UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
MEDCARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0429962 B
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 600 - 2443 Warrenville Rd., Lisle, Illinois 60532
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 955-3711
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Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common
Stock, $.001 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( X )
Aggregate market value of Common Stock, $0.001 par value, held by
non-affiliates of the registrant as of March 21, 1997: $34,875,000. Number of
Common Stock, $0.001 par value, outstanding as of March 21, 1997: 6,445,185.
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the following document are incorporated by reference
into this report on From 10-K where indicated: None
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
Page
PART I
................................................................. 1
Item 1. Business................................................ 1
Item 2. Properties.............................................. 15
Item 3. Legal Proceedings....................................... 15
Item 4. Submissions of Matters to a Vote of Security Holders.... 15
PART II
................................................................ 16
Item 5. Market for the Registrants' Common Equity
and Related Stockholder Matters..................... 16
Item 6. Selected Financial Data............................. 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........18
Item 8. Financial Statements ............................... 20
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...............20
PART III
................................................................ 20
Item 10. Directors and Executive Officers of the
Registrant............................................. 20
Item 11. Executive Compensation................................. 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 24
Item 13. Certain Relationships and Related Transactions......... 24
PART IV
.................................................................24
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................... 24
<PAGE>
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion in this
Annual Report on Form 10-KSB contains certain forward-looking statements that
involve risk and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in
this document should be read as being applicable to all related
forward-looking statements wherever they appear in this document. The
Company's actual results could differ materially from those discussed here.
Factors that could cause differences include those discussed below in "Risk
Factors", as well as discussed elsewhere herein.
THE COMPANY
Summary of Business
MedCare Technologies, Inc. ("MedCare" or the "Company") has developed The
MedCare Program, a non-surgical, non-drug, non-invasive and cost effective
treatment program for urinary incontinence, as well as pelvic pain, chronic
constipation, fecal incontinence, and disordered defecation. The MedCare
program is a multi-modality program based primarily on behavioural techniques
for treatment. These techniques include biofeedback using electromyography
(EMG), pelvic floor muscle exercises, and bladder and bowel re-training. The
program is designed to activate and strengthen the various sensory-response
mechanisms that maintain bladder and bowel control. The therapy is provided
through computerized instrumental electromyography biofeedback and is based on
operant conditioning strategies whereby specific physiological responses are
progressively shaped, strengthened, and coordinated.
Affecting an estimated 25 million Americans, urinary incontinence (UI) is the
involuntary loss of bladder control and represents a significant cause of
disability and dependence. Incontinence is one of the most prevalent, yet
severely unrecognized problems in health care today. And as society ages, the
physical, emotional and financial costs to those suffering and the costs to
their caregivers, as well as the health care system, is expected to increase
dramatically.
The psychosocial impact of UI imposes a tremendous burden on individuals,
their families and health care providers. Patients experience odor, dampness,
discomfort, depression, withdrawal from daily activities and a significant
quality of life problem. Social interaction with friends and family, and even
sexual activity, is restricted or avoided in the presence of incontinence.
Sadly, many UI sufferers eventually confine themselves to a life of exile in
their own homes. In fact, the U.S. Department of Health states that urinary
incontinence is one of the major reasons why people institutionalize elderly
family members, accounting for upwards of 50% of all admissions into nursing
homes.
Despite the prevalence of incontinence, it is widely under-diagnosed and
under-reported primarily because of the social stigma attached to UI. Many
individuals are either too ashamed or too embarrassed to report the problem to
their doctor or to a health care professional. Instead, a large number of
people prematurely turn to the use of absorbent materials and supportive aids
without having their condition properly diagnosed and treated. When sufferers
do inquire, they discover that very few doctors are knowledgeable about UI. In
fact, so few medical professionals have the adequate training to diagnose and
offer treatment options that the U.S. Department of Health and Human Services,
Agency for Health Care and Policy and Research, recommended that information
about UI be included in the curricula of undergraduate and graduate health
professional schools.
<PAGE>
Urinary Incontinence
In March 1996, the US. Department of Health and Human Services published a
Clinical Practice Guideline which estimated that urinary incontinence affects
approximately 13 million Americans (of which 85% are woman) at an annual cost
of $16 billion. However, because the incidence of incontinence is so widely
under reported and under diagnosed, many industry observers believe that the
total number of sufferers is well over 25 million, with approximately one
third of these individuals also experiencing problems with bowel control.
Among the population between 15 and 64 years of age, the prevalence of UI
ranges from 1.5% to 5% in men and from 10% to 25% in women. In one series of
randomly selected women between the ages of 30 to 59, an amazing 26% reported
having experienced UI at some time during adult life and 14% reported that
they perceived UI as a social or hygienic problem. Woman suffer from UI far
more often than men and at younger ages primarily because of the stress
associated with pregnancy and childbirth.
For noninstitionalized individuals over the age of 60, the prevalence of UI
ranges from 15% to 30%, with women having twice the prevalence of men. Between
25% to 30% of those identified as incontinent had daily or weekly episodes of
incontinence. Among the more than 1.5 million nursing home residents, the
prevalence of UI is 50% or higher, with incontinence episodes occurring more
than once a day.
While most people associate the lack of bladder control with very old people,
urinary incontinence affects adults of all ages and crosses all social,
economic, racial and gender lines. Ingrid Nygaard, Assistant Professor of
Obstetrics and Gynecology at the University of Iowa, conducted a study with
144 female exercisers between the ages of 18 and 21. An amazing 28% of these
relatively young individuals experienced urine loss at some point.
Incontinence is a symptom rather than a disease. UI can be caused from a
variety of pathologic, anatomic and physiological factors including: Damage to
pelvic muscles from pregnancy; spina bifida; spinal injury; bladder
infections; drug side effects; multiple sclerosis; Parkinson's disease;
stroke; diabetes; age related changes in lower urinary tract; obesity and
surgery (hysterectomy, cesarean section or prostatectomy) that may damage the
bladder or urinary tract. For example, each year about 500,000 men undergo
surgery for prostate cancer and approximately 10% of these patients suffer
sphincter damage during the procedure, leading to incontinence.
There are six types of UI: urge, stress, overflow, reflex, functional and
mixed. Of these six, urge and stress incontinence account for over 90% of all
urinary incontinence.
Urge Incontinence
The involuntary loss of urine as a result of an abrupt and strong desire to
void. The detrusor muscle, which controls bladder contractions, is irritated,
unstable and contracts erratically. Individuals suffering from urge
incontinence have the urge to urinate but cannot "hold it" until they reach
the bathroom.
Stress Incontinence
The involuntary loss of urine during coughing, sneezing, laughing, exercise or
other physical activity causes a sudden increase in intra-abdominal pressure.
Stress incontinence is seen predominantly in women
<PAGE>
and is often caused by a decrease in the pelvic muscle strength due to
childbirth, surgery or reduced hormones associated with menopause.
Overflow Incontinence
Overflow incontinence is often the result of a blockage in the lower urinary
tract. This type of incontinence may have a variety of symptoms including
constant dribbling and/or frequency, which is not improved by lying down.
Reflex Incontinence
Reflex incontinence is the loss of bladder control due to impaired nerve
function.
Functional Incontinence
Functional incontinence is caused by factors outside the urinary tract such as
chronic impairments of physical and/or cognitive functioning.
Mixed Incontinence
Mixed incontinence sufferers display more than one type of symptom. The most
common form of mixed incontinence is a combination of stress and urge
incontinence.
The MedCare Program for Incontinence
The MedCare program is individualized for each patient's needs and
circumstances. It focuses on their clinical, cognitive, and residential status
to produce a comprehensive program for bladder and bowel disorder sufferers.
The MedCare Program is a multi-modality program based primarily on behavioural
techniques for treatment. These techniques include biofeedback using
electromyography (EMG), pelvic floor muscle exercises, and bladder and bowel
re-training. The program is designed to activate and strengthen the various
sensory-response mechanisms that maintain bladder and bowel control. The
therapy is provided through computerized instrumental electromyography
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened, and
coordinated. All patients entering the MedCare treatment program are initially
evaluated by a physician and a biofeedback clinician whose expertise is in
bowel and bladder control.
The MedCare Program is individualized for each patient's needs and
circumstances. It focuses on their clinical, cognitive, and residential status
to produce a comprehensive program for bladder and bowel disorder sufferers.
The fundamental goals for the MedCare Program, as they relate to bladder and
bowel function, are:
1. Increase the strength and tone of the pelvic floor muscles that prevent
incontinence;
2. Augment the motor efficiency of the striated pelvic floor muscles;
3. Enhance sensory-response systems that trigger motor activity that
prevent or limit incontinence;
4. Decrease abnormal motor substitutions that are ineffective in
preventing incontinence;
<PAGE>
5. Re-establish normal muscle activity that may contribute to voiding and
defecation dysfunction;
6. Provide patients with strategies that establish normal bowel and
bladder habits;
7. Reduce incontinence and symptoms of urgency and frequency.
To reach these goals the MedCare Program may use the following treatments or
procedures:
1. Biofeedback using electromyography;
2. Bladder ultrasound;
3. Aerodynamicist;
4. Electrical stimulation of the pelvic floor muscles;
5. Anorectal Manometry;
6. Weighted vaginal cones;
7. Rectal pressure balloons;
8. Pelvic floor muscle exercises;
9. Various behavioural programs for bladder and bowel re-training;
10. Behavioural strategies and home programs which generalize gains made
within each treatment session to the patient's life situation.
The following disorders respond to this treatment:
Urinary Dysfunction
1. Stress incontinence;
2. Urge incontinence;
3. Mixed stress and urge incontinence;
4. Bladder disorders secondary to neurologic disorders;
5. Urinary frequency and urgency;
6. Hyperactive or dyssynergic sphincters;
7. Pelvic floor muscle strengthening prior to bladder suspension surgery;
Bowel Dysfunction
1. Fecal incontinence, idiopathic, or due to muscle or nerve damage from
obstetrical trauma, or surgery;
2. Disordered defecation caused by excessive spasm or activity of the
pelvic floor muscles, i.e. constipation, acquired megacolon;
3. Bowel disorders secondary to neurologic disorders, i.e. CVA (stroke),
incomplete spinal cord injury, multiple sclerosis, spina bifida, etc.;
4. Hirschbrung's disease;
5. Irritable bowel syndrome;
6. Adjunct to surgical procedures such as muscle transpositions, ostomy
reversal surgeries, anal spincteroplasty, and imperforated anus;
Pelvic Floor Disorders
1. Levator ani syndrome;
2. Perineal descent syndrome;
<PAGE>
3. Spastic floor syndrome.
Admission to the MedCare Program
Admission to MedCare's program is by a physician's order for pelvic floor
muscle strengthening or pelvic floor muscle spasm. The referral may come from
a physician who has completely evaluated the patient and has determined that
EMG biofeedback therapy in conjunction with behavioural programs is a
reasonable treatment for the patient. The referral may also come from a
physician who would like more assessment of the patient. In that case, the
patient would be referred to the physician working with MedCare's program for
evaluation to see if he or she is an appropriate candidate for EMG biofeedback
therapy. A patient can also self refer to the MedCare program, but must first
be evaluated by the physician working with MedCare's program to see if they
are appropriate. The cost of the MedCare program is covered by most insurance
companies.
Course of treatment
The MedCare Program begins by having the clinician review the patients medical
history. The clinician then conducts an in-depth verbal interview with the
patient regarding his or her bladder or bowel dysfunction. A patient diary is
then given to the patient to fill out for a week at a time to better keep
track of their symptoms. This diary is reviewed each visit and helps to track
patient progress and improvement.
The patient then undergoes a physical assessment which varies according to the
patients disorder and symptoms. In the case of bladder dysfunction the
physical assessment may include EMG measures of the pelvic floor showing
baselines, maximum contraction/relaxation, and degree of maladaptive
abdominal substitution with attempts at pelvic floor muscle contraction. A
bladder scan, catheterization, or aerodynamicist may also be done. These help
to evaluate the patients post void residual volumes, bladder compliance,
presence of uninhibited bladder contractions, and sensation related to
increasing levels of bladder infusion.
In the case of bowel dysfunction the physical assessment consists of EMG
measures of the pelvic floor muscles showing baselines, maximum
contraction/relaxation, degree of maladaptive abdominal substitution with
attempts at pelvic floor muscle contractions, and the ability to relax with
defecation maneuvers. Anal manometry, may also be done, to show the dynamic
characteristics of the pelvic floor, coordination and synchrony of the
internal and external anal sphincters, and sensation in response to varying
degrees of rectal distention.
After the evaluation identifies the patients dysfunctional motor patterns, the
MedCare treatment program is then individualized to include the modalities
that will be used and a home exercise program. At each consecutive treatment
session the patient's progress is reviewed, new goals are set, and the
patient's program is changed to accommodate their current situation and
symptoms.
Length of Treatment
Treatment sessions are usually one hour in length, one week apart initially
with the inter treatment interval increasing thereafter for most ambulatory
non-neurological compromised outpatients. As a result most patients will be
seen over a three to four month period with an average of six to eight
treatment sessions. MedCare's program relies on patients following a specific
individual home
<PAGE>
exercise program that is updated during each treatment
session. However, if the patient's condition demands more intensive therapy
(i.e. neurologic disorders, cognitive dysfunction, pediatric patients), or if
the patient's ability to perform the home program is compromised the treatment
sessions may need to be scheduled more frequently and over a longer period of
time.
Contradictions to Treatment
The most significant contradictions to MedCare's program is the patient's lack
of motivation, inability to follow directions, and failure to remember to do
their home exercise program. However, since each patient is assessed
carefully, thoroughly and followed closely, the clinician can determine within
just a few sessions if the patient will benefit from the program or not. If
the patient is found to be inappropriate for therapy, other methods of
treatment will be offered such as regular toileting or adaptive equipment. In
addition, the evaluating physician may also determine contradictions to
therapy such as anatomic obstruction, severe descensus, prolapse, or severe
neurologic disorder.
Effectiveness Of The MedCare Program
The value and effectiveness of neuromuscular re-education therapy and
behavioural techniques has been well documented by many notable and respected
researchers. Studies in the various application of biofeedback (EMG) combined
with behavioural treatments report a range of 54% to 95% improvement in
incontinence across different patient groups. The researchers of one such
study were able to obtain a mean 82% reduction in stress incontinence and a
range of 30% to 100% reduction in urge incontinence. With regard to fecal
incontinence with various age groups, including geriatric patients and
children with spina bifida, reports indicate a range of 66% to 77% using
behavioural and neuromuscular re-education techniques.
A combined analyses of 22 articles that dealt with behavioural techniques in
community dwelling adults were reviewed by a subcommittee of behavioural
experts and then by external reviewers. The number of patients (both male and
female) studied in the combined analyses was 887, with an average age of 53
years. The number of baseline incontinent episodes ranged from 4 to 21 per
week, per article, with an overall average of 6 per week. Based on the
weighted combined data, the average percent reduction in incontinence
frequency at the end of treatment was 64.6%, with a 95% confidence interval
ranging from 58.8% to 70.4%.
Successful application of behavioural treatment and neuromuscular re-education
therapy using biofeedback is highly dependent on the knowledge and skill of
the health care provider. This very important factor is the principle reason
for such a wide percentage range in the studies mentioned above. In contrast,
MedCare's protocols are in-depth, standardized and comprehensive. All MedCare
trained clinicians receive training in every aspect of the treatment program,
including familiarity with evaluation techniques, anatomic and physiologic
correlates of the different forms and symptoms of bladder dysfunction,
instrumentation and behavioural principles that guide the MedCare program for
incontinence.
Expansion of The MedCare Program
The MedCare Program is available through the practices of physicians
(urologist, urogynecologist, gastroenterologist, and/or colon rectal surgeon)
either in a private office, clinic, or a hospital setting.
<PAGE>
For the physician, the MedCare Program is a turn-key system that includes
equipment, trained personnel, model policies and procedures, billing and
collections assistance and an active marketing program in each local
community where the Program is available. Inclusive of equipment and
training costs, each site is expected to cost around $30,000 to establish.
As at March 21, 1997, the MedCare Program is available in the three states
listed below:
Oklahoma
The MedCare Program with
Dr. Michael Blue
800 - 500 E. Robinson
Norman, OK, 73071
Tel: 405-321-7817
Kansas
The MedCare Program with
Dr. Herb Hodes
4840 College Blvd
Overland Park, KS, 66211
Tel: 913-327-7723
Florida
The MedCare Program with
Dr. Jake Jacobo
2 - 3586 Aloma Ave
Winter Park, FL, 32792
Tel: 407-671-1442
Additional locations are planned in 1997 for Colorado, Texas, Wisconsin, New
York, Illinois, as well as possible additional sites in the Oklahoma, Kansas
and Florida. To aid in the expansion of The MedCare Program, an experienced
sales team consisting of ten representatives has been assembled to market the
Program to Physicians. As compensation, each sales representative will receive
consideration from the sale of the equipment that MedCare uses in each of its
sites. This consideration is paid by the vendor of the equipment and not by
the Company.
Marketing of The MedCare Program
In a study of 3,638 patients over age 20 who saw their physicians during an 11
week period, 43% of women and 11% of men (33% overall) reported current UI.
75% of these patients had not yet informed a health care professional,
however, more than a third said they would see a physician if treatment were
available. In the meantime, many are pre-maturely drawn to the use of
absorbent products as a result of extremely effective marketing by major
manufacturers, such as Kimberly Clark, Procter & Gamble and Johnson & Johnson.
Thus allowing millions of sufferers to hide their condition without anyone
ever discovering their UI and resulting in an average sufferer waiting between
7 and 9 years before seeking help.
This study reveals the crux of the problem: A significant number of
incontinence sufferers do not seek medical guidance of any kind either because
they are too embarrassed, believe their condition is a normal part of aging or
bearing children or are not aware that a genuine medical treatment is
available. This general ignorance on the part of the patient is compounded by
the fact that so few people in the medical community are knowledgeable.
When an effort is made to educate and market to incontinence sufferers, most
are amazed at the significant drawing power of simple marketing and sales
programs. For example, The New York Times reported an incidence in which the
authors of "Staying Dry: A Practical Guide to Bladder Control" (Dr. Kathryn L.
Burgio, K. Lynette Pearce and Dr. Angelo J. Lucco) were rejected by 50
publishers before Johns Hopkins Press accepted the manuscript. Within several
days of a mention of the book in an Ann Landers column, Johns Hopkins Press
was flooded by over 20,000 letters. Within a
<PAGE>
matter of months, over 50,000 copies of the book had been sold, becoming the
biggest selling book of its kind in such a short period of time.
MedCare's marketing and sales strategy is designed to promote general
awareness of incontinence and that an effective treatment program is readily
available. The majority of the Company's advertising is directed towards the
sufferer through a combination of brochures, print ads, direct mail, radio,
TV, doctor referrals, seminars and general public relations within a defined
area. The Company's past experience with such marketing has been very
favorable, with print and referrals being the best source of new patient
flow.
The Company targets much of its marketing and advertising to those individuals
that are prime candidates, namely women over the age of 35, men who have
undergone prostate surgery, nursing home residents, new mothers, female
athletes and current incontinence patients. A secondary audience for MedCare's
advertising will be friends and family and the professional audience, which
includes gynecologists/obstetricians, general practitioners, family
practitioners, geriatricians, gastroenterologists, nurse practitioners, and
nursing home administrators. Past experience indicates that once an effective
marketing program has been launched, much of the continued draw comes from
word of mouth referrals from patients and doctor referrals.
Competitive Treatment Options for UI
Some currently available alternatives for the treatment of urinary
incontinence include:
Absorbent Products and Diapers
Similar to baby diapers, adult diapers and pads capture urine upon leakage.
While the product has improved over the last few years, most users find the
bulky size, inconvenience, lack of control over urine flow, discomfort from
wetness, embarrassment over the appearance and odour of urine and ongoing cash
outlay to be major disadvantages.
It has been estimated that the typical UI sufferer in the US spends between
$1200 to $1500 annually on these types of products. Retail sales of adult
absorbent products surpassed $1.5 billion last year according to industry
sources, compared to $496 million in 1987 and just $173 million in 1982.
Early dependency on absorbent products is often a deterrent to continence by
giving the wearer a false sense of security and removes their motivation to
seek evaluation and treatment. When used improperly, absorbent products may
contribute to skin breakdown and urinary tract infections. As a result,
meticulous care and frequent changes are required.
Surgery
A variety of surgical procedures are utilized more for stress incontinence
than urge or mixed incontinence. Surgeries usually involve elevating and
stabilizing the urethra and the bladder neck in order prevent hypermobility.
These procedures are delicate, complicated procedures whose success depends on
a number of factors, including the degree of the pathology and the operating
physician's experience. Accordingly, outcomes are generally varied. Surgery is
quite an expensive and traumatic procedure requiring a hospital stay and
several weeks of recovery time. A typical bladder suspension,
<PAGE>
for example, costs over $10,000 to perform. An estimated 60,000 bladder
suspension procedures are performed annually in America.
Indwelling Catheters
An indwelling, or Foley, catheter is a closed sterile system inserted into the
bladder through the urethra in order to allow for drainage of the bladder
directly through a tube into a urine collection bag. While the individual
typically remains dry, most experience the inconvenience of the long tube and
collection bag. For continuous users, urinary tract infections are of
concern.
Another similar product, called the Reliance and developed by UroMed Corp., is
a balloon-tipped device that is inserted into the urethra and then inflated in
order to block the flow of urine. When the user needs to urinate, a string is
pulled to deflate and remove the device. On average, each patient is expected
to use about 90 inserts monthly, or 1080 annually, and no insurance
reimbursement is expected. In a recent multicenter study, almost 40% of the
215 women enrollees withdrew from the study within four months primarily
because of discomfort or an inability/unwillingness to use the product.
Implanting Devices and Injectable Materials
Implantation of foreign materials into the body, such as an artificial
sphincter, are used relatively infrequently due to the highly invasive and
high complication rate as compared with other procedures. Injectables, which
include collagen, polytetrafluoroethylene and other materials, are inserted
into the tissue surrounding the urethral sphincter using a small-gauge
hypodermic needle under local anaesthesia. The injection of the material
increases muscle tone of the sphincter by increasing bulk and offering greater
resistance to urine flow.
Periurethral injections generally show promise when used in patients suffering
from specific anatomical defects, principally intrinsic sphincteric
deficiency, thus limiting its use to about 10% to 15% of the UI population. In
addition to the high cost of such injections, around $2,500, there is some
degree of side effects.
Electrical Stimulation
Electrical stimulation involves the application of a low level electric
current to stimulate or inhibit the pelvic muscles or their nerve supply.
Mechanical Devices
Most mechanical devices, such as vaginal pessaries, diaphragm rings and other
inflatable and non-inflatable devices, work by supporting the urethrovesical
junction. Despite their wide availability, these products have not gained wide
acceptance among UI sufferers. In addition to the difficulty of properly
fitting patients with these devices, other potential adverse side effects
include vaginal discharge and tissue erosion.
<PAGE>
Drugs
Drugs typically used for the treatment of incontinence act on the nerve
receptors associated with the bladder neurotransmitter system and generally
alleviate the symptoms in part but are seldom curative. Drugs also may cause
adverse side effects, often affecting the cardiovascular and circulatory
systems, along with the possibility of urinary retention and unwanted
interactions with other drugs. Currently, most drugs require continual, life
long usage in order to control urinary incontinence symptoms.
Ignorance of Sufferers And The Medical Community
The greatest competition, by far, comes from the ignorance of the marketplace.
A significant number of incontinence sufferers do not seek medical guidance of
any kind either because they are too embarrassed, believe that their condition
is a normal part of aging or bearing children or are not aware that a genuine
medical treatment is available. Not only are UI sufferers ignorant of the care
and treatment options available for their condition, but so are a vast number
of people in the medical profession. In fact, so few doctors are knowledgeable
about UI that the Agency for Health Care Policy and Research recommended that
information about UI be included in the curricula of undergraduate and
graduate health professional schools.
Another area of competition for MedCare Technologies comes from
gynaecologists, urologists and urogynaecologists. Many, if not most, of these
medical professionals advocate drugs or surgery as their preferred choice of
treatment for incontinent patients primarily because they have been trained to
do so and are financially motivated to offer treatments surgery, drugs and
other invasive treatment options.
"Ma & Pa" Clinics
At present, there are a number of small incontinence clinics, or ancillary
programs offered by doctors, hospitals or therapists, scattered across North
America that use a combination of currently available non-invasive alternative
treatment options to treat UI patients. Most, if not all, of these clinics
have limited financial strength for adequate marketing and advertising and
often operate a "ma and pa" type of business. Some of these clinics include
small operations in Chicago, IL and Milwaukee, WI (The Continence Control
Service), Southern Florida (Advantage Medical), Burbank, CA (Continence
Restoration Service), Bryn Mawr, PA (Uro-Rehab) and First Choice for
Continence.
Employees
At March 21, 1997, the Company employed 8 employees, including 1 part time
employee. The Company's continued success will depend to a large extent upon
its ability to retain skilled employees. No assurances can be given that the
Company will be able to retain or attract such employees in the future,
although management is committed to providing an attractive environment in
which creative and high achieving people want to work. To the best of the
Company's knowledge, none of the Company's officers or directors is bound by
restrictive covenants from prior employers. None of the Company's employees is
represented by labor unions or other collective bargaining groups.
<PAGE>
RISK FACTORS
Limited Operating History; History of Losses; Profitability Uncertain
Since inception, MedCare Technologies has primarily been engaged in the
research and development of its treatment program for bladder and bowel
incontinence and has incurred significant operating losses. The Company
expects to continue to incur significant operating losses as new MedCare sites
are opened and as funds are expended to attract potential clients for the
MedCare Program. While there is ample evidence that significant demand exists
for a treatment program such as MedCare's, there is no guarantee that MedCare
will be successful in achieving its operating goals or successful in gaining
wide acceptance among physicians or sufferers. As a result, the Company may
continue to suffer losses from operations in the future.
Reliance on Skilled and Key Personnel; Risk of Inadequate Funding
As a part of its expansion plans, the Company plans to expend substantial
funds for recruiting and training highly skilled personnel, purchasing medical
equipment and for advertising and marketing. There can be no assurances that
these highly skilled individuals, such as registered nurses, will be readily
available and slower than anticipated sales growth may adversely affect the
company's ability to continue funding its expansion program. The Company is
also dependent upon a number of key management personnel. The loss of the
services of one or more key individuals would have a material adverse effect
on the Company. The Company's success will also depend on its ability to
attract and retain other highly qualified scientific and management personnel.
The Company faces competition for such personnel and there can be no assurance
that the Company will be able to attract or retain such personnel.
In order to finance the Company's future growth, MedCare intends to seek
additional funding through public or private financings, collaborative or
other arrangements, or from other sources. There can be no assurance that
additional financing will be available from any of these sources or, if
available, that it will be available on acceptable terms. In addition, sales
of substantial amount of common stock in the public market could adversely
affect prevailing market prices and impair the Company's future ability to
raise capital through the sale of its equity securities. If additional funds
are raised by issuing equity securities, significant dilution to existing
stockholders may result. If the proposed offering is not successful or if
adequate funds are not otherwise available, the Company may be required to
scale back or delay the expansion of The MedCare Program and eliminate any
future potential research and development project, or to obtain funds through
entering into arrangements with collaborators or others that may require the
Company to relinquish rights to certain parts of MedCare Program or to cease
operations.
Dependence on One Treatment Program
MedCare Technologies expects to derive a substantial majority of its future
revenues from its bladder and bowel incontinence program, as well revenues
from the treatment of pelvic pain, chronic constipation, and disordered
defecation. If the Company is unable to successfully commercialize its
treatment program, the period during which the Company is in the development
stage would be extended significantly. This would have a material adverse
effect on the Company's business, financial condition and results of
operations.
<PAGE>
Protection of Proprietary Treatment Program
The Company's ability to compete and expand effectively will depend, in part,
on its ability to develop and maintain proprietary aspects of its treatment
program for bladder and bowel incontinence. The Company relies on an
unpatented proprietary treatment protocol and there can be no assurances that
others may not independently develop the same or similar program or otherwise
obtain access to the Company's unpatented proprietary protocols.
In addition, the Company cannot be certain that others will not independently
develop substantially equivalent or superseding proprietary protocols, or that
an equivalent program will not be marketed in competition with the Company's
program, thereby substantially reducing the value of the Company's proprietary
treatment program. There can be no assurance that any confidentiality
agreements between the Company and its employees will provide meaningful
protection for the Company's trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure of such trade
secrets, know-how or other proprietary information.
Uncertainty Relating to Service Pricing, Reimbursement and Related Matters
The Company's business may be materially adversely affected by the continuing
efforts of governmental and third party payors to contain or reduce the costs
of health care through various means. For example, in certain foreign markets
the pricing or profitability of health care products and services is subject
to government control. In the United States, there have been, and the Company
expects there will continue to be, a number of federal and state proposals to
implement similar government control. While the Company cannot predict whether
any such legislative or regulatory proposals or reforms will be adopted, the
announcement of such proposals or reforms could have a material adverse effect
on the Company's ability to raise capital or form collaborations, and the
adoption of such proposals or reforms could have a material adverse effect on
the Company.
In addition, in both the United States and elsewhere, sales of health care
products and services are dependent in part on the availability of
reimbursement from third party payors, such as government and private
insurance plans. In the United States and in certain foreign countries,
third-party reimbursement is currently generally available for certain
procedures, such as surgery and biofeedback training by EMG application, and
generally unavailable for patient management products such as diapers, pads,
and urethral plugs. While the Company's treatment program is currently covered
by third party payers, there can be no assurances that such coverage will
remain in effect in the future.
<PAGE>
Volatility of Stock Price; No Dividends; Dilution
The market prices for securities of early stage development and technology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Future announcements concerning the Company, its competitors or
other technology companies including the development of new treatment
protocols, drugs or therapies, technological innovations, governmental
regulations, developments in patent or other proprietary rights, litigation or
public concern as the safety of the services and products offered by the
Company or others and general market conditions may have a significant effect
on the market price of the Common Stock. The Company has not paid any cash
dividends on its Common Stock and does not anticipate paying any dividends in
the foreseeable future.
<PAGE>
Anti-Takeover Provisions
The Company is subject to provisions of the Delaware General Corporation Law
which may make certain business combinations more difficult.
EXECUTIVE OFFICERS
Each executive officer is elected to office by the Board of Directors and
holds the office until his successor is elected and qualified. The executive
officers of the Company are:
HARMEL S. RAYAT (35) - Chairman of the Board, Chief Executive Officer and
Chief Financial Officer. Mr. Rayat is one of the co-developers of the MedCare
Program. Mr. Rayat has been in the venture capital industry since 1981 and
since January 1993 has been the president of Hartford Capital Corporation, a
company specializing in providing early stage funding and investment banking
services to emerging growth corporations. From 1989 through December 1992, Mr.
Rayat was the president of K.S. Rayat & Company, an investment banking and
venture capital company, where he was responsible for research, due diligence
and investment strategy in early stage, start up venture capital investments.
From April 1996 to the present, he has been president of Hartford Capital
Management, Inc., an investment management corporation where he is responsible
for research and making direct equity investments in emerging growth
companies. Mr. Rayat has been a director of the Company since September 1995
and the president since June, 1996. Mr. Rayat is also a director of Far West
Resources, Inc., a non-reporting company trading on the NASD OTC Bulletin
Board.
VALERIE BOELDT-UMBRIGHT (31) - Vice President - Clinical Services. Mrs.
Boeldt-Umbright is registered nurse, with a Bachelors of Science degree in
community health education from Northern Illinois University. With over two
years of actual management experience in the day-to-day operation of the
Incontinence Clinic in Chicago, Mrs. Boeldt-Umbright has supervised personnel,
dealt with insurance and reimbursement matters, marketing and physician
interaction and referrals. She has instructed patients in biofeedback for
their pelvic floor muscles, established individualized neuromuscular
re-education programs, written new clinical protocols and articles for
publication and has worked as a member of a university team to provide excellent
care and medical treatment for patients. Mrs. Boeldt-Umbright was a nurse
insurance examiner in the PMI Division of Equifax Systems from October 1991 to
September 1992. From June 1992 to July 1994, she was employed at the Premier
Rehabilitation Center of Chicago, where she established a nursing and health
education program and was the sole nurse responsible for traumatic brain
injury and spinal cord injury clients. At this facility she also established a
medication program and bowel/bladder programs, and taught inservices, training
classes and health care classes for clients and staff. From March 1994 to
September 1996, Mrs. Boeldt-Umbright was the Manager of Incontinence Control
Services. In this position, she handled all manager responsibilities,
including supervising personnel, insurance claims, marketing and physician
interaction and referral, wrote articles for publication and assisted in
research. Since March, 1996, she has been Vice President and Director of
Clinical Services of the Company.
DIANE NUNZIATO (42) - Ms. Nunziato has a Bachelors of Science and a Masters of
Clinical Science from the University of Western Ontario, as well as numerous
certifications in courses ranging from adult learning, clinical supervision
and instruction, group dynamics, learning theories and management. Ms.
Nunziato has been instrumental in developing and refining the clinical
protocols for The MedCare Program and in structuring and developing training
courses, developing new teaching techniques and methods of presentation,
quality assurance and evaluation of clinical and support staff and has an
in-depth knowledge of every aspect of establishing a clinical system,
including marketing, billing, medical products and equipment, patient and
physician interaction and the training and
<PAGE>
supervision of personnel. Since July 1990, Ms. Nunziato has been one of the
21 international instructors of the Hanen Resource Center, where she is
responsible for the presentation of intensive adult learning courses throughout
Canada, the United States and internationally. Ms. Nunziato has been a
Director of the Company since November 1995.
KUNDAN S. RAYAT (68) - Secretary - Mr. Rayat has over 45 years of experience
as an entrepreneur and owner of a diverse spectrum of businesses, ranging from
automotive to heavy construction, on three different continents. Since 1985,
Mr. Rayat has been a principal of K.S Rayat & Company and has primarily
devoted his time to venture capital, investing in numerous start up venture,
and providing seasoned management advice to emerging market companies. He has
been a Director and Secretary of the Company since August 1995.
MICHAEL M. BLUE (53) - Medical Director - Dr. Michael Blue is a member of the
American Medical Association, Oklahoma State Medical Association and the
American Urological Association. Dr. Blue is a board certified urologist who
has practiced general urology in private practice for twenty years. He joined
the Board of Directors of the Company in August 1996 and is responsible for
supervising and continuing the development of all medical aspects of the
MedCare Program, as well as interacting and answering questions from other
doctors within the MedCare system.
ITEM 2: PROPERTIES
The Company currently has the use of approximately 500 square feet of office
space, the use of 2 board rooms, and all office equipment, including a photo
copier and telephone equipment, on a shared basis with the Company's
President. These premises are located at suite 1408 - 400 Burrard Street,
Vancouver, BC, V6C 3G2 and there is no lease in place. Through Manon
Consultants Ltd., the Company also maintains a clinic currently being utilized
as a developmental facility for the MedCare Program. This clinic is 200 sq
feet in size and is located within a senior citizens health facility at the
Kerby Center For Seniors located at 1133 - 7th Ave, SW, Calgary, Alberta, T2T
1B2. The rent on this facility is approximately $400 per month. Additional
clinical facilities are being maintained at suite 800 - 500 E. Robinson,
Norman, OK, 73071 and 4840 College Blvd, Overland Park, KS, 6621. No rent is
being paid on these facilities.
ITEM 3: LEGAL PROCEEDINGS
(a) The Company is not a party to any legal proceedings.
(b) No material legal proceedings were terminated in the fourth
quarter.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1996
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS.
(a) Market Information
The Company's common stock trades on the NASD Electronic Bulletin Board under
the symbol "MCAR". On August 11, 1995, the Company authorized a reverse split of
1200:1. Prior to August 11, 1995, the Company traded under the name of Multi-
Spectrum Group, Inc. The following table sets forth the high and low sale price
information as reported by America Online for the periods indicated:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
January-March 1997 $8.1875 $5.125
October-December 1996 $5.125 $4.375
July-September 1996 $5.625 $4.75
April-June 1996 $5.625 $4.75
January-March 1996 $4.785 $4.25
October-December 1995 $6.00 $3.75
</TABLE>
The table above reflects the high and low bids beginning with the fiscal
quarter after the 1200:1 reverse stock split of August 11, 1995. Prior to this
period, the Company traded as Multi Spectrum Group, Inc. and traded between
$0.02 and $0.03 per share for many years.
(b) Holders
As of March 21, 1997, there were approximately 188 stockholders of record of
the Company's Common stock.
(c ) Dividend Policy
The Company has never paid a dividend and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the five years ended December 31, 1996:
Consolidated Statements of
Operations Data Years Ended December 31, 1996
1996 1995 1994 1993 1992
Revenues $ 8,118 1,729 0 0 0
Expenses
General and Admin 487,324 692,762 0 0 8,773
Total Expenses 487,324 692,762 0 0 8,773
Other Income
Interest Income 2,801 0 0 0 0
Net Loss (476,405) (691,033) 0 0 0
Net (Loss) Per Share ($0.07) ($0.11) - - -
Consolidated Balance
Sheet Data Years Ended December 31, 1996
1996 1995 1994 1993 1992
Cash $ 220,562 44,975 0 0 0
Total Current Assets 256,920 45,615 0 0 0
Total Assets 573,618 358,130 50 50 50
Total Current Liabilities 57,007 24,114 0 0 0
Accumulated Deficit (1,185,465) (733,060) (42,027) (42,027) (42,027)
Total Stockholder's 573,618 334,016 50 50 50
equity
The Company expects to incur substantial additional costs prior to reaching
profitability, including costs related to site research, personnel training
and on-going training costs, advertising and marketing costs related to each
MedCare Program opening, costs related to purchase of equipment and printing
costs. As a result, the Company will require substantial additional funds, and
the Company may seek expansion funding, private or public equity investments,
and possible future collaborative agreements
<PAGE>
to meet such needs. Even if the Company does not have an immediate need for
additional cash, it may seek access to the public equity markets if and when
conditions are favorable. There is no assurance that such additional funds
will be available for the Company to finance its operations on acceptable terms,
if at all.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included in Item 8 of this Form 10-K.
Except for the historical information contained herein, the discussion in this
Annual Report on Form 10-K contains certain forward-looking statements that
involve risk and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in
this document should be read as being applicable to all related
forward-looking statements wherever they appear in this document. The
Company's actual results could differ materially from those discussed here.
Factors that could cause differences include those discussed below in "Risk
Factors", as well as discussed elsewhere herein.
Overview
The Company has developed The MedCare Program, a non-surgical, non-drug,
non-invasive and cost effective treatment program for urinary incontinence, as
well as pelvic pain, chronic constipation, fecal incontinence, and disordered
defecation. The MedCare program is a multi-modality program based primarily on
behavioural techniques for treatment. These techniques include biofeedback
using electromyography (EMG), pelvic floor muscle exercises, and bladder and
bowel re-training. The program is designed to activate and strengthen the
various sensory-response mechanisms that maintain bladder and bowel control.
The therapy is provided through computerized instrumental electromyography
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened, and
coordinated.
To date, MedCare has not received any significant revenues. The Company has
been unprofitable since its inception and expects to continue to incur
substantial losses for at least the next 12 to 24 months, and perhaps into the
foreseeable future, due the "start up" nature of the Company's business and
to costs related to site research, management personnel training and on-going
training costs, advertising and marketing costs related to each MedCare
Program opening, and the costs related to purchase of equipment and printing
costs. As a result, the Company will require substantial additional funds, and
the Company may seek expansion funding, private or public equity investments,
and possible future collaborative agreements to meet such needs. Even if the
Company does not have an immediate need for additional cash, it may seek
access to the public equity markets if and when conditions are favorable.
There is no assurance that such additional funds will be available for the
Company to finance its operations on acceptable terms, if at all.
While the Company expects to start generating revenues from two recently
established MedCare centers in Norman, Oklahoma and Overland Park, Kansas,
there can be no assurance that the Company will achieve either significant
revenues from these, or any other future sites, or profitable operations. The
Company expects that losses will vary from quarter to quarter. The Company has
financed its research and development activities and operations primarily
through private placements of its equity
<PAGE>
securities. As of December 31, 1996, the Company's accumulated deficit was
approximately $1.2 million.
Results of Operations
The Company had revenues of $8,118, $1,729 and $0 for the years ended December
31, 1996, 1995 and 1994. Revenues for 1996 and 1995 are primarily from the
Company's Canadian developmental and research clinic in Calgary, Alberta.
Since the Company does not expect to receive any third party insurance
reimbursement, which limits any significant revenue potential for this site,
and since the majority of the Company's activities are US based, MedCare may
consider various options with regard to this location, including the
possibility of closure in the very near future. The majority of the Company's
future continued research and development will be conducted at the Company's
present locations and any future potential centers. To date, the Company has
not relied on any revenues for funding its activities and it does not expect
to receive significant revenues from operation for several years. During the
next several years, the Company expects to derive the majority of its
potential revenues from the opening of new MedCare Program centers in the
United States.
The Company incurred start up costs from January 1, 1995 to September 30, 1995
amounting to $542,706. This total amount was charged to operations during the
year ended December 31, 1995, resulting in a total loss of $691,033 or $0.11
loss per share for the year ended December 31, 1995. Total expenses declined
by 33% for the year ended December 31, 1996, resulting in a total loss
$452,405, or $0.07 per share. Since the Company is currently in the process of
hiring additional staff, incurring greater advertising and marketing expenses
at current centers and future potential centers, and other costs related to
opening additional centers in various parts of the United States, MedCare
expects its general and administrative expenses to increase dramatically in
1997 and 1998. Should the Company not generate any significant revenues from
its present and future contemplated operations, the Company may continue to
incur significant losses from operations into the foreseeable future. Interest
income was $2,801, $0 and $0 for the years ended December 31, 1996, 1995 and
1994. Interest earned in the future will be dependent on Company funding
cycles and prevailing interest rates. There was no interest expense incurred
on notes payable of $60,635 and $23,135 during the year ended December 31,
1996 and December 31, 1995.
Since inception, the Company has incurred substantial losses, and as a
result, there has been no provision for income taxes. The has net operating
losses that will expire beginning with the years 2003 through 2008, in the
amount of $1,200,691 and $575,960, in 1996 and 1995, respectively, unless
utilized by the Company.
Liquidity and Capital Resources
MedCare Technologies has financed its operations primarily through private
placements of Common Shares and the exercise of Stock Options totalling
$755,000 for the year ended December 31, 1995, and $611,000 for the year ended
December 31, 1996. At December 31, 1996, the Company had a cash balance of
$220,562, compared to a cash balance of $44,975 at December 31, 1995. On
February 4, 1997, the Company agreed to a private placement of 176,000 Common
Shares at an offering price of $6.25 per share for a total value of
$1,100,000.
The Company's future funding requirements will depend on numerous factors,
including the Company's ability to establish and operate profitability current
and future MedCare Program locations,
<PAGE>
recruiting and training qualified management and clinical personnel, competing
against any potential technological advances in the treatment of urinary
incontinence and other afflictions of the pelvic floor area, and the Company's
ability to compete against other better capitalized corporations who offer
alternative or similar treatment options for urinary incontinence and other
afflictions of the pelvic floor area.
Due to the "start up" nature of the Company's business, the Company expects to
continue to incur substantial losses for at least the next 12 to 24 months,
and perhaps into the foreseeable future. As a result, the Company will require
substantial additional funds, and the Company may seek additional expansion
funding, private or public equity investments, and possible future
collaborative agreements to meet such needs. Even if the Company does not have
an immediate need for additional cash, it may seek access to the public equity
markets if and when conditions are favorable. There is no assurance that such
additional funds will be available for the Company to finance its operations
on acceptable terms, if at all.
ITEM 8: FINANCIAL STATEMENTS
The financial statements and financial statement schedules are incorporated by
reference in this report on pages F-1 through F-15.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of that sets forth as of March 21, 1997 the names, ages
and positions within the Company of all of the Executive Officers of the
Company and the Directors of the Company. Each such director has been
nominated for election at the Company's 1996 Annual Meeting, which was held on
June 18, 1996. All Directors hold office until the next annual meeting of
stockholders or until their successors are elected. Officers serve at the
discretion of the Board of Directors.
HARMEL S. RAYAT (35) - Chairman of the Board, Chief Executive Officer and
Chief Financial Officer. Mr. Rayat is one of the co-developers of the MedCare
Program. Mr. Rayat has been in the venture capital industry since 1981 and
since January 1993 has been the president of Hartford Capital Corporation, a
company specializing in providing early stage funding and investment banking
services to emerging growth corporations. From 1989 through December 1992, Mr.
Rayat was the president of K.S. Rayat & Company, an investment banking and
venture capital company, where he was responsible for research, due diligence
and investment strategy in early stage, start up venture capital investments.
From April 1996 to the present, he has been president of Hartford Capital
Management, Inc., an investment management corporation where he is responsible
for research and making direct equity investments in emerging growth
companies. Mr. Rayat has been a director of the Company since September 1995
and the president since June, 1996. Mr. Rayat is also a director of Far West
Resources, Inc., a non-reporting company trading on the NASD OTC Bulletin
Board.
<PAGE>
VALERIE BOELDT-UMBRIGHT (31) - Vice President - Clinical Services. Mrs.
Boeldt-Umbright is registered nurse, with a Bachelors of Science degree in
community health education from Northern Illinois University. With over two
years of actual management experience in the day-to-day operation of the
Incontinence Clinic in Chicago, Mrs. Boeldt-Umbright has supervised personnel,
dealt with insurance and reimbursement matters, marketing and physician
interaction and referrals. She has instructed patients in biofeedback for
their pelvic floor muscles, established individualized neuromuscular
re-education programs, written new clinical protocols and articles for
publication and has worked as a member of a university team to provide
excellent care and medical treatment for patients. Mrs. Boeldt-Umbright was a
nurse insurance examiner in the PMI Division of Equifax Systems from October
1991 to September 1992. From June 1992 to July 1994, she was employed at the
Premier Rehabilitation Center of Chicago, where she established a nursing and
health education program and was the sole nurse responsible for traumatic
brain injury and spinal cord injury clients. At this facility she also
established a medication program and bowel/bladder programs, and taught
inservices, training classes and health care classes for clients and staff.
From March 1994 to September 1996, Mrs. Boeldt-Umbright was the Manager of
Incontinence Control Services. In this position, she handled all manager
responsibilities, including supervising personnel, insurance claims, marketing
and physician interaction and referral, wrote articles for publication and
assisted in research. Since March, 1996, she has been Vice President and
Director of Clinical Services of the Company.
DIANE NUNZIATO (42) - Director. Ms. Nunziato has a Bachelors of Science and a
Masters of Clinical Science from the University of Western Ontario, as well as
numerous certifications in courses ranging from adult learning, clinical
supervision and instruction, group dynamics, learning theories and management.
Ms. Nunziato has been instrumental in developing and refining the clinical
protocols for The MedCare Program and in structuring and developing training
courses, developing new teaching techniques and methods of presentation,
quality assurance and evaluation of clinical and support staff and has an
in-depth knowledge of every aspect of establishing a clinical system,
including marketing, billing, medical products and equipment, patient and
physician interaction and the training and supervision of personnel. Since
July 1990, Ms. Nunziato has been one of the 21 international instructors of
the Hanen Resource Center, where she is responsible for the presentation of
intensive adult learning courses throughout Canada, the United States and
internationally. Ms. Nunziato has been a Director of the Company since November
1995.
KUNDAN S. RAYAT (68) - Secretary. Mr. Rayat has over 45 years of experience as
an entrepreneur and owner of a diverse spectrum of businesses, ranging from
automotive to heavy construction, on three different continents. Since 1985,
Mr. Rayat has been a principal of K.S Rayat & Company and has primarily
devoted his time to venture capital, investing in numerous start up venture,
and providing seasoned management advice to emerging market companies. He has
been a Director and Secretary of the Company since August 1995.
MICHAEL M. BLUE (53) - Medical Director. Dr. Michael Blue is a member of the
American Medical Association, Oklahoma State Medical Association and the
American Urological Association. Dr. Blue is a board certified urologist who
has practiced general urology in private practice for twenty years. He joined
the Board of Directors of the Company in August 1996 and is responsible for
supervising and continuing the development of all medical aspects of the
MedCare Program, as well as interacting and answering questions from other
doctors within the MedCare system.
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The following tables shows, for the three years period ended December 31,
1996, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for such year, to the Company's Chief Executive
Officer and the Company's other executive officers.
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
Name and Securities Underlying
Principal Position Year Salary $ Bonus $ Stock Options Other
Harmel S. Rayat 1996 - 0 - - 0 - 160,000 - 0 -
President, CEO 1995 2,500 - 0 - 150,000
& CFO 1994 - 0 - - 0 - - 0 - - 0 -
Valerie Boeldt- 1996 18,125 - 0 - 40,000 - 0 -
Umbright 1995 - 0 - - 0 - - 0 - - 0 -
Clinical Director 1994 - 0 - - 0 - - 0 - - 0 -
Michael Blue 1996 - 0 - - 0 - 40,000 - 0 -
Medical Director 1995 - 0 - - 0 - - 0 - - 0 -
1994 - 0 - - 0 - - 0 - - 0 -
Kundan S. Rayat 1996 - 0 - - 0 - - 0 - - 0 -
Secretary,Treasurer 1995 - 0 - - 0 - - 0 - - 0 -
Director 1994 - 0 - - 0 - - 0 - - 0 -
Diane Nunziato 1996 - 0 - - 0 - - 0 - - 0 -
Director 1995 - 0 - - 0 - - 0 - - 0 -
1994 - 0 - - 0 - - 0 - - 0 -
Stock Options
The following table contains information concerning the grant of stock options
to the named executive officers of the Company during the Company's fiscal
year ended December 31, 1996:
% of Total Options
Granted to Employees Exercise Expiration
Name Stock Options(1) In Fiscal Year Price Date
Harmel S. Rayat 160,000 53.3% $4.50 June 20, 2001
President, CEO
<PAGE>
% of Total Options
Granted to Employees Exercise Expiration
Name Stock Options(1) In Fiscal Year Price Date
Valerie Boeldt- 40,000 (3) 13.3% $4.50 June 20, 2001
Umbright
Michael Blue 40,000 (4) 13.3% $4.50 June 20, 2001
(1) All of these options were granted pursuant to the Company's 1996
Employee Stock Option Plan.
(2) These options fully exercisable at any time.
(3) These options are fully exercisable after June 20, 1997.
(4) These options are fully exercisable after August 15, 1997.
Option Holdings
Value of unexercised options
Number of unexercised options in-the- money
at fiscal year end Options at fiscal year end (1)
Name Exercisable Unexercisable Exercisable Unexercisable
Harmel S. Rayat 160,000 $90,000
President, CEO
Valerie Boeldt- 40,000 40,000 $22,500
Umbright
Michael Blue 40,000 40,000 $22,500
(1) Represents the fair market value of the Company's Common Stock on December
31, 1996 ($5.0625 per share on the closing on the NASD Electronic Bulletin
Board) minus the exercise price per share, of the in-the-money options,
multiplied by the number of shares subject to each option.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 21, 1997, the beneficial ownership
of the Company's Common Stock by each person known by the Company to
beneficially own more than 5% of the Company's Common Stock outstanding as of
such date and by the officers and directors of the Company as a group. Except
as otherwise indicated, all shares are owned directly.
Person or Group Number of Shares Percent
Harmel S. Rayat 2,000,000 31.03%
5131 Highgate Street
Vancouver, B.C., V5R 3G9
All directors and executive
officers as a group(1 person) 2,000,000 31.03%
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company maintains offices on a shared basis with its President and Chief
Executive Officer. The President and Chief Executive Officer loaned the
Company $12,500 and is also the son of one of the Directors. On October 1,
1995, the Company acquired 100% of Manon Consulting Ltd for nominal value.
Diane Nunziato, a Director of the Company, was a minority shareholder of Manon
Consulting at the time of the transaction, which was approved by both boards
after disclosure.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements: Page
Report of Independent Public Accountants F-1
Balance Sheets as of December31, 1996 and 1995 F-2
Statement of Income for the Years ended
December 31, 1996, 1995, 1994 F-4
Statement of Stockholders' Equity for the years ended
December 31, 1996, 1995, 1994 F-5
Statement of Cash Flows for the years ended
December 31, 1996, 1995, 1994 F-8
Notes to Financial Statements F-10
(a) (2) Exhibits
The following exhibits are referenced or included in this report:
<PAGE>
Articles of Incorporation
By-Laws
(b) Reports on 8-K
The registrant did not file any reports on Form 8-K during the fourth quarter
of fiscal 1996.
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MEDCARE TECHNOLOGIES, INC.
/s/ Harmel S. Rayat
By Harmel S. Rayat, President &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
Signature Title Date
/s/ Harmel S. Rayat President and CEO 7/23/97
FINANCIAL STATEMENTS
<PAGE>
CONTENTS
Independent Auditors Report............................................... F-1
Consolidated Balance Sheet at December 31,
1996 and 1995 ...................................................... F-2-F-3
Consolidated Statement of Operations for the
years ended December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statement of Stockholders' Equity
from Inception (January 17, 1986) Through
December 31, 1996................................................... F-5-F-7
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994........................ F-8-F-9
Notes to the Consolidated Financial Statements...................... F-10-F-15
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
<PAGE>
26th Place
2601 East Thomas Road PH: (602) 266-2646
Suite 110 FAX: (602) 224-9496
Clancy and Co., P.L.L.C. Phoenix, Arizona 85016 E-MAIL: [email protected]
- ------------------------------------------------------------------------------
INDEPENEDENT AUDITORS REPORT
Board of Directors
MedCare Technologies, Inc. and
Subsidiaries
Lisle, Illinois 60532
We have audited the acccompanying consolidated balance sheet of MedCare
Technologies, Inc. and Subsidiaries (A Development Stage Company),
(the Company), as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flow for the years
then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 audit of the
consolidated financial statements provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1996 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is a development stage Company as
defined in Financial Accounting Standards Board Statement No. 7. The Company
is devoting substantially all of its present efforts in establishing a new
business and although planned principal operations have commenced, there have
been no significant revenues. Management's plans regarding the matters which
raise doubts about the Company's ability to continue as a going concern are
disclosed in Note 1 to the financial statements. These factors raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/CLANCY AND CO.
- --------------------
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 21, 1997
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
<S> <C> <C>
Current Assets
Cash $ 220,562 $ 44,975
Accounts Receivable -- Trade 7,351 640
Prepaid Expenses 29,007 0
------- ------
Total Current Assets 256,920 45,615
Property and Equipment
Office Equipment 5,274 4,103
Medical Equipment 31,597 16,799
------- -------
36,871 20,902
Less Accumulated Depreciation 20,237 8,575
------- -------
Net Book Value 16,634 12,327
Other Assets
Organization Costs
- Net of Amortization 64 188
Intangible Assets
- The MedCare Program
- Note 3 300,000 300,000
--------- ---------
Total Other Assets 300,064 300,188
---------- ----------
Total Assets $ 573,618 $ 358,130
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
<S> <C> <C>
Current Liabilities
Accounts Payable $ 20,372 $ 979
Notes Payable 48,135 23,135
Notes Payable - Officers 12,500 0
------- ------
Total Current Liabilities 81,007 24,114
Stockholders' Equity
Preferred Stock,
$.25 Par Value, Authorized
1,000,000; Issued and
Outstanding, at
December 31, 1996
and 1995, NONE 0 0
Common Stock: $0.001 Par
Value, Authorized
100,000,000; Issued
and Outstanding,
6,445,185 Shares at
December 31, 1996 and
6,300,185 at December
31, 1995 6,445 6,300
Additional Paid
In Capital 1,671,631 1,060,776
Loss Accumulated
During The Development
Stage (1,185,465) (733,060)
------------ ------------
Total Stockholders' Equity 492,611 334,016
------------ ------------
Total Liabilities and
Stockholders' Equity $ 573,618 $ 358,130
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Year ended Year ended Year ended During The
December December December Development
31, 1996 31, 1996 31, 1996 Stage
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 8,118 $ 1,729 $ 0 $ 9,847
Expenses
General and
Administrative 463,324 692,762 0 1,200,900
_______ _______ ________ _________
Total Expenses 463,324 692,762 0 1,200,900
Other Income
Interest Income 2,801 0 0 5,588
_______ ________ ________ __________
Net Loss $ (452,405) $ (691,033) $ 0 $ (1,185,465)
========= ========= ======== ===========
Net (Loss) Per
Share of Common
Stock $ (0.07) $ (0.11) $ NIL $ 0.18
========= ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance,
January 17, 1986 0 $ 0 $ 0 $ 0 $ 0
Issued to officers and
directors at $.002
per share 2,500,000 2,500 2,500 5,000
Issued pursuant
to public
offering at $.01 3,645,000 3,645 32,805 36,450
Cost of offering (7,946) (7,946)
Net loss from
inception on
January 17,
1986 through
December 31, 1987
(316) (316)
----------- ------- -------- -------- --------
Balance, December
31, 1987
6,145,000 6,145 27,359 (316) 33,188
Escrow fee for
public offering (200) (200)
Net loss year ended
December 31, 1988
(Unaudited) (1,030) (1,030)
---------- ------- -------- --------- ---------
Balance, December
31, 1988
(Unaudited) 6,145,000 6,145 27,159 (1,346) 31,958
Net loss year ended
December 31, 1989
(Unaudited) (21,707) (21,707)
---------- ------- -------- --------- -----------
Balance, December
31, 1989
(Unaudited) 6,145,000 6,145 27,159 (23,053) 10,251
Issuance of
stock in
accordance
with plan of
merger with
Multi Spectrum
Group, Inc.
February
28, 1990 55,305,000 55,305 (55,305)
Net loss year ended
December 31, 1990
Unaudited (10,201) (10,201)
---------- ------ -------- ----------- ----------
Balance,
December
31, 1990
(Unaudited) 61,450,000 61,450 (28,146) (33,254) 50
Net loss
year ended
December
31, 1991
Unaudited 0 0
---------- ------- -------- --------- ----------
Balance, December
31, 1991
(Unaudited) 61,450,000 61,450 (28,146) (33,254) 50
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Issued to
Group of
Five, Inc.
November
13, 1992 8,772,800 $ 8,773 $ 0 $ 0 $ 8773
Net loss
year ended
December
31, 1992
Unaudited (8,773) (8,773)
---------- ------- -------- ---------- ---------
Balance, December
31, 1992
(Unaudited) 70,222,800 70,223 (28,146) (42,027) 50
Net loss
year ended
December
31, 1993
0 0
----------- ------- -------- --------- ---------
Balance, December
31, 1993
70,222,800 70,223 (28,146) (42,027) 50
Net loss
year ended
December
31, 1994
0 0
---------- ------ ---------- ---------- ---------
Balance, December
31, 1994
70,222,800 70,223 (28,146) (42,027) 50
Reverse Split
1200:1,
August
11, 1995 (70,164,281) (70,164) 70,164
Acquisition
of MedCare UI
System Assets
August 4, 1995 2,000,000 2,000 298,000 300,000
Issued pursuant
to a public
offering at
$.001 per
share September
20, 1995 4,200,000 4,200 625,800 630,000
Cost of offering (30,000) (30,000)
Purchase of
100% of the
outstanding
stock of Manon
Consulting, Ltd. on
October 1, 1995
- Note 1 0 0
Issued for
cash December
31, 1995 16,666 17 49,983 50,000
Issued for
services
December
31, 1995 25,000 25 74,975 75,000
Net loss
year ended
December
31, 1995 (691,033) (691,033)
------------ ------- ---------- ---------- ---------
Balance,
December
31, 1995 6,300,185 6,301 1,060,776 (733,060) 334,016
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Loss
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage Total
(Unaudited)
<S> <C> <C> <C> <C> <C>
Issuance of
common stock
under 1995
Stock Option
Plan at
$3.00 per share
during 1996 36,000 $ 36 $ 107,964 $ $108,000
Issuance of
common stock
under 1996
Stock Option
Plan at $4.50
per share
during 1996 3,000 3 13,497 13,500
Issuance of
common stock
under Private
Placement at
$4.75 per share
dated June
22, 1996 50,000 50 237,450 237,500
Issuance of
common stock
under Private
Placement at
$4.50 per
share dated
December, 1996 56,000 56 251,944 252,000
Net loss for
year ended
December
31, 1996 (452,405) (452,405)
-------- ------- -------- --------- ---------
Balance, December
31, 1996 6,445,185 $ 6,445 $ 1,671,631 $(1,185,465) $492,611
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Year Ended Year Ended Year Ended From
December December December Inception
31, 1996 31, 1995 31, 1994 Through
December 31,
1996
<S> <C> <C> <C> <C>
Cash Flows
from Operating
Activities
Net (Loss) $ (452,405) $ (691,033) $ 0 $(1,185,465)
Common Stock issued
for services 0 0 0 8,773
Adjustments to
reconcile net
(loss) to net
cash provided
by operating activities
Depreciation and
Amortization 11,662 8,575 0 20,237
Changes in Assets
and Liabilities
(Increase) Decrease in
Accounts Receivable (6,711) (640) (7,351)
(Increase) Decrease in
Prepaid Expenses (29,007) 0 0 (29,007)
(Increase) Decrease in
Organizational Costs 124 (138) 0 (64)
Increase (Decrease) in
Accounts Payable 19,393 978 0 20,371
---------- --------- ------ --------
Total Adjustments (4,539) 8,775 0 12,959
---------- --------- ------ --------
Net cash provided
(used) by
operating
Activities (456,944) (682,258) 0 (1,172,506)
Cash Flows from
Investing Activities
Purchase of Property
and Equipment (15,969) (20,902) 0 (36,871)
---------- --------- ------ --------
Net cash flows from
investing activities (15,969) (20,902) 0 (36,871)
Cash Flows from
Financing Activities
Proceeds from Sale
of Common Stock 611,000 755,000 0 1,407,450
Offering Costs (30,000) 0 (38,146)
Notes Payable 25,000 23,135 0 48,135
Notes Payable - Officers 12,500 0 0 12,500
---------- --------- ------ --------
Net cash provided by
financing activities 648,500 748,135 0 1,429,939
---------- --------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1996
<CAPTION>
Year Ended Year Ended Year Ended From
December December December Inception
31, 1996 31, 1995 31, 1994 Through
December 31,
1996 (Unaudited)
<S> <C> <C> <C> <C>
Increase (decrease)
in cash
and cash
equivalents $ 175,587 $ 44,975 $ 0 $ 220,562
Cash and cash
equivalents at
beginning of period 44,975 0 0 0
Cash and cash
equivalents at
end of period $ 220,562 $ 44,975 $ 0 $ 220,562
====== ===== === ======
Supplemental Information
Cash paid for:
Interest $ 0 $ 0 $ 0 $ 0
====== ===== === ======
Income taxes $ 0 $ 0 $ 0 $ 0
====== ===== === ======
Non-cash financing
Intangible assets
purchased with
Common Stock $ 0 $ 300,000 $ 0 $ 300,000
====== ======= === =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION
MedCare Technologies, Inc. (The Company), formerly known as Multi-Spectrum
Group, Inc., was incorporated under the name Santa Lucia Funding, Inc., under
the laws of the State of Utah on January 17, 1986 with an authorized capital
of 50,000,000 common shares with a par value of $.001. On February 8, 1990,
the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware Corporation, in which Multi-Spectrum Group, Inc. would be dissolved
and the name of Santa Lucia Funding, Inc. would be changed to Multi-Spectrum
Group, Inc. The Company authorized a reverse split of 1200:1 to be effective
August 11, 1995. On August 29, 1995, the Company approved an increase in the
authorized capital to 101,000,000 of which 100,000,000 shares shall be Common
Stock with a par value of $.001 and 1,000,000 shares shall be Preferred Stock
with a par value of $.25 per share, and a name change to MedCare Technologies,
Inc. On August 1, 1996, an agreement and plan of merger was entered into
between the Company and MedCare Technologies, Inc ( A Delaware Corporation)
whereby the state of incorporation was changed to Delaware from the state of
Utah. The effective date of the agreement is August 27, 1996, the date
accepted by the state of Delaware. The Company was inactive during the year
1991, issued stock for prior years services during 1992, and was inactive
during 1993 and 1994. The Company had no revenues nor incurred any operating
expenses during these inactive periods, other than the transaction during 1992.
On November 13, 1992, the Company issued 8,772,800 shares of common stock to
Group of Five, Inc. in exchange for services rendered at $.001 per share or
$8,773.
On August 11, 1995, the Stockholders authorized a reverse split of 1200:1
reducing the outstanding common shares to 58,519.
On August 11, 1995, the Company purchased 100% of the outstanding shares of
MedCare Technologies, Corporation, a Nevada corporation that was incorporated
on April 26, 1995 for $1.00. MedCare Technologies, Corporation was inactive
from the date of incorporation through August 11, 1995, the date the Company
purchased it. MedCare Technologies, Corporation will be a wholly owned
subsidiary of the company.
On August 14, 1995, the Company, acquired the MedCare UI System (Now, The
MedCare Program) assets in exchange for 2,000,000 shares of the Company's
common stock at $0.15 for a total value of $300,000.
On September 20, 1995, the Company authorized in a 504D Disclosure
Memorandum, 4,200,000 shares of its common stock at an offering price of $0.15.
On September 20, 1995, the offering was completed with all shares being issued
for a total value of $630,000, less offering costs of $30,000.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION (CONTINUED)
On October 1, 1995, the Company purchased 100% of the outstanding shares of
Manon Consulting, Ltd. Manon Consulting, Ltd. will be a wholly owned
subsidiary of the Company. Manon Consulting, Ltd. operates a clinic in
Calgary, Canada. Since its purchase by the Company, it has been partially
responsible for the development of the MedCare program.
The following is a condensed balance sheet of Manon Consulting, Ltd. at
October 31, 1995:
<TABLE>
<S> <C>
Total Assets $ 12,558
======
Total Liabilities 23,841
Total Capital
Common Stock 7
Retained Earnings-A Deficit (11,290)
-----------
Total Liabilities and Capital $ 12,558
======
</TABLE>
The Company paid $7 for the outstanding common stock and assumed liabilities
in excess of assets of $11,290. The excess was charged to operations during
1995.
On December 31, 1995, the Company issued 16,666 shares of its common stock
for $50,000 cash.
On December 31, 1995, the Company issued 25,000 shares of its common stock in
exchange for consulting services for a total value of $75,000.
During 1996, the Company issued 44,000 shares of its common stock at $3.00
per share under its 1995 Stock Option Plan, or $132,000.
During 1996, the Company issued 3,000 shares of its common stock at $4.50 per
share under its 1996 Stock Option Plan, or $13,500.
On June 22, 1996, the Company issued 50,000 shares of its common stock at
$4.75 per share in a 504D private place memorandum or $237,500.
On November 18, 1996, the Company issued 56,000 shares of its common stock at
$4.50 per share a 504D private placement memorandum or $252,000.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION (CONTINUED)
The Company is a development stage company, as defined in the Financial
Accounting Standards Board No. 7. The Company is devoting substantially all
of its present efforts in securing and establishing a new business, and although
planned principal operations have commenced, there have been no significant
revenues. This factor raises substantial doubt about its ability to continue
as a going concern.
The financial statements have been prepared on the basis of accounting
principles applicable to a going concern. Accordingly, they do not purport to
give effect to adjustments, if any, that may be necessary should the Company
be unable to continue as a going concern. The continuation of the Company as
a going concern, is dependent upon its ability to establish itself as a
profitable business. The Company's ability to achieve these objectives cannot
be determined at this time. It is the Company's belief that it will continue
to incur losses for at least 12 months, and as a result will require additional
funds. The additional funding will be accomplished by seeking additional funds
from private or public equity investments, with possible future additional
funds from private or public equity investments, and possible future
collaborative agreements to meet such needs and the Company will be a viable
entity.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Method of Accounting
The Company's financial statements are prepared using the accrual method of
accounting.
B. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, MedCare Technologies Corporation
and Manon Consulting, Ltd. Intercompany transactions have been eliminated in
consolidation.
D. Equity Method
Investments in companies have been included in the financial report using the
equity method of accounting. The Company's wholly owned subsidiaries, MedCare
Technologies, Corporation and Manon Consulting, Ltd., are engaged in the
business of medical consulting and services in Canada and the United States.
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
E. Deferred Charges
The Company has incurred start up costs from January 1, 1995 to September 30,
1995 amounting to $542,706. The total amount was charged to operations during
the year ended December 31, 1995.
F. Organizational Expenses
Organizational expenses represent legal and filing fees. The Company is
amortizing its organization costs over sixty (60) months using the straight
line method.
G. Property and Equipment
Property and equipment, stated at cost, is depreciated under the
straight-line method over their estimated useful lives as follows:
Office Equipment: 3 to 5 years
Medical Equipment: 3 to 5 years
Depreciation charged to expense during the period was $ 11,662 in 1996 and
$8,575 in 1995.
H. Income Taxes
There has been no provision for income taxes, because of the losses that the
Company has incurred to date. The Company has net operating losses that will
expire, beginning with the years 2003 through 2008, in the amount of
$1,200,691 and $575,960, in 1996 and 1995, respectively, unless utilized by
the Company.
I. Earnings or (Loss) Per Share
Earnings or loss per share is computed based on the weighted average number
of
common shares and common share equivalents outstanding. Stock options are
included as common share equivalents using the treasury stock method. The
number of shares used in computing earnings (loss) per common share was
6,749,935 in 1996 and 6,497,155 in 1995.
J. Leases
The Company currently has the use of approximately 500 square feet of of fice
space, the use of 2 board rooms, and all office equipment, including a
photocopier and telephone equipment, on a shared basis with one of the
Company's directors. The
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
offices are located at Suite 1408-400 Burrard Street, Vancouver, British
Columbia, Canada. No rent is paid. There is no lease agreement in place. A
second office is located at 2443 Warrenville Road, Suite 600, Lisle, Ilinois,
60532. These offices are rented on a month-to-month basis for $ 160 per month.
Additional offices are located in Kansas City, Missouri and Oklahoma City,
Oklahoma. No rent is currently being paid on these offices.
The Company also maintains a clinic currently being utilized as a
developmental facility for The MedCare Program at 1133 Seventh Street, S.W.,
Calgary, Alberta, Canada. This clinic is 200 square feet in size and is
located within a senior citizens' health facility at the Kerby Center for
Seniors. The rent on this facility is approximately Canadian $400 per month.
NOTE 3 - THE MEDCARE PROGRAM
On August 14, 1995, the Company acquired the rights to MedCare
Protocol, a urinary incontinence procedure, in exchange for 2,000,000
shares of its common stock. The transaction was accounted for in
accordance with the process for valuation of intangible assets as described
in Statement No. 17 of the Accounting Principles Board. The Company
has continued to further enhance the MedCare Protocol for the treatment
of urinary incontinence that significantly reduces or completely eliminates
the majority of UI cases using a non-drug, non-surgical protocol that takes
into account the clinical, cognitive, functional and residential status of the
patient. The Company intends to amortize the cost of the system over 15
years, based on Management's estimated useful life of the protocol, beginning
with the first year in which commercial sales occur. Management reassesses
annually the estimated useful life. Such amortization will result in charges
against earnings of $20,000 per year for each of the years.
NOTE 4 - NOTES PAYABLE
The Company has loans payable to officers of related Companies in amount of
$23,135 that are paid back as cash flows allow. The notes are demand notes
with no interest rate currently applicable. On March 7, 1996, the Company
borrowed $25,000 from a nonrelated company. The note is a demand note with no
interest rate currently applicable.
TRANSACTIONS WITH RELATED PARTIES
Notes payable represent advances from related of ficers that are paid back as
cash flows allow. The notes are demand notes with no interest rate currently
applicable. The President of Company loaned the Company $12,500 on August 8,
1996. The note is a demand notes with no interest rate currently applicable.
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - STOCK OPTIONS
The Company has issued stock options to various directors, officers and
employees. The option prices are based on the fair market value of the stock
at the date grant. The Company maker no charge to operations in relation to
option grants.
The Company's stock option transactions for the years ended December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<C> <S> <S>
Number of Option
Shares Price
Options outstanding and exercisable at 500,000 $3.00
December 31, 1995
Options granted in 1996 300,000 $4.50
Options exercised during 1996 under
the 1995 Stock Option Plan (36,000) $3.00
Options exercised during 1996 under
the 1996 Stock Option Plan (3,000) $4.50
----------- -----
Options outstanding and exercisable at
December 31, 1996 758,000 $3.00-4.50
=========== ==========
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS
1. On February 4, 1997, the Company authorized in a 144 Disclosure Memorandum,
176,000 shares of its common stock at an offering price of $6.25 per share
for a total value of $1,100,000.
2. As of March 21, 1997, 24,000 shares of common stock at $3.00 have been
exercised under the Company's 1995 stock option plan and 7,500 shares at
$4.50 have been exercised under the Company's 1996 stock option plan.
3. On November 1, 1996, the Company authorized the 1997 Stock Option Plan and
reserved 500,000 shares of its common stock for issuance thereunder subject
to stockholder approval at the next annual general meeting.
4. In February, 1997, the Company opened another facility in Winter Park,
Florida.
The accompanying notes are an integral part of these financial statements.
F-15
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 220,562
<SECURITIES> 0
<RECEIVABLES> 7,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 256,920
<PP&E> 36,871
<DEPRECIATION> 20,237
<TOTAL-ASSETS> 573,618
<CURRENT-LIABILITIES> 81,007
<BONDS> 0
0
0
<COMMON> 6,446,185
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 573,618
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452,405)
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
[NOTE: Articles II, III, V, VI, VII, VIII and IX are still effective as of
12/31/96.]
EXHIBIT 1:
ARTICLES OF INCORPORATION
AND AMENDMENTS
<PAGE>
ARTICLES OF INCORPORATION
OF
SANTA LUCIA FUNDING, INC.
We, the undersigned, natural persons of the age of eighteen years or
more, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
ARTICLE I - NAME
The name of this corporation is Santa Lucia Funding, Inc.
ARTICLE II - DURATION
The period of its duration is perpetual.
ARTICLE III - PURPOSES
The corporation is primarily organized for the purpose of being a blind
pool and conducting a blind pool offering of its securities, and establishing,
acquiring, merging with or into, or being acquired by, another business in the
field of high
E-3
<PAGE>
technology, manufacturing and marketing, or another type of industry, and to
transact any or all lawful business for which corporations may be incorporated
under the Utah Business Corporation Act and, in aid thereof, the corporation
shall have unlimited power to engage in and to do any lawful act concerning
any or all business for which corporations my be organized under the said Act,
including but not limited to the following:
(a) To enter into any lawful arrangement for sharing profits, a union
of interests, reciprocal association or cooperative association with any
corporation, association, partnership, individual or other legal entity for
the carrying on of any business and to enter into any general or limited
partnership for the carrying on of any business;
(b) To lease, sell, exchange and trade real and personal property,
either tangible or intangible;
(c) To conduct business anywhere in the world;
(d) To guarantee the obligations of others' with or without
consideration.
E-4
<PAGE>
ARTICLE IV - STOCK
The aggregate number of shares which the corporation shall be authorized
to issue is 50,000,000 shares or the par value of $0.001 per share. All stock
of this corporation shall be of the same class, common, and shall have the
same rights and preferences. Fully paid stock of this corporation shall not
be liable to any call and is non-assessable.
ARTICLE V - PREEMPTIVE RIGHTS
A shareholder shall have no preemptive rights to acquire any securities
of this corporation.
ARTICLE VI - INITIAL CAPITALIZATION
This corporation will not commence business until consideration of a
balance of at least $1,000.00 has been received for the issuance of shares.
ARTICLE VII - INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the name
of its initial registered agent at such address is:
E-5
<PAGE>
Name of Agent Address of Registered Office
- ------------------ ----------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
ARTICLE VIII - DIRECTORS
The number of directors constituting the initial Board of Directors of
this corporation is three. The names and addresses of persons who are to
serve as directors until the first annual meeting of stockholders, or until
their successors are elected and qualify, are:
Name Address
- -------------------- ------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
The number of directors may be changed from time to time by amendment of
the By-Laws, but there shall be not more than 25 not less than three
directors.
E-6
<PAGE>
ARTICLE IX - INCORPORATORS
The name and address of each incorporator is :
Name Address
- --------------------- ---------------------------------
Fredrick L. Elliott 2055 Greenbriar Circle
Salt Lake City, Utah 84109
Wayne D. Smith 720 Terrace Hills Drive
Salt Lake City, Utah 84103
Donald Allan Bostrom 5256 Spring Gate Drive
Holladay, Utah 84117
DATED this 17th day of January, 1986.
INCORPORATORS:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
/S/WAYNE D. SMITH
--------------------------
Wayne D. Smith
/S/DONALD ALLAN BOSTROM
--------------------------
Donald Allan Bostrom
E-7
<PAGE>
REGISTERED AGENT:
/S/FREDRICK L. ELLIOT
--------------------------
Fredrick L. Elliott
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On the 17th day of January, 1986, Fredirck L. Elliott, Wayne D. Smith and
Donald Allan Bostrom personally appeared befor me who, being by me first duly
sworn, severally declared that they are the persons who signed the foregoing
document as incorporators, and Fredrick L. Elliott who signed as registered
agent, and that the statements therein contained are true.
DATED this 17th day of January, 1986.
/S/
------------------------------
NOTARY PUBLIC
My Commission Expires: Residing At:
July 7, 1988 Salt Lake City, Utah
- ---------------------- --------------------
E-8
<PAGE>
CERTIFICATE OF INCORPORATION OF
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certify as follows:
1. The name of the corporation is: Multi-Spectrum Group,
Incorporated
2. The address of the registered office of the corporation in the State
of Delaware is: 710 Yorklyn Road
Hockessin, Delaware
County of New Castle
The registered agent in charge thereof is:
Registered Agents, Ltd.
3. The purpose of the corporation is:
to develop a Print/Diversified Business Center with the intent of
establishing Franchises.
4. The corporation is authorized to issue capital stock to the extent of
1000 Shares of no par value.
5. The Board of Directors is authorized and empowered to make,
alter, amend and rescind the By-Laws of the corporation, but
By-Laws made by the board may be altered or repealed, and new
By-Laws made, by the stockholders.
E-9
<PAGE>
The name and address of the incorporator(s) is (are) as follows:
NAME Patrick J. Ellis ADDRESS 1055 W. Germantown Pike
Norristown, PA 19403
IN WITNESS WHEREOF, the incorporator(s) has (have) hereunto set his hand
and seal this 30th day of March, A.S. 1986.
/S/
----------------------------
E-10
<PAGE>
State of Delaware
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY
CERTIFY MULTI SPECTRUM GROUP. INC. IS DULY INCORPORATED UNDE THE
LAWS OF THE
STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATED EXISTENCE
SO FAR AS THE RECORDS OF THIS OFICE SHOW, AS OF THE DATE SHOWN BELOW.
/S/MICHAEL HARKINS
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 2122752
679089006 DATE: 03/30/1989
E-12
<PAGE>
ARTICLES OF MERGER
OF DOMESTIC AND FOREIGN CORPORATIONS
INTO
SANTA LUCIA FUNDING, INC.
Pursuant to the provisions of § 16-10-72 of the Utah Business
Corporation Act, the undersigned domestic and foreign corporations adopt the
following Articles of Merger for the purpose of merging them into one of such
corporations:
FIRST: Then names of the undersigned corporations and the states under
the laws of which they are respectively organized are:
Name of Corporation State
------------------------ --------
Santa Lucia Funding, Inc. Utah
Multi-Spectrum Group, Inc. Delaware
SECOND: The laws of the state under which such foreign corporation is
organized permit such merger.
THIRD: The name of the surviving corporation is Multi-Spectrum Group,
Inc. The surviving corporation is to be governed by the laws of the State of
Utah.
FOURTH: The following Agreement and Plan of Merger ("Plan") was approved
by the shareholders of the undersigned domestic corporation isn the manner
prescribed by the Utah Business Corporation Act, and was approved by the
undersigned foreign corporation in the manner prescribed by the laws of the
state under which it is organized:
See attached Exhibit "A"."
FIFTH: As to each of the undersigned corporations, the number of shares
outstanding, and the designation and number of outstanding shares of each
class entitled to vote as a class on such Plan, are as follows:
Entitled to Vote as a Class
Number of ---------------------------
Shares Designation Number
Name of Corporation Outstanding of Class of Shares
- ------------------- ----------- ----------- ---------
Santa Lucia Funding, Inc. 6,145,000 Common 6,145,000
Multi-Spectrum Group, Inc. 1,000 Common 1,000
SIXTH: As to each of the undersigned corporations, the total number of
shares voted for and against such Plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class votd
for and against such Plan, respectively, are as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Entitled to Vote as a Class
Total Total ---------------------------
Name of Voted Voted Voted Voted
Corporation For Against Class For Against
- --------------------- ------ ------- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Santa Lucia
Funding, Inc. 3,452,500 -0- Common 3,452,500 -0-
Multi-Spectrum
Group, Inc. 1,000 -0- Common 1,000 -0-
</TABLE>
E-13
<PAGE>
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the 24th day of January, 1990, personally appeared before me Fredrick
L. Elliott, XXX XXXXXXXXXXX, who being by me duly sworn did say that they
are the President and Secretary of Santa Lucia Funding, Inc., the corporation
that executed the above and foregoing instrument and that said instrument was
signed on behalf of said corporation by authority of its bylaws and said
Fredrick L. Elliott XXX XXXXXXXXXXX acknowledged to me that said
corporation executed the same.
/S/ Shana L. Wahl
----------------------------------------
Notary Public
Residing at Salt Lake City
My Commission Expires:
______________________
STATE OF PENNSYLVANIA )
:ss.
COUNTY OF MONTGOMERY )
Be it remembered, that on this 18th day of January, A.D. 1990, personally
came before me, Barbara A. Kring, a notary public in an for the county and
state aforesaid, David E. Taylor and Charles Cannon, the President and
Secretary of Multi-Spectrum Group, Inc., a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, know to me personally to be such, and they, they, the said David
E. Taylor and Charles Cannon, as such President an Secretary, duly executed
said certificate before me and acknowledged the said certificate to be their
acts and deeds and the act and deed of said corporation to said foregoing
certificate are in the handwriting of the said President and Secretary of said
corporation, respectively.
In witness whereof, I have hereunto set my hand and seal of office that
day and year aforesaid.
/S/ BARBARA A. KRING
---------------------------
Notary Public
Residing at 165 W. Ridge Pk,
Limerick, PA
My Commission Expires: 5-27-91
_______________________
E-14
<PAGE>
SEVENTH: If the surviving corporation is to be governed by the laws of
any other state, such surviving corporation hereby: (a) agrees that is may be
served with process in the State of Utah in any proceeding for the enforcement
of any obligation of the undersigned domestic corporation and in any
proceeding for the enforcement of the rights of a dissenting shareholder of
such domestic corporation against the surviving corporation; (b) irrevocable
appoints the Secretary of State of Utah as its agent to accept servce of
process in any such proceeding and (c) agrees that it will promptly pay to the
dissenting shareholders of such domestic corporation the amount, if any, to
which they shall be entitled under the provisions of the Utah Business
Corporation Act with respect to the rights of dissenting shareholder:
DATED: January 19, 1990
By: --------------------------
Its President
/S/ WAYNE D. SMITH
And:---------------------------
Its Secretary
MULTI-SPECTRUM GROUP, INC.
By: --------------------------
Its President
And: --------------------------
Its Secretary
E-15
<PAGE>
STATE OF CALIFORNIA )
:ss.
COUNTY OF )
On the 31st day of January, 1990, personally appeared before me Wayne D.
Smith, who being by me duly sworn did sya that he is the Secretary of Santa
Lucia Funding, Inc., the corporation that executed the above and foregoing
instrument and that said instrument was signed on behalf of said corporation
by authority of its bylaws and said Wayne D. Smith acknowledged to me that
said corporation executed the same.
/S/ CYNTHIA M. STAFFORD
----------------------------
Notary Public
Residing at 2965 Sunrise Blvd #102
Rancho Cardova, CA 95742
My Commission Expires: July 1, 1991
E-16
<PAGE>
Utah State Tax Commission
TC-784
Letter of Good Standing Rev. 2/94
Corporation Representatives Name and Address Issue Date
August 16, 1995
MULTI-SPECTRUM INC Account Number 0001187258
1348 EAST 3300 SOUTH #101
SALT LAKE CITY, UTAH 84106
Tax Type
Corporation
Utah Charter Number 118725
The Utah State Tax Commission Certifies that:
MULTI-SPECTRUM INC
has filed all income or franchise tax returns required and paid all taxes
thereon to be due. The status of the account is current as of the date of
this letter.
The account is subject to audit, and if a liability exists, it may be
assessed at any time. The issuance of this letter does not fix, abate,
modify, or cancel any liability for payment of money due or an obligation
to the State of Utah.
This letter does not fulfill the requirements for dissolving or withdrawing
a corporation from the State of Utah. Please contact the Department of
Commerce, Division of Corporation for information regarding corporate
dissolution or withdrawal.
/S/CINDY LOVE
- ---------------------------------
Cindy Love, Customer Service Agent
Customer Service Counter
Customer Service Division
Inquiries regarding this letter should be directed to: Customer Service
Counter, Utah State Tax Commission, 210 North 1950 West, Salt Lake City,
UT, 84134 or call (801) 297-7540.
E-17
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE HEREBY
CERTIFIES THAT
SANTA LUCIA FUNDING, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 24th day of August, 1995.
/s/KORIA T. WOODS
By:-------------------------------
Koria T. Woods
Director, Division of Corporations
and Commercial Code
E-18
<PAGE>
[Note: These amendments to the Articles are still effective as of 12/31/96]
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
MULTI SPECTRUM GROUP, INC.
(aka Santa Lucia Funding, Inc.)
Multi Spectrum Group, Inc., (aka Santa Lucia Funding, Inc.), a corporation
organized and existing under and by virtue of the General Corporation and
Business Laws of the State of Utah (hereinafter "Corporation").
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth two proposed amendments of the
Certificate of Incorporation of Corporation, declaring said amendments to be
advisable and calling a meeting of the stockholders of Corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: that the Certificate of Incorporation be amended by changing
Article I thereof so that, as amended, said Article shall be and read as
follows:
"The name of the corporation is MedCare Technologies, Inc."
And be it,
FURTHER RESOLVED: that the Certificate of Incorporation be amended by
changing Article IV thereof so that, as amended, said Article shall read as
follows:
"The aggregate number of share which this corporation shall have authority
to issue is 101,000,000 shares, of which 100,000,000 shares shall be $.001
par value Common Stock and 1,000,000 share shall be $.25 pare value
Preferred Stock. The Common Stock shall have voting rights of one vote per
share. The Board of directors may issue the Preferred Stock from time to
time in one or more series, each series to have such voting rights,
preference in dividends and in liquidation and such other rights,
preferences and conditions as the Board of Directors may designate by an
amendment to these Articles of Incorporation by action duly adopted without
shareholder action shall not be required therefor. Fully-paid stock of
this Corporation shall not be liable to any further call or assessment."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a meeting of the stockholders of said corporation was dully called and
held, upon notice in accordance with Section S. 16-10a-705 of the General
Corporation and Business Laws of the State of Utah at which meeting the
necessary number of shares as required by statute wre voted in favor of the
amendments.
E-19
<PAGE>
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section S. 16-10a-1003 of the General Corporation and Business
Laws of the State of Utah.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to
be signed by Kudan S. Rayat, its Secretary, this 25th day of August, 1995.
Multi-Spectrum Group, Inc.
/S/ KUNDAN S. RAYAT
- ---------------------------
Kundan S. Rayat, Secretary
E-20
<PAGE>
STATE OF UTAH
DEPARTMENT OF COMMERCE
CERTIFICATION
OF GOOD STANDING
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL
CODE HEREBY CERTIFIES THAT
MEDCARE TECHNOLOGIES, INC.
is a Utah corporation and is qualified to transact business in the State of
Utah, and that its most recent annual report required by Utah law has been
filed, and that Articles of Dissolution have not been field. A Certificate of
Incorporation was issued from this office on January 17, 1986 and said
corporation is in good standing, as appears of record in the offices of the
Division.
The certification is not intended to reflect the financial condition, business
activity or practices of this corporation.
File Number: CO 118725
Dated this 28th day of August,1995.
/S/ KORIA T. WOODS
----------------------------------
Koria T. Woods
Director, Division of Corporations
and Commercial Code
E-21
<PAGE>
[Note: These bylaws are still effective as of 12/31/96.]
EXHIBIT 2:
BYLAWS
<PAGE>
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 710 Yorklyn Rd., Hockessin, Delaware, County of New
Castle
The registered agent in charge thereof shall be Registered Agents, Ltd.
Section 2. The corporation may also have offices at such ocher places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETING
Section 1. Meetings of stockholders-shall be held at the registered
office of the corporation in this state or at such place, either within or
without this state, as may be selected from time to time by the Board of
Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders
shall be held on the fifteenth day of May in each year if not a legal holiday,
and if a legal holiday, then on the next secular day following at two o'clock
p.m.
E-23
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. ,If the annual meeting for
election of directors is not held on the date designated therefor, the
directors shall cause the meeting co be held as soon thereafter as convenient.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders
may be called at any time by the President, or the Board of Directors, or
stockholders entitled to cast at least one-fifth of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
written request of any person or persons who have duly called a special
meeting, it shall be the duty of the Secretary to fix the date of the meeting,
to be held not more than sixty days after receipt of the request, and to give
due notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all
stockholders entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stock holder entitled co voce
thereof at least 14 days before such meeting, unless a greater period of
notice is required by statute in a particular case.
E-24
<PAGE>
Section 5. QUORUM: A majority outstanding shares of the corporation
entitled to voce, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding
shares entitled to vote is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further ed.
The stockholders present ac a duly organized meeting may continue co transact
business until adjournment. notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon after three years
from its duce, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
E-25
<PAGE>
shall be filed which the Secretary of the meeting before being voted upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted co cake any action ac a meeting, a written notice of the meeting
shall be given which shall state the place, dace and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the dace of the
meeting to each stockholder entitled to vote at such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be
taken at any annual or special meeting of stockholders of a corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setti less than the minimum number of votes
that would be necessary to authorize or take such act notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
E-26
<PAGE>
Section 9. LIST OF STOCKHOLDERS: The officer who has charge or the
stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address or each stockholder and the number of shares registered in the
name or each stockholder No share of stock upon which any installment is due
and unpaid shall be voted at any meeting The list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be
managed by its Board of Directors, five in number. The directors need not be
residents of this state or stockholders in the corporation. They shall be
elected by the stockholders at the annual meeting of stockholders of the
corporation, and each director shall be elected for the term of one year, and
until his
E-27
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation
or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the. Board shall be
held without notice ever three months, on the first Monday of the quarter at
the registered office of the corporation, or at such other time and place as
shall be determined by the Board.
Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be
called by the President on 10 days notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the President
or Secretary in like manner and on like notice on the written request of a
majority of the directors in office.
Section 4. QUORUM: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or
permitted to be taken at any meeting of the Board of Directors. Or of any
committee thereof, may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereof in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee. The Board of Directors may hold its meetings, and have an office or
offices, outside of this state.
Section 6. CONFERENCE TELEPHONE: One or more directors may
participate I a meeting of the Board, of a committee of the Board
E-28
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each ocher; participation in this manner shall constitute
presence in person at such meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any
stated salary for their services. but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board PROVIDED, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, except that when
cumulative voting is permitted, if less than the entire Board is to be
removed, no director may be removed without cause if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a part. .
ARTICLE V - OFFICERS
Section. 1. The executive-officers of the corporation shall be
chosen by the directors and shall be a President, Secretary
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and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall
hold office for one year and until their successors are chosen and have
qualified. Any officer or agent elected or appointed by the Board may be
removed by the Board of Directors whenever in its judgment the best interest
of the corporation will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive
officer of the corporation; he shall preside at all meetings of the
stockholders and directors; he shall have general and active management of the
business of the corporation, shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the
corporation; He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation. He shall be EX-OFFICIO a member of
all committees, and shall nave the general power and duties of supervision and
management usually vested in the office or President of. a corporation.
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Section 5. SECRETARY: The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and act as clerk thereof. and
record all the voces of the Corporation and the minutes or all its
transactions in a book to be kept for that purpose, and shall perform like
duties for all committees of the Board of Directors when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and of
the Board of Directors, and shallt requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
keep the moneys of the corporation in a separate account to the credit of the
corporation. He shall disburse the funds of the corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render
to the President and directors, ac the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation.
ARTICLE VI - VACANCIES
Section 1.Any vacancy occurring in any office of the
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corporation by death, resignation, removal or otherwise, shall be filled by
the Board of Directors. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If at any time, by reason of death or resignation or
ocher cause, the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee or guardian
of a stockholder. or ocher fiduciary encrusted with like responsibility for
the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority
of the directors then in office, including those who have so resigned, shall
have power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or
other agency, shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business co inspect for any
proper purpose the corporation's stock ledger, a list of its stockholders and
its other books and records, and to make copies or extracts therefrom.
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A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks he right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation ac its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation as
they are issued. They shall bear the corporate seal and shall be signed by the
President and Secretary
Section 2 TRANSFERS: Transfers of shares shall be made on the
books of the corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
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to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 4 RECORD DATE: In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no-prior action
by the Board of
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Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date tor determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution replacing thereto.
(d) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and
pay dividends upon the outstanding shares of the corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms
and conditions provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: : Before payment of any dividend there may
be set-aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conductive to the interests of the
corporation, and their director may abolish any such reserve in the manner in
which it was created.
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Directors is necessary, shall be the day on which the first written consent is
expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay
dividends upon the outstanding shares of the corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividend there may be set
aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conductive to the interests of the
corporation, and the directors may abolish any such reserve in the manner in
which it was created.
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ARTICLE IX - MISCELLANEOUS PROVISIONS
Section l. CHECKS: All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the
first day of April 1989
Section 3. NOTICE: Whenever written notice is required to be
given co any person, it may be given to such person, either personally or by
sending a copy thereof through the mail, or by telegram, charges prepaid, to
his address appearing on the books of the corporation, or supplied by him to
the corporation for the purpose of notice. If the notice is sent by mail or by
telegraph, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office
for transmission to such person. Such notice shall specify the place, day and
hour of the meeting and, in the case of special meeting of stockholders, the
general nature of the business to be transacted.
Section 4 WAIVER OF NOTICE: Whenever any written notice is required
by stature, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
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meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to an
officer or employee of the corporation such as a salary. commission, bonus,
interest, rent, travel or entertainment expense incurred by him, which shall
be disallowed in whole or in parc as a deductible expense by the Internal
Revenue Service, shall be reimbursed by such officer or employee to the
corporation to the full extent of such disallowance. It shall be the duty of
the directors, as a Board, to enforce payment of each such amount disallowed.
In lieu of payment by the officer or employee, subject to the determination of
the directors, proportionate amounts may be withheld from his future
compensation payments until the amount owed to the corporation has been
recovered.
Section 6. RESIGNATIONS: Any director or other officer may
resign at anytime, such resignation to be in writing, and to take effect from
the time of its receipt by the corporation, unless some time be fixed in the
resignation and then from that date. The acceptance of a resignation shall not
be required to make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1.The President and Board of Directors shall
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present at each annual meeting a full and complete statement of the business
and affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the voce of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cost thereon, at any regular or special meeting
of the stockholders. duly convened after notice to the stockholders of that
purpose.
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BY-LAWS
OF
SANTA LUCIA FUNDING, INC.
ARTICLE I
OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake City, County of Salt Lake. The corporation
may have such other offices, either within or without the State of Utah, as
the Board of Directors may designate or as the Business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the Fourth Thursday in the month of March in each year,
beginning with the year 1986, at the hour of 2:00 o'clock p.m., for the
purpose of electing Directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the State of Utah, such meeting shall be held on the
next succeeding business day. If the election of Directors shall not be held
on the day designated herein for any annual meeting of the shareholders, or at
any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as
conveniently may be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, unless other wise prescribed by
statute, may be called by the President or by the Board of Directors, and
shall be called by the President at the request of the holders of not less
than ten percent (10.0%) of all the outstanding shares of the corporation
entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate
any place, either within or without the State of Utah, unless otherwise
prescribed by statute, as the place of meeting for any annual meeting or for
any special meeting. A
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waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, unless
otherwise prescribed by statute, as the place for the holding of such meeting.
If no designation is made, the place of meeting shall be the principal office
of the corporation is in the State of Utah.
SECTION 4. NOTICE OF MEETING. Written notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for whichhe stock transfer books of the corporation, with postage
thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS OF FIXING OF RECORD. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to received payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten (10) day immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such data in any case to be not more than fifty (50) day and , in case of a
meeting of shareholders, not less than ten (10) day, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at
provided in this
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section, such determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete list
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes
thereof.
SECTION 7. QUORUM. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 8. PROXIES. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven (22) months from the date of
its execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing
in the name of another corporation may be voted by such officer, agent or
proxy as the By-Laws of such corporation may prescribe or, in the absence of
such provision, as the Board of Directors of such corporation may
determine.
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Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name, if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise
provided by law, any action required to be taken at a meeting of the
shareholders, or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWER. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be fixed by the Board of Directors, but in
no event shall be less than three (3). Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have
been elected and qualified.
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SECTION 3. REGULAR MEETING. A regular meeting of the Board of
Directors shall be held without other notices than this By-Law immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place for the
holding of additional regular meetings without notice other than such
resolution.
SECTION 4. SPECIAL MEETINGS. Special meeting of the Board of
Directors may be called by of at the request of the President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given
at least one (1) day previous thereto by written notice delivered personally
or mailed to each director at his business address, or by telegram. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States Mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to e delivered when the
telegram is delivered to the telegraph company. Any directors may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 8. ACTION WITHOUT A MEETING. Any action that may be taken by the
Board of Directors at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed before such
action by all of the Directors.
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SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless otherwise provided
by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of directors may be filled by election by
the Board of Directors for a term of office continuing only until the next
election of Directors by the shareholders.
SECTION 10. COMPENSATION. By resolution of the Board of
Directors, each Director may be paid his expenses, if nay, of attendance at
each meeting of the Board of Directors, and may be paid a stated salary as
director or a fixed sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof,
or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by
the Board of Directors, including a Chairman of the Board. in its discretion,
the Board of Directors may leave unfilled for any such period as it may
determine any office except those of President and Secretary. Any two or more
offices may be held by the same person, except for the offices of President
and Secretary which may not be held by the same person. Officers mayor may
not be directors or shareholders of the Corporation.
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SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation to be elected by the Board of Directors shall be elected annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election of the
officers shall not be held at such meeting, such election shall be held as
soon thereafter as conveniently may be. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent may be removed by the
Board of Directors whenever, in its judgment, the best interests of the
corporation will be served thereby, but such removal shall b without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The president shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. he shall, when present, preside at all meetings of
the sharesholders and of the Board of Directors, unless there is a Chairman of
the Board, in which case the Chairman shall preside. He may sign, with the
secretary or any other Board of officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
SECTION 6. VICE PRESIDENT. In the absence of the President or in
the event of his death, inability or refusal to act, the Vice President shall
perform the duties of the
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President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice President shall perform
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors. If there is more than one Vice President, each
Vice President shall succeed to the duties of the President in order of rank
as determined by the Board of Directors. If no such rank has been determined,
then each Vice President shall succeed to the duties of the President in order
of the date of election, the earliest date having the first rank.
SECTION 7. SECRETARY. The Secretary shall: (a) keep the minutes
of the proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by
law; (c) be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal
is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(e) sign with the President certificates for share of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
the Secretary and such other duties as from time to time may be assigned to
him by the President or by the Board of Directors.
SECTION 8. TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories
as shall be selected in accordance with the provisions of Article VI of these
By-Laws; and (c) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors. If required by the board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such sureties as the Board of Directors shall
determine.
SECTION 9. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no
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officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the corporation.
ARTICLE V
INDEMNITY
The corporation shall indemnify its directors, officers, and employees as
follows:
(a) Every director, officer, or employee of the corporation shall be
indemnified by the corporation against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon him in connection with
any proceeding to which he may be made a party, or in which he may become
involved, by reason of his being or having been a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of the corporation,
partnership, joint venture, trust or enterprise, or any settlement thereof,
whether or not he is a director, officer, or employee is adjudged guilty or
willful misfeasance or malfeasance in the performance of his duties; provided
that in the event of a settlement the indemnification herein shall apply only
when the Board of Directors approves such settlement and reimbursement as
being for the best interests of the corporation.
(b) the corporation shall provide to any person who is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
the corporation, partnership, joint venture, trust or enterprise, the
indemnity against expenses of suit, litigation or other proceedings which is
specifically permissible under the Utah Business Corporation At.
(c) the Board of Directors may, in its discretion, direct the
purchase of liability insurance by way of implementing the provisions of this
Article V.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize nay
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
share of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or militated certificate, a
new one may be issued
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therefor upon such terms and indemnity to the corporation as the Board of
directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender of or cancellation of the certificate for
such shares. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January
and end on the 31st day of December of each year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE X
CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE XI
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the
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provisions of the Utah Business Corporation Act, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
The above By-Laws are certified to have been adopted by the Board of
Directors or the corporation on the 22nd day of January, 1986.
/s/ WAYNE D. SMITH
------------------------
Wayne D. Smith/ Secretary
CDN1276W
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