UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
- ---------------
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1998
- --------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number: 0-28790
MEDCARE TECHNOLOGIES, INC.
--------------------------
(exact name of registrant as specified in its charter)
DELAWARE 87-0429962 B
- -------- ------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
Suite 1210 - 1515 West 22nd Street, Oak Brook, Illinois 605232
- ------------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 472-5300
--------------
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
The number of shares of the Registrant's Common Stock, $0.001 par value, as of
June 30th, 1998: 7,250,370.
<PAGE>
MEDCARE TECHNOLOGIES, INC.
FORM 10-Q, QUARTER ENDED JUNE 30, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet at June 30, 1998 . . . . . . . . . . . . . F-1 - F-2
Consolidated Statement of Operations For The Quarter Ended
June 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Cash Flows For The Quarter Ended
June 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . F-4 - F-5
Notes to Interim Consolidated Financial Statements . . . . . . . . . F- 6
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 2 Managment's Discussion and Analysis or
Plan of Operations . . . . . . . . . . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 12
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . 12
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . . 13
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
Signature Page . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
Item 1 Financial Statements
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
ASSETS
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
<S> <C> <C>
Current Assets
Cash $ 3,791,743 $ 3,440,791
Accounts Receivable 114,932 47,286
Prepaid Expenses 0 62,313
- ------
Total Current Assets 3,906,675 3,550,390
Property and Equipment, Net 60,473 33,526
Other Assets
Intangible Assets-The MedCare Program, Net of
Accumulated Amortization of $34 and $0 for June 30,
1998 and December 31, 1997 966 1,000
Security Deposits 2,250 1,500
----- -----
Total Other Assets 3,216 2,500
----- -----
Total Assets $ 3,970,364 $ 3,586,416
========= =========
</TABLE>
F-1
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 46,414 $ 15,796
Notes Payable, Related Party 0 1,000
- -----
Total Current Liabilities 46,414 16,796
Commitments and Contingencies 0 0
Stockholders' Equity
Preferred Stock: $.25 Par Value, Authorized 1,000,000;
Issued and Outstanding, 159 and 165 Convertible Series A
Shares at June 30, 1998 and December 31, 1997 39 41
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 7,250,023 Shares
at June 30, 1998 and 6,992,185 at December 31, 1997 7,250 6,992
Additional Paid In Capital 7,420,969 6,284,505
Loss Accumulated During The Development Stage (3,504,308) (2,721,918)
----------- ----------
Total Stockholders' Equity 3,923,950 3,569,620
--------- ---------
Total Liabilities and Stockholders' Equity $ 3,970,364 $ 3,586,416
========= =========
</TABLE>
F-2
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997, AND
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<PAGE>
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Period Months Period Months Period Months Period
Ended June Ended June Ended June Ended June
30, 1998 30, 1997 30, 1998 30, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 151,815 $ 10,573 $ 378,823 $ 47,809
Expenses
General and Administrative 490,629 333,513 1,256,341 531,241
------- ------- --------- -------
Operating Loss (338,814) (322,940) (877,518) (483,432)
Other Income (Expense)
Interest Income 52,459 11,029 95,128 12,957
------ ------ ------ ------
Net Loss Available to Common
Stockholders $ (286,355) $ (311,911) $ (782,390) $ (470,475)
Earnings Per Common Share and Common
Share Equivalents $ (0.04) $ (.05) $ (0.10) $ (.07)
Weighted Number of Common Shares
Outstanding 7,899,324 6,238,220 7,889,324 6,721,071
</TABLE>
F-3
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Six For the Six
Months Period Months Period
Ended June Ended June
30, 1998 30, 1997
<PAGE>
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (782,390) $ (470,475)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating
Activities
Depreciation and Amortization 7,902 861
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (67,646) (52,789)
(Increase) Decrease in Prepaid Expenses 62,313 1,513
(Increase) Decrease in Organizational Costs 0 64
(Increase) Decrease in Security Deposits (750) 0
Increase (Decrease) in Accounts Payable 30,618 26,192
------ ------
Total Adjustments 32,437 (24,159)
------ --------
Net Cash Used by Operating Activities (749,953) (494,634)
Cash Flows from Investing Activities
Purchase of Property and Equipment (34,815) 0
-------- -
Net Cash Flows from Investing Activities (34,815) 0
------- -
Cash Flows from Financing Activities
Proceeds from Sale of Common Stock 1,136,720 1,210,250
Net Reduction in Office & Med Equipment 0 839
Advances (Repayments) Notes Payable 0 12,500
Advances (Repayements) To Officers (1,000) 0
------ -
<PAGE>
Net Cash Provided by Financing Activities 1,135,720 1,200,454
--------- ---------
Increase (decrease) in Cash and Cash Equivalents 350,952 705,820
</TABLE>
F-4
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Six For the Six
Months Period Months Period
Ended June Ended June
30, 1998 30, 1997
-------- --------
<S> <C> <C>
Cash and Cash Equivalents, Beginning of Year 3,440,791 220,562
--------- -------
Cash and Cash Equivalents, End of Year $ 3,791,743 $ 926,382
=========== ===========
Supplemental Information:
Cash paid for:
Interest $ 0 $ 0
= =
Income taxes $ 0 $ 0
= =
Supplemental Non Cash Financing Transactions
8,990 Common Shares Were Issued in Exchange for Warrants Exercised
Duirng the Quarter $ 9 $ 0
= =
6,000 Common Shares Were Issued for Services During the Quarter $ 34,500 $
0
====== =
<PAGE>
1194 Common Shares Were Issue to Correct a Prior Year Error $ 7,500 $ 0
===== =
</TABLE>
F-5
<PAGE>
MEDCARE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. Statement of Information Furnished
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Form 10Q instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1998, the results of operations for the three months period ended June 30, 1998
and for the six months period ended June 30, 1998 and the statement of cash
flows for the six months period ended June 30, 1998. These results have been
determined on the basis of generally accepted accounting principles and
practices and applied consistently with those used in the preparation of the
CompanyAEs 1997 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in the financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying
consolidated financial statements be read in conjunction with the financial
statements and notes there to incorporated by reference in the CompanyAEs 1997
Annual Report on Form 10-K.
F-6
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
When used in this discussion, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, which would, could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward- looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
11
<PAGE>
which affect the Company's business, in this report, as well as the Company's
periodic reports on Forms 10-K, 10Q and 8-K filed with the Securities and
Exchange Commission.
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.
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. As of June 30th, 1998, the
Company had 19 MedCare Program sites established, and was in the process of
opening an additional 16 MedCare Program sites in various parts of the country.
In order to prepare for MedCare's expansion phase the company transitioned away
from Solo Physician Practices to Multi Physician Practices, which typically
offers a larger patient base, greater referral network and greater Managed Care
influence.
The Company plans to devote the majority of its resources to establishing new
MedCare Program sites, in operating existing centers, and in developing new
business models for the introduction of the MedCare Program into new markets,
such as nursing homes and other institutions, and possibly foreign countries.
Results of Operations
- ---------------------
The Company had revenues of $151,815 for the three-month period ending June
30th, 1998 compared to $10,573 for the three-month period ending June 30th,
1997. Since the Company transitioned from Solo Physician Practices to Multi
Physician Practice offices, 17 of the 19 centers operating, as of June 30th
1998, had just recently opened in 1998. Due to the early stage nature of each
office the majority of the Company's first quarter revenues were generated by
the early established sites. Each site generates revenue through patient visits,
which come from referrals and direct to consumer education. The Company expects
modest revenues from all newly opened sites during the first 12 months of
operations. 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
in the immediate future. 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, and possible abroad.
For the three-month period ending June 30th, 1998, the Company's general and
administrative expenses increased to $490,629 compared to $333,513 for the
corresponding period in 1997. The 1998 amount represents an increase of 147% due
primarily to the hiring of additional management and nursing staff, greater
advertising and marketing expenses, increased expenses related to financial
<PAGE>
public relations and building processes and protocols to support future growth.
The Company's net loss was $338,814, or $0.04 per share, for the first quarter
of 1998 compared to a net loss of $322,940 or $0.05 per share, for the
corresponding period in 1997. This increase was primarily due to the increase in
general and administrative costs described above.
Liquidity and Capital Resources
- -------------------------------
As of June 30th, 1998, the Company's cash balance was $3,791,743 compared to
$3,440,791 as of June 30th, 1997. The Company has financed its operations
primarily through the exercise of Stock Options and Share Purchase Warrants from
a previous private placement.
The Company's future funding requirements will depend on numerous factors. These
factors include the Company's ability to establish and profitably operate
current and future MedCare Program locations, 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
incur losses as it expands its business. While the Company has enough cash to
fund its early stage expansion plans, the Company may choose to raise additional
funds through private or public equity investment in order to expand the range
and scope of its business operations. 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.
PART II -- OTHER INFORMATION
Item 1 Legal Proceedings
- ------ -----------------
None
Item 2 Changes in Securities
- ------ ---------------------
As detailed in the financial statements, the Company issued 6,000
common shares in exchange for services, issued 8,990 common shares via a
cashless exercise option for the exercise of share purchase warrants from a
previous private placement, issued 8,000 common shares for the exercise of stock
options ranging in prices from $3.00 to $4.50 per share, and converted 165
Series A Preferred Warrants into 165 Series A Preferred Shares. The total common
shares issued during the three month period ending June 30, 1998 was 22,990
shares.
Item 3 Defaults Upon Senior Securities
- ------ -------------------------------
None
12
<PAGE>
Item 4 Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on June 1, 1998.
At this meeting, the shareholders voted to adopt the Company's 1998 and 1999
Stock Option Plans for 500,000 and 200,000 shares of common stock, respectively.
Item 6 Other Information
- ------ -----------------
None
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
None
Signature Page
- --------------
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDCARE TECHNOLOGIES, INC.
/s/ Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin
President
Dated: August 14, 1998
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 3,791,743 3,791,743
<SECURITIES> 0 0
<RECEIVABLES> 114,932 114,932
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,906,675 3,906,675
<PP&E> 60,473 60,473
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,970,364 3,970,364
<CURRENT-LIABILITIES> 46,414 46,414
<BONDS> 0 0
0 0
39 39
<COMMON> 7,250 7,250
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,970,364 3,970,364
<SALES> 0 0
<TOTAL-REVENUES> 151,815 378,823
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 490,629 1,256,341
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (338,814) (877,518)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (338,814) (887,518)
<EPS-PRIMARY> (0.04) (0.10)
<EPS-DILUTED> (0.04) (0.10)
</TABLE>
