As filed with the Securities and Exchange Commission on November 13, 1998
Registration No. 333-41611
--------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM SB-2/A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
MEDCARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0429962B 8093
- --------- ----------- ----
(State or other (IRS Employer (Primary Standard Industrial
jurisdiction of Identification Number) Classification Code Number)
incorporation or
organization)
1515 West 22nd Street, Suite 1210
Oak Brook, Illinois 60521
(630) 472-5300
(Address, including zip code, and telephone number,
including area code, registrant's
principal executive offices)
--------------------------
Corporate Creation Enterprises, Inc.
686 North DuPont Boulevard, Suite 302
Milford, Delaware 19963
(302) 424-4866
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Gary R. Blume, Esq.
Blume Law Firm, P.C.
11801 North Tatum Boulevard, Suite 108
Phoenix, Arizona 85028-1612
Approximate date of commencement of proposed public offering: This is
for the resale of securities previously sold.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each Proposed
class of Amount Maximum Proposed Amount of
Securities to to be Offering Price Maximum Registration
be registered Registered Per Share (1) Offering Price (1) Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,500,000 $ 9.6875 $ 14,531,250.00 $ 4,541.02
Par Value $0.001, estimate
of shares underlying
conversion of Regulation D
offering dated June 1997.
Includes common stock
underlying conversion of
preferred, conversion warrants,
placement agent warrants and
preferred warrants
Common Stock, Par Value 500,000 $ 9.6875 $ 4,843,750.00 $ 1,513.67
$0.001, Underlying
1995 Stock Option Plan
Common Stock, Par Value 300,000 $ 9.6875 $ 2,906,250.00 $ 908.20
$0.001, Underlying
1996 Stock Option Plan
Common Stock, Par Value 500,000 $ 9.6875 $ 4,843,750.00 $ 1,513.67
$0.001, Underlying
1997 Stock Option Plan
Common Stock, Par Value 176,000 $ 9.6875 $ 1,705,000.00 $ 532.81
$0.001, Underlying Private
Placement, Regulation D
sold February 4, 1997
Common Stock, Par Value 600,000 $ 9.6875 $ 5,812,500.00 $ 1,816.41
$0.001, Underlying Warrants
(300,000) and Common Stock
sold in reliance on
Regulation D, July 7, 1997
TOTALS: $ 34,642,500.00 $ 10,825.78
- ------------------------------------------------------ ------------------------------------------------
</TABLE>
(1) Estimated solely for calculation of the amount of the registration fee
calculated pursuant to Rule 457(c).
The Exhibit Index appears on page 113 of the sequentially numbered pages
of this Registration Statement. This Registration Statement, including exhibits,
contains 445 pages.
2
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Item No. Sections in Prospectus
<S> <C>
1 Front of the Registration Statement and Outside
Front Cover of Prospectus..............................................Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus .....................................................Inside Front Cover Pages; Table of Contents
3 Summary Information and Risk Factors...................................Summary Information and Risk Factors
4 Use of Proceeds .....................................................Use of Proceeds
5 Determination of Offering Price........................................Determination of Offering Price
6 Dilution .....................................................Dilution
7 Selling Security Holders...............................................Selling Security Holders
8 Plan of Distribution...................................................Plan of Distribution
9 Legal Proceedings......................................................Legal Proceedings
10 Directors, Executive Officers, Promoters and Control Persons...........Management
11 Security Ownership of Certain Beneficial Owners and Management.........Principal Shareholders
12 Description of Securities..............................................Description of Securities
13 Interest of Named Experts and Counsel..................................Interest of Named Experts and Counsel
14 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.........................................Statement as to Indemnification
15 Organization within Last Five Years....................................Organization within Last Five Years
16 Description of Business................................................Description of Business
17 Management's Discussion and Analysis or Plan of Operations.............Management's Discussion and Analysis or
Plan of Operation
18 Description of Property................................................Description of Property
19 Certain Relationships and Related Transactions.........................Certain Transactions
20 Market for Common Equity and Related Stockholder Matters...............Market for Common Equity and
Related Stockholder Matters
21 Executive Compensation.................................................Executive Compensation
22 Financial Statements...................................................Index to Financial Statements
23 Changes In and Disagreements With Accountants on.......................Changes In and Disagreements With
Accounting and Financial Disclosure Accountants
24 Indemnification of Directors and Officers..............................Indemnification of Directors and Officers
25 Other Expenses of Issuance and Distribution............................Other Expenses of Issuance and Distribution
26 Recent Sales of Unregistered Securities................................Recent Sales of Unregistered Securities
27 Exhibits .....................................................Exhibits
28 Undertakings .....................................................Undertakings
</TABLE>
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MEDCARE TECHNOLOGIES, INC.
RESALE OF SECURITIES
MedCare Technologies, Inc. (the "Company") is registering for the resale of
up to 1,500,000 shares of Common Stock reserved pursuant to a Certificate of
Designation filed with the State of Delaware and the terms of a sale of
securities in reliance on Regulation D, Rule 506 (the "Offering"), which will
occur upon various conversions and warrant exercises.
The common stock is comprised of common stock converted under the terms of
the preferred shares ("Common"), common stock issued under conversion warrants
("Conversion Warrants"), common stock underlying the preferred warrants
("Preferred Warrants") and common stock underlying the placement agent warrants
("Placement Warrants"). The conversions and exercises must happen prior to
Common Shares being issued. Also registered for resale is 1,300,000 Shares of
Common Stock issued pursuant to Stock Option Plans for 1995, 1996 and 1997 (the
"Option Securities"). The options must be exercised prior to issuance of common
shares. Registration of the common stock underlying two private placements of
776,000 shares of common stock in reliance on Regulation D, Rule 506 is also
sought ("Offering Common"). The Common, Conversion Warrants, Preferred Warrants,
Option Securities and Offering Common (collectively, the "Securities") were each
offered separately and are separately transferable at any time from the dates of
the agreements through which they were issued. This registration statement is
for the resale of the above listed Securities.
The offering prices of the securities have been determined according to the
terms of a Certificate of Designation, the terms of a preferred stock offering,
Conversion Warrants, Preferred Warrants, Placement Warrants, Option Securities
under employee stock option plans for 1995, 1996 and 1997 and shares of a
private placement (the "Securities"). Those Securities have been previously
issued and sold in reliance on certain exemptions from registration. The
securities being registered for resale hereunder may be sold by the Selling
Security Holders, under those terms. The securities that are part of the private
placement and the employee stock option plans will be sold into the market. The
Selling Shareholders under the preferred stock must first convert their shares
of preferred into common stock under a formula that provides for different
numbers of common stock to be issued depending upon the time of the conversion
and the then-market price of the common stock. The common stock, once converted,
may be sold into the market. All selling security holders, whether under the
preferred stock, the private placement or the employee option plan, may sell
their stock at the then-market price or at a price greater or less than that of
market price, which may affect the market for the Company's stock. The Selling
Security Holders and brokers involved in the resales may be deemed to be
underwriters under the Securities Act of 1933. The Company will receive payments
upon exercise of warrants, opinions, and the other Securities registered for
resale herein, but will not receive any proceeds from the resales of Common
Stock by the Selling Security Holders or for any warrants converted into stock
via cashless exercise. See "RISK FACTORS", "DESCRIPTION OF STOCK -- COMMON STOCK
WARRANTS."
Prior to this Registration, the Common Stock of the Company has been
traded on the OTC Bulletin Board. It is anticipated that upon completion of this
Registration the Securities of the Company will be listed on The Nasdaq Small
Cap MarketTM ("Nasdaq") under the symbol MCAR. The application has been filed
and an amendment filed to that application on March 31, 1998. The Company is
required to file, and has filed, periodic reports with the Securities and
Exchange Commission. The most recent filing has been the Company's Form 10Q-SB,
quarterly report for the quarter ended March 31, 1998.
The summary of the prospectus required by Item 503 of Regulation S-B
regarding material risks in connection with the purchase of the securities may
be found under Item 3 of this Form SB-2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Public Proceeds to Company
Total $N/A $N/A
========== ======================== ======================
The securities registered pursuant to this SB-2 are for resale only and will be
offered to the public. The underlying sales have been completed and only the
resale of these securities is being registered.
The date of this Registration Statement is November 13, 1998
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH ANY OFFER
CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT
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BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
CONSTITUTE AN OFFER OF ANY SECURITIES OR AN OFFER OF THE SHARES IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company with the Commission can be inspected at Room 1024 of the office of the
Commission, 450 Fifth Street N.W., Washington, D.C. 20549, or at its Regional
Offices located at Suite 1300, 7 World Trade Center, New York, New York 10048,
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such material can be obtained at prescribed rates
by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Electronic filing made through the
Electronic Data Gathering Analysis and Retrieval System are also publicly
available through the Securities and Exchange Commission's Web sit
(http://www.sec.gov).
Investors are cautioned that this registration statement contains
certain trend analysis and other forward looking statements that involve risks
and uncertainties. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward looking statements. These
statements are based on current expectations and projections about the
semiconductor industry and assumptions made by the management and are not
guarantees of future performance. Therefore, actual events and results may
differ materially from those expressed or forecasted in the forward looking
statements due to factors such as the effect of changing economic conditions,
material changes in currency exchange rates, conditions in the overall
semiconductor market (including the historic cyclicality of the industry), risks
associated with product demand and market acceptance risks, the impact of
competitive products and pricing, delays in new product development and
technological risks and other risk factors identified in the Company's filings
with the Securities and Exchange Commission, including the Company's Form 10-K
Report.
5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
MedCare Technologies, Inc. (the "Company") manages urinary incontinence
clinics throughout the United States utilizing a proprietary biofeedback-based
protocol known as the MedCare Program. The Company's executive offices are
located at 1515 West 22nd Avenue, Suite 1210, Oak Brook, Illinois, 60521. Its
telephone number is (630) 472-5300.
THE REGISTRATION
Securities to be Registered: MedCare Technologies, Inc. (the "Company") is
- --------------------------- registering for the resale of up to 1,500,000
shares of Common Stock reserved pursuant to a
Certificate of Designation filed with the State
of Delaware and the terms of a sale of
securities in reliance on Regulation D, Rule 506
(the "Offering"), which will occur upon various
conversions and warrant exercises. The common
stock is comprised of common stock converted
under the terms of the preferred shares
("Common"), common stock issued under conversion
warrants ("Conversion Warrants"), common stock
underlying the preferred warrants ("Preferred
Warrants") and common stock underlying the
placement agent warrants ("Placement Warrants").
The conversions and exercises must happen prior
to Common Shares being issued. Also registered
for resale is 1,300,000 Shares of Common Stock
issued pursuant to Stock Option Plans for 1995,
1996 and 1997 (the "Option Securities"). The
options must be exercised prior to issuance of
common shares. Registration of the common stock
underlying two private placements of 776,000
shares of common stock in reliance on Regulation
D, Rule 506 is also sought ("Offering Common").
The Common, Conversion Warrants, Preferred
Warrants, Option Securities and Offering Common
(collectively, the "Securities") were each
offered separately and are separately
transferable at any time from the dates of the
agreements through which they were issued. This
registration statement is for the resale of the
above listed Securities.
Offering Price: All shares were offered under the terms of their
- --------------- individual offerings and proceeds have been
received by the Company. This registration is
for the resale of those Securities.
Shares of Common Stock
Outstanding: As of December 31, 1997 there are 6,992,185
- ------------ outstanding shares of common stock. If all
options, warrants and other instruments are
exercised as detailed in this Registration
Statement there will be 10,568,185 shares
outstanding. Included in this total are
1,300,000 shares to be issued if all
employee stock options are exercised for the
1995, 1996 and 1997 stock option plans and
970,320 shares issued if the conversion,
warrants and preferred warrants are all
exercised.
Use of Proceeds: The Category "Use of Proceeds" is not applicable
- ---------------- to this registration, as it is being conducted
for purposes of resale of previously offered
securities.
Risk Factors: Investment in the Company involves certain
- ---------------- general business risks and risks specifically
inherent in the medical industry. As detailed
elsewhere, this is a start-up company subject to
federal and state regulation. Conversion of
preferred stock and related warrants may
obligate the Company to issue more shares than
the number to be registered. In theory, there is
no limit to the number that would be required,
should the share price fall substantially below
historical levels; this may have a negative
effect on the market price of the shares of the
common stock of the Company. This registration
involves the resale of up to 3,576,000 shares of
common stock of the Company. Past investors
received the protection of the regulations
regarding restricted securities and the
inability of the holder to freely trade those
securities. With this registration the
securities will be freely tradeable and may
cause a negative impact on the market if
exercised and traded. See "Risk Factors."
6
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SUMMARY FINANCIAL INFORMATION
The following tables set forth the summary financial information and
other equity information of the Company. The summary financial information in
the tables is derived from the financial statements of the Company and should be
read in conjunction with the financial statements, related notes and other
financial information included herein. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS" and "FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
Statement of Operations Data
- ----------------------------
Years Ended
December 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues $ 0 $ 0 $91,802
Expenses
General and Administrative 689,713 452,037 1,515,459
------- ------- ---------
Total Expenses 689,713 452,037 1,515,459
Other Income and Expenses
Interest Income 0 2,801 119,146
Loss from Discontinued
Operations 0 0 (4,489)
Gain on Sale of Subsidiary 0 0 15,770
- -
Net Loss $(689,713) $(449,236) $(1,293,230)
========== ========== ============
Net (Loss) Per Share of
Common Stock $(0.11) $(0.07) $(0.18)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
- -------------------
ASSETS
As of 12/31/96 As of 12/31/97
<S> <C> <C>
Cash $219,775 $3,440,791
Accounts Receivable - Trade 7,351 47,286
Prepaid Expenses 29,696 63,813
------ ------
Total Current Assets 256,822 3,551,890
Property and Equipment
Office Equipment 2,429 21,069
Medical Equipment 14,798 24,799
------ ------
17,227 45,868
Less Accumulated Depreciation 7,796 17,342
Net Book Value 9,431 33,526
Other Assets
Intangible Assets-The MedCare
Program - Note 3 1,000 1,000
Security Deposits 0 0
- -
Total Other Assets 1,000 1,000
Total Assets $267,253 $3,586,416
======= ========
</TABLE>
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LIABILITIES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $15,796 $19,791
Notes Payable - Related Parties 1,000 25,000
Notes Payable - Officers 0 12,500
- ------
Total Current Liabilities 16,796 57,291
Stockholders' Equity
Preferred Stock: $0.25 Par Value, Authorized
1,000,000; Issued and Outstanding, 165
Convertible Series A Shares at December 31,
1997 and None at December 31, 1996 41 0
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 6,992,185
Shares at December 31, 1997 and 6,445,185 at
December 31, 1996 6,992 6,445
Additional Paid-In Capital 6,107,314 1,372,631
Loss Accumulated During the Development Stage (2,544,727) (1,169,693)
----------- -----------
Total Stockholders' Equity 3,596,620 209,383
--------- -------
Total Liabilities and Stockholders' Equity $3,586,416 $266,674
========== ========
</TABLE>
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RISK FACTORS
The securities being registered for resale hereby are speculative and
involve a high degree of risk of loss of part or all of the investment. Exercise
of the options, warrants and other conversions of the Securities could result in
variations in the market price for the common stock of the Company. This
variation in the market price of the common stock may have negative effects on
all holders of common stock, those covered by this registration statement and
those other shareholders of the Company. Resale of the Securities registered may
cause market volatility that the Company cannot predict.
No Market Studies
- -----------------
In formulating its business plan, the Company has relied on the
judgment of its officers, directors and consultants. No formal independent
market studies concerning the demand for the Company's proposed services have
been conducted, nor are any planned. The effect of the resale of the Securities
has not been analyzed for its effect on the operations of the Company, the
ability of the Company to obtain funds or financing or the variations in share
price do to additional shares being available for resale.
Lack of Operating History
- -------------------------
Although the Company was organized in 1986, it did not become active
until 1995 and has been continually developing its Program since that time.
Since the Company has not proven the essential elements of profitable
operations, investors will be furnishing venture capital to the Company and will
bear the risk of complete loss of their investment in the event the Company's
business plan is unsuccessful. The Company has only limited experience in
managing the clinics and is expanding its operations which may or may not
provide profits to the Company. The Company has had no revenues in 1995 or 1996
and only $91,802 in 1997. The Company has also not been profitable, having an
accumulated loss of $1,169,693 in 1996, which increased to an accumulated loss
of $2,544,727 in 1997.
Resale of Securities May Negatively Affect Funding Attempts
- -----------------------------------------------------------
The resale of the securities may cause difficulty in the Company
obtaining funding which may impede the operations in a negative way. This
registration will result in up to 3,576,000 shares of the Company's Common Stock
being introduced into the market. This will have the effect of causing a
dilution of the share price of the Common Stock. This dilution may cause various
potential funders and financiers to not consider the Company or to cause the
Company to receive less favorable funding due to the dilution of the market
value of the Company. The Shares registered will cause the Company to receive
funds as a result of the exercise of the options and warrants at a price less
than the current market price of the Common Stock. This will result in downward
pressure on the price of the Common Stock. If the price of the Common Stock is
reduced some potential financiers will either wait to see what effect the Shares
will have on the market or offer funding at rates unacceptable to the Company.
Continued Control by Existing Management
- ----------------------------------------
The Company's management currently owns a majority stake in the
Company's outstanding Common Stock. Many of the shares of Common Stock will be
issued as a result of the exercise of the Options, Warrants and other
instruments will provide that management will obtain additional shares in the
common stock of the Company. Accordingly, new shareholders will lack an
effective vote with respect to the election of directors and other corporate
matters.
Dividends
- ---------
The Company's Board of Directors presently intends to cause the Company
to follow a policy of retaining earnings, if any, for the purpose of increasing
the net worth and reserves of the Company. Therefore, there can be no assurance
that any holder of Common Stock will receive any cash, stock or other dividends
on his shares of Common Stock. Future dividends on Common Stock, if any, will
depend on future earnings, financing requirements and other factors. Since the
time of inception the Company has paid no dividends to shareholders.
Dependance on Executive Officers
- --------------------------------
The Company is highly dependent on the services of its officers.
Attracting and retaining qualified personnel is critical to the Company's
business plan. No assurances can be given that the Company will be able to
retain or attract such qualified personnel or agents, or to implement its
business plan successfully. Should the Company be unable to attract and
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retain the qualified personnel necessary, the ability of the Company to
implement its business plan successfully would be limited.
Dilution to Shareholders
- ------------------------
The securities currently held by investors will be subject to dilution
in market value as more securities are available for trading. If all the
securities, options, warrants and employee stock options were to be exercised it
would result in an additional 3,576,000 shares being brought into the market.
These shares will be free trading and will cause the market price of the shares
of common stock of the Company to decrease. This registration for resale removes
the protection afforded to current shareholders under Rule 144, regarding the
issuance and resale of restricted securities. Under that rule securities were
required to be held for a period of time and only resold under the provisions of
the rule.
Nasdaq Eligibility and Maintenance
- ----------------------------------
Under the current rules promulgated by the Securities and Exchange
Commission (the "Commission"), for Nasdaq SmallCap listing, a company must have
at least $4,000,000 in total assets, at least $2,000,000 in stockholders'
equity, and a minimum bid price of $3.00 per share. For continued listing, a
company must maintain at least $2,000,000 in total assets, at least $1,000,000
in stockholders' equity and a minimum bid price of $1.00 per share. The
Company's Nasdaq SmallCap Market application was accepted on July 15, 1998 and
the Company began trading on that market on July 20, 1998. If, at any time after
issuance, the Company's Common Stock is not listed on Nasdaq, and no other
exclusion from the definition of a "penny stock" under the Securities and
Exchange Act of 1934, as amended, were available, transactions in the Securities
would become subject to the penny stock regulations which impose additional
sales practice requirements on broker-dealers who sell securities.
If the Company should experience losses from operations, it may be
unable to maintain the standards for continued listing on the Nasdaq SmallCap
market and the listed securities could be subject to delisting from Nasdaq
Trading, if any, in the listed securities would thereafter be conducted in the
over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Company's Securities.
Risk of Low Priced Stocks
- -------------------------
If the Company's Securities were delisted from Nasdaq, and no other
exclusion from the definition of a "penny stock" under applicable Securities and
Exchange Commission regulations were available, such Securities would be subject
to the penny stock rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as investors with net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase and
must have received the purchaser's written consent to the transaction prior to
sale.
Adverse Effect of Shares Eligible for Future Sale
- -------------------------------------------------
Substantially all of the 6,992,185 outstanding shares of Common Stock
of the Company are freely tradeable, without restriction or registration under
the Securities Act (other than the sale volume restrictions of Rule 144
applicable to shares held beneficially by persons who may be deemed to be
affiliates of the Company). The Company's Directors, Officers and family members
of the Officers and Directors are under no lockup letters or other form of
restriction on the sale of their securities. Following this registration an
additional 3,576,000 shares will be available for sale by the affiliates and
other persons. This is an estimate of the probable number of shares to be
resold. Under the terms of this registration statement, up to 3,576,000 shares
may be resold, depending on the various terms and agreements in place and the
occurrence of certain contingencies. Any sale of these securities could have a
detrimental effect on existing shareholders.
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 certain proprietary aspects of its
treatment program for bladder and bowel incontinence and its business and
marketing models and strategies. 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
10
<PAGE>
proprietary protocols. 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. While certain proprietary
aspects of MedCare's clinical and business protocols remain an important part of
the business, the Company believes its long term success as a business will
depend primarily upon its high quality clinical outcomes and service, continued
business development and marketing skills.
Reimbursement and Related Matters
- ---------------------------------
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.
Regulation by Federal and State Government
- ------------------------------------------
The business of the Company is heavily regulated at a federal and state
level. Legislation relating to the manner in which patients receive treatment is
being enacted on a continuous basis. This legislation may have a negative effect
on the way the Company does business in ways that cannot be predicted by the
Company. This poses a serious risk to the viability of the programs of the
Company and whether or not the Company can do business in the future. Should
legislation be enacted negative to the programs of the Company it could cause
the business of the Company to terminate.
Regulation and Changes in Health Care Programs
- ----------------------------------------------
Under the Practice Management Agreement, MedCare is not a provider of
health care services. MedCare merely supplies personnel, equipment and
proprietary techniques to providers of health care. The physicians or medical
groups that contract with MedCare are the providers of services to their own
patients. MedCare simply manages the incontinence treatment programs in the
physician offices. If properly structured, implemented and operated, these
arrangements should not create a referral relationship between the physician and
MedCare. If a Practice does not properly implement and operate the MedCare
Program, a referral relationship may be inadvertently created which could cause
the business of the Company to be terminated.
Regulation and Referral Issues
- ------------------------------
There are also referral issues relevant to the operation of an
incontinence treatment program by a physician or medical group. A physician
makes a self-referral when he or she refers a patient for therapy provided
through the physician's incontinence treatment program. In particular, these
self-referral arrangements are encompassed by the referral prohibitions of the
federal "Stark II" physician referral statute (42 U.S.C. S.1395nn) unless there
is an applicable exception. The MedCare Program and the Program Management
Agreement are designed to allow medical groups and physicians that contract for
MedCare's management services to meet that exception. Again, if a Practice does
not properly implement and operate the MedCare Program, a referral relationship
may be inadvertently created which could cause the business of the Company to
terminate. See "THE PROGRAM MANAGEMENT AGREEMENT -- GOVERNMENTAL REGULATION AND
THE PROGRAM MANAGEMENT AGREEMENT."
Going Concern Status
- --------------------
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.
11
<PAGE>
Effect of Market Price on Shares Issued
from Warrants and Preferred Stock Conversions
- ---------------------------------------------
Under the conversion formulas various amounts of shares could be issued
depending upon the price of the Company's stock at the time of the exercise of
the options and warrants. The formula [[(.08)(N/365)(10,000)+10,000] /
Conversion Price] provides that the number of shares of Common Stock issuable
for one share of preferred is variable and is dependent upon the Conversion
Price (as defined). N is the number of days from the Closing Date, July 8, 1997.
The formula for the Conversion Price provides it will be the lesser of $7.346,
which is 115 percent of the average closing bid price for the five trading days
ending on June 6, 1997, or 80 to 90% of the average bid price for the five days
preceding the conversion. The following table indicates various amounts of
Common Stock that would be issued assuming 80% or 90% as the X variable and
variable average bid prices:
<TABLE>
<CAPTION>
Column 1 2 3 4
Ave Bid X% No of Shares of Total Common
Price Common Assume all exercised
<S> <C> <C> <C>
1 80 13,500 6,682,500
1 90 12,000 5,940,000
3 80 4,500 2,227,500
3 90 4,000 1,980,000
3.75 80 3,600 1,782,000
3.75 90 3,200 1,584,000
5 80 2,700 1,336,500
5 90 2,400 1,188,000
6 80 2,317 1,146,915
6 90 2,060 1,019,700
7 80 1,929 954,855
7 90 1,714 848,430
</TABLE>
The first column is a listing of the possible share price of the common
stock. In column two, X% is to indicate the percentage, highest and lowest, that
could be applied to the conversion price as indicated in the equation. The
number of shares of common stock is the result of the application of the formula
[((.08)(N/365)(10,000) + 10,000)/Conversion Price is detailed in column three.
The fourth column assumes all warrants and options are exercised and 330
preferred shares are converted resulting in a calculation based on the following
formula: [column 3 x 330 x 3].
The Common Stock of the Company has a price range as indicated below
under Price Range of Common Stock. The price has not been below $3.75 since
1995. The Company estimated the overage to be 529,650 and felt it was adequate
to cover a reduction in the share price. The risk is that if the share price is
below $7.346, additional shares may be required under the terms of the
conversion, as indicated in the table. In theory, there is no limit to the
number of shares that would have to be issued should the price fall
substantially below historical levels; moreover, if the Selling Security Holders
should happen to sell most or all of their Common Stock at once, or choose to
sell their shares at below-market price, this may result in a decline in the
market price of the Company's common stock. Management believes, however, that
the registration of 1,500,000 shares provides enough overallotment shares in the
event of falling share price. As indicated in the table, the share price would
have to go below approximately $3.75 before the amount of shares registered
would have to be increased beyond that number. The lowest price of the Common
Stock during the most recent quarter (Q3 1998) was $6.00 per share, the first
time since the third quarter of 1997 that its price has fallen below the
benchmark price of $7.346. If the options and warrants were exercised at that
time, the $6.00 figure would be used as the Conversion Price, and, as indicated
by the above table, between 1,019,700 and 1,146,915 shares of Common Stock
(depending on the number of months between the last closing and the date of
conversion; see more fully at page 26) would be issuable. Should the price
decline even further , management has the ability to redeem these shares, and it
is anticipated that management would exercise that right should the share price
fall so precipitously. See "SELLING SECURITY HOLDERS" and "DESCRIPTION OF
SECURITIES -- COMMON STOCK."
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth for the periods indicated the high and
low closing prices for the common stock, $0.0001 per value, of the Company (the
"Common Stock") in transactions on the OTC Bulletin Board.
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ------- ---- ----
Quarter High Low High Low High Low High Low
- ------- ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st $9.375 $7.375 $8.1875 $5.125 $4.785 $4.25
2nd $11.25 $9.00 $8.25 $6.25 $5.625 $4.75
3rd $9.31 $6.00 $9.00 $6.25 $5.625 $4.75
4th $8.125 $7.625 $5.125 $4.375 $6.00 $3.75
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
<S> <C> <C>
Current Liabilities
Accounts Payable $ 57,343 $ 15,796
Notes Payable-- Officers 13,500 0
----------- -----------
Total Current Liabilities 70,843 16,796
Stockholders' Equity:
Preferred Stock, $.25 Par Value,
Series A, Authorized 1,000,000
Shares; Issued and Outstanding, at
July 31, 1997, 165 Shares and
at December 31, 1996, NONE 0 41
Common Stock, $0.001 Par Value,
Authorized 100,000,000 Shares;
Issued and Outstanding,
6,992,185 Shares at December 31,
1997 and 6,445,185 Shares at
December 31, 1996 6,445 6,992
Additional Paid in Capital 1,671,631 6,107,314
Loss Accumulated During
The Development Stage (1,182,296) (2,554,727)
----------- -----------
Total Stockholders' Equity 495,780 3,596,620
-------- -----------
Total Liabilities and Stockholders' Equity $ 566,623 $ 3,586,416
=========== ===========
</TABLE>
USE OF PROCEEDS
This registration is for purposes of resale of issued shares only. As a
result, there are no use of proceeds to be disclosed. The uses of proceeds
obtained from the offerings of which these securities were a part are disclosed
in the section entitled "Description of Business." The Company will not receive
any proceeds from the sale of the selling security holders' securities. The
Company will receive proceeds from the exercise of warrants and stock options as
discussed elsewhere in this registration statement. The use of those proceeds
has been detailed in each of their offering memorandums.
13
<PAGE>
DETERMINATION OF OFFERING PRICE
Because this registration is for purposes of resale of issued shares
only, there was no determination of offering price. The manner in which the
offering prices for the offerings, warrants and options of which these
securities are a part have been previously disclosed under the terms of each of
the offerings, warrants and options.
DILUTION
This registration statement is for the resale of certain securities as
defined elsewhere. An additional 3,576,000 shares of common stock will be
available for various shareholders to sell on the market without restriction,
other than restrictions to affiliates and control persons. As of December 31,
1997, 6,992,185 shares were of common stock of the Company was outstanding. The
shares have been trading at a range of $7.625 to $8.125 for the fourth quarter
of 1997, making the market value of the Company between $53,315,410 and
$56,811,503. If we assume all additional shares are to be exercised and made
available for sale and that the market value of the Company remains set, the
introduction of additional shares to the market could have a detrimental effect
on the price of the shares.
SELLING SECURITY HOLDERS
The following table sets for the number and percentages of shares of
Common Stock that are being registered by this Prospectus for the account of
Series A Preferred Selling Shareholders. The Series A Preferred Selling
Shareholders will receive shares of Common Stock upon conversion of the Series A
Convertible Preferred Stock. They also have the option of obtaining additional
shares of common stock under "Conversion Warrants". The Series A Preferred
Shareholders can also convert what are termed "Preferred Warrants" providing
additional shares of preferred stock can be purchased under the same basic terms
of the initial offering. At present 165 shares of the Series A Preferred Stock
have been sold and 165 additional shares have been acquired under the Preferred
Warrants under various agreements dated June, 1998. The Preferred Shares have an
additional conversion feature to allow for the obtaining of common stock in
exchange for the Preferred Shares. This registration statement is for the resale
of the common stock underlying the Series A Preferred Stock.
This paragraph will detail the assumptions and attempt to calculate the
number of shares to be registered in relation to the terms of the private
offering. The previous private placement offering has been closed and 165 actual
shares have been sold. As detailed below, an additional 165 shares have been
sold pursuant to "Preferred Warrants" as defined in the Subscription Agreement
of the Regulation D offering the 20th of June 1997. The formula for the
conversion provides a method for determining the number of shares of common
stock resulting from the conversion of preferred shares. The formula is (.08)
times the number of days since the close divided by 365 times 10,000 plus 10,000
divided by the conversion price equals the number of shares of common stock
provided for each preferred share purchased. The conversion price is the lower
of $7.346 or a price based on the number of months between the last closing and
the date of conversion times the Closing Bid Price of the Company's common stock
for five days preceding the conversion reduced 10% to 20%, depending on the
number of months between the last closing and the date of conversion. The 3
month range for the price of the common stock of the Company from January 6,
1998 to April 6, 1998 was approximately $7.65 to $9.375. This range is in excess
of the minimum price of $7.346, causing the minimum price to be used in the
calculations. Only 330 (including "Preferred Warrant" shares) of the possible
1000 shares were sold and no additional shares will be sold. In this estimate of
the range, $7.346 will be used as the denominator. If these numbers are inserted
in the equation, the total number of shares of common stock required to be
issued is 258,302, assuming full conversion. The number could be as low as 0 if
none are converted. The nine, twelve and fifteen month warrants also provide
that an additional 258,302 shares could be converted under those separate
warrant agreements. Under terms of the offering, an additional warrant to
purchase the same number of shares of preferred shares exists under similar
terms with limitations on the sale of the underlying common stock. This would
provide an additional 258,302 shares of common stock could be issued, if all
preferred warrants are converted, which has occurred. This provides that 774,906
shares may be obtained by the preferred holders if they exercise the 9, 12 and
15 month warrants, and exercise the preferred warrants for preferred stock,
which then can be converted to common stock. The additional shares are for
overage allowance in the event the share price drops below $7.346 on the date of
the exercise of the conversion. The Registration Rights Agreement provides that
1,500,000 shares of common stock are to be registered for resale as a part of
this registration statement. This amount is in excess of the 774,906 calculated
above, but is required as part of the Registration Rights agreement and to
provide excess shares in the event of change in the underlying assumptions due
to revisions to the warrant agreements (even though no such revisions are
planned or expected by the Company), or in the event of changes in the share
price. The shares to provide for the placement agent are 33,692 leaving
1,466,308 for the shares to be registered for resale by the purchasers of the
preferred shares. This will provide for an overallotment of 691,402 shares.
The following table lists the purchasers of the Preferred Stock and an estimate
of the Common Stock registered for resale:
14
<PAGE>
<TABLE>
<CAPTION>
Total Number of
Preferred Shares Common Shares Common Shares Common Shares Percentage
Relation to Owned Prior Owned Prior Offered for Owned After Owned After
Name(4) Registrant to Registration to Registration(1,2,6) Holder's Account Registration (3) Registration
- ------- ---------- --------------- ---------------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lakeshore International None 50 117,398 234,796 -0- 0
Overage (5) 104,747
Queensway Financial
Holdings Limited None 200 469,593 939,186 -0- 0
Overage (5) 418,990
Concordia Partners L.P. None 50 117,398 234,796 -0- 0
Overage (5) 104,747
The Matthew Fund N.V. None 30 70,517 141,034 -0- 0
Overage (5) 62,918
Placement Agent Shares None 33,692 33,692 -0- 0
Totals 330 1,500,000 1,500,000 -0- 0
Adjustments(8):
Queensway Financial
Holdings Limited - Shares
Lost due to early conversion 52,177
The Matthew Fund N.V. --
Shares Lost due to early conversion 15,671
</TABLE>
(1) The shares depend on various factors contained below and in the Preferred
Stock offering documents. These totals reflect the conversion of the preferred
stock and exercising of the conversion warrants and the preferred warrants.
(2) Percentage of shares owned prior to this offering is equal to less than one
percent of the shares outstanding prior to this offering.
(3) Assuming that all shares are sold by the Series A Preferred Selling
Shareholders and that all conversions and warrants are exercised.
(4) Based on 9,124,505 shares outstanding; assumes all of the shares are sold by
Series A Preferred Selling Shareholders and all conversions and warrants are
exercised.
(5) Excess shares required as part of the Registration Rights agreement in the
event of change in the underlying assumptions. This agreement states that the
Company shall provide for "such additional indeterminate number of shares of
Common Stock as are required to effect the full conversion of the Preferred
Stock and the full exercise of the Warrants, due to fluctuations in the price of
the Company's Common Stock." Common Stock shares available for resale by each
shareholder would not decline below the specific amounts set forth in the table
for each shareholder and the shares may increase above those specific amounts in
the event of a decline in the price of the Company's Common Stock. The table
listed in the Risk Factors details the possible number of shares for various
share price amounts. These shares have been allocated among the four purchasers
pro rata. The average shares listed could cause the actual number of shares
available to increase if the stock price (market) varies when the exercise or
conversion occurs.
(6) All shares are rounded to the nearest share.
(7) The above table assumes the exercise price on the shares will be $7.346. As
indicated in the Risk Factors a reduction in the share price would cause the
number of common shares to be issued to increase. The number of shares
registered, 1,500,000 would be inadequate if the share price were to go below
$2.2786 and all holders of preferred shares were to exercise their options at
the reduced share price.
(8) The adjustment figure represents potential shares of common stock lost due
to early conversion of the Preferred Stock. The Matthew Fund N.V. lost its 12
and 15 month warrants and Queensway Financial Holdings Limited lost its 15 month
warrants. For simplicity's sake, these shares will be considered part of the
overallotment.
The following shares indicate the number of promoter shares detailed in
the above table. The following table details the holders of the shares and
warrants.
15
<PAGE>
<TABLE>
Common Stock Warrants held by Promoter:
<CAPTION>
Shares to
Shares Owned be Offered Shares Percentage
Relation to Prior to for Holder's Owned After Owned After Exercise
Name Registrant Registration(1) Account Registration Registration Price Expiration
- ---- ---------- --------------- ------- ------------ ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Swartz Family Partnership LP None 10,346 10,346 10,346 0.113 $7.346 June 20, 2002
Kendrick Family Partnership LP None 10,346 10,346 10,346 0.113 $7.346 June 20, 2002
Carlton M. Johnson, Jr. None 1,750 1,750 1,750 0.019 $7.346 June 20, 2002
Davis C. Holden None 1,000 1,000 1,000 0.011 $7.346 June 20, 2002
Dwight B. Bronnum None 750 750 750 0.008 $7.346 June 20, 2002
Glenn R. Archer None 2,000 2,000 2,000 0.022 $7.346 June 20, 2002
Michael E. Stough None 3,000 3,000 3,000 0.033 $7.346 June 20, 2002
P. Bradford Hathorn None 1,750 1,750 1,750 0.019 $7.346 June 20, 2002
Robert L. Hopkins None 750 750 750 0.008 $7.346 June 20, 2002
Glenn A. Adams None 2,000 2,000 2,000 0.022 $7.346 June 20, 2002
Total Number of Warrants None 33,692 33,692 33,692 0.37 $7.346 June 20, 2002
</TABLE>
(1) Of the 33,692 Swartz warrants, 27,192 have been exercised using the cashless
exercise option. 6,500 warrants remain unexercised as of June 19, 1998. (2)
Application has been made by all promoters to remove the restrictions on the
shares issued using the cashless exercise in reliance on Rule 144.
These warrants have been issued pursuant to a Placement Agent Agreement
between the Company and Swartz Investments, LLC, a Georgia limited liability
company, as Placement Agent. According to this agreement, the Placement Agent
agreed to find subscribers for the Company's Preferred Stock Series A offering
in exchange for a placement fee of 5-1/2% of the aggregate gross subscription
proceeds of the offering, a non-accountable expense allowance of 2% of the
aggregate gross subscription proceeds, and, if a subscriber exercises a
preferred warrant, a fee consisting of 7-1/2% of the aggregate exercise price,
as defined in the Preferred Warrant. The Placement Agent Agreement also grants
to the Placement Agent three sets of warrants (i) warrants to purchase stock
equal to 7-1/2% times the aggregate gross subscription proceeds divided by the
Fixed Conversion Price (as defined in the Certificate of Disclosure), (ii)
warrants to purchase stock equal to 7-1/2% of the number of Conversion Warrants
placed in the offering (as defined in the Subscription Agreement) and (iii) upon
the exercise of a Preferred Warrant by a Stockholder, warrants to purchase stock
equal to 7-1/2% of the gross proceeds received by the Company upon the exercise
of the Preferred Warrant divided by the Exercise Price (as defined in the
Preferred Warrant). All three of these warrants are for a period of five years
at a fixed conversion price of $7.346 per share, as defined in the Certificate
of Disclosure. The Placement Agent Agreement also contains cashless exercise and
reset provisions. This registration statement is for the common stock that
underlies these warrants. The total has been included in the estimate of common
stock to be registered.
The following is a list of securities held by persons holding options
pursuant to the Company's 1995,1996 and 1997 stock option plans:
<TABLE>
<CAPTION>
Amount and
Shares Held Shares to be Shares Held Percentage
Relation to Prior to Offered for After Owned After
Name Registrant Registration Holder's Account Registration Registration(1)
- ---- ---------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael M. Blue Director 119,000 115,000 4,000 0.06%
Valerie Boeldt- Former
Umbright Director 155,000 155,000 -0- 0
Jeff Aronin President 251,000 251,000 1,000 0.001%
Bhupinder Mann Employee 100,000 100,000 -0- 0
Ranjit Bhogal Employee 310,000 310,000 -0- 0
Herdev S. Rayat None 100,000 100,000 -0- 0
Frank Mueller None 10,000 10,000 -0- 0
Sarbjit Thouli None 10,000 10,000 -0- 0
Grant Mackney None 10,000 10,000 -0- 0
Todd Weaver None 10,000 10,000 -0- 0
Dave Gamache None 10,000 10,000 -0- 0
Terry Johnson Employee 200,000 200,000 -0- 0
</TABLE>
16
<PAGE>
(1) Based upon outstanding shares on July 13, 1998 in the amount of 7,250,370.
Additional shares and options being offered for resale subject to this
registration statement are held by the following entities:
<TABLE>
<CAPTION>
Amount and
Shares Held Shares to be Shares Held Percentage
Relation to Prior to Offered for After Owned After
Name Registrant Registration Holder's Account Registration Registration(1)
- ---- ---------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Greystone
Management Ltd. None 176,000 176,000 -0- 0
Matrix Capital
Corporation None 600,000(2) 600,000 -0- 0
</TABLE>
(1) Based upon outstanding shares on July 13, 1998 in the amount of 7,250,370.
(2) The 600,000 shares listed for Matrix Capital Corporation consists of 300,000
shares and 300,000 options.
Series A Preferred Selling Shareholder Plan of Distribution
- -----------------------------------------------------------
The Series A Preferred Selling Shareholders are not restricted as to
the prices at which they may sell their shares and sales of such shares at less
than the market price may depress the market price of the Company's Common
Stock. Further, the Series A Preferred Selling Shareholders are not restricted
as to the number of shares which may be sold at any one time, and it is possible
that a significant number of shares could be sold at the same time which may
also have a depressive effect on the market price of the Company's Common Stock.
However, it is anticipated that the sale of the Common Stock being offered
hereby will be made through customary brokerage channels either through
broker-dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may then resell the shares in the
over-the-counter market, or a private sale in the over-the-counter market or
otherwise, as negotiated prices related to prevailing market prices and
customary brokerage commissions at the time of the sales, or by a combination of
such methods. Thus, the period for sale of such shares by the Series A Preferred
Selling Shareholders may occur over an extended period of time. The preferred
share holders exercised the preferred warrants on or about June 5,1998 through
June 10, 1998 and executed various exercise forms. All 165 preferred
shareholders exercised the preferred warrants, as detailed below:
As a result of delays in registration which resulted in the original
contractual deadline being passed, the parties entered into an Agreement and
Amendment and an Escrow Agreement. In addition to this an investor warrant was
granted for the 3 month purchase of common stock under the terms of the warrant.
The Agreement and Amendment provided for the exercise of all Preferred Warrants
for Preferred Stock pursuant to the original agreement (the "New Preferred
Stock") and for an increase in the maximum amount of Series A Preferred Stock to
be offered from $3,000,000 to $3,300,000. The New Preferred Stock has been
placed in an escrow account and will be released on the date the Registration
Statement becomes effective; if the registration statement is not effective as
of November 20, 1998, the Company will redeem the New Preferred Stock at a rate
of $10,000 per share. The Agreement and Amendment also provided that no late
filing fees or late registration payments would accrue until after November 20,
1998 for the New Preferred Stock only. This Agreement permits New Preferred
Stock holders to convert only up to 20% of their New Preferred Stock into common
stock each month for the first five months after the date the Preferred Warrants
were exercised, with any unconverted amount carried forward to subsequent
months. Additionally, Queensway Financial Holdings Limited was given $140,000 by
the Company under the terms of its original Agreement with the Company, due to
the late filing of the registration statement.
All textual and tabular listings of the stock holdings of the preferred
selling shareholders include the New Preferred Stock and all warrants and
options pertaining thereto.
No additional 9, 12 or 15 month warrants were issued with the New
Preferred Stock; however, 3 month warrants, equal in number to the number of 15
month warrants held by each holder, have been issued which provide that, if the
registration statement is declared effective on or before November 20, 1998,
each holder of New Preferred Stock may convert each of its warrants for one
additional share of common stock at a price of $7.346 per share for three months
after the effective date of the registration statement , as follows:
17
<PAGE>
<TABLE>
<CAPTION>
3-Month Exercise
Shareholder Warrants Price
- ----------- -------- -----
<S> <C> <C>
Lakeshore International 11,344 $7.346
The Matthew Fund N.V. 6,806 $7.346
Concordia Partners L.P. 11,344 $7.346
Queenway Financial Holdings 45,376 $7.346
</TABLE>
This warrant is not part of this registration; the underlying shares will not be
registered, and thus upon issuance will be subject to the restrictions as
imposed by Rule 144 of the Securities Act of 1933, as amended. The Agreement and
Amendment and Escrow Agreement are filed with this Form SB-2 registration
statement as exhibits 4i through 4n.
There are no contractual arrangements between or among any of the
Series A Preferred Selling Shareholders and the Company with regard to the sale
of the shares and no professional underwriter in its capacity as such will be
acting for the Series A Preferred Selling Shareholders. The terms of the offer
and sale of the Preferred Shares is detailed in exhibits 3 through 9 filed with
this Form SB-2 registration statement. There are no current or future plans,
proposals, agreements, arrangements or understandings of the Selling Security
Holders with respect to resale transactions, other than those presently
disclosed. Application has been made to the Company to remove the restrictions
on the cashless exercised common shares held by the promoters in reliance on
Rule 144.
1995 Stock Option Plan. The 1995 Stock Option Plan has 500,000 shares reserved
for issuance at $3.00 per share until December 31, 2001 and have no vesting
period. The options have been authorized by the Company to be issued to
employees of the Company at the discretion
18
<PAGE>
of the board of directors. The following table summarizes the options that have
been granted and the current number that have been exercised. Note that this
table reflects a transfer of options from Harmel S. Rayat to Terry Johnston and
Ranjit Bhogal, pursuant to the resolution of the Board of Directors dated
September 18, 1998.
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Bhupinder Mann 100,000 13,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal 150,000 11,000 1996
17,000 1997
6,000 1998*
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
6,000 1998*
Frank Mueller 10,000 None N/A
Sarbjit Thouli 10,000 1,500 1997
Grant Mackney 10,000 None N/A
Todd Weaver 10,000 None N/A
Dave Gamache 10,000 None N/A
Terry Johnson 100,000 None N/A
</TABLE>
1996 Stock Option Plan. The 1996 Stock Option Plan has 300,000 shares reserved
for issuance at $4.50 per share until June 20, 2001 and have no vesting period.
The options have been authorized by the Company to be issued to employees of the
Company at the discretion of the board of directors. The following table
summarizes the options that have been granted and the current number that have
been exercised. Note that this table reflects a transfer of all 1996 options
from Harmel S. Rayat to Ranjit Bhogal, pursuant to the resolution of the Board
of Directors dated September 18, 1998.
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Valerie Boeldt-Umbright 40,000 None N/A
Terry Johnson 60,000 3,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal 160,000 None N/A
Michael M. Blue 40,000 None N/A
</TABLE>
1997 Stock Option Plan. The 1997 Stock Option Plan has 500,000 shares reserved
for issuance. 200,000 options are exercisable at $4.50 per share until November
18, 2001 and 300,000 options are exercisable at $6.50 per share until July 1,
2005. The options have been authorized by the Company to be issued to employees
of the Company at the discretion of the board of directors. The following table
summarizes the options that have been granted and the current number that have
been exercised:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Exercise Price Number Exercised Year Exercised
- ---------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Valerie Boeldt-Umbright 100,000 $4.50 None N/A
15,000 $6.50 None N/A
Terry Johnson** 40,000 $4.50 3,000 1997
$4.50 6,000 1998*
20,000 $6.50 None N/A
Michael M. Blue 60,000 $4.50 None N/A
15,000 $6.50 None N/A
Jeff Aronin*** 250,000 $6.50 None N/A
</TABLE>
* Exercised in the first quarter of 1998.
** Twenty thousand (20,000) shares were transferred from Nicole Alagich and
Charles Grahn to Mr. Johnson and approved by Board on March 16, 1998.
*** Subject to employment agreement with 100,000 options already vested and
100,000 vesting each year for 4 years beginning July 1998. 100,000 options is a
bonus if sales of $10,000,000 are reached by December 31, 1998.
Private Placement February 4, 1997
- ----------------------------------
Under the terms of a private placement done by the Company in reliance
on Regulation D, Rule 506 176,000 shares of common stock of the Company was sold
to Greystone Management, Ltd. The offering was closed on February 28, 1997 and
resulted in receipt by the Company of $1,100,000. Greystone Management was an
accredited investor and is located in Belize City, Belize. This registration is
for the resale of those shares of common stock.
Private Placement July 7, 1997
- ------------------------------
Under the terms of a private placement done by the Company in reliance
on Regulation D, Rule 506 300,000 shares of common stock of the Company and
300,000 warrants to purchase shares of common stock of the Company were sold to
Matrix Capital Corp. The offering was closed on July 7, 1997 and resulted in
receipt by the Company of $1,800,000. Matrix Capital Corp. was an accredited
investor and is a corporation existing under the laws of the British West
Indies. This registration is for the resale of those shares of common stock. The
two Rule 506 offerings were within 6 months of each other and subject to the
integration provisions of Rule 502. Fewer than 35 unaccredited investors
acquired the shares and the requirements of Rule 506 have been met with both
offerings separately or together.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries or Divisions has any
legal proceedings against it.
MANAGEMENT
Directors and Executive Officers
- --------------------------------
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name/Age Title
-------- -----
<S> <C>
Harmel S. Rayat Chairman of the Board
Jeffrey Aronin President, Chief Executive Officer, Director
Greg Wujek Director, Secretary, Treasurer, Vice President of Managed Care
Michael M. Blue, Bsc, M.D. Director
Jake Jacobo, M.D. Director
</TABLE>
Mr. Harmel Rayat was elected to the board of directors in 1995. Ms.
Boeldt-Umbright and Dr. Blue were elected directors in 1996. Dr. Jacobo and Mr.
Aronin were elected to the board in 1997. Mr. Wujek was elected in 1998.
HARMEL S. RAYAT (Age 37) Chairman of the Board. 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 which specializes in providing early stage
funding and investment banking services to emerging growth corporations. From
January 1989 through December 1992 Mr. Rayat was the President and CEO 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 and CEO of Hartford Capital Management, Inc., an investment management
company where he is responsible for researching and making direct equity
investment in emerging growth public corporations. Mr. Rayat has been a director
of the Company since September 1995, President from June 1996 until June 1997
and is currently Chief Executive Officer and Chairman. Mr. Rayat is also a
director of American Alliance Corporation, a non-reporting company trading on
the NASDAQ OTC Bulletin Board.
JEFFREY S. ARONIN (Age 30) President and Chief Executive Officer, Director. Mr.
Aronin has extensive experience in the health care industry, with particular
expertise in Corporate Development, Sales Management, Health Care Marketing and
Managed Health Care. Mr. Aronin joined Carter Wallace, a major pharmaceutical
firm, in May of 1989. At Carter Wallace, Mr. Aronin held many positions as he
advanced through management in sales marketing and managed care. In September
1995, Mr. Aronin left Carter Wallace to join American Health Products
Corporation, where he ran the Marketing division and focused on Marketing and
Business Development and made significant contributions toward the growth of
AHPC's business. Mr. Aronin joined MedCare Technologies as its President and
20
<PAGE>
Chief Operating Officer on July 8, 1997, at which time he also became a member
of the Board of Directors of the Company. He holds a degree in marketing and
financing, as well as an MBA in management.
GREGORY WUJEK (Age 37) Vice President of Managed Care, Secretary, Treasurer,
Director. Mr. Wujek has over 10 years of health care experience, primarily in
sales and marketing to the managed care market. Prior to joining MedCare in
November 1997, Mr. Wujek held the position of Vice President of Sales at SMG
Marketing Group, a consulting firm to the health care industry, and was a
Director of Managed Care at Forest Laboratories, an international marketer of
ethical pharmaceuticals. Mr. Wujek is responsible for the development and
negotiation of unique reimbursement and marketing strategies in managed care,
long term care, integrated health networks, hospitals, Medicare/Medicaid and fee
for service.
MICHAEL M. BLUE, M.D. Director. Dr. Blue is a Board-certified urologist who has
practiced general urology for twenty years. He is a member of the American
Medical Association, Oklahoma State Medical Association, South Central
Urological Association and the American Urological Association. Dr. Blue has
been a sole practitioner in private practice for the past twenty years. Dr. Blue
joined the Board of Directors of the Company on August 15, 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.
JAKE JACOBO, M.D. (Age 53) Director. After completing his Residency in Urology
at the University of Iowa Hospitals and Clinics, Dr. Jacobo participated as a
Clinical Investigator with the National Prostatic Cancer Project and the
National Bladder Cancer Project during 1975 and 1976. In July of 1977, he joined
Northern Iowa Urology Associates in Waterloo, Iowa and remained in private
practice until 1989. During his tenure with Urology Associates, Dr. Jacobo
initiated the Urodynamic program for Covenant Medical Center and in 1986
introduced Prostate Ultrasonography for the diagnosis of prostate lesions, this
being the first Prostate Ultrasound Program for the state of Iowa and started a
new modality, together with PSA testing, for the early diagnosis of prostate
cancer. In April of 1989, Dr. Jacobo started Urology Consultants in the Orlando,
Florida area. Urology Consultants has since expanded to five clinics and three
urologists, and in 1997 Urology Consultants opened the first MedCare Program
site in the state of Florida. Dr. Jacobo joined the Board of Directors on
September 17, 1997.
21
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 31, 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Name and address of Amount and Nature Percent of
Title of Class beneficial owner Of Beneficial Ownership(1) Class(1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Common stock Harmel S. Rayat 2,000,000 21.9%
216-1628 West First Avenue
Vancouver, B.C. V6J 1G1 Canada
Common stock Michael Blue 119,000 1.1%
500 East Robinson, Suite 800
Norman, Oklahoma 73071
Common stock Jeff Aronin 251,000 2.4%
1515 West 22nd Street
Oak Brook, Illinois 60523
Common stock Queensway Financial
Holdings Limited 891,582 8.4%
James Alexander Revocable Trust,
James Alexander, Trustee, Beneficial Owner (5.3%)(2)
AIC Mutual Funds, Beneficial Owner (9.4%)(2)
90 Adelaide Street West
Toronto, Ontario M5H 3V9 Canada
Common stock Matrix Capital Corp. 600,000 5.7%
Eric Smith, President
and sole shareholder
P.O. Box 69, Front Street
Grand Turk, Turks & Caicos Islands
Common stock Directors and Officers 2,370,000 30.0%
as a group (3 persons)
</TABLE>
(1) Assuming conversion of all options. The totals reflect inclusion of the
shares and options held by these persons. These options include a total of
500,000 reserved for the 1995 Stock Option Plan, 300,000 reserved as part of the
1996 Stock Option Plan and 500,000 reserved for the 1997 Stock Option Plan. All
options are currently exercisable.
(2) The percentages listed after the beneficial owners of Queensway Financial
Holdings Limited indicate the percentage of the common stock of Queensway held
by each of these entities.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
Holders of the Common Stock are entitled to one vote for each share held by
them of record on the books of the Company in all matters to be voted on by the
stockholders. Holders of Common Stock are entitled to receive such dividends as
may be declared from
22
<PAGE>
time to time by the Board of Directors out of funds legally available, and in
the event of liquidation, dissolution or winding up of the Company, to share
ratably in all assets remaining after payment of liabilities. Declaration of
dividends on Common Stock is subject to the discretion of the Board of Directors
and will depend upon a number of factors, including the future earnings, capital
requirements and financial condition of the Company. The Company has not
declared dividends on its Common Stock in the past and the management currently
anticipates that retained earnings, if any, in the future will be applied to the
expansion and development of the Company rather than the payment of dividends.
The holders of Common Stock have no preemptive or conversion rights and are
not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The Common
Stock currently outstanding is, and the Common Stock offered by the Company
hereby will, when issued, be validly issued, fully paid and nonassessable.
Preferred Stock and Preferred Stock Warrants
- --------------------------------------------
The Company is authorized to issue up to one million (1,000,000) shares of
Preferred Stock, par value $0.25 per share. Pursuant to a Certificate of
Designation filed with the State of Delaware on July 7, 1997, one thousand of
those shares have been designated as Series A Preferred Stock, par value $0.25
per share and with a purchase price of $10,000 per share plus an 8% per annum
interest rate. This stock ranks senior to all Common Stock of the Company,
senior to any series or class of stock so designated in the future, junior to
any series or class of stock designated as such in the future, and in parity
with any series or class of stock so designated in the future. There are no
dividends or dividend rights provided for this stock. The Preferred Stockholders
also have no voting rights, but must receive notice of all shareholders'
meetings.
The liquidation ranking of the Preferred Stock Series A is after any senior
securities, prior to any junior securities and on a par with any parity
securities. Upon liquidation, holders of Series A Preferred Stock shall receive
an amount per share equal to the original Issue Price per outstanding share plus
an amount equal to eight percent of the original Series A Issue Price per annum
for the period that has passed since that date in connection with the
consummation of the purchase by the Holder of shares of Series A Preferred Stock
from the Company. If the Company does not possess sufficient funds, assets and
other holdings to provide for the complete liquidation price, holders of Series
A Preferred Stock shall receive funds based upon the ranking of the stock.
Holders of Series A Preferred Stock may convert their shares into shares of
Common Stock via the following formula:
(.08)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
where N is equal to the number of days between the date full payment was
received by the Escrow Agent or the Company for the shares in question and the
Date of Conversion and where "Conversion Price" is equal to the lesser of 115%
of the average Closing Bid Price for the five trading days ending on June 6,
1997, which is $7.346 or X% of the average Closing Bid Price of the Company's
Common Stock for the five trading days immediately preceding the Date of
Conversion, as defined below:
<TABLE>
<CAPTION>
# of months between Last Closing
and Date of Conversion "X"
---------------------- ---
<S> <C>
4-6 months 90%
6 months, 1 day-9 months 87.5%
9 months, 1 day-12 months 85%
more than 12 months 80%
</TABLE>
"Last Closing Date" means the date of the last closing of a purchase and
sale of the Series A Preferred Stock that occurs pursuant to the offering of the
Series A Preferred Stock by the Company and accompanying warrants (for purposes
of this definition, the Series A Preferred Stock obtained upon exercise of the
Preferred Warrants shall be deemed to be acquired at the closing when such
Preferred Warrants were issued).
To convert shares, the shareholder must send via facsimile a copy of the
Notice of Conversion to both the Company and the Transfer Agent by 11:59 p.m.
New York City time on the date of conversion. No fractional shares will be
issued.
Three years after the Last Closing Date, or the first business day
thereafter, all Series A Preferred Stock will be automatically converted into
Common Stock, or will be redeemed for cash in an amount equal to the Stated
Value, at the Company's discretion, where the Stated Value is equal to the
Original Series A Issue Price plus the accreted but unpaid Premium. The
Redemption price is calculated as follows:
23
<PAGE>
Date of Notice of Redemption at Company's Election % of Stated Value 12
months and 1 day to 18 months following Last Closing Date 130% 18 months
and 1 day to 24 months following Last Closing Date 125% 24 months and 1 day
to 30 months following Last Closing Date 120% 30 months and 1 day to 36
months following Last Closing Date 115%
Preferred Stock Warrants
- ------------------------
The following Preferred Stock warrants have been issued:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Shares Share Exercise Date(1)
- --------- ------ ----- ----------------
<S> <C> <C> <C>
Lakeshore International 25 $10,000 June 20, 1998
Queensway Financial
Holdings Limited 100 $10,000 June 20, 1998
Concordia Partners L.P. 25 $10,000 June 20, 1998
The Matthew Fund N.V. 15 $10,000 June 20, 1998
Total: 165 Preferred Share Warrants
</TABLE>
(1) Last date on which Preferred Stock Warrants could be exercised. All
Preferred Warrants were exercised for shares of Preferred Stock on or before
this date.
As the table above indicates, all holders of the preferred stock have
exercised their preferred warrants and acquired an additional 165 shares of
preferred stock. The warrants provide that additional shares of preferred stock
may be purchased that will allow the holder to obtain conversion rights similar
to the first acquired preferred stock. The exercise of these preferred warrants
does not entitle the holder to additional 9-, 12- or 15-month options, but does
have the same conversion right as the originally acquired preferred stock. The
common stock of the Company underlies these preferred conversion rights and is
being registered.
With the exercise of the preferred warrant holders will be able to convert
to common stock at the rates previously indicated. The tables above and in risk
factors details the variables and possible amounts of common stock that may be
issued upon the conversions.
The complete text of the Certificate of Designation is filed with this Form
SB-2 registration statement as Exhibit 3.
All of the Preferred Stock warrants issued to the entities named in the
table above are subject to the terms and conversion rights of the Preferred
Stock. The Preferred Stock warrants are convertible into Preferred Stock at a
1:1 ratio, so that the maximum number of underlying shares of Series A Preferred
Stock issuable is 165 shares. This will provide that only an additional 165
shares of Series A Preferred Stock may be exercised prior to June 20, 1998. The
holders of the preferred stock have all exercised their preferred warrants and
have acquired an additional 165 shares. The holders have entered into an
Agreement and Amendment and Escrow Agreement, which has been filed with this
Form SB-2 registration statement as exhibits 4i through 4n. They have also been
granted non registered 3 month warrants to provide for the purchase of
additional shares of common stock of the Company. This document is filed with
this Form SB-2 registration statement as exhibit 4k.
Holders of Preferred Stock also are eligible to receive interest at a rate
of 8% annually. A total of $10,260.68 in interest has been paid to the holders,
all in a timely fashion, and no additional amounts are due. This amount has been
paid in restricted common stock of the Company under the following formula:
[(.08)(N/365)(10,000)+10,000]/Conversion Price. These restricted common shares
are to be distributed to the holders only upon conversion of the preferred
stock; if no conversion takes place, these shares are forfeited. These
restricted common shares are not covered by this registration statement.
The Company and the Preferred Stockholders have also entered into an
Agreement and Amendment and an Escrow Agreement. In addition to this an investor
warrant was granted for the 3 month purchase of common stock under the terms of
the warrant. The Agreement and Amendment provided for the exercise of all
Preferred Warrants for additional Preferred Stock (the "New Preferred Stock")
and for an increase in t he maximum amount of Series A Preferred Stock to be
offered from $3,000,000 to $3,300,000. The New Preferred Stock has been placed
in an escrow account until the Registration Statement becomes effective; if the
registration statement is not effective as of November 20, 1998, the Company
will redeem the New Preferred Stock at a rate of $10,000 per share. The
Agreement and Amendment also provided that no late filing fees or late
registration payments would accrue until after November 20, 1998 for the New
Preferred Stock only. This Agreement permits New Preferred Stock holders to
convert only up to 20% of their New Preferred Stock into common stock each month
for the first five months after the date the Preferred Warrants were exercised,
with no restrictions on the shares that may be
24
<PAGE>
converted into common stock after the first five months. Additionally, Queensway
Financial Holdings Limited was given $140,000 by the Company under the terms of
its original Agreement with the Company. No additional 9, 12 or 15 month
warrants were issued with the New Preferred Stock; however, 3 month warrants
have been issued. The terms of these are detailed below under the sub-heading
"Three-Month Warrants." The 3 month warrants are not part of this registration
statement and will be subject to Rule 144.
Conversion Warrants
- -------------------
Each purchaser of Series A Preferred Stock pursuant to the Preferred
Offering of July 1997 also received certain warrants for the purchase of shares
of common stock. The "Conversion Warrants" are a feature of the Preferred Stock
that allows the holder to convert the Preferred Stock into shares of Common
Stock of the Company. The Preferred Warrants, when exercised for shares of
Preferred Stock, also provide for Conversion Warrants. The number of shares of
Common Stock issuable upon exercise of a conversion warrant, either directly or
indirectly (for one share of Preferred Stock, which in turn can be converted to
Common Stock as determined by the conversion formula), is not a set number but,
rather, is calculated based upon the same conversion formula used to convert
Series A Preferred Stock.
The warrants issued include (i) a warrant or warrants to purchase a number
of shares of Common Stock of the Company equal to thirty-three and one-third
percent (33 1/3%) multiplied by the aggregate purchase price of the Subscriber's
Preferred Stock outstanding on the date which is nine (9) months following the
closing hereunder divided by the Fixed Conversion Price, as defined in the
Certificate of Designation; (ii) a warrant or warrants to purchase a number of
shares of Common Stock of the Company equal to thirty-three and one-third
percent (33 1/3%) multiplied by the aggregate purchase price of the Subscriber's
Preferred Stock outstanding on the date which is twelve (12) months following
the closing hereunder divided by the Fixed Conversion Price, as defined in the
Certificate of Designation; and (iii) a warrant or warrants to purchase a number
of shares of Common Stock of the Company equal to thirty-three and one-third
percent (33 1/3%) multiplied by the aggregate purchase price of the Subscriber's
Preferred Stock outstanding on the date which is fifteen (15) months following
the closing hereunder divided by the Fixed Conversion Price, as defined in the
Certificate of Designation. The terms of the Nine Month Warrants, including the
terms on which the Nine Month Warrants may be exercised for Common Stock, are
set forth in the form of the Nine Month Warrants filed with this Form SB-2
registration statement. The terms of the Twelve Month Warrants, including the
terms on which the Twelve Month Warrants may be exercised for Common Stock, are
set forth in the form of the Twelve Month Warrants filed with this Form SB-2
registration statement. The terms of the Fifteen Month Warrants, including the
terms on which the Fifteen Month Warrants may be exercised for Common Stock, are
set forth in the form of the Fifteen Month Warrants filed with this Form SB-2
registration statement.
The Company has issued the following warrants in connection with its
offering of Series A Preferred Stock:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Type of Stock Shares Share Exercise Date(1)(2)
- --------- ------------- ------- ----- -------------------
<S> <C> <C> <C> <C>
Swartz Investments, L.L.P.(3) Common Stock 33,692 $7.346 June 20, 2002
Lakeshore International Common-9 months 11,344 $7.346 June 20, 2002
The Matthew Fund N.V. Common-9 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-9 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-9 months 45,376 $7.346 June 20, 2002
Lakeshore International Common-12 months 11,344 $7.346 June 20, 2002
The Matthew Fund N.V. Common-12 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-12 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-12 months 45,376 $7.346 June 20, 2002
Lakeshore International Common-15 months 11,344 $7.346 June 20, 2002
The Matthew Fund N.V. Common-15 months 6,806 $7.346 June 20, 2002
Concordia Partners L.P. Common-15 months 11,344 $7.346 June 20, 2002
Queenway Financial Holdings Common-15 months 45,376 $7.346 June 20, 2002
Total: 258,302 Common Share Warrants
</TABLE>
(1) Last date on which the options may be exercised
(2) The Company could issue 258,302 shares of Common Stock under the Conversion
Warrants and, indirectly (through conversion of the resulting Preferred Stock),
258,302 shares under the Preferred Warrants. Should an additional 165 Preferred
Shares be converted into common stock, an additional 258,302 shares of common
stock would be available. This will total 774,906 shares of common stock. If the
additional 165 Preferred Warrants are converted into common stock, the same
number of Preferred Warrants will be available to the four purchasers of the
Preferred Shares. These Preferred Warrants were converted in June of 1998. The
method used for determining the common stock available to each preferred warrant
holder is based upon the conversion formula of
25
<PAGE>
10,000(.08)365/365 + 10,000
--------------------------
7.346
where 7.346 is equals the conversion price. This formula yields a result of 1470
(rounded off to the nearest whole number). This is the number of shares of
common stock issued for each preferred warrant held. This number is then
multiplied by the number of preferred warrants held by each warrant holder (15,
25, 25 and 100, respectively) to get the total number of shares for each holder.
Finally, this total is divided by three to get the number of shares available
for issuance via each of the 9-, 12- and 15-month warrants.
The Company has also issued warrants for 300,000 shares of Common Stock
pursuant to the issuance of 300,000 shares of Common Stock via a Private
Placement Memorandum pursuant to Regulation D, Rule 506 dated July 7, 1996.
These warrants are exercisable at $6.00 per share until July 7, 2002.
When exercised, all warrants will be converted into Common Stock and
holders thereof will have all of the rights and prerogatives of all holders of
Common Stock of the Company (see "Common Stock" above). The warrants may be
converted into Common Stock at an Exercise Price of $7.346 per share and by
either or both of two payment methods: cash exercise and cashless exercise. Cash
exercise is the payment of the Exercise Price via cash, certified or cashier's
check or wire transfer. Cashless exercise involves the surrender of the warrant
to the Company's principal office with a notice of cashless election. Only the
Swartz warrants may be exercised using the cashless exercise option. In this
event the Company issues the Holder a number of shares of Common Stock computed
using the following formula, as defined in the warrant document:
"X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which the warrant is
being exercised.
A = the Market Price of one ( l ) share of Common Stock (for purposes
of this Section 3(ii), the "Market Price" shall be defined as the
average closing price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of this Warrant (the
"Average Closing Price"), as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"), or
if the Common Stock is not traded on the Nasdaq Small Cap Market,
the Average Closing Price in the over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange. If the Common Stock is/was not traded during the
five) trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to
be the closing price for any and all (if applicable) days during
such five (5) trading day period.
B = the Exercise Price."
For example, if a warrant holder wants to exercise 100 of his warrants (Y) and
the current market price (A) is $8.50 per share. this results in an equation of
X = 100(8.5-7.346)/8.5 which equals 13.576. (The exercise price (B) will always
be $7.346). Rounding up, the warrant holder would receive 14 shares of stock
upon exercise of his 100 warrants.
Shares issued via a cashless exercise are deemed to be issued on the
date the warrant was issued and are subject to Rule 144. The complete texts of
the warrants issued in connection with the Preferred Stock offering are listed
in Exhibits 5 through 7.
Effect of conversion of Preferred Stock and related warrants
Various amounts of shares could be issued depending upon the price of
the Company's stock at the time of the exercise of the options and warrants,
according to the formula [[(.08)(N/365)(10,000)+10,000] / Conversion Price]
which defines the number of shares of Common Stock issuable for one share of
preferred. In this formula, N is the number of days from the Closing Date, July
8, 1997; the
26
<PAGE>
Conversion Price is the lesser of $7.346 or 80 to 90% of the average bid price
for the five days preceding the conversion on which the stock was last traded:
<TABLE>
<CAPTION>
# of months between Last Closing
and Date of Conversion Percentage
---------------------- ----------
<S> <C>
4-6 months 90%
6 months, 1 day-9 months 87.5%
9 months, 1 day-12 months 85%
more than 12 months 80%
</TABLE>
For example, if the average bid price was $1.00 and last closed more than one
year earlier, it would result in every preferred share being converted into
13,500 shares of Common Stock. The following table indicates various of Common
Stock that would be issued at various average bid prices with a last closing
percentage of 80% or 90%:
<TABLE>
<CAPTION>
Column 1 2 3 4
Ave Bid X% No of Shares of Total Common
Price Common Assume all exercised
<S> <C> <C> <C>
1 80 13,500 6,682,500
1 90 12,000 5,940,000
3 80 4,500 2,227,500
3 90 4,000 1,980,000
3.75 80 3,600 1,782,000
3.75 90 3,200 1,584,000
5 80 2,700 1,336,500
5 90 2,400 1,188,000
6 80 2,317 1,146,915
6 90 2,060 1,019,700
7 80 1,929 954,855
7 90 1,714 848,430
</TABLE>
The first column is a listing of example share prices of the common
stock. In column two, X% is to indicate the percentage, highest and lowest, that
could be applied to the conversion price as indicated in the equation. The
number of shares of common stock resulting from application of the conversion
formula [((.08)(N/365)(10,000) + 10,000)/Conversion Price] is detailed in column
three. The fourth column assumes all 330 preferred shares and related warrants
are converted to common stock, thus [column 3 x 330 x 3]. The number of Common
shares for which a Preferred share or a conversion warrant can be exchanged
depends solely on the conversion formula.
The Common Stock of the Company has a price range as indicated below
under Price Range of Common Stock. The price has not been below $3.75 since
1995. The Company estimated the overage to be 529,650 and felt it was adequate
to cover a reduction in the share price. The risk is that if the share price is
below the $7.346, additional shares may be required under the terms of the
conversion, as indicated in the table. In theory, there is no limit to the
number of shares that would be required should the share price drop
substantially below historical levels; moreover, if the Selling Security Holders
should happen to sell most or all of their Common Stock at once, or choose to
sell their shares at below-market price, this may result in a decline in the
market price of the Company's common stock. Management believes, however, that
the registration of 1,500,000 shares provides enough overallotment shares in the
event of falling share price. As indicated in the table, the share price would
have to go below approximately $3.75 before the amount of shares registered
would have to be increased. Furthermore, management has the ability to redeem
these shares. It is anticipated that, should the conversion price fall so
precipitously, management will exercise that redemption right.
Reserved Common Stock
- ---------------------
The Reserved Common Stock shall be issued in exchange for shares of
Series A Preferred Stock upon Notice of Conversion by the Shareholder or at the
Company's discretion on a date three years after the Last Closing Date. The
Reserved Common Stock shall have all of the rights and privileges of the Common
Stock of the Company (see "Common Stock" above).
27
<PAGE>
Three-Month Warrants
- --------------------
Each holder of Preferred Stock pursuant to the Preferred Series A
Offering has been issued three-month warrants for the purchase of shares of
Common Stock of the Company at a fixed exercise price of $7.346 per share. These
provide that, if the registration statement is declared effective on or before
November 20, 1998, each holder of New Preferred Stock may convert each warrant
for one additional share of common stock at a price of $7.346 per share for
three months after the effective date of the registration statement. The number
of warrants issued to each 3 month warrant holder is equal to the number of 15
month warrants held by each holder, as follows:
<TABLE>
<CAPTION>
3-Month Exercise
Shareholder Warrants Price
- ----------- -------- -----
<S> <C> <C>
Lakeshore International 11,344 $7.346
The Matthew Fund N.V. 6,806 $7.346
Concordia Partners L.P. 11,344 $7.346
Queenway Financial Holdings 45,376 $7.346
</TABLE>
The shares underlying these warrants are not being registered for resale as part
of this registration statement, nor are there any plans to register the shares
in the future. The details of these warrants are contained in attached exhibits
4i through 4n. These warrants are not registered with this registration
statement and are subject to all restrictions regarding the sale and resale as
contained in the appropriate statutes, state and federal.
Voting Requirements
- -------------------
The Articles of Incorporation require the approval of the holders of a
majority of the Company's voting securities for the election of directors and
for certain fundamental corporate actions, such as mergers and sales of
substantial assets, or for an amendment to the Articles of Incorporation.
There exists no provision in the Articles of Incorporation or Bylaws
that would delay, defer or prevent a change in control of the Company.
Transfer Agent
The transfer agent and registrar for the Company's Common Stock is
Holladay Stock Transfer, Inc., 4350 East Camelback Road, Suite 100F, Phoenix,
Arizona, 85018. Its telephone number is (602) 840-9019.
Shares Eligible for Future Sale
- -------------------------------
As of December 31, 1997, the Company will have 6,992,185 shares of
Common Stock and 165 shares of Preferred Stock outstanding. Of the 6,992,185
shares of Common Stock outstanding, 2,005,000 shares of Common Stock are
beneficially held by "affiliates" of the Company. In addition, options and
warrants to purchase 2,132,320 shares of Common Stock will be outstanding. All
shares of Common Stock registered pursuant to this Registration Statement will
be freely transferable without restriction or registration under the Securities
Act, except to the extent purchased or owned by "affiliates" of the Company as
defined for purposes of the Securities Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned "restricted" securities for at least two years, including
persons who may be deemed to be "affiliates" of the Company, may sell publicly
without registration under the Securities Act, within any three-month period,
assuming compliance with other provisions of the Rule, a number of shares that
do not exceed the greater of (i) one percent of the Common Stock then
outstanding or, (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. A person who is not deemed
an "affiliate" of the Company and who has beneficially owned shares for at least
three years would be entitled to sell such shares under Rule 144 without regard
to the volume and other limitations described above.
Prior to this registration, the Common Stock has traded on the OTC
Bulletin Board under the symbol "MCAR." No prediction can be made of the effect,
if any, of future public sales of "restricted" shares or the availability of
"restricted" shares for sale in the public market at the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Company's
"restricted" shares in any public market that may develop could adversely affect
prevailing market prices.
INTEREST OF NAMED EXPERTS AND COUNSEL
Because this registration is for purposes of resale of securities only,
this section is not applicable.
28
<PAGE>
STATEMENT AS TO INDEMNIFICATION
The Company has indemnified all officers, directors and controlling
persons of the Company against all liabilities from the sale of securities which
might arise under the Securities Act of 1933 other than as stated under Delaware
law. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to such persons pursuant to the foregoing provisions,
the Company has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
THE COMPANY AND BACKGROUND
The Company, formerly known as Multi-Spectrum Group, Inc., was
incorporated under the name Santa Lucia Funding, Inc., in the State of Utah on
January 17, 1986, with an authorized capital of 50,000,000 common shares with a
par value of $0.001 for the purposes of raising capital in order to seek
business opportunities believed to hold potential for profit. On February 8,
1990, the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware corporation, and Santa Lucia Funding, Inc., a Utah corporation, which
then changed its name to Multi-Spectrum Group, Inc. The outstanding shares of
Multi-Spectrum Group, Inc. were converted into common shares of Santa Lucia
Funding, Inc. at the exchange rate of 55,305 shares of Santa Lucia for each
common share of Multi-Spectrum then issued and outstanding. In addition, the
number of common shares authorized was increased from 50,000,000 to 100,000,000
with the par value remaining at $0.001. On November 13, 1992, the Company issued
8,7722,800 shares of its Common Stock to Group of Five, Inc. in exchange for
services rendered.
The Company was inactive during the period from February 1990 to August
1995, at which point the Company acquired the MedCare program for treating
incontinence.
On August 11, 1995, a reverse split of the common stock by a ratio of
one new for 1,200 old was effected, with the par value remaining at $0.001. This
reduced the total number of shares issued and outstanding to 58,519. 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.
On August 25, 1995, the Company approved an increase in the authorized capital
to 101,000,000 shares of stock, comprised of 100,000,000 common shares with a
par value of $0.001 per share and 1,000,000 preferred shares with a par value of
$0.25 per share, and approved a name change to MedCare Technologies, Inc.
On October 1, 1995, the Company's wholly owned subsidiary, MedCare
Technologies Corporation, acquired 100% of Manon Consulting Ltd., an Alberta,
Canada, corporation, for a nominal value from its owners, Diane Nunziato, a
MedCare Technologies, Inc. director, and Philip Tolley and Mel Tolley. The
operations of Manon Consulting were terminated on December 31, 1996.
Narinder Thouli, a member of the Board of Directors, resigned on
November 1, 1996. He resigned for personal reasons and did not have any
disagreements with the Company. On October 4, 1996 a migratory merger was
completed changing the Company's domicile from Utah to Delaware.
On July 8, 1997, Jeffrey Aronin joined the Company as its President and
Chief Operating Officer. He was also elected a Director of the Company. Harmel
S. Rayat, the previous president, remains with the Company in the capacity of
Chief Executive Officer and Chairman of the Board.
On September 17, 1997, Diane Nunziato resigned as a director of the Company
and Dr. Jake Jacobo joined the Company as a director. Ms. Nunziato resigned for
personal reasons and did not have any disagreements with the Company.
On August 6, 1998, Kundan S. Rayat resigned as Secretary, Treasurer and
a Director of the Company and Valerie Boeldt- Umbright resigned as a Director of
the Company. Both Mr. Rayat and Ms. Boeldt-Umbright resigned for personal
reasons. Gregory Wujek was then elected to the Board of Directors and was named
the new Secretary and Treasurer. At this same meeting, Harmel S. Rayat resigned
as the Chief Executive Officer of the Company and Jeffrey S. Aronin was elected
to replace him. Harmel Rayat will remain as a Director and Chairman of the
Board.
DESCRIPTION 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 (UI), as well as pelvic pain, chronic
constipation, fecal incontinence, and disordered defecation. The MedCare Program
is a multi-modality program based primarily on behavioral techniques for
treatment. These techniques include biofeedback using electromyography (EMG),
pelvic floor muscle exercises, and bladder and bowel
29
<PAGE>
retraining. 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 EMG 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 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 today1. 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.
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 2, 3. 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, has recommended that information
about UI be included in the curricula of undergraduate and graduate health
professional schools.
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. 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.
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.
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. Many UI sufferers eventually confine themselves to a life of exile
in their own homes. 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.
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.
Types of 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.
- -----------
1 Urinary Incontinence Guideline Panel. "Urinary Incontinence in Adults:
Clinical Practice Guidelines. AHCPR Pub 9-2-0038. Rockville, MD: Agency for
Health Care Policy & Research; PHS, HHS: March 1992.
2 Lagace, EA, et al. "Prevalence and severity of urinary incontinence in
ambulatory adults: an UPRNet study." J Fam Pract 35, 610-4: 1993 June.
3 Wallace, K. "Female pelvic floor functions, dysfunctions, and behavioral
approaches to treatment." Clinics in sports medicine, Vol 13, No 2, 459-481:
April 1994. Overflow Incontinence
30
<PAGE>
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 can not "hold it" until they reach the
bathroom. Urge incontinence is more common in older adults.
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 under 60 and is often caused
by a decrease in pelvic muscle strength due to childbirth, surgery or reduced
hormones associated with menopause. Men often suffer from stress incontinence
after prostate surgery.
Overflow incontinence occurs when the bladder becomes too full as a
result of blockage in the lower urinary tract or injury. This type of
incontinence may have a variety of symptoms, including constant dribbling and/or
frequency, which is not improved by lying down. In men, it can be the result of
an enlarged prostate.
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.
Other Relevant Definitions
- --------------------------
Electromyography (EMG)
The study of muscle activity via the measurement of electrical signals
that muscles give off as they contract.
Biofeedback
The technique of making unconscious or involuntary bodily processes
(such as heartbeats or brain waves) perceptible to the senses (using an
oscilloscope or other device) in order to manipulate them by conscious mental
control.
Biofeedback using Surface Electromyography (sEMG)
The pelvic floor muscles are assessed with EMG surface vaginal or
rectal sensors. The abdominal muscles are also assessed. The sensors are
connected to a computer which changes the information into a signal that can be
seen on the computer screen in the form of lines or graphs by the clinician and
patient. The information received from the biofeedback is used to teach the
patient how to make fine adjustments in their muscle activity.
Various Behavioral Programs
Such as toileting programs, bladder and bowel retraining programs,
etc., to help establish a regular schedule for elimination or evacuation.
31
<PAGE>
Behavioral Strategies and Home Programs
Generalize physiological advancements acquired within each treatment
session to the patient's life situation.
Bladder Disorders Secondary to Neurological Disorders
Stroke, multiple sclerosis, incomplete spinal cord injury, etc.
Urinary Urgency and Frequency
Feeling of constantly having to urinate and/or urinating small amounts
of urine numerous times throughout the day and/or night. (Usually one or two
times an hour or more).
Hyperactive or Dyssynergic Sphincters
Discoordination of the bladder and the urinary sphincters.
Urinalysis and Culture
Used to check for abnormal ties and/or infection in the urine which can
contribute to urinary incontinence.
Bladder Ultrasound
Used to assist in bladder training and in assessing how well the
bladder empties during voiding.
Urodynamics
Neurologic diagnostic tool that measures the transport, storage and
elimination functions of the urinary tract.
Electrical Stimulation
Application of electrical current to sacral and pudendal afferent nerve
fibers via anal and/or intravaginal electrodes to inhibit bladder instability
and improve stiated sphincter and levator ani contractility and efficiency. It
can also help to identify the location of pelvic floor muscles.
Vaginal Cones
Weighted cones placed in the vagina to help strengthen the pelvic floor
muscles.
Anorectal Manometry
Insertion of a catheter into the rectum which is connected to a
computer to evaluate resting pressures, squeeze pressures, normal responses in
the rectum with rectal distention and aid in pelvic floor muscle retraining and
defecation.
Rectal Balloons
Inserted in the rectum to help increase sensation and aid in defecation
retraining.
Bowel Dysfunction
- -----------------
Fecal Incontinence
The involuntary loss of stool.
Disordered Defecation
Problems evacuating stool usually due to a non-relaxing puborectalis
muscle and/or internal or external anal sphincters.
32
<PAGE>
Bowel Disorders Secondary to Neurologic Disorders
Stroke, Spina Bifida, Multiple Sclerosis, etc.
Other Colon Rectal Disorders
Imperforated Anus, Hirschbrung's Disease, Irritable Bowel Syndrom, etc.
Pelvic Floor Disorders
- ----------------------
Levator Ani Syndrome
Pain and/or spasm of the levator ani muscle.
Perineal Descent Syndrome
The pelvic floor is anatomically lower than normal usually due to weak
pelvic floor muscles.
Spastic Floor Syndrome
Pain and spasm of the pelvic floor muscles usually due to weakness or
excessive tightness of the pelvic floor muscles.
Pelvic Floor Muscle Exercises
A series of exercises used to help increase pelvic floor muscle strength
and endurance.
Current Treatment Options and Their Limitations
- -----------------------------------------------
There are a number of treatment alternatives currently available in the
marketplace. Most, however, are either inadequate, too expensive, have adverse
side effects, involve health risks, have certain limitations for UI or do not
enhance the patient's quality of life. For the minority of UI sufferers that
actually seek treatment, gynaecologists, urologists and urogynaecologists
usually prescribe a program of therapy that corresponds to the severity of the
condition and the physician's familiarity with available treatment methods.
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 behavioral
techniques for treatment. These techniques include biofeedback using EMG, pelvic
floor muscle exercises, and bladder and bowel retraining. 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 EMG (electromyography) biofeedback and is based on operant
conditioning strategies whereby specific physiological responses are
progressively shaped, strengthened, and coordinated. All patients entering the
MedCare 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; 5. Reestablish 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:
33
<PAGE>
1. Biofeedback using EMG (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 behavioral programs for bladder and bowel re-training;
10. Behavioral 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;
3. Spastic floor syndrome.
Admission to The MedCare Program
- --------------------------------
Admission into The 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 behavioral 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,
34
<PAGE>
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 exercise program that is updated during each treatment session.
However, if the patient's condition demands more intensive therapy (e.g.
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 and followed closely, the clinician can determine if the
patient will benefit from the program. 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 EMG Biofeedback
- --------------------------------
The value and effectiveness of neuromuscular reeducation therapy and
behavioral techniques has been well documented by many notable and respected
researchers. Studies in the various application of biofeedback (EMG) combined
with behavioural treatments, similar to those used in the MedCare Program,
report a range of 54% to 95% improvement in incontinence across different
patient groups. The researchers of one such study4 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, reports5, 6, 7
indicate a range of 66% to 77% using behavioural and neuromuscular re-education
techniques.
A combined analyses of 22 articles that dealt with behavioral
techniques in community dwelling adults were reviewed8 by a subcommittee of
behavioral 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%.
The Company has completed an informal, unpublished study of its own in
which 18 subjects with stress, urge or mixed incontinence were chosen. There
were 3 males and 15 females, with an average age of 64.6 years and an average of
5.5 incontinent episodes per day. After the treatment program, only 2 out of the
18 displayed any symptoms of incontinence, representing an 89% success rate. The
Company plans to complete its first ever national multi-center clinical outcomes
study on the use of conservative therapy in the treatment of urinary
incontinence. The results of this study will be independently verified and
published by leading researchers and investigators.
Successful application of behavioral 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
- -------------------------
4 Burgio, KL, Whitehead, WE, & Engel, BT. "Urinary Incontinence in the
Elderly: bladder/sphincter biofeedback and toileting skills training." Annals
of Internal Medicine, 103, 507-515: 1985.
5 Engel, BT, Nikoomanesh, P & Shuster, MM. "Operant conditioning in the
treatment of fecal incontinence." The New England Journal of Medicine, 290,
646-649: 1974.
6 Whitehead, WE, Burgio, KL & Engel, BT. "Biofeedback treatment of fecal
incontinence in geriatric patients." Journal of American Geriatric Society, 33,
320-324: 1985.
7 Wald, A. "Biofeedback for neurogenic fecal incontinence: rectal sensation
is a determinant of outcome." Journal of Pediatric Gastroenterology and
Nutrition, 2, 302-306: 1983.
8 Urinary Incontinence Guideline Panel. "Urinary Incontinence in Adults:
Clinical Practice Guidelines." AHCPR Pub 9-2-00388. Rockville, MD: Agency for
Health Care Policy & Research; PHS, HHS: March 1992.
35
<PAGE>
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 behavioral principles that guide the
MedCare program for incontinence.
At MedCare's developmental clinic, a study of randomly selected volunteers was
conducted to rate the effectiveness of the program. Eighteen subjects with
stress, urge or mixed incontinence were chosen with the approval of their
physicians. There were three males and fifteen females, with an average age of
64.6. The results of this study revealed a statistically significant reduction
in incontinent episodes in the randomly selected patient population. Before the
treatment program began, the subjects had an average of 5.5 incontinent episodes
per day. After the treatment program, only 2 out of the 18 patients displayed
any symptoms of incontinence -representing an 89% success rate. A 12 month
follow-up revealed no tendency for relapse.
A study using a large patient population base was conducted by Cheryl
Aikey. Out of 200 patients, ranging in age from 17 to 89 years of age, the study
revealed an overall improvement rate of 77%. The high success rate of MedCare's
program, along with ample positive clinical evidence from other independent
researchers, supports the Company's expectations that a conservative approach in
treating incontinence will become the preferred treatment choice of all
sufferers in the near future. At present, the only hindrance to this conversion
of treatment modality (surgery, drugs and diapers being the current modalities
of choice) is the ignorance of the patient population and the medical community
- -- few realize that an alternative treatment program exists at the present time.
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.
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 $20,000 to establish.
As of March 6, 1998, the Company had established (as noted with an " * ")
or was in the process of opening a total of twenty four (24) MedCare Program
sites in the following cities: Norman, OK* (Dr. Michael M. Blue), Winter Park,
FL* (Dr. Jake Jacobo), Denver, CO* (Dr. Rueven Rosen), Raleigh, NC* (Dr. Richard
D. Kane), Kankakee, IL* (Dr. Joel Slutsky), Kingwood, TX* (Dr. Robert Rosen),
Toledo, OH* (Dr. Gregory Haselhahn), Lake Worth, FL* (Dr. Mark Lieberfarb),
Coral Springs, FL* (Dr. Michael Lazzopina), Phoenix, AZ* (Dr. William Crisp),
Fremont, CA* (Dr. Scott Kramer), New York, NY (Dr. Robert Gluck), New Rochelle,
NY (Dr. Larry Roberts), Roswell, GA (Dr. Omar Eubanks), Baltimore, MD (Dr. Marci
Roenneberg), Stanford, CT (Dr. Jon Waxberg), West Orange, NJ (Dr. Yitzhak
Berger), Clackamas, OR (Dr. Herbert Tirjer), Dallas, TX (Dr. Brian Feagins),
Amherst, OH (Dr. Steven Leslie), Columbus, OH (Dr. Stephen Richards),
Alexandria, VA(Dr. A. Roger Weiderhorn), Albany, NY (Dr. B. Orakondy), Mine
Hill, NJ (Dr. Marc Colton),
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 prematurely 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.
36
<PAGE>
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 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 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, continued draw comes from word of mouth
referrals from patients and doctor referrals.
The Program Management Agreement
- --------------------------------
Each physician or practice ("the Practice") who participates in the
MedCare Program signs a Program Management Agreement which defines the terms of
the Program by which the physician is bound. The Practice is given exclusive
authority and responsibility for professional supervision and judgements
required in the diagnosis of patients with Conditions and in the selection and
performance of Procedures on the Practice's patients. MedCare provides various
support and administrative services and assistance in operating the Program, but
is specifically excluded from being a provider or supplier of medical or
professional services. The Practice also must give MedCare permission to use his
or her name, address, phone number and type of practice in lists of MedCare
participants and in written and verbal communications with other
practicitioners.
Medcare's Obligations
- ---------------------
Equipment. MedCare agrees to lease to the Practice the Program
Equipment, which is selected, installed and maintained by MedCare and available
for use by the Practice on a full-time basis as long as he or she is a member of
the MedCare Program. MedCare also assists the Practice in procuring all permits
and licenses necessary for the installation and operation of the Program
Equipment or any items thereof. Medcare agrees, furthermore, to pay all fees,
taxes and other charges that may be levied upon MedCare's ownership of the
Program Equipment, although its failure to do so does not constitute a default
under the agreement. The physician pays all taxes and charges associated with
its use of the Program Equipment. The Company also does not have an obligation
to provide new or improved Equipment.
Technologists. The Program Management Agreement provides for the
leasing of employees by MedCare to the Practice who are licensed, qualified and
trained to operate the Program Equipment under physician supervision and assist
the Practice in the operation of the Program. The Practice has the right to
approve or disprove of each Technologist provided by MedCare and must supervise
all activities of the Technologist. While present at the Location, the
Technologist is considered an employee of the Practice and is subject to the
Practice's continued approval and works the hours assigned by the Practice. The
Technologist's salary and any other benefits, however, are paid by MedCare. If
the Practice so desires, the Company will require the Technologist to sign an
employment agreement with the Practice.
Policies and Protocols. MedCare provides the Practice with model
clinical and administrative protocols necessary for the Program, subject to the
Practice's approval, in the form of a Policies and Procotols Manual. This manual
reflects the clinical activities and methods in which the Technologist is
trained and prepared to perform under the supervision of the Practice. The
Practice, however, has the ultimate responsibility for approving policies and
procedures applicable to the Program and the provision of Procedures to patients
of the Practice. MedCare assumes responsibility for coordinating the Practice's
billing, collection and other reimbursement services related to the Program;
however, the Practice is responsible for performing all billing and collection
functions and all billing shall be done in the name of the Practice. The
Technologist is responsible for maintaining all patient data for reference and
development of case histories in a manner consistent with accepted standards and
the Practice's policies and procedures. MedCare will also provide the Practice
with training, education and information relative to the Program on an ongoing
basis.
37
<PAGE>
The Practice's Obligations
- --------------------------
The Practice agrees to engage MedCare on an exclusive basis as manager
of the Practice's programs for the diagnosis and treatment of the Conditions
using behavioral and biofeedback techniques. The Practice is required to
provide, at its own expense, an area of sufficient space for the performance of
the Procedures and for the Program Equipment. This Location must be in or
adjacent to the offices of the Practice and must be available on a full-time
basis for the operation of the Program. All janitorial and other services
necessary for the cleaning and maintenance of the Location must be provided by
the Practice. The Practice must also supply all usual office and clinic
supplies, furnishings and equipment.
Program Equipment. The Practice must, at its own expense, provide
utilities for the installation and ongoing operation of the Program and the
Equipment. MedCare will provide information and specifications regarding
required utilities. The Practice is not allowed to remove the Equipment from the
Location without the prior written consent of MedCare and must not subject the
equipment to any levies, liens or encumbrances.
Procedures. For each Procedure conducted as part of the Program, the
Practice shall determine the appropriate intervention and shall provide the
Technologist with information regarding the patient relevant to the Procedure to
be conducted. The Practice shall be responsible for obtaining informed consent
from the patient prior to the performance of any Procedures. The Practice shall
be professionally responsible for, and shall supervise, all such Procedures. The
Practice shall also be responsible for the administration of other tests,
treatments and procedures not provided as part of the Program as deemed
necessary or appropriate by the Practice.
Technologist. The Practice agrees that the Technologist is an asset of
MedCare, and that during the term of this Agreement, and for one year
thereafter, no proposal of any business relationship with the Technologist,
other than pursuant to the Agreement, shall be made, offered or accepted by the
Practice without MedCare's written consent. Otherwise, the Practice may control
and direct the Technologist assigned to the Practice by MedCare as a common-law
employee.
Group Practice. If the Practice consists of two or more physicians, it
is required to warrant that it meets the definition of a "Group Practice" under
42 USC Section 1395nn and any applicable state laws.
Financial Arrangements
- ----------------------
The Practice agrees to pay MedCare a management fee which shall be
invoiced monthly by MedCare. Fees not paid on time are subject to a monthly
interest charge of no more than 1-1/2 percent multiplied by all amounts past
due. The Management fee is a total amount allocated among administration,
technologist, billing, intellectual property and equipment costs. Prior to June
1, 1998, MedCare's management fee was calculated as a percent of the practice's
charges for the MedCare managed activities of the practice. Effective June 1,
1998, the management fee became a flat rate per appointment. The initial rate is
a fixed fee of $145.00 per appointment, with higher rates for certain
specialized services.
The Company does not make any payments to physicians who have the
MedCare Program in their offices. The start up costs are expenses related solely
to pay for equipment and computer and software owned by the Company ($16,000),
expenses related for the recruitment and training of the clinicians ($5,000 -
$8,000), and miscellaneous expenses such as installation of telephones,
furniture and supplies ($4,000 - $6,000). Since the physician is required to
provide office space at no cost, there are no fees, or ongoing fees paid to the
physician. Shown below, is an updated and revised listing of average monthly
expenses on a per site basis:
<TABLE>
<CAPTION>
<S> <C>
Insurance $ 650.00
Ad Agency Labor Costs $ 250.00
News Paper Advertising $ 2,000.00
Salary for Clinician $ 3,000.00
Telephone $ 200.00
Local Physician Marketing $ 350.00
Office Supplies $ 25.00
Sales Rep Commission $ 72.46
Mileage Allowance - Travel $ 15.00
Total Average Monthly Exp: $ 6,562.46
</TABLE>
Term and Termination
- --------------------
Each Practice Management Agreement is for a period of five years
following the Effective Date. The term may be automatically extended for
additional five year periods following the expiration of the original term, or
following the expiration of each extension period thereafter, unless either the
Practice or MedCare notifies the other in writing, within 90 days of the
expiration of the applicable period, of its intention to terminate the
Agreement. MedCare may terminate for cause if the Practice fails to make payment
when due under this
38
<PAGE>
Agreement or any other Agreement with MedCare, provided that payment is not made
within ten days after notice of such failure has been delivered to the Practice.
Either party may terminate the agreement if the other files a petition in
bankruptcy, has a receiver, trustee or other court officer appointed, takes
advantage of the insolvency laws of any jurisdiction, makes an assignment for
the benefit of its creditors or is voluntarily or involuntarily dissolved.
Furthermore, either party may request the renegotiation of the terms of this
Agreement if any legislative or regulatory change or determination, whether
federal or state, would have a significant adverse impact on either party in
connection with the performance of this Agreement.
Confidentiality
- ---------------
The Practice is prohibited from disclosing or discussing any
Information with any person except the Practice's representatives for one year
after the Information has been initially disclosed to the Practice. The Practice
must use the Information solely in connection with the Program and the provision
of Procedures to its patients, and is restricted from using the Information in
any way that may be deemed detrimental to MedCare. Upon the request of MedCare,
the Practice must promptly return all original documents and all reproductions
of information in the possession of the Practice. All derivative documents in
the possession of the Practice containing or reflecting any Information must be
destroyed under the supervision of an authorized officer of the Practice and
written certificate of the destruction must be provided to MedCare by the
Practice. For the course of this Agreement and for two years after its
termination, the Practice and its members, employees, agents, representatives
and affiliates are restricted from entering into any joint venture, independent
contract or other business relationship with any MedCare employees without the
Company's express consent.
Insurance
- ---------
The Practice is responsible for all professional liability risks
associated with the performance of the Procedures on its patients, including the
performance of Procedures by the Technologist under the supervision of a
physician member of the Practice. The Practice agrees to maintain professional
liability insurance of no less than $1,000,000 aggregate liability per policy
year. MedCare agrees to maintain comprehensive general liability insurance
covering MedCare's responsibilities pursuant to the Agreement with a limit of
liability of no less than $1,000,000 aggregate per policy year, as well as
worker's compensation insurance covering the Technologist and products liability
insurance with a limit of liability of no less than $1,000,000 aggregate per
policy year.
Governmental Regulation Issues Concerning the Program Management Agreement
- --------------------------------------------------------------------------
Under the Company's Program Management Agreement, MedCare is not a
provider of health care services. MedCare merely supplies personnel, equipment
and proprietary techniques to providers of health care. The physicians or
medical groups that contract with MedCare are the providers of services to their
own patients. MedCare simply manages the incontinence treatment programs in the
physicians offices.
This management model is analogous to the arrangements employed by many
other physician practice management companies, including PhyCor, MedPartners and
others. In MedCare's care, only part of the physician's practice is managed.
Such partial management arrangements are utilized primarily in conjunction with
the provision of ancillary services that require specialized personnel,
equipment, procedures, etc. For example, many physician office laboratories and
imaging centers are operated under management agreements with organizations that
have special expertise in the operation of such services. Like these specialized
managers, MedCare offers a global management package, including equipment,
personnel, policies, procedures, reimbursement expertise, etc., necessary to
support a physician's practice in providing a specialized health care service.
Under Stark II legislation, physicians are prohibited from referring
Medicare or Medicaid eligible patients for designated health services to persons
or entities with which the physician has financial relationship. Stark II also
prohibits the recipient of the referral from billing Medicare for a designated
service furnished pursuant to a prohibited referral. However, Stark II contains
several general exceptions to its referral prohibitions The MedCare Program and
the Program Management Agreement are designed to allow medical groups and
physicians that contract for MedCare's management services to meet the
requirements of Stark II's "In-Office Exception". Basically, the In-Office
Exception allows a physician to perform and bill for designated services
provided to the physician's own patients in conjunction with the provision of
physician services
However, there are still referral issues relevant to the operation of
an incontinence treatment program by a physician or medical group. In
particular, these self-referral arrangements are encompassed by the referral
prohibitions of the Stark II laws unless there is an applicable exception. The
MedCare Program and the Program Management Agreement are designed to allow
medical groups and physicians that contract for MedCare's management services to
meet the requirements of Stark II's "In-Office Exception".
The specific features of the MedCare Program and the Program Management
Agreement that ensure that the physician or group practice comply with the
relevant Stark II requirements follows:
39
<PAGE>
1. In the Program Management Agreement, the physician represents and
warrants that if the practice consists of two or more physicians, they
meet the definition of a "group practice" for the purpose of Stark II;
2. The Program Management Agreement and the supporting materials clearly
state that the physician or group is the responsible provider of
incontinence treatment services for all purposes including licensure
and reimbursement. The technician leased by the physician from MedCare
serves as the physician's employee and works under the direct
supervision of the physician. The physician also bills for the
incontinence treatment services in the same manner as any other medical
or ancilliary services provided by that physician or group practice;
and
3. In order to contract with MedCare for management of an incontinence
treatment program, a physician or group must secure a physical location
that is part of, or adjacent to the physician's or group practice's
existing office space.
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
odor of urine and ongoing cash outlay to be major disadvantages. It has been
estimated that the typical UI sufferer in the United States spends between $1200
to $1500 annually on these types of products. Retail sales of adult absorbent
products surpassed $1.6 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,
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.
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.
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.
40
<PAGE>
"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. While most of
these clinics have limited financial strength for adequate marketing and
advertising and often operate a "ma and pa" type of business, the Company
expects better financed and more sophisticated competition to emerge in the
future.
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.
Employees
- ---------
At December 31, 1997, the Company employed 17 full time persons. As of
March 6, 1998, the Company employed 27 full time persons. 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 are
represented by labor unions or other collective bargaining groups.
Year 2000 Issues
- ----------------
All of the Company's computer systems, including hardware and software,
in both corporate and clinical use, utilize the date format specified in the
underlying operating system of Windows 95 and, as a result, are fully Year 2000
compliant. The Company's clinical software, the "Myoexerciser," can store dates
from year 0 to 9999. As a result, the Company does not anticipate any Year 2000
issues to arise, nor will there be any expenses required in order to resolve
Year 2000 issues.
History of the Company
- ----------------------
Except for the historical information contained herein, the discussion
in this Registration Statement contains certain forward- looking statements that
involve risk and uncertainties, including, but not limited to, product and
service demand and acceptance, changes in technology, changes in insurance
reimbursement, economic conditions, the impact of competition and pricing,
government regulation, and other risks defined in this document and in
statements filed from time to time with the Securities and Exchange Commission.
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.
The Company, formerly known as Multi-Spectrum Group, Inc., was
incorporated under the name Santa Lucia Funding, Inc., in the State of Utah on
January 17, 1986, with an authorized capital of 50,000,000 common shares with a
par value of $0.001 for the purposes of raising capital in order to seek
business opportunities believed to hold potential for profit. On February 8,
1990, the Company adopted a plan of merger with Multi-Spectrum Group, Inc., a
Delaware corporation, and Santa Lucia Funding, Inc., a Utah corporation, merged
into Santa Lucia Funding, Inc., a Utah corporation, which then changed its name
to Multi-Spectrum Group, Inc. The outstanding shares of Multi-Spectrum Group,
Inc. were converted into common shares of Santa Lucia Funding, Inc. at the
exchange rate of 55,305 shares of Santa Lucia for each common share of
Multi-Spectrum then issued and outstanding. In addition, the number of common
shares authorized was increased from 50,000,000 to 100,000,000 with the par
value remaining at $0.001. On November 13, 1992, the Company issued 8,7722,800
shares of its Common Stock to Group of Five, Inc. in exchange for services
rendered.
The Company was inactive during the period from February 1990 to August
1995, at which point the Company acquired the MedCare program for treating
incontinence.
On August 11, 1995, a reverse split of the common stock by a ratio of
one new for 1,200 old was effected, with the par value remaining at $0.001. This
reduced the total number of shares issued and outstanding to 58,519. 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.
On August 25, 1995, the Company approved an increase in the authorized capital
to 101,000,000 shares of stock, comprised of 100,000,000 common shares with a
par value of $0.0001 per share and 1,000,000 preferred shares with a par value
of $0.25 per share, and approved a name change to MedCare Technologies, Inc.
On August 15, 1995, the Company authorized in a Private Placement
Memorandum, pursuant to Regulation D, Rule 504, offering 4,200,000 shares of its
common stock at a price of $0.15. This offering was conducted in order to raise
money for further research and development on the MedCare Program and was broken
down as follows: $300,000 for public relations and advertising, $155,000 for
41
<PAGE>
market research and development, $45,000 for consulting, $25,000 for
miscellaneous expenses and $75,000 as a cash reserve. 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.
On October 1, 1995, the Company's wholly owned subsidiary, MedCare
Technologies Corporation, acquired 100% of Manon Consulting Ltd., an Alberta,
Canada, corporation, for a nominal value from its owners, Diane Nunzianto, a
MedCare Technologies, Inc. director and Philip Tolley and Mel Tolley. On
December 31, 1995, the Company issued 16,666 shares of its common stock for
$50,000 cash and 25,000 shares of its common stock in exchange for consulting
services with a value of $75,000. The operations of Manon Consulting were
terminated on December 31, 1996.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on June 20, 1996 and completed on August
15, 1996. This offering was for 50,000 shares of common stock at $4.75 per share
for a total offering of $237,500. The proceeds from this offering were used for
equipment purchase, advertising and marketing, and working capital.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for a total offering of $252,000. The proceeds from this offering were
used for equipment purchases, advertising and marketing and working capital.
Narinder Thouli, a member of the Board of Directors, resigned on
November 1, 1996. He resigned for personal reasons and did not have any
disagreements with the Company. On October 4, 1996 a migratory merger was
completed changing the Company's domicile from Utah to Delaware.
During fiscal 1997, the Company issued three private placement
memoranda. On February 1, 1997, an offering was begun pursuant to Regulation D,
Rule 506 for 176,000 shares of common stock at $6.25 per share for a total
offering of $1,100,000. This offering was completed on February 4, 1997. The
proceeds were used for working capital and expansion of the MedCare Program.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 506 on July 7, 1997 for 300,000 shares of common stock at
$6.00 per share, plus 300,000 warrants exercisable at $6.00 per warrant until
July 7, 2002 for a total offering of $1,800,000. This offering was completed on
July 30, 1997 and the proceeds used for working capital and expansion of the
MedCare Program.
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 least ten shares ($100,000) and increments of five shares in excess
thereof. The total offering was for three hundred shares for a total of
$3,000,000, with a minimum offering 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
thirty-three and one-third percent (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 defined in the Certificate of Designation. In
conjunction with this offering, an Escrow Agreement was entered into with Swartz
Investments LLC, a Georgia limited liability company, as Placement Agent and
with First Union National Bank of Georgia as Escrow Agent.
At this time, the Company also filed a Certificate of Designation with
the State of Delaware in conjunction with this offering. This Certificate was
approved on July 7, 1997 and designates 1,000 shares of the Company's one
million shares of authorized preferred stock to be Series A stock. This stock
has been assigned an issue price of $10,000 per share with an eight percent (8%)
per annum accretion rate. The rank of this stock has been assigned as being
senior to all Common Stock of the Company, junior to any other class or series
of capital stock of the Company hereafter created specifically ranking by its
terms senior to the Series A Preferred Stock, senior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on par with any Series A Preferred Stock of whatever
subdivision, and on parity with any class or series of capital stock of the
Company hereafter created specifically ranking by its terms on parity with the
Series A Preferred Stock. No dividend rights have been granted to this stock.
The conversion terms outlined in the Certificate of Designation state
that holders of the Series A Preferred Stock can convert their stock on or after
a period of no less than four months from the closing date into Common Stock
using the formula per share of Series A Preferred Stock:
(.08)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
42
<PAGE>
The Conversion Price is determined as the lesser of 115% of the average Closing
Bid Price for the five trading days ending on June 6, 1997, which is $7.346 or
X% of the average Closing Bid Price of the Company's Common Stock for the five
trading days immediately preceding the Date of Conversion, where X is determined
as follows:
<TABLE>
<CAPTION>
# of months between Last Closing
and Date of Conversion "X"
---------------------- ---
<S> <C>
4-6 months 90%
6 months-1 year 87.5%
9 months, 1 day-12 months 85%
more than 12 months 80%
</TABLE>
The Company also has the right to redeem the Series A Preferred Stock
upon receipt of Notice of Conversion at a rate of the Stated Value times 1.10 to
1.2 or may redeem the stock at its own election at 115% to 130%, depending on
the length of time.
The Placement Agent and its employees and affiliates were granted a
total of 165 Preferred Stock options and 258,302 Common Stock options in
conjunction with this offering. These warrants have been issued pursuant to a
Placement Agent Agreement between the Company and Swartz Investments, LLC, a
Georgia limited liability company, as Placement Agent. According to this
agreement, the Placement Agent agreed to find subscribers for the Company's
Preferred Stock Series A offering in exchange for a placement fee of 5- 1/2% of
the aggregate gross subscription proceeds of the offering, a non-accountable
expense allowance of 2% of the aggregate gross subscription proceeds, and, if a
subscriber exercises a preferred warrant, a fee consisting of 7-1/2% of the
aggregate exercise price, as defined in the Preferred Warrant. The Placement
Agent Agreement also grants to the Placement Agent three sets of warrants (i)
warrants to purchase stock equal to 7-1/2% times the aggregate gross
subscription proceeds divided by the Fixed Conversion Price (as defined in the
Certificate of Disclosure), (ii) warrants to purchase stock equal to 7-1/2% of
the number of Conversion Warrants placed in the offering (as defined in the
Subscription Agreement) and (iii) upon the exercise of a Preferred Warrant by a
Stockholder, warrants to purchase stock equal to 7-1/2% of the gross proceeds
received by the Company upon the exercise of the Preferred Warrant divided by
the Exercise Price (as defined in the Preferred Warrant). All three of these
warrants are for a period of five years at a fixed conversion price of $7.346
per share, as defined in the Certificate of Disclosure. The Placement Agent
Agreement also contains cashless exercise and reset provisions.
On July 8, 1997, Jeffrey Aronin joined the Company as its President and
Chief Operating Officer. He was also elected a Director of the Company. Harmel
S. Rayat, the previous president, remains with the Company in the capacity of
Chief Executive Officer and Chairman of the Board.
On September 17, 1997, Diane Nunziato resigned as a director of the Company
and Dr. Jake Jacobo joined the Company as a director. Ms. Nunziato resigned for
personal reasons and did not have any disagreements with the Company.
On November 7, 1997, Mr. Greg Wujek joined the Company as its Vice
President of Managed Care.
The Company has also issued shares pursuant to the following stock
option plans:
1995 Stock Option Plan (500,000 shares exercisable at $3.00 until
December 31, 2001) 1996 Stock Option Plan (300,000 shares exercisable
at $4.50 until June 20, 2001) 1997 Stock Option Plan (200,000 out of
500,000 shares exercisable at $4.50 until November 18, 2001) 1997 Stock
Option Plan (300,000 out of 500,000 shares exercisable at $6.50 until
July 1, 2005)
GOING CONCERN
The going concern opinion of the independent accountant, as disclosed
in the Company's Independent Auditors Report attached to Part F/S, is as
follows:
"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."
43
<PAGE>
The Company's executive offices are located at 1515 West 22nd Street, Suite
1210, Oak Brook, Illinois, 60521. Its telephone number is (630) 472-5300.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
financial statements and notes thereto included with this Form SB-2. Except for
the historical information contained herein, the discussion in this Registration
Statement 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 above in "Risk Factors", as well as discussed elsewhere
herein.
44
<PAGE>
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 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.
45
<PAGE>
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.
Plan of Operations
- ------------------
General
- -------
The Company plans to establish approximately 90 MedCare Program sites
in calendar 1998. Each MedCare Program site costs approximately $25,000 to
$30,000, including training, equipment, travel and other miscellaneous costs.
The total start-up investment does not include any lease or office
infrastructure charges, as the Company's business model calls for its Program
sites to be located inside physician practices, with all building and other
incidental charges being covered. Since the Company's business is very early
stage and there are no similar clinical systems operating within physician
offices to emulate, the Company's business model has gradually evolved and has
been refined as management gains actual experience. The Company's best estimate
for first and second year operating revenues and expenses are based upon an
extrapolation of actual results at several existing MedCare Program sites that
have certain attributes that management believes is ideal and will be
incorporated into all future new locations, such as multiple doctors, certain
insurance reimbursements rates, demographics, and so forth. For example, over
the last four months, the Company's seven month old MedCare Program in Raleigh,
North Carolina, has averaged $20,400 in monthly revenues, consistent with the
Company's projections.
During the first twelve months of clinical growth, the Company expects
its single clinician to experience a gradual rise in the number of monthly
patient visits, from 60 in the first month and rising to 120 visits by month 12.
Thereafter, and during the second year of operations, the Company expects its
patient traffic to remain constant at 120 patient visits per month. While the
revenue stream is expected to grow gradually during the early stages, the
Company expects its clinical expenses to remain constant, because only one
clinician is required to support the patient traffic expected.
Pro Forma Income Statement -- July 1, 1998 through June 30, 2000
- ----------------------------------------------------------------
Year 1
Gross Revenue-- Offices 6,287,200.00
Reg. Nurse Expenses 473,250.00
Conventions 22,700.00
Lease Expenses 75,100.00
Corporate Payroll 852,583.19
Travel Expenses 168,840.00
Office Equipment 128,270.00
Insurance 86,096.04
Training 107,200.00
Corporate Phone 52,500.00
Dues & Sub 1,140.00
Corp. Advert & Mrkt 21,000.00
Investor Relations 570,000.00
Physician Relations 26,400.00
Outcomes 18,000.00
Attorney Fees 35,700.00
ML Billing (5 months) 3,500.00
Office Site Expenses 3,095,943.58
Misc 6,000.00
Total Expenses 5,744,222.81
Net Income 542,977.19
46
<PAGE>
The Company estimates that start-up costs for the 90 new sites during
the period beginning July 1, 1998 and ending June 30, 1999 will total 5.7
million, which includes corporate and head office expenses. Together with
approximately $4 million in cash, anticipated revenues of approximately 6.2
million and resultant cash flows from the Company's operating MedCare Program
sites will allow the Company to operate and execute its business plan without
the need of any additional funding.
DESCRIPTION OF PROPERTY
The Company's principal office is located at 1515 West 22nd Street,
Suite 1210, Oak Brook, Illinois, 60521. This office is 2400 square feet and is
subleased for $4800 per month, plus operating expenses of approximately $400 per
month, for one year, with an option to renew every year for 5 years. The Company
also leases 1,500 square feet of office space located in Vancouver, British
Columbia for $2,000 per month, plus operating expenses of approximately $200 per
month. This space has been leased for a period of one year, with an option to
renew for a second year, and is owned by one of the Company's directors and by
the Chairman's wife.
The Company does not purchase or lease property on behalf of its
MedCare Program participants. Instead, the Company typically enters into a
"Practice Management Agreement" ("PMA") with a physician, usually a urologist,
urogynaecologist or gynaecologist in order to manage the incontinence portion of
their practice. The PMA calls for the Company to provide a trained clinician,
usually a nurse, electromyography equipment and a comprehensive marketing
campaign that would include direct advertising, print, speeches, etc. The
physician is required to provide a dedicated examining room, typically 10' x 10'
or larger in size, at no charge and for the duration of the PMA, usually for a
five year term. Simply stated, the Company's advertising and marketing attracts
patients who suffer from urinary incontinence, who are then evaluated by the
physician, after which they are treated using the MedCare Program.
CERTAIN TRANSACTIONS
On October 1, 1995, the Company acquired 100% of Manon Consulting Ltd.
for nominal value. Diane Nunziato, a director of the Company until September 17,
1997, was a director and minority shareholder of Manon Consulting at the time of
the transaction, which was approved by both boards after disclosure. The Company
operated its Calgary clinic through Manon Consulting until the closure of this
clinic on December 31, 1996. Since Manon Consulting has no historical
profitability and is partially responsible for the development of the MedCare
program through Manon Consulting's clinical activities, the Company acquired
Manon Consulting for nominal value.
On July 7, 1997, 300,000 shares of common stock of the Company and
300,000 warrants to purchase shares of common stock of the Company were sold to
Matrix Capital Corp., which is the beneficial owner of more than five percent of
the common stock of the Company. More detailed information can be found on page
19.
In June 1998, Queensway Financial Holdings Ltd., which is the
beneficial owner of more than five percent of the common stock of the Company,
entered into an agreement with the Company to become a Series A Preferred
Selling Shareholder, involving the purchase of additional shares and warrants.
Detailed information can be found on page 17.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
- ------------------
The Company's common stock trades on the NASD Electronic Bulletin Board
under the symbol MCAR. The following table sets forth the high and low sale
price information for the periods indicated:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
January-March 1997 $8.25 $6.75
April-June 1997 $8.0625 $6.25
July-September 1997 $9.25 $6.875
October-December 1997 $8.125 $7.625
January-March 1998 $9.375 $7.375
April-June 1998 $11.25 $9.00
July-September 1998 $9.31 $6.00
</TABLE>
Holders
- -------
As of February 17, 1998, there were approximately 255 stockholders of
record of the Company's Common Stock.
47
<PAGE>
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.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or awarded to the
Company's chief executive officer and to each of the Company's three most highly
compensated executive officers other than the chief executive officer whose
salary and bonus for the latest fiscal year exceeded $100,000, for services
rendered to the Company in 1996 and 1995.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term Compensation
Awards
Annual Compensation Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
- -------- ---- ------ ----- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harmel S. Rayat,
President & CEO 1995 $0 $0 0 150,000 0
Valerie Boeldt-
Umbright 1995 $0 $0 0 0 0
Harmel S. Rayat,
President & CEO 1996 $0 $0 0 160,000 0
Valerie Boeldt-
Umbright 1996 $12,687.50 $0 0 40,000 0
Harmel S. Rayat
Chairman & CEO 1997 $40,000 $0 0 0 0
Valerie Boeldt-
Umbright 1997 $49,833 $0 0 115,000 0
Jeffrey S. Aronin,
President, Director 1997 $46,433 $0 0 250,000 0
</TABLE>
<TABLE>
Option/SAR Grants to Officers and Directors in Last Fiscal Year
<CAPTION>
Percent of total options/
Options/SARs SARs granted to employees Exercise or
Name Granted (#) in fiscal year base price ($/Sh) Expiration Date
<S> <C> <C> <C> <C>
Harmel S. Rayat, 0 0% N/A N/A
Chair & CEO
Jeffrey S. Aronin, 250,000 50% $6.50 July 1, 2005
President, Director
ValerieBoeldt- 100,000 20% $4.50 November 18, 2001
Umbright 15,000 3% $6.50 July 1, 2005
Michael M. Blue, 60,000 12% $4.50 November 18, 2001
Director 15,000 3% $6.50 July 1, 2005
</TABLE>
49
<PAGE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<CAPTION>
Shares Acquired Number of unexercised
on exercise (#) options/SARs at Value of unexercised
exercisable/ Value FY-end (#) exercisable/ in-the-money options/SARs
Name unexercisable realized ($) unexercisable at FY-end ($)
- ---- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Harmel S. Rayat, 0 $0 310,000 $1,170,000
Chair & CEO
Jeffrey S. Aronin, 0 $0 250,000 $1,625,000
President, Director
Valerie Boeldt- 0 $0 155,000 $727,500
Umbright
Michael M. Blue, 0 $0 115,000 $547,500
Director
</TABLE>
1995 Stock Option Plan. The 1995 Stock Option Plan has 500,000 shares reserved
for issuance at $3.00 per share until December 31, 2001 and have no vesting
period. The individuals listed below have these options:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
<S> <C> <C> <C>
Bhupinder Mann 100,000 13,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal 150,000* 11,000 1996
17,000 1997
6,000 1998*
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
6,000 1998*
Frank Mueller 10,000 None N/A
Sarbjit Thouli 10,000 1,500 1997
Grant Mackney 10,000 None N/A
Todd Weaver 10,000 None N/A
Dave Gamache 10,000 None N/A
Terry Johnson 100,000* None N/A
</TABLE>
* Transferred from Harmel S. Rayat, and approved by Board on September 18, 1998.
1996 Stock Option Plan. The 1996 Stock Option Plan has 300,000 shares reserved
for issuance at $4.50 per share until June 20, 2001 and have no vesting period.
The individuals below have these options:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Number Exercised Year Exercised
<S> <C> <C> <C>
Valerie Boeldt-Umbright 40,000 None N/A
Terry Johnson 60,000 3,000 1996
17,000 1997
6,000 1998*
Ranjit Bhogal* 160,000 None N/A
Michael M. Blue 40,000 None N/A
</TABLE>
* Transferred from Harmel S. Rayat, and approved by Board on September 18, 1998.
1997 Stock Option Plan. The 1997 Stock Option Plan has 500,000 shares reserved
for issuance. 200,000 options are exercisable at $4.50 per share until November
18, 2001 and 300,000 options are exercisable at $6.50 per share until July 1,
2005. The individuals listed below have these options:
<TABLE>
<CAPTION>
Name of Optionee Total Reserved Exercise Price Number Exercised Year Exercised
<S> <C> <C> <C> <C>
Valerie Boeldt-Umbright 100,000 $4.50 None N/A
15,000 $6.50 None N/A
Terry Johnson** 40,000 $4.50 3,000 1997
20,000 $6.50 None N/A
Michael M. Blue 60,000 $4.50 None N/A
15,000 $6.50 None N/A
Jeff Aronin*** 250,000 $6.50 None N/A
</TABLE>
* Exercised in the first quarter of 1998.
** Transferred from Nicole Alagich and Charles Grahn and approved by Board on
March 16, 1998.
*** Subject to employment agreement with 100,000 options already vested and
100,000 vesting each year for 4 years beginning July 1998. 100,000 options is a
bonus if sales of $10,000,000 are reached by December 31, 1998.
Directors' Compensation
- -----------------------
Director received no compensation for each meeting attended except for
out-of-pocket expenses.
50
<PAGE>
FINANCIAL STATEMENTS
51
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1997 and 1996. . . . . . . . F-2 F-3
Consolidated Statement of Operations for the Years Ended December 31, 1997,
1996 and 1995 and for the Period From
Inception (January 17, 1986) Through December 31, 1997. . . . . . . . . F-4
Consolidated Statement of Stockholders' Equity
from Inception (January 17, 1986) Through December 31, 1997 . . . F-5 F-10
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 and for the Period From
Inception (January 17, 1986) Through December 31, 1997 . . . . . . F-11 F-12
Notes to the Consolidated Financial Statements . . . . . . . . . . . . F-13 F-21
Allschedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MedCare Technologies, Inc. and
Subsidiaries
Oak Brook, Illinois 60521
We have audited the accompanying consolidated balance sheet of MedCare
Technologies, Inc. and Subsidiaries (A Development Stage Company), (the
Company), as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the each of the three years
in the period ended December 31, 1997, and from inception (January 17, 1986)
through December 31, 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 December 31, 1997 and 1996
and the results of its operations and its cash flows for the each of the three
years int the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company is a development
stage Company as defined in Financial Accounting Standard Board 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 not been any significant revenues.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 2, 1998
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET DECEMBER
31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Assets
Cash $3,440,791 $ 219,775
Accounts Receivable - Trade 47,286 7,351
Prepaid Expenses 63,813 29,117
---------- ----------
Total Current Assets 3,551,890 256,243
Property and Equipment
Office Equipment 21,069 5,274
Medical Equipment 29,799 11,953
---------- ----------
50,868 17,227
Less Accumulated Depreciation 17,342 7,796
---------- ----------
Net Book Value 33,526 9,431
Other Assets
Intangible Assets - The MedCare Program (Note 3) 1,000 1,000
---------- ----------
Total Other Assets 1,000 1,000
---------- ----------
Total Assets $3,586,416 $ 266,674
========== ==========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-2
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET DECEMBER
31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 15,796 $ 19,791
Notes Payable - Related Parties 1,000 25,000
Notes Payable - Officers 0 12,500
----------- -----------
Total Current Liabilities 16,796 57,291
Stockholders' Equity
Preferred Stock: $.25 Par Value, Authorized 1,000,000; Issued
and Outstanding, 165 Convertible Series A Shares at
December 31, 1997 and None at December 31, 1996 41 0
Common Stock: $0.001 Par Value, Authorized 100,000,000;
Issued and Outstanding, 6,992,185 Shares at December 31,
1997 and 6,445,185 at December 31, 1996 6,992 6,445
Additional Paid In Capital 6,284,505 1,372,631
Loss Accumulated During The Development Stage (2,721,918) (1,169,693)
----------- -----------
Total Stockholders' Equity 3,569,620 209,383
========= =======
</TABLE>
The accompanying notes are integral part of these financial statements.
F-3
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 1996, AND 1995, AND
FOR THE PERIOD FROM INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During The
Year ended Year ended Year Ended Development
December December December Stage
31, 1997 31, 1996 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 91,802 $ $ $ 91,802
55
<PAGE>
Expenses
General and Administrative 1,515,459 452,037 689,713 2,699,236
----------- ----------- ----------- -------------
Operating Loss (1,423,657) (452,037) (689,713) (2,607,434)
Other Income (Expense)
Interest Income 119,146 2,801 0 121,947
Loss From Discontinued Operations (4,489) 0 0 (4,489)
Gain on Sale of Subsidiary 15,770 0 15,770
----------- ----------- ------------- ------------
Total Other Income (Expense) 130,427 2,801 133,228
----------- ----------- ------------- ------------
Net Loss (1,293,230) (449,236) (689,713) (2,474,206)
Less: Preferred Deemed Dividends (247,712) 0 0 (247,712)
----------- ----------- ----------- -------------
Net Loss Available to Common
Stockholders $(1,540,942) $ (449,236) $ (689,713) $(2,721,918)
=========== =========== =========== =============
Earnings Per Common Share and
Common Share Equivalents $ (0.21) $ (0.08) $ (0.35) $ (0.37)
=========== =========== =========== =============
Weighted Number of Common
Shares Outstanding 7,447,037 5,884,019 1,992,294 7,447,037
=========== =========== =========== =============
</TABLE>
The accompanying notes are integral part of these financial statements.
F-4
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <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 0 (316) (316)
- ----- ----
Balance, December 31, 1987 0 0 6,145,000 6,145 27,359 (316) 33,188
Escrow Fee for Public Offering (200) (200)
Net Loss Year Ended
December 31, 1988 (1,030) (1,030)
------ ------
Balance, December 31, 1988 0 0 6,145,000 6,145 27,159 (1,346) 31,958
Net Loss Year Ended
December 31, 1989 (21,707) (21,707)
------- -------
Balance, December 31, 1989 0 0 6,145,000 6,145 27,159 (23,053) 10,251
</TABLE>
The accompanying notes are integral part of these financial statements.
F-5
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Stock in Accordance with Plan of Merger with Multi- Spectrum Group,
Inc.
February 28, 1990 $ 55,305,000 $ 55,305 $ (55,305) $ $ 0
Net Loss Year Ended
December 31, 1990 -
Unaudited (10,201) (10,201)
------- -------
Balance, December 31, 1990 0 0 61,450,000 61,450 (28,146) (33,254) 50
Net Loss Year Ended
December 31, 1991 -
Unaudited 0 0
- -
Balance, December 31, 1991 0 0 61,450,000 61,450 (28,146) (33,254) 50
Issued to Group Five, Inc.
November 13, 1992 8,772,800 8,773 0 8773
Net Loss Year Ended
December 31, 1992 -
Unaudited 0 0 (8,773) (8,773)
- - ------ ------
Balance, December 31, 1992 0 0 70,222,800 70,223 (28,146) (42,027) 50
Net Loss Year Ended
December 31, 1993 0 0
- -
</TABLE>
The accompanying notes are integral part of these financial statements.
F-6
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 0 0 70,222,800 70,223 (28,146) (42,027) 50
Net Loss Year Ended
December 31, 1994 $ $ $ $ 0
------ ---------- ------ -------- --------
Balance, December 31, 1994 0 $ 0 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 (1,000) 1,000
Issued Pursuant to a Public
Offering at $.15 Per Share
September 20, 1995 4,200,000 4,200 625,800 630,000
Cost of Offering (30,000) (30,000)
Issued for Cash at $3.00 Per
Share, December 31, 1995 16,666 17 49,983 50,000
Issued for Services at $3.00 Per
Share, December 31, 1995 25,000 25 74,975 75,000
Net Loss Year Ended
December 31, 1995 (689,713) (689,713)
-------- --------
</TABLE>
The accompanying notes are integral part of these financial statements.
F-7
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 0 $ 0 6,300,185 $ 6,301 $ 761,776 $ (731,740) $ 36,337
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
60
<PAGE>
November 18, 1996 56,000 56 251,944 252,000
Write Off of Excess of
Liabilities over Assets on
Purchase of Manon
Consulting, Ltd. 11,283 11,283
</TABLE>
The accompanying notes are integral part of these financial statements.
F-8
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Loss Year Ended
December 31, 1996 (449,236) (449,236)
-------- --------
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 176,000 176 1,099,824 1,100,000
Issuance of Preferred Stock
Under a Private Placement
Dated July 8, 1997 165 41 1,649,959 1,650,000
Less cost of Private Placement (123,750) (123,750)
</TABLE>
The accompanying notes are integral part of these financial statements.
F-9
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Loss
Accumulated
During the
Additional Development
Preferred Stock Common Stock Paid In Stage
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Periodic Imputed Cost of
Preferred Stock Issued at the
Closing of the Offering 247,712 247,712
Issuance of Common Stock
Under a Private Placement
Dated July 7, 1997 300,000 300 1,799,700 1,800,000
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
=== == ========= ===== ========= ========== =========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-10
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
From
Inception
Through
Year Ended Year Ended Year Ended December
December December December 31, 1997
31, 1997 31, 1996 31, 1995
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(1,540,942) $ (449,236) ($ 689,713) $(2,721,918)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities
Preferred Deemed Dividends 247,712 247,712
Depreciation and Amortization 9,546 7,733 63 17,342
Common Stock Issued for Services 0 0 75,000 83,773
Net Assets of Manon Consulting, Ltd (11,281) 0 10,757 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (39,935) (6,711) (640) (47,286)
(Increase) Decrease in Prepaid Expenses (34,697) (29,115) 0 (63,813)
(Increase) Decrease in Organizational Costs 0 50 (57) 0
Increase (Decrease) in Accounts Payable (3,995) 20,080 291 15,796
----------- ----------- ----------- -----------
Total Adjustments 167,350 (7,963) 85,414 253,524
----------- ----------- ----------- -----------
Net Cash Used by Operating Activities (1,373,592) (457,199) (604,299) (2,468,394)
Cash Flows from Investing Activities
Purchase of Property and Equipment (33,642) (15,969) (1,258) (50,869)
----------- ----------- ----------- -----------
Net Cash Flows from Investing Activities (33,642) (15,969) (1,258) (50,869)
</TABLE>
The accompanying notes are integral part of these financial statements.
F-11
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
AND FROM (INCEPTION (JANUARY 17, 1986)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
From
Inception
Through
Year Ended Year Ended Year Ended December
December December December 31, 1997
31, 1997 31, 1996 31, 1995
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities
Proceeds from Sale of Common Stock 3,138,500 611,000 680,000 4,470,950
Proceeds from the Sale of Preferred Stock 1,650,000 0 0 1,650,000
Offering Costs (123,750) 0 (30,000) (161,896)
Advances (Repayments) Notes Payable (24,000) 25,000 0 1,000
Advances (Repayments) To Officers (12,500) 12,500 0 0
-------- ------ - -
Net Cash Provided by Financing Activities 4,628,250 648,500 650,000 5,960,054
--------- ------- ------- ---------
Increase (decrease) in Cash and Cash Equivalents 3,221,016 175,332 44,443 3,440,791
Cash and Cash Equivalents at Beginning of Period 219,775 44,443 0 0
------- ------ - -
Cash and Cash Equivalents at End of Period $ 3,440,791 $ 219,775 $ 44,443 $ 3,440,791
========= ====== ====== =========
Supplemental Information
Cash paid for:
Interest $ 0 $ 0 $ 0 $ 0
= = = =
Income taxes $ 0 $ 0 $ 0 $ 0
= = = =
Noncash financing
Intangible assets purchased with Common Stock $ 0 $ 0 $ 1,000$ $ 1,000
= = ===== =====
Common Stock issued for Services $ 0 $ 0 $ 75,000 $ 83,773
= = ====== ======
</TABLE>
The accompanying notes are 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, 1997 AND 1996
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 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 is a
wholly owned subsidiary of the company.
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 the Company's common stock at $0.0005, for a total value of
$1,000.
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 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, 1997 AND 1996
NOTE 1 - ORGANIZATION (CONTINUED)
- ---------------------------------
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.
On December 31, 1995, the Company issued 16,666 shares of its common
stock at $3.00 per share or $50,000 cash.
On December 31, 1995, the Company issued 25,000 shares of its common
stock in exchange for consulting services at $3.00 per share or
$75,000.
During 1996, the Company issued 36,000 shares of its common stock at
$3.00 per share under its 1995 Stock Option Plan, or $108,000.
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 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, 1997 AND 1996
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 258,302 common shares, at a discount range of 10%
to 20% from June 20, 1997 through June 20, 1998. The Company has
computed the discount attributable to the conversion feature by
allocating a portion of the proceeds equal to the intrinsic value of
that feature to additional paid-in capital over the minimum period in
which the preferred shareholders can realize that return, which is
four months. The discount was computed as the difference between the
conversion price and the fair value of the common stock into which the
security is convertible, multiplied by the number of shares into which
the security is convertible, totaling $247,712.
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, substantial revenues have yet to be realized.
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.
The accompanying notes are integral part of these financial statements.
F-15
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
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. Deferred Charges
-------------------
The Company has incurred start up costs from January 1, 1995
through September 30, 1995 amounting to $542,706. The total
amount was charged to operations during the year ended December
31, 1995.
F. 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
</TABLE>
Depreciation charged to expense during 1997, 1996, and 1995 was
$9,546, $7,733, and $63 respectively.
G. 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 $1,540,942, $449,236, $689,713 and
$42,027 in 1997, 1996, 1995 and prior years, respectively, unless
utilized by the Company.
H. Earnings or (Loss) Per Share
- -------------------------------
The accompanying notes are integral part of these financial statements.
F-16
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
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 at December
31, 1997, 1996, and 1995 was 7,447,037, 5,884,019, and 1,992,294,
respectively.
I. Leases
---------
The Company's corporate offices are located at 608 South
Washington, Suite 101, Naperville, Ilinois 60540. These offices
are leased for a one year period with the option to renew for an
additional year, at a monthly rate of $1,550 per month. 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 computer, 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. There is an option to renew for an
additional year.
J. Medcare Program Sites
------------------------
Program sites are located in Norman, Oklahoma, Winter Park,
Florida; Denver, Colorado; Raleigh, North Carolina and Kankakee,
Illinois. New locations to be opened since December 31, 1997,
include Kingwood, Texas; Toledo, Ohio; Lake Worth, Florida; Coral
Springs, Florida; Phoenix, Arizona; Freemont, California; New
York, New York; New Rochelle, New York; Roswell, Georgia;
Baltimore, Maryland; Stanford, Connecticut; West Orange, New
Jersey and Clackamas, Oregon.
K. Revenue Recognition
----------------------
Revenues 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.
The accompanying notes are integral part of these financial statements.
F-17
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
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.
L. 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.
M. Presentation
---------------
Certain accounts from prior years have been reclassified to
conform with the current year's presentation.
N. 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 - 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
The accompanying notes are integral part of these financial statements.
F-18
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - LONG-LIVED ASSETS - THE MEDCARE PROGRAM
- ------------------------------------------------
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.
NOTE 4 - NOTES PAYABLE-OFFICERS ( RELATED PARTIES TRANSACTIONS)
- ---------------------------------------------------------------
An Officer of the Company loaned the Company $1,000, which is due on demand
and with no interest rate currently applicable.
NOTE 5 - 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 years ended December 31,
1997, 1996 and 1995 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
=========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-19
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 5 - STOCK OPTIONS (CONTINUED)
- ----------------------------------
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.
NOTE 6 - STOCK WARRANTS
- -----------------------
In July, 1997, the Company offered 300,000 shares of common stock at $6.00
each, along with an additional 300,000 share purchase warrants at $6.00
each, good until July 7, 2002.
NOTE 7 - 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 266,747 shares of common would
be issued.
NOTE 8 - 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
The accompanying notes are integral part of these financial statements.
F-20
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 8 - DISCONTINUED OPERATIONS OF A BUSINESS SEGMENT (CONTINUED)
- ------------------------------------------------------------------
$1,320, respectively. Gross revenues for the years ended December 31, 1996
and 1995 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 9 - SUBSEQUENT EVENTS
- --------------------------
On January 5, 1998, 3 shares of preferred stock were converted to 4,851
shares of common stock at $6.45131 per share.
On January 6, 1998, 3 shares of preferred stock were converted to 4,803
shares of common stock at $6.51875 per share.
On February 16, 1998, 200,000 warrants to purchase common stock were
exercised at $6 per share, or $1,200,000.
The accompanying notes are integral part of these financial statements.
F-21
<PAGE>
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>
EXPERTS AND LEGAL MATTERS
Legal matters will be passed upon for the Company by Gary R. Blume,
Esq., Blume & Associates, P.C., 11801 North Tatum Boulevard, Suite 108, Phoenix,
Arizona 85028.
The financial statements of the Company for the seven months ended July
31, 1997 and the year ended December 31, 1996 appearing in this Form SB-2
Registration Statement have been audited by Clancy & Co., P.L.L.P., independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On August 25, 1995, the accounting firm of Jones, Thomas, Jenson and
Associates was replaced by William L. Clancy, CPA, as the Company's independent
accounting firm. There were and are no disagreements with Jones, Thomas, Jensen
and Associates. Although the former accountant had not been engaged as the
Company's accountant since the completion of the 1989 audit early in 1990, the
Company sent the letter to the former accountant as a courtesy. The Company did
not have an accountant during the fiscal years 1990 through 1992.
The Company's former accountant did not issue a report on the Company's
financial statements for either of the past two years.
The Company's decision to change accountants was approved by the Board
of Directors on August 25, 1995.
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as provided
under the Delaware General Corporation Law. No additional indemnification has
been authorized.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Registration Statement are as follows:
<TABLE>
<CAPTION>
<S> <C>
Escrow Agent: $4,060.00
Transfer Agent: $841.00
Legal and Accounting: $19,369.75
TOTAL $24,270.75
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
On August 15, 1995, the Company authorized in a Private Placement
Memorandum, pursuant to Regulation D, Rule 504, offering 4,200,000 shares of its
common stock at a price of $0.15. This offering was conducted in order to raise
money for further research and development on the MedCare Program and was broken
down as follows: $300,000 for public relations and advertising, $155,000 for
market research and development, $45,000 for consulting, $25,000 for
miscellaneous expenses and $75,000 as a cash reserve. 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.
This offering was sold to the following accredited and unaccredited individuals
and entities:
84
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shareholder Shares Purchased
- ------------------------------- ----------------
<S> <C>
Tajinder Chohan 290000
151 West 61st Avenue
Vancouver, British Columbia V5K 2B1 Canada
Money Talks, Inc. 275000
Cockburn House, Cockburn Town
Grand Turk, Turks & Caicos Isl
Dave Gamache 10000
1421 Barber Court
Banning, California 92220
Britt Weaver 1500
9199 Cotters Ridge Road
Ridgeland, Michigan 49083
Equity Investors, Inc. 60000
4530 North 40th Street
Phoenix, Arizona 85018
Steve E. Hartmann 180000
3728 East Indian School Road, #26
Phoenix, Arizona 85018
Melvin E. Richards II 185000
1319 West Missouri
Phoenix, Arizona 85013
Gregory Hovivan 190000
3130 Harmony Place
Le Crescenta, California 91214
Caufield Capital Markets AG 280000
P.O. Box 108, Front Street
Grand Turk, Turks & Caicos Isl
Andrew Croson 160000
4530 East Camelback Road
Phoenix, Arizona 85018
Francis Thompson 290000
4920 East 29th Drive
Osawatoni, Kansas 66064
Jasvir S. Rayat 185000
5131 Highgate Street
Vancouver, British Columbia V5R 3G9 Canada
Kirkland Capital SA 295000
Cockburn House, Cockburn Town
Grand Turk, Turks & Caicos Isl
Grant Mackney 2000
102-1974 Moss Court
Kelowna, British Columbia V1Y 9L3 Canada
Allen L. Stout 180000
7413 East Arlington Road
Scottsdale, Arizona 85253
- ----------------------------------------------------------------- ---------------------------
Herdev S. Rayat 134500
1025 Augusta Avenue
Burnaby, British Columbia V5A 3G2 Canada
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Jeff Prata 250000
3130 Harmony Place
Le Crescenta, California 91214
Jasbinder Chohan 140000
161 West 61st Avenue
Vancouver, British Columbia V5K 2B1 Canada
Lou Prata 175000
2108 West Sharon
Glendale, California 91213
Polygon Investments SA 295000
P.O. Box 108, Front Street
Grand Turk, Turks & Caicos Isl
Todd Weaver 10000
1001 West Tropical Way
Plantation, Florida 33317
James Richards 180000
6801 East Camelback Road, #C-105
Scottsdale, Arizona 85251
Thomas Heckenamp 140000
2924 Mountain Pine Drive
La Crecenta, California 91214
Bob Mackney 2000
102-1974 Moss Court
Kelowna, British Columbia V1Y 9L3 Canada
Cambridge Capital Corporation 290000
Cockburn House, Cockburn Town
Grand Turk, Turks & Caicos Isl
</TABLE>
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on June 22, 1996 and completed on August
15, 1996. This offering was for 50,000 shares of common stock at $4.75 per share
for a total offering of $237,500. The proceeds from this offering were used for
equipment purchase and working capital. The purchasers were as follows:
<TABLE>
<CAPTION>
Shareholder Shares Purchased
<S> <C>
Polygon Investments SA 21,053
P.O. Box 108, Front Street
Grand Turk, Turks & Caicos Isl
Perato Fund LP 13,158
1400-400 Burrard Street
Vancouver, BC V6C 3G2 Canada
Herdev S. Rayat* 15,789
1025 Augusta Avenue
Burnaby, BC V5A 1K3 Canada
</TABLE>
*Mr. Rayat is an accredited investor and the brother of Harmel Rayat,
Chairman of the Company.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 504 which was begun on November 18, 1996 and completed on
December 24, 1996. This offering was for 56,000 shares of common stock at $4.50
per share for
86
<PAGE>
a total offering of $252,000. The proceeds from this offering were used for
advertising and marketing and working capital. All shares of stock of this
offering were sold to Daimler Enterprises, Inc., 7 Prince Street, Belize City,
Belize.
During fiscal 1997, the Company issued three private placement
memoranda. On February 1, 1997, an offering was begun pursuant to Regulation D,
Rule 506 for 176,000 shares of common stock at $6.25 per share for a total
offering of $1,100,000. This offering was completed on February 28, 1997. The
proceeds were used for working capital and expansion of the MedCare Program. All
shares of stock of this offering were purchased by Greystone Management Ltd.,
c/o P.O. Box 392, Bowater House, 68 Knightsbridge, London, SW1X 7NT, England.
The purchaser was a foreign entity with sufficient financial sophistication
developed through its business dealings to properly assess this investment and
complete access to registration information.
The Company offered for sale a Private Placement Memorandum pursuant to
Regulation D, Rule 506 on July 7, 1996 for 300,000 shares of common stock at
$6.00 per share, plus 300,000 warrants exercisable at $6.00 per warrant until
July 7, 2002 for a total offering of $1,800,000. This offering was completed on
July 30, 1997 and the proceeds used for working capital and expansion of the
MedCare Program. All shares and warrants were purchased by Matrix Capital Corp.,
P.O. Box 170 Front Street, Grand Turk, Turks & Caicos Isl. The purchaser was a
foreign entity with sufficient financial sophistication developed through its
business dealings to properly assess this investment and complete access to
registration information.
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 least ten shares ($100,000) and increments of five shares in excess
thereof. The total offering was for three hundred shares for a total of
$3,000,000, with a minimum offering 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
thirty-three and one-third percent (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 defined in the Certificate of Designation. In
conjunction with this offering, an Escrow Agreement was entered into with Swartz
Investments LLC, a Georgia limited liability company, as Placement Agent and
with First Union National Bank of Georgia as Escrow Agent.
The Company and Swartz Investments, LLC entered into a Placement Agent
Agreement to define the terms of their relationship for this offering. According
to this agreement, the Placement Agent agreed to find subscribers for the
Company's Preferred Stock Series A offering in exchange for a placement fee of
5-1/2% of the aggregate gross subscription proceeds of the offering, a
non-accountable expense allowance of 2% of the aggregate gross subscription
proceeds, and, if a subscriber exercises a preferred warrant, a fee consisting
of 7-1/2% of the aggregate exercise price, as defined in the Preferred Warrant.
The Placement Agent Agreement also grants to the Placement Agent three sets of
warrants (i) warrants to purchase stock equal to 7-1/2% times the aggregate
gross subscription proceeds divided by the Fixed Conversion Price (as defined in
the Certificate of Disclosure), (ii) warrants to purchase stock equal to 7-1/2%
of the number of Conversion Warrants placed in the offering (as defined in the
Subscription Agreement) and (iii) upon the exercise of a Preferred Warrant by a
Stockholder, warrants to purchase stock equal to 7-1/2% of the gross proceeds
received by the Company upon the exercise of the Preferred Warrant divided by
the Exercise Price (as defined in the Preferred Warrant). All three of these
warrants are for a period of five years at a fixed conversion price of $7.346
per share, as defined in the Certificate of Disclosure. The Placement Agent
Agreement also contains cashless exercise and reset provisions. The offering was
sold to a total of five off-shore entities, not including the shares given to
the Placement Agent. The purchasers were foreign entities with sufficient
financial sophistication developed through their business dealings to properly
assess this investment and complete access to registration information.
Integration Discussion
- ----------------------
1. Rule 504, offered 8/31/95, closed 9/30/95, amount sold $630,000; 2.
Rule 504, offered 6/22/96, closed 8/15/96, amount sold $237,500; 3.
Rule 504, offered 11/18/96, closed 12/24/96, amount sold $252,000; 4.
Rule 506, offered 2/1/97, closed 2/28/97, amount sold $1,100,000; and
5. Rule 506, offered 7/7/97, closed 7/30/97, amount sold $1,800,000.
Offering 1 and offering 2 occurred more than 6 months from each other
and under the general provisions of Rule 502, integration do not apply.
Offerings 1 and 2 were done while Medcare was non reporting, was not an
investment company and had a specific business plan. The aggregate offering
price cannot exceed $1,000,000 within the twelve months before and during the
offering. This aggregate offering from July 15, 1995 through July 15, 1996 was
$867,500, less than the maximum amount.
Offering 2 and offering 3 occurred more than 6 months from each other
and the general provisions of Rule 502, integration do apply. The offerings were
not a part of a single plan of financing, were made at different times as the
opportunities came available and were not made for the same general purpose.
Offerings 2 and 3 were done while Medcare was non reporting, was not an
investment
87
<PAGE>
company and had a specific business plan. The aggregate offering price cannot
exceed $1,000,000 within the twelve months before and during the offering. This
aggregate offering from November 18, 1995 through December 24, 1996 was
$489,500, less than the maximum amount. Since the integration provisions apply
the amounts will be aggregated and examination under the exemption will still be
available because less than $1,000,000 was offered.
Offerings 3 and 4 were in reliance on Rule 504 and 506 respectively.
The offerings were done within 6 months of each other and will be integrated as
provided under Rule 502. The offerings should not be integrated when examined
under the five factors test. Medcare has approached financing on an individual
basis as opportunities have come forth from various interested investors. The
offerings have not come as a result of any single plan of financing. As detailed
in the offering memoranda, additional capital was needed at each stage of the
funding with no plan as to the terms or the amount of funding required. Since
the sales were made within six months of each other, the safe harbor is not
available. The securities are common stock of the Company, but have been sold
for different prices. The sales have not been made for the same purpose. The 504
offering was done essentially to provide working capital to the business and the
506 offering was to provide capital funding to develop various sites and the
program. Considering the above comments, the integration provisions should not
apply.
Offerings 4 and 5 are both in reliance on Rule 506 and have been made
within 6 months of each other. Even if these offerings are integrated, the
exemption is available. The aggregate offerings have been sold to less than 35
unaccredited investors and all other provisions of Rule 506 have been met. The
money received in these successive offerings was not part of a single plan of
financing and was structured as presented to the Company. The timing of the
sales was within six months, but only as made available to the purchase. Two of
the offerings were common stock and the third preferred. The consideration
varies among the three instruments. Each of the offerings were done and the
proceeds applied in a different manner. The integration provisions should not
apply.
The Company also offered preferred stock for sale to four accredited
investors in reliance on Rule 506 of Regulation D. The offering was sold to the
following individuals and for the following amounts:
<TABLE>
<CAPTION>
Number of Price per
Warrantee Shares Share Exercise Date
<S> <C> <C> <C>
Lakeshore International 50 $10,000 June 20, 1998
Queensway Financial
Holdings Limited 200 $10,000 June 20, 1998
Concordia Partners L.P. 50 $10,000 June 20, 1998
The Matthew Fund N.V. 30 $10,000 June 20, 1998
Total: 310 Preferred Share Warrants
</TABLE>
At that time, the Company also filed a Certificate of Designation with
the State of Delaware in conjunction with this offering. This Certificate was
approved on July 7, 1997 and designates 1,000 shares of the Company's one
million shares of authorized preferred stock to be Series A stock. This stock
has been assigned an issue price of $10,000 per share with an eight percent (8%)
per annum accretion rate. The rank of this stock has been assigned as being
senior to all Common Stock of the Company, junior to any other class or series
of capital stock of the Company hereafter created specifically ranking by its
terms senior to the Series A Preferred Stock, senior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on par with any Series A Preferred Stock of whatever
subdivision, and on parity with any class or series of capital stock of the
Company hereafter created specifically ranking by its terms on parity with the
Series A Preferred Stock. No dividend rights have been granted to this stock.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Description
23. Consent of Experts and Counsel
23a. Consent of Independent Auditor
23b. Consent of Counsel
27. Financial Data Schedule
88
<PAGE>
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The issuer will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any prospectus required by section 10(a)(3) of the Securities Act, to reflect in
the prospectus any facts or events which represent a fundamental change in the
information in the registration statement and to include any additional or
changed material information on the plan of distribution.
For determining liability under the Securities Act, the issuer will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
The issuer will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
89
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Naperville,
State of Illinois.
MEDCARE TECHNOLOGIES, INC.
By Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary R. Blume, Esq. as true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereon.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
/s/ Harmel S. Rayat Chairman 11/13/98
- ------------------- -------- --------
Harmel S. Rayat Date
/s/ Jeffrey S. Aronin President, CEO, Director 11/13/98
- --------------------- ------------------------ --------
Jeffrey S. Aronin Date
/s/ Michael M. Blume Director 11/13/98
- -------------------- -------- --------
Michael M. Blue, M.D. Date
/s/ Jake Jacobo Director 11/13/98
- --------------- -------- --------
Jake Jacobo, M.D. Date
/s/ Greg Wujek Director, Secretary, VP Managed Care 11/13/98
- -------------- ------------------------------------ --------
Greg Wujek Date
90
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
November 13, 1998
As independent auditors, we hereby consent to the incorporation by
reference in this Form SB-2 Statement of our reports, relating to the
consolidated financial statements and financial statement schedules of MedCare
Technologies, Inc. for the year ended December 31, 1997 and the quarter ended
September 30, 1998, included on Form SB-2 and any amendments thereto. We also
consent to the reference to this firm under the heading "Experts" in this
Registration Statement.
/s/ Clancy and Co.
------------------
CLANCY AND CO., P.L.L.C.
Certified Public Accountants
<PAGE>
BLUME LAW FIRM, P.C.
A PROFESSIONAL CORPORATION
Attorney At Law
Licensed in Arizona and Minnesota
11801 North Tatum Boulevard
Suite 108
Phoenix, Arizona 85028-1612
Telephone (602) 494-7976
Facsimile (602) 494-7313
http://www.blumepc.com
email: [email protected]
November 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Reference: Amendment Number 7 to Registration Statement on Form SB-2
Gentlemen:
As counsel for MedCare Technologies, Inc., we hereby consent to the
incorporation as exhibits to this Form SB-2 Statement of our opinion relating to
the Preferred Stock offering and of our opinion regarding the securities
registered for resale in the Form SB-2 by MedCare Technologies, Inc. We also
consent to the reference to this firm under the heading "Experts" in this
Registration Statement.
Sincerely,
BLUME LAW FIRM, P.C.
/s/ Gary R. Blume
Gary R. Blume
Attorney at Law
Enclosures
GRB/lvd
<PAGE>
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 3,440,791 2,168,237
<SECURITIES> 0 0
<RECEIVABLES> 47,286 140,980
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,551,890 2,309,217
<PP&E> 50,868 122,503
<DEPRECIATION> 17,342 0
<TOTAL-ASSETS> 3,586,416 3,934,920
<CURRENT-LIABILITIES> 16,796 61,768
<BONDS> 0 0
0 0
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<COMMON> 6,992 7,385
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,586,416 3,934,920
<SALES> 0 0
<TOTAL-REVENUES> 91,802 537,598
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,515,459 3,013,919
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 119,146 122,132
<INCOME-PRETAX> (1,293,230) (2,354,189)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,293,230) (2,354,189)
<EPS-PRIMARY> (0.21) (0.33)
<EPS-DILUTED> (0.21) (0.33)
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