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MEDCARE TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------------ ------------ ----------- -----------
Revenues $ 553,090 $ 151,815 $ 947,152 $ 378,823
General and Administrative Expenses 1,287,258 1,320,125 2,679,674 2,085,835
----------- ----------- ----------- -----------
Operating Loss (734,168) (1,168,310) (1,732,522) (1,707,012)
Interest Income 31,763 52,459 55,796 95,128
----------- ----------- ----------- -----------
Net Loss $ (702,405) $(1,115,851) $(1,676,726) $(1,611,884)
Less: Preferred Stock Deemed Dividends (748,636) 0 (748,636) 0
----------- ----------- ----------- -----------
Net Loss Available to Common Stockholders (1,451,041) (1,115,851) (2,425,362) (1,611,884)
Earnings Per Common Share & Common
Share Equivalents $ (0.19) $ (0.15) $ (0.31) $ (0.23)
Weighted Number of Common Shares Outstanding 7,831,160 7,229,869 7,830,582 7,115,464
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MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited) (Unaudited)
For the Six For the Six
Months Ended Months Ended
6/30/99 6/30/98
------------ ------------
Cash Flows from Operating Activities - Net Loss $(2,425,362) $(1,611,884)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
-------------------------------------------------------------------------------
Preferred Deemed Dividends 748,636 0
Depreciation and Amortization 42,237 7,902
(Increase) Decrease in Accounts Receivable (171,629) (67,646)
(Increase) Decrease in Prepaid Expenses 0 62,313
(Increase) Decrease in Security Deposits 0 (650)
(Increase) Decrease in Escrow Funds 0 (1,650,000)
Increase (Decrease) in Accounts Payable and Accrued Liabilities (24,555) 119,524
----------- -----------
Total Adjustments 594,689 (1,528,557)
Net Cash Used by Operating Activities (1,830,673) (3,140,441)
Cash Flow from Investing Activities:
------------------------------------
Purchase of Property & Equipment (109,216) (117,983)
----------- -----------
Net Cash Flows from Investing Activities (109,216) (117,983)
Cash Flow from Financing Activities
-------------------------------
Proceeds from sale of common stock 18,000 1,308,001
Proceeds from escrow funds 0 1,650,000
Proceeds from Series B Preferred Stock Issuance (net of issuance costs) 3,883,879 0
Advances (Repayments) to Officers 0 (1,000)
----------- -----------
Net Cash Provided by Financing Activities 3,901,879 2,957,001
Increase (Decrease) in Cash and Cash Equivalants $1,961,990 $(301,423)
Cash and Cash Equivalants at Beginning of Period $2,826,086 $3,440,791
Cash and Cash Equivalants at End of Period $4,788,076 $3,139,368
Supplemental Information
Cash Paid for:
Interest 0 0
Income taxes 0 0
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MEDCARE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
NOTE 1. Statement of Information Furnished
------------------------------------------
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with Form l0QSB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
1999, the results of operations for the three and six month periods ended June
30, 1999, and the statement of cash flows for the six months period ended June
30, 1999. These results have been determined on the basis of generally accepted
accounting principles and practices and applied consistently with those used in
the preparation of the Company's 1998 Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
consolidated financial statements be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Company's 1998
Annual Report on Form 10-KSB.
NOTE 2. Series B Preferred Stock
--------------------------------
On May 18, 1999, the Company, pursuant to Regulation D, Rule 506, issued
400 shares of Series B preferred stock (par value $0.25) (the "Series B
Preferred") and related warrants described below for $4,000,000 ($10,000 per
share). The key provisions regarding the issuance and conversion of Series B
Preferred are as follows:
Dividends
The holders of the Series B Preferred shall be entitled to receive a 6.0%
annual dividend, which shall be cumulative and which shall accrue daily from the
date of issuance and be payable, at the option of the Company, either (i) in
shares of Common Stock upon conversion of the Series B Preferred or (ii) in
cash.
Conversion by Holders
Subject to the limitations discussed below, each share of the Series B
Preferred shall be convertible into shares of Common Stock at a variable
conversion rate (the "Conversion Rate") equal to the Conversion Amount (defined
below) divided by the applicable Conversion Price (defined as follows). The
"Conversion Price" is the lesser of (i) the fixed conversion price (the "Fixed
Conversion Price"), which is $7.80 or (ii) the variable conversion price (the
"Variable Conversion Price"). The Variable Conversion Price is the lower of (a)
the closing bid price on the day the holder delivers the required notice of his
intention to convert to the Company or (b) the average of the 10 lowest closing
bid prices in the 40 trading days immediately preceding the date such notice is
given. The "Conversion Amount" is defined as $10,000, plus any stock dividends
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that have accrued but have not been paid out, plus any default interest (equal
to 15%) for dividends which the Company has elected to pay in cash but has
failed to pay on a timely basis. The above formula may or may not result in the
common stock being issued at a discount to the current market price.
The investors' right to convert the Series B Preferred is limited as
follows. From the date of issuance (May 18, 1999) of the Series B Preferred
through and including the date which is 120 days after the date of issuance, no
shares of the Series B Preferred may be converted. From 121 days after the date
of issuance through the date which is 150 days after the date of issuance, the
Investors may convert up to 1/3 of their shares. From 151 days after the date of
issuance through the date which is 180 days after the date of issuance, the
investors may convert up to 2/3 of their shares. From the date which is 181 days
following the date of issuance through the expiration date of the Series B
Preferred (5 years after the date of issuance), the investors may convert up to
all of their shares. The foregoing restrictions do not apply if certain events
occur.
Adjustment of Conversion Price
The Conversion Price of the Series B Preferred is subject to customary
anti-dilution provisions which take effect upon such events as the issuance by
the Company of Common Stock, options or other convertible securities, the
subdivision or combination of outstanding shares of Common Stock of the Company,
the recapitalization, merger or other reorganization of the Company, or any
other similar events. However, no such adjustment will be made unless the
adjustment would result in a cumulative increase or decrease of at least 1% in
the Conversion Price.
Mandatory Conversion
The shares of Series B Preferred mature five years after they are issued,
and any shares the Series B Preferred left outstanding on the applicable
maturity date are automatically converted into shares of Common Stock.
Redemption at the Option of Investors
Each outstanding share of the Series B Preferred is redeemable, at the
option of the Investors, in the event of any of the following transactions (each
a "Major Transaction"): (i) the consolidation, merger or other business
combination of the Company, (ii) the sale or transfer of all or substantially
all of the Company's assets or (iii) a purchase, tender or exchange offer made
to and accepted by the holders of more than 50% of the outstanding shares of
Common Stock, provided that such Major Transaction shall have occurred or have
been the subject of a public announcement during the period beginning on the
date of issuance and ending on the later of (a) the first anniversary of the
date of issuance and (b) the date which is 270 days after the effective date of
the Registration Statement relating to the applicable shares. In the event of a
Major Transaction, the redemption price per share shall be the greater of (i)
115 % of the Liquidation Amount (as defined below) and (ii) the product of (a)
the applicable Conversion Rate and (b) the closing bid price on the date of the
public announcement of the event. The "Liquidation Amount" is equal to $10,000
plus any stock dividends that have accrued but have not been paid out, plus |
