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 September 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
September 30th, 1998: 7,384,529
---------
<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 September 30, 1998 . . . . . . . . . . F-1 - F-2
Consolidated Statement of Operations For The Quarter Ended
September 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Cash Flows For The Quarter Ended
September 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 Management's Discussion and Analysis or
Plan of Operations . . . . . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 11
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 11
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . 12
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
Item 1 Financial Statements
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Current Assets
Cash $ 2,168,237 $ 3,440,791
Accounts Receivable, net of $17,795
at September 30, 1998 140,980 47,286
Prepaid Expenses 0 62,313
------------- ------------
Total Current Assets 2,309,217 3,550,390
Property and Equipment, Net 122,503 33,526
Other Assets
Intangible Assets-The MedCare Program, Net of
Accumulated Amortization of $50 and $0 for
September 30, 1998 and December 31, 1997 950 1,000
Security Deposits 2,250 1,500
Escrow Funds (Note 2) 1,500,000 0
--------- ------------
Total Other Assets 1,503,200 2,500
--------- ------------
Total Assets $ 3,934,920 $ 3,586,416
========= =========
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS EQUITY
SEPTEMBER 30, DECEMBER 31,
1998 1998
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 61,768 $ 15,796
Notes Payable, Related Party 0 1,000
--------- -------
Total Current Liabilities 61,768 16,796
Commitments and Contingencies 0 0
Stockholders' Equity
Preferred Stock: $0.25 Par Value, Authorized
1,000,000; Issued and Outstanding, 235 and 165
Convertible Series A Shares at September 30, 1998
and December 31, 1997 59 41
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 7,384,529
Shares at September 30, 1998, and 6,992,185 at
December 31, 1997 7,385 6,992
Additional Paid In Capital 8,941,815 6,284,505
Loss Accumulated During The Development Stage (5,076,107) (2,721,918)
--------- ---------
Total Stockholders Equity 3,873,152 3,569,620
--------- ---------
Total Liabilities and Stockholders' Equity $ 3,934,920 $ 3,586,416
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Period Months Period
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash and Cash Equivalents, Beginning of Period $ 3,440,791 $ 219,775
------------ -----------
Cash and Cash Equivalents, End of Period $ 2,168,237 $ 4,041,324
============= ===========
Supplemental Information:
Cash paid for:
Interest $ 0 $ 0
============= ===========
Income taxes $ 0 $ 0
============= ===========
Noncash Financing Transactions:
74 Shares of Preferred Stock Converted
to 128,506 Shares of Common Stock $ 110 $ 0
============= ===========
8,990 Common Shares Issued in Exchange for Warrants Exercised $ 9 $ 0
============= ===========
6,000 Common Shares Issued for Services $ 34,500 $ 0
============= ===========
1,194 Common Shares Issued to Correct a Prior Year Error $ 7,500 $ 0
============= ===========
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS PERIOD ENDED SEPTEMBER 30, 1998 AND 1997, AND
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Period Months Period Months Period Months Period
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 158,775 $ 8,366 $ 537,598 $ 56,175
Expenses
General and Administrative 1,757,578 442,104 3,013,919 973,345
--------- ------- --------- -------
Operating Loss (1,598,803) (433,738) (2,476,321) (917,170)
Other Income (Expense)
Interest Income 27,004 53,969 122,132 66,926
Loss From Discontinued Operations (4,489)
Gain on Sale of Subsidiary 15,770
----------- ---------- ---------- ------
Total Other Income (Loss) 27,004 53,969 122,132 78,207
Net Loss Available to Common
Stockholders $ (1,571,799) $ (379,769) $(2,354,189) $ (838,963)
=========== ========= =========== =======
Earnings Per Common Share and Common
Share Equivalents $ (0.22) $ (0.05) $ (0.33)$ (0.12)
===== ===== ===== =====
Weighted Number of Common Shares
Outstanding 7,217,964 7,052,442 7,217,964 7,052,442
========= ========= ========= =========
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Period Months Period
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (2,354,189) $ (838,963)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities
Depreciation and Amortization 15,920 3,336
Bad Debt Adjustments 17,795 0
Common Stock Issued For Services 34,500 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (111,489) (58,164)
(Increase) Decrease in Prepaid Expenses 62,313 2,202
(Increase) Decrease in Organizational Costs 0 0
(Increase) Decrease in Security Deposits (750) (1,500)
(Increase) Decrease in Escrow Funds (1,500,000) 0
Increase (Decrease) in Accounts Payable 45,973 102,767
------------ --------
Total Adjustments (1,435,738) 48,641
------------ --------
Net Cash Used by Operating Activities (3,789,927) (790,322)
Cash Flows from Investing Activities
Purchase of Property and Equipment (104,847) (25,879)
------------- --------
Net Cash Flows from Investing Activities (104,847) (25,879)
Cash Flows from Financing Activities
Proceeds From Sale of Common Stock 1,123,220 4,761,500
Net Proceeds From Escrow Funds 1,500,000 0
Payments to Related Party (1,000) 0
Offering Costs 0 (123,750)
-------------- -----------
Net Cash Provided by Financing Activities 2,622,220 4,637,750
-------------- -----------
Increase (Decrease) in Cash and Cash Equivalents (1,272,554) 3,821,549
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 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 September 30,
1998, the results of operations for the three months period ended September 30,
1998, and for the nine months period ended September 30, 1998, and the statement
of cash flows for the nine months period ended September 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
Company's 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 thereto incorporated by reference in the Company's 1997
Annual Report on Form 10-K.
NOTE 2. Escrow Funds
- ---------------------
An escrow fund was established for monies and documents deposited and held in
connection with the offer and sale of the warrants attached to the Series A
Preferred Stock, which the Company issued and sold on or about July 8, 1997, at
a purchase price of $10,000 per share. Total original escrow funds established
were $1,650,000. On August 5, 1998, $150,000 was withdrawn as part of an
election attached to the subscription for the Series A Preferred Stock, leaving
a net escrow balance of $1,500,000. The escrow funds are noninterest bearing.
<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
9
<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 September 30, 1998, the
Company had 24 MedCare Program sites established, and was in the process of
opening an additional 12 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 $158,775 for the three-month period ending September
30, 1998 compared to $8,366 for the three-month period ending September 30,
1997. Since the Company transitioned from Solo Physician Practices to Multi
Physician Practice offices, 22 of the 24 centers operating, as of September 30
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 September 30, 1998, the Company's general and
administrative expenses increased to $1,757,578 compared to $442,104 for the
corresponding period in 1997. The 1998 amount represents an increase of 397%,
due primarily to the hiring of additional management and nursing staff, greater
advertising and marketing expenses, increased expenses related to financial
10
<PAGE>
public relations and building processes and protocols to support future growth.
The Company's net loss was $1,571,799, or $0.22 per share, for the third quarter
of 1998 compared to a net loss of $379,769 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 September 30, 1998, the Company's cash balance was $2,168,237 compared to
$4,041,324 as of September 30, 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 shares of
its common stock in exchange for services, 8,990 shares in exchange for warrants
exercised and 1,194 shares to correct a prior year error. Additionally, 74
shares of Preferred Stock of the Company were converted into 128,506 shares of
common stock. The total common shares issued during the three month period
ending September 30, 1998 was 144,690 shares.
Item 3 Defaults Upon Senior Securities
- ------ -------------------------------
None
11
<PAGE>
Item 4 Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
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: November 12, 1998
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,168,237
<SECURITIES> 0
<RECEIVABLES> 140,980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,309,217
<PP&E> 122,503
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,934,920
<CURRENT-LIABILITIES> 61,768
<BONDS> 0
0
59
<COMMON> 7,385
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,934,920
<SALES> 537,598
<TOTAL-REVENUES> 537,598
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,013,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,132
<INCOME-PRETAX> (2,354,189)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,354,189)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
