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, 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
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, 2004
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Common Stock ($.01 par value) 49,890,582 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, 2004 and June 30, 2004 1
Consolidated Condensed Statements of Operations for the
Three Months Ended September 30, 2004 and 2003 2
Consolidated Condensed Statements of Cash Flow for
the Three Months Ended September 30, 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 11
Item 3. Controls and Procedures 18
PART II - OTHER INFORMATION
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Item 2. Changes In Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
i
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 2004 June 30, 2004
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ASSETS (UNAUDITED (AUDITED)
Current Assets:
Cash $ 6,508 $ 29,257
Accounts receivable 21,046 14,074
Inventory 9,253 9,232
Marketable securities 13,477
Other current assets 35,320 55,320
Interest receivable 8,984 7,702
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Total current assets 81,111 129,062
Property and equipment, net of accumulated depreciation of
($636,036) and ($631,959) 12,081 15,108
Capitalized software costs, net of accumulated amortization
($542,124) and ($526,719) 364,450 370,965
Other assets 4,972 4,972
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Total assets $ 462,614 $ 520,106
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 97,919 83,174
Credit line - bank 16,674 6,792
Notes Payable, shareholders 158,700 158,700
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Total liabilities 273,293 248,666
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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 20,000
Series E Preferred stock $.10 par value (100,000 authorized; 33,333 issued
and outstanding) 3,333 3,333
Common stock $.01 par value (50,000,000 authorized; 41,273,613 issued ) 467,406 455,806
Additional paid-in capital 26,468,998 26,468,998
Accumulated deficit (26,577,916) (26,451,375)
Stock subscriptions receivable (130,000) (130,000)
Unrealized loss on marketable securities (32,823)
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251,821 333,939
Less: treasury stock, at cost (12,500 shares) (62,500) (62,500)
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Total shareholders' equity 209,321 271,439
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Total liabilities and shareholders' equity $ 462,614 $ 520,106
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See accompanying notes to consolidated condensed financial statements
(Continued)
1
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
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2004 2003
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Revenues $ 82,145 $ 73,442
Less: Cost of sales 43,089 33,928
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Gross margin 39,056 39,514
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Expenses:
Marketing, general and administrative 47,838 34,813
Depreciation and amortization 31,419 19,482
Product development costs 46,236 42,202
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Total expenses 125,493 133,096
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Loss from continuing operations (86,437) (50,013)
Loss on sale of marketable securities (41,300) --
Interest - net 1,196 (6,970)
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Net loss ($ 126,542) ($ 50,013)
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Weighted average number of shares outstanding during the period 45,762,903 41,273,613
============ ============
Loss per Common Share - basic and diluted $ (-)* $ (-)*
============ ============
*Amounts less than ($.005)
See accompanying notes to consolidated condensed financial statements
(Continued)
2
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
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2004 2003
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Cash flows from operating activities:
Net loss ($ 126,542) $ (110,706)
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Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 31,419 39,036
Issuance of stock and warrants for services 6,000
Loss from sale of securities 41,300 --
Changes in assets and liabilities
Receivables (8,254) (8,179)
Prepaid expenses and other current assets 20,000 26,896
Inventory (21) 1,368
Accounts payable and accrued expenses 14,744 3,874
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Total adjustment 99,188 68,995
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Net cash used in operating activities (27,354) (41,711)
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Cash flows from investing activities:
Decrease in note receivable 0 9,500
Capitalized software development costs (21,878) (43,673)
Proceeds from sale of marketable securities 5,000 --
Increase in property and equipment (7,350)
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Net cash used in investing activities (16,878) (60,523)
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Cash flows from financing activities:
Increase (decrease) in notes payable 56,967
Increase in credit line 9,883 --
Proceeds from sale of common stock 11,600 9,500
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Net cash provided by financing 21,483 66,467
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Net decrease in cash 22,749 35,767
Cash, beginning of period 29,257 37,191
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Cash, end of period $ 6,508 $ 1,424
============ ============
See accompanying notes to consolidated condensed financial statements
(Continued)
3
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
OCG Technology, Inc. ("OCG" or the "Company") is developing and
marketing software and diagnostic products for the healthcare industry. In
addition, the Company is selling various health and fitness products on its
Web sites.
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 disclosure 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,
revenues 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, 2004.
Revenue Recognition
The Company has four sources of income: (1) sale of inventoried
merchandise on its Web sites; (2) commissions received from vendors who
link to its Web sites; (3) advertising fees; and (4) software license fees.
Sale of Inventoried Merchandise. This revenue stream is reported on a
"gross" basis, because the Company purchases the merchandise from the
supplier; is at risk for the purchaser's credit; and ships the merchandise.
The Company reports the gross sales price as revenue and the cost of the
merchandise and the shipping costs as "cost of sales". The Company is
principally paid by credit card at the time of purchase. Sales are booked
when the merchandise is shipped.
(Continued)
4
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
Commissions Received from Vendors. The Company acts as a commissioned
broker by displaying vendor's 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) the supplier is required to provide the product; (b) it does
not purchase the product sold; and (c) it does not have any credit risk on
the sale. The Company notifies the seller of an interested buyer and
receives a commission check from the seller upon the consummation of a
sale.
Advertising Fees. The Company receives fees for placing advertisements on
its Web sites. At the end of each month, the Company recognizes income from
advertising fees.
Software License Fees. The Company recognizes revenues from software
license fees when all of the following criteria are met: (a) persuasive
evidence of an arrangement exists; (b) delivery has occurred; (c) the
vendor's fee is fixed or determinable; and (d) collectibility is probable.
The Company is currently marketing its software, but has not generated any
software license fees during the periods ended September 30, 2004 and 2003.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets.
Capitalized Software Costs
The Company accounts for the development cost of software intended for sale
in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." ("SFAS 86"). SFAS 86 requires product development costs to be
charged to expense as incurred until technological feasibility is attained.
Technological feasibility is attained when the Company's software has
completed system testing and has been determined viable for its intended
use. Capitalized software is amortized using the straight-line method over
the estimated economic lives of the assets, ranging from three to five
years.
(Continued)
5
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
The Company accounts for the impairment and disposal of long-lived
assets utilizing Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 requires that long-lived assets, such as property and
equipment, and capitalized software costs, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The recoverability of an asset
is measured by a comparison of the carrying amount of an asset to its
estimated undiscounted future cash flows expected to be generated. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset.
Accounts Receivable
Accounts receivable are stated at the amount management expects to
collect. An allowance for doubtful accounts is recorded based on a
combination of historical experience, aging analysis and information on
specific accounts. Management has determined that no allowance is necessary
at September 30, 2004.
Inventory
Inventory consists of health and fitness products and is stated at the
lower of cost (first-in, first-out) or market.
Concentrations of Credit Risk
At September 30, 2004, the Company maintained cash balances in banks
and brokerage firms. Bank balances are insured for up to $100,000 by the
Federal Deposit Insurance Corporation, and those in the brokerage firms are
insured for up to $500,000 by the Securities Investor Protection
Corporation.
(Continued)
6
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company applies the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax
rates in effect for the year in which those temporary differences are
expected to be settled or recovered.
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 year. Diluted income per share is computed by dividing the net
income by the weighted average number of shares of common stock, Series C
Preferred Stock and stock warrants outstanding during the year. Stock
warrants and Series C Preferred Stock have been excluded from the diluted
loss per share because their effect would have been antidilutive.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
(Continued)
7
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2 - GOING CONCERN
The accompanying condensed 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 condensed 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 its equity securities. Although in the past the
Company has been able to provide working capital through the sale of its
equity securities, 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 Company's marketing efforts are concentrated on its software
products that would be part of a major international health care
information management program used by a number of countries as their
health care system. The first of these contracts was awarded to create a
health care information infrastructure for a nation of 11 million people.
During the fourth quarter of 2004, the Company, having been advised that
this contract was not being funded, postponed indefinitely further efforts
to pursue it. The Company is continuing its marketing efforts in another
country and is also focusing its efforts on the insurance and other medical
related industries as a means of generating revenues.
(Continued)
8
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3 - SHAREHOLDERS' EQUITY
During the three months ended September 30, 2004, an aggregate of
11,600 shares of the Company's common stock were sold for $11,600, or $0.01
per share plus warrants to purchase 16,600 shares at $0.02 per share. No
shares of common stock are reserved for the exercise of the warrants.
Exercise of the warrants is contingent upon the shareholders approving an
increase in the authorized common stock to at least 100,000,000 shares.
4 - 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 the borrower to install and maintain the health care
system for certain countries. The Company is also a subcontractor of the
borrower. The borrower has announced that it has received the first of
these contracts. However, to date these contracts have not materialized.
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 fair 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 year ended June 30, 2004, the Company sold 3,260,000 shares of
the stock for a net sales price of $162,761 and realized a loss of $163,239
on the sale. During the quarter ended September 30, 2004, the Company sold
the balance of the shares for $5,000, realizing a loss of $41,300.
(Continued)
9
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5 - NOTES PAYABLE, SHAREHOLDER
A note of $8,700 is payable to a shareholder.
A note payable to a shareholder in the amount of $100,000 is unsecured
and 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 through February 4, 2005.
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 through 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.
(Continued)
10
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 Condensed 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 accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our discussion and analysis of our financial condition and results of operations
following are based upon our condensed 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 judgments 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 judgments
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 that
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.
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.
11
The Company had a write off 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
its 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.
Commissions received from vendors
- ---------------------------------
The Company acts as a commissioned broker by displaying 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 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 we report 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
vendor's 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.
Results of Operations
- ---------------------
Total revenues increased to $82,145 for the three months ended September 30,
2004 from $73,442 for 2003 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 $33,928 for the three months
ended September 30, 2003 to $43,089 for the three months ended September 30,
2004. The Company's revenues for the three months ended September 30, 2004,
consisted of: $74,459 from the sale of merchandise (an increase of $20,534 for
the same period in 2003); $7,610 from commissions (an increase of $5,373 for the
same period in 2003); and $76 from advertising fees (a decrease of $17,204 for
the same period in 2003).
12
Marketing, general and administrative expenses increased $13,025 for the three
months ended September 30, 2004, as compared to the same period for 2003,
primarily from the increase of $20,000 in consulting services.
Amortization of capitalized software costs increased $7,976 for the three months
ended September 30, 2004, as a result of the increase in the development costs
of the PrimeCare Patient Management System, Version Nine. 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.
Liquidity and Capital Resources
- -------------------------------
At September 30, 2004, the Company had a current ratio of .30 to 1 compared to
7.03 to 1 as of September 30, 2003. The decrease in current ratio is due to the
exchange of notes receivable to marketable securities that were sold and the
proceeds used to sustain operations, and notes payable to shareholders, in the
amount of $150,000, become payable during the current fiscal year. The net loss
for the three months ended September 30, 2004, was $106,541 compared to $50,013
for the same quarter of 2003. The increased loss was due to a loss from the sale
of marketable securities of $41,300 and an increase of approximately $12,000 in
depreciation and amortization for the three months ended September 30, 2004, as
compared to the same quarter of 2003. Approximately $92,719 or 87% of the net
loss from operations for the three months ended September 30, 2004, were
non-cash charges consisting of Depreciation and Amortization in the amount of
$31,419; Consulting Services in the amount of $20,000 paid through the issuance
of shares of stock; and a loss from the sale of Marketable Securities in the
amount of $41,300. 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 and receivables were $45,791 at September 30, 2004.
During the quarter ended September 30, 2004, The Company raised $11,600 through
the sale of Common stock. The Company also raised $5,000 from the sale of
marketable securities. 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, 2004, the Company has
raised $31,500 through the sale of Common stock. 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,
especially since 49,890,582 shares of Common stock of the 50,000,000 authorized
have been issued, therefore the Company only has Preferred shares available for
issue.
The Company believes that it could obtain sufficient working capital from
operations through marketing PrimeCareTM Version 9 and its Internet products.
Marketable securities
- ---------------------
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. 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 ($334,500 of principal, plus $36,423 of accrued interest, for the total
amount of $370,923). The market value on October 10, 2003, of the Stock received
was $704,753. During the year ended June 30, 2004, the Company realized $162,761
from the sale of 3,260,000 shares, which resulted in a loss of $163,239.During
the quarter ending September 30, 2004, the Company sold the balance of the
shares for $5,000, realizing an additional loss of $41,300.
13
Competition:
- ------------
The Company has not identified any competitive patient management system, which
embodies all the features of the PrimeCareTM Version 9, 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 HPI 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 electronic
medical record ("EMR") system, 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 national and local health care systems, military
organizations, correctional facilities, HMOs, hospitals with outpatient
services, ambulatory clinics, group practices and solo practitioners; (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 patients' 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, health insurance providers
and other third party payors 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
14
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 a copy 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.
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 secure 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 databases 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) 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.
15
PrimeCareTM Patient Management System ("PCPMS")
-----------------------------------------------
The PCPMS was the Company's initial EMR offering. The Company has discontinued
marketing the PCPMS
CodeComplierTM:
---------------
The Company has also developed CodeComplierTM an application software program
that was designed to be used in conjunction with The Company's PrimeCareTM
Version 9 and PrimeCareOnTheWebTM. 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 payers for the History, Physical Findings and
Decision Making sections of the office visit. It totally eliminates the time and
effort that would otherwise be required by the physician or office personnel to
complete this task. CodeComplierTM takes the guesswork out of E&M and third
party payer compliance. CodeComplierTM 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
PrimeCareTM Version 9'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 Version 9; (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 database for outcomes research; and (ix) automatically provides
registered physicians individual Web sites on YourOwnDoctorTM.
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
specialties, 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 YourOwnHealthTM 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; (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.
16
The Market:
- -----------
The Company's domestic and international markets for: (a) the PrimeCareTM
Version 9, the PCW, YOH and the YOD Sites are ambulatory/outpatient medical
facilities, such as, primary care physicians, medical clinics, group practices,
health maintenance organizations, health care insurance companies 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 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. To date these contracts have not materialized.
The need for new approaches in health care delivery is critical. PrimeCare(TM)
Version 9 is a software system that provides for the creation of new health care
insurance products to meet the needs of millions of uninsured Americans at a
cost that they can afford. It will enable the insurer to reduce the cost of care
for current enrollees and introduce new cost-effective products while
maintaining the quality of care. Towards that goal discussions with major U.S.
health insurers and foreign government sponsored health plans.
Licensing Fees:
- ---------------
The Company believes that the increased awareness of PrimeCare(TM) Version 9
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:
- -----------------
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 or grants for conducting outcomes
research for pharmaceutical companies, teaching hospitals, governmental agencies
and philanthropic organizations. The Company anonymizes, encrypts and stores the
data from 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, a 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's marketing of the Denise Austin 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
17
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
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 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.
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 four million viewers each weekday morning.
The Company believes that it could obtain sufficient working capital from
operations through marketing PrimeCareTM Version 9 and its other Internet
products, the.
Currently, the Company has lines of credit with RBC Centura Bank for a maximum
of borrowing of $20,000 and has no material commitments for capital expenditures
outstanding.
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, 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.
18
PART II - OTHER INFORMATION
Item 2. Changes In Securities
During the three months ended September 30, 2004, an aggregate of 1,160,000
shares of the Company's Common Stock, were sold for $11,600 or $0.01 per share
plus warrants to purchase 1,160,000 shares at $0.02 per share, in an
unregistered private placement.. No shares of common stock are reserved for the
exercise of the warrants. Exercise of the warrants is contingent upon the
shareholders approving an increase in the authorized common stock to at least
100,000,000 shares.
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 there under
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 quarters ended
September 30, 2004 and September 30, 2003.
19
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, thereunto duly authorized.
OCG TECHNOLOGY, INC.
BY /s/ EDWARD C. LEVINE
----------------------------------
EDWARD C. LEVINE,
PRESIDENT
(CHIEF FINANCIAL OFFICER)
DATED: November , 2004
20