
In fiscal 1998, OCG issued 104,250 shares of common stock to various persons
for public relations, planning and marketing services. OCG recorded $69,500
of expense in the statement of operations for the year ended June 30, 1998.
In fiscal 1997, OCG sold 68,400 shares of common stock for $0.95 per share,
the gross proceeds of which were $65,000.
In fiscal 1997, OCG 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 proceeds of $299,455. These shares were issued pursuant
to the exemption provisions of Regulation S of the Securities Act of 1933.
In fiscal 1997, OCG issued 38,000 shares of common stock to various persons
for public relations and planning and marketing services rendered. OCG has
recorded expenses of $36,125 in the statement of operations for the year ended
June 30, 1997.
F-11
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY
Warrants
- --------
OCG 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, OCG's consolidated net loss and net loss per share would have been
as follows:
1998 1997
Net loss as reported................. $(2,214,768) $(1,481,963)
Net loss pro forma................... $(2,541,230) $(2,177,978)
Primary loss per share as reported....$ (.08) $ (.06)
Primary loss per share pro forma......$ (.10) $ (.09)
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 1998 and 1997.
Warrants issued for services generally vest immediately. Warrant activity
for the years ended June 30, 1998 and 1997 is summarized as follows:
1998 1997
Outstanding at beginning of year 5,316,000 4,396,000
Warrants granted 2,197,000 1,900,000
Warrants exercised (3,146,000) (905,000)
Warrants canceled (263,000) (75,000)
----------- ----------
Outstanding at end of year 4,104,000 5,316,000
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:
1998 1997
Risk-free interest rate 5.375% 5.8%
Expected dividend yield - -
Expected lives 3 3
Expected stock price violatility 105% 130%
F-12
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
Warrants (cont'd)
In fiscal 1998 and 1997, all warrants were granted at an exercise price higher
than the market price at the date of issuance. OCG issued warrants for the
following:
<TABLE>
<CAPTION> Value of
Warrants Exercise Price Warrants
<S> <C> <C> <C>
1997
- ----
Compensatory
- ------------
Consultants 705,000 $. 93 - $1.00 $338,670
Non compensatory
- ----------------
Employees and directors 1,195,000 $1.00 - $1.09 -
--------- --------
1,900,000 $338,670
1998
- ----
Compensatory
- ------------
Related party - rent 200,000 $0.65 $ 53,850
Non-employee directors 150,000 $0.65 40,500
Consultants 600,000 $ .49 - $1.00 163,966
Non compensatory
- ----------------
Employees and directors 1,247,000 $0.65 - $.80 -
--------- --------
2,197,000 $258,316
========= ========
</TABLE>
In fiscal 1998, warrants were exercised to purchase 3,146,000 shares of OCG's
common stock for $907,000 in demand notes and the shares were issued. As of
June 30, 1998, $707,250 remained unpaid of which $177,500 was subsequently
collected (see Note 2).
In fiscal 1997, warrants were exercised to purchase 285,000 shares of OCG's
common stock for $130,000.
In fiscal 1997, warrants were exercised to purchase 390,000 shares of OCG's
common stock for $177,750 consisting of cash of $115,750 and demand notes of
$62,000.
In fiscal 1997, warrants were exercised to purchase 230,000 shares of OCG's
common stock for $103,500 consisting of cash of $13,000 and a demand note of
$90,500.
F-13
<PAGE>
NOTE 6. SHAREHOLDERS' EQUITY (cont'd)
Warrants (cont'd)
- -----------------
At June 30, 1998, 4,104,000 shares of OCG common stock were reserved for
future issuance with respect to the following warrants:
Number of
Expiration Exercise Price Common Shares
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 1,217,000
January 2000 $1.00 475,000
July 2000 $1.00 60,000
July 1999 - October 2001 $0.47-$1.69 230,000
October 1999 $0.75 447,000
November 1999 $0.90 100,000
December 1999 $0.70 75,000
November 2000 $0.72 150,000
January 2001 $0.80 100,000
March 2001 $0.65 980,000
---------
4,104,000
NOTE 7. COMMITMENTS AND CONTINGENCIES
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 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 System.
F-14
<PAGE>
NOTE 7. COMMITMENTS AND CONTINGENCIES (cont'd)
B) Royalty Agreement
- --------------------
Pursuant to the terms of a research and development agreement with a
partnership, OCG 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.
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 OCG's common stock. This agreement has expired and the parties are on a
month-to-month basis while negotiating a new agreement.
(ii) In 1994, PSI entered into an employment contract with an officer for a
sixty (60) month period expiring May 1999 in the amount of $57,400 per annum.
The future minimum salary for the year ended June 30, 1999 is $57,400.
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,
-------
1999 $24,993
2000 2,083
-------
$27,076
Rent expense for the years ended June 30, 1998 and 1997 was $59,361 and
$42,708, respectively.
F-15
<PAGE>
E) INSURANCE COVERAGE
- ---------------------
Mooney Edwards does not have general business liability insurance. The
financial statements do not include a provision for this contingency.
NOTE 8. INCOME TAXES
At June 30, 1998, OCG had net operating loss carryforwards of approximately
$13,180,000 which will expire at various dates from 1999 through 2018 subject
to certain limitations. The deferred tax asset arising from net operating
loss carryforwards are offset by a 100% valuation allowance due to the
uncertainty as to their realization.
OCG has entered into numerous equity transactions which may significantly
limit the utilization of these net operating losses, pursuant to Internal
Revenue Code Section 382. OCG 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) Certain of OCG's officers served without cash compensation for the years
ended June 30, 1998 and 1997.
B) OCG utilized the physical facilities of a related party at no charge in
fiscal 1997. In fiscal 1998, OCG issued 200,000 warrants at an exercise
price of $0.65 per share to rent office space. OCG recorded rent expense
of $13,463 for the year ended June 30, 1998 (See Note 6).
C) 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, 1998 and 1997 was
$18,559 and $17,853, respectively.
F-16
<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
22, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 475,323
<SECURITIES> 0
<RECEIVABLES> 44,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 812,317
<PP&E> 156,079<F1>
<DEPRECIATION> 426,128
<TOTAL-ASSETS> 1,358,649
<CURRENT-LIABILITIES> 178,205
<BONDS> 0
0
10,000
<COMMON> 298,282
<OTHER-SE> 872,162
<TOTAL-LIABILITY-AND-EQUITY> 1,358,649
<SALES> 815,213
<TOTAL-REVENUES> 815,213
<CGS> 350,792
<TOTAL-COSTS> 3,029,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9,211)
<INCOME-PRETAX> (2,214,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,214,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,214,768)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
<FN>
<F1>Net of accumulated depreciation
</FN>
</TABLE>
