UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to___________
Commission file number 0-5186
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OCG TECHNOLOGY, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 13-2643655
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State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
450 West 31st Street, New York, New York 10001
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(Address of principal executive offices)
(212) 967-3079
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(Issuer's telephone number)
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(Former name, address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Shares Outstanding at May 10, 1996
- ----------------------------- ---------------------------------------
Common Stock ($.01 par value) 21,460,759 Shares
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------------- -----------
Consolidated Condensed Balance Sheets
March 31, 1996 and June 30, 1995 1
Consolidated Condensed Statements of Loss for
the Three and Nine Months ended March 31, 1996 and 1995 2
Consolidated Condensed Statements of Cash Flow for the
Nine Months Ended March 31, 1996 and 1995 3
Notes to Consolidated Condensed Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to Vote of Security
Holders 7
Item 6. Exhibits and Reports on Form 8-K 7
PART I - FINANCIAL INFORMATION
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1996 JUNE 30, 1995
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 51,407 $ 51,645
Receivables, trade 47,967 33,598
Other current assets 24,446 21,946
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Total current assets 123,820 107,189
Property and equipment, net of
accumulated depreciation of
$239,969 $180,398 212,544 242,732
Proprietary Technology, net of
accumulated amortization of
$1,125,000 $675,000 1,875,000 2,325,000
Covenant not to compete, net of
accumulated amortization of
$187,500 $150,000 62,500 100,000
Other assets 32,754 33,054
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Total assets $2,306,618 $2,807,975
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to shareholders $ 96,344 $11,344
Accounts payable and
accrued expenses 158,386 163,359
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Total current liabilities 254,730 174,703
Shareholders' equity: (Note 4)
Preferred stock $.10 par value, Series B 10,000 10,000
Preferred stock $.10 par value, Series E 10,000 10,000
Common stock $.01 par value 214,607 205,107
Additional paid-in capital 18,667,195 18,421,695
Deficit (16,768,661) (15,912,591)
Unearned compensation (Note 3) (18,753) (38,439)
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2,114,388 2,695,772
Less treasury stock, at cost (62,500) (62,500)
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Total shareholders' equity 2,051,888 2,633,272
Total liabilities and
shareholders' equity: $2,306,618 $2,807,975
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995 1996 1995
Revenue:
Sales $ 212,079 $ 126,898 $ 571,219 $ 408,775
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 105,500 47,699 229,135 140,535
Marketing, general and
administrative 419,976 629,711 1,198,116 998,656
--------- --------- --------- ---------
Total Expenses 525,476 677,410 1,427,251 1,139,191
Net Income (Loss) $ (313,397) $ (550,512) $ (856,032)$ (730,416)
========== ========= ========= =========
Weighted average number
of shares outstanding
during period 21,280,203 18,992,637 19,032,405 18,992,637
========== ========== ========== ===========
Loss per
Common Share ($0.01) ($0.03) ($0.04) ($0.04)
=========== ========== ========== ===========
* Less than ($.01) per share
<FN>
See accompanying notes to consolidated condensed financial statements
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $(856,032) $(730,416)
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Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 547,071 487,966
Issuance of stock for services 781
Amortization of unearned compensation 19,686 19,686
Changes in assets and liabilities
(Increase) decrease in receivables (14,369) 10,531
(Increase) decrease in other current assets (2,500) (1,736)
(Increase) decrease in property and equipment (29,421) (54,262)
(Increase) decrease in other assets 300 1,136
(Decrease) in accounts payable
and accrued expenses (4,973) (13,951)
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Total adjustments 515,794 (450,152)
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Net cash used in operating activities (340,238) (280,264)
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Cash flows from investing activities:
Purchase of fixed assets (16,282)
Cash flows from financing activities:
Due to Shareholders 85,000
Proceeds from issuance of common stock 255,000 245,000
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Net cash changes from investing
and financing activities 340,000 228,718
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Net increase (decrease) in cash (238) (51,546)
Cash, beginning of period 51,645 104,867
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Cash, end of period $51,407 $ 53,321
========== =========
<FN>
See accompanying notes to consolidated condensed financial statements
3
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1 . In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1996 and the results of operations
for the three and nine months ended March 31, 1996 and 1995 and the
statements of cash flows for the nine months ended March 31, 1996 and
1995. The June 30, 1995 balance sheet has been derived from the Company's
audited financial statements.
The results of operations for the nine months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full
year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report on
Form 10-KSB.
The accompanying consolidated financial statements have been prepared on
a going concern basis which contemplates continuity of operations and
realization of assets and liquidation of liabilities in the ordinary
course of business. Because of significant operating losses, the
Company's ability to continue as a going concern is dependent upon its
ability to obtain sufficient additional financing and, ultimately, upon
future profitable operations. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
2. Earnings per share data is computed using the weighted average
number of shares outstanding during the periods. The effect of warrants
outstanding and convertible debt, during the period it was outstanding,
would be anti-dilutive.
3. Unearned compensation decreased as a result of amortizing the
cost arising from the issuance of shares of the Company's common stock,
par value $.01 per share, for services.
4. Capital Changes:
During each of the three month periods, ended September 30, 1995 and ended
December 31, 1995, warrants were issued to purchase 150,000 shares of the
Company's Common Stock, par value $.01 per share (in total warrants to
purchase 300,000 shares). During the three month period ended March 31,
1996, warrants were issued to purchase 100,000 shares of the Company's
Common Stock. Exercise of these warrants by the holders thereof is subject
to the occurrence of an increase in the number of the Corporation's
authorized shares of Common Stock, par value $.01 per share, from twenty-five
million to fifty million. At the Annual Meeting of Stockholders, held May
1, 1996, a majority of the Stockholders eligible to vote voted to authorize
the Company to amend its Certificate of Incorporation to increase the number
of shares of Common Stock authorized to be issued from 25,000,000 to
50,000,000.
During the three months ended March 31, 1996, 250,000 shares of the Company's
Common Stock, par value $.01 per share, were sold for $0.44 per share, the
gross proceeds of which were $110,000.
During the three months ended September 30, 1995, and the three months ended
December 31, 1995, 450,000 shares and 150,000 shares (for a total of 600,000
shares), of the Company's Common Stock, par value $.01 per share, were sold
for $0.20 per share, the gross proceeds of which were $120,000.
During the three months ended December 31, 1995, warrants were exercised to
purchase 100,000 shares of the Company's Common Stock, par value $.01 per
share for the sum of $25,000 and the shares of stock were issued.
4
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A SUMMARY OF INCREASES (DECREASES) IN THE ITEMS INCLUDED IN
THE CONSOLIDATED STATEMENTS OF LOSS IS SHOWN BELOW:
Results of Operations
Total revenues increased $85,181 and $162,444 for the three months and nine
months ended March 31, 1996 as compared to the same periods for 1995
primarily as a result of an increase in revenues of Mooney-Edwards Enterprises,
Inc. ("MIS"), a subsidiary of the Company. Cost of sales increased $57,801
and $88,600 for the three and nine months ended March 31, 1996, as compared
to the same periods for 1995. The sales of OCG Technology, Inc. ("OCGT"),
PrimeCare Systems, Inc. ("PSI") and MIS were $5,796, $15,957 and $549,084
respectively, for the nine months ended March 31, 1996.
Marketing, general and administrative expenses decreased $209,735 for the
three months and increased $199,460 for the nine months ended March 31, 1996
as compared to the same periods for 1995. The increase during the nine month
period is due primarily to increased expenses in marketing the PrimeCare(TM)
Patient Management System and the charge of $150,000 per quarter for the
amortization of Proprietary Technology resulting from the acquisition of PSI
by the Company in May of the 1994 fiscal year. The decrease during the three
month period ended March 31, 1996 was due primarily to the fact that quarterly
charges of $150,000 for the amortization of Proprietary Technology for the
three and six month periods ended December 31, 1994 were not recorded until
March of 1995.
Liquidity and Capital Resources
At March 31, 1996 the Company had a current ratio of .49 to 1 compared to
1 to 1 as of March 31, 1995. The decrease primarily resulted from the
operating losses. Although the net loss from operations for the nine months
ended March 31, 1996 was $856,032 most of the loss resulted from non-cash
charges of $547,071 which accounted for 64% of the total loss from
operations. The Company has experienced recurring losses fom operations and
has been unable to provide sufficient working capital from operations and
has relied significantly on the sale of equity interests in the Company and
loans from officers and shareholders to fund its operations. The Company's
auditors have included an explanatory paragraph regarding the ability of the
Company to continue as a "going concern".
Cash on hand and accounts receivable were $99,374 at March 31, 1996. In
addition, the Company has Cardiointegraph equipment, in the final stages of
manufacture, which will be available to lease on a fee for service basis.
In the past, the Company's principal means of overcoming its cash shortfalls
from operations was from the sale of the Company's common stock. During the
nine months ended March 31, 1996, the Company raised $255,000 through the
sale of equity interests and the exercise of warrants. The Company raised
an additional $85,000 through borrowings from Shareholders. The Company
intends to provide additional working capital through the sale of equity
interests in the Company. Although, in the past, the Company has been able
to provide working capital through the sale of equity interests in the
Company, there can be no assurances that the Company will succeed in its
efforts.
As of May 16, 1994, PrimeCare Systems, Inc. ("PSI") was acquired by the
Company. At that time, PSI owned a sole and exclusive worldwide license
to use, market, sell, manufacture and otherwise commercialize on the
PrimeCare(TM) Patient Management System. PSI also received an assignment
of the PrimeCare(TM) Patient Management System which was to become
effective in June 1996. On September 21, 1995, the assignment to PSI was
accelerated and became effective as of that date.
5
The System comprises a patient-centered integrated medical interview,
encounter documentation, patient and physician education, and chart
creation system which, in turn, provides an uncomplicated, standardized
mechanism for collecting and documenting all relevant clinical encounter
data at minimal cost and time. The System also provides a data base and
means for clinical and outcomes research as well as a means for
utilization review and quality assurance audits. The Company has decided
to market the System as a service, on a pay for use basis, with a charge
of $1.50 per patient visit. This marketing method eliminates a significant
financial commitment to purchase the software, plus monthly maintenance
charges for updates, and ties the cost directly to use. The financial
benefits derived by the physician from use of the PrimeCare(TM) System
exceed $1.50 cost per patient visit. The Company intends to interface
MIS's proprietary medical billing software with the PrimeCare(TM) System.
The Company intends to charge an additional fee of $.50 per bill. According
to the American Medical Association, there are over 650,000 physicians in
the U.S., creating a very large potential market for the System. The
Company estimates that as many as 250,000 of these physicians could use
the system routinely. It is estimated that the average number of patient
visits per month for a primary care physician is between 500 and 600.
Assuming 500 patients per month at $1.50 per patient, use by 100 physicians
could generate revenues of $75,000 per month.
The medical content of the System is continually updated. During 1994, the
System had ten updates. On September 15, 1995, the Company entered
into an agreement with the Mount Sinai School of Medicine ("MSSM") which
provides for the MSSM to assume the task of updating and enhancing the
medical content of the PrimeCare(TM) System. Having concluded this
agreement, the Company commenced marketing the PrimeCare(TM) System in early
1996. The Company currently has arrangements with eleven dealers to sell the
PrimeCare(TM) System and is continuing the process of establishing a network of
independent dealers. However, no assurances can be given that the physician
population will contract for and use the PrimeCare(TM) System nor does the
Company know the interest of dealers in selling the PrimeCare(TM) System.
In the past, the Company 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 Company has been unable to generate
sufficient revenues to fund its operations or to operate at a profit. The
Company believes that lack of universal reimbursement for the CIG has
hindered its attempt to sell the CIG.
The Company believes that marketing the CIG technology as a service, with
a minimal fee charged to the physician per CIG generated, may overcome the
reluctance of physicians to purchase medical diagnostic equipment not
reimbursed by Medicare. During the 1993 fiscal year, the Company commenced
its plan to market the Cardiointegraph as a service. The program is being
focused in the following directions.
The Company licensed its CIG technology to Compumed, Inc. ("CMPD") to
enable CMPD to offer the CIG as a service to CMPD's customers who
subscribe to CMPD's service which interprets electrocardiographic
(EKG) signals transmitted telephonically to CMPD's central computer.
During March 1994, CMPD commenced offering the CIG service to CMPD's
customers. To date, the Company has not received significant revenues from
CMPD for the service. The Company is totally dependant upon CMPD for the
marketing effort to CMPD's customers. There can be no assurance that the
service can be marketed successfully.
6
The Company, together with its wholly owned subsidiary, MIS, has taken
steps to develop a dealer network to market the CIG as a service. Although
there is interest in the service, the marketing effort will not commence
until the manufacture of the units to be leased has been completed.
Therefore, at this time, there can be no assurance that a dealer network
can be established or that if it is established, the network will
successfully place the CIG service in physicians' offices.
The Company believes that it could provide sufficient working capital from
operations through marketing the PrimeCare(TM) System, the MIS billing
system after interfacing it with the PrimeCare(TM) System, and marketing
the CIG as a service and expanding the operations of MIS.
Currently, the Company has no lines of credit and has no material
commitments for capital expenditures outstanding.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders, of record on March 8, 1996, of OCG
Technology, Inc., was held on May 1, 1996, 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 17,311,549 281,890
Edward C. Levine 17,313,849 279,590
Jeffrey P. Nelson 17,316,049 277,390
Jarema S. Rakoczy 17,316,849 276,590
2. To amend its Certificate of Incorporation to increase the number of
its authorized shares of Common Stock ($.01 par value) from 25,000,000 to
50,000,000 shares.
FOR: 16,292,586
AGAINST: 1,102,908
ABSTAIN: 197,945
3. To ratify the appointment of Dalessio, Millner & Leben as auditors
for the current fiscal year.
FOR: 17,428,368
AGAINST: 108,715
ABSTAIN: 56,356
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on form 8-K were filed during the quarter for which
this report is filed.
7
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned duly authorized.
OCG TECHNOLOGY, INC.
BY: /s/ Edward C. Levine
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EDWARD C. LEVINE, PRESIDENT
BY: /s/ Erich W. Augustin
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ERICH W. AUGUSTIN,
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
DATED: May 10, 1996
8