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, 1998
[ ] 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 February 9, 1999
- ----------------------------- ---------------------------------------
Common Stock ($.01 par value) 29,828,224 Shares
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. - FINANCIAL INFORMATION PAGE NUMBER
Consolidated Condensed Balance Sheets
December 31, 1998 and June 30, 1998 1
Consolidated Condensed Statements of Loss for the
Three and Six Months Ended December 31, 1998 and 1997 2
Consolidated Condensed Statements of Cash Flow for
the Six Months Ended December 31, 1998 and 1997 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 9
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash $ 119,116 $ 475,323
Receivables, trade 91,792 44,380
Demand notes receivable 67,500 177,500
Other current assets 3,376 109,701
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Total current assets 281,784 806,904
------------ ------------
Property and equipment, net of accumulated depreciation
of ($491,554) ($459,941) 143,351 156,078
Proprietary technology, net of accumulated amortization
of ($3,087,410) ($3,051,806) 342,300 280,552
Other assets 124,154 115,115
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Total assets $ 891,589 $ 1,358,649
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 109,479 $ 151,740
Note Payable - related party 11,344 11,344
Due to Officer (non-interest bearing) 15,121 15,121
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Total current liabilities 135,944 178,205
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Shareholders' equity: (Note 4)
Preferred stock $.10 par value, Series E 10,000 10,000
Common stock $.01 par value 298,282 298,282
Additional paid-in capital 23,546,486 23,542,486
Deficit (22,569,373) (22,078,074)
Subscription receivable (467,250) (529,750)
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818,145 1,242,944
Less treasury stock, at cost (62,500) (62,500)
------------ ------------
Total shareholders' equity 755,645 1,180,444
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Total liabilities and shareholders' equity $ 891,589 $ 1,358,649
============ ============
See accompanying notes to consolidated condensed financial statements
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
1998 1997 1998 1997
Revenue:
Sales $ 251,763 $ 193,075 $ 539,016 $ 401,674
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 128,841 58,646 258,537 123,141
Marketing, general and
administrative 374,085 421,446 776,660 892,796
Interest - net (1,906) 187 (4,881) (70)
---------- ---------- ---------- ----------
Total Expenses 501,020 480,279 1,030,316 1,015,867
---------- ---------- ---------- ----------
Net Income (Loss) $ (249,257) $ (287,204) $ (491,300) $ (614,193)
========== ========== ========== ==========
Weighted average number of
shares outstanding
during period 29,828,224 25,154,389 29,828,224 24,834,832
========== ========== ========== ==========
Loss per Common Share $(0.01) $(0.01) $(0.02) $(0.02)
========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
1998 1997
Cash flows from operating activities:
Net income (loss) $(491,300) $ (614,193)
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Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 67,924 372,998
Issuance of stock and warrants for services 4,000 47,800
Amortization of Black Scholes valuation 21,548 4,075
Changes in assets and liabilities
(Increase) decrease in receivables (47,412) 9,288
(Increase) decrease in demand notes 110,000 (25,250)
(Increase) decrease in other current assets 106,325 4,312
(Increase) decrease in property and equipment (18,886) (5,953)
(Increase) decrease in Proprietary Technology (97,352) (59,770)
(Increase) decrease in other assets less
Black Scholes value (31,293) (34,207)
(Decrease) in accounts payable and accrued expenses (42,261) (73,836)
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Total adjustments 72,593 239,457
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Net cash used in operating activities (418,707) (374,736)
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Cash flows from financing activities:
Increase (decrease) in due to shareholders 0 0
(Increase) decrease in subscription receivable 62,500 (211,500)
Proceeds from issuance of common stock 0 1,228,900
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Net cash changes from financing activities 62,500 1,017,400
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Net increase (decrease) in cash (356,207) 642,664
Cash, beginning of period 475,323 167,996
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Cash, end of period $ 119,116 $ 810,660
========== ===========
See accompanying notes to consolidated condensed financial statements
3
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of OCG Technology, Inc. (which, together with
its subsidiaries, unless the context otherwise requires, is referred
to as the "OCGT"), 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, 1998 and the results of
operations for the three and six months ended December 31, 1998 and
1997 and the statements of cash flows for the six months ended
December 31, 1998 and 1997. The June 30, 1998 balance sheet has been
derived from OCGT's audited financial statements.
The results of operations for the six months ended December
31, 1998 are not necessarily indicative of the results to be
expected for the full year.
While OCGT 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
OCGT'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, OCGT'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 OCGT 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. Other assets decreased due primarily to the amortization
of the value previously assigned under a Black Scholes calculation
to warrants issued for marketing and corporate services to be
rendered and rent and other services. This value continues to be
amortized over the life of the services rendered .
4. Capital Changes:
During the three months ended December 31, 1998, for
services rendered in accord with the terms of a consulting
agreement, warrants were issued to purchase a total of 20,000 shares
of the OCGT's common stock at exercise prices of $0.26 and $0.39 per
share with exercise dates of said warrants expiring November 1 and
December 1, 2000. OCGT reflected a total expense of $4,000 for the
three month period ended December 31, 1998.
During the three months ended December 31, 1998 OCGT issued
warrants to acquire 150,000 shares of OCGT's common stock at an
exercise price of $0.65 which expire December 10, 2001. These
warrants were issued to an Officer and Director of OCGT. On the
date of issue the quoted market price of the OCGT's common stock was
less than the per share exercise price of the warrants.
On December 9, 1998 OCGT's Board of Directors reduced the
exercise price of previously issued warrants to $0.65 as follows:
1,217,000 warrants exercisable on or before July 25,1999 were
reduced from an exercise price of $1.09; 475,000 warrants
exercisable on or before January 14, 2000 were reduced from an
exercise price of $1.00; 447,000 warrants exercisable on or before
October 24,1999 were reduced from an exercise price of $0.75; 50,000
warrants exercisable on or before April 1,1999 were reduced from an
exercise price of $1.00; and140,000 warrants expiring between May
31,1999 and June 30, 2000 were reduced from exercise prices ranging
between $0.84 and $1.69. A significant portion of these warrants are
issued to Officers and Directors of OCGT.
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
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Total revenues increased $58,688 and $137,342 for the three and six
months ended December 31, 1998 as compared to the same periods for
1997 primarily as a result of changes in revenues of Mooney-Edwards
Enterprises, Inc. ("MIS"), a subsidiary of OCGT. Cost of sales
increased by $70,195 and $135,396 for the three and six months ended
December 31, 1998 as compared to the same periods for 1997. The
sales of OCG Technology, Inc. ("OCGT"), Prime Care Systems, Inc.
("PSI") and MIS were $0, $10,485 and $528,190 respectively, for the
six months ended December 31, 1998.
Marketing, general and administrative expenses decreased $47,361 and
$116,136 for the three and six months ended December 31, 1998 as
compared to the same periods for 1997. OCGT's expense increased and
PSI's expenses decreased in the three and six months ended December
31, 1998 as compared to the same periods in 1997. OCGT's expense
increased due to increased marketing salaries and increased
corporate expenses, including amortization of Black Scholes
valuations. PSI's expenses decreased due to a reduction in
amortization as a result of the completion of write off of the value
of the DOS version of the PrimeCare System and capitalization of
costs of the Windows version of the PrimeCare Patient Management
System.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1998 OCGT had a current ratio of 2.07 to 1 compared
to 8.72 to 1 as of December 31, 1997. The net loss from operations
for the six months ended December 31, 1998 was $491,300 of which
loss non-cash charges of $93,472, accounted for 19% of the total
loss from operations. OCGT 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 OCGT, and the exercise of warrants to fund its
operations. OCGT's auditors have included an explanatory paragraph
in OCGT's Audited Financial Statements regarding the ability of OCGT
to continue as a "going concern".
Cash on hand and accounts receivable were $210,908 at December 31,
1998. OCGT also has $534,750 of demand notes due principally from
officers and directors related to their exercise of warrants;
$67,500 of these notes were paid in cash to OCGT subsequent to
December 31, 1998. In the past, OCGT's principal means of overcoming
its cash shortfalls from operations was from the sale of OCGT's
common stock and the exercise of warrants. During the six months
ended December 31, 1998 OCGT did not need to raise cash through the
sale of equity interests . Although, in the past, OCGT has been able
to provide working capital through the sale of equity interests in
OCGT and through the exercise of warrants, there can be no
assurances that OCGT will succeed in its efforts.
PrimeCare Systems, Inc.(" PSI"), a Delaware corporation, was
acquired by OCGT as of May 16, 1994. PSI owns all right, title and
interest in the PrimeCareTM System, which is protected by
copyrights. The PrimeCareTM System is a patient-centered,
interactive, computer program that brings efficiencies to the
patient/physician encounter while improving the standard of care and
reducing costs. Patients interact directly with the PrimeCareTM
System, during what is usually waiting time. A detailed patient
history is obtained without taking any of the physician's time.
Patients are seated at a computer and answer complaint-specific
questions by using just the number keys to indicate answers that
apply to them; no typing or computer skills are required. The
software also has bilingual capabilities, allowing Spanish-speaking
patients to interact in their preferred language. When the patient
questionnaire is completed, the PrimeCareTM System creates a
preliminary report for the physician to review before examining the
patient. The preliminary report contains the patient's current
problems, medications and allergies, all positive and significant
negative subjective responses, vital signs and a list of the
diagnostic considerations triggered by the patient's responses. By
freeing up the time physicians would normally have to spend asking
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patient history questions and recording responses, PrimeCareTM
permits physicians to see more patients in less time , while
improving the quality of care. The PrimeCareTM System is also easy
for the physician to understand and use . The same simple key stroke
process lets the physician document: his physical findings, his
assessment, the treatment plan, the prescribed medications and
select patient education materials. At the conclusion of the
encounter a final report of the visit , patient educational
materials, and prescriptions are printed for the patient.
The principal markets for the PrimeCare(TM) System are
ambulatory/outpatient medical facilities, such as, primary care
physicians, medical clinics and staff health maintenance organizations.
The PrimeCare(TM) System has harnessed the computer to bring
efficiency to the management of a medical practice. The
PrimeCare(TM) System: standardizes the patient record; assures
consistency in patient care; creates a patient database for clinical
and outcomes research; offers, both local and remote, means for
utilization review and quality assurance audits; improves the
quality of care; increases efficiency and productivity of the
physician's practice; automatically generates a problem list;
incorporates patient care algorithms and clinical practice
guidelines; permits, both local and remote, on-line electronic
retrieval of patient record and hard copy print out with appropriate
security controls; enables rapid access to important patient data
for clinical care; contains and provides patient education,
complaint oriented and medication specific; provides physician
reference materials.
The PrimeCare(TM) System requires continual: (1) updates of
medical content; (2) additions and enhancements to expand the scope
of the system; and (3) incorporation of advances in both hardware
and software technology to maintain a "state of the art" system. On
September 15, 1995, PSI entered into an agreement with the Mount
Sinai School of Medicine ("MSSM") which provides for the MSSM to
assume the task of updating and enhancing the medical content of the
PrimeCare(TM) System. OCGT has completed development of the Windows
95/NT version of the PrimeCare(TM) System and has also completed an
interface which enables the PrimeCare(TM) System to communicate with
other systems used in medical facilities. This provides a method for
these systems to transfer information to the PrimeCare(TM) System,
such as patient demographics and appointment scheduling. OCGT has
also completed its side of interface capabilities to enable the
PrimeCare(TM) System to transfer information (such as billing
information including E&M codes, ICD9 codes and CPT codes) to these
other systems. OCGT has ceased supporting its DOS version of the
PrimeCare(TM) System.
OCGT has also completed other enhancements and features to
the operation of the PrimeCare(TM) System which includes:
(1) The addition of voice command recognition capability
enables the physician to use voice commands instead of keystrokes or
mouse clicks to document normal & abnormal physical findings, the
assessment, select tests, treatment plan, prescriptions, drug
interaction checks, patient education materials to be dispensed and
schedule follow-up visits.
(2) As an additional option, a touch screen may be used by
the patient and physician instead of the key board, mouse or voice
command recognition. All keystrokes, mouse clicks or voice commands
are duplicated by the touch screen hardware and software.
(3) The PrimeCareTM System can now use Microsoft's SQL
Server, in addition to Interbase, as a database. This expands the
flexibility of the PrimeCareTM System since it enables medical
facilities that are using MS SQL Server database for practice
management systems and other software to add PrimeCareTM without
purchasing an additional database. Both databases support
distributed processing in local and wide area networks.
(4) OCGT has introduced PrimeCareTM on the Web, which is a
secure Internet enhanced version of the PrimeCareTM System.
PrimeCareTM on the Web enables the patient to complete one, or more,
detailed medical history questionnaires that relate to the patient's
chief complaint, as selected by their physician. The patient, using
a unique ID and password, can securely and anonymously complete the
questionnaire(s) from the comfort of their home, workplace, school,
vacation site or even while waiting to see their physician, if
Internet capability is available. The medical report generated for
the physician contains the patient's responses, and a list of
differential diagnoses associated with the patient's responses. The
report highlights the significant diagnoses and enables the
6
physician to choose an appropriate preliminary course of action.
OCGT has commenced marketing the Windows 95/NT version of
the PrimeCareTM System. The marketing of the PrimeCareTM System was
initiated in the northwest Florida area through MIS (see below).
Installations were limited to two sites to enable both PSI and MIS
to review and evaluate the procedures established for installation
and training. This initial commercial marketing of the PrimeCareTM
System has been very successful. In the first medical practice in
which the PrimeCareTM System was installed efficiency radically
improved. The number of patients seen during normal office hours
increased two patients per hour through use of the PrimeCareTM
System . At the same time, the documentation of the patient record
and the quality of care greatly improved. This was substantiated
during a periodic review of the medical records of this medical
practice, conducted by a large nationally known managed health care
plan (the "Plan"), an insurance carrier with whom the physician has
contracted. The Plan's reviewer evaluated the medical records
maintained by this medical practice and gave a score of 100, based
on a scale of 0 to 100. The reviewer's comments stated: "There has
been a recent improved documentation product called PrimeCare that
will greatly improve the quality of care and continuity of care for
the patients." Based information and experience learned during the
initial marketing program, OCGT made modifications and improvements
to enhance the PrimeCareTM System.
Thereafter, a program was commenced to recruit distributors
to market the PrimeCare(TM) System. The type of distributors sort
by OCGT are those who currently sell, install and service medical
office and billing systems to medical facilities. MIS (see "Medical
Information Systems" below) is the first of such dealers to be
recruited and has licensed and installed the Windows 95/NT version
of the PrimeCare(TM) System in medical facilities on a pay per use
basis. Having reached the point in product development where a full
marketing effort was desirable, OCGT during January 1998 engaged an
experienced healthcare professional whose primary responsibility was
to review existing plans and to modify and enhance these plans to
develop a comprehensive sales and marketing program and thereafter
carry-out this program. These marketing and sales program has been
completed, including creation and printing of new product
literature, and a new exhibit booth. The completed plans call for
the PrimeCareTM System to be marketed primarily through the
following business models:
(a) recruitment of value added resellers ("VARs")
and authorized dealers
(b) direct sales to large at-risk healthcare entities
(c) private labeling opportunities
Full product roll-out commenced in the end of May at a
medical conference in San Antonio where OCGT participated as an
exhibitor. Exhibiting OCGT's products at selected health care
industry conventions is a component of the marketing and sales
program. OCGT appeared as an exhibitor at two health care industry
conventions in the month of October. Several VARs, who sell,
install, and service, billing systems to medical facilities, have
agreed to market the PrimeCareTM System. However, no assurances can
be given that OCGT's marketing plan will succeed.
OCGT markets the PrimeCareTM System as a service, on a pay
for use basis, with a maximum charge of $2.00 per patient visit.
This charge per patient visit has been increased from $1.50. This
marketing method eliminates a significant financial commitment to
purchase the software, plus monthly maintenance charges for updates,
and ties the cost directly to use. Physician users have stated that
the financial benefits derived by the physician from use of the
PrimeCareTM System exceeds the $2.00 cost per patient visit. One
such benefit is the elimination of the need to dictate, transcribe
and then review the transcription of the entire patient record.
Transcribing costs range between $4 and $7 per page.
The CodeComplierTM
- ------------------
OCGT has completed development of software which computes
the E&M code. Designed to be used in conjunction with OCGT's
PrimeCareTM System, CodeComplierTM takes the guess work out of E&M
compliance. As each item of information is entered into and
collected by the PrimeCareTM System during the patient encounter,
the CodeComplierTM organizes the data in the proper classification
and using the 1997 HCFA guidelines, automatically calculates the
7
applicable E&M code.
Since the CodeComplierTM automatically calculates the
applicable E&M code from data collected by the PrimeCareTM System
during the patient encounter, it totally eliminates the time and
effort which would otherwise be required by physician office
personnel to complete this task. The marketing strategy is to offer
the CodeComplierTM to medical facilities interested in the
PrimeCareTM System. OCGT markets the CodeComplierTM as a service, on
a pay for use basis, with a maximum charge of $1.00 per patient
visit. This pricing method conforms to OCGT's philosophy of tying
the product's cost directly to its use. OCGT believes that the
saving in labor costs and other financial benefits derived by the
physician from use of the CodeComplierTM far exceeds the $1.00 cost
per patient visit.
According to the American Medical Association, there are
over 650,000 physicians in the U.S., creating a very large potential
market for the System. OCGT 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 a combined total fee for the PrimeCareTM System and the
CodeComplierTM of $2.00 per visit, each 100 physicians using the
System could generate revenues of $1,200,000 per year for OCGT.
However, no assurances can be given that a significant number of
physicians will contract for and use the PrimeCareTM System and the
CodeComplierTM.
OCGT's wholly owned subsidiary, Mooney-Edwards Enterprises,
Inc. d/b/a Medical Information Systems ("MIS"), a Florida
corporation was acquired by OCGT on June 25, 1992. MIS has been a
growing operation in a segment of the medical field. MIS markets
computer systems to providers of medical services. The packages
include hardware, software, staff training and provides for an
annual service contract. In addition to the basic accounts
receivable and insurance billing applications, MIS can provide the
offices with appointment scheduling, accounts payable, general
ledger, payroll and word processing programs. The service contracts
provide for ongoing software upgrades, continuing education and
system maintenance.
The turnkey packages sold by MIS primarily use the "Medical
Manager" ("MM") software program. MIS is the area dealer for MM
which is reputed to be the most widely used software package in the
medical industry. As stated above MIS is now also marketing the
PrimeCare(TM) System to its current customers and other medical
facilities.
In the past, OCGT sold its Cardiointegraph ("CIG"), a
proprietary heart diagnostic instrument for the early detection of
coronary heart disease, through medical distributors, a sales and
marketing method employed by other medical equipment manufacturers.
Although Cardiointegraphs were sold for ten consecutive fiscal years
and the end user purchasers (i.e., physicians and corporate and
governmental medical departments) appear to find the unit useful,
the CIG business segment has been unable to generate sufficient
revenues to fund its operations or to operate at a profit. OCGT
believes that lack of universal reimbursement for the CIG has
hindered its attempt to sell the CIG. OCGT believes that marketing
the CIG technology as a service, with a minimal fee charged to the
physician per CIG generated, may free the physician from the general
reluctance of physicians to purchase medical diagnostic equipment
not reimbursed by Medicare.
OCGT believes that it could provide sufficient working capital from
operations through marketing the Window 95/NT version of the
PrimeCareTM System, CodeComplierTM, PrimeCareTM on the Web and
expanding the operations of MIS.
Currently, OCGT has no lines of credit and has no material
commitments for capital expenditures outstanding.
8
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.
9
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 9, 1999
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