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, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to__________ Commission file number 0-5186 ----------------- OCG TECHNOLOGY, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 13-2643655 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 450 West 31st Street, New York, New York 10001 ---------------------------------------------- (Address of principal executive offices) (212) 967-3079 ------------------------- (Issuer's telephone number) (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 13, 1997 - ----------------------------- ---------------------------------- Common Stock ($.01 par value) 24,283,759 Shares OCG TECHNOLOGY, INC. AND SUBSIDIARIES INDEX PART I. - FINANCIAL INFORMATION PAGE NUMBER - -------------------------------- ----------- Consolidated Condensed Balance Sheets March 31, 1997 and June 30, 1996 1 Consolidated Condensed Statements of Loss for the Three and Nine Months Ended March 31, 1997 and 1996 2 Consolidated Condensed Statements of Cash Flow for the Nine Months Ended March 31, 1997 and 1996 3 Notes to Consolidated Condensed Financial Statements 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 8 OCG TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31,1997 JUNE 30, 1996 (UNAUDITED) (AUDITED) ASSETS Current Assets: Cash $329,698 $318,088 Receivables, trade 93,444 45,441 Demand notes due from officers/directors 82,000 0 Other current assets 38,794 35,606 ---------- ---------- Total current assets 543,936 399,135 Property and equipment, net of accumulated depreciation of $328,928 $261,178 240,764 199,603 Proprietary technology, net of accumulated amortization of $1,725,000 $1,275,000 1,441,885 1,725,000 Covenant not to compete, net of accumulated amortization $237,500 $200,000 12,500 50,000 Other assets 29,654 29,233 ---------- ---------- Total assets $2,268,739 $2,402,971 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Due to shareholders $33,344 $11,344 Accounts payable and accrued expenses 149,596 223,420 ---------- ---------- Total current liabilities 182,940 234,764 ---------- ---------- Shareholders' equity: (Note 4) Preferred stock $.10 par value, Series E 10,000 10,000 Common stock $.01 par value 242,837 231,515 Additional paid-in capital 21,097,795 20,384,287 Deficit (19,198,894) (18,381,343) Unearned compensation (Note 3) (3,439) (13,752) ---------- ---------- 2,148,299 2,230,707 Less treasury stock, at cost (62,500) (62,500) ---------- ---------- Total shareholders' equity 2,085,799 2,168,207 ---------- ---------- Total liabilities and shareholders' equity: $2,268,739 $2,402,971 ========== ========== <FN> See accompanying notes to consolidated condensed financial statements 1 OCG TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, 1997 1996 1997 1996 -------- -------- -------- -------- Revenue: Sales $245,760 $212,079 $639,203 $571,219 -------- -------- -------- -------- Costs and expenses: Cost of sales 78,873 105,500 240,363 229,135 Marketing, general and administrative 392,830 419,976 1,216,391 1,198,116 -------- -------- --------- --------- Total Expenses 471,703 525,476 1,456,754 1,427,251 -------- -------- --------- --------- Net Income (Loss) ($225,943) ($313,397) ($817,551) ($856,032) ======== ======== ========= ========= Weighted average number of shares outstanding during period 24,256,759 21,280,203 23,543,898 19,032,405 ========== ========== ========== ========== Loss per Common Share ($0.01) ($0.01) ($0.03) ($0.04) ========== ========== ========== ========== <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, 1997 1996 ---------- ---------- Cash flows from operating activities: Net income (loss) ($817,551) ($856,032) ---------- ---------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 556,309 547,071 Issuance of stock and warrants for services 52,625 0 Amortization of unearned compensation 10,313 19,686 Changes in assets and liabilities (Increase) decrease in receivables (48,003) (14,369) (Increase) decrease in demand notes (82,000) (Increase) decrease in other current assets (3,188) (2,500) (Increase) decrease in property and equipment (108,911) (29,421) (Increase) decrease in Proprietary Technology (166,885) (Increase) decrease in other assets (1,480) 300 (Decrease) in accounts payable and accrued expenses (73,824) (4,973) --------- --------- Total adjustments 134,956 515,794 --------- --------- Net cash used in operating activities (682,595) (340,238) --------- --------- Cash flows from financing activities: Increase (decrease) in due to shareholders 22,000 85,000 Proceeds from issuance of common stock 672,205 255,000 --------- --------- Net cash changes from investing and financing activities 694,205 340,000 --------- --------- Net increase (decrease) in cash 11,610 (238) Cash, beginning of period 318,088 51,645 --------- --------- Cash, end of period $329,698 $51,407 ========= ========= <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, 1997 and the results of operations for the three and nine months ended March 31, 1997 and 1996 and the statements of cash flows for the nine months ended March 31, 1997 and 1996. The June 30, 1996 balance sheet has been derived from the Company's audited financial statements. The results of operations for the nine months ended March 31, 1997 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 is computed using the weighted average number of shares outstanding during the periods. The effect of warrants 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 for services. 4. Capital Changes and Demand Notes Receivable: During the three months ended March 31, 1997 warrants were exercised to purchase 390,000 shares of the Company's common stock for $177,750 consisting of cash of $95,750 and demand notes of $82,000 and the shares were issued. The demand notes were issued by two Officers/Directors to the Company, are collateralized by common stock of the Company owned by these individuals and bear interest at the prime rate. During the three months ended March 31, 1997 the Company's Board of Directors approved the issuance of 400,000 warrants to acquire 400,000 shares of the Company's common stock at an exercise price of $1.00 which expire January 14, 2000. 350,000 of these warrants were issued to Officers and Directors of the Company. On the date of issue the quoted market price of the Company's common stock was less than the per share exercise price of the warrants. During the nine months ended March 31, 1997 for services rendered in accord with the terms of a consulting agreement, warrants were issued to purchase a total of 90,000 shares of the Company's common stock at exercise prices ranging between $0.91 to $1.62 with exercise dates of said warrants expiring between July 1, 1999 to March 1, 2000. The Company reflected a total expense of $18,000 for the nine month period ending March 31, 1997. During the three months periods ended December 31,1996 and March 31, 1997, pursuant to the terms of an agreement for public relations services to be rendered to the Company, the Company issued 4,000 and 2,500 shares, respectively, of its common stock for services rendered to date. The Company reflected an expense of $4,000 and $2,500 in its Statement of Operations for the three months ended December 31, 1996 and March 31, 1997, respectively. During the three months ended March 31, 1997, pursuant to the terms of an agreement with planning and marketing consultants, the Company issued 30,000 shares of its common stock. The Company reflected an expense of $28,125 in its Statement of Operations for the three months then ended. On December 22, 1996, 352,300 shares of the Company's common stock were sold for $299,455($0.85 per share) in a private placement, which was exempt from registration under Section 4(6) of the Securities Act of 1993, to individuals, all of whom were "accredited investors". During the three months ended December 31, 1996 warrants were exercised to purchase 240,000 shares of the Company's common stock for the sum of $111,000 and the shares of stock were issued. During the three months ended September 30,1996, 68,400 shares of the Company's common stock were sold for $0.95 per share, the gross proceeds of which were $65,000. During the three months ended September 30, 1996, warrants were exercised to purchase 12,500 shares of the Company's common stock for the sum of $5,000 and the shares of stock were issued. During the three months ended September 30, 1996 the Company's Board of Directors approved the issuance of 1,220,000 warrants to acquire 1,220,000 shares of the Company's common stock at an exercise price of $1.09 which expire July 25, 1999. 560,000 of these warrants were issued to Officers/Directors of the Company. On the date of issue the quoted market price of the Company's common stock was less than the per share exercise price of the warrants. 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 $33,681 and $67,984 for the three and nine months ended March 31, 1997 as compared to the same periods for 1996 primarily as a result of an increase in revenues of PrimeCare Systems, Inc. ("PSI") and Mooney-Edwards Enterprises, Inc. ("MIS"), subsidiaries of the Company. Cost of sales decreased by $26,627 and increased by $11,228 for the three and nine months ended March 31, 1997, respectively, as compared to the same periods for 1996. The sales of OCG Technology, Inc. ("OCGT"), PSI and MIS were $1,082, $45,071 and $593,050 respectively, for the nine months ended March 31, 1997. Marketing, general and administrative expenses decreased $27,146 and increased $18,275 for the three and nine months ended March 31, 1997, respectively, as compared to the same periods for 1996. PSI's expense decreased in the three months and nine months ended March 31, 1997, primarily due to the capitalization of $58,183 and $166,885, respectively, of salaries and related costs incurred in the development of the Windows version of the PrimeCare Patient Management System. Liquidity and Capital Resources - ------------------------------- At March 31, 1997 the Company had a current ratio of 2.97 to 1 compared to .49 to 1 as of March 31, 1996. The increase primarily resulted from the sale of equity interests and the exercise of warrants. Although the net loss from operations for the nine months ended March 31, 1997 was $817,551 most of the loss resulted from non-cash charges of $619,247, which accounted for 76% of the total loss from operations. The Company has experienced recurring losses from operations and has been unable to provide sufficient working capital from operations and has relied on the sale of equity interests in the Company 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 $423,142 at March 31, 1997. The Company also has $82,000 of demand notes due from officers/directors related to their exercise of warrants (see Notes to Financial Statements). 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, 1997, the Company raised $672,205 through the sale of equity interests and the exercise of warrants. The Company intends to provide additional working capital through the sale of equity interests in the Company. Although, in the past, the Company has been able to provide working capital through the sale of equity interests in the Company, there can be no assurances that the Company will succeed in its efforts. As of May 16, 1994, PrimeCare Systems, Inc. ("PSI") was acquired by the Company. PSI owns the sole and exclusive right, title and interest in the PrimeCare(TM) Patient Management System (the "System"), which is protected by copyrights. This DOS based System includes a patient-centered integrated medical interview, encounter documentation, physician and patient education data, 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 medical content of the System is updated from time to time to ensure that it reasonably reflects currently accepted medical knowledge. To accomplish this the Company, on September 15, 1995, 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 System. Having concluded the agreement with MSSM, the Company, in early 1996, commenced the development of a network of dealers to market the System. The Company currently has arrangements with a number of dealers to sell the PrimeCare(TM) System and intends to continue to enlarge this network of independent dealers. The Company markets the System as a service, on a pay for use basis, with a charge of $1.50 per patient visit. This marketing method eliminates a significant financial commitment to purchase the software, plus monthly maintenance charges for updates, and ties the cost directly to use. The financial benefits derived by the physician from use of the System exceed $1.50 cost per patient visit. The Company has enhanced its software to enable the System to interface with any compatible medical billing software. 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 patient visits per month at $1.50 per visit, use by 100 physicians could generate revenues of $75,000 per month. However, no assurances can be given that a significant number of physicians will contract for and use the System. The Company has completed and recently released a Windows 95 and a Windows NT (collectively, the "Windows") version of the System. A number of additional features have been incorporated in the Windows version of the System. The Company has established its own Internet site and is in the process of completing the technology to enable physicians and their patients to access the System over the Internet and, thereby, generate patient histories to aid the physician in the diagnosis and treatment of an illness without an office visit. 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 CIG business segment has been unable to generate sufficient revenues to fund its operations or to operate at a profit. The Company believes that lack of universal reimbursement for the CIG has hindered its attempt to sell the CIG. The Company believes that marketing the CIG technology as a service, with a minimal fee charged to the physician per CIG generated, may free the physician from the general reluctance of physicians to purchase medical diagnostic equipment not reimbursed by Medicare. The Company has Cardiointegraph equipment in the final stages of manufacture, which, when completed, will be available to lease on a fee for service basis. The Company licensed its CIG technology to Compumed, Inc. ("CMPD") to enable CMPD to offer the CIG as a service to subscribers 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. Based on the experience to date, the Company does not believe that the service will be marketed successfully by CMPD. The Company believes that it could provide sufficient working capital from operations through marketing the PrimeCare(TM) System and marketing the CIG as a service. Currently, the Company has no lines of credit and has no material commitments for capital expenditures outstanding. PART II - OTHER INFORMATION 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. 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 --------------------- EDWARD C. LEVINE, PRESIDENT BY /s/Erich W. Augustin ---------------------- ERICH W. AUGUSTIN, EXECUTIVE VICE PRESIDENT (PRINCIPAL FINANCIAL OFFICER) DATED: May 14, 1997