As filed with the Securities and Exchange Commission on February 24, 1999
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. [ ]
<PAGE>
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 Regulation D
offering dated June 1997.
Includes conversion warrants,
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, 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 93 of the sequentially numbered pages
of this Registration Statement. This Registration Statement, including exhibits,
contains 98 pages.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
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 .....................................................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>
<PAGE>
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"), 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. 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. As of approximately July 20, 1998, the Company
is listed on The Nasdaq Small Cap MarketTM ("Nasdaq") under the symbol MCAR. 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/A, quarterly report for the quarter ended September 30, 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.
<TABLE>
<CAPTION>
Price to Public Proceeds to Company
<S> <C> <C>
Total $N/A $N/A
</TABLE>
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 February 24, 1999
<PAGE>
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 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 site
(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
healthcare industry and assumptions made by 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 healthcare market, 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.
<PAGE>
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"), and
common stock underlying the placement agent warrants ("Placement Warrants"). The
Company is required to register for 1,500,000 shares by the Registration Rights
Agreement signed by the Company. The number of shares that will actually be
issued may be more or less than the 1,500,000 shares being registered, because
the conversion of the preferred stock into common stock is based on a formula
that is dependent upon the Company's share price. If the Company's share price
decreases, the number of shares that would be required to be issued increases.
The 1,500,00 shares being registered in this registration statement was
determined in order to provide adequate reserve to cover any realistic increase
in the number of shares required.
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, 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 January 26, 1999, there are 7,825,105 outstanding shares of common stock.
The outstanding shares includes the common stock issued in the private placement
of 176,000 shares sold February 4, 1997 and the private placement of 300,000
shares sold July 7, 1997. This registration will result in up to 2,661,364
additional shares of the Company's common stock being introduced to the market
as detailed below:
<TABLE>
<CAPTION>
<S> <C>
June 1997 offering shares to be registered 1,500,000
1995 employee stock option plan 500,000
1996 employee stock option plan 300,000
1997 employee stock option plan 500,000
Options underlying February 4, 1997 offering 300,000
Less: options/warrants converted as of January 26, 1999 (438,636)
---------
Total 2,661,364
</TABLE>
<PAGE>
If all options, warrants and other instruments are exercised as detailed in this
Registration Statement, there will be 10,486,469 shares outstanding.
In addition to the above, there are securities, options and warrants outstanding
that are not subject to this registration statement that would result in an
additional 311,344 shares of the Company's common stock being brought to the
market as detailed below:
<TABLE>
<CAPTION>
<S> <C>
Concordia Partners L.P. new preferred stock warrants 11,344
Lyons Capital private placement dated 11/6/98 300,000
-------
Total 311,344
</TABLE>
In total, if all the securities, options, warrants and employee stock options,
including those not subject to this registration statement, were to be
exercised, it would result in 10,797,813 shares outstanding.
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."
<PAGE>
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."
Statement of Operations Data
- ----------------------------
<TABLE>
<CAPTION>
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)
Less: Preferred Deemed Dividends 0 0 (247,712)
- - ---------
Net Loss Available to
Common Stockholders (689,713) (449,236) (1,540,942)
Net (Loss) Per Share of
Common Stock $ (0.35) $ (0.08) $ (0.35)
======= ======= =======
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
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 29,117 63,813
------ ------
Total Current Assets 256,243 3,551,890
Property and Equipment
Office Equipment 5,274 21,069
Medical Equipment 11,953 29,799
------ ------
17,227 50,868
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 $266,674 $3,586,416
======== ==========
</TABLE>
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 19,791 $ 15,796
Notes Payable - Related Parties 25,000 1,000
Notes Payable - Officers 12,500 0
------ -
Total Current Liabilities 57,291 16,796
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 0 41
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 6,445 6,992
Additional Paid-In Capital 1,372,631 6,284,505
Loss Accumulated During the Development Stage (1,169,693) (2,721,918)
---------- ----------
Total Stockholders' Equity 209,383 3,569,620
------- ---------
Total Liabilities and Stockholders' Equity $ 266,674 $3,586,416
======== ==========
</TABLE>
<PAGE>
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 due 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 $2,721,918 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. As of
January 26, 1999, there are 7,825,105 outstanding shares of common stock. The
outstanding shares includes the common stock issued in the private placement of
176,000 shares sold February 4, 997 and the private placement of 300,000 shares
sold July 7, 1997. This registration will result in up to 2,661,364 additional
shares of the Company's common stock being introduced to the market as detailed
below:
<TABLE>
<CAPTION>
<S> <C>
June 1997 offering shares to be registered 1,500,000
1995 employee stock option plan 500,000
1996 employee stock option plan 300,000
1997 employee stock option plan 500,000
Options underlying February 4, 1997 offering 300,000
Less: options/warrants converted as of January 26, 1999 (438,636)
---------
Total 2,661,364
</TABLE>
If all options, warrants and other instruments are exercised as detailed in this
Registration Statement, there will be 10,486,469 shares outstanding.
In addition to the above, there are securities, options and warrants outstanding
that are not subject to this registration statement that would result in an
additional 311,344 shares of the Company's common stock being brought to the
market as detailed below:
<TABLE>
<CAPTION>
<S> <C>
Concordia Partners L.P. new preferred stock warrants 11,344
Lyons Capital private placement dated 11/6/98 300,000
-------
Total 311,344
</TABLE>
<PAGE>
In total, if all the securities, options, warrants and employee stock options,
including those not subject to this registration statement were to be exercised,
it would result in 10,797,813 shares outstanding. 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 substantial 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 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. As detailed
elsewhere in this registration statement (see "DILUTION"), if all of the
securities, options, warrants and employee stock options, including those not
subject to this registration statement, were to be exercised, it would result in
10,797,813 shares outstanding, as opposed to a total of 7,825,105 shares of
common stock outstanding as of January 26, 1999. Even though not all of these
shares will be free trading, all of them may 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
<PAGE>
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. The listed securities would be delisted from Nasdaq trading and 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 7,825,105 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 2,661,364 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 2,661,364 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 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 many third party payers,
there can be no assurances that such coverage will remain in effect in the
future.
<PAGE>
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.
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 June 6, 1997, or 80 to 90% of the average bid price for the five trading
days preceding the conversion. The following table indicates various amounts of
Common Stock that would be issued assuming 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.
<PAGE>
<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 13,500 675,000
1 90 12,000 600,000
3 80 4,500 225,000
3 90 4,000 200,000
3.75 80 3,600 180,000
3.75 90 3,200 160,000
5 80 2,700 135,000
5 90 2,400 120,000
6 80 2,317 115,850
6 90 2,060 103,000
7 80 1,929 96,450
7 90 1,714 85,700
</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 50
preferred shares are converted, resulting in a calculation based upon the
following formula: [column 3 x 50].
As of January 26, 1999, 190 shares of preferred stock have been issued
and, of that number, 140 preferred shares have already been converted into
common stock. The 140 shares were converted into common stock using the above
formula at the time of their conversion and resulted in 272,646 shares of common
stock. The remaining 50 shares outstanding are owned by Concordia Partners.
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 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 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 $1.00 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 (Q4 1998) was $4.875.
During Q4 of 1998, the common stock price ranged from $4.875 to $7.4375. During
January 1999, the stock price ranged from $6.50 to $8.25. Should the price
decline, 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."
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
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter High Low High Low High Low High Low
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 $7.4375 $4.875 $8.125 $7.625 $5.125 $4.375 $6.00 $3.75
</TABLE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
<S> <C> <C>
Current Liabilities
Accounts Payable $ 19,791 $ 15,796
Notes Payable-- Officers and Related Parties 37,500 1,000
------ -----
Total Current Liabilities 57,291 16,796
Stockholders' Equity:
Preferred Stock, $.25 Par Value, Series
A, Authorized 1,000,000 Shares; Issued
and Outstanding, at December 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 1,372,631 6,284,505
Loss Accumulated During
The Development Stage (1,169,693) (2,721,918)
---------- ----------
Total Stockholders' Equity 209,383 3,569,620
-------
Total Liabilities and Stockholders' Equity $ 266,674 $ 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.
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
of January 26, 1999, there are 7,825,105 outstanding shares of common stock. The
outstanding shares includes the common stock issued in the private placement of
176,000 shares sold February 4, 1997 and the private placement of 300,000 shares
sold July 7, 1997. This registration will result in up to 2,661,364 additional
shares of the Company's common stock being introduced to the market as detailed
below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
June 1997 offering shares to be registered 1,500,000
1995 employee stock option plan 500,000
1996 employee stock option plan 300,000
1997 employee stock option plan 500,000
Options underlying February 4, 1997 offering 300,000
Less: options/warrants converted as of January 26, 1999 (438,636)
---------
Total 2,661,364
</TABLE>
If all options, warrants and other instruments are exercised as detailed in this
Registration Statement, there will be 10,486,469 shares outstanding.
In addition to the above, there are securities, options and warrants outstanding
that are not subject to this registration statement that would result in an
additional 311,344 shares of the Company's common stock being brought to the
market as detailed below:
<TABLE>
<CAPTION>
<S> <C>
Concordia Partners L.P. new preferred stock warrants 11,344
Lyons Capital private placement dated 11/6/98 300,000
-------
Total 311,344
</TABLE>
In total, if all the securities, options, warrants and employee stock options,
including those not subject to this registration statement were to be exercised,
it would result in 10,797,813 shares outstanding. 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 forth 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 have received shares of Common Stock upon conversion of the Series
A Convertible Preferred Stock. Additionally, 165 shares of Preferred Stock ("New
Preferred") were provided for in an agreement dated June 1998. Only 25 of these
shares were actually sold.
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 25 shares have been sold
pursuant to "Preferred Warrants" as defined in the Subscription Agreement of the
Regulation D offering of 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 12 month range
for the price of the common stock of the Company from January 6, 1998 to
December 31, 1998 was approximately $4.875 to $9.375. For most of this period,
the price was in excess of the minimum price of $7.346, therefore the minimum
price is used in the calculations. Only 190 (including "Preferred Warrant"
shares) of the possible 1,000 shares were sold and no additional shares will be
sold. Of the 190 shares sold, 140 shares (as of January 26, 1999) have been
converted into common stock using the above formula. The 140 shares resulted in
the issuance of 272,646 common shares. For the remaining 50 outstanding
preferred shares (owned by Concordia Partners), $7.346 will be used as the
denominator, resulting in 68,064 estimated shares, assuming full conversion. The
number could be as low as zero if none are converted. The nine, twelve and
fifteen month warrants also provide that an additional 224,610 shares could be
converted under those separate warrant agreements at a price of $7.346. All of
the original nine, twelve and fifteen month warrants are still outstanding,
except for 36,755 which were forfeited upon the early conversion of preferred
stock. In addition, the placement agent was originally granted warrants to
purchase 36,244 shares and has exercised all but 9,052 of those warrants as of
January 26, 1999. The warrants were exercised using a cashless exercise option
and resulted in 8,990 shares being issued. 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
546,607 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
<PAGE>
though no such revisions are planned or expected by the Company), or in the
event of changes in the share price. In addition, 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. This will provide for an overallotment of
953,393 shares.
The following table lists the purchasers of the Preferred Stock and an
estimate of the Common Stock registered for resale:
<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 Registrant to Registration to Registration Holder's Account Registration Registration
(1,2,3)
<S> <C> <C> <C> <C> <C> <C>
Lakeshore
International None 25 91,060 91,060 -0- 0
Queensway
Financial
Holdings Limited None 100 299,524 299,524 -0- 0
Concordia
Partners L.P.(4) None 50 102,096 102,096 -0- 0
The Matthew
Fund N.V. None 15 35,885 35,885 -0- 0
Placement
Agent Shares(5) None 0 18,042 18,042 -0- 0
--- ------- ------- - -
Totals 190 546,607 546,607 -0- 0
</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) All shares are rounded to the nearest share.
(4) The figure for Concordia includes its 25 shares of New Preferred Stock. (5)
See table below for details regarding the issuance of shares to the Placement
Agent.
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.
<PAGE>
Common Stock Warrants held by Promoter:
<TABLE>
<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 4,205 4,205 0 0 $7.346 June 20, 2002
Kendrick Family
Partnership LP None 4,205 4,205 0 0 $7.346 June 20, 2002
Carlton M.
Johnson, Jr. None 711 711 0 0 $7.346 June 20, 2002
Davis C. Holden None 407 407 0 0 $7.346 June 20, 2002
Dwight B. Bronnum None 806 806 0 0 $7.346 June 20, 2002
Glenn R. Archer None 2,151 2,151 0 0 $7.346 June 20, 2002
Michael E. Stough None 3,227 3,227 0 0 $7.346 June 20, 2002
P. Bradford
Hathorn None 710 710 0 0 $7.346 June 20, 2002
Robert L. Hopkins None 807 807 0 0 $7.346 June 20, 2002
Glenn A. Adams None 813 813 0 0 $7.346 June 20, 2002
Total Number
of Warrants None 18,042 18,042 0 0 $7.346 June 20, 2002
</TABLE>
(1) Of the original 33,692 Swartz warrants, 27,192 have been exercised
using the cashless exercise option, resulting in 8,990 common shares.
6,500 warrants remain unexercised as of January 26, 1999. In addition,
2,552 warrants were issued to the promoter with the issuance of the 25
shares of new preferred stock to Concordia.
(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.
(3) Assuming all shares are sold.
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 0.05%
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>
<PAGE>
(1)Based upon outstanding shares on January 26, 1999 in the amount of 7,825,105.
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 January 26, 1999 in the amount of
7,825,105.
(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"), resulting in an increase in Preferred shares actually issued from 165
to 330, and for an increase in the maximum authorized amount of Series A
Preferred Stock to be offered from $3,000,000 to $3,300,000. The New Preferred
Stock was placed in an escrow account to be released on the date the
Registration Statement became effective; if the registration statement was not
effective as of November 20, 1998, the Company would redeem the New Preferred
Stock at a rate of $10,000 per share. 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 $180,000 by the
Company under the terms of its original Agreement with the Company, due to the
late filing of the registration statement. Since the Registration Statement did
not become effective as of November 20, 1998, Queensway, Lakeshore, and Matthew
Fund chose to redeem their New Preferred Stock; these 140 shares thus no longer
exist. Concordia chose to retain its 25 shares and the associated 11,344 3 month
warrants, which may be exercised up to three months after the issuance date of
December 10, 1998. This warrant is not part of this registration 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
<PAGE>
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 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
11,000 1998
Ranjit Bhogal 150,000 11,000 1996
17,000 1997
13,000 1998
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
7,000 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>
* 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.
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.
Private Placement November 6, 1998
- ----------------------------------
Under the terms of a private placement done by the Company in reliance
on Regulation D, Rule 506, 300,000 shares of common stock in the Company at
$5.00 per share with a warrant effective until October 14, 2004 to purchase an
additional 300,000 shares at $5.00 per share were sold to Lyons Capital Corp., a
Bermuda corporation and an accredited investor. The offering was closed on
November 6, 1998, and resulted in receipt by the Company of $1,500,000. This
Registration does not apply to these shares.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries or Divisions has any
legal proceedings against it.
MANAGEMENT
Directors and Executive Officers
- --------------------------------
<TABLE>
<CAPTION>
Name/Age Title
<S> <C>
Harmel S. Rayat Chairman of the Board
Jeffrey Aronin President, Chief Executive Officer, Director
Alan P. Jagiello Chief Financial Officer
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. Dr. Blue
was elected directors in 1996. Dr. Jacobo and Mr. Aronin were elected to the
board in 1997. Mr. Wujek was elected in 1998.
<PAGE>
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 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
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.
ALAN P. JAGIELLO (Age 33) Chief Financial Officer.Mr. Jagiello is a certified
public accountant with over 10 years of experience in public accounting. Prior
to joining Medcare in December 1998, Mr. Jagiello worked in Arthur Andersen's
U.S. Professional Standards Group, where he consulted with clients and audit
engagement teams on technical matters of accounting and SEC reporting. The
Professional Standards Group sets, monitors and dissemniates policies on
accounting and auditing standards for Arthur Andersen worldwide and represents
the firm before FASB, SEC, AICPA and IASC. Before joining this group, Mr.
Jagiello assisted numerous clients ranging from large, multinational
corporations to closely held businesses, and has provided due diligence services
on acquisitions, performed benchmarking projects and prepared internal control
recommendations. Mr. Jagiello attended Northern Illinois University, has
authored a number of publications regarding technical accounting issues and is a
member of the American Institute of Certified Public Accountants.
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
<PAGE>
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.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of January 26, 1999, 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 Lyons Capital Corporation 600,000 5.6%
Brenda C. Pratt, President
and sole shareholder
24 Reid Street
Hamilton, HM11 Bermuda
Common stock Matrix Capital Corp. 600,000 5.6%
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 21.9%
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 except for those held by Jeff Aronin, which
are subject to an employment agreement.
(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
<PAGE>
dividends as may be declared from 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).
<PAGE>
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:
<TABLE>
<CAPTION>
% of
Date of Notice of Redemption at Company's Election Stated Value
<S> <C>
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%
</TABLE>
The Company and the Preferred Stockholders 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 the maximum amount of Series A Preferred Stock to be offered from
$3,000,000 to $3,300,000. The New Preferred Stock was placed in an escrow
account until the Registration Statement becomes effective. Since the
Registration Statement did not become effective by November 20, 1998, Lakeshore,
Queensway, and Matthew Fund have chosen to terminate their agreement and have .
withdrawn their money from escrow. Concordia remains a party to the agreement,
and has chosen to exercise its 25 Preferred Warrants. No late fees or payments
have been made as a result of this delay in registration. 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 converted into common stock after the first five months. Additionally,
Queensway Financial Holdings Limited was given $180,000 by the Company under the
terms of its original Agreement with the Company.
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
<PAGE>
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. 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) Of the original 258,302 conversion warrants that were issued, 36,755 shares
were forfeited due to the early conversion of preferred shares. In addition,
Swartz Investments has exercised all but 6,500 of its warrants utilizing the
cashless exercise option, resulting in 8,990 shares being issued. The remaining
conversion warrants are still outstanding.
In June of 1998, the investors converted 165 preferred warrants into preferred
stock. Upon conversion of the preferred warrants, the investors and the Company
deposited into an escrow account the proceeds of $1,650,000 and the related
preferred stock pending final approval of the Company's registration statement.
In addition, the Company and the investors entered into an agreement which
provided for the investors to receive 3 month warrants at an exercise price of
$7.346 per share and to forfeit any rights to additional preferred warrants,
nine month warrants, twelve month warrants and fifteen month warrants. Of the
original four investors who participated in the escrow agreement, three withdrew
their proceeds of $1,400,000 and forfeited the related preferred stock and
warrants. The forfeited preferred stock and related warrants were canceled. The
remaining investor, Concordia Partners, released its investment of $250,000 to
the company and received 25 shares of new preferred stock and 11,344 warrants
exercisable three months after their issuance date at an exercise price of
$7.346 per share. The warrants and associated common shares are unregistered and
are not included in this registration statement.
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
<PAGE>
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.
Under the conversion formulae 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 June 6, 1997, or 80 to 90% of the average bid price for the five trading
days preceding the conversion. The following table indicates various amounts of
Common Stock that would be issued assuming 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 varable 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 13,500 675,000
1 90 12,000 600,000
3 80 4,500 225,000
3 90 4,000 200,000
3.75 80 3,600 180,000
3.75 90 3,200 160,000
5 80 2,700 135,000
5 90 2,400 120,000
6 80 2,317 115,850
6 90 2,060 103,000
7 80 1,929 96,450
7 90 1,714 85,700
</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) +
<PAGE>
10,000)/Conversion Price is detailed in column three. The fourth column assumes
all warrants and options are exercised and 50 preferred shares are converted,
resulting in a calculation based upon the following formula: [column 3 x 50].
As of January 26, 1999, 190 shares of preferred stock have been issued
and, of that number, 140 preferred shares have already been converted into
common stock. The 140 shares were converted into common stock using the above
formula at the time of their conversion and resulted in 272,646 shares of common
stock. The remaining 50 shares outstanding are owned by Concordia Partners.
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 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 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 $1.00 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 (Q4 1998) was $4.875.
During Q4 of 1998, the common stock price ranged from $4875 to $7.4375. During
January 1999, the stock price ranged from $6.50 to $8.25. Should the price
decline, 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."
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).
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., 2939 North 67th Place, Scottsdale, Arizona,
85251. Its telephone number is (602) 481-3941.
Shares Eligible for Future Sale
- -------------------------------
As of December 31, 1998, the Company had 7,825,105 shares of Common
Stock and 50 shares of Preferred Stock outstanding. Of the 7,825,105 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
2,972,708 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
<PAGE>
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.
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.
<PAGE>
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. Greg 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.
On November 7, 1997, Greg Wujek joined the Company as its Vice
President of Managed Care.
On December 3, 1998, Alan P. Jagiello was appointed as Chief Financial
Officer.
On January 21, 1999, the Company formed a new entity which will be a
wholly-owned subsidiary of the Company. Medcareonline.com, Inc. is incorporated
in the state of Nevada and is authorized to issue one hundred million
(100,000,000) shares of common stock, par value $0.0001 per share, and one
million (1,000,000) shares of preferred stock, par value $0.01 per share. The
Company filed a Form 8-K announcing the formation of this subsidiary on February
9, 1999, which included the new subsidiary's Articles of Incorporation.
With the recent beta launch of www.medcareonline.com, a healthcare
portal offering comprehensive medical information, Medcareonline.com, Inc.
intends further to develop brand building and marketing initiatives designed to
increase site traffic and repeat visitors. Part of the Company's strategy is to
increase site content, features and services, including adding an on-line
magazine and advertising on traditional and non-traditional mediums. To date,
Medcareonlline.com, Inc. has not generated any revenues and has incurred only
minimal expenses.
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 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 professional2, 3. Instead, a large number of
people prematurely turn to the use of
- -----------
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 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.
<PAGE>
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
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
Bowel Disorders Secondary to Neurologic Disorders
- -------------------------------------------------
Stroke, Spina Bifida, Multiple Sclerosis, etc.
<PAGE>
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; and
7. Reduce incontinence and symptoms of urgency and frequency.
<PAGE>
To reach these goals the MedCare Program may use the following treatments or
procedures:
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.
<PAGE>
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, 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
- -------------------------
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.
<PAGE>
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 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.
<PAGE>
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.
As of January 26, 1999, the Company had 82 contracted MedCare program
sites. These site are located in the following cities: Norman, OK (Dr. Michael
M. Blue), Anderson, SC (Dr. Bill Hinnat), Athens, GA (Dr. Mark Ellsion),
Augusta, GA (2) (Dr. Goldsmith and Dr. Harry Oldman), Birmingham, AL (Dr.
William Johnson), Marietta, GA (Dr. Brian Thomas), Roswell, GA (Dr. Omar
Eubanks), Warner Robins, GA (Dr. F. Marshall Parker), Savannah, GA (Dr. David
Ostman), Glen Cove, NY (Dr. Eric Hochberg), Greensburg, PA (Dr. James Mayo),
Jersey City, NJ (Dr. Anthony Mangia), Mine Hill, NJ (Dr. Marc Colton), Natick,
MA (Dr. Emmanuel Friedman), New York, NY (Dr. Robert Gluck), Stamford, CT (Dr.
Jonathan Waxberg), Yonkers, NY (Dr. Stanley Boczko), Alexandria, VA (Dr. Roger
Weiderhorn), Baltimore, MD (2) (Dr. Marcella Ronneburg), Fayetteville, NC (Dr.
Garrett Franzoni), Owings Mills, MD (2), Dr. Sanford Siegel), Raleigh, NC (Dr.
Richard Kane), Shelby, NC (Dr. Shem Blackley), Newport News, VA (Dr. Peter Han),
Suitland, MD (Dr. Selwa Diwani), Chantilly, VA (Dr. Fadul), Jacksonville, NC
(Dr. Robert Kell), Wilmington, NC (Dr. John Cashman), Fremont, CA (Dr. Scott
Kramer), Kirkland, WA (Dr. John Paul Isabell), Los Gatos, CA (2) (Dr. Anthony
Damore and Dr. Robert Panvini), Reno, Nevada (Dr. Angelo Kanellos), San Mateo,
CA (Dr. Hessell), Concord, CA (Dr. Nigro), Walnut Creek, CA (Dr. Nigro), San
Francisco, CA (Dr. David A. Ronk), Beverly Hills, CA (Dr. Sherman Bruckner),
Fullerton, CA (Dr. Nicholas Thanos), Los Angeles, CA (Dr. William Barba),
Mission Viejo, CA (Dr. Marc Winter), Laguna Hills, CA (Dr. Marc Winter), Orange,
CA (Dr. Arthur Goldstein), Newport Beach, CA (Dr. Arthur Goldstein), Rancho
Mirage, CA (Dr. Sheldon Barroff), Oceanside, CA (Dr. Bradley Frasier), Downey,
CA (Dr. Msihal), Tarzana, CA (Dr. Richard Leff), Palm Beach, CA (Dr. E. Jacome),
San Rapeal, CA (Dr. John Hessell), Dallas, TX (Dr. Brian Feagins), Fort Worth,
TX (Dr. A.E. Thurman), Kingwood, TX (Dr. Robert Rosen), Scottsdale, AZ (Dr. Mary
Ellen Shannon), San Antonio, TX (2) (Dr. Tristan Castaneda and Dr. Robert
Schorlemer), Oklahoma City, OK (Dr. Sam Little), Elyria, OH (Dr. J. Patrick
Spirank), Findlay, OH (Dr. Prem Agrawal), Fridley, MN (Dr. J. Randolph Beahrs),
Huntington, WV (Dr. Larry Caserta), Indianapolis, IN (Dr. Sally Bradley),
Maplewood, MN (Dr. Ingrid Wilbrand), Terre Haute, IN (Dr. Douglas Claybrook),
Toledo, OH (Drs. Haselhuhn and Seal), Dayton, OH (Dr. Daniel Miller), Milwaukee,
WI (Dr. Ike Bae), St. Paul, MN (Dr. Siegel), Batavia, IL (Dr. John Zito, Jr.),
Bloomington, IL (Dr. Vicken Chalian), Buffalo Grove, IL (Dr. Randall Kahan),
Chicago, IL (Dr. Maura Brennan), Elgin, IL (Dr. James I. Pinto), Galesburg, IL
(Dr. Jeffrey Koszczuk), Joliet, IL (Dr. Gregory Lewis), Kankakee, IL (Dr. Joel
Slutsky), Lake Forest, IL (Dr. David Schewitz), Kirkwood, MO (Dr. N. Saha),
Wentzville, MO (Dr. Stan Hanks).
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.
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
<PAGE>
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
<PAGE>
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.
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 expected monthly expenses on a
per site basis:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Insurance $ 500.00
Advertising $ 815.00
Salary and Benefits for Clinician $ 3,625.00
Telephone $ 250.00
Medical/Office Supplies $ 600.00
-----------
Total Average Monthly Exp: $ 5,790.00
</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 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 model, 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
<PAGE>
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:
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
<PAGE>
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.
"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
December 31, 1998, the Company employed 52 full time persons. To the best of the
Company's knowledge, none of the Company's officers or directors
<PAGE>
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
- ----------------
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 principally 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 all Year 2000 problems are detected. Further,
there can be no assurance that the Company's assessment of its third party
relationships could 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.
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.
<PAGE>
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
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
<PAGE>
(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
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.
Of the original 258,302 conversion warrants that were issued, 36,755
shares were forfeited due to the early conversion of preferred shares. In
addition, Swartz Investments had exercised all but 6,500 of its warrants
utilizing the cashless exercise option resulting in 8,990 shares being issued.
The remaining conversion warrants are still outstanding.
In June of 1998, the investors converted 165 preferred warrants into
preferred stock. Upon conversion of the preferred warrants, the investors and
the Company deposited into an escrow account the proceeds of $1,650,000 and the
related preferred stock pending final approval of the Company's registration
statement. In addition, the Company and the investors entered into an agreement
which provided for the investors to receive 3 month warrants at an exercise
price of $7.346 per share and to forfeit any rights to additional preferred
warrants, nine month warrants, twelve month warrants and fifteen month warrants.
Of the original four investors who participated in the escrow agreement, three
withdrew their proceeds of $1,400,000 and forfeited the related preferred stock
and warrants. The forfeited preferred stock and related warrants were canceled.
The remaining investor, Concordia Investments, released its investment of
$250,000 to the Company and received 25 shares of new preferred stock and 11,344
warrants exercisable three months after their issuance date at an exercise price
of $7.346 per share. The warrants are unregistered and are not included in this
registration statement.
<PAGE>
The Placement Agent and its employees and affiliates were granted a
total of 165 Preferred Stock options and 258,302 Common Stock warrants 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.
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. Greg 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.
On November 6, 1998, the Company issued 300,000 shares of its common
stock at $5.00 per share to Lyons Capital Corporation, a Bermuda corporation,
with a warrant to purchase an additional 300,000 shares at $5.00 per share as an
offering pursuant to Regulation D, Rule 506. The warrant is effective until
October 14, 2004. These shares are unregistered and are not covered by this
registration statement.
On December 3, 1998, the Company announced that Alan P. Jagiello was
appointed as Chief Financial Officer.
On January 4, 1999, the Company announced that it had reached its goal
of 90 contracted MedCare program sites by year-end 1998. With over 300
physicians in the MedCare system nationwide, the MedCare program is the largest
national conservative treatment for incontinence in the United States. During
1999, the Company's number one priority is building revenues and continuing to
open new MedCare program sites in select markets.
On January 21, 1999, the Company formed a new entity which will be a
wholly-owned subsidiary of the Company. Medcareonline.com, Inc. is incorporated
in the state of Nevada and is authorized to issue one hundred million
(100,000,000) shares of common stock, par value $0.0001 per share, and one
million (1,000,000) shares of preferred stock, par value $0.01 per share. The
Company filed a Form 8-K announcing the formation of this subsidiary on February
9, 1999, which included the new subsidiary's Articles of Incorporation.
With the recent beta launch of www.medcareonline.com, a healthcare
portal offering comprehensive medical information, medcareonline.com, Inc.
intends further to develop brand building and marketing initiatives designed to
increase site traffic and repeat visitors. Part of the Company's strategy is to
increase site content, features and services,
<PAGE>
including adding an on-line magazine and advertising on traditional and
non-traditional mediums. To date, medcareonlline.com, Inc. has not generated any
revenues and has incurred only minimal expenses.
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."
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.
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.
<PAGE>
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.
To date, MedCare has not received any 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, 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 expanding The MedCare
Program on a national basis. Although planned principal operations have
commenced, substantial revenues have yet to be realized.
Results of Operations
- ---------------------
The Company had revenues of $91,802 for the year ended December 31,
1997, and $537,598 for the nine month period ending September 30, 1998. During
1997, the majority of the Company's revenues were from three early stage MedCare
Program sites, and while the revenues generated were not significant, these
first few sites provided much of the Company's insight with regards to
advertising, marketing, billing and business development. The information
gathered from these early stage developmental centers is being used to establish
current MedCare Program sites, most of which are expected to open in late 1998.
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 opening of new MedCare Program centers in the United States,
and possibly select foreign markets.
For the nine month period ending September 30, 1998, the Company
incurred $3,178,718 in General and Administrative expenses, equivalent to $0.35
per share and a 227% increase over an amount of $973,345, or $0.12 per share,
for the same nine month period in 1997, and compared $1,515,459, or $0.23 per
share, for the twelve month period December 31, 1997. This increase is primarily
attributable to costs associated with expanding the Company's management,
training and clinical infrastructure, continued development of advertising and
marketing programs, public relations, travel, legal and accounting, ongoing
general operating expenses, and costs associated with greater number of early
stage MedCare Program locations in various parts of the US.
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 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 possible
abroad.
For the three-month period ending September 30, 1998, the Company's
general and administrative expenses increased to $1,092,884 compared to $442,104
for the corresponding period in 1997. The 1998 amount represents an increase of
147%, 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 $907,105, or $0.12 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.
<PAGE>
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.
As at September 30, 1998, $1,500,000 was held in an escrow account on
behalf of 3 investors who originally participated in the Company's Series A
preferred offering for a total of $1,650,000. These funds were being held in
escrow pending final approval of the Company's Registration Statement by
November 20, 1998. Prior to this date, but subsequent to September 30, 1998, 2
of the 3 investors elected to withdraw $1,250,000, without any penalties to the
Company. The withdrawal of these funds will not affect the Company's operations
or its ability to continue to expand. The remaining $250,000 are expected to be
released to the Company, along with accrued interest, on or about December 14,
1998, without any late fees or penalties. Upon receipt of these funds, the
investor will receive New Preferred Stock, under the terms and conditions
outlined in an Agreement and Amendment agreement.
On November 6, 1998, the Company completed a $1,500,000 Regulation D
506 private placement for 300,000 common shares at $5.00 per share, and 300,000
share purchase warrants exercisable at $5.00 until October 14, 2004. An 8K was
filed for this private placement on November 19, 1998. The Company did not pay
any commissions and issued 300,000 shares were with legend, which are subject to
144 rules. The Company plans to use the $1,500,000 for the continued expansion
of The MedCare Program and for working capital.
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 contracted to open 90 MedCare Program sites in calendar
1998. Each MedCare Program site costs includes 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. During 1999,
the Company plans to build its revenues and to continue to open new MedCare
program sites in select markets.
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.
<PAGE>
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.
On November 6, 1998, the Company issued 300,000 shares of its common
stock at $5.00 per share to Lyons Capital Corporation, a Bermuda corporation,
with a warrant to purchase an additional 300,000 shares at $5.00 per share as an
offering pursuant to Regulation D, Rule 506. The warrant is effective until
October 14, 2004. These shares are unregistered and are not covered by this
registration statement.
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
October-December 1998 $7.4375 $4.875
</TABLE>
Holders
- -------
As of January 26, 1999, there were approximately 311 stockholders of record
of the Company's Common Stock.
<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.
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 1997, 1996 and 1995.
Summary Compensation Table
- --------------------------
<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,
Chairman 1995 $0 $0 0 150,000 0
Valerie Boeldt-
Umbright 1995 $0 $0 0 0 0
Former Director
Harmel S. Rayat,
Chairman 1996 $0 $0 0 160,000 0
Valerie Boeldt-
Umbright 1996 $12,687.50 $0 0 40,000 0
Former Director
Harmel S. Rayat
Chairman 1997 $40,000 $0 0 0 0
Valerie Boeldt-
Umbright 1997 $49,833 $0 0 115,000 0
Former Director
Jeffrey S. Aronin,
President, Director 1997 $46,433 $0 0 250,000 0
</TABLE>
<PAGE>
Option/SAR Grants to Officers and Directors in Last Fiscal Year
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of total options/
Options/SARs SARs granted to employees Exercise or
Name Granted (#) in fiscal year base price ($/Sh) Expiration Date
- ---- ----------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Harmel S. Rayat, 0 0% N/A N/A
Chairman
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
Former Director
Michael M. Blue, 60,000 12% $4.50 November 18, 2001
Director 15,000 3% $6.50 July 1, 2005
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Acquired Number of unexercised
on exercise (#) options/SARs at Value of unexercised
exercisable/ Value FY-end (#) exercisable/in-the-money options/SARs
Name unexercisable realized ($) unexercisable at FY-end ($)
- ---- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Harmel S. Rayat, 0 $0 310,000 $1,077,500
Chair & CEO
Jeffrey S. Aronin, 0 $0 250,000 $187,500
President, Director
Valerie Boeldt- 0 $0 155,000 $396,250
Umbright
Former Director
Michael M. Blue, 0 $0 115,000 $286,250
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
11,000 1998
Ranjit Bhogal 150,000* 11,000 1996
17,000 1997
13,000 1998
Herdev S. Rayat 100,000 13,000 1996
18,500 1997
7,000 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.
<PAGE>
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>
* 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.
Directors' Compensation
- -----------------------
Director received no compensation for each meeting attended except for
out-of-pocket expenses.
<PAGE>
FINANCIAL STATEMENTS
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
All schedules 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
<TABLE>
<CAPTION>
ASSETS
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
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
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
--------- -------
Total Liabilities and Stockholders' Equity $ 3,586,416 $ 266,674
========== ========
</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 $ 0 $ 0 $ 91,802
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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage 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>
<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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage 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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage 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 $ 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>
<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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage 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
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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage 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
Additional During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C> <C> <C>
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
Year Ended Year Ended Year Ended Through
December December December December
31, 1997 31, 1996 31, 1995 31, 199
<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.
On June 20, 1998, the Company reached an agreement with the holders of the
Preferred Stock to issue new shares ("New Preferred Stock"); see discussion at
pages 14-17 above. In that agreement, the investors placed the sum of $10,000
per share into an escrow account, to be released on the effective date of this
Registration Statement, provided it became effective on or before November 20,
1998. The deadline passed before this Statement became effective; consequently,
three of the four investors withdrew their money from escrow. This pro forma
balance sheet for September 30, 1998, reflects the withdrawal of the money from
escrow as if it had occurred on September 30, 1998:
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA PRO FORMA
1998 ADJUSTMENTS SEPTEMBER 30, 1998
---- ------------ ------------------
<S> <C> <C> <C>
Current Assets
Cash 2,168,237 1,500,000(B) 3,668,237
Accounts Receivable 140,980 140,980
Prepaid Expenses 0 0
- -
Total Current Assets 2,309,217 3,809,217
Property and
Equipment, Net 213,737 213,737
Other Assets
Intangible Assets 950 950
Security Deposits 2,150 2,150
Escrow Funds 1,500,000 (1,250,000)(A) 250,000
Total Other Assets 1,503,100 253,100
--------- -------
Total Assets 4,026,054 4,276,054
========= =========
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, PRO FORMA PRO FORMA
1998 ADJUSTMENTS SEPTEMBER 30, 1998
---- ----------- ------------------
<S> <C> <C> <C>
Current Liabilities
Accounts Payable and Other
Accrued Liabilities 146,420 146,420
Notes Payable, Related Party 0 0
- -
Total Current Liabilities 146,420 146,420
Commitments and Contingencies 0 0
- -
Stockholders' Equity
Preferred Stock:
$0.25 Par Value 59 (32)(A) 27
Common Stock:
$0.001 Par Value 7,385 300 (B) 7,685
Additional Paid In Capital 9,113,096 (1,499,700)(A) 9,362,828
Loss Accumulated During the
Development Stage (5,240,906) (5,240,906)
----------- -----------
Total Stockholders' Equity 3,879,634 4,129,634
--------- ---------
Total Liabilities and Stockholders'
Equity 4,026,054 4,276,054
========= =========
</TABLE>
(A) Adjustment required to reflect the redemption of 125 shares of the Series A
Preferred Stock during the fourth quarter of 1998.
(B) Adjustment required to reflect the issuance of 300,000 shares of the
Company's common stock at $5.00 per share to Lyons Corporation on November 6,
1998.
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.
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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
<PAGE>
The accompanying notes are integral part of these financial statements.
F-18
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>
<PAGE>
The accompanying notes are integral part of these financial statements.
F-19
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
<PAGE>
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
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 213,737 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 2,150 1,500
Escrow Funds (Note 2) 1,500,000 0
--------- -
Total Other Assets 1,503,100 2,500
--------- -----
Total Assets $ 4,026,054 $ 3,586,416
========= =========
</TABLE>
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
<S> <C> <C>
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 146,420 $ 15,796
Notes Payable, Related Party 0 1,000
- -----
Total Current Liabilities 146,420 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 9,113,096 6,284,505
Loss Accumulated During The Development Stage (5,240,906) (2,721,918)
----------- -----------
Total Stockholders Equity 33,879,634 3,569,620
---------- ---------
Total Liabilities and Stockholders' Equity $ 4,026,054 $ 3,586,416
========= =========
</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>
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 1,092,884 442,104 3,178,718 973,345
--------- ------- --------- -------
Operating Loss (934,109) (433,738) (2,641,120) (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 $ (907,105) $ (379,769) $(2,518,988) $ (838,963)
========= ========= =========== =========
Earnings Per Common Share
and Common Share
Equivalents $ (0.12) $ (0.05) $ (0.35) $ (0.12)
====== ====== ====== ======
Weighted Number of
Common Shares
Outstanding 7,344,407 7,052,442 7,193,224 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 $ (2,518,988) $ (838,963)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities
Depreciation and Amortization 15,920 3,336
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (93,694) (58,164)
(Increase) Decrease in Prepaid Expenses 62,313 2,202
(Increase) Decrease in Organizational Costs 0 0
(Increase) Decrease in Security Deposits (650) (1,500)
(Increase) Decrease in Escrow Funds (1,500,000) 0
Increase (Decrease) in Accounts Payable 130,624 102,767
------- -------
Total Adjustments (1,385,487) 48,641
----------- ------
Net Cash Used by Operating Activities (3,904,475) (790,322)
Cash Flows from Investing Activities
Purchase of Property and Equipment (196,081) (25,879)
--------- --------
Net Cash Flows from Investing Activities (196,081) (25,879)
---------
Cash Flows from Financing Activities
Proceeds From Sale of Common Stock 1,329,002 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 2,828,002 4,637,750
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (1,272,554) 3,821,549
</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.
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 Law Firm , 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, 1997 and 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:
Escrow Agent: $4,060.00
Transfer Agent: $841.00
Legal and Accounting: $19,369.75
TOTAL $24,270.75
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
<PAGE>
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:
<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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shareholder Shares Purchased
- ------------------------------- ----------------
<S> <C>
Herdev S. Rayat 134500
1025 Augusta Avenue
Burnaby, British Columbia V5A 3G2 Canada
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, CEO of the
Company.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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: 330 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.
Private Placement November 6, 1998
- ----------------------------------
Under the terms of a private placement done by the Company in reliance
on Regulation D, Rule 506, 300,000 shares of common stock in the Company at
$5.00 per share with a warrant
<PAGE>
effective until October 14, 2004 to purchase an additional 300,000 shares at
$5.00 per share were sold to Lyons Capital Corp., a Bermuda corporation. 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 offering was closed on November
6, 1998, and resulted in receipt by the Company of $1,500,000. This Registration
does not apply to these shares. No integration questions arise in conjunction
with this sale.
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
<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.
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
<PAGE>
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 2/18/99
- ------------------- -------- -------
Harmel S. Rayat Date
/s/ Jeffrey S. Aronin President, CEO, Director 2/18/99
- --------------------- ------------------------ -------
Jeffrey S. Aronin Date
/s/ Michael M. Blume Director 2/18/99
- -------------------- -------- -------
Michael M. Blue, M.D. Date
/s/ Jake Jacobo Director 2/18/99
- --------------- -------- -------
Jake Jacobo, M.D. Date
/s/ Greg Wujek Director, Secretary, VP Managed Care 2/18/99
- -------------- ------------------------------------ -------
Greg Wujek Date
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
February 24, 1999
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]
February 24, 1999
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>
<TABLE> <S> <C>
<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> 50,868 213,737
<DEPRECIATION> 17,342 0
<TOTAL-ASSETS> 3,586,416 4,026,054
<CURRENT-LIABILITIES> 16,796 146,420
<BONDS> 0 0
0 0
41 59
<COMMON> 6,992 7,385
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,586,416 4,026,054
<SALES> 0 0
<TOTAL-REVENUES> 91,802 537,598
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,515,459 3,178,718
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 119,146 122,132
<INCOME-PRETAX> (1,293,230) (2,518,988)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,293,230) (2,518,988)
<EPS-PRIMARY> (0.21) (0.35)
<EPS-DILUTED> (0.21) (0.35)
</TABLE>
