UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1998
- --------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number: 0-28790
MEDCARE TECHNOLOGIES, INC.
--------------------------
(exact name of registrant as specified in its charter)
DELAWARE 87-0429962 B
- -------- ------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
Suite 1210 - 1515 West 22nd Street, Oak Brook, Illinois 60523
- ------------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 472-5300
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days. Yes X No
The number of shares of the Registrant's Common Stock, $0.001 par value, as of
June 30th, 1998: 7,250,370.
<PAGE>
MEDCARE TECHNOLOGIES, INC.
FORM 10-Q, QUARTER ENDED JUNE 30, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet at June 30, 1998 . . . . . . . . . . . . . F-1 - F-2
Consolidated Statement of Operations For The Quarter Ended June 30, 1998. . F-3
Consolidated Statement of Cash Flows For The Quarter
Ended June 30, 1998. . . . . . . . . . . . . . . . . . . . . . F-4 - F-5
Notes to Interim Consolidated Financial Statements . . . . . . . . . . F- 6
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 2 Managment's Discussion and Analysis or Plan of Operations . . . . . 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . 13
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 13
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
Item 1 Financial Statements
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
JUNE 30, 1998 DECEMBER 31, 1997
(Restated)
<S> <C> <C>
Current Assets
Cash $ 3,139,368 $ 3,440,791
Accounts Receivable 114,932 47,286
Prepaid Expenses 0 62,313
- ------
Total Current Assets 3,254,300 3,550,390
Property and Equipment, Net 143,640 33,526
Other Assets
Intangible Assets-The MedCare Program, Net of
Accumulated Amortization of $34 and $0 for
June 30, 1998 and December 31, 1997 966 1,000
Escrow Funds 1,650,000 0
Security Deposits 2,150 1,500
----- -----
Total Other Assets 1,653,116 2,500
--------- -----
Total Assets $ 5,051,056 $ 3,586,416
========= =========
</TABLE>
F-1
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1998 DECEMBER 31, 1997
(Restated)
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 135,320 $ 15,796
Notes Payable, Related Party 0 1,000
- -----
Total Current Liabilities 135,320 16,796
Commitments and Contingencies 0 0
Stockholders' Equity
Preferred Stock: $.25 Par Value, Authorized
1,000,000; Issued and Outstanding, 324 and
165 Convertible Series A Shares at June 30,
1998 and December 31, 1997 80 41
Common Stock: $0.001 Par Value, Authorized
100,000,000; Issued and Outstanding, 7,250,023
Shares at June 30, 1998 and 6,992,185 at
December 31, 1997 7,250 6,992
Additional Paid In Capital 9,242,208 6,284,505
Loss Accumulated During The Development Stage (4,333,802) (2,721,918)
----------- -----------
Total Stockholders' Equity 4,915,736 3,569,620
Total Liabilities and Stockholders' Equity $ 5,051,056 $ 3,586,416
========= =========
</TABLE>
F-2
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997, AND
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
(Restated) (Restated)
For the Three For the Three For the Six For the Six
Months Period Months Period Months Period Months Period
Ended June Ended June Ended June Ended June
30, 1998 30, 1997 30, 1998 30, 1997
<S> <C> <C> <C> <C>
Revenues $ 151,815 $ 10,573 $ 378,823 $ 47,809
Expenses
General and Administrative 1,320,125 333,513 2,085,835 531,241
--------- ------- --------- -------
Operating Loss (1,168,310) (322,940) (1,707,012) (483,432)
Other Income (Expense)
Interest Income 52,459 11,029 95,128 12,957
------ ------ ------ ------
Net Loss Available to Common
Stockholders $(1,115,851) $(311,911) $(1,611,884) $ (470,475)
Earnings Per Common Share
and Common Share
Equivalents $ (0.15) $ (.05) $ (0.23) $ (.07)
Weighted Number of Common
Shares Outstanding 7,229,869 6,238,220 7,115,464 6,721,071
--------- --------- --------- ---------
</TABLE>
F-3
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Six For the Six
Months Period Months Period
Ended June Ended June
30, 1998 (Restated) 30, 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (1,611,884) $ (470,475)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities
Depreciation and Amortization 7,902 861
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (67,646) (52,789)
(Increase) Decrease in Prepaid Expenses 62,313 1,513
(Increase) Decrease in Organizational Costs 0 64
(Increase) Decrease in Security Deposits (650) 0
(Increase) Decrease in Escrow Funds (1,650,000) 0
Increase (Decrease) in Accounts Payable 119,524 26,192
------- ------
Total Adjustments (1,528,557) (24,159)
----------- --------
Net Cash Used for Operating Activities (3,140,441) (494,634)
Cash Flows from Investing Activities
Purchase of Property and Equipment (117,983) 0
--------- -
Net Cash Flows from Investing Activities (117,983) 0
--------- -
Cash Flows from Financing Activities
Proceeds from Sale of Common Stock 1,308,001 1,210,250
Proceeds from Escrow Funds 1,650,000 0
Net Reduction in Office & Med Equipment 0 839
Advances (Repayments) Notes Payable 0 12,500
Advances (Repayments) To Officers (1,000) 0
------- -
Net Cash Provided by Financing Activities 2,957,001 1,200,454
--------- ---------
Increase (decrease) in Cash and Cash Equivalents (301,423) 705,820
</TABLE>
F-4
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the Six For the Six
Months Period Months Period
Ended June Ended June
30, 1998 (Restated) 30, 1997
<S> <C> <C>
Cash and Cash Equivalents, Beginning of Year 3,440,791 220,562
========= =======
Cash and Cash Equivalents, End of Period $ 3,139,368 $ 926,382
========= =======
Supplemental Information:
Cash paid for:
Interest $ 0 $ 0
= =
Income taxes $ 0 $ 0
= =
Supplemental Non Cash Financing Transactions
8,990 Common Shares Were Issued in
Exchange for Warrants Exercised
During the Quarter $ 9 $ 0
= =
6,000 Common Shares Were Issued for
Services During the Quarter $ 34,500 $ 0
====== =
1194 Common Shares Were Issued to
Correct a Prior Year Error $ 7,500 $ 0
===== =
</TABLE>
F-5
<PAGE>
MEDCARE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. Statement of Information Furnished
- ---------------------------------------
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Form 10QSB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1998, the results of operations for the three months period ended June 30, 1998
and for the six months period ended June 30, 1998 and the statement of cash
flows for the six months period ended June 30, 1998. These results have been
determined on the basis of generally accepted accounting principles and
practices and applied consistently with those used in the preparation of the
Company's 1997 Annual Report on Form 10-KSB.
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-KSB.
In preparation of the year-end financial statements, the Company discovered
accounting errors in its second and third quarter 1998 financial statements. The
errors were mainly a result of converting data to a different accounting
software system during the second and third quarters of 1998. Most of the errors
were second quarter transactions that were incorrectly omitted from the second
quarter financial statements but were recorded in the third quarter financial
statements. The financial statements included in this filing have been restated
to place the transactions in the appropriate quarter. The Company has taken
actions since learning of the accounting errors intended to prevent a recurrence
of this situation.
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. The escrow funds are noninterest bearing.
F-6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
When used in this discussion, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to republish
revised forward- looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
also urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business, in this report, as well as the Company's periodic
reports on Forms 10-KSB, 10QSB and 8-K filed with the Securities and Exchange
Commission.
Overview
- --------
The Company has developed The MedCare Program, a non-surgical, non-drug,
non-invasive and cost effective treatment program for urinary incontinence, as
well as pelvic pain, chronic constipation, fecal incontinence, and disordered
defecation. The MedCare program is a multi- modality program based primarily on
behavioural techniques for treatment. These techniques include biofeedback using
electromyography (EMG), pelvic floor muscle exercises, and bladder and bowel
re-training. The program is designed to activate and strengthen the various
sensory-response mechanisms that maintain bladder and bowel control. The therapy
is provided through computerized instrumental electromyography biofeedback and
is based on operant conditioning strategies whereby specific physiological
responses are progressively shaped, strengthened, and coordinated.
The MedCare Program is available through the practices of physicians (urologist,
urogynecologist, gastroenterologist, and/or colon rectal surgeon), either in a
private office, clinic, or a hospital setting. As of June 30th, 1998, the
Company had 19 MedCare Program sites established, and was in the process of
opening an additional 16 MedCare Program sites in various parts of the country.
In order to prepare for MedCare's expansion phase, the Company transitioned away
from Solo Physician Practices to Multi Physician Practices, which typically
offers a larger patient base, greater referral network and greater Managed Care
influence.
The Company plans to devote the majority of its resources to establishing new
MedCare Program sites, in operating existing centers, and in developing new
business models for the introduction of the MedCare Program into new markets,
such as nursing homes and other institutions, and possibly foreign countries.
Results of Operations
- ---------------------
The Company had revenues of $151,815 for the three-month period ending June
30th, 1998 compared to $10,573 for the three-month period ending June 30th,
1997. Since the Company transitioned from Solo Physician Practices to Multi
Physician Practice offices, 17 of the 19 centers operating, as of June 30th
1998, had just recently opened in 1998. Due to the early stage nature of each
office the majority of the Company's first quarter revenues were generated by
the early established sites. Each site generates revenue through patient visits,
which come from referrals and direct to consumer education. The Company expects
modest revenues from all newly opened sites during the first 12 months of
operations. To date, the Company has not relied on any revenues for funding its
activities and it does not expect to receive significant revenues from
operations 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 possibly abroad.
For the three-month period ending June 30th, 1998, the Company's general and
administrative expenses increased to $1,320,125 compared to $333,513 for the
corresponding period in 1997. The 1998 amount represents an increase of 296% 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 $1,115,851, or $0.15 per share, for the second
quarter of 1998 compared to a net loss of $311,911 or $0.05 per share, for the
corresponding period in 1997. This increase was primarily due to the increase in
general and administrative costs described above.
Liquidity and Capital Resources
- -------------------------------
As of June 30th, 1998, the Company's cash balance was $3,139,368 compared to
$926,382 as of June 30th, 1997. The Company has financed its operations
primarily through the exercise of Stock Options and Share Purchase Warrants from
a previous private placement.
As of June 30, 1998, $1,650,000 was held in an escrow account on behalf of
investors who originally participated in the Company's Series A preferred
offering. These funds were being held in escrow pending final approval of the
Company's registration statement by November 20, 1998. The escrow account is
noninterest bearing.
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 corporation 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.
Year 2000
- ---------
The Year 2000 issue arose because many existing computer programs use only the
last two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with 20 instead of 19. If not corrected,
many computer applications could fail or create erroneous results.
Management has initiated a comprehensive program to prepare the Company's
systems for the year 2000. The Company is actively engaged in testing and fixing
applications to ensure they are Year 2000 ready. The Company does not separately
track the internal costs incurred for the Year 2000 project, but such costs are
principaly the related payroll costs for certain corporate staff. The Company
currently does not expect remediation costs to be material, nor does it expect
any significant interruption to its operations because of Year 2000 problems.
The Company is in the process of contacting all third parties with which it has
significant relationships, to determine the extent to which the Company could be
vulnerable to failure by any of them to obtain Year 2000 compliance. Some of the
Company's major suppliers and financial institutions have confirmed that they
anticipate being Year 2000 compliant on or before December 31, 1999, although
many have only indicated that they have Year 2000 readiness programs. To date,
the Company is not aware of any significant third parties with a Year 2000 issue
that could materially impact the Company's operations, liquidity or capital
resources. The Company has no means, however, of ensuring that third parties
will be Year 2000 ready and the potential effect of third-party non-compliance
is currently not determinable.
The Company has devoted and will continue to devote the resources necessary to
ensure that all Year 2000 issues are properly addressed. There can be no
assurance, however, that Year 2000 problems are detected. Furthermore, there can
be no assurance that the Company's assessment of its third-party relationships
will be accurate. Some of the potential worst-case scenarios that could occur
include (1) corruption of data in the Company's internal systems and (2) failure
of government and insurance companies' reimbursement programs. If any of these
situations were to occur, the Company's operations could be temporarily
interrupted. The Company intends to develop Year 2000 contingency plans for
continuing operations in the event such problems arise.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
As detailed in the financial statements, the Company issued 6,000 common shares
in exchange for services, issued 8,990 common shares via a cashless exercise
option for the exercise of share purchase warrants from a previous private
placement, issued 8,000 common shares for the exercise of stock options ranging
in prices from $3.00 to $4.50 per share, and converted 165 Series A Preferred
Warrants into 165 Series A Preferred Shares. The total common shares issued
during the three month period ending June 30, 1998 was 22,990 shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on June 1, 1998. At this
meeting, the shareholders voted to adopt the Company's 1998 and 1999 Stock
Option Plans for 500,000 and 200,000 shares of common stock, respectively.
ITEM 6 OTHER INFORMATION
None
ITEM 7 EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURE PAGE
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDCARE TECHNOLOGIES, INC.
/s/ Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin
President
Dated: January 28, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,139,368
<SECURITIES> 0
<RECEIVABLES> 114,932
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,254,300
<PP&E> 143,640
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,051,056
<CURRENT-LIABILITIES> 135,320
<BONDS> 0
0
80
<COMMON> 7,250
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,051,056
<SALES> 0
<TOTAL-REVENUES> 378,823
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,085,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,707,012)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,707,012)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
