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, 1997
[ ] 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
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
450 West 31st Street, New York, New York 10001
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(Address of principal executive offices)
(212) 967-3079
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(Issuer's telephone number)
(Former name, address and former fiscal year, if changed since last report)
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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 May 13, 1997
- ----------------------------- ----------------------------------
Common Stock ($.01 par value) 24,283,759 Shares
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. - FINANCIAL INFORMATION PAGE NUMBER
- -------------------------------- -----------
Consolidated Condensed Balance Sheets
March 31, 1997 and June 30, 1996 1
Consolidated Condensed Statements of Loss for the
Three and Nine Months Ended March 31, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flow for
the Nine Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
MARCH 31,1997 JUNE 30, 1996
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $329,698 $318,088
Receivables, trade 93,444 45,441
Demand notes due from officers/directors 82,000 0
Other current assets 38,794 35,606
---------- ----------
Total current assets 543,936 399,135
Property and equipment, net of accumulated depreciation of
$328,928 $261,178 240,764 199,603
Proprietary technology, net of accumulated amortization of
$1,725,000 $1,275,000 1,441,885 1,725,000
Covenant not to compete, net of accumulated amortization
$237,500 $200,000 12,500 50,000
Other assets 29,654 29,233
---------- ----------
Total assets $2,268,739 $2,402,971
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to shareholders $33,344 $11,344
Accounts payable and accrued expenses 149,596 223,420
---------- ----------
Total current liabilities 182,940 234,764
---------- ----------
Shareholders' equity: (Note 4)
Preferred stock $.10 par value, Series E 10,000 10,000
Common stock $.01 par value 242,837 231,515
Additional paid-in capital 21,097,795 20,384,287
Deficit (19,198,894) (18,381,343)
Unearned compensation (Note 3) (3,439) (13,752)
---------- ----------
2,148,299 2,230,707
Less treasury stock, at cost (62,500) (62,500)
---------- ----------
Total shareholders' equity 2,085,799 2,168,207
---------- ----------
Total liabilities and shareholders' equity: $2,268,739 $2,402,971
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements
1
</TABLE>
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Sales $245,760 $212,079 $639,203 $571,219
-------- -------- -------- --------
Costs and expenses:
Cost of sales 78,873 105,500 240,363 229,135
Marketing, general and
administrative 392,830 419,976 1,216,391 1,198,116
-------- -------- --------- ---------
Total Expenses 471,703 525,476 1,456,754 1,427,251
-------- -------- --------- ---------
Net Income (Loss) ($225,943) ($313,397) ($817,551) ($856,032)
======== ======== ========= =========
Weighted average number of
shares outstanding
during period 24,256,759 21,280,203 23,543,898 19,032,405
========== ========== ========== ==========
Loss per Common Share ($0.01) ($0.01) ($0.03) ($0.04)
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
2
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($817,551) ($856,032)
---------- ----------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 556,309 547,071
Issuance of stock and warrants for services 52,625 0
Amortization of unearned compensation 10,313 19,686
Changes in assets and liabilities
(Increase) decrease in receivables (48,003) (14,369)
(Increase) decrease in demand notes (82,000)
(Increase) decrease in other current assets (3,188) (2,500)
(Increase) decrease in property and equipment (108,911) (29,421)
(Increase) decrease in Proprietary Technology (166,885)
(Increase) decrease in other assets (1,480) 300
(Decrease) in accounts payable
and accrued expenses (73,824) (4,973)
--------- ---------
Total adjustments 134,956 515,794
--------- ---------
Net cash used in operating activities (682,595) (340,238)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in due to shareholders 22,000 85,000
Proceeds from issuance of common stock 672,205 255,000
--------- ---------
Net cash changes from investing and financing activities 694,205 340,000
--------- ---------
Net increase (decrease) in cash 11,610 (238)
Cash, beginning of period 318,088 51,645
--------- ---------
Cash, end of period $329,698 $51,407
========= =========
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
3
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 1997 and the results of operations for the three and
nine months ended March 31, 1997 and 1996 and the statements of cash flows for
the nine months ended March 31, 1997 and 1996. The June 30, 1996 balance sheet
has been derived from the Company's audited financial statements.
The results of operations for the nine months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-KSB.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business. Because of significant operating losses, the Company's ability to
continue as a going concern is dependent upon its ability to obtain sufficient
additional financing and, ultimately, upon future profitable operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
2. Earnings per share is computed using the weighted average number of shares
outstanding during the periods. The effect of warrants outstanding would be
anti-dilutive.
3. Unearned compensation decreased as a result of amortizing the cost arising
from the issuance of shares of the Company's common stock for services.
4. Capital Changes and Demand Notes Receivable:
During the three months ended March 31, 1997 warrants were exercised to
purchase 390,000 shares of the Company's common stock for $177,750 consisting
of cash of $95,750 and demand notes of $82,000 and the shares were issued. The
demand notes were issued by two Officers/Directors to the Company, are
collateralized by common stock of the Company owned by these individuals and
bear interest at the prime rate.
During the three months ended March 31, 1997 the Company's Board of Directors
approved the issuance of 400,000 warrants to acquire 400,000 shares of the
Company's common stock at an exercise price of $1.00 which expire January 14,
2000. 350,000 of these warrants were issued to Officers and Directors of the
Company. On the date of issue the quoted market price of the Company's common
stock was less than the per share exercise price of the warrants.
During the nine months ended March 31, 1997 for services rendered in accord
with the terms of a consulting agreement, warrants were issued to purchase a
total of 90,000 shares of the Company's common stock at exercise prices
ranging between $0.91 to $1.62 with exercise dates of said warrants expiring
between July 1, 1999 to March 1, 2000. The Company reflected a total expense
of $18,000 for the nine month period ending March 31, 1997.
During the three months periods ended December 31,1996 and March 31, 1997,
pursuant to the terms of an agreement for public relations services to be
rendered to the Company, the Company issued 4,000 and 2,500 shares,
respectively, of its common stock for services rendered to date. The Company
reflected an expense of $4,000 and $2,500 in its Statement of Operations for
the three months ended December 31, 1996 and March 31, 1997, respectively.
During the three months ended March 31, 1997, pursuant to the terms of an
agreement with planning and marketing consultants, the Company issued 30,000
shares of its common stock. The Company reflected an expense of $28,125 in its
Statement of Operations for the three months then ended.
On December 22, 1996, 352,300 shares of the Company's common stock were sold
for $299,455($0.85 per share) in a private placement, which was exempt from
registration under Section 4(6) of the Securities Act of 1993, to individuals,
all of whom were "accredited investors".
During the three months ended December 31, 1996 warrants were exercised to
purchase 240,000 shares of the Company's common stock
for the sum of $111,000 and the shares of stock were issued.
During the three months ended September 30,1996, 68,400 shares of the
Company's common stock were sold for $0.95 per share, the gross proceeds of
which were $65,000.
During the three months ended September 30, 1996, warrants were exercised to
purchase 12,500 shares of the Company's common stock for the sum of $5,000 and
the shares of stock were issued.
During the three months ended September 30, 1996 the Company's Board of
Directors approved the issuance of 1,220,000 warrants to acquire 1,220,000
shares of the Company's common stock at an exercise price of $1.09 which
expire July 25, 1999. 560,000 of these warrants were issued to
Officers/Directors of the Company. On the date of issue the quoted market
price of the Company's common stock was less than the per share exercise price
of the warrants.
<PAGE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A SUMMARY OF INCREASES (DECREASES) IN THE ITEMS INCLUDED IN
THE CONSOLIDATED STATEMENTS OF LOSS IS SHOWN BELOW:
Results of Operations
- ---------------------
Total revenues increased $33,681 and $67,984 for the three and nine months
ended March 31, 1997 as compared to the same periods for 1996 primarily as a
result of an increase in revenues of PrimeCare Systems, Inc. ("PSI") and
Mooney-Edwards Enterprises, Inc. ("MIS"), subsidiaries of the Company. Cost
of sales decreased by $26,627 and increased by $11,228 for the three and nine
months ended March 31, 1997, respectively, as compared to the same periods for
1996. The sales of OCG Technology, Inc. ("OCGT"), PSI and MIS were $1,082,
$45,071 and $593,050 respectively, for the nine months ended March 31, 1997.
Marketing, general and administrative expenses decreased $27,146 and increased
$18,275 for the three and nine months ended March 31, 1997, respectively, as
compared to the same periods for 1996. PSI's expense decreased in the three
months and nine months ended March 31, 1997, primarily due to the
capitalization of $58,183 and $166,885, respectively, of salaries and related
costs incurred in the development of the Windows version of the PrimeCare
Patient Management System.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1997 the Company had a current ratio of 2.97 to 1 compared to .49
to 1 as of March 31, 1996. The increase primarily resulted from the sale of
equity interests and the exercise of warrants. Although the net loss from
operations for the nine months ended March 31, 1997 was $817,551 most of the
loss resulted from non-cash charges of $619,247, which accounted for 76% of
the total loss from operations. The Company has experienced recurring losses
from operations and has been unable to provide sufficient working capital from
operations and has relied on the sale of equity interests in the Company to
fund its operations. The Company's auditors have included an explanatory
paragraph regarding the ability of the Company to continue as a "going
concern".
Cash on hand and accounts receivable were $423,142 at March 31, 1997. The
Company also has $82,000 of demand notes due from officers/directors related
to their exercise of warrants (see Notes to Financial Statements). In addition,
the Company has Cardiointegraph equipment, in the final stages of manufacture,
which will be available to lease on a fee for service basis. In the past, the
Company's principal means of overcoming its cash shortfalls from operations
was from the sale of the Company's common stock. During the nine months ended
March 31, 1997, the Company raised $672,205 through the sale of equity
interests and the exercise of warrants. 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.
As of May 16, 1994, PrimeCare Systems, Inc. ("PSI") was acquired by the
Company. PSI owns the sole and exclusive right, title and interest in the
PrimeCare(TM) Patient Management System (the "System"), which is protected by
copyrights. This DOS based System includes a patient-centered integrated
medical interview, encounter documentation, physician and patient education
data, and chart creation system which, in turn, provides an uncomplicated,
standardized mechanism for collecting and documenting all relevant clinical
encounter data at minimal cost and time. The System also provides a data base
and means for clinical and outcomes research as well as a means for
utilization review and quality assurance audits. The medical content of the
System is updated from time to time to ensure that it reasonably reflects
currently accepted medical knowledge. To accomplish this the Company, on
September 15, 1995, entered into an agreement with the Mount Sinai School of
Medicine ("MSSM") which provides for the MSSM to assume the task of updating
and enhancing the medical content of the System.
Having concluded the agreement with MSSM, the Company, in early 1996,
commenced the development of a network of dealers to market the System. The
Company currently has arrangements with a number of dealers to sell the
PrimeCare(TM) System and intends to continue to enlarge this network of
independent dealers. The Company markets the System as a service, on a pay for
use basis, with a charge of $1.50 per patient visit. This marketing method
eliminates a significant financial commitment to purchase the software, plus
monthly maintenance charges for updates, and ties the cost directly to use.
The financial benefits derived by the physician from use of the System exceed
$1.50 cost per patient visit. The Company has enhanced its software to enable
the System to interface with any compatible medical billing software.
According to the American Medical Association, there are over 650,000
physicians in the U.S., creating a very large potential market for the System.
The Company estimates that as many as 250,000 of these physicians could use
the System routinely. It is estimated that the average number of patient
visits per month for a primary care physician is between 500 and 600. Assuming
500 patient visits per month at $1.50 per visit, use by 100 physicians could
generate revenues of $75,000 per month. However, no assurances can be given
that a significant number of physicians will contract for and use the System.
The Company has completed and recently released a Windows 95 and a Windows NT
(collectively, the "Windows") version of the System. A number of additional
features have been incorporated in the Windows version of the System. The
Company has established its own Internet site and is in the process of
completing the technology to enable physicians and their patients to access
the System over the Internet and, thereby, generate patient histories to aid
the physician in the diagnosis and treatment of an illness without an office
visit.
In the past, the Company sold its Cardiointegraph ("CIG"), a proprietary heart
diagnostic instrument for the early detection of coronary heart disease,
through medical distributors, a sales and marketing method employed by other
medical equipment manufacturers. Although Cardiointegraphs were sold for ten
consecutive fiscal years and the end user purchasers (i.e., physicians and
corporate and governmental medical departments) appear to find the unit
useful, the CIG business segment has been unable to generate sufficient
revenues to fund its operations or to operate at a profit. The Company
believes that lack of universal reimbursement for the CIG has hindered its
attempt to sell the CIG.
The Company believes that marketing the CIG technology as a service, with a
minimal fee charged to the physician per CIG generated, may free the physician
from the general reluctance of physicians to purchase medical diagnostic
equipment not reimbursed by Medicare. The Company has Cardiointegraph
equipment in the final stages of manufacture, which, when completed, will be
available to lease on a fee for service basis.
The Company licensed its CIG technology to Compumed, Inc. ("CMPD") to enable
CMPD to offer the CIG as a service to subscribers to CMPD's service which
interprets electrocardiographic (EKG) signals transmitted telephonically to
CMPD's central computer. During March 1994, CMPD commenced offering the CIG
service to CMPD's customers. To date, the Company has not received significant
revenues from CMPD for the service. The Company is totally dependant upon CMPD
for the marketing effort to CMPD's customers. Based on the experience to date,
the Company does not believe that the service will be marketed successfully by
CMPD.
The Company believes that it could provide sufficient working capital from
operations through marketing the PrimeCare(TM) System and marketing the CIG as
a service.
Currently, the Company has no lines of credit and has no material commitments
for capital expenditures outstanding.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. - Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
OCG TECHNOLOGY, INC.
BY /s/Edward C. Levine
---------------------
EDWARD C. LEVINE,
PRESIDENT
BY /s/Erich W. Augustin
----------------------
ERICH W. AUGUSTIN,
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
DATED: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 329,698
<SECURITIES> 0
<RECEIVABLES> 175,444<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 543,936
<PP&E> 240,764
<DEPRECIATION> 328,928
<TOTAL-ASSETS> 2,268,739
<CURRENT-LIABILITIES> 182,940
<BONDS> 0
0
10,000
<COMMON> 242,837
<OTHER-SE> 1,832,962
<TOTAL-LIABILITY-AND-EQUITY> 2,268,739
<SALES> 639,203
<TOTAL-REVENUES> 639,203
<CGS> 240,363
<TOTAL-COSTS> 1,456,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (817,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (817,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (817,551)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<FN>
<F1>FDS "RECEIVABLES" figure includes $82,000 in demand notes due from
officers/directors.
</FN>
</TABLE>
