10QSB 1 ocg_q.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to___________ Commission file number 0-5186 ------- OCG TECHNOLOGY, INC. -------------------------------------------------------------------------------- (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) 56 Harrison Street, New Rochelle, New York 10801 -------------------------------------------------- (Address of principal executive offices) (914) 576- 8457 ----------------------------- (Issuer's telephone number) --------------------------------------------------------------------------- (Former name, address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Shares Outstanding at November 6, 2003 ----------------------------- ---------------------------------------- Common Stock ($.01 par value) 41,273,613 Shares OCG TECHNOLOGY, INC. AND SUBSIDIARIES INDEX PART 1. FINANCIAL INFORMATION PAGE NUMBER ----------------------------- ----------- Item 1. Financial Statements Consolidated Condensed Balance Sheets September 30, 2003 and June 30, 2003 1 Consolidated Condensed Statements of Operations for the Three Months Ended September 30, 2003 and 2002 2 Consolidated Condensed Statements of Cash Flow for the Three Months Ended September 30, 2003 and 2002 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Controls and Procedures 13 PART II - OTHER INFORMATION --------------------------- Item 2. Changes In Securities 13 Item 6. Exhibits and Reports on Form 8-K 14 OCG TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, June 30, 2003 2003 ASSETS (UNAUDITED) (AUDITED) Current Assets: Cash $ 18,852 $ 10,832 Accounts receivable 343 Inventory 20,217 12,260 Other current assets 3,897 5,043 Note receivable 334,500 334,500 Interest receivable 41,039 33,982 ------------ ------------ Total current assets 418,848 396,617 Property and equipment, net of accumulated depreciation of ($636,036) and ($631,959) 14,568 17,491 Capitalized software costs, net of accumulated amortization ($542,124) and ($526,719) 308,777 285,725 Other assets 4,972 4,972 ------------ ------------ Total assets $ 747,165 $ 704,805 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 50,920 70,656 Note payable, shareholder - current maturity 8,700 3,891 ------------ ------------ Total current liabilities 59,620 74,547 Other liabilities: Notes Payable, shareholder - long term 150,000 158,700 ------------ ------------ Total liabilities 209,620 233,247 ------------ ------------ Shareholders' equity: (Note 4) Series C Preferred stock $.10 par value (200,000 authorized, 200,000 and 163,330 issued & outstanding, respectively) 20,000 16,333 Series E Preferred stock $.10 par value (100,000 authorized; 33,333 issued & outstanding) 3,333 3,333 Common stock $.01 par value (50,000,000 authorized; 41,273,613 issued) 412,736 412,736 Additional paid-in capital 26,111,759 25,999,426 Accumulated deficit (25,817,783) (25,767,770) Stock subscriptions receivable (130,000) (130,000) ------------ ------------ 600,045 534,058 Less: treasury stock, at cost (12,500 shares) (62,500) (62,500) ------------ ------------ Total shareholders' equity 537,545 471,558 ------------ ------------ Total liabilities and shareholders' equity $ 747,165 $ 704,805 ============ ============
See accompanying notes to consolidated condensed financial statements 1 OCG TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, 2003 2002 ------------ ------------ Revenues $ 73,442 $ 47,345 Less: Cost of sales 33,928 24,955 ------------ ------------ Gross margin 39,514 22,390 ------------ ------------ Expenses: Marketing, general and administrative 34,813 56,828 Depreciation and amortization 19,482 39,036 Product development costs 42,202 43,841 Interest - net (6,970) (6,609) ============ ============ Total expenses 89,527 133,096 ============ ============ Net loss $ (50,013) $ (110,706) ============ ============ Weighted average number of shares outstanding during the period 41,273,613 39,890,493 ============ ============ Loss per Common Share - basic and diluted $ (-)* $ (-)* ============ ============
*Amounts less than ($.005) See accompanying notes to consolidated condensed financial statements 2 OCG TECHNOLOGY, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30, 2003 2002 ------------- ------------- Cash flows from operating activities: Net loss $ (50,013) $ (110,706) ------------- ------------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 19,482 39,036 Issuance of stock and warrants for services 6,000 6,000 Changes in assets and liabilities Increase in receivables (7,400) (8,179) Decrease in other current assets 1,146 26,896 (Increase) decrease in inventory (7,957) 1,368 (Increase) decrease in accounts payable and accrued expenses (19,736) 3,874 ------------- ------------- Total adjustments (8,465) 68,995 ------------- ------------- Net cash used in operating activities (58,478) (41,711) ------------- ------------- Cash flows from investing activities: Increase in note receivable 0 (9,500)* Capitalized software development costs (38,457) (43,673) Increase in property and equipment (1,154) (7,350) ------------- ------------- Net cash used in investing activities (39,611) (60,523) ------------- ------------- Cash flows from financing activities: Increase (decrease) in notes payable (3,891) 56,967* Proceeds from sale of common stock 0 9,500* Proceeds from sale of Series C Preferred Stock 110,000 0 ------------- ------------- Net cash provided by financing 106,109 66,467 ------------- ------------- Net increase (decrease) in cash 8,020 (35,767) Cash, beginning of period 10,832 37,191 ------------- ------------- Cash, end of period $ 18,852 $ 1,424 ============= =============
*Reclassified for comparative purposes See accompanying notes to consolidated condensed financial statements 3 OCG TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 - ORGANIZATION OCG Technology, Inc. ("OCG") together with its subsidiaries is engaged in the development, marketing, and distribution of software and diagnostic products for the healthcare industry. The Company entered into an Internet service agreement with a medical center for the use of its medical websites. Through use of these websites, OCG expects to receive advertising revenue from its advertisers. The Company has entered into a revenue sharing agreement whereby the medical center will receive 30% of all advertising revenues. 2 - BASIS OF PRESENTATION The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements should be read in conjunction with the Company's audited financial statements included in the Form 10KSB for the year ended June 30, 2003. The condensed consolidated financial statements include the accounts of the Company and all of its wholly owned and majority owned subsidiaries. All significant inter-company balances and transactions have been eliminated. 3 - GOING CONCERN The Company has experienced recurring losses from operations and has relied on the sale of equity interests in the Company to fund its operations. If necessary, the Company intends to provide additional working capital through the sale of equity interests in the Company. Although, in the past the Company has been able to provide working capital through the sale of equity interests in the Company, there can be no assurances that the Company will succeed in its efforts, which creates a doubt about its ability to continue as a going concern. During the prior fiscal year, the Company's marketing efforts had been concentrated on its Web products. However, during the fiscal year ended June 30, 2002, the PrimeCare(TM) System was selected to be part of a major international health care information management program anticipated to be installed in a number of countries as their health care information system. The first of these country contracts was recently announced. A five year, three-phase contract was awarded to create a health care information infrastructure for a nation of 11 million people. During phase one of the contract, the current health care infrastructure of the country will be assessed to determine the final specifications for the new system. After approval of the final specifications by the country's Ministry of Health the second phase will commence. The second phase consists of the installation and operation of a comprehensive health care information system throughout the country. Upon commencement of phase two, PrimeCare(TM) Version 9 will be an integral part of the country's comprehensive health care information system. PrimeCare(TM) Version 9 will provide health care personnel and patients a simple, effective means of entering medical data for processing and analysis. Successful completion of these contracts should produce significant revenues for the Company and should materially increase the awareness of PrimeCare(TM) Version 9 in the health care industry. The actual value of this contract cannot be determined at this time. The Company does not anticipate any revenues from this contract until the fourth quarter of the current fiscal year 4 - PER SHARE DATA Basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the periods. Diluted income per share is computed by dividing the net income by the weighted average number of shares of common stock and warrants outstanding during the period. Stock warrants have been excluded from the diluted loss per share and have not been presented because their effect would have been antidilutive. 4 5 - SHAREHOLDER'S EQUITY During the three months ended September 30, 2003, for services rendered in accordance with the terms of a consulting agreement, warrants were issued to purchase a total of 15,000 shares of the Company's common stock at the exercise price of $0.15 per share with exercise dates of said warrants expiring between September 1, 2005 and December 1, 2005. The Company reflected a total expense of $6,000 for the three month period ending September 30, 2003. During the three months ended September 30, 2003, an aggregate of 36,670 shares of the Company's Series C Preferred Stock, par value $0.10 per share, were sold for $110,000 or $3.00 per share. 6 - NOTE RECEIVABLE The Company has advanced funds totaling $334,500, plus accrued interest at 7% per annum, pursuant to a grid note, dated February 4, 2002 (the "Note"). In consideration for these advances, the Company received warrants to purchase common stock of the borrower, exercisable over a period of three years from the date of issuance, at a price of $0.25 per share. The Company received a security interest in accounts receivable of the borrower anticipated to be generated under certain sales contracts which provide for borrower to install and maintain the health care system for certain countries. The Company is also a subcontractor of the borrower. The borrower has recently announced that it has received the first of these contracts. On October 10, 2003, the Company agreed to accept 3,709,230 restricted (unregistered) shares of the borrower's common stock, par value $0.0001 per share, (the "Stock") in full payment of the Note and accrued interest. The market value on November 7, 2003, of the Stock received was $519,292. See "Management's Discussion and Analysis - Revenue Sources and Marketing Strategy." 7 - NOTES PAYABLE A demand note of $8,700 is payable to a shareholder. A note payable to a shareholder of $50,000 is unsecured, bears interest at 4% per annum and is convertible into 5,000 shares of Series C Preferred Stock at the rate of $10 per share. The date for payment of the note has been extended until June 15, 2005. A note payable to a shareholder in the amount of $100,000 is unsecured, bears interest in the form of warrants to purchase 100,000 shares, on or before February 4, 2004, of the Company's common stock at the purchase price of $0.10 per share. The date for payment of the note has been extended until February 4, 2005. 8 - NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created before February 1, 2003, the provisions of FIN 46 are applicable no later than the end of the first interim or annual period ending after December 15, 2003. The Company has had no transactions with any variable interest entities. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the Consolidated Balance Sheet. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The guidance in SFAS No. 150 generally is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company has evaluated SFAS No. 150 and determined that it does not have an impact on the Company's financial reporting and disclosures. 5 OCG TECHNOLOGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A SUMMARY OF INCREASES (DECREASES) IN THE ITEMS INCLUDED IN THE CONSOLIDATED STATEMENTS OF LOSS IS SHOWN BELOW: General ------- The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere herein. The following discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include predictions, estimates and other statements that involve a number of risks and uncertainties. While this outlook represents the Company's current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested herein. The Company has experienced recurring losses from operations and has relied on the sale of equity interests in the Company to fund its operations. If necessary, the Company intends to provide additional working capital through the sale of equity interests in the Company. Although, in the past, the Company has been able to provide working capital through the sale of equity interests in the Company, there can be no assurances that the Company will succeed in its efforts, which creates a doubt about its ability to continue as a going concern. The results of operations for prior periods is based on the Company's continuing operations. Critical Accounting Policies and Estimates ------------------------------------------ Our discussion and analysis of our financial condition and results of operations following are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles of the United States of America. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgements involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances which would result in materially different amounts being reported. Capitalized Software Costs -------------------------- Capitalized software costs are amortized over the estimated useful life. Changes in circumstances, such as technological advances or shortfalls in marketing estimates, can result in differences between the actual and estimated useful life. In that case, we re- estimate the value and useful life of this long-lived asset and make the necessary adjustments to reflect the asset at its proper estimated value and amortize it over the remaining estimated useful life. Revenue Recognition ------------------- The Company has four sources of income: (1) sale of inventoried merchandise on our Web sites; (2) commissions received from vendors who link to our Web sites; (3) advertising fees; and (4) software license fees. Sale of inventoried merchandise. -------------------------------- This revenue stream is reported on a "gross" basis in compliance with EITF 99-19, because we purchase the merchandise from the source we select; are at risk for the purchaser's credit; and we ship the merchandise. We report the gross sales price as revenue and expense the cost of the merchandise and the shipping costs as "cost of sales". The Company is almost always paid by credit card at the time of purchase and occasionally by check. Sales are booked when the merchandise is shipped. The merchandise is not shipped until the credit is approved. 6 Commissions received from vendors --------------------------------- The Company acts as a commissioned broker by displaying a vendors products on the Company's Web sites. When a consumer indicates a desire to purchase an item, the order is collected through the Web site and processed by the third party seller. The Company receives a commission on such sale after it is consummated. When the Company is paid, it reports the "commissions" on a "net" basis in compliance with EITF 99-19. The Company reports commissions this way because: (a) it does not have any direct costs; (b) it does not purchase the product sold; and (c) it does not have any credit risk on the sale, and it does not handle or ship the product when sold. The Company merely passes to the seller, an interested buyer and it is unaware of the consummation of the sale until it receives a commission check from the seller. At that time we report the revenue on a "net" basis. Advertising fees ---------------- The Company receives fees for placing advertisements on its Web sites. The advertising fees are a flat amount for the month. At the end of the month the Company sends an invoice to the advertiser and enters it on its books as income from advertising fees. Software license fees --------------------- The Company accounts for software license fees in accord with SOP 97-2. Revenues are recognized when all of the following criteria are met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the vendors fee is fixed or determinable; and (d) collectiblity is probable. All licenses are evidenced by a written contract. License fees are either annual fees, generally payable quarterly in advance, or are based on uses, which are purchased before use. The license fee includes updates to the software, but only during the term of the license. The software contains considerable medical information and the Company keeps this medical content reasonably current. The Company does not sell the software or any updates separately and therefore, has not established VSOE. The Company recognizes income ratably over the license term. Prepaid annual license fees will be accounted for as "Prepaid income" and will be treated as sales when earned. Purchased uses are not refundable and are accounted for as sales at the time of sale. Results of Operations --------------------- Total revenues increased to $73,442 for the three months ended September 30, 2003 from $47,345 for 2002 as the result of an increase in the sale merchandise due an increase of visitors to our Web sites and the Company securing advertising contracts. Cost of sales increased from $24,955 for the three months ended September 30, 2002 to $33,928 for the three months ended September 30, 2003. The Company's revenues for the three months ended September 30, 2003, consisted of: $53,925 from the sale of merchandise (an increase of $11,875 for the same period in 2002); $2,237 from commissions (a decrease of $3,058 for the same period in 2002); and $17,280 from advertising fees (all of which was an increase over the same period in 2002). Marketing, general and administrative expenses decreased $22,015 for the three months ended September 30, 2003, as compared to the same period for 2002, primarily from the decrease of approximately: $20,000 in sales and marketing expenses. Amortization of capitalized software costs decreased approximately $16,000 for the three months ended September 30, 2003, as a result of the writeoff of $187,819 of these costs during the year ended June 30, 2003 in compliance with the Company's policy relating to re-estimating the value and useful life of this long-lived asset (see "Critical Accounting Policies and Estimates - Capitalized Software Costs" above). In both periods, the item was included in Depreciation and amortization rather than Cost of sales because they relate to PrimeCare Version 9 which did not generate income. 7 Liquidity and Capital Resources ------------------------------- At September 30, 2003, the Company had a current ratio of 7.03 to 1 compared to 5.23 to 1 as of September 30, 2002. The increase in current ratio is due primarily to the increase in cash, inventory and interest receivable. The net loss from operations for the three months ended September 30, 2003, was $50,013 compared to $110,706 for the same quarter of 2002. The reduction in the net loss from operations was due to an increase of approximately $17,000 in net revenues and a decrease of approximately $22,000 in marketing, general and administrative expenses and approximately $20,000 in depreciation and amortization for the three months ended September 30, 2003, as compared to the same quarter of 2002. Approximately $26,000 or 53% of the net loss from operations for the three months ended September 30, 2003, were non-cash charges consisting of Depreciation and Amortization in the amount of $19,482; Consulting Services in the amount of $6,000 paid through the issuance of 15,000 warrants; and decreases in Prepaid Expenses in the amount of $1,146. The Company has experienced recurring losses from operations and has been unable to provide sufficient working capital from operations and has relied significantly on the sale of equity interests in the Company, and the exercise of warrants and loans from shareholders to fund its operations. Cash on hand, inventory, receivables, and notes receivable were $414,951 at September 30, 2003. During the quarter ended September 30, 2003, The Company raised $110,000 through the sale of Series C Preferred stock. In addition, as of September 30, 2003, the Company has $130,000 of demand notes receivable related to the purchase of the Company's common stock through the exercise of warrants. Since September 30, 2003, the Company has received 3,709,230 restricted (unregistered) shares of the borrower's common stock, par value $0.0001 per share, (the "Stock") in full payment of the Note and accrued interest. Although, in the past, the Company's principal means of overcoming its cash shortfalls from operations was from the sale of the Company's stock, loans and the exercise of warrants, there can be no assurances that the Company will succeed in its efforts in the future. The Company believes that it could obtain sufficient working capital from operations through marketing PrimeCare(TM) Version 9 and its Internet products. Currently, the Company has no lines of credit and has no material commitments for captial expenditures outstanding. Note Receivable --------------- The Company has advanced funds totaling $334,500, plus accrued interest at 7% per annum, pursuant to a grid note, dated February 4, 2002 (the "Note"). In consideration for these advances, the Company received warrants to purchase common stock of the borrower, exercisable over a period of three years from the date of issuance, at a price of $0.25 per share. The Company received a security interest in accounts receivable of the borrower anticipated to be generated under certain sales contracts which provide for borrower to install and maintain the health care system for certain countries. The Company is also a subcontractor of the borrower. The borrower has recently announced that it has received the first of these contracts. See "Revenue Sources and Marketing Strategy". On October 10, 2003, the Company agreed to accept 3,709,230 restricted (unregistered) shares of the borrower's common stock, par value $0.0001 per share, (the "Stock") in full payment of the Note and accrued interest. The market value on November 7, 2003, of the Stock received was $519,292. Competition: ------------ The Company has not identified any competitive patient management system which embodies all the features of the PrimeCare(TM) System, in particular the complaint specific, interactive Questionnaires completed by the patient and the report generated by the patient's responses. The Company believes that it has the only in-office patient management system and Web sites that enable physicians to obtain the patient's detailed History of Present Illness by having the patient answer problem-specific HPI Questionnaires on a PC in the office or via the Internet. However, other companies market systems which may have some of the features of the PrimeCare(TM) System and some companies market medical office products which perform different functions than those performed by the PrimeCare(TM) System. To date, market penetration by both The Company and its competitors has been limited. Products Overview. ----------------- PrimeCare(TM) Patient Management System, Version 9 -------------------------------------------------- PrimeCare(TM) Patient Management System, Version 9 ("PrimeCare(TM) Version 9") is a complete, ground-up redesign and re-write of the Company's initial EMR, the PrimeCare(TM) Patient Management System ("PCPMS"). The overall system architecture has been changed; the supporting data base structures have been enhanced; the client interface has been redesigned to more accurately reflect the operational needs of the end-users, and user installation has been greatly simplified. 8 PrimeCare(TM) Version 9 is a user friendly, patient management system that is patient, physician and staff, interactive. PrimeCare(TM) Version 9: (i) creates an electronic medical record documenting the patient physician encounter; (ii) is compatible with practice management and billing systems, EMR and CPR systems; (iii) is Health Insurance Portability Accountability Act ("HIPAA") compliant; (iv) is designed for use in ambulatory clinics, group and individual practices; (v) uses an authoritative and comprehensive knowledge database of approximately 280 symptom and problem oriented patient Questionnaires for diagnostic and follow-up office visits; (vi) collectively contains over 100,000 complaint and disease state questions, over 2,000 diagnoses, over 675 physician reference articles, over 300 patient education articles; (vii) allows the staff to schedule the appropriate Questionnaire and enter the vital signs; (viii) interacts directly with the patient by having the patient select the answers that apply to their problem from the Questionnaire; (ix) does not require the patient to have computer or typing skills; (x) enables the physician to obtain their patients' detailed History of Present Illness ("HPI") by having the patient answer the Questionnaires without requiring physician or staff time; (xi) allows the physician to interact directly with PrimeCare(TM) Version 9 to select and document the normal and abnormal physical findings, assessments, tests, prescriptions and treatment plan for the patient; (xii) provides automatic (real time) calculation of HCFA's Evaluation and Management ("E&M") code, with a full audit trail, used for determining the reimbursement level by Medicare and other third party payers for the office visit; (xiii) virtually eliminates dictation and transcription costs; (xiv) reduces risk of malpractice liability due to errors of omission and "failure to consider"; (xv) permits patients to answer Questionnaires at their own speed (xvi) creates significant clinical and patient databases for outcomes research. When the patient arrives at the doctor's office, a designated staff member selects the appropriate Questionnaire based upon the patient's chief complaint and/or symptom and enters the patient's vital signs. The patient is then seated at a computer and answers complaint-specific questions by using either the keyboard number keys or mouse to indicate answers that apply to him or her. No typing or computer skills are required. When the patient has completed the Questionnaire, PrimeCare(TM) Version 9 creates a Preliminary Report (the "Report") for the physician to review before examining the patient. The Report contains the patient's current problems, medications and allergies, and the patient's detailed HPI that includes all of positive and significant negative subjective responses, vital signs and an alphabetical list of the diagnostic possibilities with the patient's responses repeated that support, or give rise, to each diagnostic possibility. By freeing up the time physicians would normally have to spend asking patient history questions and recording responses, PrimeCare(TM) Version 9 permits physicians to see more patients and to spend more quality time with each patient. PrimeCare(TM) Version 9 is also easy for physicians to understand and use. The same simple key stroke or mouse click process allows the physician or appropriate staff member to select and document the: physical findings (normal and abnormal), assessment, tests, treatment plan, prescribed medications, and patient education materials to be distributed and to schedule follow-up visits. The physician or appropriate staff member can also type a comment that expands upon: an answer selected by the patient in the Questionnaire, a physical finding, an assessment, a treatment plan, a prescription, or about any subject that may be appropriate. At the conclusion of the encounter a final summary report of the visit that includes, the patient's HPI, physical findings, assessment, tests, prescriptions, treatment plan, patient educational materials and the scheduled follow-up visit, are stored electronically in the patient's file, and can be printed for the patient. PrimeCare(TM) Version 9: standardizes the patient record; assures consistency in patient care; creates a patient database for clinical and outcomes research; supports utilization review and quality assurance audits; improves the quality of care; increases efficiency and productivity of the physician's practice; automatically generates a problem list; incorporates patient care algorithms and clinical practice guidelines; permits, with appropriate security controls, both local and remote, on-line electronic retrieval of patient records and hard copy print outs; enables rapid access to important patient data for clinical care; contains and provides patient education materials about disease, disease management, tests and medications; and provides physician reference materials. PrimeCare(TM) Version 9's overall system architecture has been redesigned away from a local network based two-tier client-server application, used in the prior version of the PCPMS, to incorporate a robust three-tier client-provider-relational database management system ("RDBMS") application, designed for geographically separated tiers. The client (end-user) tier of PrimeCare(TM) Version 9 is designed to connect with the middle or provider (server) tier via internet communications. The provider and data base tiers are designed to support multiple, distinct clients simultaneously. The client application has been designed to allow easy internalization and localization. 9 Supporting data bases have been redesigned to remove unnecessary redundancies, including a major redesign of the patient/physician encounter questionnaire. Also, provisions have been added for support of an unlimited number of alternative languages. Currently, language support is offered in, or being developed, for English, Spanish, French, and Simplified Chinese. PrimeCare(TM) Version 9 continues to be a Windows(TM) application. Although the client tier will run on Windows 95 or any later Windows desktop operating system, it performs best when hosted on Windows 2000, Windows NT, or Windows XP. The server (provider tier) and data base tiers of PrimeCare(TM) Patient Management System, Version 9 should be hosted on redundant Windows 2000 or Windows XP servers with appropriate backup, and standby support. The three-tier architecture of PrimeCare(TM) Version 9 provides many advantages, including easy client installation; reduced on-site support requirements; enhanced data security; and maximum flexibility. PrimeCare(TM) Version 9's reduced installation and maintenance costs and its flexibility enables it to be adapted to a wide variety of health care organizational uses, including national and local health care systems, military organizations, correctional facilities, HMOs, hospitals with outpatient services, clinics, group practices and solo practitioners. As a three-tier application, PrimeCare(TM) Version 9, requires only that the client tier application be installed at the end-user location. This system architecture greatly simplifies both user installation and system maintenance. Although the client (end-user) tier uses the internet to communicate with the provider and data base tiers, it is not a browser-based application, thereby eliminating the many compatibility and security issues involved in supporting multiple browser configurations. The PrimeCare(TM) Version 9 client is a specially written front-end application, designed to be downloaded by the client via a web connection, and then installed at the client's location using normal Windows installation procedures. The system is designed to support multiple reimbursement models, including free demo, no-charge use, sponsored use, flat fee, periodic (monthly / annual) fee, activity based fees, and option-based fees. PrimeCare(TM) Patient Management System ("PCPMS") ------------------------------------------------- The PCPMS was the Company's initial EMR offering. The Company has discontinued marketing the PCPMS Code Complier(TM): ----------------- The Company has also developed Code Complier(TM) an application software program that was designed to be used in conjunction with The Company's PrimeCare(TM) and PrimeCareOnTheWeb.com(TM). As each item of information is entered into and collected by PrimeCare(TM) during the patient encounter, the CodeComplier(TM) organizes the data in the proper classification and using the 1997 HCFA guidelines, automatically calculates HCFA's Evaluation and Management code level, with full audit trail, used for determining the reimbursement level by Medicare and other third party payors for the History, Physical Findings and Decision Making sections the office visit. It totally eliminates the time and effort which would otherwise be required by the physician or office personnel to complete this task. CodeComplier(TM) takes the guess work out of E&M and third party payer compliance. CodeComplier is an integral part of PrimeCare(TM) Version 9. PrimeCareOnTheWeb.com (the "PCW Site"): --------------------- The PCW Site is a unique physician and patient interactive Site that: (i) uses PrimeCare's unique Questionnaires for diagnostic and follow-up office visits, physician reference articles, patient education material, CodeComplier(TM) for real time calculation of E&M code and the scheduler portion of PrimeCare(TM); (ii) enables physicians to obtain their patient's detailed HPI by having the patient answer Questionnaires via the Internet without requiring physician time; (iii) saves the physician and staff the time required to obtain the HPI, thus allowing them to give more attention to each patient and/or see more patients; (iv) produces an extremely comprehensive HPI that includes all of the "yes" answers, pertinent negatives and a list of the diagnostic possibilities with the answers repeated that support each diagnostic consideration; (v) is HIPAA compliant; (vi) protects all Internet communication and the confidentiality rights of every user through a unique user ID and password per Questionnaire to be answered and secure digital certificates from VeriSign(TM), (vii) encrypts all data for storage; (viii) enables creating a significant data base for outcomes research; and (ix) automatically provides registered physicians individual Web sites on YourOwnDoctor(TM).com. 10 YourOwnDoctor.com (the "YOD Site"): ----------------- The YOD Site is a web community created, owned, operated and maintained by the Company that: (i) provides free individual Web sites for physicians, physician groups, and other health care providers that register for PrimeCareOnTheWeb(TM); (ii) enables physicians to promote their services through displaying credentials, including photos of each physician and staff in the office, listing specialities, office hours, directions, maps, phone numbers, e-mail addresses, and accepted insurance plans; (iii) provides useful links to other medical sites; (iv) provides a direct link from physician site to PCW that enables patient to access appropriate Questionnaire and complete; (v) provides direct link to YourOwnHealth.com(TM) for use by patients. YourOwnHealth.com (the "YOH Site"): ----------------- The YOH Site is a unique, free online health and wellness site designed to empower health care consumers to be better prepared for their next visit to the doctor. The YOH Site offers: (1) the "Medical Interview" that: (i) enables visitors to securely and anonymously select and complete from approximately 110 of the 280 Questionnaires contained in PrimeCare(TM) Version 9 and PCPMS; (ii) generates and makes available to the visitor a detailed HPI report based upon their responses; (iii) permits the visitor to answer the Questionnaires in either English or Spanish; (iv) encrypts all medical data and uses digital certificates from VeriSign(TM) for Internet communication; (v) provides banner links to the YOD Site and www.DeniseAustin.com. (2) "YourOwnHealth(TM) Notebook": (i) is a secure depository for storage of personal and family medical data for Registered Members; (ii) can be accessed only through the use of registered IDs and Passwords; (iii) encrypts all medical data and uses digital certificates from VeriSign(TM) for Internet communication; (iv) provides a convenient way to keep track of personal health issues such as allergies, immunizations, medications and others that can be kept and edited on designated lists; (v) allows the Member to save their completed HPI Questionnaire reports and to add personal notes and reminders to the record. (3) "YourOwnHealth(TM) Reference" provides extensive health care consumer education material relating to diseases, disease management, medical procedures and prescription and common over the counter medications, including drug interaction. The Market: ---------- The Company's domestic and international markets for: (a) the PrimeCare System, the PCW Site, YourOwnHealth Site and the YOD Site are ambulatory/outpatient medical facilities, such as, primary care physicians, medical clinics, group practices, health maintenance organizations, and in general, health care providers other than those providing care to patients confined to hospital beds; and (b) the YOH Site is for the use of the general public. Revenue Sources and Marketing Strategy: -------------------------------------- During the prior fiscal year, the Company's marketing efforts had been concentrated on its Web products. However, during the fiscal year ended June 30, 2002, the PrimeCare(TM) System was selected to be part of a major international health care information management program anticipated to be installed in a number of countries as their health care system. See "Notes Receivable" above. The first of these country contracts was recently announced. A five year, three-phase contract was awarded to create a health care information infrastructure for a nation of 11 million people. During phase one of the contract, the current health care infrastructure of the country will be assessed to determine the final specifications for the new system. After approval of the final specifications by the country's Ministry of Health the second phase will commence. The second phase consists of the installation and operation of a comprehensive health care information system throughout the country. Upon commencement of phase two, PrimeCare(TM) Version 9 will be an integral part of the country's comprehensive health care information system. PrimeCare(TM) Version 9 will provide health care personnel and patients a simple, effective means of entering medical data into this health care information management system for processing and analysis. Successful completion of these contracts should produce significant revenues for the Company and should materially increase the awareness of PrimeCare(TM) Version 9 in the health care industry. The actual value of this contract cannot be determined at this time. The Company does not anticipate any revenues from this contract until the fourth quarter of the current fiscal year. Licensing Fees: -------------- The Company believes that the increased awareness of PrimeCare(TM) Version 9 arising from the above contract will enhance the Company's ability to obtain additional contracts and annual licensing fees from large fixed population groups, which includes, but is not limited to, other countries, labor unions, medical insurance companies, HMOs, military forces and correctional facilities. 11 Advertising Fees: ----------------- Advertising revenues are dependant upon the number of visitors that use the Company's Web sites. The Company believes that the use of PrimeCare(TM) Version 9 by licensees will increase awareness and use of the Company's Web sites and thus result in increased advertising fees. Outcomes Research. ----------------- Potentially, the Company could receive fees for conducting outcomes research for pharmaceutical companies and teaching hospitals. The Company anonymizes, encrypts and stores both the completed diagnostic and follow-up Questionnaires. This ever- growing medical database can be analyzed in various ways to determine the effectiveness of treatment plans, medications, etc. The Company has entered into an agreement with Hackensack University Medical Center ("HUMC"). The agreement provides for the use of the Company's Web sites by HUMC's medical services organization ("MSO"), North Jersey Medical Management Services, L.L.C. This MSO has over 1,000 physicians. HUMC, and its Physicians Hospital Organization, have created www.HUMCMD.net , the only complete Physician/Patient Internet Service Provider ("ISP") providing top quality Internet connectivity to members of its physician network, plus access to key internal HUMC applications. The HUMCMD site has both a "Physician Portal" and "Patient Portal". The site currently contains the Company's PCW Site and YOH Site. The Company's advertising revenues are dependent upon HUMC's marketing efforts to its Staff Physicians and patients. Fitness Web Site: ---------------- The Company designed, created, operates, maintains and markets a fitness and wellness Web site known as www.DeniseAustin.com. Through a revenue sharing agreement with Denise Austin, a nationally known fitness expert who has had a daily fitness show on television for over 15 years, the Company promotes and markets a variety of Denise Austin products on the Web site. Visitors and fans are able to shop online for their favorite Denise Austin signature exercise videos, books, equipment, gear, and private label apparel and nutraceuticals (when available), as well as sign up for her monthly news letter, enjoy fitness tips, exercises, motivation messages, and some of her favorite healthy recipes. Marketing: The Company has expanded the comprehensive shopping area on the DA Web site which offers a broad range of noncompeting products within the fitness industry. The Company will share income from two sources - advertising revenues and e-commerce. YourOwnHealth(TM) is currently positioned at the Denise Austin Web Site with banners and sponsorship of the monthly newsletter which directs traffic to YourOwnHealth(TM). YourOwnHealth(TM) intends to take advantage of the opportunity to position its interactive tools directly from www.DeniseAustin.com to facilitate a greater increase of traffic. Competition: Although there are a number of fitness TV shows, Denise Austin's Daily Workout is reputed to be the number one fitness show on television with over one million viewers each weekday morning. Her videos have sold over 4 million copies. 12 Item 3. Controls and Procedures An evaluation was carried out under the supervision and with the participation of the Company's management, including the President/Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the President/CFO have concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the Securities and Exchange Commission rules and forms. The Company periodically reviews the design and effectiveness of our internal controls over financial reporting, including compliance with various laws and regulations that apply to the Company's operations. The Company makes modifications to improve the design and effectiveness of its internal control structure, and may take other corrective action, if the Company's reviews identify deficiencies or weaknesses in its controls. No changes occurred during the quarter ended September 30, 2003 in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 13 PART II - OTHER INFORMATION Item 2. Changes In Securities During the three months ended September 30, 2003, the Company issued 36,670 shares of its Series C Preferred Stock to a shareholder, for an aggregate purchase price of $110,000, in an unregistered private placement. In consummating the above described private placements, the Company relied upon the exemptions from registration provided by Sections 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder based upon: representations from the investor that he, she or it, (a) met one of the categories of accredited investor set forth in Rule 501, (b) was acquiring the securities for his, her or its own account and not with a view towards further distribution and (c) had such sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks connected with the applicable investment, and the fact that (a) no general solicitation of the securities was made by the Company, (b) the securities issued were "restricted securities" as that term is defined under Rule 144 promulgated under the Securities Act, (c) the Company placed appropriate restrictive legends on the certificates representing the securities regarding the restricted nature of these securities and (d) prior to the completion of each transaction, each investor was informed in writing of the restricted nature of the securities, provided with all information regarding the Company as required under Rule 502 of Regulation D and was given the opportunity to ask questions of and receive additional information from the Company regarding its financial condition and operations. Item 6. Exhibits and Reports on Form 8-K (a) 31.1 Certification pursuant to Rule 13a-14 AND 15d-14 of the Securities Exchange act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley act of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002 (b) Reports on Form 8-K No Report on Form 8-K, was filed during the quarter ended September 30, 2003. However, a Form 8-K was filed on October 20, 2003 and a Form 8-K was filed on November 12, 2003. 14 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. OCG TECHNOLOGY, INC. BY /s/ Edward C. Levine ----------------------------------- EDWARD C. LEVINE, PRESIDENT (CHIEF FINANCIAL OFFICER) DATED: November 14, 2003 15