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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period from ______ to ______
Commission file number 0-15179
NEUROTECH CORPORATION
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(Name of small business issuer in its charter)
DELAWARE 06-1100063
----------------------- -------------------
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
45 ORCHARD STREET, MANHASSET, NEW YORK 11030
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 869-7960
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Securities registered under Section 12(b) of the Exchange Act: NONE
----
Securities registered under Section
12(g) of the Exchange Act: Common Stock, par value $0.01
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ( ) No (X)
--- ---
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )
Issuer's revenues for its fiscal year ended June 30, 1996 were $ 610,892.
The aggregate market value of the voting stock held by non-affiliates
approximated $1,400,000 as of June 30, 1996, computed by reference to the
average of the bid and asked prices for such stock as reported by the National
Quotation Bureau.
24,155,747 shares of issuer's common stock were outstanding at June 30,
1996.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Neurotech Corporation ("the Company") was incorporated on September 13,
1983 under the laws of the State of Delaware as Bellevue Medical Corporation and
changed its name to Neurotech Corporation on October 9, 1984.
Historically, the Company has been engaged in the assembly, marketing and
sales of proprietary non-invasive medical research instruments and custom delay
lines. Descriptions of the historic businesses are set forth below, under the
captions "Visual Electrophysiology Instruments" and "Custom Delay Lines". Such
businesses have been discontinued.
On June 28, 1994, the Company consummated a stock purchase agreement (the
"Agreement") with Global Investment Fund, Ltd. ("Global"), a Hong Kong
corporation. Under the Agreement, the Company issued 9,754,374 shares of its
common stock to Global, and Global caused Safety and Technology Group, Ltd.
("STG"), a Hong Kong Corporation and a subsidiary of of Global, to assign to the
Company STG's the world wide distribution rights to non-ozone depleting
flammable refrigerant products (the "Refrigerant Products"), and certain of
STG's rights under an agreement relating to STG's sale to an unaffiliated
distributor together with an advance sale deposit of $320,000. The advance sale
deposit of $320,000 for the initial order was being held by STG for the benefit
of the Company. These monies were used for completion of the initial order,
sales and marketing expenses and expenses incurred in obtaining the approval of
the United States Environmental Protection Agency (the "EPA") to market the
Refrigerant Products in the United States. In March , 1996, the EPA notified the
Company that its Refrigerant Product "ES12R" had been officially listed under
the EPA's "SNAP" Program (Significant New Alternative Program for Refrigerants)
and that ES12R was permitted to be sold in the United States for use in small
appliances. The Company thereafter incorporated Safe Air Technologies, Inc. as a
wholly owned subsidiary to market ES12R.
As a result of the stock purchase agreement, Global was then the owner of
approximately 50% of the Company's outstanding shares. (See Note 1 to Financial
Statements.)
Refrigerant Products
In the 1970's, it was determined that chloroflurocarbons (CFCs) contributed
to the destruction of the earth's ozone layer. After the discovery of the hole
in the ozone over Antarctica, an international agreement provided that after
December 31, 1995 CFC would no longer be manufactured. Because of the above,
replacement coolants have been developed. One, manufactured by E.I. DuPont, ICI,
Allied and others worldwide is hydroflurocarbon (HFC), called HFC-134. One of
the other replacement coolants is hydrocarbon in the form of various
combinations of propane and isobutane blends that are flammable. However, the
Company's management believes that manufacturers outside of the United States
will primarily utilize these
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hydrocarbons because its effect on global-warning is minimal and it is more
efficient. STG , the supplier of the hydrocarbon gas refrigerant the being
distributed by the Company, has received approval from the EPA to sell its
Refrigerant Product for use in the United States (See above.) The Company
thereafter incorporated Safe Air Technologies, Inc. as a wholly owned subsidiary
to market ES12R. However, the Company has not had the funds necessary to
aggressively Market Refrigerant Products and there can be no assurance that the
Company will obtain the funds necessary to market ES12R, or even if funds are
obtained, that the Company will be successful in marketing ES12R.
Proposed Marketing - Refrigerants are used on a worldwide basis by
manufacturers of air conditioners and refrigerators, as well as to the repair
and replacement markets. If the Company obtains funds, of which there is no
assurance, the Company's Management will seek to sell refrigerant products
through established distribution networks throughout the world (subject to EPA
approval in the United States and regulatory approvals where required elsewhere)
and direct, or through representatives to manufacturers of air conditioning &
refrigeration equipment.
Competition - The worldwide market for non-ozone depleting refrigerants is
believed to be very large, and as a result, there are many large multinational
companies such as E.I. Dupont, ICI, Allied, Siemens, etc., as well as many
medium and small companies marketing these products. Because of the many
competitors, many of whom are established and well financed, there can be no
assurances that the Company will be successful in marketing refrigerants on a
profitable basis. In addition, the Company may fulfill certain orders that it
may receive through subcontractors using specific formulations. This, in turn,
could also effect competitiveness.
Product Liability - Neurotech Corporation does not have any product
liability insurance for the refrigerant products.
Future sales of Refrigerant Products are dependent upon the Company's
ability to obtain financing for manufacturing and marketing. There can be no
assurance that the Company will obtain such financing.
Global Health Enterprises, Inc.
On May 30, 1996, the Company acquired all of the outstanding shares of
Global Health Enterprises Inc. ("GHE") in exchange for 1,000,000 shares of the
Company's common shares. Global is the sole shareholder of Health Systems Home
Care, Inc. ("Health") Simultaneously, and as part of the overall transaction:
1. GHE acquired substantially all of the assets and liabilities of Mary E
Dickerson Hospital Group, Ltd. a partnership (the "Partnership") d/b/a/ "Mary E
Dickerson Memorial Hospital" (the "Hospital"). The Hospital is a 49 bed general
acute care hospital located in Jasper, Texas. Health is a licensed home health
care agency that provides in home health care services, workers and supplies.
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2. GHE paid the Bank of America $515,000 and assumed indebtedness of
$1,685,000. The Company guaranteed the repayment of: (i) two promissory term
notes issued by GHE to Bank of America, collateralized by the land and buildings
of the Hospital, totaling $1,685,000; (ii) $500,000 to D.V.I Financial Services
Inc. ("DIVF") which amount was advanced to GHE and collateralized by equipment,
and (iii) $566,048 to D.V.I. Business Credit Corporation ("DVIBC")which amount
is secured by the accounts receivable of GHE and Health. Further, as additional
security for the repayment of the loans from DVIBC, the Company pledged all of
its shares in GHE to DIVBC. As at March 31, 1997 GHE was in default to the Bank
of America in the amount of $113,516.87. As at April 30, 1997 was current in its
obligations to DVIBC. See Note 2 to the Financial Statements.
As at March 31, 1997, the Hospital is in default in the payment of real
estate taxes in the sum of $76,100.64 plus penalties and interest.
GHE is attempting to re-finance its entire indebtedness to Bank of America
and DVI and to raise additional capital. However there can be no assurance that
such financing or capital will be available, or even if available that it will
be on more favorable repayment and other terms than the current indebtedness.
See "Management's Discussion and Analysis of Financial Condition."
On June 6, 1996, the "Mary E. Dickerson Memorial Hospital" was renamed
"Lakes Regional Medical Center."
Visual Electrophysiological Instruments
The Company, through Neuroscientific Corporation, a wholly owned
subsidiary, assembled, marketed and sold non-invasive proprietary instrument
systems for research use only, in the neurology, ophthalmology and optometry
fields. These computer-controlled devices were marketed under the trademarks
VENUS(TM) and ENFANT(TM) diagnostic devices (the "Devices".) The Devices produce
certain visual images on high resolution monitors in both monochrome and color.
Responses by monitored observers of these images, are amplified and analyzed by
menu-driven software. The Devices were not approved for general use by the
United States Food And Drug Administration and therefore only research
institutions could utilize the Devices for research purposes only. The Company
began marketing it's ENFANT(TM) device in October 1991. The Company discontinued
this line of business in August, 1996 due to lack sales and lack of funds.
Custom Delay Lines
The Company's Control Electronics division assembled, marketed & sold
proprietary custom electronic components, primarily "delay lines", used
principally in radar & sonar systems sold in the military & industrial
marketplace. Delay lines, which precisely delay electronic signals, are used as
components of signal processing systems, or as time measurement devices. The
Company's models include dispersive, variable and precision audio delay lines.
These units are temperature stable & vibration resistant built to individual
customer
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specifications. Control Electronics, or its predecessors, have been actively
engaged in the manufacture of delay lines for more than 30 years. Due to a
decline in government defense spending, and lack of funds, the Company
discontinued the delay line business in August, 1996.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns the land and buildings on which the Hospital operates. The
Hospital consists of one main building of approximately 29,400 square feet and
nine clinic and annex buildings totaling approximately 12,300 square feet, a
helipad and parking lots located on approximately 8.45 acres in Jasper, Texas.
The Company presently leases office space at 45 Orchard Street, Manhasset,
New York from an affiliate of members of the Board of Directors on a month to
month basis. The Company occupies approximately 1,000 square feet and pays a
monthly rent of $ 1,000.
ITEM 3. LEGAL PROCEEDINGS
In July, 1996, an action was instituted in the Court of Chancery of The
State of Delaware by a shareholder against the Company and the individual
members of the Board of Directors of the Company. The action seeks the following
relief: (i) to cancel 3,547,000 Common Shares allegedly issued by the Company
without consideration; (ii) for damages to the Company in an undetermined amount
for the fraudulent issuance of the Company's Stock; (iii) for damages in an
undetermined amount for breaches of loyalty and usurping of the Company's
contract rights and business opportunities; and (iv) for an accounting of the
Company's financial condition. In addition and in connection with the action, a
Motion was filed by the shareholder to have a Receiver appointed by the Court to
operate the Company. Since the filing of such Motion, as at April 30, 1997, no
action has been taken by the shareholder to proceed to a formal hearing on the
Motion. The Company and the Directors have interposed an Answer to the action
denying all claims. Management believes that the action is without merit and
that the shareholder's Motion will be denied.
On November 18, 1996, an Arbitration Award was made against the Company in
the sum of $75,000 in favor of an Harry A. Brennan. The Award was based upon the
value of Mr. Brennan's services in assisting the Company in connection with the
acquisition of GHE
In October 1996, an action was instituted against the Company by the a
former landlord seeking approximately $31,000 for unpaid rent. The Company is
attempting to settle the action.
The Company has been formally advised by the Staff of the Securities and
Exchange Commission that the Company is deficient in filing the following
Reports under the Securities Exchange Act of 1934: 10-QSBs for the quarters
ended September 30, 1996; December 31, 1996 and March 31, 1997; The Company
expects to become current in its filings in the near future. The Staff has
advised that it is considering recommending to the Commission that it institute
enforcement actions, which could include civil penalties, against the Company
for
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violations of Section 13(a) of the Exchange Act of 1934.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal year 1996 to a vote of security
holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since March 7, 1991, the Company's common stock has been quoted on the of
the NASD OTC Bulletin Board.
The following information furnished by the National Quotation Bureau, for
each quarter during fiscal 1996 and 1995 reports the high and low bid
quotations. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual transactions.
First Quarter Second Quarter Third Quarter Fourth Quarter
High Low High Low High Low High Low
----- ------ ------ ------- ------ ------ ------ -------
Fiscal 1995 ..... $.15 $.03 $.16 $.04 $.14 $.05 $.07 $.01
Fiscal 1996 ..... $.20 $.04 $.3125 $.125 $.15 $.0625 $.15 $.07
Fiscal 1997 ..... $.15 $.07
On May 21, 1997 the bid price for the Company's Common Shares was $.16.
(b) As of May 15, 1997, there were 768 holders of record of common stock of
the Company.
(c) The Company has not paid any cash dividends since its inception. For
the foreseeable future, it is anticipated that any earnings which may be
generated from operations of the Company will be retained for use in the
Company's business, and that cash dividends will not be paid to stockholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that
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could prove not to be accurate. Actual events, transactions and results may
materially differ from the anticipated events, transactions or results described
in such statements. The Company's ability to consummate such transactions and
achieve such events or results is subject to certain risks and uncertainties.
Such risks and uncertainties include, but are not limited to, the existence of
demand for and acceptance of the Company's products and services, regulatory
approvals and developments, economic conditions, the impact of competition and
pricing results of financing efforts and other factors affecting the Company's
business that are beyond the Company's control. The Company undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the result of any revision to these forward-looking statements that may be made
to reflect future events or circumstances.
Fiscal Year ended June 30, 1996 Compared to Fiscal Year ended June 30, 1995.
1996 was a year of change for the Company, as the Company, in June, 1996
acquired Global Health Enterprises, Inc. ("Global") in exchange for 1,000,000
shares of the Company's common stock. Global owns and operates a hospital, Lakes
Regional Medical Center (Lakes), in Jasper, Texas, and through it's wholly owned
subsidiary, Health System Home Care, Inc., also operates a home health agency
affiliated with the hospital. In August, 1996 the Company abandoned its previous
core businesses, manufacturing intracranial pressure monitoring systems, custom
delay lines and visual systems and distribution of non-ozone depleting
refrigerant products.
The Company reported a net loss of $376,427 for the year ended June 30,
1996("fiscal 96") as compared to a net loss of $508,149 for the year ended June
30, 1995("fiscal 95")
In comparing the results of operations for the two periods, losses from
discontinued operations fiscal 1996 and fiscal 1995 were $166,263 and $508,149
respectively.
The results of operations for fiscal 96 include Global operating results
for the month of June, 1996 only. The Consolidated operating results of Global
for the month of June was a net loss of $29,344. The remaining net loss from
operations of $180,820 was made up of general and administrative expenses
related primarily to restructuring the Company.
The Company has chosen to concentrate its future efforts to expanding its
medical related businesses and its future profitability depends on its success
in doing so.
Capital Resources
The Company's subsidiary Global has a line of credit, at prime plus 4%,
with a maximum borrowing amount of $750,000 with DVI Business Credit
Corporation. This line of credit is secured by Global's accounts receivable, and
the amount of funds that can be drawn is based on Global's current accounts
receivable balance. This line of credit provides Global with its operating
capital and Global's continuing operations depend on continued patient volumes
which generate adequate accounts receivable. Global maintains this line of
credit at the maximum amount of credit available.
In connection with the acquisition of Lakes, Global borrowed $500,000 from
DVI
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Financial Services, Inc. which sum is secured by Lakes' equipment. The loan is
re-payable in sixty installments of $11,586, at 13.8%. Global is current on this
indebtedness.
Global also in connection with the acquisition of Lakes assumed $1,685,000
in debt to the Bank of America. This credit extension was and the terms of this
credit agreement have numerous negative covenants, of which Global is currently
in default of several of the covenants. Bank of America has not called the loan,
as the Company is attempting to restructure this debt. The Company's future
viability depends on its ability to do so.
Liquidity
Cash used by operations for fiscal 96 was $209,290. This was a net use of
cash primarily because of the costs and expenses at restructuring the Company.
Global obtained net cash of $491,630 from financing related to the
acquisition of Lakes by Global.
The Company does not have sufficient capital resources and the liquidity
necessary to meet all of its current obligations, debt repayments, and
commitments during the next twelve months. The Company is currently seeking to
(i) restructure its borrowing arrangements; (ii) find longer term financing from
lending institutions or private parties; and/or (iii) raise capital through the
sale of common shares. However, there can be no assurance that the Company will
be able to accomplish restructuring, secure replacement or additional borrowing
or sell any common shares. Accordingly, the Company's continued viability is not
assured.
Fiscal Year ended June 30, 1995 compared to Fiscal Year ended June 30, 1994
(a) The Company determined to discontinue its previous core businesses.
(b) Effective June 1, 1996, the Company through the acquisition of a 49 bed
acute care hospital and an affiliated home health care agency both located in
Jasper, Texas, has commenced a new line of business,
(c) Pursuant to a stock purchase agreement on June 28, 1994 is also in the
business of distribution of non-ozone depleting flammable refrigerant products.
Net sales from continuing operations resulted from the only sale to date of
refrigerant products. Future sales of refrigerant products are dependent upon
various factors and the ability of the Company to provide adequate financial
resources for same. In that regard, the Company is actively seeking investors.
Effective June 1, 1996, revenues from continuing operations will be
provided through its health care operations. The subsidiary which owns the
hospital is currently in default on certain obligations arising from the
acquisitions. In addition, the Company does not presently have substantial
working capital reserves. Future operations of the health care operations could
be significantly impacted by this present lack of liquidity.
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Management is actively seeking to restructure its present financial
obligations.
Selling, general and administrative expenses are comprised of various
one-time charges relating to the acquisition and start-up of the health care
operations as well as certain developmental and marketing costs relating to the
refrigerant products.
Expenditures attributable to refrigerant products are minimal due to the
Company's lack of financial resources. Effective June 1, 1996, selling, general
and administrative expenses will consist of predominately the health care
operations solely until such time as financial resources warrant otherwise.
Effective August, 1996, operations and related cash flows from discontinued
operations are expected to be minimal.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS AND OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
Name Position
---- --------
Bernard Artz Chairman of the Board and Director
Steven A. Massey Director
Lawrence Artz Vice-President and Director
Jack Fishman Chief Accounting Officer and Director
Joseph M. Cerra Director
Bernard Artz, age 72, has been a director of the Company since 1994. From
1993 to the present, he has been a vice president and director of Travel Safety
Corp. From 1994 to the present, he has been a director and vice president of
Lundell Technologies, Inc., a public company. From 1994 to the present, he has
been a director of Global Investment Fund Ltd., a Hong Kong corporation. From
1989 to 1992, he was president of Post Merchandising, Inc.
Steven A. Massey, age 39, has been a director of the Company since 1994.
From 1994 to the present, Mr. Massey has been a director and president of
Lundell Technologies, Inc.
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a public company. From 1993 to the present, Mr. Massey has been a director of
Global Investment Fund, Ltd. From 1993 to the present, Mr. Massey has been a
Vice President and director of Travel Safety Corp. Mr. Massey has been a
certified financial planner since 1982.
Lawrence Artz, age 45, has been an officer and director of the Company
since 1994. From 1994 to the present, Mr. Artz has been a director and vice
president of Lundell Technologies, Inc., a public company. From 1993 to the
present, Mr. Artz has been director and vice president of Safety & Technology
Group, Ltd. of Hong Kong, a manufacturer of non-ozone depleting refrigerants and
childrens' safety products. From 1993 to the present, Mr. Artz has been a
director of Global Investment Fund, Ltd. From 1991 to 1993, Mr. Artz has been a
managing director of Starcomm, Ltd., a manufacturer of children's safety
products. From 1987 to 1991, Mr. Artz was a managing director of Asia
Industries.
Joseph M. Cerra, age 44, has been a director of the Company since 1994.
From 1994 to the present, Mr. Cerra has been secretary of Lundell Technologies,
Inc., a public company. From 1991 to the present, he has been a manager of user
services for Consolidated Edison of New York. From 1976 to 1991, he held various
managerial and administrative positions with Consolidated Edison.
Jack Fishman, age 67 has been a director and an officer of the Company
since 1994. He is a Certified Public Accountant and has maintained an
independent accounting practice for more than 20 years.
ITEM 10. EXECUTIVE COMPENSATION
Name Position Salary Bonus Other
- ---- -------- ------ ----- -----
Harold Goldstein(1) President $ 66,000 -0 - -0-
All Officers and Directors
as a Group (6 persons) $66,000 -0- -0-
- ---------
(1) Mr. Goldstein is no longer employed by the Company
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No. of Shares of Common
Name Stock Beneficially Owned Percent of Class (2)
- ---- ------------------------ --------------------
Global Investment Fund, Inc.(1) 9,754,374 42.3%
Bernard Artz(1) -0-(1)
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Steven A. Massey(1) -0-(1)
Lawrence M. Artz(1) -0-(1)
Joseph M. _Cerra_ 225,000 0.01%
Jack Fishman 45,000 0.002%
Directors and Officers as 10,024,374 43.4%
a Group
- ---------
(1) Bernard Artz, Steven A. Massey and Lawrence M. Artz each own one third of
the outstanding shares of Global Investment Fund, Ltd.
(2) Based upon 23,055,748 shares outstanding as at January 30, 1997
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS
Exhibit Number Title Page No.
-------------- ----- --------
3.1 Articles of Incorporation *
3.2 By-Laws *
4.0 Specimen Certificate of Common Stock *
4.1 Company's Stock Option Plan *
10.3 Consent and Assumption Agreement 35**
10.4 Secured Renewal and Extension Promissory Note 80**
10.5 Modification Renewal and Extension Agreement 85**
10.6 Covenant Not to Sue 130**
10.7 Credit Agreement 134**
10.8 $1,500,000.00 Promissory Note 196**
10.9 $185,000 Promissory Note 200**
10.10 Deed of Trust, Security Agreement and
Financing Statement 210**
10.11 Assignment of Rents and Leases 233**
10.12 Commercial Security Agreement 242**
10.13 Assignment of Deposit Accounts and
Security Agreement 260**
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10.14 Guaranty Agreement 269**
10.15 Indemnity Agreement 279**
10.16 Corporate Certificate 289**
10.17 Asset Purchase Agreement 299**
10.18 Special Warranty Deed with Assumption 316**
10.19 Bill of Sale and Assignment - Jasper Associates 323**
10.20 Assignment of and Assumption of Lease 325**
10.21 Bill of Sale and Assignment -
Mary E. Dickerson Hospital Group, Ltd. 327**
10.22 Loan and Security Agreement 333**
- ----------
* Incorporated by reference from the Company's Registration Statement on Form
S-18, filed with the Commission on December 18, 1985.
** Previously filed with Form 8-K of May 31, 1997
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized this 23rd day of May 1997.
NEUROTECH CORPORATION
By: /s/
-----------------------------------
Bernard Artz, Chairman of the Board
/s/
-----------------------------------
Jack Fishman, Chief Accounting Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ May 23, 1997
- -------------------------- ---------------------
Steven A. Massey, Director Date
/s/ May 23, 1997
- -------------------------- ---------------------
Bernard Artz, Director Date
/s/ May 23, 1997
- -------------------------- ---------------------
Lawrence M. Artz, Director Date
/s/ May 23, 1997
- -------------------------- ---------------------
Jack Fishman, Director Date
/s/ May 23, 1997
- -------------------------- ---------------------
Joseph M. Cerra, Director Date
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ITEM 7. CONSOLIDATED FINANCIAL REPORT
NEUROTECH CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
JUNE 30, 1996
<PAGE>
CONTENTS
Page
Independent Auditor's Reports.............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet...........................................3
Consolidated Statements of Operations................................5
Consolidated Statements of Changes
in Stockholders' Equity (Deficit)................................6
Consolidated Statements of Cash Flows................................7
Notes to Consolidated Financial Statements...........................9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Neurotech Corporation
Manhasset, New York
We have audited the accompanying consolidated balance sheet of Neurotech
Corporation and Subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neurotech
Corporation and Subsidiaries at June 30, 1996, and the consolidated results of
their operations and their cash flows for the year then ended, 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, a
subsidiary, Global Health Enterprises, Inc. is currently in default on certain
loan and property tax payment agreements. Additionally, the Company has
experienced recurring operating losses and liabilities exceeded assets at June
30, 1996. The above items raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
May 13, 1997
<PAGE>
Page 2
Independent Auditor's Report
To the Board of Directors
Neurotech Corporation
Manhasset, New York
I have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Neurotech Corporation and Subsidiary for
the year ended June 30, 1995. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Neurotech Corporation and Subsidiary for the year ended June 30,
1995, in conformity with generally accepted accounting principles.
Joel Ratzker, C.P.A., P.C.
Melville, NY
August 7, 1996
<PAGE>
Page 3
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 277,339
Patient accounts receivable, net of estimated
uncollectibles of $592,363 1,124,059
Estimated third-party payer settlements
Medicare 19,477
Accounts receivable - other 21,125
Inventory and supplies 357,848
----------
Total current assets 1,799,848
PROPERTY AND EQUIPMENT 2,150,004
OTHER ASSETS 17,430
----------
TOTAL ASSETS $3,967,282
==========
The Notes to Consolidated Financial Statements are an integral part of this
statement.
<PAGE>
Page 4
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable $ 514,692
Current maturities of long-term debt 1,843,606
Current maturities of capital lease obligations 32,219
Accounts payable 489,712
Accounts payable - related party 80,711
Accrued expenses 584,599
---------
Total current liabilities 3,545,539
LONG-TERM DEBT 553,435
CAPITAL LEASE OBLIGATIONS 45,307
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.01 per share;
40,000,000 shares authorized;
24,155,748 shares outstanding 241,558
Additional paid-in capital 4,136,256
Retained (deficit) ( 4,404,813)
----------
( 26,999)
Less 100,000 shares of treasury stock, at cost ( 150,000)
----------
Total stockholders' equity (deficit) ( 176,999)
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $3,967,282
==========
The Notes to Consolidated Financial Statements are an integral part of this
statement.
<PAGE>
Page 5
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
---------- ----------
NET PATIENT SERVICE REVENUES $ 610,892 $ --
---------- ----------
NET GAS SALES -- 320,000
Cost of gas sales -- 164,102
---------- ----------
Gross profit 610,892 155,898
EXPENSES
Salaries and benefits 375,050 --
Medical supplies and drugs 107,813 --
Administrative 256,811 229,963
Equipment rental 10,218 --
Contract services 24,467 --
Provision for bad debts 5,448 --
Depreciation and amortization 17,054 --
---------- ----------
Total expenses 796,861 229,963
---------- ----------
Operating income (loss) (185,969) ( 74,065)
OTHER INCOME (EXPENSE)
Miscellaneous income 2,816 --
Interest expense ( 27,011) --
---------- ----------
Loss from continuing operations (210,164) (74,065)
LOSS FROM DISCONTINUED OPERATIONS (166,263) (434,354)
---------- ----------
Net loss ($ 376,427) ($ 508,419)
---------- ----------
Loss per share from continuing operations ($ .01) ($ .01)
Loss per share from discontinued operations ( .01) ( .02)
---------- ----------
Net loss per share ($ .02) ($ .03)
---------- ----------
Weighted average number
of common shares outstanding 20,788,970 19,508,748
========== ==========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
Page 6
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Deficit Stock Total
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance,
July 1, 1994 $196,088 $4,004,376 ($3,519,967) ($150,000) $530,497
Net loss -- -- ( 508,419) -- ( 508,419)
-------- ---------- ---------- -------- --------
Balance,
June 30, 1995 196,088 4,004,376 ( 4,028,386) ( 150,000) 22,078
Net loss -- -- ( 376,427) -- ( 376,427)
Issuance
of stock 45,470 131,880 -- -- 177,350
-------- ---------- ---------- -------- --------
Balance,
June 30, 1996 $241,558 $4,136,256 ($4,404,813) ($150,000) ($176,999)
======== ========== ========== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
Page 7
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($376,427) ($508,419)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 17,054 --
Issuance of stock for services 177,350 --
Increase in accounts receivable (51,266) --
Increase in inventory and supplies (43,763) --
Decrease in other assets 126,116 --
Increase (decrease) in accounts
payable and accrued expenses (58,354) 53,904
Discontinued operations -- 454,515
-------- --------
Net cash used in operating activities (209,290) --
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (5,001) --
-------- --------
Net cash used in investing activities (5,001) --
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings 514,692 --
Payments on note payable
and capital lease obligations (523,062) --
Advance on note payable 500,000 --
-------- --------
Net cash provided by financing activities 491,630 --
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
Page 8
NEUROTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
-------- -------
Net increase in cash and cash equivalents $277,339 $ --
Cash and cash equivalents, beginning of year -- --
-------- -------
Cash and cash equivalents, end of year $277,339 $ --
======== ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Interest paid $ 1,421 $ --
======== ========
NONCASH INVESTING
AND FINANCING ACTIVITY
As more fully disclosed in Note 2, on June 1, 1996, the Company acquired the
facilities and the operation of the Mary E. Dickerson Memorial Hospital in
Jasper, Texas. In connection with the acquisition, the Company, through its
subsidiary, Global Health Enterprises, Inc. assumed notes payable and acquired
the facilities and most of the operating assets and liabilities of the hospital.
The amounts reported above for change in operating assets and liabilities
reflect the change after the June 1 acquisition date.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
Page 9
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTANT POLICIES
ORGANIZATION
Neurotech Corporation (the Company) was incorporated in Delaware on
September 13, 1983, under the name "Bellevue Medical Corporation." On
October 9, 1984, the Company changed its name to Neurotech Corporation.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Neuroscientific Corporation
and Global Health Enterprises, Inc. (Global), and Global's wholly-owned
subsidiary Health Systems Home Care (Health). All significant intercompany
balances and transactions have been eliminated upon consolidation. Global
was acquired by the Company on June 1, 1996 (Note 2).
NATURE OF OPERATIONS
Effective June 1, 1996, Global acquired the real property and operating
assets and liabilities of Mary E. Dickerson Memorial Hospital, a 49 bed
acute care hospital in Jasper, Texas. The hospital is currently doing
business as Lakes Regional Medical Center.
In August 1996, the Company determined to discontinue its previous core
business, manufacturing intracranial pressure monitoring systems, custom
delay lines and visual systems.
The operations of these previous core businesses are reported as
discontinued operations in the accompanying financial statements. The
accompanying 1995 statements have been reclassified accordingly.
The distribution of non-ozone depleting refrigerant products was suspended
indefinitely in 1995 until the Company can arrange financing to continue
these operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid debt
instruments with a maturity of three months or less.
<PAGE>
Page 10
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and accounts receivable. The
Company maintains cash and cash investments in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
The Company grants credit without collateral to its patients most of whom
are local residents and are insured under third-party payer agreements. The
mix of receivables from patients and third-party payers at June 30, 1996,
was as follows:
Medicare 46%
Insurance companies 26%
Patients 18%
Medicaid 7%
Other 3%
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that amounts which 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.
INVENTORY AND SUPPLIES
Inventory and supplies are stated at lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Outlays which do not enhance
the value or increase the basic productive capacity of the assets are
charged to costs and expenses as incurred. Depreciation is calculated on the
straight-line method over the estimated useful lives of depreciable assets.
The estimated useful lives of property and equipment are as follows:
<PAGE>
Page 11
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY AND EQUIPMENT - CONTINUED
Buildings and improvements 5-40 years
Equipment 5-10 years
Equipment under capital lease 5 years
INCOME TAXES
The Company is subject to federal and state taxes on income and accounts for
such taxes pursuant to Statement of Financial Accounting Standards #109.
Under such standard, deferred income taxes are calculated using a liability
approach based on the book and tax basis differences of recorded asset and
liability accounts as well as the effect of available tax loss and tax
credit carryforwards. Valuation allowances are provided when the expected
realization of tax assets does not meet a more likely than not criteria.
NET PATIENT SERVICE REVENUES
Net operating revenues consist primarily of net patient service revenues,
which are based on the hospital's established billing rates less allowances
and discounts principally for patients covered by Medicare, Medicaid and
other contractual programs. Payments under these third party payer programs
are based on either predetermined rates or the costs of services.
Settlements for retrospectively determined rates are estimated in the period
the related services are rendered and are adjusted in future periods as
final settlements are determined. Management believes that adequate
provision has been made for adjustments that may result from final
determination of amounts earned under these programs. These contractual
allowances and discounts are deducted from accounts receivable in the
accompanying balance sheets.
NET LOSS PER COMMON SHARE
Net loss per common share has been computed based on the weighted average
number of shares outstanding during each period.
<PAGE>
Page 12
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CONTINUING OPERATIONS
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has suffered recurring
operating losses of approximately $4,400,000 from inception through June 30,
1996. Additionally, Global is currently in default on loan agreements
totaling $1,685,000 plus accrued interest and an agreement to pay property
taxes totaling approximately $90,000. The Company has guaranteed the loan
agreement.
Management's plans concerning these matters are to seek new business
opportunities in the health care industry and to attempt to restructure or
refinance the debt agreements.
NOTE 2. BUSINESS ACQUISITION
Effective June 1, 1996, the Company exchanged 1,000,000 shares of its common
stock for all the outstanding common stock of Global. Effective June 1,
1996, Global acquired the real property and substantially all of the
operating assets and liabilities of the Mary E. Dickerson Memorial Hospital,
a 49 bed acute care hospital in Jasper, Texas. Previously, on January 1,
1996, Global had acquired all of the outstanding common stock of Health, a
home health agency affiliated with Mary E. Dickerson Memorial Hospital in
exchange for a $160,000 note from Global. The acquisition was accounted for
as a purchase type business combination.
The real property was acquired pursuant to a Consent and Assumption
Agreement (Agreement) between Jasper Associates, a Texas limited partnership
(Seller), Bank of American National Trust and Savings Association (Lender)
and Global.
Pursuant to the Agreement, Global paid Lender $515,000 and assumed debt
totaling $1,685,000. In addition, Global deposited $115,500 into a
collateral account and satisfied certain obligations and paid closing costs
totaling $222,345.
The debt assumed consists of a note totaling $1,500,000 bearing interest at
a variable rate per annum equal to the lesser of the reference-based rate,
as it varies or the maximum rate, if any as it varies. In the event of a
default, interest will be calculated based upon a default rate. The note is
payable plus accrued interest as follows:
<PAGE>
Page 13
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITION - CONTINUED
December 31, 1996 $ 50,000
$6,250 payable each succeeding
month for 47 months 293,750
December 31, 2000 1,156,250
----------
$1,500,000
==========
The debt assumed further consists of a non-interest bearing note for
$185,000 payable as follows:
December 31, 1996 $ 15,000
December 31, 1997 20,000
December 31, 1998 20,000
December 31, 1998 30,000
December 31, 2000 100,000
----------
$ 185,000
==========
The aforementioned notes are collateralized by the real property. In
addition, these notes have been guaranteed by the Company. These notes are
currently in default and have been classified as current liabilities in the
accompanying balance sheet.
Substantially all of the operating assets and liabilities of Mary E.
Dickerson Memorial Hospital were acquired pursuant to a bill of sale between
Mary E. Dickerson Hospital Group Ltd., the operator of Mary E. Dickerson
Memorial Hospital and Global. Pursuant to the bill of sale, total assets and
liabilities of the hospital, except for certain excluded assets and
liabilities were acquired in exchange for Global forgiving certain lease
obligations.
Pursuant to a Loan and Security Agreement with Global, the operating assets
were used as collateral with a finance company which advanced proceeds
totaling $1,051,048. These proceeds were utilized as follows:
Payment to lender $ 515,000
Lender's escrow account 115,000
Property tax in arrears 100,000
Satisfaction of lien holder 25,000
<PAGE>
Page 14
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITION - CONTINUED
Closing costs $ 97,845
Working capital advance 198,203
----------
$1,051,048
==========
All obligations under the Loan and Security Agreement were guaranteed by the
Company.
The operations of Global are included in the accompanying statement of
operations for the period from June 1 through June 30, 1996. Below are pro
forma results of operations for the years ended June 30, 1996 and 1995,
assuming the acquisition had taken place on July 1, 1994.
1996 1995
---------- ----------
Total revenues $7,903,825 $7,325,229
Net loss (476,784) (599,297)
Earnings (loss) per share (0.02) (0.02)
NOTE 3. DISCONTINUED OPERATIONS
In August 1996, the Company determined to discontinue, through abandonment,
its previous core businesses, manufacturing intracranial pressure monitoring
systems, custom delay lines and visual systems. The results of these
operations are reported in the accompanying statements of operations as
discontinued operations. The assets and liabilities related to these
operations in the accompanying balance sheet at June 30, 1996 were:
Cash $ 11,983
Accounts receivable 19,255
Inventory 24,463
Accounts payable and accrued expense 209,986
<PAGE>
Page 15
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY AND EQUIPMENT
A summary of property and equipment at June 30, 1996 follows:
Land $ 401,976
Buildings and improvements 1,300,646
Equipment 269,160
Equipment under capital lease obligations 112,814
Construction in progress 119,497
----------
2,204,093
Less accumulated depreciation 54,089
----------
$2,150,004
==========
NOTE 5. NOTES PAYABLE
A summary of notes payable at June 30, 1996 follows:
Loan and Security Agreement, variable interest, 12.25% at
June 30, 1996 secured by accounts receivable, interest paid
monthly, revolving principal agreement, maximum of $750,000,
minimum term two years $ 514,692
==========
NOTE 6. LONG-TERM DEBT
A summary of long-term debt at June 30, 1996 follows:
Note payable to bank, variable interest, 8.25% at June 30,
1996, collateralized by real estate, due $50,000 principal
plus interest monthly, commencing December 1996, currently
in default $1,500,000
Note payable to bank, no interest, due in various principal
amounts to December 2000, currently in default 185,000
<PAGE>
Page 16
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. LONG-TERM DEBT - CONTINUED
Note payable, variable interest, 13.8% at June 30, 1996,
collateralized by equipment, due $11,586 principal and
interest monthly to May 2000 $ 500,000
Notes payable, 8% interest, due in five annual principal
payments commencing January 1997, unsecured, subordinated to
bank debt. 160,000
Note payable, 10.25% interest, due $6,759 principal and
interest monthly to February 1997, unsecured 52,041
----------
2,397,041
Less current installments of long-term debt 1,843,606
----------
$ 553,435
==========
Amounts due under long-term debt for the next five years are
as follows:
1997 $1,843,606
1998 117,544
1999 130,139
2000 273,752
2001 32,000
----------
` $2,397,041
==========
NOTE 7. CAPITAL LEASES
A summary of capital leases at June 30, 1996 follows:
Capital lease obligations, at varying rates of imputed
interest from 10.0% to 16.5% collateralized by leased
equipment with a depreciated cost of $63,752 at June 30,
1996 $ 77,526
Less current portion of capital lease obligations 32,219
----------
$ 45,307
==========
<PAGE>
Page 17
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CAPITAL LEASES - CONTINUED
Scheduled payments on capital lease obligations to maturity are as follows:
1997 $ 40,435
1998 36,417
1999 12,920
--------
89,772
Less amount representing interest
on obligations under capital leases 12,246
--------
$ 77,526
========
NOTE 8. CASH
Cash includes $115,500 that is escrowed at Bank of America to pay interest
that will accrue on the $1,500,000 note payable through December 28, 1996.
This cash may not be used for any other purpose.
NOTE 9. FINANCIAL INSTRUMENTS
Financial instruments of the Company include cash, accounts receivable,
accounts payable and note payable. The carrying value of cash, accounts
receivable and accounts payable approximates fair value because of the short
maturities of those instruments. The fair value of note payable calculated
using current interest rates for instruments with similar maturities,
approximates its carrying value.
NOTE 10. COMMITMENTS AND CONTINGENCIES
In September 1991, the Company entered into a building lease expiring in
fiscal 1997. The lease requires minimum annual rentals of $43,200 in each of
the years ending June 30, 1994, 1995 and 1996. In addition, the Company
occupies an additional location on a month-to-month basis at an annual rate
of $10,800.
The Company is a party defendant in an action commenced October 1996 seeking
approximately $31,000 in unpaid occupancy costs of their discontinued
operations. Additional sums have accrued since inception of suit. The
Company is seeking a settlement in this matter.
<PAGE>
Page 18
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. COMMITMENTS AND CONTINGENCIES - CONTINUED
In June 1996, a stockholder of the Company filed a lawsuit against the
Company, its directors and certain affiliates alleging that the stock
issuances in February 1996 were issued without consideration, that the
Defendants have breached their duty of loyalty and contract and took
corporate opportunities for their own benefit and the Company has not
provided an adequate accounting to its shareholders of its financial
condition and certain other matters. The suit seeks a cancellation of all
stock issued by the Company without consideration, an unspecified amount of
damages including fees and costs and an accounting. In connection with the
action, a motion was filed by the shareholder to have a Receiver appointed
by the Court to operate the Company. The Company believes the suit to be
frivolous and without merit and intends to vigorously defend the matter.
In connection with the acquisition at the Mary E. Dickerson Memorial
Hospital (MEDMH) (see Note 2), Global acquired substantially all of the
operating assets and liabilities of MEDMH. A certain vendor asserts that it
was owed approximately $180,000 by MEDMH and that this amount was assumed by
Global. Management contends that this liability was not assumed by Global in
the acquisition and further believes that it was not a valid liability of
MEDMH.
NOTE 11. INCOME TAXES
The provision for income taxes for the years ended June 30, 1996 and 1995
was computed as follows:
1996 1995
-------- --------
Tax (benefit) at federal statutory rates ($127,985) ($172,862)
Deferred tax valuation allowance 127,985 172,862
-------- --------
$ -- $ --
======== ========
<PAGE>
Page 19
NEUROTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES - continued
The components of the Company's deferred tax assets (liability) at June 30,
1996 were:
Net operating loss carryforward $1,116,400
Allowance for doubtful accounts 201,400
Research and development
credit carryforward 61,600
----------
Net deferred tax assets 1,379,400
Valuation allowance (1,379,400)
----------
$ --
==========
The Company has a net operating loss carryforward of approximately
$3,284,000 which expires in the years 2001 through 2012. In addition, the
Company has research and development credit carryforwards of approximately
$61,600 which expire through the year 2006.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 277,339
<SECURITIES> 0
<RECEIVABLES> 1,757,024
<ALLOWANCES> (592,363)
<INVENTORY> 357,848
<CURRENT-ASSETS> 1,799,848
<PP&E> 2,204,093
<DEPRECIATION> (54,089)
<TOTAL-ASSETS> 3,967,282
<CURRENT-LIABILITIES> 3,545,539
<BONDS> 0
0
0
<COMMON> 241,558
<OTHER-SE> (418,557)
<TOTAL-LIABILITY-AND-EQUITY> 3,967,282
<SALES> 610,892
<TOTAL-REVENUES> 610,892
<CGS> 796,861
<TOTAL-COSTS> 796,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,011
<INCOME-PRETAX> (210,164)
<INCOME-TAX> 0
<INCOME-CONTINUING> (210,164)
<DISCONTINUED> (166,263)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,427)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
