ITEM 1.
DESCRIPTION OF BUSINESS
Forward-Looking Statements and Associated Risk
Certain statements in this Annual Report on Form 10-KSB, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created thereby. All such forward-looking information involves risks and uncertainties and may be affected by many factors, some of which are beyond our control. Factors that could cause differences include those discussed below in "Risk Factors", as well as those discussed elsewhere herein.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
The Company
Enterprise Technologies, Inc. ("Enterprise Technologies", "Enterprise" or the "Company"), is a healthcare technology service company that focuses on under-served high growth markets. The Company was originally incorporated in the state of Utah in 1986 and subsequently changed its domicile, originally to Nevada, then to Delaware in 1996 through a migratory merger and then again to Nevada in 2001 through a migratory merger.
In 1995, the Company acquired the MedCare Program ("Program"), a proprietary product of the Company, made up of equipment, software and services developed to provide non-pharmaceutical, non-invasive treatment to individuals suffering from urinary incontinence and other pelvic disorders. In 1996, the Company began to offer the Program to doctors and in 1998 the Program was launched nationally. The Company did not generate any revenues until 1997. During 1998, the Company's sole business was the offering of the MedCare Program.
In October 1999, Enterprise Technologies, Inc. launched RxSheets.com, a business-to-business web site which was directed exclusively at the physician and pharmaceutical marketplace. In addition, the Company changed the name of its wholly-owned subsidiary from Medcareonline.com to RxSheets.com, Inc. On November 10, 2000, the Company sold all assets relating to its RxSheets.com subsidiary to WGC Enterprises, an investment group, for a nominal sum. The sale agreement called for WGC Enterprises to establish a new entity, to issue ten percent of the issued and outstanding stock of this new entity to Enterprise Technologies, allow Enterprise to share in the future revenues of the new entity and to raise capital for this new entity in order to fund the ongoing operations. Subsequently, WGC Enterprises was unable to raise capital and Enterprise, due to substantial costs and minimal revenue potential, declined to exercise its option to repurchase the assets of RxSheets.
In March, 2001, due to the lack of significant revenues and high operating costs, the Company terminated all of its MedCare Program sites. The Company continues to search for potential joint venture partners that have existing operating infrastructures to which the MedCare Program can be added as an ancillary service with minimal overhead. Additionally, Enterprise plans to develop additional revenue streams from the Company's current intellectual property base and other technology-based ventures.
Description of Business
The MedCare Program is a discrete package of equipment, software and services developed by MedCare to provide non-pharmaceutical, non-invasive treatment to patients suffering from urinary incontinence and other pelvic disorders, including pelvic pain, chronic constipation, fecal incontinence and disordered defecation.
The Program is designed to be used by physicians to support a treatment plan based primarily on behavioral modification techniques such as electromyography ("EMG") biofeedback, pelvic floor muscle exercise, and bladder and bowel retraining. Utilizing the Program, physicians can help patients activate and strengthen the various sensory response mechanisms that maintain bladder and bowel control. Technological developments and studies indicate that such behavioral techniques are effective methods in treating incontinence.
The MedCare Program was sold as a comprehensive continually supported program. The Company provided the equipment, technology and training to the treatment site, as well as ongoing support through its clinical and billing divisions. The training was all-inclusive in order for the site to promote a successful program, including proven protocols for equipment operation, community education, billing, managed care and outcomes.
Due to the lack of significant revenues and high operating costs associated with this supported program model, the Company has suffered large operating losses. In order to reduce operating expenses, the Company terminated substantially all of its MedCare Program sites in March, 2001.
The Company is currently searching for potential joint venture partners that have existing operating infrastructures to which the MedCare Program can be added as an ancillary service with minimal overhead. Additionally, the Company plans to develop additional revenue streams from the Company’s current intellectual property base and from other technology-based ventures.
Employees
At December 31, 2001, the Company employed 0 full-time and 3 part-time persons. To the best of the Company’s knowledge, none of the Company’s officers or directors is bound by restrictive covenants from prior employers. None of the Company’s employees are represented by labor unions or other collective bargaining groups.
Risk Factors
Lack of Operating History: Because of our limited operating history and lack of past profitability, you may lose your investment if we are unable to successfully market our services and implement our business plan.
Although we organized Enterprise in 1986, we did not become active until 1995 and have been continually developing our MedCare Program since that time. As a result, our business is subject to the risks inherent in the establishment of a new business. Specifically, in formulating our business plan, we have relied on the judgment of our officers, directors and consultants but have not conducted any formal independent market studies concerning the demand for our services.
We have had limited revenues since inception. In 2002, we had no revenues. We have not been profitable, experiencing an accumulated loss of $13,818,608 through 2002. Even if we become profitable in the future, we cannot accurately predict the level of, or our ability to sustain profitability. Because we have not yet been profitable and cannot predict any level of future profitability, you bear the risk of a complete loss of your investment in the event our business plan is unsuccessful.
Inability to Obtain Funding: We may not be able to obtain additional funding when needed, which could limit future expansion and marketing opportunities, as well as result in lower than anticipated revenues. We may require additional financing to pursue relationships with joint venture partners for the MedCare Program and other business opportunities. If the market price of the common stock declines, some potential financiers may either refuse to offer us any financing or will offer financing at unacceptable rates or unfavorable terms. If we are unable to obtain financing on favorable terms, or at all, this unavailability could prevent us from expanding our business, which could materially impact our future potential revenues.
Continued Control by Existing Management: You may lack an effective vote on corporate matters and management may be able to act contrary to your objectives. As of February 25th, 2003, our officers and board members own 81% of the 160,323,308 of our outstanding common stock. If management votes together, it could influence the outcome of corporate actions requiring shareholder approval, including the election of directors, mergers and asset sales. As a result, new stockholders may lack an effective vote with respect to the election of directors and other corporate matters. Therefore, it is possible that management may take actions with respect to its ownership interest which may not be consistent with your objectives or desires.
Dividends: We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock. Since inception, we have paid no dividends to our stockholders. Future dividends on our common stock, if any, will depend on our future earnings, capital requirements, financial condition and other factors. We currently intend to retain earnings, if any, to increase our net worth and reserves. Therefore, we do not anticipate that any holder of common stock will receive any cash, stock or other dividends on his shares of common stock at any time in the near future. You should not expect or rely on the potential payment of dividends as a source of current income.
Dependence on Executive Officers and Technical Personnel: The success of our business plan depends on attracting qualified personnel, and failure to retain the necessary personnel could adversely affect our business. Competition for qualified personnel is intense, and we may need to pay premium wages to attract and retain personnel. Attracting and retaining qualified personnel is critical to our business. Inability to attract and retain the qualified personnel necessary would limit our ability to implement our business plan successfully.
Adverse Effect of Shares Eligible for Future Sale: Future sales of large amounts of common stock could adversely effect the market price of our common stock and our ability to raise capital.
Future sales of our common stock by existing stockholders pursuant to Rule 144 under the Securities Act, or following the exercise of outstanding preferred stock, options and warrants, including conversion of the Series B preferred stock and exercise of the related warrants, could adversely affect the market price of our common stock. Substantially all of the outstanding shares of our common stock are freely tradable, without restriction or registration under the Securities Act, other than the sales volume restrictions of Rule 144 applicable to shares held beneficially by persons who may be deemed to be affiliates. Our directors and executive officers and their family members are not under lockup letters or other forms of restriction on the sale of their common stock. The issuance of any or all of these additional shares upon exercise of options or warrants or conversion of preferred stock will dilute the voting power of our current stockholders on corporate matters and, as a result, may cause the market price of our common stock to decrease. Further, sales of a large number of shares of common stock in the public market could adversely affect the market price of the common stock and could materially impair our future ability to generate funds through sales of common stock or other equity securities.
Protection of Proprietary Treatment Program: Our ability to effectively compete depends on protection of our proprietary treatment protocol through confidentiality and non-compete agreements.
Our ability to compete will depend, in part, on our ability to develop and maintain the proprietary aspects of our unpatented treatment protocol. We have developed this protocol through our experiences to date in the clinical, billing and marketing areas of incontinence treatment. Others may independently develop the same or a similar program or otherwise obtain access to this protocol from former employees or former MedCare Program physicians.
In addition, third parties have published clinical studies regarding the benefits of biofeedback treatment of incontinence. Although this is only one component of our treatment protocol, others may utilize these clinical studies to begin their own incontinence programs.
We protect our treatment protocols from duplication through our confidentiality and non-compete agreements. We cannot ensure that these agreements will provide meaningful protection for our treatment protocol in the event of their expiration or unauthorized use or disclosure. If our treatment protocol became widely duplicated, larger, better-capitalized companies could instantly compete with us in the incontinence treatment market.
Government Regulation: Unfavorable governmental regulation in the future could threaten our viability. Our business is heavily regulated. The MedCare Program is subject to regulation under the Federal Anti-Kickback Statute and the Federal Self- Referral Statute. In addition, legislators continually enact new legislation. The process of obtaining regulatory approvals can be lengthy and expensive, and the issuance of these approvals is uncertain. Currently, we believe that we are in compliance with all currently existing regulations that apply to us. However, if the federal or state government were to enact any new regulations, we may not be able to obtain the necessary approvals on a timely basis, or at all. Should legislators enact new legislation that is unfavorable to our business, this could, among other things, result in fines, suspensions of regulatory approvals, operating restrictions and criminal prosecution. We cannot predict whether any new reforms will be enacted, the types of approvals that will be required, or the effect of any enacted reform on our business.
Potential Fluctuations in Quarterly Results: Significant variations in our quarterly operating results may adversely affect the market price of our common stock. Our operating results have varied on a quarterly basis during our limited operating history, and we expect to experience significant fluctuations in future quarterly operating results. These fluctuations have been and may in the future be caused by numerous factors, many of which are outside of our control. We believe that period-to-period comparisons of our results of operations will not necessarily be meaningful and that you should not rely upon them as an indication of future performance. Also, it is likely that our operating results could be below the expectations of public market analysts and investors. This could adversely affect the market price of our common stock.
Competition: In the evolving healthcare field, if we do not continually develop the MedCare Program, and any other future business opportunities, our services could become uncompetitive or obsolete. Healthcare is a rapidly evolving field in which other companies may have greater financial and research and development resources than we do. The MedCare Program competes directly with a number of small incontinence clinics, offered by doctors, hospitals and therapists, that use a combination of non-invasive alternative treatment options to treat urinary incontinence. In addition, other alternative treatments for urinary incontinence are available to consumers, including absorbent products and diapers, surgery, indwelling catheters, implanting devices, injectable materials, electrical stimulation, mechanical devices and drugs.
Competitive Treatment Options for Incontinence: To the best of the Company’s knowledge, the only direct competitors to the MedCare Program are a number of small incontinence clinics, or ancillary programs, offered by doctors, hospitals and therapists, scattered across North America that use a combination of currently available non-invasive alternative treatment options to treat patients.
Intellectual Property and Other Proprietary Rights: 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. The Company relies on an unpatented 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 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 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 Enterprise'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 and its success in seeking a suitable joint venture partner to further market the MedCare Program.
Environmental Matters: The Company believes it conducts its business in compliance with all environmental laws presently applicable to its facilities. To date, there have been no expenses incurred by the Company related to environmental issues.
ITEM 2.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company's principal office is now located at 1628 West First Avenue, Suite 216, Vancouver, British Columbia, Canada, V6J 1G1. These premises are owned by the wife and father of the Company's Chairman and majority shareholder. At present, the Company pays no rent and the Company does not anticipate requiring any additional office space in the next six to twelve months.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
We are not party to any current legal proceedings.
ITEM 4.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders in the fourth quarter of 2002. It is our intention to schedule a shareholder’s meeting to elect directors and transact any additional business in the second or third quarter of 2003.
PART II
ITEM 5.
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is listed on the OTC Bulletin Board under the symbol "ETPT". The following table sets forth the high and low sale prices for the periods indicated:
High
Low
First Quarter 2001
$ 0.10
$ 0.07
Second Quarter 2001
$ 0.05
$ 0.04
Third Quarter 2001
$ 0.02
$ 0.01
Fourth Quarter 2001
$ 0.01
$ 0.01
First Quarter 2002
$ 0.04
$ 0.01
Second Quarter 2002
$ 0.03
$ 0.02
Third Quarter 2002
$ 0.02
$ 0.01
Fourth Quarter 2002
$ 0.02
$ 0.01
(b) Holders
As of February 25th, 2003, there were approximately 281 stockholders of record of the Company's Common Stock.
(c) Dividend Policy
We do not have a history of paying dividends on our Common Stock, and there can be no assurance that we will pay any dividends in the foreseeable future. We intend to use any earnings, which may be generated, to finance the growth of our businesses. Our Board of Directors has the right to authorize the issuance of preferred stock, without further shareholder approval, the holders of which may have preferences over the holders of the Common Stock as to payment of dividends.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
Number of securities
remaining available for
Number of Securities to be
Weighted-average exercise
future issuance under
issued upon exercise of
price of outstanding
equity compensation plans
outstanding options,
options, warrants and
(excluding securities
warrants and rights
rights
reflected in column (a))
Plan Category
(a)
(b)
(c)
__________________________________________________________________________________________________________________
Equity compensation plans
approved by security holders
28,728,571
$0.07
10,000,000
Equity compensation plans not
approved by security holders
___________________________________________________________________________________________________________________
Total
28,728,571
$0.07
10,000,000
ITEM 6.
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the financial statements and notes thereto included in Item 7
ITEM 7.
FINANCIAL STATEMENTS
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors’ Report
Consolidated Balance Sheet as of December 31, 2002
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2001
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2001
Notes to the Consolidated Financial Statements
17-26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Enterprise Technologies, Inc.
We have audited the consolidated balance sheet of Enterprise Technologies, Inc. (a Nevada corporation) and Subsidiaries as of December 31, 2002, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the two preceding years then ended. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Enterprise Technologies, Inc. and Subsidiaries at December 31, 2002 and the consolidated results of their operations and their cash flows for the preceding two years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant recurring net losses since inception and a significant accumulated deficit. The ability to meet its future financing requirements and the success of future operations cannot be determined at this time. These factors raise substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
February 11, 2003
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
Current Assets
Cash and Cash Equivalents
$138,704
Total Current Assets
Total Assets
$138,704
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable - Related Party (Note 3)
$36,000
Accounts Payable
2,545
Advances From Shareholder - Related Party (Note 3)
15,700
Total Current Liabilities
54,245
Commitments and Contingencies (Note 3, 5)
Stockholders' Equity
Preferred Stock (authorized 1,000,000 shares): Convertible Series B, $0.25 Par Value, Issued and Outstanding, None
None
Common Stock: $0.00001 Par Value, Authorized 300,000,000; Issued and Outstanding: 160,323,308
1,603
Additional Paid In Capital
13,901,464
Accumulated Deficit
(13,818,608)
Total Stockholders' Equity
84,459
Total Liabilities and Stockholders’ Equity
$138,704
The accompanying notes are an integral part of these financial statements
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Revenues
-
$24,560
General and Administrative Expenses
Management and Consulting Fees - Related Party (Note 3)
144,000
189,500
Other Operating Expenses
35,744
274,215
Total General and Administrative Expenses
179,744
463,715
Operating Loss
(179,744)
(439,155)
Interest Income
1,971
Loss from Continuing Operations Before Income Taxes
(179,511)
(437,184)
Provision for Income Taxes (Note 9)
-
-
Gain (Loss) on Discontinued Operations, net of tax (Note 5)
259,028
(153,428)
Net Income (Loss)
79,517
(590,612)
Less: Preferred Stock Deemed Dividends
-
(55,114)
Net Income (Loss) Available to Common Stockholders
$79,517
$(645,726)
Loss Per Share Attributable to Common Stockholders:
Loss from Continuing Operations
-
$(0.03)
Loss from Discontinued Operations
-
(0.01)
Total Basic and Diluted
-
$(0.04)
Weighted Average Number of Common Shares Outstanding:
Basic and Diluted
135,179,669
15,158,817
The accompanying notes are an integral part of these financial statements
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Series B
Preferred
Stock
Shares
Series B
Preferred
Stock
Amount
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid In
Capital
Warrants
Accumulated Deficit
Total
Balance, December 31, 2000
81.5
$1,029,578
11,564,566
$116
$12,171,872
$117,830
$(13,307,513)
$11,883
Common Stock Issued Under Private Placement
800,000
38,663
38,671
Common Stock Issued Under Private Placement
3,000,000
149,970
150,000
Liabilities Converted to Common Stock
13,700,000
136,863
137,000
Preferred Deemed Dividends
55,114
(55,114)
-
Common Stock Issued for Series B Conversions
(81.5)
(1,084,692)
94,401,600
1,083,748
-
Reclassification of Warrants
117,830
(117,830)
-
Net Loss
-
-
-
-
-
-
(590,612)
(590,612)
Balance, December 31, 2001
-
-
123,466,166
1,235
13,643,832
-
(13,898,125)
(253,058)
Common Stock Issued for Services Rendered
15,428,571
107,846
108,000
Common Stock Issued Under Private Placement
21,428,571
149,786
150,000
Net Income
79,517
79,517
Balance, December 31, 2002
-
-
160,323,308
$1,603
$13,901,464
-
$(13,818,608)
$84,459
The accompanying notes are an integral part of these financial statement
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Cash Flows From Operating Activities
Net Income (Loss)
$79,517
$(590,612)
Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities
Net Assets (Liabilities) of Discontinued Operations (Note 5)
(259,028)
153,428
Common Stock Issued for Services By Conversion of Debt (Note 3)
108,000
107,000
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable
-
17,343
(Increase) Decrease in Prepaid Expenses
-
8,346
Increase (Decrease) in Accounts Payable and Accrued Liabilities
37,755
(43,601)
Total Adjustments
(113,273)
242,516
Net Cash Flows Used In Operating Activities
(33,756)
(348,096)
Cash Flows From Investing Activities
-
-
Cash Flows From Financing Activities
Loans From Shareholders
15,700
30,000
Proceeds Received From Stock Subscription Receivable
-
101,329
Proceeds From the Sale of Common Stock
150,000
188,671
Net Cash Flows Provided By Financing Activities
165,700
320,000
Increase (Decrease) in Cash and Cash Equivalents
131,944
(28,096)
Cash and Cash Equivalents, Beginning of Year
6,760
34,856
Cash and Cash Equivalents, End of Year
$138,704
$6,760
Cash paid for interest and income taxes:
-
-
Supplemental noncash investing and financing activities:
Common Stock Issued for Services By Conversion of Debt
$108,000
$107,000
Preferred Deemed Dividends
-
$55,114
The accompanying notes are an integral part of these financial statements.
ENTERPRISE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Organization. Enterprise Technologies, Inc. (the “Company” or “Enterprise”), a Nevada Corporation, has an authorized capital of 301,000,000 shares of which 300,000,000 shares are $0.00001 par value common stock and 1,000,000 shares are $0.25 par value preferred stock.
Nature of Operations. The Company is the developer of the MedCare Program, a non-invasive, non-pharmaceutical treatment program for patients suffering from urinary incontinence and other pelvic disorders, including pelvic pain, chronic constipation, fecal incontinence and disordered defecation. The Company is currently searching for potential joint venture partners that have existing operating infrastructures to which the MedCare Program can be added as an ancillary service with minimal overhead. Enterprise plans to develop additional revenue streams from the Company's current intellectual property base and other technology-based ventures.
Summary of Significant Accounting Policies
Accounting Method - The Company uses the accrual method of accounting for financial statement and tax return purposes.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk - The Company maintains U.S. Dollar cash balances in Canadian banks that are not insured.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, MedCare Technologies Corporation and RxSheets.com, Inc. (See Note 5). All intercompany transactions have been eliminated in consolidation.
Property and Equipment - Property and equipment is stated at cost and is depreciated under the straight-line method over their estimated useful lives. Repairs and maintenance are expensed when incurred.
Revenue Recognition - The Company offered two versions of the MedCare Program:
(1)
Program Management - Under program management, the Company agrees to provide equipment, personnel and administrative services to the Site in connection with the Site's establishment and operation of the Program. Each Site agrees to pay the Company a management fee for each patient visit to the Site during which a patient receives services under the Program. Revenues are recognized as patients receive services.
(2) Program Franchise - Under program franchise, the Company agrees to provide the equipment, technology and training to start the MedCare Program as well as ongoing support through its clinical and billing divisions. The Site agrees to the pay the Company an initial subscription fee and a monthly consulting fee. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 45 "Accounting for Franchise Fee Revenue", the initial subscription fee is deferred and recognized upon commencement of operations. The monthly consulting fee is recognized when earned.
Fair Value of Financial Instruments - For certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and related party accounts payable, and shareholder loans, carrying amounts approximate fair value due to their short maturities.
Impairment of Long-Lived Assets - Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Impairment and Disposal of Long-Lived Assets - In October 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This Statement supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, and also amends Accounting Research Bulletin (ARB) No. 51. The Company has adopted this statement as of January 1, 2002, and it requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. The adoption of this statement had no effect on the financial statements.
Income Taxes - The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred income tax assets to the amount expected to be realized.
Earnings Per Share - Basic earnings or loss per share is based on the weighted average number of common shares outstanding. Diluted earnings or loss per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic earnings/loss per share is computed by dividing income/loss (numerator) applicable to common stockholders by the weighted average number of common shares outstanding (denominator) for the period. All earnings or loss per share amounts in the financial statements are basic earnings or loss per share, as defined by SFAS No. 128, “Earnings Per Share.” Diluted earnings or loss per share does not differ materially from basic earnings or loss per share for all periods presented. Convertible securities that could potentially dilute basic earnings or loss per share in the future, such as options and warrants, are not included in the computation of diluted earnings or loss per share because to do so would be antidilutive. All per share and per share information are adjusted retroactively to reflect stock splits and changes in par value.
Stock-Based Compensation - The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No.123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Company has elected to remain on its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123.
Comprehensive Income - The Company includes items of other comprehensive income by their nature in a financial statement and displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid in capital in the equity section of the balance sheet.
Capital Structure - The Company discloses its capital structure in accordance with SFAS No. 129, “Disclosure of Information about Capital Structure,” which establishes standards for disclosing information about an entity’s capital structure.
Foreign Currency Translation - Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the results of operations.
Start-up Expenses - The Company expenses start-up costs and organization costs for financial statement purposes pursuant to AICPA Statement of Position 98-5, “Reporting on the Costs of Start-up Activities.” For income tax purposes, the Company has elected to treat its organizational costs as deferred expenses and amortize them over a period of sixty months, beginning in the first month the Company is actively in business.
Reclassification - Certain prior period amounts have been reclassified to conform to the current year presentation. Specifically, a reclassification entry was made for the year ended December 31, 2001 to reclassify the value of warrants shown separately in the stockholders’ equity section to additional paid-in capital. There was no effect on previously reported results of operations or total stockholders’ equity.
Recent Accounting Pronouncements - The Financial Accounting Standards Board (“FASB”) has issued the following:
April 2002 - SFAS No. 145 - “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This Statement eliminates SFAS No. 4 and, thus, the exception to applying APB No. 30 to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30. Applying the provisions of APB No. 30 will distinguish transactions that are part of an entity’s recurring operations from those that are unusual or infrequent or that meet the criteria for classification as an extraordinary item. Under SFAS No. 13, the required accounting treatment of certain lease modifications that have economic effects similar to sale-leaseback transactions was inconsistent with the required accounting treatment for sale-leaseback transactions. This Statement amends SFAS No. 13 to require that those lease modifications be accounted for in the same manner as sale-leaseback transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company does not expect the adoption of SFAS No. 145 to have a material impact on its financial position or results of operations.
June 2002 - SFAS No. 146 - “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between this Statement and EITF 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability was recognized at the date of an entity’s commitment to an exit plan. This Statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its financial position or results of operations.
October 2002 - SFAS No. 147 - “Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9,” which applies to the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include certain financial institution-related intangible assets. This statement is effective for acquisitions for which the date of acquisition is on or after October 1, 2002, and is not applicable to the Company.
December 2002 - SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure.” This statement was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for financial statements for fiscal years ending after December 15, 2002. This statement does not have any impact on the Company because the Company does not plan to implement the fair value method.
Pending Accounting Pronouncements - It is anticipated that current pending accounting pronouncements will not have an adverse impact on the financial statements of the Company.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses in recent years resulting in a substantial accumulated deficit and has used substantial amounts of working capital in its operations. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon the continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company expects to incur losses as it expands its businesses and will require additional funding during 2003.
To meet these objectives, the Company plans to seek additional equity and expects to raise funds through a private or public equity investment in order to support existing operations and expand the range and scope of its business. There is no assurance that such additional funds will be available for the Company on acceptable terms, if at all. Management believes that actions presently taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company’s ability to achieve these objectives cannot be determined at this time.
NOTE 3 - RELATED PARTY TRANSACTIONS
Management and Consulting Fees - During 2002, the Company incurred $144,000 in management and consulting fees from its Chairman and majority shareholder, of which $108,000 was converted to 15,428,571 at $0.007 per share on September 20, 2002. The remaining fees of $36,000 are included in Accounts Payable-Related Party at December 31, 2002. During 2001, the Company incurred $149,500 in management and consulting fees from its Chairman and majority shareholder, of which $42,500 was paid in cash and $107,000 was converted to 10,700,000 shares of the Company’s common stock at $0.01 per share on December 31, 2001. The Company also paid $40,000 to one of the Company’s stockholders, whose principal is the brother of the Chairman and majority shareholder, for consulting fees rendered.
Shareholder Advances - During 2001, the Company’s Chairman and majority stockholder advanced the Company $30,000 to help pay for operating expenses. This advance was repaid through the issuance of 3,000,000 shares of common stock at $0.01 per share on December 31, 2001. During 2002, $15,700 was advanced by the same person and remains outstanding as of December 31, 2002.
Common stock -
(1)
The Company accepted a private placement during 2001 from its Chairman and majority stockholder as more fully described in Note 7 below and converted its Series B preferred stock held by its Chairman and majority stockholder to common stock as more fully described in Note 8 below.
(2)
The Company accepted a private placement during 2002 from related parties as more fully described in Note 6 below.
Properties - The Company’s principal office is located at 1628 West First Avenue, Suite 216, Vancouver, British Columbia, Canada, V6J 1G1. These premises are owned by the wife and father of the Company's Chairman. At present, the Company pays no rent. The fair value of the rent has not been included in the financial statements because the amount is immaterial.
NOTE 4 - OPERATING LEASE
On March 16th, 2001, the Company notified its landlord of its intention to terminate its lease at 1515 West 22nd Street, Suite 1210, Oak Brook, Illinois, 60523. Rental expense for the year ended December 31, 2001 was approximately $16,000.
NOTE 5 - DISCONTINUED OPERATIONS AND CONTINGENT LIABILITY
During May 2000, the Company acquired computer equipment and software under a twenty-four months capital lease, which was leased on behalf of the Company’s former subsidiary RxSheets.com, Inc. (“RxSheets”). On November 10, 2000, the Company sold this computer equipment and software to WGC Enterprises, an investment group. The purchase price was based on the future revenues generated by the acquiring entity over the twenty-four month lease period. The investment group was unable to raise the appropriate funding to continue the operations of RxSheets and as such RxSheets discontinued its operations during the fourth quarter of 2000 due to its high operating costs. The Company closed its offices in March 2001, the equipment was returned to the lessor, and the net book value of the equipment under capital lease of $153,428.
RxSheets’s charter was revoked by the State of Nevada on February 1, 2002. During the fourth quarter of 2002, the Company wrote off all liabilities relating to this subsidiary, which included the balance due under the capital lease of $163,621 and $95,407 of various other accrued liabilities incurred by the subsidiary. There was no tax effect on the transaction due to the Company’s loss position. Because the Company co-signed the capital lease on behalf of RxSheets, the Company is contingently liable for the remaining lease payments. There are no remaining assets or liabilities related to RxSheets.
NOTE 6 - COMMON STOCK AND WARRANTS
In July 1997, the Company issued 300,000 shares of common stock at $6.00 each. The issuance also included warrants to purchase an additional 300,000 shares of common stock at $6.00 each, exercisable until July 7, 2002. In March 1998, 200,000 warrants to purchase shares of common stock were exercised at $6.00 per share, or $1,200,000. As of December 31, 2002, there were no warrants outstanding related to this issuance.
In July 1997, the Company, pursuant to a Regulation D, Rule 506, issued Series A Preferred Stock and related warrants. This offering granted 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, exercisable at $7.346 per share, expiring on June 20, 2002. As of December 31, 2002, there were no warrants outstanding related to this issuance.
In November 1998, the Company issued through a Rule 506 Regulation D Private Placement, 300,000 shares of restricted common stock at $5.00 per share, or $1,500,000, and granted 300,000 common stock warrants, exercisable at $5.00 per share until October 14, 2004. As of December 31, 2002, all of the warrants remain outstanding.
In May 1999, the Company, pursuant to a Rule 506 Regulation D, issued Series B Preferred Stock and related warrants to purchase shares of common stock. Subject to the vesting schedule described below, each warrant entitles its holder to 200 shares of Common Stock for (i) each issued share of the Series B Preferred held on the applicable vesting date and (ii) each share of the Series B Preferred converted prior to the applicable vesting date at the fixed conversion price (see Note 9). The vesting dates of the warrants are (i) September 15, 1999 (ii) March 13, 2000 and (iii) September 9, 2000. The exercise price of each warrant is 125% of the average of the closing bid prices of the Company's Common Stock for the five consecutive trading days immediately preceding the applicable vesting date. As of December 31, 2002 and 2001, there were 29,600 warrants that had vested at an exercise price of $2.64 per share, 16,700 warrants that had vested at an exercise price of $0.59 per share, and 80,000 warrants that had vested at an exercise price of $3.6525 per share. The value of these warrants totaled $117,830 and resulted in the recording of additional preferred deemed dividends for the Series B preferred stock. The related Series B warrants were canceled on December 31, 2001, and the value of the warrants was reclassified to additional paid in capital. (See note 8)
Pursuant to a Securities Purchase Agreement dated November 29, 2000, the Chairman of the Company agreed to purchase from the Company all 81.5 shares of Series B preferred stock outstanding and related warrants at $1,366 per share, or $111,329. By letter of agreement dated January 4, 2001, the Chairman of the Company also agreed to buy an additional 800,000 restricted common shares at $0.05 per share, or $38,671, and the Company granted the Chairman 4,000,000 share purchase warrants to acquire common shares of the Company at $0.05 per share, expiring January 10, 2005. As of December 31, 2002, all of the warrants remain outstanding.
On March 1, 2001, the Company accepted a private placement of $150,000 from the Chairman and majority shareholder of the Company. The private placement involved the issuance of 3,000,000 restricted common shares at $0.05 per share and 3,000,000 purchase warrants to acquire common shares of the Company at $0.05 per share until March 1, 2005. All of the warrants remain outstanding as of December 31, 2002 and 2001.
On September 20, 2002, the Company accepted a private placement of $150,000 from three entities that are controlled by the two brothers and the father of the Chairman and majority shareholder of the Company. The private placement involved the issuance of 21,428,571 restricted common shares at $0.007 per share and 21,428,571 purchase warrants to acquire common shares of the Company at $0.007 per share until September 20, 2005. All of the warrants remain outstanding as of December 31, 2002.
NOTE 7 - STOCK OPTIONS AND SUBSEQUENT EVENT
The Company has five stock option plans that provide for the granting of stock options to officers and key employees. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives, and promoting the success of the Company by providing employees the opportunity to acquire common stock. Options outstanding under the Company's five stock option plans have been granted at prices which are either equal to or above the market value of the stock on the date of grant and expire at various dates after the grant date.
As of December 31, 2002, there were 90,000 stock options outstanding granted at various dates and option prices, expiring through March 2009. Subsequent to year-end, however, the board of directors agreed to cancel all outstanding stock options and stock option plans, with the exception of the 2001 Stock Option Plan approved by the shareholders on July 12, 2001, for which there are no outstanding options granted thereunder.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for those options granted in 2000 and 1999, respectively: dividend yield of 0%, expected volatility of 92% and 65%, risk-free interest rates of 5% and 6.5%, and expected lives of 4 years.
Had compensation expense for the Company's stock-based compensation plans been determined under SFAS No. 123, based on the fair market value at the grant dates, the Company's pro forma net loss and pro forma net loss per share would have been reflected as follows:
Net Income (Loss)
As reported
$79,517
$(645,726)
Pro forma
$20,463
$(704,780)
Net Income (Loss) Per Share
As reported
$
$(0.04)
Pro forma
$
$(0.05)
Stock options outstanding and exercisable on December 31, 2002 are as follows:
Weighted
Weighted
Average
Range of
Shares
Average
Remaining
Exercise Price
Under
Exercise Price
Contractual
per Share
Option
per Share
Life in Years
--------------
---------
----------------
---------------
Outstanding:
$0.75-$2.28
40,000
$1.90
7.19
$6.50 to $9.00
50,000
$7.43
6.54
90,000
Exercisable:
$0.75 to $2.28
35,000
$1.81
--
$6.50 to $9.00
42,500
$5.54
--
77,500
NOTE 8 - PREFERRED STOCK - SERIES B
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).
On November 29, 2000, the Company repurchased all of the outstanding Series B Convertible Preferred Stock (81.5 shares) from the Series B Preferred Shareholders at $1,366 per share, or $111,329. During December 2000, the Chairman of the Company bought these same shares and related warrants for $111,329 and by letter of agreement dated January 4, 2001, agreed to buy an additional 800,000 restricted common shares at $0.05 per share, or $38,671, and granted the Chairman 4,000,000 share purchase warrants to acquire common shares of the Company at $0.05 per share, expiring January 10, 2005. As of December 31, 2000, $10,000 in proceeds was received and $101,329 was recorded as a stock subscription receivable, the proceeds of which were received in January 2001. The Board of Directors approved the transaction. On December 31, 2001, the Chairman converted all of the Series B preferred stock at $0.01 per share and the Company issued 94,401,600 shares of common stock and the related Series B warrants were canceled. The conversion price was based on the average of the 10 lowest closing bid prices in the 40 trading days immediately preceding the date of notice.
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 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 outstanding Series B Preferred may be converted into common stock subject to certain ownership limitations detailed in the agreements.
Adjustment of Conversion Price. The Conversion Price of the Series B Preferred is subject to customary anti-dilution provisions which take effect upon such events as the issuance by the Company of Common Stock, options or other convertible securities, the subdivision or combination of outstanding shares of Common Stock of the Company, the recapitalization, merger or other reorganization of the Company, or any other similar events. However, no such adjustment will be made unless the adjustment would result in a cumulative increase or decrease of at least 1% in the Conversion Price.
Mandatory Conversion. The shares of Series B Preferred mature five years after they are issued, and any shares of the Series B Preferred left outstanding on the applicable maturity date are automatically converted into shares of Common Stock.
Redemption at the Option of Investors. Each outstanding share of the Series B Preferred is redeemable, at the option of the Investors, in the event of any of the following transactions (each a "Major Transaction"): (i) the consolidation, merger or other business combination of the Company, (ii) the sale or transfer of all or substantially all of the Company's assets or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock, provided that such Major Transaction shall have occurred or have been the subject of a public announcement during the period beginning on the date of issuance and ending on the later of (a) the first anniversary of the date of issuance and (b) the date which is 270 days after the effective date of the 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 dividends that have accrued but have not been paid out, plus any default interest (equal to 15% per annum) for dividends, which the Company has elected to pay in cash but has failed to pay on a timely basis.
In addition, in the event of the occurrence of certain events (the "Triggering Events"), including the failure of the Registration Statement to be declared effective within 180 days of the date of issuance, the delisting of the Common Stock for a period of five consecutive days and the Company's breach of any representations, warranties or covenants in the Documents, the Investors have the right to require the Company to redeem all or a portion of such Investor's Series B Preferred. The redemption price per share is the same as the redemption price per share in the event of a Major Transaction.
Investor Call Option. For every (i) unconverted Series B Preferred share held by the investors on May 18, 2000 and (ii) preferred share converted at the Fixed Conversion Price prior to May 18, 2000, the investors have the right to subscribe for an additional preferred share and related warrants under the same terms and conditions of the original closing (revised to reflect the Company's then current common stock market price). Each investor may exercise this right only at such time when the closing market price of the Company's common stock is greater than the Fixed Conversion Price.
Accounting Treatment. The Company has accounted for these securities as redeemable securities and accreted to the redemption amount of 115% of the Liquidation Amount as of the balance sheet date. The accretion reduced income applicable to common shareholders and is disclosed separately as preferred deemed dividends on the face of the income statement. The Company has classified the Series B Preferred Stock as stockholders’ equity due to the receipt of a contingent equity funding commitment. The equity funding commitment was received from a venture capital fund controlled by the chairman of the Company and is only valid upon the occurrence of the delisting of the Common Stock or a Major Transaction to fund a redemption by the Series B Holders. The commitment is only valid while there are any shares of Series B Preferred Stock outstanding.
NOTE 9 - INCOME TAXES
There is no current or deferred tax expense for the years ended December 31, 2002 and 2001, due to the Company's loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.
The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities on the accompanying consolidated balance sheet is a result of the following:
Deferred Taxes
NOL Carryforwards
$4,551,523
$4,584,709
Start-Up Costs
90,452
Total Deferred Tax Assets
4,551,523
4,615,463
Valuation Allowance
(4,551,523)
(4,615,463)
Net Deferred Tax Assets
The net change in the valuation allowance for 2002 was a decrease of $63,940 and for 2001 was an increase of $130,310, which were principally the result of net operating loss carryforwards.
The Company has available net operating loss carryforwards of approximately $13,000,000 for tax purposes to offset future taxable income which expire through 2022. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company’s net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period.
A reconciliation between the statutory federal income tax rate (34%) and the effective rate of income tax expense for each of the years during the period ended December 31 follows:
Statutory Federal Income Tax Rate
(34.0)%
(34.0)%
Other
0.0 %
0.3 %
Valuation Allowance
34.0 %
33.7 %
Effective Income Tax Rate
0.0 %
0.0 %
NOTE 10 - 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 valued at $1,000. 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 amortized the cost of the system over 15 years, based on management's estimated useful life of the protocol, beginning with the first year in which commercial sales occur. Management reassesses annually the estimated useful life.
The MedCare Program was sold as a comprehensive continually supported program. The Company provided the equipment, technology and training to the treatment site, as well as ongoing support through its clinical and billing divisions. The training was all-inclusive in order for the site to promote a successful program, including proven protocols for equipment operation, community education, billing, managed care and outcomes. Due to the lack of significant revenues and high operating cost associated with this supported program model, the Company suffered large operating losses and therefore wrote off the unamortized portion of approximately $800 during the fiscal year ended December 31, 2000. In order to reduce operating expenses, the Company terminated substantially all of its MedCare Program sites in March 2001.
ITEM 8:
ITEM 8:
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements with our certified public accountants with respect to accounting practices, procedures or financial disclosure.
ITEM 9:
ITEM 9:
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below is certain information regarding each of the directors and officers of the Company:
RAY KRAUSS (Age 42). President and Chief Executive Officer. Mr. Krauss joined Enterprise Technologies as National Sales Manager in 1998 and was promoted to Director of Sales. In February 2000, Mr. Krauss became the Company’s Vice President of Business Development and was appointed to the Company’s Board of Directors as a Director and the Company’s President and Chief Executive Officer in November 2000. Mr. Krauss has over 16 years of sales and management experience in the healthcare industry.
HARMEL S. RAYAT, (Age 41). Chairman, Director. Mr. Rayat has been in the venture capital industry since 1981. Between January 1993 and April 2001, Mr. Rayat served as the president of Hartford Capital Corporation, a company that provides financial consulting services to emerging growth corporations. From April 2001 through January 2002, Mr. Rayat acted as an independent consultant advising small corporations. Since January 2002, Mr. Rayat has been president of Montgomery Asset Management Corporation, a privately held firm providing financial consulting services to emerging growth corporations. Mr. Rayat is also a Director of Entheos Technologies, Inc., Zeta Corporation and eDeal.net. Mr. Rayat has served as a Director of the Company since December 4th, 2000.
HARVINDER DHALIWAL, (Age 41) Director, Secretary, Treasurer and Principal Financial Officer. Mr. Dhaliwal is the President and CEO of Sight & Sound Ltd., a retail audio video concern since 1985. Mr. Dhaliwal is also a Director of Zeta Corporation. Mr. Dhaliwal has served as a Director and as the Company’s Secretary and Treasurer since March 1, 2001.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, officers and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("the Commission"). Directors, officers and greater than 10 percent beneficial owners are required by applicable regulations to furnish the Company with copies of all forms they file with the Commission pursuant to Section 16(a). Based solely upon a review of the copies of the forms furnished to the Company, the Company believes that during fiscal 2002 the Section 16(a) filing requirements applicable to its directors and executive officers were not satisfied.
ITEM 10:
ITEM 10:
EXECUTIVE COMPENSATION
Remuneration and Executive Compensation
The following table shows, for the three-year period ended December 31, 2002, the cash compensation paid by the Company, as well as certain other compensation paid for such year, to the Company's Chief Executive Officer and the Company's other most highly compensated executive officers. Except as set forth on the following table, no executive officer of the Company had a total annual salary and bonus for 2002 that exceeded $100,000.
Summary Compensation Table
Securities
Underlying
Name and
Options
All Other
Principal Position
Year
Salary
Bonus
Other
Granted
Compensation
Ray Krauss
$0
$0
$0
$0
CEO, President, Director
$30,037
$0
$0
$0
$98,100
$0
$0
$0
Harmel S. Rayat*
$144,000
$0
$0
$0
Chairman, Director
$149,500
$0
$0
$0
$0
$0
$0
$0
Harvinder Dhaliwal
$0
$0
$0
$0
Secretary, Treasurer,
$0
$0
$0
$0
Director
$0
$0
$0
$0
* During 2002, the Company incurred $144,000 in management and consulting fees from its Chairman and majority shareholder, of which $108,000 was converted to 15,428,571 at $0.007 per share on September 20, 2002. The remaining fees of $36,000 are included in Accounts Payable-Related Party at December 31, 2002. During 2001, the Company incurred $149,500 in management and consulting fees from its Chairman and majority shareholder, of which $42,500 was paid in cash and $107,000 was converted to 10,700,000 shares of the Company’s common stock at $0.01 per share on December 31, 2001.
Stock Option Grants in Last Fiscal Year
Shown below is further information regarding employee stock options awarded during 2002 to the named officers and directors:
Number of
% of Total
Securities
Options Granted
Underlying
to Employees
Exercise
Expiration
Grant Date
Name
Options
in 2002
Price ($/sh)
Date
Present Value
None
ITEM 11:
ITEM 11:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15th, 2002, the beneficial ownership of the Company's Common Stock by each director and executive officer of the Company and each person known by the Company to beneficially own more than 5% of the Company's Common Stock outstanding as of such date and the executive officers and directors of the Company as a group.
Number of Shares
Person or Group
of Common Stock
Percent
Harmel S. Rayat (1)
129,361,471
81%
216-1628 West First Avenue
Vancouver, B.C. V6J 1G1 Canada
Ray Krauss
0%
216-1628 West First Avenue
Vancouver, B.C. V6J 1G1 Canada
Harvinder Dhaliwal
0%
216-1628 West First Avenue
Vancouver, B.C. V6J 1G1 Canada
Directors and Executive Officers
129,361,471
81%
as a group (3 persons)
(1) Includes 31,300 shares held by Tajinder Chohan, Mr. Rayat's wife. Additionally, other members of Mr. Rayat's family hold 21,559,871 common shares and 21,428,571 share purchase warrants. Mr. Rayat disclaims beneficial ownership of the shares and share purchase warrants beneficially owned by his wife and other family members.
ITEM 12:
ITEM 12:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management and Consulting Fees:
During 2002, the Company incurred $144,000 in management and consulting fees from its Chairman and majority shareholder, of which $108,000 was converted to 15,428,571 at $0.007 per share on September 20, 2002. The remaining fees of $36,000 are included in Accounts Payable-Related Party at December 31, 2002. During 2001, the Company incurred $149,500 in management and consulting fees from its Chairman and majority shareholder, of which $42,500 was paid in cash and $107,000 was converted to 10,700,000 shares of the Company’s common stock at $0.01 per share on December 31, 2001. The Company also paid $40,000 to one of the Company’s stockholders, whose principal is the brother of the Chairman and majority shareholder, for consulting fees rendered.
Shareholder Advances: During 2001, the Company’s Chairman and majority stockholder advanced the Company $30,000 to help pay for operating expenses. This advance was repaid through the issuance of 3,000,000 shares of common stock at $0.01 per share on December 31, 2001. During 2002, $15,700 was advanced by the same person and remains outstanding as of December 31, 2002.
Private Placements: On November 29, 2000, the Company repurchased all of the outstanding Series B Convertible Preferred Stock (81.5 shares) from the Series B Preferred Shareholders at $1,366 per share, or $111,329. During December 2000, the Chairman of the Company bought these same shares and related warrants for $111,329 and by letter of agreement dated January 4, 2001, agreed to buy an additional 800,000 restricted common shares at $0.05 per share, or $38,671, and granted the Chairman 4,000,000 share purchase warrants to acquire common shares of the Company at $0.05 per share, expiring January 10, 2005. On December 31, 2001, the Chairman converted all of the Series B preferred stock at $0.01 per share and the Company issued 94,401,600 shares of common stock and the related Series B warrants were canceled. The conversion price was based on the average of the 10 lowest closing bid prices in the 40 trading days immediately preceding the date of notice.
On September 20, 2002, the Company accepted a private placement of $150,000 from three entities that are controlled by the two brothers and the father of the Chairman and majority shareholder of the Company. The private placement involved the issuance of 21,428,571 restricted common shares at $0.007 per share and 21,428,571 purchase warrants to acquire common shares of the Company at $0.007 per share until September 20, 2005. All of the warrants remain outstanding as of December 31, 2002.
On March 1, 2001, the Company accepted a private placement of $150,000 from the Chairman and majority shareholder of the Company. The private placement involved the issuance of 3,000,000 restricted common shares at $0.05 per share and 3,000,000 purchase warrants to acquire common shares of the Company at $0.05 per share until March 1, 2005. All of the warrants remain outstanding as of December 31, 2002 and 2001.
Property: The Company’s principal office is located at 1628 West First Avenue, Suite 216, Vancouver, British Columbia, Canada, V6J 1G1. These premises are owned by the wife and father of the Company's Chairman. At present, the Company pays no rent. The fair value of the rent has not been included in the financial statements because the amount is immaterial.
ITEM 13:
ITEM 13:
EXHIBITS AND REPORTS ON FORM 8-K
See List of Exhibits filed as part of this Annual Report on Form 10KSB.
There were no Form 8-Ks filed during the Company's fourth fiscal quarter.
ITEM 14:
ITEM 14:
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer’s and the Principal Financial Officer’s responsibility to ensure that we maintain disclosure controls and procedures designed to provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is identified and communicated to senior management on a timely basis. Our disclosure controls and procedures include periodic management meetings to ensure communication of reportable events, receipt of ongoing advice from legal council and outside auditors on new legislation and updating, if required, the Company’s disclosure controls and procedures.
Changes in Internal Controls
During the fourth quarter of 2002, the management of the Company, including the Chief Executive Officer and the Principal Financial Officer, evaluated the Company’s disclosure controls and procedures. Under rules promulgated by the SEC, disclosure controls and procedures are defined as those "controls or other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms." There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date that management, including the Chief Executive Officer and the Principal Financial Officer, completed their evaluation.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 25th day of February, 2003.
ENTERPRISE TECHNOLOGIES, INC.
/s/ Ray Krauss
Ray Krauss
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
Signature
Title
Date
/s/ Ray Krauss
President, Director
February 25th, 2003
Ray Krauss
Chief Executive Officer
/s/ Harmel S. Rayat
Director and Chairman
February 25th, 2003
Harmel S. Rayat
/s/ Harvinder Dhaliwal
Director, Secretary/Treasurer
February 25th, 2003
Harvinder Dhaliwal
Principal Financial Officer
CERTIFICATION
I, Ray Krauss, certify that:
1) I have reviewed this annual report on Form 10-KSB of Enterprise Technologies, Inc.:
2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4) The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant, and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant is made known to us by others within the entity, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6) The Registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 25th, 2003
/s/ Ray Krauss
Ray Krauss
Chief Executive Officer
CERTIFICATION
I, Harvinder Dhaliwal, certify that:
1) I have reviewed this annual report on Form 10-KSB of Enterprise Technologies, Inc.:
2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4) The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant, and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant is made known to us by others within the entity, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6) The Registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 25th, 2003
/s/ Harvinder Dhaliwal
Harvinder Dhaliwal
Principal Financial Officer
LIST OF EXHIBITS
Exhibit Number
Description
99.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Enterprise Technologies, Inc. (the "Company") on Form 10-KSB for the period ending December 31st, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ray Krauss, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: February 25th, 2003
/s/ Ray Krauss
Ray Krauss
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Enterprise Technologies, Inc. (the "Company") on Form 10-KSB for the period ending December 31st, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harvinder Dhaliwal, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: February 25th, 2003
/s/ Harvinder Dhaliwal
Harvinder Dhaliwal
Principal Financial Officer