<PAGE>
As filed with the Securities and Exchange Commission on August 16, 1999
Registration No. 333-41611
--------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
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 60523
(630) 472-5300
(Address, including zip code,and telephone number,
including area code,registrant's
principal executive offices)
--------------------------
Corporate Creation Enterprises, Inc.
686 North DuPontBoulevard, 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:
Michael J. Legamaro
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
(312) 984-3114
Approximate date of commencement of proposed public offering: This is for the
resale of securities previously sold.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering [ ].
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering [ ].
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box [ ].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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 securities issued
in Regulation D offering
in June 1997. Includes
conversion warrants and
placement agent 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, issued pursuant to
Regulation D on
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 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.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 to Form SB-2 is being filed solely for the
purposes of:
i. Updating the risk factors contained in the prospectus forming a part of
this Registration Statement, in order that such risk factors are written
in "plain english" as indicated in Rule 421 of Regulation C, and
ii. Inserting financial information for the period ended June 30, 1999, as
well as related "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for such period.
<PAGE>
RISK FACTORS
An investment in our Common Stock is speculative and involves a high degree
of risk of loss of part or all of your investment. You should carefully consider
the following factors and other information in this Prospectus before deciding
to invest in our Common Stock.
No Market Studies -- We may not be able to successfully market the MedCare
Program.
In formulating our business plan, we have relied on the judgment of our
officers, directors and consultants but have not conducted any formal
independent market studies concerning the demand for our services. To achieve
significant revenues and profitable operations in the future, we must
successfully develop and market the MedCare Program. Inability to successfully
market the MedCare Program to additional physicians would have an adverse effect
on our revenues, operations and financial condition.
Lack of Operating History -- We have a limited operating history and have not
been profitable.
Although Medcare was organized in 1986, we did not become active until 1995
and have been continually developing our MedCare Program since that time. As a
result, our business is subject to the risks inherent in the establishment of a
new business. We have only limited experience in managing the clinics in the
MedCare Program and are currently expanding operations, which may or may not
provide profits. In addition, the business model for Medcareonline.com is
evolving and relies substantially upon the sale of products and advertising on
the Internet, which is a developing industry in which we have no prior
experience. We had no revenues in 1995 or 1996 and $91,802 in 1997. In 1998, we
had revenues of $786,586. We have not been profitable, experiencing an
accumulated loss of $2,721,918 in 1997, which increased to an accumulated loss
of $6,491,871 in 1998. Even if we become profitable in the future, we cannot
accurately predict the level of, or our ability to sustain, profitability.
Because we have not yet been profitable and cannot predict any level of future
profitability, you bear the risk of a complete loss of your investment in the
event our business plan is unsuccessful.
Inability to Obtain Funding -- We may not be able to obtain additional funding
when needed.
We may require additional financing to expand and market the MedCare
Program and Medcareonline.com. The resale of the Common Stock offered by the
Selling Stockholders may cause difficulty in our ability to obtain financing. In
total, if all of the currently outstanding options, warrants and Preferred Stock
had been exercised or converted into Common Stock, 12,313,452 shares of Common
Stock would have been outstanding as of August 13, 1999. These exercises and
conversions could cause a decrease in the market price of the Common Stock. If
the market price of the Common Stock declines, some potential financiers may
either refuse to offer us any financing or will offer financing at unacceptable
rates or unfavorable terms. If we are unable to obtain financing on favorable
terms, or at all, such unavailability could prevent us from expanding and
marketing the MedCare Program and therefore have an adverse effect on our
revenues, operations and financial condition. See "DESCRIPTION OF SECURITIES."
Continued Control by Existing Management -- You may lack an effective vote on
corporate matters.
Our management currently owns a substantial amount of our outstanding
Common Stock. As a result, new stockholders may lack an effective vote with
respect to the election of directors and other corporate matters.
Dividends -- We have not paid and do not currently intend to pay dividends.
Since inception, we have paid no dividends to our stockholders. Future
dividends on our Common Stock, if any, will depend on our future earnings,
capital requirements, financial condition and other factors. We currently
intend to retain earnings, if any, to increase our net worth and reserves.
Therefore,
<PAGE>
we do not anticipate that any holder of Common Stock will receive any cash,
stock or other dividends on his shares of Common Stock at any time in the near
future.
Dependence on Executive Officers and Key Personnel -- The success of our
business plan depends on attracting qualified personnel
We are highly dependent on the services of our executive officers and other
key personnel. Except for an employment agreement with our President, we do not
have any employment agreements with our executive officers and other key
personnel. Attracting and retaining qualified personnel is critical to our
business plan. Should we be unable to attract and retain the qualified personnel
necessary, our ability to implement our business plan successfully would be
limited.
Dilution -- The market price of your shares of Common Stock may decrease as more
shares of Common Stock become available for trading
The market price of our Common Stock may decrease as more shares of Common
Stock become available for trading. The number of shares of Common Stock that
the Selling Stockholders will receive upon conversion of their Series B
Preferred Stock is based on a formula, and under the formula there is no limit
on the number of shares of Common Stock that we may be required to issue. As
detailed elsewhere in this prospectus (see "SUMMARY--THE OFFERING" AND
"DESCRIPTION OF SECURITIES"), if all of the options, warrants and preferred
stock, including those not subject to this Prospectus, had been exercised or
converted, 12,313,452 shares of Common Stock would have been outstanding as of
August 13, 1999, as opposed to a total of 7,831,160 shares of Common Stock that
were actually outstanding on August 13, 1999. The issuance of any or all of
these additional shares upon exercise of options or warrants or conversion of
Preferred Stock will dilute the voting power of our current stockholders on
corporate matters and, as a result, may cause the market price of our Common
Stock to decrease.
Other Adverse Effects of Series B Preferred Stock and Warrants -- Conversions of
Series B Preferred Stock and exercise of Warrants may cause other detrimental
effects.
Change in Control. If the market price of the Common Stock declines
significantly, we could be required to issue a number of shares of Common Stock
sufficient to result in our current stockholders not having an effective vote in
the election of directors and other corporate matters.
Issuances at Less than Market Price. We are required to convert Series B
Preferred Stock based on a formula that applies the lesser of 125% of an
approximation of the market price of our Common Stock when the Series B
Preferred Stock was issued and an approximation of the market price of our
Common Stock at the time of conversion of the Series B Preferred Stock. As a
result, if the market price of our Common Stock increases after issuance of the
Series B Preferred Stock, we will be required to issue shares of Common Stock
based on 125% of the approximate market price of the Common Stock at the time of
issuance of the Series B Preferred Stock--in other words, possibly at a discount
to the then-current market price of the Common Stock. In addition, the Warrants
are exercisable at a fixed price. If the market price of our Common Stock
increases, we will be required to issue shares of Common Stock at a discount to
the then-current market price.
Redemption at the Option of the Selling Stockholders. If certain events
occur, the Selling Stockholders have the right to require us to redeem all or a
portion of their Series B Preferred Stock at a premium. See "DESCRIPTION OF
SECURITIES." Such a redemption would have an adverse effect on the financial
condition of the Company.
Nasdaq Eligibility and Maintenance -- If we do not maintain our Nasdaq SmallCap
Market listing, you may have difficulty selling your shares
Our Common Stock is currently listed on the Nasdaq SmallCap Market. Under
the current rules for current listing on that market, a company must maintain at
least $2,000,000 in net tangible assets, at
<PAGE>
least $1,000,000 in market value of public float and a minimum bid price of
$1.00 per share. If we experience losses from operations, we may be unable to
maintain the standards for continued listing and our Common Stock could be
delisted from the Nasdaq SmallCap Market. Investors would thereafter be forced
to trade our Common Stock in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the 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, our Common Stock.
Risk of Low Priced Stocks -- If our Common Stock is considered a "penny stock,"
transactions in the Common Stock will be subject to additional regulations.
If the Nasdaq SmallCap Market delists our Common Stock and the Common Stock
did not fit into any other exclusion from the definition of a "penny stock"
under applicable SEC regulations, our Common Stock would become subject to the
penny stock rules that impose additional sales practice requirements on broker-
dealers who sell such stock 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 -- Future sales of large
amounts of Common Stock could adversely effect the market price and our ability
to raise capital.
Future sales of our Common Stock by existing stockholders pursuant to Rule
144 under the Securities Act, or following the exercise of outstanding options,
warrants, registration rights or otherwise, could adversely affect the market
price of our Common Stock. On August 13, 1999, we had 7,831,160 shares of Common
Stock outstanding. If all of the options, warrants and other securities
outstanding had been exercised for Common Stock, an additional 4,482,293 shares
of our Common Stock would have been outstanding as of August 13, 1999.
Substantially all of the outstanding shares of our Common Stock are freely
tradable, without restriction or registration under the Securities Act (other
than the sales volume restrictions of Rule 144 applicable to shares held
beneficially by persons who may be deemed to be affiliates). Our directors and
executive officers and their family members are not under lockup letters or
other forms of restriction on the sale of their Common Stock. As a result of
this offering, up to an additional 3,200,000 shares will be available for sale
and will be freely tradable. Sales of a large number of shares of Common Stock
in the public market could adversely affect the market price of the Common Stock
and could materially impair our future ability to generate funds through sales
of Common Stock or other equity securities. See "DESCRIPTION OF SECURITIES."
Protection of Proprietary Treatment Program -- Our ability to effectively
compete depends on protection of proprietary aspects of the MedCare Program.
Our ability to compete and expand effectively will depend, in part, on our
ability to develop and maintain proprietary aspects of the MedCare Program and
our business and marketing models. We rely on an unpatented proprietary
treatment protocol, and others may independently develop the same or a similar
program or otherwise obtain access to this protocol. We cannot ensure that the
confidentiality agreements between us and our employees will provide meaningful
protection for our trade secrets, know-how or other proprietary information in
the event of their unauthorized use or disclosure.
Reimbursement and Related Matters -- Market acceptance of the MedCare Program
depends in part on whether governments and third-party insurers provide
reimbursement.
Our ability to successfully market the MedCare Program will depend, in
part, on whether physicians using our program are reimbursed for the costs of
the program by third parties such as government health administration
authorities and private health coverage insurers. In the United States and in
some 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
<PAGE>
management products such as diapers, pads and urethral plugs. Governments and
other third parties are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement. We cannot ensure that
adequate third-party coverage will remain in effect in the future, and if such
coverage is not maintained, market acceptance of the MedCare Program could
decline.
Regulation by Federal and State Government -- Unfavorable governmental
regulation in the future could threaten our viability.
Our business is heavily regulated at a federal and state level.
Legislators continually enact new legislation relating to the manner in which
patients receive treatment. The process of obtaining regulatory approvals can be
lengthy and expensive, and the issuance of such approvals is uncertain. We may
not be able to obtain any necessary approvals on a timely basis, or at all, and
failure to comply with regulatory requirements can, among other things, result
in fines, suspensions of regulatory approvals, operating restrictions and
criminal prosecution. We cannot predict whether any health care reforms will be
enacted or the effect of any enacted reform on our business. Should legislators
enact new legislation that is unfavorable to our business, this would pose a
serious risk to the viability of our business.
Potential Fluctuations in Quarterly Results -- Significant variations in our
quarterly operating results may adversely affect the market price of our Common
Stock.
Our operating results have varied on a quarterly basis during our limited
operating history, and we expect to experience significant fluctuations in
future quarterly operating results. Such fluctuations have been and may in the
future be caused by numerous factors, many of which are outside of our control.
We believe that period-to-period comparisons of our results of operations will
not necessarily be meaningful and that you should not rely upon them as an
indication of future performance. Also, it is likely that our operating results
could be below the expectations of public market analysts and investors. In such
an event, the market price of our Common Stock may be adversely affected.
Medcareonline.com -- The Internet is a new and rapidly evolving market, and we
may not be able to create a market for Medcareonline.com's services.
Medcareonline.com will operate in a new and rapidly evolving market.
Medcareonline.com's business may be adversely affected if usage of the Internet
or other online services does not continue to grow. The Internet as an
advertising medium has not been available for enough time to gauge its
effectiveness as compared with traditional advertising media. Therefore, the
Internet is an unproven medium for advertising-supported services. As a result,
Medcareonline.com's future operating results will depend substantially upon the
increased use of the Internet for information, publication, distribution and
commerce and the emergence of the Internet as an effective advertising medium.
Medcareonline.com's ability to generate significant advertising revenues will
also depend on, among other things, the development of a large base of the types
of users that are attractive to advertisers, the ability of Medcareonline.com to
accurately measure its user base and the ability of Medcareonline.com to develop
or acquire effective advertising systems. Many of Medcareonline.com's potential
advertisers have only limited experience with the Internet, have not yet devoted
a significant portion of their advertising to the Internet, and may not find
Internet advertising to be effective for promoting their products and services
compared to traditional media. The adoption of Internet advertising requires
the acceptance of a new way of conducting business and exchanging information.
The market for Internet advertising may not continue to emerge. If the market
fails to develop or develops more slowly than expected, Medcareonline.com's
business may be materially and adversely affected. In addition, there is
intense competition in the sale of advertising on the Internet, resulting in a
wide range of rates and pricing. This makes it difficult to project future
revenues and rates. As a result of these risks, Medcareonline.com may not
generate significant future advertising revenues from Internet-based
advertising. The failure to do so may have a material adverse affect on our
business.
In addition, the success of Medcareonline.com will depend, in part, on its
ability to generate a high volume of traffic to its website. Therefore, the
performance of the website is critical to
<PAGE>
Medcareonline.com's reputation and its ability to attract advertisers and
achieve market acceptance of Medcareonline.com. Any system failure that causes
interruptions in the availability or that increases response time of
Medcareonline.com's services could reduce user satisfaction and traffic to the
website, and if the interruption is lengthy or repeated, would reduce the
attractiveness of Medcareonline.com to advertisers and consumers.
Competition -- In the evolving healthcare field, if we do not continually
develop the MedCare Program, it could become uncompetitive or obsolete.
Healthcare is a rapidly evolving field in which other companies may have
greater financial and research and development resources than we do. We compete
directly with a number of small incontinence clinics, offered by doctors,
hospitals or therapists, that use a combination of non-invasive alternative
treatment options to treat urinary incontinence. We expect that better financed
and more sophisticated competition will emerge in the future. In addition, we
compete with other alternative treatments to urinary incontinence, including
absorbent products and diapers, surgery, indwelling catheters, implanting
devices, injectable materials, electrical stimulation, mechanical devices and
drugs. Our ability to compete effectively will depend, in part, on our ability
to develop and maintain a treatment program that offers therapeutic or cost
advantages over competitive offerings. Developments by others could render the
MedCare Program uncompetitive or obsolete.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
For the Period Ended June 30, 1999
----------------------------------
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
- - - --------
During 1998, the Company engaged in only one type of business, the offering
of the MedCare Program, as described below. On January 21, 1999, the Company
formed a new, wholly owned subsidiary of the Company, Medcareonline.com, Inc. In
January 1999, the Company, through Medcareonline.com, inc., announced its
intention to offer a comprehensive healthcare portal offering adult gender
specific health information. As of June 30, 1999, the Company has not generated
any revenues from Medcareonline.com.
The "MedCare Program" is a discrete package of equipment, software and services
developed by MedCare to assist physicians in providing non-pharmaceutical, non-
invasive treatment to patients suffering from urinary incontinence ("UI") and
other pelvic disorders, including pelvic pain, chronic constipation, fecal
incontinence and disordered defecation. The MedCare Program is used by
physicians to support a treatment plan based primarily on behavioral
modification techniques such as electromyography ("EMG") biofeedback, pelvic
floor muscle exercise, and bladder and bowel retraining. Utilizing the MedCare
Program, physicians help patients activate and strengthen the various sensory
response mechanisms that maintain bladder and bowel control. 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. The MedCare Program is
available through the practices of physicians, either in a private office,
clinic, or a hospital setting.
<PAGE>
To date, the Company has not received significant revenues due to the early
stage nature of the Company's business and has incurred ongoing operating losses
due to costs related to research, business development, website development,
management and staff recruitment, establishing training systems and providing
ongoing training, development of advertising and marketing programs, and other
costs associated with establishing corporate infrastructure necessary for
contracting with additional physicians for utilization of the MedCare Program on
a national basis. Although planned principal operations have commenced,
substantial revenues have yet to be realized.
Results of Operations
- - - ---------------------
Revenues. The Company experienced a 264% increase in revenues over last year's
second quarter results with revenues of $553,090 and $151,815 for the three
months ended June 30, 1999 and 1998, respectively. Revenues for the six month
period ended June 30, 1999 increased 150% from $378,823 in 1998 to $947,152. As
of June 30, 1999, the Company had 40 MedCare Program sites established versus 19
sites as of June 30, 1998. The Company has also introduced a new version of the
MedCare Program to physicians which requires each new physician to share the up
front costs, pay the clinician's salary and pay MedCare a set monthly management
fee. Under the new version, the physician enjoys a potentially higher revenue
stream, while at the same time allows MedCare to reach a greater number of
doctors that were previously excluded from the MedCare Program.
To date, the Company has not relied on any revenues for funding. During the next
several years, the Company expects to derive the majority of its potential
revenues from the commencement of operations of the MedCare Program at
additional sites in the United States, and possibly select foreign markets. In
addition, during 1999, the Company expects to begin generating revenue from the
sale of advertising from its new wholly-owned subsidiary, Medcareonline.com.
General and Administrative Expenses. During the three months ended June 30,
1999, the Company incurred $1,287,258 in general and administrative expenses, a
decrease of 2% from second quarter 1998 expenses of $1,320,125. General and
administrative expenses for the six month period ended June 30, 1999 increased
28% from $2,085,835 to $2,679,674. The decrease in the second quarter is
primarily attributable to lower advertising costs, bad debt expenses and a one-
time penalty assessed last year associated with the registration of the Series A
preferred stock. This decrease was offset by additional salary and operating
expenses related to the additional MedCare sites open in 1999 versus 1998.
Interest Income. Interest income was $31,763 and $52,459 for the quarters ended
June 30, 1999 and 1998, respectively. Interest income for the six month period
ended June 30, 1999 decreased from $95,128 to $55,796. The decrease is primarily
attributable to the lower amount of cash invested in interest bearing accounts
earlier in 1999. Interest earned in the future will be dependent on Company
funding cycles and prevailing interest rates.
Preferred Stock Deemed Dividend. In the second quarter of 1999, the Company,
pursuant to Regulation D, Rule 506, issued 400 shares of Series B preferred
stock (par value $0.25) and related warrants for $4,000,000 ($10,000 per share).
The Company has accounted for these securities as redeemable securities and
accreted to the redemption amount of 115% of the Liquidation Value resulting in
a reduction to income available to common shareholders of $748,636. See Note 2
for additional details regarding this transaction.
Provision for Income Taxes. As of June 30, 1999, the Company's accumulated
deficit was $8,917,233. Accordingly, the Company has recorded a full valuation
allowance against any income tax benefit to date.
Liquidity and Capital Resources
- - - -------------------------------
As of June 30, 1999, the Company's cash balance was $4,788,076 compared to
$2,826,086 as of December 31, 1998. On May 18, 1999, the Company, pursuant to
Regulation D, Rule 506, issued 400 shares of Series B preferred stock (par value
$0.25) and related warrants for $4,000,000 ($10,000 per
<PAGE>
share). See Note 2 of the financial statements for additional details. The
Company has financed its operations primarily through private placement of
Common Shares, Preferred Shares and the exercise of Stock Options.
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, recruit and train qualified
management and clinical personnel, compete 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. The Company may raise additional funds
through private or public equity investment in order to expand the range and
scope of its business operations. The Company may seek access to the private or
public equity but there is no assurance that such additional funds will be
available for the Company to finance its operations on acceptable terms, if at
all.
<PAGE>
Interim Financial Statements
- - - ----------------------------
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current Assets
- - - --------------
Cash $ 4,788,076 $ 2,826,086
Accounts Receivable, net of Allowance for Doubtful Accounts of
$40,144 and $45,165 442,869 271,240
------------- ------------
Total Current Assets 5,230,945 3,097,326
Property and Equipment, Net 350,643 283,630
Intangible Assets-the MedCare Program, net of
Accumulated Amortization of $102 and $68 898 932
------------- ------------
Total Assets $ 5,582,486 $ 3,381,888
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- - - -------------------
Accounts Payable $ 323,573 $ 260,142
Accrued Liabilities 121,615 209,601
------------- ------------
Total Current Liabilities 445,188 469,743
Redeemable Preferred Stock - Series B 4,632,515 0
Stockholders' Equity
- - - --------------------
Preferred Stock $.25 Par Value, Authorized 1,000,000; Issued
and outstanding, 50 Convertible Series A
at June 30, 1999 and December 31, 1998 12 12
Common Stock - $0.001 Par Value Authorized 100,000,000; Issued
and Outstanding, 7,831,160 and 7,825,105 Shares at
June 30, 1999 and December 31, 1998, respectively 7,831 7,825
Additional Paid in Capital 9,414,173 9,396,179
Retained Earnings (8,917,233) (6,491,871)
------------- ------------
Total Stockholders' Equity 504,783 2,912,145
------------- ------------
Total Liabilities and Equity $ 5,582,486 $ 3,381,888
============= ============
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 553,090 $ 151,815 $ 947,152 $ 378,823
General and Administrative Expenses 1,287,258 1,320,125 2,679,674 2,085,835
----------- ------------ ------------- ------------
Operating Loss (734,168) (1,168,310) (1,732,522) (1,707,012)
Interest Income 31,763 52,459 55,796 95,128
----------- ------------ ------------- ------------
Net Loss ($702,405) ($1,115,851) ($1,676,726) ($1,611,884)
Less: Preferred Stock Deemed Dividends (748,636) 0 (748,636) 0
----------- ------------ ------------- ------------
Net Loss Available to Common Stockholders (1,451,041) (1,115,851) (2,425,362) (1,611,884)
Earnings Per Common Share & Common
Share Equivalants ($0.19) ($0.15) ($0.31) ($0.23)
Weighted Number of Common Shares Outstanding 7,831,160 7,229,869 7,830,582 7,115,464
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Six For the Six
Months Ended Months Ended
6/30/99 6/30/98
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities - Net Loss ($2,425,362) ($1,611,884)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
- - - -------------------------------------------------------------------------------
Preferred Deemed Dividends 748,636 0
Depreciation and Amortization 42,237 7,902
(Increase) Decrease in Accounts Receivable (171,629) (67,646)
(Increase) Decrease in Prepaid Expenses 0 62,313
(Increase) Decrease in Security Deposits 0 (650)
(Increase) Decrease in Escrow Funds 0 (1,650,000)
Increase (Decrease) in Accounts Payable and Accrued Liabilities (24,555) 119,524
------------ ------------
Total Adjustments 594,689 (1,528,557)
Net Cash Used by Operating Activities (1,830,673) (3,140,441)
Cash Flow from Investing Activities:
- - - ------------------------------------
Purchase of Property & Equipment (109,216) (117,983)
------------ ------------
Net Cash Flows from Investing Activities (109,216) (117,983)
Cash Flow from Financing Activity
- - - ---------------------------------
Proceeds from sale of common stock 18,000 1,308,001
Proceeds from escrow funds 0 1,650,000
Proceeds from Series B Preferred Stock Issuance (net of issuance costs) 3,883,879 0
Advances (Repayments) to Officers 0 (1,000)
------------ ------------
Net Cash Provided by Financing Activities 3,901,879 2,957,001
Increase (Decrease) in Cash and Cash Equivalants $ 1,961,990 ($301,423)
Cash and Cash Equivalants at Beginning of Period $ 2,826,086 $ 3,440,791
Cash and Cash Equivalants at End of Period $ 4,788,076 $ 3,139,368
Supplemental Information
Cash Paid for:
Interest 0 0
Income taxes 0 0
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
NOTE 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
adjustments) necessary to present fairly the financial position as of June 30,
1999, the results of operations for the three and six month periods ended June
30, 1999, and the statement of cash flows for the six months period ended June
30, 1999. 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 1998 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 1998
Annual Report on Form 10-KSB.
NOTE 2. Series B Preferred Stock
- - - --------------------------------
On May 18, 1999, the Company, pursuant to Regulation D, Rule 506, issued
400 shares of Series B preferred stock (par value $0.25) (the "Series B
Preferred") and related warrants described below for $4,000,000 ($10,000 per
share). The key provisions regarding the issuance and conversion of Series B
Preferred are as follows:
Dividends
The holders of the Series B Preferred shall be entitled to receive a 6.0%
annual dividend, which shall be cumulative and which shall accrue daily from the
date of issuance and be payable, at the option of the Company, either (i) in
shares of Common Stock upon conversion of the Series B Preferred or (ii) in
cash.
Conversion by Holders
Subject to the limitations discussed below, each share of the Series B
Preferred shall be convertible into shares of Common Stock at a variable
conversion rate (the "Conversion Rate") equal to the Conversion Amount (defined
below) divided by the applicable Conversion Price (defined as follows). The
"Conversion Price" is the lesser of (i) the fixed conversion price (the "Fixed
Conversion Price"), which is $7.80 or (ii) the variable conversion price (the
"Variable Conversion Price"). The Variable Conversion Price is the lower of (a)
the closing bid price on the day the holder delivers the required
<PAGE>
notice of his intention to convert to the Company or (b) the average of the 10
lowest closing bid prices in the 40 trading days immediately preceding the date
such notice is given. The "Conversion Amount" is defined as $10,000, plus any
stock dividends that have accrued but have not been paid out, plus any default
interest (equal to 15%) for dividends which the Company has elected to pay in
cash but has failed to pay on a timely basis. The above formula may or may not
result in the common stock being issued at a discount to the current market
price.
The investors' right to convert the Series B Preferred is limited as
follows. From the date of issuance (May 18, 1999) of the Series B Preferred
through and including the date which is 120 days after the date of issuance, no
shares of the Series B Preferred may be converted. From 121 days after the date
of issuance through the date which is 150 days after the date of issuance, the
Investors may convert up to 1/3 of their shares. From 151 days after the date of
issuance through the date which is 180 days after the date of issuance, the
investors may convert up to 2/3 of their shares. From the date which is 181 days
following the date of issuance through the expiration date of the Series B
Preferred (5 years after the date of issuance), the investors may convert up to
all of their shares. The foregoing restrictions do not apply if certain events
occur.
Adjustment of Conversion Price
The Conversion Price of the Series B Preferred is subject to customary
anti-dilution provisions which take effect upon such events as the issuance by
the Company of Common Stock, options or other convertible securities, the
subdivision or combination of outstanding shares of Common Stock of the Company,
the recapitalization, merger or other reorganization of the Company, or any
other similar events. However, no such adjustment will be made unless the
adjustment would result in a cumulative increase or decrease of at least 1% in
the Conversion Price.
Mandatory Conversion
The shares of Series B Preferred mature five years after they are issued,
and any shares of the Series B Preferred left outstanding on the applicable
maturity date are automatically converted into shares of Common Stock.
Redemption at the Option of Investors
Each outstanding share of the Series B Preferred is redeemable, at the
option of the Investors, in the event of any of the following transactions (each
a "Major Transaction"): (i) the consolidation, merger or other business
combination of the Company, (ii) the sale or transfer of all or substantially
all of the Company's assets or (iii) a purchase, tender or exchange offer made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock, provided that such Major Transaction shall have occurred or have
been the subject of a public announcement during the period beginning on the
date of issuance and ending on the later of (a) the first anniversary of the
date of issuance and (b) the date which is 270 days after the effective date of
the
<PAGE>
Registration Statement relating to the applicable shares. In the event of a
Major Transaction, the redemption price per share shall be the greater of (i)
115% of the Liquidation Amount (as defined below) and (ii) the product of (a)
the applicable Conversion Rate and (b) the closing bid price on the date of the
public announcement of the event. The "Liquidation Amount" is equal to $10,000
plus any stock dividends that have accrued but have not been paid out, plus any
default interest (equal to 15% per annum) for dividends which the Company has
elected to pay in cash but has failed to pay on a timely basis.
In addition, in the event of the occurrence of certain events (the
"Triggering Events"), including the failure of the Registration Statement to be
declared effective within 180 days of the date of issuance, the delisting of the
Common Stock for a period of five consecutive days and the Company's breach of
any representations, warranties or covenants in the Documents, the Investors
have the right to require the Company to redeem all or a portion of such
Investor's Series B Preferred. The redemption price per share is the same as the
redemption price per share in the event of a Major Transaction.
Warrants
Along with the Series B Preferred, the Company issued common stock warrants
to the investors. Subject to the vesting schedule described below, each warrant
entitles its holder to 200 shares of Common Stock for (i) each issued share of
the Series B Preferred held on the applicable vesting date and (ii) each share
of the Series B Preferred converted prior to the applicable vesting date at the
Fixed Conversion Price. The Warrants expire five years after they are issued.
The vesting dates of the Warrants are (i) the date which is 120 days after the
date of issuance of the applicable Series B Preferred Shares; (ii) the date
which is 300 days after the date of issuance of the applicable Series B
Preferred Shares and (iii) the date which is 480 days after the date of issuance
of the applicable Series B Preferred Shares. The exercise price of each Warrant
is 125% of the average of the closing bid prices of the Company's Common Stock
for the five consecutive trading days immediately preceding the applicable
vesting date.
Investor Call Option
For every (i) unconverted Series B Preferred share held by the investors on
the first anniversary of the closing and (ii) preferred share converted at the
Fixed Conversion Price prior to the first anniversary of the closing, the
investors have the right to subscribe for an additional preferred share and
related warrants under the same terms and conditions of the original closing
(revised to reflect the Company's then current common stock market price). Each
investor may exercise this right only at such time when the closing market price
of the Company's common stock is greater than the Fixed Conversion Price.
Accounting Treatment
<PAGE>
Preferred shares that are redeemable only in the event of a contingency
must be classified as redeemable even if the occurrence of the contingency is
deemed remote. Since the redemption of the securities could possibly occur
through a Major Transaction, the Company has accounted for these securities as
redeemable securities and accreted to the redemption amount of 115% of the
Liquidation Value. The accretion reduced income applicable to common
shareholders and is disclosed separately from income applicable to common
shareholders on the face of the income statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment No. 1 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the State of Illinois, on this 13th day of August, 1999.
MEDCARE TECHNOLOGIES, INC.
By Jeffrey S. Aronin
---------------------
Jeffrey S. Aronin
Principle Executive Officer
CEO, President and Director
By: Alan Jagiello
-----------------
Alan Jagiello
Principle Financial and Accounting Officer
CFO, Treasurer, Secretary and Director
By: Greg Wujek
--------------
Greg Wujek, VP of Managed Care, Director
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent auditors, we hereby consent to the inclusion in this
Amendment to Form SB-2 our reports, relating to the consolidated financial
statements of Medcare Technologies, Inc. for the years ended December 31, 1998
and 1997 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
August 13, 1999
