UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2004
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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
incorporation or organization) Identification No.)
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
Indicate by check mark whether the registrant is an accelerated filer(as defined
in Exchange Act Rule 12b-2) Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS SHARES OUTSTANDING AT MAY 5, 2004
----------------------------- ---------------------------------
Common Stock ($.01 par value) 44,740,281 Shares
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE NUMBER
- ----------------------------- -----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 2004 and June 30, 2003 1
Consolidated Condensed Statements of Operations for the
Three and Nine Months Ended March 31, 2004 and 2003 2
Consolidated Condensed Statements of Cash Flow for
the Nine Months Ended March 31, 2004 and 2003 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
Signatures 15
All items that are not applicable or to which the answer
is negative have been omitted from this report.
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2004 June 30, 2003
ASSETS (UNAUDITED) (AUDITED)
------------ ------------
Current Assets:
Cash $ 10,101 $ 10,832
Accounts receivable 11,226 --
Inventory 16,165 12,260
Note receivable -- 334,500
Interest receivable 6,420 33,982
Marketable securities 73,477 --
Other current assets 74,938 5,043
------------ ------------
Total current assets 192,327 396,617
Property and equipment, net of accumulated depreciation of
($642,310) and ($631,959) 17,428 17,491
Capitalized software costs, net of accumulated amortization
($579,349) and ($526,719) 357,622 285,725
Other assets 4,972 4,972
------------ ------------
Total assets $ 572,349 $ 704,805
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 50,469 70,656
Note payable - bank 3,100 3,891
Note payable, shareholder - current maturity 8,700 --
------------ ------------
Total current liabilities 62,269 74,547
Other liabilities:
Notes Payable, shareholder - long term 150,000 158,700
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Total liabilities 212,269 233,247
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Shareholders' equity:
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; 44,740,281
and 41,273,613 issued, respectively) 447,403 412,736
Additional paid-in capital 26,201,092 25,999,426
Accumulated deficit (25,946,425) (25,767,770)
Stock subscriptions receivable (130,000) (130,000)
Unrealized loss on marketable securities (172,823) --
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422,580 534,058
Less: treasury stock, at cost (12,500 shares) (62,500) (62,500)
------------ ------------
Total shareholders' equity 360,080 471,558
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Total liabilities and shareholders' equity $ 572,349 $ 704,805
============ ============
See accompanying notes to consolidated condensed financial statements
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, Nine Months Ended March 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 75,266 $ 76,973 $ 214,853 $ 173,896
Less: Cost of sales 38,242 43,767 99,559 92,521
------------ ------------ ------------ ------------
Gross margin 37,024 33,206 115,294 81,375
------------ ------------ ------------ ------------
Expenses:
Marketing, general and administrative 46,370 57,101 113,835 150,457
Depreciation and amortization 23,010 42,838 62,981 122,762
Product development costs 46,901 39,490 136,251 127,603
------------ ------------ ------------ ------------
Total expenses 116,281 139,429 313,067 400,822
------------ ------------ ------------ ------------
Net loss from operations (79,257) (106,223) (197,773) (319,447)
Gain from sale of securities -- -- 6,761 --
Interest - net 3,549 12,569 12,357 25,095
------------ ------------ ------------ ------------
Net loss $ (75,708) $ (93,654) $ (178,655) $ (294,352)
============ ============ ============ ============
Weighted average number of shares outstanding
during the period 42,363,618 40,289,989 42,363,618 40,289,989
============ ============ ============ ============
Loss per Common Share - basic and diluted $ (-)* $ (-)* $ (-)* $ (-)*
============ ============ ============ ============
*Amounts less than ($.005)
See accompanying notes to consolidated condensed financial statements
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended December 31,
----------------------------
2004 2003
------------ ------------
Cash flows from operating activities:
Net loss ($ 178,655) ($ 294,352)
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Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 62,981 122,762
Issuance of stock and warrants for services 86,000 18,000
Gain on sale of securities (6,761) --
Changes in assets and liabilities
Receivables (21,464) (26,827)
Other current assets (69,896) 38,688
Inventory (3,905) 2,207
Accounts payable and accrued expenses (20,186) (6,135)
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Total adjustments 26,769 144,281
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Net cash used in operating activities (151,886) (150,071)
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Cash flows from investing activities:
Proceeds from sale of marketable securities 132,761 --
Decrease in note receivable -- (9,500)*
Capitalized software development costs (124,527) (135,119)
Increase in property and equipment (10,288) (18,412)
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Net cash provided by investing activities (2,054) (163,031)
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Cash flows from financing activities:
Increase (decrease) in note payable, bank (791) 14,343
Increase in notes payable -- 137,271
Proceeds from sale of common stock 44,000 145,000*
Proceeds from sale of Series C Preferred Stock 110,000 --
------------ ------------
Net cash provided by financing 153,209 296,614
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Net increase (decrease) in cash (731) (16,488)
Cash, beginning of period 10,832 37,191
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Cash, end of period $ 10,101 $ 20,703
============ ============
Non-cash investing and financing activities:
exchange of notes receivable and related
accrued interest for marketable securities $ 372,300
*Reclassified for comparative purposes
See accompanying notes to consolidated condensed financial statements
3
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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 Web sites. Through use of these Web sites, OCG
expects to receive 70% of all advertising revenues through a revenue sharing
agreement with Hackensack University Medical Center.
2 - BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated condensed
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for their fair presentation in conformity with
accounting principles generally accepted in the United States of America (U.S.
GAAP). Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission regarding
interim financial statements. Preparing financial statements requires management
to make estimates and assumptions that affect the reported amount of assets,
liabilities, revenue and expenses. Actual results and outcomes may differ
significantly from management's estimates and assumptions.
Interim results are not necessarily indicative of results for a full
year. The information included in this Form 10-QSB should be read in conjunction
with the audited financial statements and notes included in the Form 10-KSB for
the year ended June 30, 2003.
3 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed below,
the Company has suffered recurring losses from operations and negative cash
flows that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described below. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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 PrimeCareTM 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,
4
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 will produce
significant revenues for the Company and will materially increase the awareness
of PrimeCare(TM) Version 9 in the health care industry. The Company does not
anticipate any revenues from this contract until the fourth quarter of the
current fiscal year. However, there is no certainty of the country
participating, nor any certainty of revenues.
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 reflects the potential dilution if
Series C Convertible Preferred Stock and stock warrants are converted into
common stock. Since the effect of outstanding stock warrants and Series C
Convertible Preferred Stock are antidilutive they have been excluded from the
Company's computation of loss per common share for the periods ending March 31,
2004 and 2003. Therefore, basic and diluted earning per share are the same.
5 - SHAREHOLDER'S EQUITY
During the three months ended March 31, 2004, an aggregate of 2,000,000
shares of the Company's Common Stock, par value $0.01 per share (the
"Shares"),were issued in payment for a one-year contract for services to be
performed. The contract is being expensed over a one-year period. The Shares
were not registered and bear a restrictive legend. The closing market price on
the day the sale was authorized was $0.04.
During the three months ended December 31, 2003, an aggregate of
1,466,667 shares of the Company's Common Stock, par value $0.01 per share (the
"Shares"), were sold for $44,000 or $0.03 per share. The Shares sold were not
registered and bear a restrictive legend. The closing market price on the day
the sale was authorized was $0.03.
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 - MARKETABLE SECURITIES
The Company had 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. These
equity securities, are classified as available-for-sale securities and are
carried at quoted market value. Unrealized gains and losses are reported as a
separate component of shareholders' equity, net of applicable income taxes.
Realized gains and losses and declines in value deemed to be other than
temporary on available-for-sale securities are included in other income. During
the three months ended March 31, 2004, the Company sold 1,260,000 shares of the
Stock for a net sales price of $132,761 and realized a gain of $6,761 on the
sale. The Company valued the remaining Stock to reflect its market value as of
March 31, 2004. The price per share of Stock on that date was $0.03.
7 - NOTES PAYABLE
A note of $8,700 is payable to a shareholder.
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 warrants expired and were not exercised. The date for payment of
the note has been extended until February 4, 2005.
5
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.
The Company has a revolving line of credit with RBC Centura Bank which
provides for a maximum principal borrowing of $20,000. Interest is payable
monthly on the average daily loan balance at the variable interest rate equal to
the Wall Street Journal Prime Rate plus 3% as determined on the 25th day of the
month preceding the month in which the interest is charged. The credit line
provides for a minimum monthly repayment equal to at least 3% of the then
outstanding loan balance.
8 - COMPREHENSIVE LOSS
The components of comprehensive loss were as follows:
Nine Months Ended March 31,
---------------------------
2004 2003
------------ ------------
Net loss $ (178,655) $ (294,352)
Unrealized loss on investments (172,823) $ (0)
------------ ------------
$ (,351,478) $ (294,352)
============ ============
9 - NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board 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 were originally applicable no later than July 1,
2003. The Company has not created any variable interest entities after January
31, 2003. In December 2003 the FASB deliberated certain proposed modifications
and revised FIN 46 ("FIN 46 (R)"). The revised provisions are applicable to SB
filers no later than the first reporting period ending after December 15, 2004.
The adoption of FIN 46 and FIN 46 (R) is not anticipated to have a material
impact on the Company's financial reporting and disclosures.
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.
6
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
- -------
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.
We have experienced recurring losses from operations and have relied on the sale
of equity interests in the Company to fund its operations. If necessary, we
intend to provide additional working capital through the sale of equity
interests in the Company. Although, in the past, we have been able to provide
working capital through the sale of equity interests in the Company, there can
be no assurances that we will succeed in its efforts, which creates a doubt
about its ability to continue as a going concern.
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. Periodically, and when conditions dictate, we reevaluate the
recoverability of the carrying 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.
The Company had a writeoff of $187,819 of capitalized software costs during the
year ended June 30, 2003 in compliance with the Company's policy relating to
reevaluating the value and useful life of this long-lived asset.
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 the Company purchases the merchandise from the source it selects;
is at risk for the purchaser's credit; and the Company ships the merchandise.
The Company reports 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.
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
7
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 notifies the seller of an
interested buyer and it receives a commission check from the seller upon the
consummation of a sale.. At that time the Company reports the revenue on a "net"
basis.
ADVERTISING FEES
- ----------------
The Company receives fees for placing advertisements on its Web sites. 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
- ---------------------
The Company accounts for software license fees in accordance 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 will recognize income ratably over the license
term.
RESULTS OF OPERATIONS
- ---------------------
Total revenues decreased $1,707 and increased $40,957 for the three and nine
months ended March 31, 2004, as compared to the same periods for 2003. The
increase in revenues came as the result of an increase in the sale of
merchandise due an increase of visitors to our Web sites and the Company
securing advertising contracts. Cost of sales decreased $5,525 and increased
$7,038 for the three and nine months ended March 31, 2004 as compared to the
same periods for 2003. The Company's revenues for the nine months ended March
31, 2004, consisted of: $162,963 from the sale of merchandise (an increase of
$8,007 for the same period in 2003); $31,980 from advertising fees (an increase
of $28,980 for the same period in 2003); and $19,910 from commissions (an
increase of $3,970 over the same period in 2003).
Marketing, general and administrative expenses decreased $10,731 and $36,622 for
the three and nine months ended March 31, 2004, as compared to the same period
for 2003, primarily from the decrease of approximately: $25,000 in sales and
marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 2004, the Company had a current ratio of 2.31 to 1 compared to .95
to 1 as of March 31, 2003. The increase in current ratio is due primarily to the
decrease in notes payable. The net loss from operations for the nine months
ended March 31, 2004, was $178,655 compared to $294,352 for the prior year. The
reduction in the net loss from operations was due to an increase of
approximately $34,000 in net revenues and a decrease of approximately $43,000 in
marketing, general and administrative expenses and approximately $60,000 in
depreciation and amortization for the nine months ended March 31, 2004, as
compared to the same period of 2003. 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 marketable securities were $135,969 at
March 31, 2004. During the nine months ended March 31, 2004, the Company raised
$44,000 through the sale of common stock. In addition, as of March 31, 2004, the
Company has $105,000 of notes receivable related to the purchase of the
Company's common stock through the exercise of warrants. In October, 2003, the
Company received 3,709,230 restricted (unregistered) shares of the borrower's
common stock, par value $0.0001 per share, (the "Shares") in full payment of the
Note and accrued interest. During the three months ended December 31, 2003, the
Company sold 1,260,000 Shares for the net sales price of $132,761, a net gain
over cost of $6,761. 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.
COMPETITION:
- ------------
The Company has not identified any competitive patient management system which
embodies all the features of the PrimeCareTM 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
8
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 PrimeCareTM System and some companies market medical office
products which perform different functions than those performed by the
PrimeCareTM 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 ("PrimeCareTM Version 9") is
a complete, ground-up redesign and re-write of the Company's initial EMR, the
PrimeCareTM 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.
PrimeCareTM Version 9 is a user friendly, patient management system that is
patient, physician and staff, interactive. PrimeCareTM 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 PrimeCareTM 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, PrimeCareTM 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, PrimeCareTM
Version 9 permits physicians to see more patients and to spend more quality time
with each patient. PrimeCareTM 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.
PrimeCareTM 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.
9
PrimeCareTM 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
PrimeCareTM 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.
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 PrimeCareTM Version 9 provides many advantages,
including easy client installation; reduced on-site support requirements;
enhanced data security; and maximum flexibility. PrimeCareTM 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, PrimeCareTM 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 PrimeCareTM 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.
PRIMECARETM PATIENT MANAGEMENT SYSTEM ("PCPMS")
-----------------------------------------------
The PCPMS was the Company's initial EMR offering. The Company has discontinued
marketing the PCPMS
CODE COMPLIERTM:
----------------
The Company has also developed Code ComplierTM an application software program
that was designed to be used in conjunction with The Company's PrimeCareTM and
PrimeCareOnTheWeb.comTM. As each item of information is entered into and
collected by PrimeCareTM during the patient encounter, the CodeComplierTM
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. CodeComplierTM takes the guess work out of E&M and third
party payer compliance. CodeComplier is an integral part of PrimeCareTM 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, CodeComplierTM for
real time calculation of E&M code and the scheduler portion of PrimeCareTM; (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 VeriSignTM, (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
YourOwnDoctorTM.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 PrimeCareOnTheWebTM;
(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.comTM 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 PrimeCareTM 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 VeriSignTM for Internet communication; (v) provides banner
links to the YOD Site and www.DeniseAustin.com. (2) "YourOwnHealthTM 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 VeriSignTM 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) "YourOwnHealthTM 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:
- ---------------------------------------
LICENSING FEES: During prior fiscal years, the Company's marketing efforts had
been concentrated on its Web products. However, during the fiscal year ended
June 30, 2002, the PrimeCareTM 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. The first of
these country contracts was recently concluded. 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 at least the fourth
quarter of the current fiscal year.
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.
ADVERTISING FEES:
- -----------------
The Company currently receives revenues from advertising. Advertising revenues
are dependant upon the number of visitors that use the Company's Web sites. The
11
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.
The Company has entered into an agreement with Hackensack University Medical
Center ("HUMC") during July, 2000. 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.
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. However, at the present
time the Company does not receive revenues from this source.
FITNESS WEB SITES:
- ------------------
The Company's marketing of the DeniseAustin website has been revised. The
Company no longer operates DeniseAustin.com, however, the Company has entered
into two agreements with the new manager of the Web site. Under one agreement,
the Company operates the "shopping cart" on the site and the second agreement
retains the Company as the exclusive seller of Denise Austin videos and DVDs.
The new manager has agreed to commence an aggressive marketing campaign to
promote the site. The Company's percentage of revenues has been reduced.
However, the Company believes the increased visitors to the site, as a result of
the marketing campaign being instituted by the new site manager, will result in
greater net income for the Company. The fitness and wellness Web site known as
www.DeniseAustin.com features Denise Austin, a nationally known fitness expert
who has had a daily fitness show on television for over 15 years, the Company's
shopping cart sells 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 operates 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. The Company derives revenues from this operation.
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 has concluded that as of
the end of the period covered by this report, the Company's disclosures,
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 March 31, 2004 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.
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.
12
During the nine months ended March 31, 2004, an aggregate of 1,466,667 shares of
the Company's Common Stock, par value $0.01 per share (the "Shares"), were sold
for $44,000 or $0.03 per share. The Shares sold were not registered and bear a
restrictive legend. The closing market price on the day the sale was authorized
was $0.03.
During the three months ended March 31, 2004, an aggregate of 2,000,000 shares
of the Company's Common Stock, par value $0.01 per share (the "Shares"), were
issued in payment of services to be rendered in the ensuing year. The Shares
were not registered and bear a restrictive legend. The closing market price on
the day the sale was authorized was $0.04.
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
A Form 8-K was filed on October 20, 2003 and a Form 8-K was
filed on November 12, 2003, both relating to the change in the
Company's independent auditors.
13
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: May 14, 2004
14