SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee Required]
For the Fiscal Year ended June 30,1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from
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Commission file number 0-5186
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OCG TECHNOLOGY, INC.
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(Name of small business issuer in its charter)
DELAWARE 13-2643655
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 West 31st Street, New York, New York 10001
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 967-3079
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Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) had been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K is not contained herein, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the closing sale price for such stock
on September 30, 1999 was $8,948,665. As of September 30, 1998 the
Registrant had 30,749,057 shares of Common Stock outstanding.
The Issuer's revenues for its most recent fiscal year: $18,957
Documents Incorporated by Reference: None
<PAGE>
Part I
Item 1. Description of Business
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General.
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OCG Technology, Inc. (which, together with its subsidiaries, unless
the context otherwise requires, is referred to as the "OCGT"): (i) markets,
updates, and expands the PrimeCare(TM) Patient Management System (the
"PrimeCare(TM) System"), a product of PrimeCare Systems, Inc. ("PSI"), a
wholly owned subsidiary of OCGT; (ii) OCGT markets, updates, and expands the
CodeComplierTM, software which automatically computes Medicare's Evaluation
& Management ("E&M") codes and was designed to be used in conjunction with
OCGT's PrimeCareTM System; (iii) markets secure Internet enhanced versions
of parts of the PrimeCareTM System, on web sites known as PrimeCare on the
WebTM and YourOwnHealth.comTM ; (iv) markets turnkey computer systems and
consulting services to providers of medical services through Mooney-Edwards
Enterprises, Inc. d/b/a Medical Information Systems ("MIS"), a wholly owned
subsidiary of OCGT , which business has been sold (see: Disposition of
Assets). OCG Technology, Inc. was incorporated as Data Display Systems, Inc.
on July 3, 1969.
OCGT's principal executive office is located at 450 West 31st
Street, New York, New York 10001 and its telephone number is (212) 967-3079.
Disposition of Assets.
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On August 2, 1999, pursuant to the terms of an Asset Purchase Agreement,
OCGT sold substantially all of the assets, as of July 28, 1999, of MIS
to Medical Manager Southeast, Inc.("MM") and MM assumed substantially all
of the liabilities related to operations as of July 28, 1999 for a purchase
price equal to Three Hundred Fifty Thousand Dollars ($350,000) plus an
amount equal to the value of the net assets as of July 28, 1999 which
are estimated to be approximately $75,000, for a gros sales price of
approximately $425,000.
PrimeCare(TM) Patient Management System
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PSI, a Delaware corporation, was acquired by OCGT as of May 16,
1994. PSI owns all right, title and interest in the PrimeCareTM System,
which is protected by copyrights. The PrimeCareTM System is a
patient-centered, interactive, computer program that brings efficiencies to
the patient/physician encounter while improving the standard of care and
reducing costs. Patients interact directly with the PrimeCareTM System,
during what is usually waiting time. A detailed patient history is obtained
without taking any of the physician's time. Patients are seated at a
computer and answer complaint-specific questions by using just the number
keys to indicate answers that apply to them; no typing or computer skills
are required. The software also has bilingual capabilities, allowing
Spanish-speaking patients to interact in their preferred language. When the
patient questionnaire is completed, the PrimeCareTM System creates a
preliminary report for the physician to review before examining the patient.
The preliminary report contains the patient's current problems, medications
and allergies, all positive and significant negative subjective responses,
vital signs and a list of the diagnostic considerations triggered by the
patient's responses. By freeing up the time physicians would normally have
to spend asking patient history questions and recording responses,
PrimeCareTM permits physicians to see more patients in less time , while
improving the quality of care. The PrimeCareTM System is also easy for the
physician to understand and use . The same simple key stroke process lets
the physician document: his physical findings, his assessment, the treatment
plan, the prescribed medications and select patient education materials. At
the conclusion of the encounter a final report of the visit , patient
educational materials, and prescriptions are printed for the patient.
The principal markets for the PrimeCare(TM) System are primary care
physicians, medical clinics and staff health maintenance organizations.
The PrimeCare(TM) System has harnessed the computer to bring
efficiency to the management of a medical practice. The PrimeCare(TM)
System: standardizes the patient record; assures consistency in patient
care; creates a patient database for clinical and outcomes research; offers,
both local and remote, means for utilization review and quality assurance
audits; improves the quality of care; increases efficiency and productivity
of the physician's practice; automatically generates a problem list;
incorporates patient care algorithms and clinical practice guidelines;
permits, both local and remote, on-line electronic retrieval of patient
record and hard copy print out with appropriate security controls; enables
rapid access to important patient data for clinical care; contains and
provides patient education, complaint oriented and medication specific;
provides physician reference materials.
The PrimeCare(TM) System requires continual: (1) updates of medical
content; (2) additions and enhancements to expand the scope of the system;
and (3) incorporation of advances in both hardware and software technology
to maintain a "state of the art" system. The PrimeCareTM System runs on
Windows NT, Windows 95, and Windows 98 and is capable of interfacing and
communicating with other systems used in medical facilities.This provides
a method for these systems to transfer information to the PrimeCare(TM)
System, such as patient demographics and appointment scheduling. OCGT has also
completed its side of interface capabilities to enable the PrimeCare(TM)
System to transfer information (such as billing information including E&M codes,
ICD9 codes and CPT codes) to these other systems. OCGT has ceased supporting
its DOS version of the PrimeCare(TM) System. The Windows 95/NT version of the
PrimeCare(TM) System software is year 2000 compliant. The foregoing
statement is a Year 2000 Readiness Disclosure.
OCGT has also completed other enhancements and features to the
operation of the PrimeCare(TM) System which includes:
(1) The addition of voice command recognition capability enables
the physician to use voice commands instead of keystrokes or mouse clicks
to document normal & abnormal physical findings, the assessment, select
tests, treatment plan, prescriptions, drug interaction checks, patient
education materials to be dispensed and schedule follow-up visits.
(2) As an additional option, a touch screen may be used by the
patient and physician instead of the key board, mouse or voice command
recognition. All keystrokes, mouse clicks or voice commands are duplicated
by the touch screen hardware and software.
(3) The PrimeCareTM System can now use Microsoft's SQL Server, in
addition to Interbase, as a database. This expands the flexibility of the
PrimeCareTM System since it enables medical facilities that are using MS SQL
Server database for practice management systems and other software to add
PrimeCareTM without purchasing an additional database. Both databases
support distributed processing in local and wide area networks.
Medical content. On September 15, 1995, PSI entered into an
agreement with the Mount Sinai School of Medicine ("MSSM") which provides
for the MSSM to assume the task of updating and enhancing the medical
content of the PrimeCare(TM) System.
Marketing.
The PrimeCare(TM) System is marketed primarily through the
following business models:
(a) recruitment of value added resellers ("VARs") and
authorized dealers
(b) direct sales to large at-risk healthcare entities
(c) private labeling opportunities
The type of distributors sought by OCGT are those who currently sell,
install and service medical office and billing systems to medical
facilities. In addition, exhibiting the PrimeCareTM System and
CodeComplierTM at selected health care industry conventions is a component
of the marketing and sales program. VARs, who sell, install, and service,
billing systems to medical facilities, have agreed to market the PrimeCareTM
System. However, no assurances can be given that OCGT's marketing plan will
succeed.
OCGT markets the PrimeCareTM System as a service, on a pay for use
basis, with a maximum charge of $2.00 per patient visit. This charge per
patient visit has been increased from $1.50. This marketing method
eliminates a significant financial commitment to purchase the software, plus
monthly maintenance charges for updates, and ties the cost directly to use.
Physician users have stated that the financial benefits derived by the
physician from use of the PrimeCareTM System exceeds the $2.00 cost per
patient visit. According to the American Medical Association, there are
over 650,000 physicians in the U.S. creating a very large potential market
for the System. OCGT estimates that as many as 250,000 of these physicians
could use the PrimeCareTM System routinely.
Competition. OCGT has not identified any competitive patient
management system which embodies all the features of the PrimeCare(TM)
System. However, other companies market systems which may have some of the
features of the PrimeCare(TM) System and some companies market medical
office products which perform different functions than those performed by
the PrimeCare(TM) System. To date, market penetration by both PSI and its
competitors has been very small.
Copyrights. The content of the PrimeCare(TM) System is protected by
copyrights.
The CodeComplierTM
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OCGT has completed development of software which computes the E&M
code. Designed to be used in conjunction with the PrimeCareTM System,
CodeComplierTM takes the guess work out of E&M compliance. As each item of
information is entered into and collected by the PrimeCareTM System during
the patient encounter, the CodeComplierTM organizes the data in the proper
classification and using the 1997 HCFA guidelines, automatically calculates
the applicable E&M code.
Marketing. Since the CodeComplierTM automatically calculates the
applicable E&M code from data collected by the PrimeCareTM System during
the patient encounter, it totally eliminates the time and effort which
would otherwise be required by physician office personnel to complete this
task. The marketing strategy is to offer the CodeComplierTM to medical
facilities interested in the PrimeCareTM System. OCGT markets the
CodeComplierTM as a service, on a pay for use basis, with a maximum charge
of $1.00 per patient visit. This pricing method conforms to OCGT's
philosophy of tying the product's cost directly to its use. OCGT believes
that the saving in labor costs and other financial benefits derived by the
physician from use of the CodeComplierTM far exceeds the $1.00 cost per
patient visit. However, no assurances can be given that OCGT's marketing
plan will succeed.
Copyrights. The content of the CodeComplierTM is protected by
copyrights.
PrimeCareTM Web Sites
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OCGT has introduced PrimeCare on the WebTM , which is a secure
Internet enhanced version of the patient interactive medical history
questionnaires of the PrimeCareTM System. PrimeCare on the WebTM enables
the patient to complete one, or more, detailed medical history
questionnaires that relate to the patient's chief complaint, as selected by
their physician. The patient, using a unique ID and password, can securely
and anonymously complete the questionnaire(s) from the comfort of their
home, workplace, school, vacation site or even while waiting to see their
physician, if Internet capability is available. The medical report generated
for the physician contains the patient's responses, and a list of
differential diagnoses associated with the patient's responses. The report
highlights the significant diagnoses and enables the physician to choose an
appropriate preliminary course of action, e.g., "come to my office"; "go to
the emergency room of XYZ Hospital"; or "take two aspirin", etc. All
questions and answers are encrypted and all communications use secure
digital certificates. Use of PrimeCare on the WebTM eliminates the time a
physician would normally have to spend asking patient history questions and
recording responses, and permits the physician to see more patients in less
time, while improving the quality of care. Although PrimeCare on the WebTM
is free to the physician, it is designed to generate revenues from three
specific advertising opportunities: (a) banner advertising on every page
(average questionnaire consists of approximately 20 page views); (b)
geographical sponsorships by hospitals and medical providers based on
exclusive zip code defined areas; and (c) topical sponsorships by
pharmaceutical and medical product manufacturers that will target
complaint-specific questionnaires.
On April 15, 1999, OCGT announced that it has gone "live"
online with its innovative website YourOwnHealth.comTM . This Internet site
facilitates consumer access to quality medical information helping its users
become more knowledgeable about medical conditions and be better informed
healthcare consumers. The website hosts Internet versions of two sections of
OCGT's PrimeCareTM Patient Management System, a sophisticated software
program designed for physicians to electronically document the
physician/patient encounter. One of these sections, "Patient History
Questionnaires", permits the consumer to select and answer
complaint-specific medical questionnaires. Based on the consumer's responses
to questions, a detailed report, which includes possible diagnoses, is
created. The patient can give this report to their physician at the patient
visit. The second section, "Patient Education Materials", provides articles
relating to diseases, disease management and common medications, enabling
the consumer to better understand medical problems and conditions. Although
YourOwnHealth.comTM is free to the consumer, it is designed to generate
revenues from three specific advertising opportunities: (a) banner
advertising on every page (average questionnaire consists of approximately
20 page views); (b) geographical sponsorships by hospitals and medical
providers based on exclusive zip code defined areas; and (c) topical
sponsorships by pharmaceutical and medical product manufacturers that will
target complaint-specific questionnaires.
Medical Information Systems
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Mooney-Edwards Enterprises, Inc. d/b/a Medical Information Systems
("MIS"), a Florida corporation was acquired by OCGT on June 25, 1992.
As of July 28, 1999, substantially all of the assets of MIS, were sold to
Medical Manager Southeast, Inc.("MM") and MM assumed substantially all of
the liabilities related to operations. MIS was the area dealer for MM, which
is reputed to be the most widely used software package
in the medical industry. The sale was made under the dealer acquisition
program initiated by MM in 1997 when it became publicly held. MIS marketed
computer systems to providers of medical services. The packages included
hardware, software, staff training and provides for an annual service
contract. In addition to the basic accounts receivable and insurance billing
applications, MIS provided the offices with accounts payable, general
ledger, payroll and word processing programs. The service contracts provide
for ongoing continuing education and system maintenance.
Cardiointegraph
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OCGT has developed a diagnostic instrument for the early detection
of coronary heart disease, known as the Cardiointegraph, which takes the
electrical impulses generated by a patient during the course of a
conventional electrocardiogram ("ECG") and through a series of integrations
and normalizations, displays these signals in a different visual format,
known as a Cardiointegram ("CIG"). In OCGT's opinion, a CIG provides the
examining physician with a method for identifying patients with apparently
normal ECG's who may actually have coronary heart disease. The
Cardiointegraph employs a unique method, parts of which are patented. The
Cardiointegram procedure is done at rest, requires less doctor-time and
costs significantly less than the other available methods.
Studies have been completed which OCGT believes confirm the
usefulness and efficacy of the Cardiointegraph. As a part of two studies,
the results of the Cardiointegram was compared with the results of exercise
stress testing. The concordance of the two tests was 87% in one study and
88% in the other. Based on this data OCGT believes that the CIG is a cost
effective, viable alternative to stress testing in many instances. The
apparent national concern with rising health-care costs and growing efforts
to contain and reduce these costs could prove to be a stimulus to expand the
use of the CIG service. However, there can be no assurance that the CIG will
benefit from this.
Marketing. Although Cardiointegraphs were sold and end user
purchasers (i.e. physicians, corporate and governmental medical departments)
appear to find the unit useful, OCGT has been unable to generate sufficient
revenues to fund its operations or to operate at a profit. OCGT believes
that lack of universal reimbursement for the CIG has hindered its attempt to
sell the CIG. To date, OCGT has not derived substantial revenues from the
CIG there can be no assurance that OCGT will ever be able to market the CIG.
Competition. The Cardiointegraph is a diagnostic device which
employs a unique method, parts of which are patented, for the diagnosis of
coronary heart disease. OCGT believes that the CIG does not compete
directly with any other diagnostic method. However, the CIG does compete
generally with other diagnostic methods, such as stress testing and thallium
perfusion stress tests. The Cardiointegram procedure is done at rest,
requires less doctor-time and costs less than the other available methods.
In the past, OCGT sold its product through medical distributors, a sales and
marketing method employed by other medical equipment manufacturers.
Patent Protection. OCGT's business is dependent to some extent, upon
patent protection of its method of signal analysis and its application to
the Cardiointegraph. OCGT's primary patent expired in November 1986. In
June 1985 a new method patent was granted to OCGT which expires in the year
2002. This new patent covers OCGT's method for correctly detecting in a
repeatable fashion the proper base line which is essential to accurately
compute the CIG. OCGT believes that this patent will adequately protect its
competitive position. Although certain of OCGT's processes are of a
non-patentable nature, OCGT believes that it has significant lead time over
potential competitors in the field of classifying and evaluating data by
this patented method and apparatus as a result of its know-how and expertise
which supplement the patent protection. "Cardiointegraph" is not a
registered trademark or trade name, however, OCGT is not aware of any other
companies using such name or manufacturing such product. OCGT owns
trademark registrations in the United States for "OCG".
Government Regulation
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OCGT is operating in the medical field which is subject to extensive
federal, state and local regulations. The Cardiointegraph is a "device"
under the Food, Drug and Cosmetic Act of 1938, as amended (the "ACT"). On
December 29, 1981, OCGT was formally advised by the Food and Drug
Administration ("FDA") that OCGT had clearance to market the
Cardiointegraph, subject to the general controls and provisions of the Act.
The FDA designated the Cardiointegraph to be in regulatory class II. OCGT
believes that it is presently in compliance with all federal, state and
local regulations.
Neither the PrimeCare(TM) System, the CodeComplierTM nor the MIS
medical billing software require FDA filings.
Employees
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OCGT employs 7 full time employees, 4 of whom are non-salaried
officers, its subsidiary, PSI employs 11 salaried employees including
officers, 9 of whom are full time and 2 part time.
Item 2. Properties
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OCGT utilizes space at 450 West 31st Street, New York, New York where it
maintains its executive and sales office. The space is owned by a
corporation whose president and one of its shareholders is the son of the
President of OCGT. There is no lease or other written commitment assuring
continued use of the premises. No rent was charged in 1997 and 1996. In
each of the years 1998 and 1999, warrants to purchase 200,000 shares of OCGT's
common stock, par value $.01 per share, at the exercise price of $.65 per
share and $.47 per share, were issued in lieu of the payment of rent and
other services for fiscal years 1999 and 2000.
PSI leases approximately 3,634 square feet of office space in Newport News, VA.
The lease bears an annual rental of $39,071 until July 31, 1999 at which
time it increases to an annual rental of $41,024 until expiration on May 31,
2001.
Item 3. Legal Proceedings
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NONE
Item 4. Submission of Matters to a Vote of Security Holders
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NONE
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
OCGT's Common Stock is quoted on the OTC Bulletin Board under the symbol
OCGT. Prior to February 19, 1998 OCGT's Common Stock was quoted on NASDAQ
(now NASDAQ Small Cap) under NASDAQ symbol OCGT. The following table sets
forth the range of high and low closing prices for OCGT's Common Stock for
the periods indicated, on the market it was trading on at that time. Prices
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions and may not represent actual transactions.
Fiscal Year Ended June 30, 1998 High Low
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1st Quarter 15/16 15/32
2nd Quarter 25/32 13/32
3rd Quarter 7/8 3/8
4th Quarter 15/16 19/32
Fiscal Year Ended June 30, 1999 High Low
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1st Quarter 37/64 19/64
2nd Quarter 1/2 15/64
3rd Quarter 9/16 1/4
4th Quarter 35/6 3/8
As of June 30, 1999 there were approximately 1,365 record holders of the
Common Stock, which does not include stockholders whose shares are
registered in "nominee" or "street" name. The closing bid price per share
for the Common Stock on September 30, 1999 was 13/32.
OCGT has never paid cash dividends on its Common Stock. Payment of dividends
are within the discretion of OCGT's Board of Directors and will depend,
among other factors, on earnings, capital requirements and the operating
and financial condition of OCGT. At the present time, OCGT's anticipated
requirements are such that it intends to follow a policy of retaining
earnings, if any, in order to finance the development of its business.
On July 12, 1984, a majority of the shareholders of OCGT authorized the
amendment of the Certificate of Incorporation of OCGT creating a class of
1,000,000 shares of preferred stock, the relative rights, preferences and
designations of which could be determined by the Board of Directors.
On June 10, 1992 pursuant to the authority vested in the Board of Directors
of OCGT, a series of Preferred Stock of OCGT was created out of the
authorized but unissued shares of the capital stock of OCGT, and was
designated Series E Preferred Stock, to consist of a maximum of 100,000
shares, par value $.10 per share, of which the preferences and other rights,
and the qualifications, limitations or restrictions thereof, includes the
following: (1) These shares are non-convertible; (2) The holders of shares
shall have the right to vote for any purpose on the same basis as the
holders of OCGT's Common Stock; (3) Series E Dividends shall not be
cumulative and shall be distributable out of the aggregate of all cash
dividends declared by OCGT in any year, and shall be calculated as follows:
the aggregate amount of all cash dividends declared and to be distributed by
OCGT to all classes of its shareholders in a fiscal year shall be multiplied
by a fraction, the (A) NUMERATOR of which shall be an amount equal to fifty
(50%) percent of the net profits of OCGT's subsidiary, Mooney-Edwards
Enterprises, Inc. ("MIS") for the prior fiscal year; and the (B)
DENOMINATOR of which shall be the sum of the said net profits of OCGT
(including those of MIS) for such prior fiscal year; (4) The Series E
Preferred Stock may be redeemed, in whole or in part, at the option of OCGT,
at the price of $30.00 per share, plus all accrued and unpaid dividends
thereon. On June 25, 1992, 100,000 shares of Series E Preferred Stock were
issued in conjunction with the acquisition of Mooney-Edwards Enterprises,
Inc. No dividends have ever been declared or paid for the Series E
Preferred Stock.
Item 6. Management's Discussion and Analysis or Plan of Operation
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Fiscal 1999 Compared to Fiscal 1998
General
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The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere
herein. The following discussion contains predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties
While this outlook represents OCGT'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.
OCGT has experienced recurring losses from operations and has relied on the
sale of equity interests in OCGT to fund its operations. If necessary, OCGT
intends to provide additional working capital through the sale of equity
interests in OCGT. Although, in the past, OCGT has been able to provide
working capital through the sale of equity interests in OCGT, there can be
no assurances that OCGT will succeed in its efforts, which creates a doubt
about its ability to continue as a going concern.
Results of Operations
- ---------------------
Results of operations related to MIS have not been included in the
discussion since the operations were sold August 2, 1999.
Total revenues decreased to $18,957 for the year ended June 30, 1999 from
$19,814 for 1998. Cost of sales decreased $4,979.
Costs and Expenses decreased $863,426 for the
year ended June 30, 1999 as compared to 1998 due primarily to the
accelerated write-off of proprietary technology related to the creation of
PrimeCareTM System and a decrease in amortization.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1999 OCGT had a current ratio of 3.71 to 1 compared to 4.5 to 1
as of June 30, 1998. This does not include the $350,000 component of the
sales price for MIS. Although the net loss from continuting operations for
the year ended June 30, 1999 was $1,321,759 a significant part of the loss
resulted from non-cash charges of approximately $644,000, which accounted for
49% of the total loss from operations.
Cash on hand and accounts receivable were $111,876 at June 30, 1999 per our
audited financials. This does not include the proceeds from the sale of the
MIS business of approximately $425,000. In the past, OCGT's principal means
of overcoming its cash shortfalls from operations was from the sale of OCGT's
common stock. During the year ended June 30, 1999, OCGT received $198,250
in cash through the sale of equity interests. Subsequent to June 30, 1999
OCGT received an additional $45,000 in cash through the sale of equity
interests. In the past, OCGT's principal means of overcoming its cash
shortfalls from operations was from the sale of OCGT's common stock and the
exercise of warrants. Although, in the past, OCGT has been able to provide
working capital through the sale of equity interests in OCGT and through the
exercise of warrants, there can be no assurances that OCGT will succeed in its
efforts. However, on August 2, 1999, pursuant to the terms of an Asset
Purchase Agreement, Mooney-Edwards Enterprises, Inc.("MIS"), a wholly
owned subsidiary of OCGT, sold substantially all of the assets, as of
July 28, 1999, to Medical Manager Southeast, Inc.("MM") and MM assumed
substantially all of the liabilities related to operations as of July 28, 1999
for a purchase price equal to Three Hundred Fifty Thousand Dollars and 00/100
($350,000) plus an amount equal to the value of the net assets as of July 28,
1999 which are estimated to be approximately $75,000.
PrimeCare Systems, Inc.(" PSI"), a Delaware corporation, was acquired
by OCGT as of May 16, 1994. PSI owns all right, title and interest in the
PrimeCareTM System, which is protected by copyrights. See "Item 1" for a
complete product description.
The PrimeCare(TM) System is marketed primarily through the
following business models:
(a) recruitment of value added resellers ("VARs") and
authorized dealers
(b) direct sales to large at-risk healthcare entities
(c) private labeling opportunities
The type of distributors sought by OCGT are those who currently sell,
install and service medical office and billing systems to medical
facilities. In addition, exhibiting the PrimeCareTM System and
CodeComplierTM at selected health care industry conventions is a component
of the marketing and sales program. VARs, who sell, install, and service,
billing systems to medical facilities, have agreed to market the PrimeCareTM
System. However, no assurances can be given that OCGT's marketing plan will
succeed.
OCGT markets the PrimeCareTM System as a service, on a pay for use
basis, with a maximum charge of $2.00 per patient visit. This charge per
patient visit has been increased from $1.50. This marketing method
eliminates a significant financial commitment to purchase the software, plus
monthly maintenance charges for updates, and ties the cost directly to use.
Physician users have stated that the financial benefits derived by the
physician from use of the PrimeCareTM System exceeds the $2.00 cost per
patient visit. According to the American Medical Association, there are
over 650,000 physicians in the U.S. creating a very large potential market
for the System. OCGT estimates that as many as 250,000 of these physicians
could use the PrimeCareTM System routinely.
OCGT has not identified any competitive patient management system
which embodies all the features of the PrimeCare(TM) System. However, other
companies market systems which may have some of the features of the
PrimeCare(TM) System and some companies market medical office products which
perform different functions than those performed by the PrimeCare(TM)
System. To date, market penetration by both PSI and its competitors has been
very small.
OCGT has completed development of software which computes the E&M
code. Designed to be used in conjunction with the PrimeCareTM System,
CodeComplierTM takes the guess work out of E&M compliance. As each item of
information is entered into and collected by the PrimeCareTM System during
the patient encounter, the CodeComplierTM organizes the data in the proper
classification and using the 1997 HCFA guidelines, automatically calculates
the applicable E&M code. Since the CodeComplierTM automatically calculates
the applicable E&M code from data collected by the PrimeCareTM System
during the patient encounter, it eliminates the time and effort which would
be required by physician office personnel to complete this task. OCGT
markets the CodeComplierTM as a service, on a pay for use basis, with a
maximum charge of $1.00 per patient visit. This pricing method conforms to
OCGT's philosophy of tying the product's cost directly to its use. OCGT
believes that the saving in labor costs and other financial benefits derived
by the physician from use of the CodeComplierTM far exceeds the $1.00 cost
per patient visit. The 1997 HCFA guidelines carry severe penalties including
imprisonment for violators. OCGT believes that CodeComplier marketable
because it eliminates these problems. As a result of the protests of the
physicians medical association were suspended indefinitely during April of
1998. It is generally believed that in part the suspension was given to
allow time for physicians to deal with the Y2K problem and that the rules
will be in effect in early 2000. OCGT believes that when the HCFA guidelines
are reinstated both the PrimeCareTM System and CodeComplierTM will become
very marketable. However, no assurances can be given that OCGT's marketing
plan will succeed.
OCGT has introduced PrimeCare on the WebTM , which is a secure
Internet enhanced version of the patient interactive medical history
questionnaires of the PrimeCareTM System. PrimeCare on the WebTM enables
the patient to complete one, or more, detailed medical history
questionnaires that relate to the patient's chief complaint, as selected by
their physician. The patient, using a unique ID and password, can securely
and anonymously complete the questionnaire(s) from the comfort of their
home, workplace, school, vacation site or even while waiting to see their
physician, if Internet capability is available. The medical report generated
for the physician contains the patient's responses, and a list of
differential diagnoses associated with the patient's responses. The report
highlights the significant diagnoses and enables the physician to choose an
appropriate preliminary course of action, e.g., "come to my office"; "go to
the emergency room of XYZ Hospital"; or "take two aspirin", etc. All
questions and answers are encrypted and all communications use secure
digital certificates. Use of PrimeCare on the WebTM eliminates the time a
physician would normally have to spend asking patient history questions and
recording responses, and permits the physician to see more patients in less
time, while improving the quality of care. Although PrimeCare on the WebTM
is free to the physician, it is designed to generate revenues from three
specific advertising opportunities: (a) banner advertising on every page
(average questionnaire consists of approximately 20 page views); (b)
geographical sponsorships by hospitals and medical providers based on
exclusive zip code defined areas; and (c) topical sponsorships by
pharmaceutical and medical product manufacturers that will target
complaint-specific questionnaires.
On April 15, 1999, OCGT announced that it has gone "live"
online with its innovative website YourOwnHealth.comTM. This Internet site
facilitates consumer access to quality medical information helping its users
become more knowledgeable about medical conditions and be better informed
healthcare consumers. The website hosts Internet versions of two sections of
OCGT's PrimeCareTM Patient Management System, a sophisticated software
program designed for physicians to electronically document the
physician/patient encounter. One of these sections, "Patient History
Questionnaires", permits the consumer to select and answer
complaint-specific medical questionnaires. Based on the consumer's responses
to questions, a detailed report, which includes possible diagnoses, is
created. The patient can give this report to their physician at the patient
visit. The second section, "Patient Education Materials", provides articles
relating to diseases, disease management and common medications, enabling
the consumer to better understand medical problems and conditions. Although
YourOwnHealth.comTM is free to the consumer, it is designed to generate
revenues from three specific advertising opportunities: (a) banner
advertising on every page (average questionnaire consists of approximately
20 page views); (b) geographical sponsorships by hospitals and medical
providers based on exclusive zip code defined areas; and (c) topical
sponsorships by pharmaceutical and medical product manufacturers that will
target complaint-specific questionnaires.
OCGT believes that it could provide sufficient working capital from
operations through marketing the PrimeCareTM System, CodeComplierTM, and its
Internet products PrimeCare on the WebTM and YourOwnHealth.comTM.
Currently, OCGT has no lines of credit and has no material commitments
for capital expenditures outstanding.
Fiscal 1998 Compared to Fiscal 1997
Results of Operations
- ---------------------
Total revenues decreased to $815,213 for the year ended June 30, 1998 from
$842,815 for 1997. The decrease in revenues was primarily due to a decrease
in sales revenues from resale of third party computer equipment. Cost of sales
decreased $54,900 as a result of the reduction in the cost of computer
equipment.
Marketing general and administrative expenses increased $232,822 for year
ended June 30, 1998 as compared to 1997 due primarily to the increase in
marketing and corporate expenses related to the PrimeCareTM System and
CodeComplierTM.
Item 7. Financial Statements
The following are included and filed under this Item and appear immediately
following the signature page on page 17:
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheet - June 30, 1999 F-2
Consolidated Statements of Operations -
Years ended June 30, 1999 and 1998 F-3
Consolidated Statements of Shareholders'
Equity - Years ended June 30, 1999 and 1998 F-4
Consolidated Statements of Cash Flows -
Years ended June 30, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Item 8. Disagreements on Accounting and Financial Disclosure.
----------------------------------------------------
There were no disagreements on accounting and financial disclosure
during the years ended June 30, 1998 and 1997.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The directors and executive officers of OCGT are:
Name Age Position
- ----------------- --- -------------------------
Edward C. Levine 72 President and Director
Jarema S. Rakoczy 57 Vice President and Director
Jeffrey P. Nelson 55 Secretary and Director
Erich W. Augustin 65 Executive Vice President,
Chief Financial Officer
and Director
Directors are elected at the annual stockholder's meeting and serve until
the next annual meeting. Officers are elected by the Board of Directors.
Edward C. Levine has been the President of OCGT since 1976 and a Director of
the Company since 1973. Mr. Levine is a member of the Bar of the State of
New York.
Jarema S. Rakoczy, has served as a Director of OCGT since August 1987, and a
Vice President since March 1985, and has been with OCGT since January, 1983.
Mr. Rakoczy has been self-employed as a sales and marketing consultant since
May of 1989. Mr. Rakoczy devotes all of his professional time to OCGT's
affairs. Mr. Rakoczy served as Eastern Manager at Hittman Medical Systems
from September 1980 to December 1982; as Regional Sales Manager at American
Optical Medical Division from February 1976 to September 1980; and as Vice
President at Pratt Electronics from June 1968 to November 1974.
Jeffrey P. Nelson, has served as a Director of OCGT since November 1991 and
as its Secretary since June 1992 and an Executive Vice President since
November 1997. Mr. Nelson served as Vice President, Asset Based Finance
Division, of Marine Midland Bank, NA from December 1986 through 1990. Mr.
Nelson was self-employed as a real estate financing consultant from January
1991 through November 1991.
Erich W. Augustin became a Director on September 19, 1995 and joined OCGT as
Executive Vice President and Chief Financial Officer on October 18, 1996 and
continued in that capacity until September 27, 1999. Mr. Augustin served as
Senior Vice President and Chief Financial Officer of the Chase Manhattan
Bank of Connecticut, N.A., with responsibility for all financial activities,
including accounting, audit, budget, planning, regulatory reporting and taxes,
from August 1991 through December 1994 at which time he retired. From January
1995 to June 30, 1995, Mr. Augustin served as a consultant to the same
institution. Mr. Augustin served as Vice President and Director of Financial
Accounting & Reporting of the Chase Manhattan Corporation and the Chase
Manhattan Bank, N.A. from May 1976 through August 1991, responsible for
worldwide financial accounting and reporting for Senior Management,
Shareholders and Regulatory Agencies.
Item 10. Executive Compensation
----------------------
Compensation of Directors
- -------------------------
There are no standard or other arrangements for compensating
Directors. Directors serve without compensation.
Compensation of Officers
- ------------------------
The following table presents certain specific information regarding
the compensation of the Chairman and President of OCGT who received no other
compensation than the compensation set forth in the following tables. No
Officer of OCGT had total salary, bonus or other compensation exceeding
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table (Fiscal 1999)
(a) (b) (c)
Long-term Compensation Awards
Fiscal Year Ended Securities Underlying
Name & Principal Position June 30, Options/SARs
- ------------------------- ----------------- ------------------------------
<S> <C> <C>
Edward C. Levine, 1999 300,000
President and Chief 1998 200,000
Executive Officer 1997 350,000
</TABLE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted Fiscal Year ($/Share) Expiration Date
- ---------------- ------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Edward C. Levine 300,000 20.38% $.47 June 21, 2002
</TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
----------------------------------
The following table sets forth certain information regarding the exercise of
stock options during the fiscal year ended June 30, 1998 and the fiscal year
ended value of unexercised options for OCGT's named executive officers.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Value Number of Unexercised In-the-money Options at
Acquired on Realized Options at Fiscal Year-End Fiscal Year End (1)
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
E. C. Levine -0- $ 0 850,000 / 0 $0/0
J. S. Rakoczy -0- $ 0 120,000 / 0 $0/0
J. P. Nelson -0- $ 0 550,000 / 0 $0/0
E. W. Augustin -0- $ 0 550,000 / 0 $0/0
_____________________
Notes: (1) Calculated based on the excess of the closing market price of
OCGT's common stock as reported on the OTC Bulletin Board on
June 30, 1999 ($.41) over the option exercise price.
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
----------------------------------------------------------------
The following table sets forth, as of September 30, 1999 certain information
with respect to Common Stock ownership of (i) each person known by OCGT to own
beneficially more than 5% of the shares of OCGT's Common Stock, (ii) all
directors, and (iii) all Officers and Directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount & Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Edward C. Levine 538,826 - direct 1.75%
450 W. 31st Street
New York, NY 10001
Common Jarema S. Rakoczy 359,600 - direct 1.17%
450 W. 31st Street
New York, NY 10001
Common Jeffrey P. Nelson 450,000 - direct 1.47%
450 W. 31st Street
New York, NY 10001
Common Erich W. Augustin 166,000 - direct .54%
450 West 31st Street
New York, NY 10001
Common All directors and 1,514,426 - direct 4.93%
officers as a group
(4 Persons)
Item 12. Certain Relationships and Related Transactions
On June 22, 1999 authorized the issuance of, and thereafter issued, warrants
to purchase shares of its Common Stock as follows: Edward C. Levine 300,000
warrants; Jeffrey P. Nelson 150,000 warrants; Erich W. Augustin 150,000
warrants, and Jarema S. Rakoczy 30,000 warrants; all at $.47 per share.
On June 22, 1999 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase 200,000 shares of its common stock at $.47 per share to
Masterdisk Corporation in payment of the use of space and administrative
support services for the year ended May 31, 2000. A shareholder and officer
of Masterdisk Corporation is the son of OCGT's President.
On December 8, 1998 OCGT authorized and issued warrants to acquire 150,000
shares of OCGT's common stock at an exercise price of $0.65 which expire
December 10, 2001. These warrants were issued to Erich W. Augustin, an Officer
and Director of OCGT.
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase shares of its Common Stock as follows: Edward C. Levine
200,000 warrants; Jeffrey P. Nelson 150,000 warrants; Jarema S. Rakoczy 30,000
warrants; Wynne B. Stern, Jr.75,000 warrants; and Louis Evan Teichholz 75,000
warrants; all at $.65 per share.
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase 200,000 shares of its common stock at $.65 per share to
Masterdisk Corporation in payment of the use of space and administrative
support services for the year ended March 31, 1999. A shareholder and officer
of Masterdisk Corporation is the son of OCGT's President.
On March 9, 1998 OCGT authorized the issuance of, and thereafter issued,
warrants to purchase 100,000 shares of its common stock at $.80 per share to
Michael G. Eckstein.
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following documents are filed as part of this report.
(1) Exhibits
--------
3(i).1 Certificate of Incorporation of Registrant filed July 3, 1969
(incorporated by reference to Exhibit 3.1(a) to the Annual
Report on Form 10-K for the Year ended June 30, 1985).
3(i).2 Certificate of Amendment of Certificate of Incorporation filed
March 28, 1973 (incorporated by reference to Exhibit 3.1(b) to
the Annual Report on Form 10-K for the Year ended June 30,
1985).
3(i).3 Certificate of Ownership and Merger filed June 21, 1974
(incorporated by reference to Exhibit 3.1(c) to the Annual
Report on Form 10-K for the Year ended June 30, 1985).
3(i).4 Certificate of Change of Agent and location, designated in the
Certificate of Incorporation of Registrant, filed December 16,
1976 (incorporated by reference to Exhibit 3.1(d) to the Annual
Report on Form 10-K for the Year ended June 30, 1985).
* 3(i).5 Certificate of Amendment of Certificate of Incorporation filed
December 26, 1985.
* 3(i).6 Certificate of Correction filed to Correct A Certain Error in
the Certificate of Amendment of Certificate of Incorporation
filed March 26, 1986.
* 3(i).7 Certificate of Amendment of Certificate of Incorporation filed
August 18, 1987.
3(i).8 Certificate of Change of Agent and location of Registrant filed
April 9, 1991 (incorporated by reference to Exhibit 3.1(j) to
the Annual Report on Form 10-K for the Year ended June 30,
1991).
3(i).9 Certificate of Correction filed to Correct Certain Errors in the
Certificate of Amendment of the Certificate of Incorporation
filed June 19, 1992 (incorporated by reference to Exhibit 3.1(l)
to the Annual Report on Form 10-K for the Year ended June 30,
1992).
** 3(i).10 Certificate of Amendment of Certificate of Incorporation filed
June 7, 1996.
3.(ii).1 By-laws of Registrant (incorporated by reference to Exhibit 3.2
to the Annual Report on Form 10-K for the Year ended June 30,
1985).
* 4.1 Certificate of Resolutions Creating Series A Convertible
Preferred Stock filed January 23, 1986.
* 4.2 Certificate of Correction filed to Correct Certain Errors in the
Certificate of Stock Designation filed March 26, 1986.
4.3 Certificate of Resolutions Creating Series E Convertible
Preferred Stock filed June 19, 1992 (incorporated by reference
to Exhibit II to the Current Report on Form 8-K filed June 26,
1992).
4.4 Certificate of Resolutions Creating Series B Convertible
Preferred Stock filed May 3, 1994 (incorporated by reference to
Exhibit 4 to the Current Report on Form 8-K filed June 1, 1994).
** 4.5 Certificate of Amendment No. 1 Filed to Modify the Certificate
of Designation Creating Series B Preferred Stock filed August
30, 1996.
10.1 Technology Assignment Agreement dated as of December 19, 1983 by
and between Biocard Partners and OCG Technology, Inc.
(incorporated by reference to Exhibit 10.1 to the Annual Report
on Form 10-K for the Year ended June 30, 1985).
10.2 License Agreement dated as of December 19, 1983 by and between
Biocard Partners and OCG Technology, Inc. (incorporated by
reference to Exhibit 10.1 to the Annual Report on Form 10-K for
the Year ended June 30, 1985).
10.3 Stock Purchase and Exchange Agreement, dated as of June 12, 1992,
between the Registrant and Mooney-Edwards Enterprises, Inc.,
D/B/A Medical Information Systems (incorporated by reference to
Exhibit I to the Current Report on Form 8-K filed June 26, 1992).
10.4 Stock Purchase and Exchange Agreement, dated as of May 16, 1994,
between the Registrant and PrimeCare Systems, Inc. (incorporated
by reference to Exhibit 2 to the Current Report on Form 8-K filed
June 1, 1994).
21 Subsidiaries of Registrant. Optronic Labs, Inc., a New York
corporation; Mooney-Edwards Enterprises, Inc., a Florida
corporation; and, PrimeCare Systems, Inc., a Delaware
corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed in the fourth quarter of fiscal
1999.
* Incorporated by reference to the Form 10-KSB for the Year ended June 30,
1987.
** Incorporated by reference to the Form 10-KSB for the Year ended June 30,
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
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
---------------------
Dated: October 13, 1999 Edward C. Levine,
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the
dates indicated.
/s/ Edward C. Levine President and Director October 13, 1999
- -------------------- (Principal Executive,
Edward C. Levine Financial and Accounting
Officer)
/s/ Jeffrey P. Nelson Secretary and Director October 13, 1999
- ---------------------
Jeffrey P. Nelson
/s/ Jarema S. Rakoczy Vice President and Director October 13, 1999
- ---------------------
Jarema S. Rakoczy
<PAGE>
Independent Auditors' Report
To the Board of Directors
OCG Technology, Inc. and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of OCG Technology,
Inc. and Subsidiaries as of June 30, 1999, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for
the years ended June 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of OCG Technology, Inc. and Subsidiaries as of June 30, 1999, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1999 and 1998, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1,
the Company has experienced recurring losses from operations 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 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
New York, New York DALESSIO, MILLNER & LEBEN LLP
October 12, 1999 Certified Public Accountants
SM-O6226
F-1
<PAGE>
</TABLE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1999
ASSETS:
<S> <C>
CURRENT ASSETS:
Cash $ 103,408
Accounts receivable 8,468
Prepaid expenses and other current assets 193,979
Net assets held for sale 30,421
-------------
TOTAL CURRENT ASSETS 336,276
PROPERTY AND EQUIPMENT, net 123,023
OTHER ASSETS 3,180
-------------
$ 462,479
=============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 53,589
Due to officer (non-interest bearing) 15,122
Note payable - related party 11,345
Due to affiliate 10,500
-------------
TOTAL CURRENT LIABILITIES 90,556
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized;
Series E Preferred Stock, $.10 par value,
100,000 shares issued and outstanding 10,000
Common stock, 50,000,000 shares authorized;
$.01 par value, 30,581,557 shares outstanding;
30,569,057 shares issued 305,815
Additional paid-in-capital 23,951,577
Accumulated deficit (23,471,969)
Stock subscriptions receivable (361,000)
-------------
434,423
Less: Treasury stock, at cost (12,500 shares) (62,500)
-------------
TOTAL SHAREHOLDERS' EQUITY 371,923
-------------
$ 462,479
=============
See Accompanying Notes to Consolodated Financial Statements
</TABLE>
F-2
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Operations
For the years ended June 30, 1999 and 1998
1999 1998
<S> <C> <C>
REVENUES $ 18,957 $ 18,878
COSTS AND EXPENSES:
Cost of sales 1,364 6,343
Marketing, general and administrative 796,952 927,853
Depreciation and amortization 144,440 755,093
Write-off of proprietary technology - 525,000
Write-off of capitalized software costs 199,314 -
Product development costs 203,973 -
Interest income - net (5,327) (10,147)
------------- ------------
TOTAL COSTS AND EXPENSES 1,340,716 2,204,142
-------------
LOSS FROM CONTINUING OPERATIONS (1,321,759) (2,185,264)
DISCONTINUED OPERATIONS:
Loss from operations of Mooney Edwards (72,136) (29,504)
------------- -----------
NET LOSS $ (1,393,895) $(2,214,768)
============= ===========
BASIC AND FULLY DILUTED NET LOSS PER SHARE
Continuing operations $ (.05) $ (.08)
Discontinued operations - -
------------- -----------
$ (.05) $ (.08)
============= ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 29,862,525 26,613,209
============= ===========
See Accompanying Notes to Consolodated Financial Statements
</TABLE>
F-3
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1999 AND 1998
Preferred Stock Common stock Additional
$.10 par $.01 par Paid-in Accumulated Subscription Treasury
Shares Amount Shares Amount Capital Deficit Receivable Stock Total
<S>
Balance, <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1997 100,000 $10,000 24,515,259 $245,152 $21,521,150 $(19,863,306) $ (29,000) $(62,500) $ 1,821,196
Issuance of
stock for
services - - 104,250 1,043 68,457 - - - 69,500
Issuance of
warrants
for services - - - - 258,316 - - - 258,316
Sale of stock
and conversion
of warrants - - 5,208,715 52,087 1,694,563 - (500,750) - 1,245,900
Net loss - - - - - (2,214,963) - - (2,214,768)
------- ------ ---------- ------- ---------- ---------- ------- ------ -----------
Balance at
June 30, 1998 100,000 10,000 29,828,224 298,282 23,542,486 (22,078,074) (529,750) (62,500) 1,180,444
Issuance of
stock for
services - - 50,000 500 18,000 - - - 18,500
Issuance of
warrants
for services - - - - 199,874 - - - 199,874
Sale of stock
and conversion
of warrants - - 703,333 7,033 191,217 - 168,750) - 367,000
Net loss - - - - - (1,393,895) - - (1,393,895)
------ ----- ---------- -------- ----------- ------------ -------- ------- -----------
Balance,
June 30, 1999 100,000 $10,000 30,581,577 $305,815 $23,951,577 $(23,471,969) $(361,000) $(62,500) $ 371,923
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
<TABLE>
OCG TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended June 30, 1999 and 1998
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,393,895) $(2,214,768)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debts - 6,152
Depreciation and amortization 143,135 757,670
Write-off of proprietary technology - 525,000
Write-off of capitalized software 199,314
Issuance of stock and warrants for services 137,684 216,358
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (30,694) 37,431
Prepaid expenses and other assets (16,891) 8,696
Other assets 106,364 -
(Decrease) increase in:
Accounts payable and accrued expenses (24,317) (23,396)
Due to affiliate 3,500 7,000
Due to officer (9,120) 1,192
----------- -----------
Total adjustments 508,975 1,536,103
----------- -----------
Net cash used in operating activities (884,920) (678,665)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (31,495) (68,061)
Capitalized software development costs - (137,847)
----------- -----------
Net cash used in investing activities (31,495) (205,908)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 198,250 1,039,400
Collection of stock subscription receivable 346,250 152,500
----------- -----------
Net cash provided by financing activities 544,500 1,191,900
----------- -----------
NET (DECREASE) INCREASE IN CASH (371,915) 307,327
CASH, BEGINNING OF YEAR 475,323 167,996
----------- -----------
CASH, END OF YEAR $ 103,408 $ 475,323
Supplemental disclosures:
No cash was paid in 1999 and 1998 for interest and income taxes.
See Accompanying Notes to Consolodated Financial Statements
</TABLE>
F-5
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
OCG Technologies, Inc. ("OCG") together with its subsidiaries is engaged in the
development, marketing, and distribution of software and diagnostic products for
the healthcare industry.
In the fourth quarter of fiscal 1999, OCG completed a strategic reappraisal of
its business. This reappraisal refocused OCG's efforts with respect to the
deployment of its PrimeCare Patient Management System (the "System") from an in-
house legacy system to a state of the art, Internet based solution. The System
now enables patients to provide their care providers with their medical history
through secure Internet. Additionally, in April 1999, OCG launched a new
website, YourOwnHealth.com. This site facilitates consumer access to quality
medical information. OCG expects to generate revenues from its Internet
businesses through advertising and sponsorship. In fiscal 1999, OCG wrote-off
$199,314 of previously capitalized software costs associated with the legacy
system.
In July 1999, OCG sold the net assets of its wholly-owned subsidiary, Mooney
Edwards Enterprises, Inc. ("Mooney Edwards") (see note 2). Mooney Edwards was
engaged in the development and distribution of third party computer software and
support services for the medical community for the processing of bills
(including insurance claims), bookkeeping, and office management. These
consolidated financial statements present Mooney Edwards as a discontinued
operation.
Inherent in OCG's business are various risks, including its limited operating
experience in the Internet segment of the healthcare market, the limited history
of commerce over the Internet, its unproven business model, and uncertainties
regarding its ability to develop revenues.
F-6
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements have been prepared assuming
that OCG will continue as a going concern. OCG has experienced recurring losses
from operations that raises substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management intends to sell debt and/or equity in order to continue the
operations of the business. There can be no assurance that OCG will be able
to raise sufficient capital to continue its operations and/or generate
adequate cash flow from operations.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of OCG and its
subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property, Equipment and Depreciation
- ------------------------------------
Property and equipment are stated at cost. Machinery and equipment and
equipment held under fee for service arrangements are being depreciated on a
straight-line basis over their estimated useful life of five (5) years.
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Proprietary Technology
- ----------------------
In the fourth quarter of fiscal 1998, OCG discontinued the marketing of the DOS
version of the PrimeCare Patient Management System and accordingly the carrying
value of the proprietary technology in the amount of $525,000 was written off as
this amount represented costs associated with the DOS platform.
Amortization of proprietary technology was $600,000 for the year ended June 30,
1998.
Revenue Recognition
- -------------------
Mooney Edwards recognizes sales of computer software systems when delivery has
been made and substantially all of the services to be provided by OCG have been
completed.
OCG recognizes revenues from fees charged to medical providers for the use of
the System as the services are provided.
Revenues from sponsorships, advertising and other arrangements are recognized
during the period in which the sponsorship or advertisement is displayed,
provided that no significant performance obligations remain and collection of
the related receivable is probable.
Net Loss Per Share
- ------------------
OCG has adopted Statement of Financial Accounting Standards No. 128 ("FAS 128")
that requires the reporting of both basic and diluted earnings per share. Basic
net loss per share is computed by dividing net loss available to common
shareowners by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. Potentially dilutive securities are excluded from
the fully diluted loss per share calculation for 1999 and 1998 because their
effect would be antidilutive.
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Accounting for Stock Based Compensation
- ---------------------------------------
OCG has chosen to adopt the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and to continue to account for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, OCG has not recognized compensation
expense with respect to such awards because the exercise price of options and
warrants granted to employees has approximated the fair market value of the
common stock at the respective grant dates.
Research and Development
- ------------------------
Research and development costs are expensed as incurred.
Cash
- ----
OCG considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. There were no cash equivalents at June
30, 1999 and 1998.
F-9
2. NET ASSETS HELD FOR SALE
In July 1999, OCG sold the net assets of Mooney Edwards for approximately
$350,000 plus the value of its net assets (as defined) at the date of closing.
The following summarizes the net assets held for sale as of June 30, 1999:
Net assets:
- ----------
Current assets $85,479
Property and equipment, net 2,654
-------
Total 88,133
Less: liabilities expected to be assumed 57,712
-------
Net assets held for sale $30,421
The following summarizes the results of operations for the two years ended June
30, 1999 and 1998 for Mooney Edwards:
1999 1998
---- ----
Net sales $ 994,650 $795,399
Cost of sales 490,417 344,449
Operating expenses 576,368 480,453
---------- --------
Total expenses 1,066,785 824,902
---------- --------
Net loss $ (72,135) $(29,503)
F-10
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Equipment held under fee for service arrangements $366,675
Machinery and equipment 275,522
--------
642,197
Less: accumulated depreciation 519,174
--------
$123,023
========
Depreciation expense was $62,052 and $106,817 for the years ended June 30, 1999
and 1998, respectively.
4. NOTE PAYABLE - RELATED PARTY
Note payable is to a relative of an Officer and Director of OCG, is unsecured,
due on demand, and bears interest at 2% above the prime rate per annum.
5. SHAREHOLDERS' EQUITY
Preferred Stock
- ---------------
On July 12, 1984, the shareholders of OCG approved the creation of a class of
1,000,000 shares of preferred stock, and authorized the Board of Directors to
establish and designate the number of shares and relative rights, preferences
and limitations of such preferred stock.
F-11
5. SHAREHOLDERS' EQUITY (cont'd)
Series E Preferred Stock
- ------------------------
In June 1992, the Board of Directors designated 100,000 shares of Preferred
Stock as Series E Preferred Stock. These shares were issued in conjunction with
the acquisition of Mooney Edwards. These shares: (i) are non-convertible with
the right to vote on the same basis as the holders of OCG's common stock, (ii)
may be redeemed in whole or in part at the option of OCG at a price of $30 per
share plus all accrued and unpaid dividends thereon, and, (iii) have the right
to dividends which are not cumulative and are limited to a fraction of all cash
dividends declared and to be distributed by OCG to all classes of its
shareholders in any fiscal year, the (A) numerator of which shall be an amount
equal to fifty (50%) percent of the net profits of Mooney Edwards for the prior
fiscal year; and the (B) denominator of which shall be the sum of the net
profits of OCG (including those of Mooney Edwards) for such prior fiscal year,
and no more. No dividends to Series E Preferred shareholders were due at June
30, 1999 and 1998.
Common Stock
- ------------
In fiscal 1999, OCG sold 703,333 shares of common stock in private placements
for $198,250.
In fiscal 1999, OCG issued 50,000 shares of common stock to a former employee in
connection with the termination of his employment agreement.
In fiscal 1998, OCG sold 2,062,715 shares of common stock in private placements
for $839,650.
In fiscal 1998, OCG issued 104,250 shares of common stock to various persons for
public relations, planning and marketing services. OCG recorded $69,500 of
expense in the statement of operations for the year ended June 30, 1998.
Stock Subscriptions Receivable
- ------------------------------
Demand notes receivable of $361,000 are outstanding at June 30, 1999. These
notes were issued to various individuals including Officers and Directors of OCG
in connection with their fiscal 1998 exercise of warrants for the purchase of
common stock and are collateralized by common stock of OCG owned by these
individuals.
F-12
5. SHAREHOLDERS' EQUITY (cont'd)
Warrants
- --------
OCG accounts for warrants granted to employees and directors under APB No. 25.
Had compensation costs of these warrants been determined consistent with SFAS
No. 123, OCG's consolidated net loss and net loss per share would have been as
follows:
1999 1998
Net loss as reported $(1,393,895) $(2,214,768)
Net loss pro forma $(1,788,775) $(2,541,230)
Primary loss per share as reported $ (.05) $ (.08)
Primary loss per share pro forma $ (.06) $ (.10)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts.
All transactions with individuals other than those considered employees, as set
forth within the scope of APB No. 25, have been accounted for under the
provisions of SFAS No. 123 during fiscal 1999 and 1998.
The fair value of each warrant grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions:
1999 1998
Risk-free interest rate 5.75% 5.375%
Expected dividend yield - -
Expected lives 3 3
Expected stock price volatility 139% 105%
F-13
5. SHAREHOLDERS' EQUITY (cont'd)
Warrants (cont'd)
- -----------------
Warrants issued for services generally vest immediately. Warrant activity for
the years ended June 30, 1999 and 1998 is summarized as follows:
1999 1998
Outstanding at beginning of year 4,104,000 5,316,000
Warrants granted 2,162,000 2,197,000
Warrants exercised (150,000) (3,146,000)
Warrants canceled (220,000) (263,000)
--------- ---------
Outstanding at end of year 5,896,000 4,104,000
========= =========
OCG issued warrants for the following:
Value of
Warrants Exercise Price Warrants
-------- -------------- --------
1999
- ----
Compensatory
- ------------
Related party - rent 200,000 $. 47 $ 57,911
Consultants 465,000 $. 47 119,085
Non compensatory
- ----------------
Employees and directors 1,372,000 $. 47 - $. 65 -
--------- ---------
2,037,000 $176,996
========= =========
1998
- ----
Compensatory
- ------------
Related party - rent 200,000 $0.65 $ 53,850
Non-employee directors 150,000 $0.65 40,500
Consultants 600,000 $ .49 - $1.00 163,966
Non compensatory
- ----------------
Employees and directors 1,247,000 $ .65 - $ .80 -
--------- ---------
2,197,000 $ 258,316
========= =========
F-14
5. SHAREHOLDERS' EQUITY (cont'd)
Warrants (cont'd)
- -----------------
In fiscal 1998, warrants were exercised to purchase 3,146,000 shares of OCG's
common stock for $907,000 in demand notes and the shares were issued.
At June 30, 1999, 5,896,000 shares of OCG common stock were reserved for future
issuance with respect to the following warrants:
Number of
Expiration Exercise Price Common Shares
July 1999 $ .65 1,217,000
July 1999-March 2001 $0.49 - $0.77 90,000
October 1999 $0.75 447,000
November 1999 $0.90 100,000
December 1999 $0.65 135,000
January 1999-June 2000 $0.65 60,000
January 2000 $ .65 475,000
July 2000 $ .65 60,000
November 2000 $0.72 150,000
January 2001 $0.80 100,000
March 2001 $0.65 980,000
October 2001 $1.00 20,000
November 2001-June 2002 $0.26 - $0.49 50,000
December 2001 $0.65 150,000
April 2002 $0.40 100,000
June 2002 $0.47 1,762,000
---------
5,896,000
=========
Re-Pricing of Warrants
- ----------------------
On December 9, 1998, OCG's Board of Directors reduced the exercise price of
2,279,000 previously issued warrants to $0.65. A significant portion of these
warrants were issued to Officers and Directors of OCG.
F-15
6. COMMITMENTS AND CONTINGENCIES
In September 1995, PSI entered into a consulting agreement with a major health
care provider (the "Consultant") to provide advice for changes necessary to
assure the medical content of the System is current and accurate and meets the
criteria of currently accepted clinical practice. The Consultant will also be
furnishing and/or updating physician and patient educational materials,
additional diagnostic and follow-up programs and algorithms, appropriate
practice guidelines and suggesting changes and/or additions to diagnostic and
follow-up programs. PSI has agreed that the compensation of the Consultant will
be 15% of the gross revenues actually received and collected by PSI from users
of the System.
7. INCOME TAXES
At June 30, 1999, OCG had net operating loss carryforwards of approximately
$14,060,000 which will expire at various dates from 2000 through 2019 subject
to certain limitations. The deferred tax asset arising from net operating loss
carryforwards are offset by a 100% valuation allowance due to the uncertainty as
to their realization.
OCG has entered into numerous equity transactions which may significantly limit
the utilization of these net operating losses, pursuant to Internal Revenue Code
Section 382. OCG has not performed a study to determine the effects of Section
382, and accordingly is unable to determine the annual limitations which may be
imposed pursuant to Section 382.
8. RELATED PARTY TRANSACTIONS
A) Certain of OCG's officers served without cash compensation for the years
ended June 30, 1999 and 1998.
B) In fiscal 1999 and 1998, OCG issued 200,000 warrants at exercise price is
of $0.47 and $0.65 per share to rent office space from an entity controlled
by a relative of an officer. Respectively, OCG recorded rent expense of
$40,388 and $13,463 for the year ended June 30, 1999 and 1998, respectively
(See Note 5).
C) Mooney Edwards leases its office space on a month to month basis, from a
partnership in which the officers of Mooney Edwards have an ownership
interest. Rent expense under this lease for the years ended June 30, 1999
and 1998 was $18,602 and $18,559, respectively.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INDEPENDENT AUDITORS' REPORT OF DALESIO, MILLNER & LEBEN LLP, DATED OCTOBER 12,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<PP&E> 642
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<COMMON> 305
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<TOTAL-COSTS> 1,341
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