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 September 30, 2003
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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)
56 Harrison Street, New Rochelle, New York 10801
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(Address of principal executive offices)
(914) 576- 8457
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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 November 6, 2003
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Common Stock ($.01 par value) 41,273,613 Shares
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 2003 and June 30, 2003 1
Consolidated Condensed Statements of Operations for the
Three Months Ended September 30, 2003 and 2002 2
Consolidated Condensed Statements of Cash Flow for
the Three Months Ended September 30, 2003 and 2002 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Controls and Procedures 13
PART II - OTHER INFORMATION
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Item 2. Changes In Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, June 30,
2003 2003
ASSETS (UNAUDITED) (AUDITED)
Current Assets:
Cash $ 18,852 $ 10,832
Accounts receivable 343
Inventory 20,217 12,260
Other current assets 3,897 5,043
Note receivable 334,500 334,500
Interest receivable 41,039 33,982
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Total current assets 418,848 396,617
Property and equipment, net of accumulated depreciation of
($636,036) and ($631,959) 14,568 17,491
Capitalized software costs, net of accumulated amortization
($542,124) and ($526,719) 308,777 285,725
Other assets 4,972 4,972
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Total assets $ 747,165 $ 704,805
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 50,920 70,656
Note payable, shareholder - current maturity 8,700 3,891
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Total current liabilities 59,620 74,547
Other liabilities:
Notes Payable, shareholder - long term 150,000 158,700
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Total liabilities 209,620 233,247
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Shareholders' equity: (Note 4)
Series C Preferred stock $.10 par value (200,000 authorized, 200,000 and 163,330
issued & outstanding, respectively) 20,000 16,333
Series E Preferred stock $.10 par value (100,000 authorized; 33,333 issued & outstanding) 3,333 3,333
Common stock $.01 par value (50,000,000 authorized; 41,273,613 issued) 412,736 412,736
Additional paid-in capital 26,111,759 25,999,426
Accumulated deficit (25,817,783) (25,767,770)
Stock subscriptions receivable (130,000) (130,000)
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600,045 534,058
Less: treasury stock, at cost (12,500 shares) (62,500) (62,500)
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Total shareholders' equity 537,545 471,558
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Total liabilities and shareholders' equity $ 747,165 $ 704,805
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See accompanying notes to consolidated condensed financial statements
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
2003 2002
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Revenues $ 73,442 $ 47,345
Less: Cost of sales 33,928 24,955
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Gross margin 39,514 22,390
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Expenses:
Marketing, general and administrative 34,813 56,828
Depreciation and amortization 19,482 39,036
Product development costs 42,202 43,841
Interest - net (6,970) (6,609)
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Total expenses 89,527 133,096
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Net loss $ (50,013) $ (110,706)
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Weighted average number of shares outstanding during the period 41,273,613 39,890,493
============ ============
Loss per Common Share - basic and diluted $ (-)* $ (-)*
============ ============
*Amounts less than ($.005)
See accompanying notes to consolidated condensed financial statements
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended September 30,
2003 2002
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Cash flows from operating activities:
Net loss $ (50,013) $ (110,706)
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Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 19,482 39,036
Issuance of stock and warrants for services 6,000 6,000
Changes in assets and liabilities
Increase in receivables (7,400) (8,179)
Decrease in other current assets 1,146 26,896
(Increase) decrease in inventory (7,957) 1,368
(Increase) decrease in accounts payable and
accrued expenses (19,736) 3,874
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Total adjustments (8,465) 68,995
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Net cash used in operating activities (58,478) (41,711)
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Cash flows from investing activities:
Increase in note receivable 0 (9,500)*
Capitalized software development costs (38,457) (43,673)
Increase in property and equipment (1,154) (7,350)
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Net cash used in investing activities (39,611) (60,523)
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Cash flows from financing activities:
Increase (decrease) in notes payable (3,891) 56,967*
Proceeds from sale of common stock 0 9,500*
Proceeds from sale of Series C Preferred Stock 110,000 0
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Net cash provided by financing 106,109 66,467
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Net increase (decrease) in cash 8,020 (35,767)
Cash, beginning of period 10,832 37,191
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Cash, end of period $ 18,852 $ 1,424
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*Reclassified for comparative purposes
See accompanying notes to consolidated condensed financial statements
3
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - ORGANIZATION
OCG Technology, Inc. ("OCG") together with its subsidiaries is engaged in
the development, marketing, and distribution of software and diagnostic products
for the healthcare industry.
The Company entered into an Internet service agreement with a medical
center for the use of its medical websites. Through use of these websites, OCG
expects to receive advertising revenue from its advertisers. The Company has
entered into a revenue sharing agreement whereby the medical center will receive
30% of all advertising revenues.
2 - BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and applicable rules and regulations of the Securities and Exchange
Commission. They do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting primarily of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. The
accompanying financial statements should be read in conjunction with the
Company's audited financial statements included in the Form 10KSB for the year
ended June 30, 2003.
The condensed consolidated financial statements include the accounts of
the Company and all of its wholly owned and majority owned subsidiaries. All
significant inter-company balances and transactions have been eliminated.
3 - GOING CONCERN
The Company has experienced recurring losses from operations and has
relied on the sale of equity interests in the Company to fund its operations. If
necessary, 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, which creates a doubt about its ability to continue as a going concern.
During the prior fiscal year, the Company's marketing efforts had been
concentrated on its Web products. However, during the fiscal year ended June 30,
2002, the PrimeCare(TM) System was selected to be part of a major international
health care information management program anticipated to be installed in a
number of countries as their health care information system. The first of these
country contracts was recently announced. A five year, three-phase contract was
awarded to create a health care information infrastructure for a nation of 11
million people. During phase one of the contract, the current health care
infrastructure of the country will be assessed to determine the final
specifications for the new system. After approval of the final specifications by
the country's Ministry of Health the second phase will commence. The second
phase consists of the installation and operation of a comprehensive health care
information system throughout the country. Upon commencement of phase two,
PrimeCare(TM) Version 9 will be an integral part of the country's comprehensive
health care information system. PrimeCare(TM) Version 9 will provide health care
personnel and patients a simple, effective means of entering medical data for
processing and analysis. Successful completion of these contracts should produce
significant revenues for the Company and should materially increase the
awareness of PrimeCare(TM) Version 9 in the health care industry. The actual
value of this contract cannot be determined at this time. The Company does not
anticipate any revenues from this contract until the fourth quarter of the
current fiscal year
4 - PER SHARE DATA
Basic income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding
during the periods. Diluted income per share is computed by dividing the net
income by the weighted average number of shares of common stock and warrants
outstanding during the period. Stock warrants have been excluded from the
diluted loss per share and have not been presented because their effect would
have been antidilutive.
4
5 - SHAREHOLDER'S EQUITY
During the three months ended September 30, 2003, for services rendered
in accordance with the terms of a consulting agreement, warrants were issued to
purchase a total of 15,000 shares of the Company's common stock at the exercise
price of $0.15 per share with exercise dates of said warrants expiring between
September 1, 2005 and December 1, 2005. The Company reflected a total expense of
$6,000 for the three month period ending September 30, 2003.
During the three months ended September 30, 2003, an aggregate of 36,670
shares of the Company's Series C Preferred Stock, par value $0.10 per share,
were sold for $110,000 or $3.00 per share.
6 - NOTE RECEIVABLE
The Company has advanced funds totaling $334,500, plus accrued interest
at 7% per annum, pursuant to a grid note, dated February 4, 2002 (the "Note").
In consideration for these advances, the Company received warrants to purchase
common stock of the borrower, exercisable over a period of three years from the
date of issuance, at a price of $0.25 per share. The Company received a security
interest in accounts receivable of the borrower anticipated to be generated
under certain sales contracts which provide for borrower to install and maintain
the health care system for certain countries. The Company is also a
subcontractor of the borrower. The borrower has recently announced that it has
received the first of these contracts. On October 10, 2003, the Company agreed
to accept 3,709,230 restricted (unregistered) shares of the borrower's common
stock, par value $0.0001 per share, (the "Stock") in full payment of the Note
and accrued interest. The market value on November 7, 2003, of the Stock
received was $519,292. See "Management's Discussion and Analysis - Revenue
Sources and Marketing Strategy."
7 - NOTES PAYABLE
A demand note of $8,700 is payable to a shareholder.
A note payable to a shareholder of $50,000 is unsecured, bears interest
at 4% per annum and is convertible into 5,000 shares of Series C Preferred Stock
at the rate of $10 per share. The date for payment of the note has been extended
until June 15, 2005.
A note payable to a shareholder in the amount of $100,000 is unsecured,
bears interest in the form of warrants to purchase 100,000 shares, on or before
February 4, 2004, of the Company's common stock at the purchase price of $0.10
per share. The date for payment of the note has been extended until February 4,
2005.
8 - NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
46"). FIN 46 is applicable immediately for variable interest entities created
after January 31, 2003. For variable interest entities created before February
1, 2003, the provisions of FIN 46 are applicable no later than the end of the
first interim or annual period ending after December 15, 2003. The Company has
had no transactions with any variable interest entities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments that, under
previous guidance, could be classified as equity or "mezzanine" equity, by now
requiring those instruments to be classified as liabilities (or assets in some
circumstances) in the Consolidated Balance Sheet. Further, SFAS No. 150 requires
disclosure regarding the terms of those instruments and settlement alternatives.
The guidance in SFAS No. 150 generally is effective for all financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has evaluated SFAS No. 150 and determined that it does not
have an impact on the Company's financial reporting and disclosures.
5
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:
General
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The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
The following discussion contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include predictions, estimates and other statements
that involve a number of risks and uncertainties. While this outlook represents
the Company's current judgment on the future direction of the business, such
risks and uncertainties could cause actual results to differ materially from any
future performance suggested herein.
The Company has experienced recurring losses from operations and has relied on
the sale of equity interests in the Company to fund its operations. If
necessary, 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, which creates a doubt about its ability to continue as a going concern.
The results of operations for prior periods is based on the Company's continuing
operations.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our discussion and analysis of our financial condition and results of operations
following are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles of the
United States of America. The preparation of these financial statements requires
us to make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We believe that the estimates, assumptions and judgements
involved in the accounting policies described below have the greatest potential
impact on our financial statements, so we consider these to be our critical
accounting policies. Because of the uncertainty inherent in these matters,
actual results could differ from the estimates we use in applying the critical
accounting policies. Within the context of these critical accounting policies,
we are not currently aware of any reasonably likely events or circumstances
which would result in materially different amounts being reported.
Capitalized Software Costs
- --------------------------
Capitalized software costs are amortized over the estimated useful life. Changes
in circumstances, such as technological advances or shortfalls in marketing
estimates, can result in differences between the actual and estimated useful
life. In that case, we re- estimate the value and useful life of this long-lived
asset and make the necessary adjustments to reflect the asset at its proper
estimated value and amortize it over the remaining estimated useful life.
Revenue Recognition
- -------------------
The Company has four sources of income: (1) sale of inventoried merchandise on
our Web sites; (2) commissions received from vendors who link to our Web sites;
(3) advertising fees; and (4) software license fees.
Sale of inventoried merchandise.
- --------------------------------
This revenue stream is reported on a "gross" basis in compliance with EITF
99-19, because we purchase the merchandise from the source we select; are at
risk for the purchaser's credit; and we ship the merchandise. We report the
gross sales price as revenue and expense the cost of the merchandise and the
shipping costs as "cost of sales". The Company is almost always paid by credit
card at the time of purchase and occasionally by check. Sales are booked when
the merchandise is shipped. The merchandise is not shipped until the credit is
approved.
6
Commissions received from vendors
- ---------------------------------
The Company acts as a commissioned broker by displaying a vendors products on
the Company's Web sites. When a consumer indicates a desire to purchase an item,
the order is collected through the Web site and processed by the third party
seller. The Company receives a commission on such sale after it is consummated.
When the Company is paid, it reports the "commissions" on a "net" basis in
compliance with EITF 99-19. The Company reports commissions this way because:
(a) it does not have any direct costs; (b) it does not purchase the product
sold; and (c) it does not have any credit risk on the sale, and it does not
handle or ship the product when sold. The Company merely passes to the seller,
an interested buyer and it is unaware of the consummation of the sale until it
receives a commission check from the seller. At that time we report the revenue
on a "net" basis.
Advertising fees
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The Company receives fees for placing advertisements on its Web sites. The
advertising fees are a flat amount for the month. At the end of the month the
Company sends an invoice to the advertiser and enters it on its books as income
from advertising fees.
Software license fees
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The Company accounts for software license fees in accord with SOP 97-2. Revenues
are recognized when all of the following criteria are met: (a) persuasive
evidence of an arrangement exists; (b) delivery has occurred; (c) the vendors
fee is fixed or determinable; and (d) collectiblity is probable.
All licenses are evidenced by a written contract. License fees are either annual
fees, generally payable quarterly in advance, or are based on uses, which are
purchased before use. The license fee includes updates to the software, but only
during the term of the license. The software contains considerable medical
information and the Company keeps this medical content reasonably current. The
Company does not sell the software or any updates separately and therefore, has
not established VSOE. The Company recognizes income ratably over the license
term.
Prepaid annual license fees will be accounted for as "Prepaid income" and will
be treated as sales when earned. Purchased uses are not refundable and are
accounted for as sales at the time of sale.
Results of Operations
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Total revenues increased to $73,442 for the three months ended September 30,
2003 from $47,345 for 2002 as the result of an increase in the sale merchandise
due an increase of visitors to our Web sites and the Company securing
advertising contracts. Cost of sales increased from $24,955 for the three months
ended September 30, 2002 to $33,928 for the three months ended September 30,
2003. The Company's revenues for the three months ended September 30, 2003,
consisted of: $53,925 from the sale of merchandise (an increase of $11,875 for
the same period in 2002); $2,237 from commissions (a decrease of $3,058 for the
same period in 2002); and $17,280 from advertising fees (all of which was an
increase over the same period in 2002).
Marketing, general and administrative expenses decreased $22,015 for the three
months ended September 30, 2003, as compared to the same period for 2002,
primarily from the decrease of approximately: $20,000 in sales and marketing
expenses.
Amortization of capitalized software costs decreased approximately $16,000 for
the three months ended September 30, 2003, as a result of the writeoff of
$187,819 of these costs during the year ended June 30, 2003 in compliance with
the Company's policy relating to re-estimating the value and useful life of this
long-lived asset (see "Critical Accounting Policies and Estimates - Capitalized
Software Costs" above). In both periods, the item was included in Depreciation
and amortization rather than Cost of sales because they relate to PrimeCare
Version 9 which did not generate income.
7
Liquidity and Capital Resources
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At September 30, 2003, the Company had a current ratio of 7.03 to 1 compared to
5.23 to 1 as of September 30, 2002. The increase in current ratio is due
primarily to the increase in cash, inventory and interest receivable. The net
loss from operations for the three months ended September 30, 2003, was $50,013
compared to $110,706 for the same quarter of 2002. The reduction in the net loss
from operations was due to an increase of approximately $17,000 in net revenues
and a decrease of approximately $22,000 in marketing, general and administrative
expenses and approximately $20,000 in depreciation and amortization for the
three months ended September 30, 2003, as compared to the same quarter of 2002.
Approximately $26,000 or 53% of the net loss from operations for the three
months ended September 30, 2003, were non-cash charges consisting of
Depreciation and Amortization in the amount of $19,482; Consulting Services in
the amount of $6,000 paid through the issuance of 15,000 warrants; and decreases
in Prepaid Expenses in the amount of $1,146. 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.
Cash on hand, inventory, receivables, and notes receivable were $414,951 at
September 30, 2003. During the quarter ended September 30, 2003, The Company
raised $110,000 through the sale of Series C Preferred stock. In addition, as of
September 30, 2003, the Company has $130,000 of demand notes receivable related
to the purchase of the Company's common stock through the exercise of warrants.
Since September 30, 2003, the Company has received 3,709,230 restricted
(unregistered) shares of the borrower's common stock, par value $0.0001 per
share, (the "Stock") in full payment of the Note and accrued interest. Although,
in the past, the Company's principal means of overcoming its cash shortfalls
from operations was from the sale of the Company's stock, loans and the exercise
of warrants, there can be no assurances that the Company will succeed in its
efforts in the future.
The Company believes that it could obtain sufficient working capital from
operations through marketing PrimeCare(TM) Version 9 and its Internet products.
Currently, the Company has no lines of credit and has no material commitments
for captial expenditures outstanding.
Note Receivable
- ---------------
The Company has advanced funds totaling $334,500, plus accrued interest at 7%
per annum, pursuant to a grid note, dated February 4, 2002 (the "Note"). In
consideration for these advances, the Company received warrants to purchase
common stock of the borrower, exercisable over a period of three years from the
date of issuance, at a price of $0.25 per share. The Company received a security
interest in accounts receivable of the borrower anticipated to be generated
under certain sales contracts which provide for borrower to install and maintain
the health care system for certain countries. The Company is also a
subcontractor of the borrower. The borrower has recently announced that it has
received the first of these contracts. See "Revenue Sources and Marketing
Strategy". On October 10, 2003, the Company agreed to accept 3,709,230
restricted (unregistered) shares of the borrower's common stock, par value
$0.0001 per share, (the "Stock") in full payment of the Note and accrued
interest. The market value on November 7, 2003, of the Stock received was
$519,292.
Competition:
- ------------
The Company has not identified any competitive patient management system which
embodies all the features of the PrimeCare(TM) System, in particular the
complaint specific, interactive Questionnaires completed by the patient and the
report generated by the patient's responses. The Company believes that it has
the only in-office patient management system and Web sites that enable
physicians to obtain the patient's detailed History of Present Illness by having
the patient answer problem-specific HPI Questionnaires on a PC in the office or
via the Internet. However, other companies market systems which may have some of
the features of the PrimeCare(TM) System and some companies market medical
office products which perform different functions than those performed by the
PrimeCare(TM) System. To date, market penetration by both The Company and its
competitors has been limited.
Products Overview.
- -----------------
PrimeCare(TM) Patient Management System, Version 9
--------------------------------------------------
PrimeCare(TM) Patient Management System, Version 9 ("PrimeCare(TM) Version 9")
is a complete, ground-up redesign and re-write of the Company's initial EMR, the
PrimeCare(TM) Patient Management System ("PCPMS"). The overall system
architecture has been changed; the supporting data base structures have been
enhanced; the client interface has been redesigned to more accurately reflect
the operational needs of the end-users, and user installation has been greatly
simplified.
8
PrimeCare(TM) Version 9 is a user friendly, patient management system that is
patient, physician and staff, interactive. PrimeCare(TM) Version 9: (i) creates
an electronic medical record documenting the patient physician encounter; (ii)
is compatible with practice management and billing systems, EMR and CPR systems;
(iii) is Health Insurance Portability Accountability Act ("HIPAA") compliant;
(iv) is designed for use in ambulatory clinics, group and individual practices;
(v) uses an authoritative and comprehensive knowledge database of approximately
280 symptom and problem oriented patient Questionnaires for diagnostic and
follow-up office visits; (vi) collectively contains over 100,000 complaint and
disease state questions, over 2,000 diagnoses,
over 675 physician reference articles, over 300 patient education articles;
(vii) allows the staff to schedule the appropriate Questionnaire and enter the
vital signs; (viii) interacts directly with the patient by having the patient
select the answers that apply to their problem from the Questionnaire; (ix) does
not require the patient to have computer or typing skills; (x) enables the
physician to obtain their patients' detailed History of Present Illness ("HPI")
by having the patient answer the Questionnaires without requiring physician or
staff time; (xi) allows the physician to interact directly with PrimeCare(TM)
Version 9 to select and document the normal and abnormal physical findings,
assessments, tests, prescriptions and treatment plan for the patient; (xii)
provides automatic (real time) calculation of HCFA's Evaluation and Management
("E&M") code, with a full audit trail, used for determining the reimbursement
level by Medicare and other third party payers for the office visit; (xiii)
virtually eliminates dictation and transcription costs; (xiv) reduces risk of
malpractice liability due to errors of omission and "failure to consider"; (xv)
permits patients to answer Questionnaires at their own speed (xvi) creates
significant clinical and patient databases for outcomes research.
When the patient arrives at the doctor's office, a designated staff member
selects the appropriate Questionnaire based upon the patient's chief complaint
and/or symptom and enters the patient's vital signs. The patient is then seated
at a computer and answers complaint-specific questions by using either the
keyboard number keys or mouse to indicate answers that apply to him or her. No
typing or computer skills are required. When the patient has completed the
Questionnaire, PrimeCare(TM) Version 9 creates a Preliminary Report (the
"Report") for the physician to review before examining the patient. The Report
contains the patient's current problems, medications and allergies, and the
patient's detailed HPI that includes all of positive and significant negative
subjective responses, vital signs and an alphabetical list of the diagnostic
possibilities with the patient's responses repeated that support, or give rise,
to each diagnostic possibility. By freeing up the time physicians would normally
have to spend asking patient history questions and recording responses,
PrimeCare(TM) Version 9 permits physicians to see more patients and to spend
more quality time with each patient. PrimeCare(TM) Version 9 is also easy for
physicians to understand and use. The same simple key stroke or mouse click
process allows the physician or appropriate staff member to select and document
the: physical findings (normal and abnormal), assessment, tests, treatment plan,
prescribed medications, and patient education materials to be distributed and to
schedule follow-up visits. The physician or appropriate staff member can also
type a comment that expands upon: an answer selected by the patient in the
Questionnaire, a physical finding, an assessment, a treatment plan, a
prescription, or about any subject that may be appropriate. At the conclusion of
the encounter a final summary report of the visit that includes, the patient's
HPI, physical findings, assessment, tests, prescriptions, treatment plan,
patient educational materials and the scheduled follow-up visit, are stored
electronically in the patient's file, and can be printed for the patient.
PrimeCare(TM) Version 9: standardizes the patient record; assures consistency in
patient care; creates a patient database for clinical and outcomes research;
supports 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, with appropriate security controls, both
local and remote, on-line electronic retrieval of patient records and hard copy
print outs; enables rapid access to important patient data for clinical care;
contains and provides patient education materials about disease, disease
management, tests and medications; and provides physician reference materials.
PrimeCare(TM) Version 9's overall system architecture has been redesigned away
from a local network based two-tier client-server application, used in the prior
version of the PCPMS, to incorporate a robust three-tier
client-provider-relational database management system ("RDBMS") application,
designed for geographically separated tiers. The client (end-user) tier of
PrimeCare(TM) Version 9 is designed to connect with the middle or provider
(server) tier via internet communications. The provider and data base tiers are
designed to support multiple, distinct clients simultaneously. The client
application has been designed to allow easy internalization and localization.
9
Supporting data bases have been redesigned to remove unnecessary redundancies,
including a major redesign of the patient/physician encounter questionnaire.
Also, provisions have been added for support of an unlimited number of
alternative languages. Currently, language support is offered in, or being
developed, for English, Spanish, French, and Simplified Chinese.
PrimeCare(TM) Version 9 continues to be a Windows(TM) application. Although the
client tier will run on Windows 95 or any later Windows desktop operating
system, it performs best when hosted on Windows 2000, Windows NT, or Windows XP.
The server (provider tier) and data base tiers of PrimeCare(TM) Patient
Management System, Version 9 should be hosted on redundant Windows 2000 or
Windows XP servers with appropriate backup, and standby support.
The three-tier architecture of PrimeCare(TM) Version 9 provides many advantages,
including easy client installation; reduced on-site support requirements;
enhanced data security; and maximum flexibility. PrimeCare(TM) Version 9's
reduced installation and maintenance costs and its flexibility enables it to be
adapted to a wide variety of health care organizational uses, including national
and local health care systems, military organizations, correctional facilities,
HMOs, hospitals with outpatient services, clinics, group practices and solo
practitioners.
As a three-tier application, PrimeCare(TM) Version 9, requires only that the
client tier application be installed at the end-user location. This system
architecture greatly simplifies both user installation and system maintenance.
Although the client (end-user) tier uses the internet to communicate with the
provider and data base tiers, it is not a browser-based application, thereby
eliminating the many compatibility and security issues involved in supporting
multiple browser configurations. The PrimeCare(TM) Version 9 client is a
specially written front-end application, designed to be downloaded by the client
via a web connection, and then installed at the client's location using normal
Windows installation procedures.
The system is designed to support multiple reimbursement models, including free
demo, no-charge use, sponsored use, flat fee, periodic (monthly / annual) fee,
activity based fees, and option-based fees.
PrimeCare(TM) Patient Management System ("PCPMS")
-------------------------------------------------
The PCPMS was the Company's initial EMR offering. The Company has discontinued
marketing the PCPMS
Code Complier(TM):
-----------------
The Company has also developed Code Complier(TM) an application software program
that was designed to be used in conjunction with The Company's PrimeCare(TM) and
PrimeCareOnTheWeb.com(TM). As each item of information is entered into and
collected by PrimeCare(TM) during the patient encounter, the CodeComplier(TM)
organizes the data in the proper classification and using the 1997 HCFA
guidelines, automatically calculates HCFA's Evaluation and Management code
level, with full audit trail, used for determining the reimbursement level by
Medicare and other third party payors for the History, Physical Findings and
Decision Making sections the office visit. It totally eliminates the time and
effort which would otherwise be required by the physician or office personnel to
complete this task. CodeComplier(TM) takes the guess work out of E&M and third
party payer compliance. CodeComplier is an integral part of PrimeCare(TM)
Version 9.
PrimeCareOnTheWeb.com (the "PCW Site"):
---------------------
The PCW Site is a unique physician and patient interactive Site that: (i) uses
PrimeCare's unique Questionnaires for diagnostic and follow-up office visits,
physician reference articles, patient education material, CodeComplier(TM) for
real time calculation of E&M code and the scheduler portion of PrimeCare(TM);
(ii) enables physicians to obtain their patient's detailed HPI by having the
patient answer Questionnaires via the Internet without requiring physician time;
(iii) saves the physician and staff the time required to obtain the HPI, thus
allowing them to give more attention to each patient and/or see more patients;
(iv) produces an extremely comprehensive HPI that includes all of the "yes"
answers, pertinent negatives and a list of the diagnostic possibilities with the
answers repeated that support each diagnostic consideration; (v) is HIPAA
compliant; (vi) protects all Internet communication and the confidentiality
rights of every user through a unique user ID and password per Questionnaire to
be answered and secure digital certificates from VeriSign(TM), (vii) encrypts
all data for storage; (viii) enables creating a significant data base for
outcomes research; and (ix) automatically provides registered physicians
individual Web sites on YourOwnDoctor(TM).com.
10
YourOwnDoctor.com (the "YOD Site"):
-----------------
The YOD Site is a web community created, owned, operated and maintained by the
Company that: (i) provides free individual Web sites for physicians, physician
groups, and other health care providers that register for PrimeCareOnTheWeb(TM);
(ii) enables physicians to promote their services through displaying
credentials, including photos of each physician and staff in the office, listing
specialities, office hours, directions, maps, phone numbers, e-mail addresses,
and accepted insurance plans; (iii) provides useful links to other medical
sites; (iv) provides a direct link from physician site to PCW that enables
patient to access appropriate Questionnaire and complete; (v) provides direct
link to YourOwnHealth.com(TM) for use by patients.
YourOwnHealth.com (the "YOH Site"):
-----------------
The YOH Site is a unique, free online health and wellness site designed to
empower health care consumers to be better prepared for their next visit to the
doctor. The YOH Site offers: (1) the "Medical Interview" that: (i) enables
visitors to securely and anonymously select and complete from approximately 110
of the 280 Questionnaires contained in PrimeCare(TM) Version 9 and PCPMS; (ii)
generates and makes available to the visitor a detailed HPI report based upon
their responses; (iii) permits the visitor to answer the Questionnaires in
either English or Spanish; (iv) encrypts all medical data and uses digital
certificates from VeriSign(TM) for Internet communication; (v) provides banner
links to the YOD Site and www.DeniseAustin.com. (2) "YourOwnHealth(TM)
Notebook": (i) is a secure depository for storage of personal and family medical
data for Registered Members; (ii) can be accessed only through the use of
registered IDs and Passwords; (iii) encrypts all medical data and uses digital
certificates from VeriSign(TM) for Internet communication; (iv) provides a
convenient way to keep track of personal health issues such as allergies,
immunizations, medications and others that can be kept and edited on designated
lists; (v) allows the Member to save their completed HPI Questionnaire reports
and to add personal notes and reminders to the record. (3) "YourOwnHealth(TM)
Reference" provides extensive health care consumer education material relating
to diseases, disease management, medical procedures and prescription and common
over the counter medications, including drug interaction.
The Market:
- ----------
The Company's domestic and international markets for: (a) the PrimeCare System,
the PCW Site, YourOwnHealth Site and the YOD Site are ambulatory/outpatient
medical facilities, such as, primary care physicians, medical clinics, group
practices, health maintenance organizations, and in general, health care
providers other than those providing care to patients confined to hospital beds;
and (b) the YOH Site is for the use of the general public.
Revenue Sources and Marketing Strategy:
- --------------------------------------
During the prior fiscal year, the Company's marketing efforts had been
concentrated on its Web products. However, during the fiscal year ended June 30,
2002, the PrimeCare(TM) System was selected to be part of a major international
health care information management program anticipated to be installed in a
number of countries as their health care system. See "Notes Receivable" above.
The first of these country contracts was recently announced. A five year,
three-phase contract was awarded to create a health care information
infrastructure for a nation of 11 million people. During phase one of the
contract, the current health care infrastructure of the country will be assessed
to determine the final specifications for the new system. After approval of the
final specifications by the country's Ministry of Health the second phase will
commence. The second phase consists of the installation and operation of a
comprehensive health care information system throughout the country. Upon
commencement of phase two, PrimeCare(TM) Version 9 will be an integral part of
the country's comprehensive health care information system. PrimeCare(TM)
Version 9 will provide health care personnel and patients a simple, effective
means of entering medical data into this health care information management
system for processing and analysis. Successful completion of these contracts
should produce significant revenues for the Company and should materially
increase the awareness of PrimeCare(TM) Version 9 in the health care industry.
The actual value of this contract cannot be determined at this time. The Company
does not anticipate any revenues from this contract until the fourth quarter of
the current fiscal year.
Licensing Fees:
- --------------
The Company believes that the increased awareness of PrimeCare(TM) Version 9
arising from the above contract will enhance the Company's ability to obtain
additional contracts and annual licensing fees from large fixed population
groups, which includes, but is not limited to, other countries, labor unions,
medical insurance companies, HMOs, military forces and correctional facilities.
11
Advertising Fees:
- -----------------
Advertising revenues are dependant upon the number of visitors that use the
Company's Web sites. The Company believes that the use of PrimeCare(TM) Version
9 by licensees will increase awareness and use of the Company's Web sites and
thus result in increased advertising fees.
Outcomes Research.
- -----------------
Potentially, the Company could receive fees for conducting outcomes research for
pharmaceutical companies and teaching hospitals. The Company anonymizes,
encrypts and stores both the completed diagnostic and follow-up Questionnaires.
This ever- growing medical database can be analyzed in various ways to determine
the effectiveness of treatment plans, medications, etc.
The Company has entered into an agreement with Hackensack University Medical
Center ("HUMC"). The agreement provides for the use of the Company's Web sites
by HUMC's medical services organization ("MSO"), North Jersey Medical Management
Services, L.L.C. This MSO has over 1,000 physicians. HUMC, and its Physicians
Hospital Organization, have created www.HUMCMD.net , the only complete
Physician/Patient Internet Service Provider ("ISP") providing top quality
Internet connectivity to members of its physician network, plus access to key
internal HUMC applications.
The HUMCMD site has both a "Physician Portal" and "Patient Portal". The site
currently contains the Company's PCW Site and YOH Site. The Company's
advertising revenues are dependent upon HUMC's marketing efforts to its Staff
Physicians and patients.
Fitness Web Site:
- ----------------
The Company designed, created, operates, maintains and markets a fitness and
wellness Web site known as www.DeniseAustin.com. Through a revenue sharing
agreement with Denise Austin, a nationally known fitness expert who has had a
daily fitness show on television for over 15 years, the Company promotes and
markets a variety of Denise Austin products on the Web site. Visitors and fans
are able to shop online for their favorite Denise Austin signature exercise
videos, books, equipment, gear, and private label apparel and nutraceuticals
(when available), as well as sign up for her monthly news letter, enjoy fitness
tips, exercises, motivation messages, and some of her favorite healthy recipes.
Marketing: The Company has expanded the comprehensive shopping area on
the DA Web site which offers a broad range of noncompeting products within the
fitness industry. The Company will share income from two sources - advertising
revenues and e-commerce. YourOwnHealth(TM) is currently positioned at the Denise
Austin Web Site with banners and sponsorship of the monthly newsletter which
directs traffic to YourOwnHealth(TM). YourOwnHealth(TM) intends to take
advantage of the opportunity to position its interactive tools directly from
www.DeniseAustin.com to facilitate a greater increase of traffic.
Competition: Although there are a number of fitness TV shows, Denise
Austin's Daily Workout is reputed to be the number one fitness show on
television with over one million viewers each weekday morning. Her videos have
sold over 4 million copies.
12
Item 3. Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the President/Chief Financial Officer
("CFO"), of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the President/CFO have concluded that as
of the end of the period covered by this report, the Company's disclosure
controls and procedures are effective to provide reasonable assurance that
information required to be disclosed by the Company in reports that it files or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and timely reported as provided in the Securities and Exchange
Commission rules and forms. The Company periodically reviews the design and
effectiveness of our internal controls over financial reporting, including
compliance with various laws and regulations that apply to the Company's
operations. The Company makes modifications to improve the design and
effectiveness of its internal control structure, and may take other corrective
action, if the Company's reviews identify deficiencies or weaknesses in its
controls. No changes occurred during the quarter ended September 30, 2003 in the
Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
13
PART II - OTHER INFORMATION
Item 2. Changes In Securities
During the three months ended September 30, 2003, the Company issued 36,670
shares of its Series C Preferred Stock to a shareholder, for an aggregate
purchase price of $110,000, in an unregistered private placement.
In consummating the above described private placements, the Company relied upon
the exemptions from registration provided by Sections 4(2) of the Securities Act
of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder
based upon: representations from the investor that he, she or it, (a) met one of
the categories of accredited investor set forth in Rule 501, (b) was acquiring
the securities for his, her or its own account and not with a view towards
further distribution and (c) had such sufficient knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
connected with the applicable investment, and the fact that (a) no general
solicitation of the securities was made by the Company, (b) the securities
issued were "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act, (c) the Company placed appropriate
restrictive legends on the certificates representing the securities regarding
the restricted nature of these securities and (d) prior to the completion of
each transaction, each investor was informed in writing of the restricted nature
of the securities, provided with all information regarding the Company as
required under Rule 502 of Regulation D and was given the opportunity to ask
questions of and receive additional information from the Company regarding its
financial condition and operations.
Item 6. Exhibits and Reports on Form 8-K
(a) 31.1 Certification pursuant to Rule 13a-14 AND 15d-14 of
the Securities Exchange act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley act of
2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002
(b) Reports on Form 8-K
No Report on Form 8-K, was filed during the quarter ended
September 30, 2003. However, a Form 8-K was filed on October
20, 2003 and a Form 8-K was filed on November 12, 2003.
14
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
(CHIEF FINANCIAL OFFICER)
DATED: November 14, 2003
15