UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
- ---------------
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 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 jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
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
March 31st, 1997: 7,225,839.
----------
1
<PAGE>
MEDCARE TECHNOLOGIES, INC.
FORM 10-Q, QUARTER ENDED MARCH 31, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at March 31, 1998 and December 31, 1997 . . . F-3 F-4
Consolidated Statement of Operations For The Three Months
Period Ended March 31, 1998 and 1997, and For the Year To Date
March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity at March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-6 F-7
Consolidated Statement of Cash Flows For The Three Months
Period Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . F-8 F-9
Notes to the Consolidated Financial Statements . . . . . . . . . . . . F-10 F-18
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
PART II OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 39
Item 2 Changes in Securities. . . . . . . . . . . . . . . . . . . . 39
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . . . . . 39
Item 4 Submission of Matters to a Vote of Security Holders. . . . . 39
Item 5 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 39
Signature Page. . . . . . . . . . . . . . . . . . . . . . . .40
2
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at March 31, 1998 and December 31, 1997 . . . F-3 F-4
Consolidated Statement of Operations For The Three Months
Period Ended March 31, 1998 and 1997, and For the Year To Date
March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity at March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-6 F-7
Consolidated Statement of Cash Flows For The Three Months
Period Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . F-8 F-9
Notes to the Consolidated Financial Statements . . . . . . . . . . . . F-10 F-18
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MedCare Technologies, Inc. and
Subsidiaries
Oak Brook, Illinois 60521
We have audited the accompanying consolidated balance sheet and statement of
stockholder's equity of MedCare Technologies, Inc. and Subsidiaries (the
Company), as of March 31, 1998 and December 31, 1997, and the related
statement of operations for the three months ended March 31, 1998 and 1997,
and for the year to date March 31, 1998 and 1997, and cash flows for the
three months period ended March 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 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 financial
statements provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1998 and
December 31, 1997 and the results of its operations for the three months
ended and for the year to date March 31, 1998 and 1997, and cash flows for
the three months ended March 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
May 6, 1998
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
MARCH DECEMBER
31, 1998 31, 1997
<S> <C> <C>
Current Assets
Cash $ 4,225,880 $ 3,440,791
Accounts Receivable, Net of Contractuals and
Adjustments of $114,452 and $0 at March 31, 1998
and December 31, 1997 149,439 47,286
Prepaid Expenses 0 62,313
- ------
Total Current Assets 4,375,319 3,550,390
Property and Equipment, Net (Note 3) 38,883 33,526
Other Assets
Intangible Assets-The MedCare Program, Net of
Accumulated Amortization of $17 and $0 for March 31,
1998 and December 31, 1997 (Note 4) 983 1,000
Security Deposits 2,150 1,500
----- -----
Total Other Assets 3,133 2,500
----- -----
Total Assets $ 4,417,335 $ 3,586,416
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH DECEMBER
31, 1998 31, 1997
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 62,748 $ 15,796
Notes Payable, Related Party (Note 5) 0 1,000
----------- -----------
Total Current Liabilities 62,748 16,796
Commitments and Contingencies (Note 10) 0 0
Stockholders' Equity
Preferred Stock: $.25 Par Value, Authorized 1,000,000;
Issued and Outstanding, 159 and 165 Convertible Series A
Shares at March 31, 1998 and December 31, 1997 39 41
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 7,225,839 Shares
at March 31, 1998 and 6,992,185 at December 31, 1997 7,226 6,992
Additional Paid In Capital 7,565,273 6,107,314
Accumulated Deficit (3,217,951) (2,544,727)
----------- -----------
Total Stockholders' Equity 4,354,587 3,569,620
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,417,335 $ 3,586,416
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997, AND
FOR THE YEAR TO DATE MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
For the Three For the Three For the Year For the Year
Months Period Months Period to Date to Date
Ended March Ended March March March
31, 1998 31, 1997 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Revenues $ 227,008 $ 37,236 $ 227,008 $ 37,236
Expenses
General and Administrative 765,710 197,731 765,710 197,731
----------- ----------- ----------- -----------
Operating Loss (538,702) (160,495) (538,702) (160,495)
Other Income (Expense)
Interest Income 42,669 1,928 42,669 1,928
Loss From Discontinued Operations 0 0 0 0
Gain on Sale of Subsidiary 0 0 0 0
----------- ----------- ----------- -----------
Total Other Income (Expense) 42,669 1,928 42,669 1,928
----------- ----------- ----------- -----------
Net Loss Available to Common
Stockholders $ (496,033) $ (158,567 $ (496,033) $ (158,567)
=========== =========== =========== ===========
Primary and Fully Diluted Earnings Per
Common Share and Common Share
Equivalents: $ (0.06) $ (.02) $ (0.06) $ (.02)
=========== =========== =========== ===========
Weighted Number of Common Shares
Outstanding 7,734,915 6,530,352 7,734,915 6,530,352
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid In (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 0 0 6,445,185 $ 6,445 $ 1,372,631 $ (1,169,693) $ 209,383
Recovery of Write Off of
Excess of Liabilities over Assets
on Sale of Manon Consulting, Ltd. (11,283) (11,283)
Issuance of Common Stock Under
1996 Stock Option Plan at $4.50
Per Share through December 31, 1997 17,000 17 76,483 76,500
Issuance of Common Stock Under
1995 Stock Option Plan at $3.00
Per Share Through December 31, 1997 54,000 54 161,946 162,000
Issuance of Common Stock Under a
Private Placement Dated March
25, 1997, at $6.25 Per Share 176,000 176 1,099,824 1,100,000
Issuance of Common Stock Under a
Private Placement Dated July 7,
1997, at $6.00 Per Share 300,000 300 1,799,700 1,800,000
Issuance of Preferred Stock
Under a Private Placement
Dated July 8, 1997, at $10,000 Per Share 165 41 0 0 1,649,959 0 1,650,000
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid In (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Less cost of Private Placement 0 $ 0 0 $ 0 $ (123,750) $ 0 (123,750)
Periodic Imputed Cost of Preferred
Stock at Date of the Closing of the
Offering 247,712 247,712
Net Loss Available to Common
Stockholders for the Year
Ended December 31, 1997 (1,540,942) (1,540,942)
----------- ----------
Balance, December 31, 1997 165 41 6,992,185 6,992 6,284,505 (2,721,918) 3,569,620
Issuance of Common Stock Under
1996 Stock Option Plan at $4.50
Per Share Through March 31, 1998 6,000 6 26,994 27,000
Issuance of Common Stock Under
1995 Stock Option Plan at $3.00
Per Share Through March 31, 1998 0 0 18,000 18 53,982 0 54,000
Issuance of Common Stock For
Warrants Exercised on March 31,
1998, at $6.00 Per Share 200,000 200 1,199,800 1,200,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid In (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Converted Preferred Stock to
Common Stock at $6.45131 Per
Share on January 5, 1998 (3) $ (1) 4,851 $ 5 $ (4) $ 0 $ 0
Converted Preferred Stock to
Common Stock at $6.51875 Per
Share on January 6, 1998 (3) (1) 4,803 5 (4) 0
Net Loss Available to Common
Stockholders for the Quarter
Ended March 31, 1998 (496,033) (496,033)
--------- ---------
Balance, March 31, 1998 159 $ 39 7,225,839 $7,226 $ 7,565,273 $ (3,217,951) $4,354,587
=== == ========= ===== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
For the Year For the Year
To Date to Dated
March 31, March 31,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (496,033) $ (158,567)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities
Depreciation and Amortization 3,385 861
Contractuals and Adjustments of Accounts Receivable 114,452 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (216,605) (24,31)
(Increase) Decrease in Prepaid Expenses 62,313 (5,366)
(Increase) Decrease in Organizational Costs 0 64
(Increase) Decrease in Security Deposits (650) 0
Increase (Decrease) in Accounts Payable 46,952 (5,529)
----------- -----------
Total Adjustments 9,847 (34,361)
----------- -----------
Net Cash Used by Operating Activities (486,186) (192,928)
Cash Flows from Investing Activities
Purchase of Property and Equipment (8,725) 0
----------- -----------
Net Cash Flows from Investing Activities (8,725) 0
Cash Flows from Financing Activities
Proceeds from Sale of Common Stock 1,281,000 1,187,000
Net Reduction in Office & Med Equipment 0 11,132
Advances (Repayments) Notes Payable 0 (23,135)
Advances (Repayements) To Officers (1,000) 0
----------- -----------
Net Cash Provided by Financing Activities 1,280,000 1,174,997
----------- -----------
Increase (decrease) in Cash and Cash Equivalents 785,089 982,069
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
For the Year For the Year
To Date to Dated
March 31, March 31,
1998 1997
<S> <C> <C>
Cash and Cash Equivalents, Beginning of Year 3,440,791 220,562
---------- ----------
Cash and Cash Equivalents, End of Year $4,225,880 $1,202,631
========== ==========
Supplemental Information:
Cash paid for:
Interest $ 0 $ 0
========== ==========
Income taxes $ 0 $ 0
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
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 October 1, 1995, the Company purchased 100% of the outstanding shares of
Manon Consulting, Ltd. Manon Consulting, Ltd., is a wholly owned subsidiary
of the Company. Manon Consulting, Ltd., operates a clinic in Calgary,
Canada.
The following is a condensed balance sheet of Manon Consulting, Ltd. at
October 31, 1995:
<TABLE>
<CAPTION>
<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 January 1, 1997, the Company sold Manon
Consulting, Ltd. and recorded a gain on the sale of $15,770. See Note 8 -
Discontinued Operations.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 1 - ORGANIZATION (CONTINUED)
- ---------------------------------
During 1997, the Company issued 17,000 shares of common stock at $4.50 per
share under the 1996 Stock Option Plan or $76,500.
During 1997, the Company issued 54,000 shares of common stock at $3.00 per
share under the 1995 Stock Option Plan or $162,000.
On February 4, 1997, the Company issued 176,000 shares of common stock at
$6.25 per share under a private placement memorandum or $1,100,000.
On July 7, 1997, the Company issued 300,000 shares of common stock at $6.00
per share under a private placement memorandum dated June 20, 1997 or
$1,800,000.
On July 8, 1997, the Company issued 165 shares of Preferred Stock - Series
A at $10,000 per share or $1,650,000, less offering costs of $123,750. The
Preferred Stock has conversion features that allow for the conversion into
266,747 common shares, at a discount range of 10% to 20% from June 20, 1997
through June 20, 1998. Additionally, the Company recorded the periodic
imputed cost of the Preferred Stock - Series A at the date of closing of
the offering at 8% per annum in the amount of $247,712.
Though March 31, 1998, the Company issued 6,000 shares of common stock at
$4.50 per share under the 1996 Stock Option Plan or $27,000.
Through March 31, 1998, the Company issued 18,000 shares of common stock at
$3.00 per share under the 1995 Stock Option Plan or $54,000.
On March 30, 1998, the Company issued 200,000 shares of common stock at
$6.00 per share under a private placement memorandum, or $1,200,000.
On January 5, 1998, the Company converted three (3) shares of $.25 per
share preferred stock to 4,851 shares of $.001 common stock at $6.45131 per
share.
On January 6, 1998, the Company converted three (3) shares of $.25 per
share preferred stock to 4,803 shares of $.001 common stock at $6.51875 per
share.
The Company was formed on January 17, 1986, and was in the development
stage through December 31, 1997. The three months period ended March 31,
1998, is the first period during which it is considered an operating
company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
A. Method of Accounting
-----------------------
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
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 subsidiary, Medcare
Technologies, Corporation. Intercompany transactions have been
eliminated in consolidation.
D. Purchase Method
------------------
Investments in companies have been included in the financial report
using the equity method of accounting. The Company's wholly owned
subsidiary, MedCare Technologies, Corporation is engaged in the
business of medical consulting and management in the United States.
E. Property and Equipment
-------------------------
Property and equipment, stated at cost, is depreciated under the
straight-line method over their estimated useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Office Equipment 3 to 5 years
Medical Equipment 3 to 5 years
Furniture 7 years
</TABLE>
F. 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 2002 through 2012,
in the amount of $1,293,230, $449,236, $689,713 and $42,027 in 1997,
1996, 1995 and prior years, respectively, unless utilized by the
Company.
G. Earnings or (Loss) Per Share
-------------------------------
Earnings or loss per share is computed based on the weighted average
number of
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
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 at March 31, 1998 and 1997, 6,805,661 and 6,530,352,
respectively.
H. Leases
---------
The Company's corporate offices are located at 1515 W. 22nd Street,
Suite 1210, Oak Brook, Illinois 60521. The office space approximates
2,400 square feet and is subleased for a period of one year with the
option to renew for four additional years, at a monthly rate of $4,800
per month plus a common area monthly charge of $400.
The Company currently has the use of a second office of approximately
1,500 square feet of office space, the use of one board room and all
office equipment, including a network computer system, a postage
machine, filing cabinets, a photocopier and telephone equipment. The
office space is owned by one of the Company's directors and the
Chairman's wife. The offices are located at Suite 216 - 1628 West 1st
Avenue, Vancouver, British Columbia, Canada. The monthly rent is
$2,000 per month, plus a common area monthly charge of $200. There is
an option to renew for an additional year.
I. Medcare Program Sites
------------------------
The following program site locations and the date of openings area as
follows:
<TABLE>
<CAPTION>
City, State Open Date City, State Open Date
----- ----- ---- ---- ----- ----- ---- ----
<S> <C> <C> <C>
Norman, Oklahoma 11/04/96 Toledo, Ohio 02/09/98
Winter Park, Florida 03/10/97 Lake Worth, Florida 03/02/98
Denver, Colorado 06/02/97 Coral Springs, Florida 03/09/98
Raleigh, North Carolina 09/30/97 Phoenix, Arizona 03/09/98
Kankakee, Illinois 11/17/97 Fremont, California 03/09/98
Cleveland, Texas 01/05/98 New York, New York 03/30/98
</TABLE>
New locations to be opened subsequent to March 31, 1998, are Stamford,
Connecticut; Roswell, Georgia; Fayetteville, North Carolina; New
Rochelle, New York; Dallas, Texas; West Palm Beach, Florida;
Baltimore, Maryland; Clackamas, Oregon; Amherst, Ohio; St. Louis,
Missouri; Columbus, Ohio; Alexandria, Virginia; Silver Springs,
Maryland; Mine Hill, New Jersey; and Peekskill, New Jersey.
J. Revenue Recognition
----------------------
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
Revenue are recognized at the time of performance of services. The
Company engages in a Program Management Agreement with each Practice,
which is defined as a physician or group of physicians, involved on a
regular basis in the diagnosis, evaluation and treatment of urinary
and rectal incontinence as well as other pelvic dysfunction. The
agreements have various expiration dates, typically run for a period
of five (5) years, and may be terminated by either party a) without
cause upon ninety (90) days prior written notice by either party or b)
with cause upon various conditions as set forth in the Agreement.
Each Practice is responsible for the cost of performing or arranging
for the performance of all billing and collections functions related
to the Program. Each practice agrees to pay, during the term of its
Agreement, a percentage of the gross billings, less contractual
adjustments, for the procedures and services performed. The percentage
varies from eighty (80%) to ninety (90%) percent. In addition, the
Practice agrees to pay the cost of any supplies purchased by the
Practice from Medcare. Medcare's program is a cost effective,
non-drug, non-surgical and non-invasive system for the care and
treatment of patients suffering from bladder control problems or
urinary incontinence. The treatment is covered by Medicare and most
insurance carriers.
K. Use of Estimates
-------------------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were assumed in preparing
the financial statements.
L. Presentation
---------------
Certain accounts from prior years have been reclassified to conform
with the current year's presentation.
M. Pending Accounting Pronouncements
------------------------------------
It is anticipated that current pending accounting pronouncements will
not have an adverse impact on the financial statements of the Company.
NOTE 3 - PROPERTY, EQUIPMENT, AND DEPRECIATION
- ----------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December
1998 31, 1997
<S> <C> <C>
Office Equipment $ 11,931 $ 9,541
Computer Equipment 16,363 11,528
Medical Equipment 29,799 29,799
Furniture 1,500 0
----- -
Total 59,593 50,868
Less Accumulated Depreciation (20,710) (17,342)
------- -------
Net Book Value $ 38,883 $ 33,526
====== ======
</TABLE>
Depreciation charged to expense during the three months ended March
31, 1998 and 1997, was $3,368 and $861, respectively.
NOTE 4 - LONG-LIVED ASSETS - THE MEDCARE PROGRAM
- ------------------------------------------------
On August 14, 1995, the Company acquired the rights to The MedCare
Program, 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 Program for the
treatment of urinary incontinence that significantly reduces or
completely eliminates the majority of UI cases using a nondrug,
nonsurgical 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 $66 per year for each of the years.
Amortization expense charged to operations during the quarter ended
March 31, 1998, was $17.
NOTE 5 - NOTES PAYABLE-OFFICERS (RELATED PARTY TRANSACTIONS)
- ------------------------------------------------------------
An Officer of the Company loaned the Company $1,000, which is due on
demand and with no interest rate currently applicable. The Company
repaid this loan in March 1998.
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
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 of the grant. The Company makes no charge to
operations in relation to option grants, unless the options granted
are less than fair market, then a charge to operations would be made
over the vesting period. The Company's stock option transactions for
the quarter ended March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Number of Option
Shares Price
<S> <C> <C>
Options outstanding and exercisable at
December 31, 1995 500,000 $ 3.00
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 761,000
Options granted in 1997 200,000 4.50
Options granted in 1997 300,000 6.50
Options exercised during 1997 under
the 1995 Stock Option Plan (54,000) 3.00
Options exercised during 1997 under
the 1996 Stock Option Plan (17,000) 4.50
-----
Options outstanding and exercisable
at December 31, 1997 1,190,000 $3.00-$6.50
Options exercised during 1998 under
the 1995 Stock Option Plan (18,000) 3.00
Options exercised during 1998 under
the 1996 Stock Option Plan (6,000) 4.50
-----
Options outstanding and exercisable
at March 31, 1998 1,166,000 $3.00-$6.50
==========
</TABLE>
The Company has authorized the 1998 Stock Option Plan and reserved
500,000 shares of its common stock, of which 290,000 shares will be
offered at $6.50 and the balance of 210,000 shares at a price to be
determined, for issuance thereunder subject to stockholder approval at
the next annual meeting.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 7 - STOCK WARRANTS
- -----------------------
In July, 1997, the Company offered 300,000 shares of common stock at
$6.00 each, along with an additional 300,000 shares of purchase
warrants at $6.00 each, good until July 7, 2002. In March 1998,
200,000 shares of common stock were exercised at $6.00 per share, or
$1,200,000.
NOTE 8 - PREFERRED STOCK - SERIES A
- -----------------------------------
On June 20, 1997, the Company began offering for sale a Regulation D
offering under Rule 506. This offering was for the Series A Preferred
Stock of the Company and was sold for $10,000 per share, in minimum
subscription amounts of at lease ten shares ($100,000) and in
increments of five shares in excess thereof. The total offering was
for $3,000,000, with a minimum of $1,650,000. The offering closed on
July 8, 1997 with the minimum offering placed. The preferred stock was
accompanied by warrants to purchase a number of shares of common stock
of the Company equal to 33 1/3% multiplied by the aggregate purchase
price of the Subscriber's preferred stock outstanding on each of nine,
twelve and fifteen months following the closing date of the offering,
divided by the Fixed Conversion Price as herein defined.
The Series A Preferred Shareholder shall be entitled to convert,
subject to the Company's right of redemption, if the conversion price
is less than the Fixed Conversion Price at the time of receipt of a
notice of conversion. The conversion price is equal to the lessor of
115% of the average Closing Bid Price for five trading days ending on
June 6, 1997, which is $7.346 (The Fixed Conversion Price) or a
discount, ranging from 10% to 20% over a 12 months period beginning
July 8, 1997, of the average Closing Bid Price for five trading days
immediately preceding the Date of Conversion divided into the original
purchase price of the preferred stock, plus an 8% per annum accretion
rate equal to the period that has passed since the closing date.
Assuming that all the of the warrants would be exercised, an
additional 271,850 shares of common would be issued as of March 31,
1998.
On January 5, 1998, three (3) shares of preferred stock were converted
to 4,851 shares of common stock at $6.45131 per share. On January 6,
1998, three (3) shares of preferred stock were converted to 4,803
shares of common stock at $6.51875 per share.
NOTE 9 - DISCONTINUED OPERATIONS OF A BUSINESS SEGMENT
- ------------------------------------------------------
On January 1, 1997, the Company sold Manon Consulting, LTD at book
value. No revenues or expenses are included in the consolidated
financial statements for the year ended December 31, 1997 and 1996.
The statement of operations for the years ended December 31, 1996 and
1995 have been restated to remove the net losses of $3,169 and $1,320,
respectively. Gross revenues for the years ended December 31, 1996 and
1995
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 9 - DISCONTINUED OPERATIONS OF A BUSINESS SEGMENT
- ------------------------------------------------------
were $8,118 and $1,729. The Company reported a gain on the transaction
of $15,770. The following is a condensed balance sheet and statement
of operations of Manon Consulting, LTD, as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Condensed Balance Sheet
Current Assets $ 787 $ 533
Equipment, Net 7,203 11,132
Other Assets 64 138
-------- --------
$ 8,054 $ 11,803
======== ========
1996 1995
-------- --------
Current Liabilities $ 23,825 $ 24,405
Common Stock 7 7
Deficit (15,778) (12,609)
-------- --------
$ 8,054 $ 11,803
======== ========
Revenues $ 8,118 $ 1,729
Expenses 11,287 3,049
-------- --------
Net Loss $ (3,169) $ (1,320)
======== ========
</TABLE>
NOTE 10 - COMMITMENTS
- ---------------------
The company leases certain office equipment under noncancelable
operating leases for a period of less than three years. Total lease
expense charged to operations for the period ended March 31, 1998 is
$939.
Future minimum payments under noncancelable operating leases at March
31 are:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 2,204
2000 $ 2,204
2001 $ 2,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<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 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
at March 31, 1998, the Company had 12 MedCare Program sites
established, and was in the process of opening an additional 15 MedCare
Program sites in various parts of the country.
The Company plans to devote the majority of its resources to
establishing new MedCare Program sites, in operating existing centres,
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 $227,008 for the three month period ending
March 31, 1998 compared to $37,236 for the three month period ending
March 31, 1997, and $91,802 for fiscal 1997. Since the Company had only
12 MedCare Program centres operating as at March 31, 1998, of which 8
were recently opened (1 in November 1997, 1 in January 1998, 1 in
February 1998, and 5 in March 1998), the majority of the Company's
first quarter revenues were generated by
37
<PAGE>
previously established sites. Until public awareness builds amongst
incontinence sufferers and local area physicians through advertising
and word of mouth referrals from patients, 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 near future. During the next several
years, the Company expects to derive the majority of its potential
revenues from the opening of new MedCare Program centres in the United
States, and possible abroad.
For the three month period ending March 31, 1998, the Company's general
and administrative expenses increased to $765,710 compared to $197,731
for the corresponding period in 1997. The 1998 amount represents an
increase of 287% due primarily to the hiring of additional management
and nursing staff, expenses in moving to larger office facilities,
greater advertising and marketing expenses, increased expenses related
to financial public relations and increased legal and accounting fees
related to the Company's Form 10-SB2 and application for listing on the
NASDAQ Small Cap market.
The Company's net loss was $496,033, or $0.02 per share, for the first
quarter of 1998 compared to a net loss of $158,564, or $0.08 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 at March 31, 1998, the Company's cash balance was $4,225,880,
compared to $1,202,631 as at March 31, 1997. The Company has financed
its operations primarily through the exercise of Stock Options and
Share Purchase Warrants from a previous private placement totalling
$1,187,000 for the three month period ending March 31, 1998.
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, 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 favourable. There is no assurance that such
additional funds will be available for the Company to finance its
operations on acceptable terms, if at all.
38
<PAGE>
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
As detailed in the financial statements, the Company issued 24,000
common shares for the exercise of stock options ranging in prices from
$3.00 to $4.50 per share, issued 200,000 common shares at $6.00 per
share for the exercise of share purchase warrants from a previous
private placement completed at $6.00 per share, converted 3 Series A
Preferred Shares into 4,851 common shares, and converted 3 Series A
Preferred Shares into 4,803 common shares. The total common shares
issued during the three month period ending March 31, 1998 was 233,654
shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 EXHIBITS AND REPORTS ON FORM 8-K
None
39
<PAGE>
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/ Harmel S. Rayat
Harmel S. Rayat
Chairman of the Board and
Chief Executive Officer
Dated: August 19, 1998
40
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,225,880
<SECURITIES> 0
<RECEIVABLES> 149,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,375,319
<PP&E> 38,883
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,417,335
<CURRENT-LIABILITIES> 62,748
<BONDS> 0
0
39
<COMMON> 7,226
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,417,335
<SALES> 0
<TOTAL-REVENUES> 227,008
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 765,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,669
<INCOME-PRETAX> (496,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,033)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
