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 December 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 February 11, 1998
- ---------------------------- ---------------------------------------
Common Stock ($.01 par value) 26,643,259 Shares
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. - FINANCIAL INFORMATION PAGE NUMBER
- -------------------------------- -----------
Consolidated Condensed Balance Sheets
December 31, 1997 and June 30, 1997 1
Consolidated Condensed Statements of Loss for the
Three Months and Six Months Ended December 31, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flow for
the Three Months Ended December 31, 1997 and 1996 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
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 7
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
----------------- -----------------
Current Assets:
Cash $ 810,660 $ 167,996
Receivables, trade 78,675 87,963
Demand notes receivable 148,750 123,500
Other current assets 4,513 8,825
----------- -----------
Total current assets 1,042,598 388,284
Property and equipment,
net of accumulated depreciation of
$405,968 $353,122 147,942 194,835
Proprietary technology, net of
accumulated amortization of
($2,199,313) ($1,879,863) 1,054,971 1,314,647
Other assets 252,143 117,139
----------- -----------
Total assets $ 2,497,653 $ 2,014,905
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $93,108 $166,944
Note Payable - related party 11,344 11,344
Due to Officer (non-interest bearing) 15,121 15,121
----------- -----------
Total current liabilities 119,573 193,409
----------- -----------
Shareholders' equity: (Note 4)
Preferred stock $.10 par value, Series E 10,000 10,000
Common stock $.01 par value 278,559 245,152
Additional paid-in capital 22,870,021 21,521,150
Deficit (20,477,499) (19,863,306)
Subscription receivable (240,500) (29,000)
----------- -----------
2,440,580 1,883,996
Less treasury stock, at cost (62,500) (62,500)
----------- -----------
Total shareholders' equity 2,378,080 1,821,496
----------- -----------
Total liabilities and shareholders' equity $ 2,497,653 $ 2,014,905
=========== ===========
See accompanying notes to consolidated condensed financial statements
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
Revenue:
Sales $ 193,075 $ 226,915 $ 401,674 $ 393,443
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 58,646 94,560 123,141 161,490
Marketing, general and
administrative 421,446 382,496 892,796 823,561
Interest - net 187 - (70) -
---------- ---------- ---------- ----------
Total Expenses 480,279 477,056 1,015,867 985,051
---------- ---------- ---------- ----------
Net Income (Loss) ($287,204) ($250,141) ($614,193) ($591,608)
========== ========== ========== ==========
Weighted average number of
shares outstanding
during period 25,154,389 21,694,476 24,834,832 21,694,476
========== ========== ========== ==========
Loss per Common Share ($0.01) ($0.01) ($0.02) ($0.03)
========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1997 1996
Cash flows from operating activities: ----------- -----------
Net income (loss) $ (614,193) $ (591,608)
Adjustments to reconcile net income (loss) ----------- -----------
to net cash used in operating activities:
Depreciation and amortization 372,998 370,167
Issuance of stock and warrants for services 47,800 16,000
Amortization of unearned compensation 0 6,876
Amortization of Black Scholes valuation 4,075 0
Changes in assets and liabilities
(Increase) decrease in receivables 9,288 (25,812)
(Increase) decrease in demand notes (25,250 0
(Increase) decrease in other current assets 4,312 2,050
(Increase) decrease in property and equipment (5,953) (80,114)
(Increase) decrease in Proprietary Technology (59,770) (108,702)
(Increase) decrease in other assets less
Black Scholes value (34,207) (1,481)
(Decrease) in accounts payable and
accrued expenses (73,836) (5,497)
----------- -----------
Total adjustments 239,457 173,487
----------- -----------
Net cash used in operating activities (374,736) (418,121)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in due to shareholders 0 22,000
(Increase) decrease in subscription receivable (211,500) 0
Proceeds from issuance of common stock 1,228,900 494,455
----------- -----------
Net cash changes from financing activities 1,017,400 516,455
----------- -----------
Net increase (decrease) in cash 642,664 98,334
Cash, beginning of period 167,996 318,088
----------- -----------
Cash, end of period $ 810,660 $ 416,422
=========== ===========
See accompanying notes to consolidated condensed financial statements
3
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 December 31, 1997 and the results of operations for the three
and six months ended December 31, 1997 and 1996 and the statements of cash
flows for the six months ended December 31, 1997 and 1996. The June 30, 1997
balance sheet has been derived from the Company's audited financial
statements.
The results of operations for the six months ended December 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. Other assets increased due primarily to the value assigned under a
Black Scholes calculation to warrants issued for marketing and corporate
services to be rendered. This value will be amortized over the life of the
services rendered.
5. Capital Changes:
During the six months ended December 31, 1997, for services rendered in
accord with the terms of a consulting agreement, warrants were issued to
purchase a total of 60,000 shares of the Company's common stock at exercise
prices ranging between $0.49 to $0.77 per share with exercise dates of said
warrants expiring between July 1 to December 1, 2000. The Company reflected a
total expense of $6,000 for the three month periods ended September 30, 1997
and December 31, 1997.
During the three month periods ended September 30,1997 and December 31,
1997, pursuant to the terms of an agreement for public relations services to
be rendered to the Company, the Company issued in each period 1,500 shares of
its common stock for services rendered to date. The Company reflected an
expense of $1,500 in its Statement of Operations for each three month period.
During the six months ended December 31, 1997, for services rendered in
accord with the terms of a consulting agreement, the Company issued 10,000
warrants to acquire 10,000 shares of the Company's common stock at an exercise
price of $1.00 per share which expire October 31, 2001. 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. These warrants have been valued under a
Black Scholes calculation.
During the three months ended December 31, 1997 warrants were exercised
to purchase 1,225,000 shares of the Company's common stock for $389,250 in
demand notes and the shares were issued. The demand notes were issued by
several individuals including four Officers /Directors to the Company, are
collateralized by common stock of the Company owned by these individuals and
bear interest at the prime rate. Subsequent to December 31, 1997 demand notes
totalling $148,750 were paid.
During the three months ended December 31, 1997 the Company issued 50,000
shares of the Company's common stock for marketing services rendered and to be
rendered. The Company recorded a prepaid asset for $32,800 (based on the
market price at date of issue) which will be amortized over the term of the
estimated service benefit.
On December 26, 1997 , 850,000 shares of the Company's common stock were sold
for $297,500 ($0.35 per share) in a private placement, which was exempt from
registration under Section 4(6) of the Securities Act of 1933, to individuals,
all of whom were "accredited investors".
During the three months ended December 31, 1997 the Company's Board of
Directors approved the issuance of 447,000 warrants to acquire 447,000 shares
of the Company's common stock at an exercise price of $0.75 which expire
October 24, 1999. These warrants were issued to employees 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 three months ended December 31,1997, pursuant to the terms of two
agreements with financial planning and public relations consultants, the
Company issued 350,000 warrants to acquire 100,000 shares and 250,000 shares
of the Company's common stock at an exercise price of $0.90 and $0.70,
respectively which expire November 1, 1999 and December 15, 1999,
respectively. 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. These
warrants have been valued under a Black Scholes calculation.
During the three months ended December 31, 1997 the Company issued 220,000
warrants to acquire 220,000 shares of the Company's common stock at an
exercise price of $0.72 which expire November 1, 2000. These warrants were
issued to an Officer at the time of his employment. 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.
6. Material Subsequent Event
On February 11, 1998, 1,212,715 shares of the Company's common stock
were sold for $542,150 ($0.45 per share) pursuant to a private placement,
which was exempt from registration under Section 4(6) of the Securities Act of
1933, to individuals, all of whom were "accredited investors". Due to the
impact of this transaction on the Company's financial position, this
transaction was deemed to be material and accordingly the sale of 1,212,715
shares for $542,150 has been reflected retroactively in the December 31, 1997
financial statements in cash and stockholders' equity. The total private
placement is for 2,500,000 shares. The Company intends to complete the
private placement which could generate additional equity in the amount of
$582,850.
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 decreased $33,840 and increased $8,231 for the three and six
months ended December 31, 1997 as compared to the same periods for 1996
primarily as a result of changes in revenues of Mooney-Edwards Enterprises,
Inc. ("MIS"), a subsidiary of the Company. Cost of sales decreased by $35,914
and $38,349 for the three and six months ended December 31, 1997 as compared
to the same periods for 1996. The sales of OCG Technology, Inc. ("OCGT"),
Prime Care Systems, Inc. ("PSI") and MIS were $0, $10,150 and $391,036
respectively, for the six months ended December 31, 1997.
Marketing, general and administrative expenses increased $43,167 and $74,048
for the three and six months ended December 31, 1997 as compared to the same
periods for 1996. OCGT's expense increased in the three and six months ended
December 31, 1997, due to increased corporate and professional fees, as
compared to the same periods in 1996. PSI expenses increased due to increased
salaries and amortization of capitalized costs of the Windows version of the
PrimeCare Patient Management System in the three and six months ended
December 31, 1997 as compared to the same periods in 1996.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1997 the Company had a current ratio of 8.72 to 1 compared to
2.07 to 1 as of December 31, 1996. Although the net loss from operations for
the six months ended December 31, 1997 was $614,910 most of the loss resulted
from non-cash charges of $425,792, which accounted for 69% of the total loss
from operations. The Company has experienced recurring losses from operations
and has been unable to provide sufficient working capital from operations and
has relied significantly on the sale of equity interests in the Company, and
the exercise of warrants and loans from 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 $889,335 at December 31, 1997. The
Company also has $389,250 of demand notes due principally from officers and
directors related to their exercise of warrants; $148,750 of these notes were
paid in cash to the Company subsequent to December 31, 1997. 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 six months ended
December 31, 1997, the Company raised $1,228,900 (inclusive of the February
11,1998 sale - see Notes to the Consolidated Financial Statements - Material
Subsequent Event) through the sale of equity interests and the exercise of
warrants. Of this amount, $389,250 was from the exercise of warrants and
$839,650 was from the sale of stock (equity interests). The Company intends to
complete the current private placement and raise an additional $582,850
through the sale of stock which will provide additional working capital.
Although, in the past, the Company has been able to provide working capital
through the sale of equity interests in the Company and through the exercise
of warrants, there can be no assurances that the Company will succeed in its
efforts.
As of May 16, 1994, PrimeCare Systems, Inc. ("PSI") was acquired by the
Company. PSI owns all right, title and interest in the PrimeCare(TM) Patient
Management System (the "PrimeCare(TM) System"), which is protected by
copyrights. The PrimeCare(TM) System comprises a patient-centered integrated
medical interview, encounter documentation, patient education and physician
reference materials, and chart creation system which, in turn, provides an
uncomplicated, standardized mechanism for collecting and documenting all
relevant clinical encounter data at minimal cost and time. The PrimeCare(TM)
System also provides a data base and means for clinical and outcomes research
as well as a means for utilization review and quality assurance audits. The
Company has completed development of the Windows 95/NT version the
PrimeCare(TM) System and has also completed an interface which enables the
PrimeCare(TM) System to communicate with other systems used in medical
facilities. This provides a method for these systems to transfer information
to the System, such as patient demographics and appointment scheduling. The
Company has completed the interface capabilities to enable the PrimeCare(TM)
System to transfer information (such as billing information including E&M
codes, ICD-9 codes and CPT codes) to these other systems. The Company is in
the process of developing a means to determine the proper E&M Coding. The
Company has ceased supporting its DOS version of the PrimeCare(TM) System. The
medical content of the System is also continually updated. On September 15,
1995, the Company entered into an agreement with the Mount Sinai School of
Medicine ("MSSM") which provides for the MSSM to assume the task of updating
and enhancing the medical content of the System.
The Company markets the PrimeCare(TM) System as a service, on a pay for use
basis, with a charge of $2.00 per patient visit. This charge per patient
visitt has been increased from $1.50. This marketing method eliminates a
significant financial commitment to purchase the software, plus monthly
maintenance charges for updates, and ties the cost directly to use. The
financial benefits derived by the physician from use of the PrimeCare(TM)
System exceed $2.00 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 $2.00 per visit, each 100 physicians
using the System could generate revenues of $100,000 per month for the
Company. However, no assurances can be given that a significant number of
physicians will contract for and use the PrimeCare(TM) System.
The Company has commenced marketing the Windows 95/NT version of the
PrimeCare(TM) System.
The marketing of the PrimeCare(TM) System was initiated in the northwest
Florida area through Medical Information Systems ("MIS"). Installations were
limited to two sites to enable both PSI and MIS to review and evaluate the
procedures established for installation and training. This initial commercial
marketing of the PrimeCare(TM) System has been very successful. In the first
medical practice in which the PrimeCare(TM) System was installed efficiency
radically improved. The number of patients seen during normal office hours
increased two patients per hour through use of the PrimeCare(TM) System . At
the same time, the documentation of the patient record and the quality of care
greatly improved. This was substantiated during a periodic review of the
medical records of this medical practice, conducted by a large nationally
known managed health care plan (the "Plan"), an insurance carrier with whom
the physician has contracted. The Plan's reviewer evaluated the medical
records maintained by this medical practice and gave a score of 100, based on
a scale of 0 to 100. The reviewer's comments stated: "There has been a recent
improved documentation product called PrimeCare that will greatly improve the
quality of care and continuity of care for the patients." A copy of this
report is attached hereto and marked Exhibit 2.
Marketing and sales plans have now been completed regarding a full product
roll-out. The marketing of the PrimeCare(TM) System will be done primarily
through the following business models:
(a) direct sales to large at-risk healthcare entities
(b) recruitment of value added resellers and authorized dealers
(c) private labeling opportunities
Several value added resellers, who currently sell, install, and service
medical office and billing systems to medical facilities, market the
PrimeCare(TM) System. Additional staff has been hired in these business areas.
In addition, the PrimeCare(TM) System will shortly be introduced into
several additional venues for evaluation purposes. These prestigious sites
have been chosen due to:
(a) a high managed care component of the patient mix
(b) high Medicare/Medicaid service area
(c) good cross section of multi-speciality medical professionals.
OCG will be meeting with the following company profiles during the
ensuing months to begin discussions relating to alliance/partnering
opportunities:
(a) data communication and networking companies
(b) physician practice management system vendors
(c) physician clinical patient record system vendors
(d) database management companies
However, no assurances can be given that the Company's marketing plan will
succeed.
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 equipme
nt not reimbursed by Medicare.
The Company licensed its CIG technology to Compumed, Inc. ("CMPD") to enable
CMPD to offer the CIG as a service to 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 Window 95/NT version of the PrimeCare(TM)
System and expanding the operations of MIS.
Currently, the Company has no lines of credit and has no material commitments
for capital expenditures outstanding.
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: February 12, 1998