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EX-32.1 - CERTIFICATION - Medical Care Technologies Inc.f10k2011ex32i_medicalcare.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-K

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2011
 
OR
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission file number 000-53665
 
MEDICAL CARE TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada   26-4227137
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
Room 815, No. 2 Building
Beixiaojie, Dongzhimen Nei
Beijing, China 10009
(Address of Principal Executive Offices, including zip code)
 
(8610) 6407 0580
(Issuer’s telephone number including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Securities registered pursuant to section 12(g) of the Act:
None
 
Common Stock
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
 
Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large Accelerated Filer
o
Accelerated Filer
o
 
Non-accelerated Filer
o
Smaller Reporting Company
x
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $4,260,380.

The registrant had 549,686,217 shares of common stock outstanding as of April 13, 2012.

 
 

 
 
TABLE OF CONTENTS
 
   
Page
PART I
   
     
Item 1.
Business.
  1
Item 1A.
Risk Factors.
6
Item 1B.
Unresolved Staff Comments.
7
Item 2.
Properties.
7
Item 3.
Legal Proceedings.
7
Item 4.
Mine Safety Disclosures.
7
     
PART II
   
     
Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
7
Item 6.
Selected Financial Data.
10
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
10
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
15
Item 8.
Financial Statements and Supplementary Data.
 
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
16
Item 9A.
Controls and Procedures.
16
Item 9B.
Other Information.
17
     
PART III
   
     
Item 10.
Directors, Executive Officers and Corporate Governance.
17
Item 11.
Executive Compensation.
20
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
21
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
22
Item 14.
Principal Accountant Fees and Services.
23
     
PART IV
   
     
Item 15.
Exhibits and Financial Statement Schedules.
24

 
 

 
 
PART I
 
ITEM 1
BUSINESS
 
General

We were incorporated in the State of California on February 27, 2007 as Aventerra Explorations Inc. On December 3, 2008, we changed our name to AM Oil Resources and Technology Inc. On September 28, 2009, we incorporated a wholly owned State of Nevada subsidiary, Medical Care Technologies Inc. (the “Company”), for the sole purpose of effecting a name change. On October 6, 2009, the Company entered into a letter of intent to acquire 100% of the medical care technologies and software held by Great Union Corporation (“Great Union”), a Hong Kong corporation. On October 13, 2009, we filed Articles of Merger with the Nevada Secretary of State to effect a merger with the subsidiary and assume the subsidiary’s name. On November 20, 2009, the Financial Industry Regulatory Authority (FINRA) informed us that the name change had been processed and had taken effect and, in conjunction with the name change, a new trading symbol “MDCE” had been granted.
 
On January 9, 2010, the Company entered into an Asset Acquisition Agreement (“Asset Agreement”) with Great Union to acquire Great Union’s various technologies associated with the development and maintenance of secure information systems which increase access to medical resources and services, health education and wellness, pharmaceutical and nutraceutical products.

On April 28, 2011, the Company entered into a Joint Venture Master Agreement with Ocean Wise International Industrial Limited, a company established in Hong Kong (“Ocean Wise”), pursuant to which the Company and Ocean Wise created a new Hong Kong company called ReachOut Holdings Limited (“ReachOut”) of which we own 65%.  ReachOut is to establish Chinese subsidiaries in various cities in China for the purpose of operating children’s healthcare centers in these areas. In June 2011, ReachOut established a subsidiary in Dongguan, China to provide high quality pediatric healthcare services in this city.
 
Since the Asset Agreement, our business now is that of a children’s healthcare service provider. We are headquartered in Beijing, China and are engaged principally in opening and operating children’s integrated health and wellness centers and selling and distributing pharmaceutical and nutraceutical products. We are a development stage company and have not yet generated or realized any revenues from our business activities.
 
Subsequent to the year ended December 31, 2011 and on February 6, 2012, we filed a proxy statement to hold a Special Meeting of Shareholders (the “Special Meeting”) on February 29, 2012 for the following purposes:

i) To authorize the amendment of our Articles of Incorporation for the purpose of increasing the authorized capital of the Company from 500,000,000 shares of common stock, $0.00001 par value per share to 8,000,000,000 shares of common stock, $0.00001 par value per share; and
 
ii) To grant discretionary authority to our Board of Directors to implement a reverse stock split of our common stock, on the basis of up to five hundred pre-consolidation shares for each one post-consolidation share (the “Reverse Stock Split”), to occur at some time within twelve months of the date of the Special Meeting with the exact time of the stock split to be determined by the Board of Directors.
 
On February 29, 2012, we announced the Special Meeting adjourned until March 29, 2012 due to lack of quorum. On March 29, 2012, the Special Meeting took place whereby shareholders casted their votes in favor of increasing our authorized share capital to 8,000,000,000 and implementing a reverse stock split within twelve months of the Special Meeting date.  On March 30, 2012, we filed a Certificate of Amendment to our Articles of Incorporation (“Certificate”) with the Secretary of State of the State of Nevada to increase the number of shares of authorized capital from 500,000,000 shares of common stock, $0.00001 par value per share, to 8,000,000,000 shares of common stock, $0.00001 par value per share.
 
Background and Overview
 
On November 25, 2008, as Aventerra Explorations Inc., we entered into a preliminary agreement to acquire two patents from AM Oil Resources & Technology Inc., a California corporation (“AM Oil”). In consideration for the acquisition of the patents, we issued 30,000,000 restricted shares of our common stock. Subsequent to this agreement, we changed our name to AM Oil Resources & Technology Inc.
 
As a result of a breach of several provisions concerning patent title and ownership of the Asset Purchase Agreement with AM Oil, we terminated the Agreement on November 17, 2009 and cancelled 30,000,000 shares of common stock that were issued in connection with the Agreement.
 
As such and as a result of the termination of the Agreement, we are no longer pursuing the technologies to improve the recovery of oil and gas from existing oil and gas wells.
 
 
1

 
 
Because the Company never received title, the Company determined that it never owned the assets, which resulted in an error in the first two quarters of 2009. As a result, the quarterly reports on Form 10-Q were amended and restated to remove the patent asset and related debt. In addition, the cancellation of common stock issued in connection with this transaction was reflected in the amended quarterly filings.
 
On October 6, 2009, we entered into a non-binding Letter of Intent (“LOI”) to acquire 100% of medical care technologies and software held by Great Union, by way of a reverse merger. In accordance with the LOI, Great Union must complete a foreign ownership structure in which the medical care technologies and software will be held by a company incorporated in the State of Nevada (the “Nevada Company”). We must exchange 38,400,000 shares of common stock for all of the outstanding common shares of the Nevada Company. In addition, we must cancel 57,300,000 shares of common stock held by the former President of the Company.
 
On September 28, 2009, we incorporated a wholly owned subsidiary, Medical Care Technologies Inc. in Nevada for the purpose of effecting a name change and on October 13, 2009, we merged with the subsidiary and assumed our current business name. On November 20, 2009, and in conjunction with the name change, a new trading symbol “MDCE” was granted to us.
 
On January 9, 2010, the Company entered into an Asset Acquisition Agreement (“Asset Agreement”) with Great Union to acquire Great Union’s various technologies associated with the development and maintenance of secure information systems which increase access to medical resources and services. In consideration, the Company agreed to issue 57,300,000 shares of its common stock to Great Union. On February 1, 2010, the Company cancelled 57,300,000 units of common stock held by the former President of the Company and issued these shares to Great Union.

On April 28, 2011, the Company entered into a Joint Venture Master Agreement with Ocean Wise International Industrial Limited, a company established in Hong Kong (“Ocean Wise”), pursuant to which the Company and Ocean Wise created a new Hong Kong company called ReachOut Holdings Limited (“ReachOut”) of which we own 65%.  ReachOut is to establish Chinese subsidiaries in various cities in China for the purpose of operating children’s healthcare centers in these areas. In June 2011, ReachOut established a subsidiary in Dongguan, China to provide high quality pediatric healthcare services in this city.
 
Upon the review and recommendation of our Chief Technology Officer, the medical care technologies acquired in the Asset Agreement with Great Union, were found to be outdated, inefficient and unmarketable and as such, we will be further reviewing these products and re-evaluating the possibility of updating these technologies for the healthcare industry in China.
 
Our mission now is to open and operate private children’s health centers throughout China. Through joint ventures or Chinese subsidiaries, we plan to develop a network of children’s health facilities in the larger urban areas throughout China. Our planned services are geared towards the advancing economic middle-class Chinese families. Our focus will be to specialize in the care of children between the ages of 3 to 16, and our role is to enhance the overall well-being of the family and community and to expand our pediatric services to include preventative health and wellness education. Concurrent with, and in addition to our children’s health facilities, we also plan to distribute a diverse range of pharmaceutical and nutraceutical product lines. Our main mission is to become a healthcare service provider leader in children’s health and wellness throughout China

Our current operations consist of three business segments: Pediatric Health and Wellness Centers, Pharmaceutical and Nutraceutical Products and Merchandising, Education and Public Awareness Programs for Children.
 
Pediatric Health and Wellness Centers
 
The Company plans to seize the opportunities available for businesses that provide medical type services in China by opening and operating private pediatric health centers and mainly locating them in economically developing and/ developed cities. We have entered into various discussions with Chinese health officials in various provinces in China to initiate our pediatric health care objectives. Our targeted locations are: Shenzheng, Shanghai, Beijing, Kunshan, Zuhai, and Hailongjiang.

On August 1, 2011, we received approval for our final licenses from the City of Dongguan, Guangdong Province Department of Urban Planning and Department of Health to open and operate our first flagship children’s health and wellness center.  Our first children’s health center will be named Teddyberry™ and Company, and will be a 4,000+ square foot facility in Dongguan, located within a metropolitan area of 10 million people with an estimated 1 million children and the two neighboring municipalities of Guangzhou and Shenzhen, home to over 25 million residents.

We believe that our flagship facility will be a new private healthcare model in China based on the concept of primary spa-like facilities in each geographic area.  We plan to offer a full range of inpatient services to Chinese communities and expatriates' families.  We believe that we are the first to introduce such a model to the country which we believe places us strategically at the forefront of a highly attractive private healthcare services market.
 
With our licensing approvals now granted in Dongguan, we began to execute the blueprint set out in our strategic business plan. In August, 2011, a design team and project manager was selected for the high visibility location in Dongguan.

 
2

 

Currently, we hope to add subsequent locations in economically developing and developed Tier-1 major cities such as Beijing and Shanghai and, Tier-2 cities such as Guangzhou and Tianjin. In China, we believe that opportunities abound in Tier-2 cities because production is cheaper, real estate has more potential for appreciation in these areas, and overall economic growth rates are climbing more steeply than in the Tier-1 cities.
 
We believe that the Chinese government recognizes that these Tier-2 cities are quickly becoming the economic rungs on the ladder of China's growth and continues to promote development of Tier-2 cities through investment, targeted tax incentives and the establishment of economic and technological development zones. According to figures from the US Commercial Service, 15 of China's Tier-2 cities account for 8 percent of the population but 54 percent of the total imports from the US.

The global marketing research firm AC Nielsen defined the tiers as follows:
 
1st tier: Key cities - Shanghai, Beijing, Guangzhou and Chengdu
 
2nd tier: Secondary provincial capitals (consisting of 23 cities)
 
3rd tier: Prefecture or county level city capitals
 
Our facilities will be targeted at the growing affluent Chinese populations in these major urban centers.

Thus, in addition to Dongguan, we are currently in discussions with the authorities to expand into Shenzheng, Shanghai, Beijing, Kunshan, Zuhai, and Hailongjiang.

We currently hope to sign Memorandum of Understandings with various Chinese provinces after the first quarter of 2012.

Pharmaceutical and Nutraceutical Products
 
We plan to carry only State Food and Drug Administration (“SFDA”) approved products. It is our strategy to source and sell high-quality pharmaceutical and nutraceutical products and a wide variety of other merchandise, including over-the-counter medicines, herbal products, personal care products, family care products in our planned pediatric health and wellness centers, through our website, retail pharmacies and through established sales and distribution channels in China. We also plan to offer private label products, which we believe will distinguish us from our key competitors such as Baby’s Own, Enfamil, IntraKID and Source Naturals.  Further, our target customers in this segment are retail pharmacies, pharmaceutical companies, hospitals, physicians’ office practices, consumers; and industrial and food microbiology laboratories.

Our Target Market
 
The primary target for our healthcare services as well as our pharmaceutical and nutraceutical products are:

a)  
Advancing economic middle class Chinese families and;
b)  
Children between the ages of 3 and 16 and;
c)  
Progressive areas throughout China.

Marketing and Promotion
 
Our marketing and promotion strategy is to build brand recognition to our children’s health and wellness centers and the products we plan to sell, increase patient/customer awareness and, therefore, patient/customer purchases to our products, attract new patients/customers, build strong patient/customer loyalty, maximize repeat customer visits and develop incremental revenue opportunities.
 
We plan to implement a marketing department to design our nationwide marketing efforts as well as to design regional promotions based on local demographics and market conditions. We also plan to launch single center promotional campaigns and community activities in connection with the openings of new health and wellness centers. In addition, we plan to offer special discounts and gift promotions for selected products periodically in conjunction with our suppliers’ marketing programs.
 
We plan to design many of our promotion programs to encourage suppliers to invest resources to market their brands within our health and wellness centers. We plan to charge suppliers promotional fees in exchange for granting them the right to promote and display their products in our health and wellness centers during promotional periods. We believe that these types of promotions will improve patients’/customers’ shopping experience because suppliers provide purchasing incentives and information to help patients/customers to make informed purchase decisions.
 
 
3

 
 
We also plan to run advertisements periodically in selected regional and national newspapers to promote our private label brand and the products carried in our health and wellness centers. In selected regions, we plan to promote our private label brand and products using billboards and on the passenger compartments of subway trains. In all cases, we expect the advertising expenses to be borne by the manufacturers/suppliers of the products being advertised. We will aim to design our advertisements to promote our private label brand, our corporate image and the prices of products available for sale in our health and wellness centers. Such advertising is currently subject to the series of measures regulating the advertising of pharmaceutical products recently adopted by the Chinese government.
 
Distribution of Products
 
We plan to market our pharmaceutical and nutraceutical products in the children’s health and wellness centers through independent distribution channels and directly to end-users by independent sales representatives.
 
We plan to lease warehouses that will operate as regional distribution centers for the purpose of serving our children’s health and wellness centers. We plan to have suppliers deliver products to our regional distribution centers, which in turn serve our children’s health and wellness centers in the region.
 
We expect the operations of our regional distribution centers, including inventory management and deliveries, to be integrated and coordinated by our integrated management information system. We believe that this will provide us with up-to-date product availability information so as to optimize our inventory management.
 
Our Strategies
 
We currently intend to implement the following strategies for 2012:
 
Open Children’s Medical Health and wellness centers in Large and Fast-Growing Metropolitan Markets
 
Desirable geographic market is essential to competing effectively as well as maintaining and generating profitability. In 2012, subject to adequate financing, we plan to open two to three health and wellness centers mainly in metropolitan centers with a focus on growing middle and upper-middle class demographics. We are planning entries into cities in both southern and northern China. We believe that there is potential for growth in these cities as we believe there are many under-penetrated and untapped local neighborhoods available for us to establish health and wellness centers..
 
We plan to create facilities with ambiance catering to children and youth. Such facilities are considered to be unique features in the current China market.  We plan to offer a full range of inpatient services to Chinese communities and expatriates' families in our concept of primary spa-like facilities.

Additionally, we plan to include an in-house health and wellness shop in each planned children’s health center. With a “one-stop” shopping approach, our mission is to become the preferred medical health and wellness center in residential communities.

Capture Patient/ Customer Trust and Loyalty with Effective Marketing and Promotional Programs
 
A strong brand name is critical to winning customers’ trust in us, in products which we may develop, as well as building customer loyalty and increasing customer visits to children’s health and wellness centers. As a result, we intend to promote both our brand name and any private label products we may develop. Specifically, we hope to deploy the following marketing and promotional initiatives:
 
 
offer services that are carefully tailored to meet our patients’/customers’ healthcare needs, including integrated health programs focused on pediatric care, health and wellness counselling, weight management, skin care and treatment, obesity, diabetes and sports injury, among others
     
 
organize community-based activities and targeted promotion programs to gain patient/customer loyalty
     
 
form alliances with a number of promotional partners and develop promotional campaigns with these partners in order to increase awareness of our brand name and private label products; and
     
 
advertise our brand, services and products in television and selected newspapers/magazines that service our targeted cities
 
Offer Health and Wellness Products
 
We plan to concentrate on the promotion of western health and wellness product lines to develop and strengthen our brand identity in China and to achieve targeted profitability. In particular, we plan to:
 
 
sell an assortment of superior quality, high margin nutritional supplements and herbal products
 
 
4

 
 
 
develop and invest in multiple private label products targeted at various product categories, geographic regions and patient/customer groups
     
 
offer a selection of high, medium and low price private label products within each product category in order to appeal to a broad range of customers
     
 
all products will be U.S. Food and Drug Administration (“FDA”) and State Food and Drug Administration (“SFDA”) approved.
 
Develop Reliable Distribution Channels for our Products
 
We believe that recent regulatory changes implemented by the Chinese government could be an indication that new opportunities have opened up which will allow us to market western health and wellness products.   For example, in 2001, China joined the World Trade Organization and, we believe, this action officially paved the way for foreign companies to pursue hospital and clinic joint ventures. In 2007, then Minister of Health Gao Qiang, gave the green light to foreign hospital and medical clinic owners to have a majority share in joint ventures, up to a maximum of 70%.  Additionally, health care reform plans were announced in early 2009 whereby 850 billion Yuan (US$124 billion) was committed by the Chinese government to develop China’s health care system.
 
We envision that each pediatric health and wellness center will be complemented with a health and wellness shop, dedicated to preventive medicine which we hope will provide a framework for horizontal integration of healthcare.
 
All goods and services are planned to be well-researched and substantiated by certified market researchers. By utilizing existing networks already firmly established, we currently estimate the development time from the sourcing of an appropriate product to carry in our health and wellness centers to shelving these products to take two to three months.
 
Implement Management Information Systems in our Health and Wellness Centers
 
We plan to utilize an information management system in order to implement a secured integrated data network for our health records in order to provide our medical staff access to the patients’ medical data at any of the  locations we may establish. The patients’ up-to-date medical records shall be readily available should they choose to go to any of our health and wellness centers throughout China. The overall process creates a sense of trust that all of our medical staff are well aware of their children’s health history if they are travelling to another city that has our children’s health and wellness centers.

We believe that the Electronic Medical Record (“EMR”) systems we plan on implementing, will streamline delivery, facilitate data mining and fully integrate procurement, inventory management, pricing, and distribution. The system will provide the delivery of data aggregation capabilities and enhanced category management, enabling us to fine-tune processes such as product selection, optimal product/pricing mix, shelf space allocation and automate health store replenishment requests. We believe that these features will yield significant benefits in the form of economies of scale, lower costs and reduced expenditures for our healthcare operations.  The EMR system we are currently considering includes Purkinje RMR, Allscript, and Acrendo Medical software.
 
Selectively Pursue Complementary Acquisitions
 
We plan to strategically acquire independently operated health and wellness centers that will serve to establish a presence in new markets. Growth is to be achieved through acquisition in large cities such as Beijing and Shanghai. Each acquisition opportunity will be screened by focusing on already existing health and wellness centers in prime, well-developed facilities and patient/customer bases which are commercially attractive.

Competition

Private Health Care: One of the first joint venture hospitals was opened in 1997 in Beijing by Chindex International – a US health care company that has since been establishing the United Family Hospitals and Clinics (“UFH”) network in China. UFH has opened two full-service 50 bed hospitals, the first in Beijing and the second in Shanghai, and five outpatient clinics in Beijing (2), Shanghai, Guangzhou, and Tianjin. A new 125-bed hospital in Guangzhou is expected to open in 2012. These facilities are targeted at the growing affluent Chinese populations in major urban centers.
 
Strong and well established competitors such as UFH as well as Parkway and International SOS have carved the vast majority of the market up between them for non-Chinese speaking patients and for wealthy Chinese who distrust the domestic health care system. Buoyed by their revenues, the big players are busy expanding. UFH, (part of Nasdaq-listed Chindex), cut the ribbon on a new oncology centre in Beijing in June 2010.  Parkway is also moving into the interior of China, attracted by the possibility of rich Chinese clients. It has eight facilities, including one in Chengdu, and a new site at Shanghai's Jin Mao tower.
 
 
5

 
 
The difficulty that we expect to have is we are immediately competing with state-backed financing of some private clinics that have been set up within many of the state-funded public hospitals, which are now offering "VIP" and international services. In general, starting costs are high, licensing arrangements are complex and the investment criteria for foreign investors are strict. This is likely a reason why there are not more international players in the Chinese health care market.

Regulation

Our proposed pediatric healthcare centers and proposed products are subject to regulation by Chinese state agencies. These agencies enforce laws and regulations that govern the development, testing, manufacturing, labeling, advertising, marketing and distribution, and market surveillance of our business, technology and medical products. These regulatory controls can affect the time and cost associated with the development, introduction and continued availability of our services and selling of new products. These agencies possess the authority to take various administrative and legal actions against us, such as product recalls, product seizures and other civil and criminal sanctions.
 
While our strategy to open and operate pediatric healthcare centers and promote various revenue streams is driven by charging potential clients a yearly membership fee plus cost for health care services, sourcing and selling large quantities of products and, branding our private label, we plan to seek to supplement our growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky. We cannot guarantee that any strategic acquisitions, investments or alliances will be successful. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate it into our existing business.
 
Employees
 
At present, we have no full-time employees. Our officers and directors are part-time employees/consultants and with the exception of our Chief Executive Officer and Chief Operating Officer, each devotes about 25% of his time or 10 hours per week to our operations.
 
Limited Operating History and Need for Additional Capital
 
There is no historical financial information about us upon which to base an evaluation of our performance. We have just started our current operations and have not generated any revenues from activities. We cannot guarantee we will be successful in our business activities. Our business is subject to risks inherent in the establishment of a new business enterprise, including the following: (i) limited capital resources, (ii) ability to develop brand name, (iii) possible delays in obtaining products we propose to sell, (iv) existing and new competition in the Chinese healthcare industry, (v) implementation of strict government regulations in the Chinese healthcare industry, (vi) possible cost overruns due to price and cost increases in healthcare services, vii) higher construction costs and, viii) inability to attract sufficient healthcare memberships in a geographical location.

To become profitable and competitive, we must be able to sell a sufficient number of healthcare memberships for each health and wellness center, open and operate successfully a number of pediatric health and wellness centers and market and sell large volumes of our products to generate revenues and profits. We have no assurance that future financing will be available to us in the future on satisfactory terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our activities. Equity financing could result in additional dilution to existing shareholders.

Our future growth is dependent upon selling products, and we cannot guarantee that such products will be available. An element of our strategy is to promote a revenue stream by focusing on pharmaceutical and nutraceutical products that deliver greater benefits to patients, healthcare workers and researchers. The sourcing of these products requires significant time and research. The results of our product sourcing efforts may be affected by a number of factors, including our ability to source and subsequently obtain new products from suppliers, or gain and maintain market approval of these products. There can be no assurance that any products now or that we may seek to sell in our children’s health and wellness centers in the future will achieve the revenues we hope for or gain market acceptance.
 
We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful. While our strategy to open and operate pediatric health and wellness centers and promote various revenue streams is driven by sourcing and selling large quantities of products and, branding our private label, we seek to supplement our growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate it into our existing business. We cannot guarantee that any future transaction will be successful.
 
ITEM 1A
RISK FACTORS
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
 
 
6

 
 
ITEM 1B
UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2
PROPERTIES
 
Our executive offices are located in Beijing, People’s Republic of China. We currently lease, on a month-to-month basis, approximately 600 square feet of office space in a commercial building at 1,000 Chinese Yuan Renminbi (“RMB”) per month.

Through our Hong Kong subsidiary, ReachOut, we lease two units totaling 374.05 square meters of commercial space in the Zhong Xin Commercial Plaza building, also known as Citic Commercial Plaza, in Dongguan’s Dongcheng district  under a six year operating lease. The first unit is 227.87 square meters and is leased for 25,060 RMB or approximately $4,000 US per month for the first two years of the lease contract. The second unit is 146.18 square meters and is leased for 10,000 RMB or approximately $1,600 US per month for the first two years of the lease contract.

The table below provides for the rental increases in Years 3 through 6 of the lease contracts:

   
Unit 1
 
Unit 2
Year 3
 
26,200 RMB
 
11,000 RMB
Year 4
 
27,400 RMB
 
11,000 RMB
Year 5
 
28,600 RMB
 
11,000 RMB
Year 6
 
29,900 RMB
 
11,500 RMB

We plan to generally seek to rent the building in which our planned health and wellness centers will operate, although in some regions in China, we will lease the space. Additionally, we plan to open sales offices and distribution facilities for storage of our products but these facilities may be used for multiple purposes, such as additional regional administrative offices. We seek to open health and wellness centers in the most developed cities in China. We plan to carefully select our health and wellness center sites to maximize consumer traffic, health and wellness center visibility and convenience for our patients/customers. We plan to substantially locate our health and wellness centers in well-established urban residential communities and prime retail locations in Chinese cities where living standards and consumer purchasing power are relatively high.
 
ITEM 3
LEGAL PROCEEDINGS
 
As of the date of this report, there are no material pending legal proceedings (other than ordinary routine litigation incidental to our business) to which we are a party or concerning any of our properties. Also, our management is not aware of any legal proceedings contemplated by any governmental authority against us.

ITEM 4
MINE SAFETY DISCLOSURES

Not applicable.
 
PART II
 
ITEM 5. 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
Our common stock is quoted on the OTC Bulletin Board under the symbol “MDCE.OB”.

The following table shows the high and low bid quotations for our common shares on the OTC Bulletin Board for periods indicated. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:

Fiscal Year 2011
 
High Bid
   
Low Bid
 
    Fourth Quarter
 
$
0.0105
   
$
0.002
 
    Third Quarter
 
$
0.026
   
$
0.007
 
    Second Quarter
 
$
0.037
   
$
0.011
 
    First Quarter
 
$
0.06
   
$
0.01
 
 
 
7

 
 
Fiscal Year 2010
 
High Bid
   
Low Bid
 
    Fourth Quarter
 
$
0.0259
   
$
0.01
 
    Third Quarter
 
$
0.032
   
$
0.019
 
    Second Quarter
 
$
0.095
   
$
0.021
 
    First Quarter
 
$
0.395
   
$
0.07
 
 
On April 13, 2012 the closing bid price of our common stock on the OTC Bulletin Board quotation system was $0.001 per share.

Holders
 
On April 13, 2012, we had 52 shareholders of record of our common stock.
 
Securities Authorized for Issuance Under Equity Compensation Plans

As of December 31, 2011, securities issued and securities available for future issuance under our 2010 Stock Option Plan are as follows:
  
Equity Compensation Plan Information

   
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
   
Weighted average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available for future
issuance under equity
compensation plans
 
Equity compensation plans approved by security holders
   
1,700,000
   
$
       
1,700,000
 
Equity compensation plans not approved by security holders
         
$
           
Total
   
1,700,000
   
$
       
1,700,000
 

Stock Option Plans

On December 30, 2010, we adopted a 2010 Stock Option Plan (the “Plan”) to provide incentives to key employees, officers, directors, consultants, and agents of the Company for high levels of performance and to reward unusual efforts which increase the earnings and long-term growth of the Company. 10,000,000 shares of common stock were reserved for issuance under the Plan. Upon exercise of the option in accordance with the terms of the Plan and the Option Agreement, the grantee shall receive such shares of stock of the Company set forth in the Notice of Option Grant delivered to the grantee. A grantee to whom shares have been issued upon proper exercise of an option granted hereunder shall be entitled all rights of a shareholder, including, without limitation, dividends, voting and liquidation rights. Each option shall expire five years from the date of grant. The Plan will terminate on August 31, 2020.

We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans.

Dividend Policy
 
As of the date of this report, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

Recent Sales of Unregistered Securities
 
The following securities were issued in transactions that were exempt from registration under Regulation D Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”), as transactions by an issuer not involving a public offering. All of the investors were knowledgeable, sophisticated and had access to comprehensive information about the Company and represented their intention to acquire the securities for investment only and not with a view to distribute or sell the securities. The Company placed legends on the securities stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.
 
Subsequent to year ended December 31, 2011, we completed the following sales of unregistered securities:
 
On April 5, 2012, we issued 33,333,333 restricted shares of common stock for structuring and due diligence fee pursuant to a funding term sheet dated March 31, 2012.

On April 9, 2012, we issued 3,300,000 restricted shares of common stock pursuant to a finder’s fee agreement dated November 29, 2011.
 
 
8

 
 
From January 1, 2011 to December 31, 2011, we completed the following sales of unregistered securities:

On January 11, 2011, we issued 1,097,141 restricted shares of common stock upon the conversion of a November 15, 2010 convertible promissory note.
 
On April 4, 2011, we issued 100,000 shares of common stock pursuant to a consulting services agreement dated December 6, 2010.
 
On May 12, 2011, we issued 588,235 restricted common shares pursuant to an investor relations services agreement dated April 15, 2011.

On June 1, 2011, we issued 1,250,000 shares of common stock with a fair value of $23,750 for settlement of a promissory note dated November 16, 2010.

On June 8, 2011, we issued 502,513 restricted common shares pursuant to an investor relations services agreement dated April 15, 2011.

On June 9, 2011, we issued 5,000,000 shares of restricted common stock to a consultant pursuant to a May 16, 2011 consulting agreement that are subject to a one year hold period.

On June 16, 2011, we issued 500,000 shares of restricted common stock to two consultants pursuant to consulting agreements dated May 16, 2011.

On July 6, 2011, we issued 497,512 restricted shares of common stock pursuant to an investor relations services agreement dated April 15, 2011.

On July 15, 2011, we issued an aggregate of 6,406,891 restricted shares of common stock to five (5) noteholders upon the conversion of convertible notes.

On July 26, 2011, we issued 500,000 restricted shares of common stock pursuant to an advisory board agreement dated July 20, 2011.

On August 9, 2011, we issued 1,000,000 restricted shares of common stock pursuant to a promotions and marketing agreement dated August 2, 2011.
 
On September 2, 2011, we issued 625,000 restricted shares of common stock pursuant to a promotions and marketing agreement dated August 2, 2011.

On September 19, 2011, we issued 250,000 restricted shares of common stock pursuant to an advisory board agreement dated September 1, 2011.

On September 19, 2011, we issued 1,000,000 restricted shares of common stock pursuant to the medical director services agreement dated September 1, 2011.

On September 30, 2011, we issued 625,000 restricted shares of common stock pursuant to a promotions and marketing agreement dated August 2, 2011.
 
On October 3, 2011, we issued 1,666,667 restricted shares of common stock upon the conversion of a September 24, 2011 6% convertible note.
 
On October 31, 2011, we issued 625,000 restricted shares of common stock pursuant to a promotions and marketing agreement dated August 2, 2011.

On November 1, 2011, we issued 13,869,481 restricted shares of common stock upon the conversion of the October 18, 2011 8% convertible note.

On November 21, 2011, we issued 3,798,611 restricted shares of common stock upon the conversion of the November 4, 2011 6% convertible note.

On November 28, 2011, we issued 1,000,000 restricted shares of common stock pursuant to the advisory board agreement dated November 26, 2011.

On November 28, 2011, we issued 625,000 restricted shares of common stock pursuant to a promotions and marketing agreement dated August 2, 2011.
 
 
9

 

From January 1, 2010 to December 31, 2010, we completed the following sales of unregistered securities:
 
On November 10, 2010, we issued 250,000 restricted shares of common stock at a fair value of $4,125 pursuant to an information technology consulting agreement The term of the agreement is 4 months.
 
On September 15, 2010, we issued 3,826,087 restricted shares of common stock to Accredited Members, Inc. (“AMI”) at a fair value of $88,000 pursuant to which we will create and post a corporate profile on AMI’s community website which provides AMI’s members a channel to present information regarding their business to other members.
 
On September 5, 2010, we issued 500,000 restricted shares of common stock at a fair value of $11,000 pursuant to an advisory board agreement.
 
On September 1, 2010, we issued 250,000 restricted shares of common stock at a fair value of $5,750 pursuant to an advisory board agreement.
 
On September 1, 2010, we issued 3,000,000 restricted shares of common stock at a fair value of $69,000 pursuant to three consulting agreements.
 
On August 31, 2010, we issued 250,000 restricted shares of common stock at a fair value of $5,500 pursuant to a consulting agreement. On December 22, 2010, the 250,000 restricted shares of common stock were returned to the Company for cancellation as the consulting agreement was terminated.
 
On August 28, 2010, we issued 2,500,000 restricted shares of common stock at a fair value of $70,000 pursuant to a business advisory and consulting agreement. We agreed to issue 500,000 restricted shares of common stock of the Company as consideration for entering in the agreement and 2,000,000 restricted shares for consulting services.
 
On May 18, 2010, we issued 2,500,000 restricted shares of common stock at a fair value of $102,500 pursuant to an information technology consulting agreement dated May 18, 2010.
 
ITEM 6
SELECTED FINANCIAL DATA.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
 
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
 
This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.  All forward-looking statements speak only as of the date on which they are made.  We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
 
Overview

We are a children’s healthcare service provider headquartered in Beijing, China and engaged principally in opening and operating children’s integrated healthcare wellness centers and selling and distributing pharmaceutical and nutraceutical products. We have not yet generated or realized any revenues from our business activities.
 
Private Pediatric Health and Wellness Centers

Our aim is to advance health care in China.  We plan to seize the opportunities available for businesses that provide medical type services in China by opening and operating private pediatric health centers and mainly locating them in economically developing and/ developed provinces and urban areas. We continue to progress discussions with Chinese health officials to initiate our pediatric health care objectives.

On April 28, 2011, we signed a Joint Venture Master Agreement with Ocean Wise International Industrial Limited (“OWII”), a private Hong Kong investment holding company, to partner in China’s rapidly expanding pediatric healthcare segment. The 65-35 joint venture partnership has established ReachOut Holdings Limited (“RHL”), incorporated in Hong Kong, in order to open and operate pediatric health centers throughout China. Under the ten- year JV Master Agreement, we will own a 65% controlling interest in RHL, contributing medical software technology, technical expertise, research and development and financial resources. In turn, OWII, with its 35% interest, will provide the funding necessary to establish operations, and an executive management team to negotiate lease operating agreements, license approval applications with appropriate Chinese government agencies and,the operation and management of pediatric health and wellness centers.
 
 
10

 
 
On August 1, 2011, we received approval for our final licenses from the City of Dongguan, Guangdong Province Department of Urban Planning and Department of Health to open and operate our first flagship children’s health and wellness center.  Our first children’s health center will be named Teddyberry™ and Company, and will be a 4,000+ square foot facility in Dongguan, located within a metropolitan area of 10 million people with an estimated 1 million children. Our flagship facility is a new private healthcare model in China based on the concept of primary spa-like facilities in each geographic area.  We currently anticipate that it will offer a full range of inpatient services to Chinese communities and expatriates' families.  We believe that we are the first to introduce such a model to the country which we believe places us strategically at the forefront of a highly attractive private healthcare services market.
 
With our licensing approvals now granted in Dongguan, we began to execute the blueprint set out in our strategic business plan. In August, 2011, a design team and project manager was selected for the high visibility location in Dongguan.

Currently, we hope to add subsequent locations in economically developing and developed Tier-1 major cities such as Beijing and Shanghai and, Tier-2 cities such as Guangzhou and Tianjin. In China, we believe that opportunities abound in Tier-2 cities because production is cheaper, real estate has more potential for appreciation in these areas, and overall economic growth rates are climbing more steeply than in the Tier-1 cities.
 
We believe that the Chinese government recognizes that these Tier-2 cities are quickly becoming the economic rungs on the ladder of China's growth and continues to promote development of Tier-2 cities through investment, targeted tax incentives and the establishment of economic and technological development zones. According to figures from the US Commercial Service, 15 of China's Tier-2 cities account for 8 percent of the population but 54 percent of the total imports from the US.

Thus, in addition to Dongguan, we are currently in discussions with the authorities to expand into Shenzheng, Shanghai, Beijing, Kunshan, Zuhai, and Hailongjiang.

We currently hope to sign Memorandum of Understandings with various Chinese provinces after the first quarter of 2012.
 
Pharmaceutical and Nutraceutical Products

We plan to carry only State Food and Drug Administration (“SFDA”) approved products. It is our strategy to source and sell high-quality pharmaceutical and nutraceutical products and a wide variety of other merchandise, including over-the-counter medicines, herbal products, personal care products, family care products in our planned pediatric health and wellness centers, through our website, retail pharmacies and through established sales and distribution channels in China. We also plan to offer private label products, which we believe will distinguish us from our key competitors such as Baby’s Own, Enfamil, IntraKID and Source Naturals.  Further, our target customers in this segment are retail pharmacies, pharmaceutical companies, hospitals, physicians’ office practices, consumers; and industrial and food microbiology laboratories.

Our anticipated revenue streams over the next three years are expected to come from providing the i) pediatric services market and ii) pharmaceutical and nutraceutical supply market. We plan to develop in each of our business segments new products and services that provide increased benefits to patients, healthcare workers and researchers. Our ability to obtain long-term growth will depend on a number of factors, including our ability to expand our business (including geographical expansion), source new products with higher gross profit margins, and obtain operating efficiency and organizational effectiveness.
 
The accompanying financial statements have been prepared on a going concern basis, which implies we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any revenues and we do not anticipate to generate any revenues until i) we open and begin serving patients in our children’s health and wellness centers and; ii) source, marketand sell pharmaceutical and nutraceutical products. Accordingly, we must raise cash from private investors, through equity financings or by developing strategic alliances with other leading, world class players in the health industry. Our source for cash are funds raised through loans and convertible promissory notes from friends and family.

Subsequent to our year ended December 31, 2011, we received net proceeds of $15,000 from two investors pursuant to convertible promissory notes. The cash we raised has allowed us to pay some of our trade payables. Our success or failure will be determined by signing a sufficient number of healthcare memberships for each location and; creating alliances with healthcare providers and financing groups who i) see merit in forming children’s health center joint ventures with us and; ii) selling a large volume of our products throughout China.

Liquidity and Capital Resources
 
Cash on hand as of December 31, 2011 is $3,380. Net cash used for operating activities was $371,920 for the year ended December 31, 2011 compared to net cash used in operating activities of $189,935 for the year ended December 31, 2010. Operating expense changes for the year ended December 31, 2011 included i) $10,000 in depreciation and amortization expenses; ii) stock based compensation of $788,186; iii) accretion of discount on various convertible notes of $451,282; iv) loss on derivative of $188,917; v) loss in extinguishment of debt of $37,225; vi) loss on settlement of debt of $13,750; vii) amortization of debt financing costs of $13,286. We anticipate that overhead costs will increase in the near term as we increase our operational activities and move ahead with our planned initiatives for 2012 in opening pediatric health and wellness centers in China.
 
 
11

 
 
Cash flows provided by financing activities accounted for $838,804 for the year ended December 31, 2011 compared to financing activities of $189,851 for the year ended December 31, 2010. For the year ended December 31, 2011, financing activities included an increase in loans payable of $130,000; an increase in convertible notes payable of $526,750 an increase in related party loans of $20,233 and; an increase in contributions from non controlling interest of $161,821.
 
As of December 31, 2011, our total assets were $513,921 and our total liabilities were $652,409. Total assets increased from December 31, 2010 by $497,030 and total liabilities increased by $406,156.The increase in assets is mainly due to the increase of $457,695 in intangible asset due to payments for the health center licenses in China. The increase in total liabilities is mainly due to the borrowings of the company by way of loans and convertible notes.

For the year ended December 31, 2011, we received, in aggregate, gross proceeds of $225,000 by entering into six (6) 8% convertible promissory notes (“Notes”) with Asher Enterprises, Inc. (“Asher”).  The Notes, ranging in dates from February 1, 2011 to September 20, 2011 have a term of nine (9) months from the date of issuance of each Note. All principal and accrued interest on the Notes are convertible into shares of our common stock at the election of Asher at any time after 180 days from the date of issuance, at conversion prices equal to a 39.9% discount to the average of the 3 closing bid prices of the common stock during the 10 trading day period prior to conversion. The conversion price is subject to certain anti-dilution protection; for example, if we issue shares for a consideration less than the applicable conversion price, the conversion price is reduced to such amount. If we desire to exercise our right to prepay the Note during the first 90 days after its issuance, the prepayment penalty is 150% of all amounts owed to Asher; if we elect to prepay between the 91st and 180th day after issuance, the penalty is 175% of all amounts owed. There is no right to prepay after the 181th day of issuance.

Listed in the table below are the dates and amounts of the six convertible promissory notes entered into with Asher:

Date of Note
 
Amount
 
February 1, 2011
  $ 50,000.00  
         
March 11, 2011
  $ 32,500.00  
         
 April 12, 2011
  $ 32,500.00  
         
June 1, 2011
  $ 32,500.00  
         
July 20, 2011
  $ 32,500.00  
         
September 20, 2011
  $ 45,000.00  
         
TOTAL
  $ 225,000.00  

For the year ended December 31, 2011 and on April 28, 2011, we entered into a Joint Venture Master Agreement with Ocean Wise International Industrial Limited, a company established in Hong Kong (“Ocean Wise”), pursuant to which we and Ocean Wise created a new Hong Kong company called ReachOut Holdings Limited. ReachOut was then to establish a subsidiary in Dongguan, China in order to provide high quality pediatric healthcare in China. In consideration for our interest in ReachOut, we contributed $297,500 for a 65% ownership interest and Ocean Wise contributed $160,195 for its 35% interest.

a)  
Of the $297,500 contributed by us, $167,500 was lent to us by six (6) persons living in Hong Kong and Ocean Wise. The notes, ranging in principal amounts from $10,000 to $35,000, are due on demand after December 4, 2011. Interest accrues on the outstanding principal loan amounts at the rate of 6% per annum. The holder has the right to convert all or any portion of his note to shares at a discount of 38.5% of the closing bid price of our stock on the date the conversion notice is received by us. The notes were all converted by the holders thereof into an aggregate of 19,475,016 shares on May 2, 2011.
 
b)  
Of the $297,500 contributed by us, $130,000 was lent to us by a company in Hong Kong.  The loan bears interest at 12% per annum and is due on November 17, 2013.

For the year ended December 31, 2011 and on June 1, 2011, we received gross proceeds of $55,000 by entering into a convertible promissory note agreement. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to the lower of 70% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on May 31, 2012. On December 9, 2011, we modified the terms of the $55,000 convertible promissory note.  The modified note bears interest at 15% per annum (20% during such period, if any, that the Company fails to timely file its periodic reports pursuant to the Securities Exchange Act of 1934 and 18% after the 10th day after an event of default occurs) and all unpaid principal and accrued interest on the modified note shall be due and payable on December 9, 2013 (unless extended by the note holder by the amount of days of the pendency of an event of default) in cash or common stock, at the note holder’s option.  The modified note is convertible, at any time, in whole or in part, at the note holder’s option, into common stock of the Company at an initial conversion price per share equal to 50% of the average of the five lowest intraday prices of our common stock during the previous 20 trading days. The modified debenture also provides that 30,000,000 shares of our common stock to be held in escrow pursuant to a stock escrow agreement among us, the note holder and the escrow agent.
 
 
12

 
 
Date of Note
 
Interest
Rate
   
Note
Amount
   
Discount
 
New Note
Date
 
New Interest
Rate
   
New Conversion Discount
 
June 1, 2011
    8 %   $ 55,000       30 %
December 9, 2011
    15 %     50 %
                                           
Also, for the year ended December 31, 2011, we received, in aggregate, gross proceeds of $290,000 by entering into promissory notes with eight (8) Chinese individuals and two (2) Hong Kong corporations. The Notes, ranging in dates from June 17, 2011 to November 17, 2011, bear interest at 6%, 8% or 12% and have terms of one (1) to two (2) years from the date of issuance. All principal and accrued interest on the Notes are convertible at conversion prices ranging from 20-30% discount to the average of the three (3) closing bid prices of the common stock during the ten (10) trading day period prior to conversion.

Listed in the table below are the dates, interest rates, amounts and conversion discounts of the ten (10) promissory notes entered into with the Chinese individuals and Hong Kong corporations:
 
Date of Note
   
Interest
     
Amount
     
Conversion discount
 
June 17, 2011
    8 %   $ 25,000.00       30 %
                         
June 17, 2011
    8 %   $ 10,000.00       30 %
                         
June 17, 2011
    6 %   $ 10,000.00       20 %
                         
June 19, 2011
    6 %   $ 10,000.00       20 %
                         
July 1, 2011
    6 %   $ 10,000.00       20 %
                         
September 24, 2011
    6 %   $ 10,000.00       20 %
                         
October 18, 2011
    8 %   $ 50,000.00       30 %
                         
November 4, 2011
    6 %   $ 10,000.00       20 %
                         
November 17, 2011
    8 %   $ 25,000.00       30 %
                         
November 17, 2011
    12 %   $ 130,000.00       n/a  
                         
TOTAL
          $ 290,000.00          

Results of Operations
 
Net Loss. We incurred a net loss of $1,934,548 for the year ended December 31, 2011, compared to a net loss of $2,189,271 for the year ended December 31, 2010. For the year ended December 31, 2011, the loss was mainly as a result of:

i)  
an increase of $75,915 in general and administrative costs ($876,034 in 2011 compared with $800,119 in 2010) due to higher operational activity in 2011;
 
ii)  
a decrease of $484,918 in depreciation and amortization ($10,000 in 2011 compared with $494,918 in 2010) due to the medical software technology being fully depreciated and amortized in 2010;

iii)  
a decrease in management fees of $574,277 ($321,739 in 2011 compared with $896,016 in 2010) mainly due to an issuance of 38,000,000 restricted shares to our President in 2010;

iv)  
an increase in interest expense of $486,826 ($487,167 in 2011 compared with $341 in 2010) due to higher borrowings by us in 2011;
 
 
13

 
 
v)  
an increase in loss on derivatives of $191,666 ($188,917 in 2011 compared with income of $2,749 in 2010) due to higher borrowings by us in 2011
 
From February 27, 2007 (inception date) to December 31, 2011 we incurred a net loss of $4,291,564 and had a working capital deficit of $476,393.

Our ability to achieve profitable operations depends on developing revenue through the operation of private pediatric health and wellness centers throughout China. Our expectations are that we will not begin to show profitable results from the operation of pediatric health and wellness centers until end of 2012.
 
Limited Capital
 
We have used funds received to date to pay our trade payables and for licensing costs in China. Our cash has also been used to pay for our minimal office and administrative expenses in Beijing and corporate costs of legal, accounting and professional services required to prepare and file our reports with the SEC. Our remaining cash, however, will only be sufficient to sustain us for the short-term. If we are unable to locate additional financing within the short-term, we will be forced to suspend all public reporting with the SEC and possibly liquidate.
 
We are in discussions with investors and investment banks to raise the funds necessary to carry out our operational plans and continue our business activities.
 
Other than as described above, we have no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to use on commercially acceptable terms or at all. Our failure to raise capital as needed would significantly restrict our growth and hinder our ability to compete. We may need to curtail expenses, and forgo business opportunities. Additional equity financings are likely to be dilutive to holders of our common stock and debt financing, if available, may involve significant payment obligations and covenants that restrict how we operate our business. If we are unable to secure funds to finance our operations, we may examine other possibilities, including, but not limited to, mergers or acquisitions.
 
Management believes the ability of the Company to continue as a going concern, earn revenues and achieve profitability is highly dependent on a number of factors including our ability to obtain sufficient financing to continue our operations and to complete construction of our first flagship children’s health and wellness center in China, in addition to being able to continue our growth strategy and expand our health and wellness centers throughout China.
 
The Company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations and to open and operate its planned children’s health and wellness centers to attain profitable operations. As at December 31, 2011, the Company has a working capital deficit of $476,393 and has accumulated losses of $4,291,564 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.

Inflation
 
The effect of inflation on our revenue and operating results has not been significant.
 
Critical Accounting Estimates
 
Basis of Presentation and Consolidation: Our consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. These consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Aventerra Explorations Ltd, a company incorporated in England, and the accounts of an incorporated venture, ReachOut Holdings Limited, in which the Company holds a 65% interest and maintains majority voting control. All inter-company accounts and transactions have been eliminated.
 
Use of Estimates: The preparation of financial statements in conformity with US 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. The Company regularly evaluates estimates and assumptions related to donated expenses, and deferred income tax valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
 
14

 
 
Earnings (Loss) Per Share: The Company computes net earnings (loss) per share in accordance with ASC 260 “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. At December 31, 2011 and 2010, there were no dilutive potential common shares.

Foreign Currency Translation: The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in Canadian dollars and Chinese Yuan Renminbi  and management has adopted ASC 830 “Foreign Currency Translation Matters”. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

Stock-based Compensation:  The Company records stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, and ASC 505-50, “Equity-Based Payments to Non-Employees” using the fair value method.  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
 
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
 
 
15

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
December 31, 2011
 
 
Index
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets
F-2
Consolidated Statements of Expenses
F-3
Consolidated Statements of Cash Flows
F-4
Consolidated Statement of Stockholders’ Equity (Deficit)
F-5 to F-6
Notes to the Consolidated Financial Statements
F-7 to F-31

 
 

 
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors
Medical Care Technologies Inc.
(a development stage company)
Beijing, China

We have audited the consolidated balance sheets of Medical Care Technologies Inc. and its subsidiary, a development stage company, (collectively, the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of expenses, stockholders’ equity (deficit), and cash flows for each of the years then ended, and for the period from February 27, 2007 (Inception) to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medical Care Technologies and its subsidiary as of December 31, 2011 and 2010, and the results of their expenses and their cash flows for each of the years then ended, and for the period from February 27, 2007 (Inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that Medical Care Technologies Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, Medical Care Technologies Inc. suffered losses from operations and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
 
/s/ MALONEBAILEY, LLP
www.malonebailey.com
Houston, Texas
April 16, 2012
 
 
F-1

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Consolidated Balance Sheets

   
December 31,
   
December 31,
 
   
2011
   
2010
 
             
ASSETS
           
             
Current Assets
           
             
Cash and cash equivalents
  $ 3,380     $ 391  
Prepaid expenses
    41,682       6,500  
                 
Total Current Assets
    45,062       6,891  
                 
Property and equipment, net of accumulated depreciation of $50,000 and $40,000, respectively
    6,200       10,000  
Intangible asset
    457,695       -  
Deferred financing costs
    4,964        
                 
Total Assets
  $ 513,921     $ 16,891  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current Liabilities
               
Accounts payable
  $ 90,679     $ 77,958  
Accrued liabilities
    20,606       10,112  
Convertible note payable, net of unamortized discount of $23,100 and $8,427, respectively
    93,596       1,573  
Derivative liability
    155,958       6,095  
Due to related parties
    79,635       59,402  
Loans payable
    80,981       91,113  
                 
Total Current Liabilities
    521,455       246,253  
                 
Convertible note payable, net of unamortized discount of $45,500 and $nil, respectively
    954        
Loans payable
    130,000        
                 
Total Liabilities
    652,409       246,253  
                 
Commitments and Contingency
               
                 
Stockholders’ Deficit
               
                 
Preferred Stock:  100,000,000 shares authorized, $0.00001 par value,
No shares issued and outstanding as of December 31, 2011 and December 31, 2010
           
                 
Common Stock:  8,000,000,000 shares authorized, $0.00001 par value,
308,898,953 and 161,006,087 shares issued and outstanding as of
December 31, 2011 and December 31, 2010, respectively
    3,089       1,610  
                 
Additional Paid-in Capital
    3,998,827       2,136,705  
                 
Deficit Accumulated During the Development Stage
    (4,291,564 )     (2,367,677 )
                 
Total Stockholders’ Deficit
    (289,648 )     (229,362 )
                 
Non-controlling Interest
    151,160        
                 
Total Stockholders’ Deficit
    (138,488 )     (229,362 )
                 
Total Liabilities and Stockholders’ Deficit
  $ 513,921     $ 16,891  
 
The accompanying notes are an integral part of these audited consolidated financial statements
 
 
F-2

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Expenses

         
Period from
 
         
February 27, 2007
 
   
For the Year Ended
   
(Inception)
 
   
December 31,
   
to December 31,
 
   
2011
   
2010
   
2011
 
                   
Expenses
                 
                   
General and administrative
  $ 876,034     $ 800,119     $ 1,750,793  
Depreciation and amortization expense
    10,000       494,918       504,918  
Management fees
    321,739       896,016       1,233,447  
                         
Total Operating Expenses
    (1,207,773 )     (2,191,053 )     (3,489,158 )
                         
Other Income (Expense)
                       
                         
Interest expense
    (487,167 )     (341 )     (487,508 )
Gain (loss) on derivative
    (188,917 )     2,749       (186,168 )
Loss on extinguishment of debt
    (37,225 )           (37,225 )
Loss on settlement of debt
    (13,750 )           (13,750 )
Foreign currency exchange gain (loss)
    284       (626 )     (1,106 )
                         
Total Other Income (Expense)
    (726,775 )     1,782       (725,757 )
                         
Loss Before Discontinued Operations
    (1,934,548 )     (2,189,271 )     (4,214,915 )
                         
Loss from Discontinued Operations
                (87,310 )
                         
Net Loss
  $ (1,934,548 )   $ (2,189,271 )   $ (4,302,225 )
                         
Net Loss attributable to non-controlling interest
    10,661             10,661  
                         
Net Loss Attributable to Medical Care Technologies Inc.
  $ (1,923,887 )   $ (2,189,271 )   $ (4,291,564 )
                         
Net Loss Per Common Share –
Basic and Diluted available to
Medical Care Technologies Inc.:
  $ (0.01 )   $ (0.02 )        
                         
Weighted Average Common Shares Outstanding –Basic and Diluted
   
215,297,000
      115,922,000          
 
The accompanying notes are an integral part of these audited consolidated financial statements
 
 
F-3

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows

               
Period from
February 27, 2007
 
   
For the Year Ended
   
(Date of Inception)
 
   
December 31,
   
to December 31,
 
   
2011
   
2010
   
2011
 
                   
Cash Flows From Operating Activities
                 
                   
Net loss
  $ (1,934,548 )   $ (2,189,271 )   $ (4,302,225 )
Adjustment to reconcile net loss to net cash used in operating activities:
                       
                         
Donated services and expenses
                10,500  
Depreciation and amortization
    10,000       494,918       504,918  
Stock-based compensation
    788,186       1,481,897       2,270,083  
Accretion of discount on convertible debt
    451,282       341       451,623  
Loss (Gain) on derivative
    188,917       (2,749 )     186,168  
Loss on extinguishment of debt
    37,225             37,225  
Loss on settlement of debt
    13,750             13,750  
Amortization of debt financing costs
    13,286             13,286  
                         
Changes in operating assets and liabilities:
                       
Prepaid expenses
    (35,182 )     (6,500 )     (41,682 )
Accounts payable
    75,221       21,317       128,375  
Accrued liabilities
    19,943       10,112       30,055  
Net Cash Used in Operating Activities
    (371,920 )     (189,935 )     (697,924 )
                         
Cash Flows From Investing Activities:
                       
Purchase of property, plant and equipment
    (6,200 )           (6,200 )
Cash paid for purchase of clinic license
    (457,695 )           (457,695 )
Net Cash Used in Investing Activities
    (463,895 )           (463,895 )
                         
Cash Flows From Financing Activities:
                       
Proceeds from sale of common stock for cash
          100,000       141,000  
Proceeds from loans payable
    130,000       20,449       221,189  
Proceeds from convertible note payable
    526,750       10,000       536,750  
Due to related party
    20,233       59,402       104,439  
Contributions from non-controlling interest
    161,821             161,821  
Cash Provided by Financing Activities
    838,804       189,851       1,165,199  
                         
Increase (Decrease) in Cash and Cash Equivalents
    2,989       (84 )     3,380  
                         
Cash and Cash Equivalents – Beginning of Period
    391       475        
                         
Cash and Cash Equivalents – End of Period
  $ 3,380     $ 391     $ 3,380  
                         
Supplemental Disclosures:
                       
Interest paid
                 
Income taxes paid
                 
                         
Non-Cash Disclosures:
                       
Debt discount
  $ 510,860     $ 8,844     $ 519,704  
Cancellation of shares
  $     $ 573     $ 573  
Conversion of derivative liability
  $ 589,943     $     $ 589,943  
Reclassification of related party debt to/from accounts payable
  $     $ 25,439     $ 48,249  
Shares issued for acquisition of assets
  $     $ 504,918     $ 504,918  
Shares issued upon conversion of convertible debt and accrued interest
  $ 461,721     $     $ 461,721  
 
The accompanying notes are an integral part of these audited consolidated financial statements
 
 
F-4

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Consolidated Statement of Stockholders’ Equity (Deficit)

   
Common Stock
   
Additional
   
Deficit
Accumulated
During
   
Non–
       
               
Paid-in
   
Development
   
Controlling
       
   
Shares
   
Amount
   
Capital
   
Stage
   
Interest
   
Total
 
Balance – February 27, 2007 (Inception)
        $     $     $     $     $  
                                                 
Issuance of common stock for cash at $0.00001 per share to the President of the Company
    57,500,000       575       4,425                   5,000  
                                                 
Issuance of common stock for cash at $0.0001 Per share
    41,400,000       414       35,586                   36,000  
                                                 
Donated services
                5,000                   5,000  
                                                 
Net loss for the period
                      (37,543 )           (37,543 )
                                                 
Balance – December 31, 2007
    98,900,000       989       45,011       (37,543 )           8,457  
                                                 
Donated services
                5,500                   5,500  
                                                 
Net loss for the year
                      (55,742 )           (55,742 )
                                                 
Balance – December 31, 2008
    98,900,000     $ 989     $ 50,511     $ (93,285 )   $     $ (41,785 )
                                                 
Cancellation of common stock
    (57,500,000 )     (575 )     (14,425 )                 (15,000 )
                                                 
Issuance of common stock for cash
    57,500,000       575       14,425                   15,000  
                                                 
Net loss for the year
                      (85,121 )           (85,121 )
                                                 
Balance – December 31, 2009
    98,900,000     $ 989     $ 50,511     $ (178,406 )   $     $ (126,906 )
                                                 
Cancellation of common stock
    (57,300,000 )     (573 )     573                    
                                                 
Issuance of common stock for acquisition of assets
    58,695,000       587       504,331                   504,918  
                                                 
Issuance of common stock for cash at $0.20 per share
    500,000       5       99,995                   100,000  
                                                 
Issuance of common stock for consulting services
    16,635,000       166       514,921                   515,087  
                                                 
Issuance of common stock for management services
    38,000,000       380       835,620                   836,000  
                                                 
Issuance of common stock for director fees
    500,000       5       10,995                   11,000  
                                                 
Issuance of common stock for investor relations services
    3,826,087       38       87,962                   88,000  
                                                 
Issuance of common stock for advisory services
    1,250,000       13       28,737                   28,750  
                                                 
Stock-based compensation
                3,012                   3,012  
                                                 
Issuance of stock options
                48                   48  
                                                 
Net loss for the year
                      (2,189,271 )           (2,189,271 )
                                                 
Balance – December 31, 2010
    161,006,087     $ 1,610     $ 2,136,705     $ (2,367,677 )   $     $ (229,362 )

The accompanying notes are an integral part of these audited consolidated financial statements
 
 
F-5

 

   
Common Stock
   
Additional
   
Deficit
Accumulated
During
   
Non–
       
               
Paid-in
   
Development
   
Controlling
       
   
Shares
   
Amount
   
Capital
   
Stage
   
Interest
   
Total
 
                                     
Balance – December 31, 2010
    161,006,087     $ 1,610     $ 2,136,705     $ (2,367,677 )   $     $ (229,362 )
                                                 
Issuance of common stock for consulting and advisory services
    25,000,000       250       362,690                   362,940  
                                                 
Issuance of common stock upon conversion of convertible debt
    99,929,606       999       460,722                   461,721  
                                                 
Issuance of common stock for promissory note
    1,250,000       12       23,738                   23,750  
                                                 
Issuance of common stock for management services
    11,500,000       115       165,985                   166,100  
                                                 
Issuance of common stock for administrative services
    5,125,000       52       65,216                   65,268  
                                                 
Issuance of common stock for investor relations services
    5,088,260       51       82,449                   82,500  
                                                 
Conversion feature on convertible debt
                589,943                   589,943  
                                                 
Stock-based compensation
                111,379                   111,379  
                                                 
Net loss for the period
                      (1,923,887 )     (10,661 )     (1,934,548 )
                                                 
Contribution from non-controlling interest
                            161,821       161,821  
                                                 
Balance – December 31, 2011
    308,898,953     $ 3,089     $ 3,998,827     $ (4,291,564 )   $ 151,160     $ (138,488 )

The accompanying notes are an integral part of these audited consolidated financial statements

 
F-6

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
 
1.  
Nature of Operations and Continuance of Business
 
Medical Care Technologies Inc. (“we”, “our”, the “Company”) was incorporated in the State of Nevada on February 27, 2007 under the name of “Aventerra Explorations Inc.” and changed its name to “AM Oil Resources & Technology Inc.” on December 3, 2008. On September 28, 2009, the Company incorporated Medical Care Technologies Inc. for the sole purpose of effecting a name change. On October 6, 2009, the Company effected a merger with the wholly owned subsidiary and assumed the subsidiary’s name. In conjunction with the name change, the Company has also been granted a new trading symbol of MDCE. The Company is in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.
 
During the year ended December 31, 2010, the Company issued 57.3 million shares of common stock in connection with the acquisition of certain software and computer equipment. The shares represented 57.6% of the total issued and outstanding shares of the Company, resulting in a change in control. This change of control will limit the utilization of our NOL carryforwards in future tax periods. The Company’s principal business now is to open and operate private children’s health clinics throughout China.
 
Going Concern
 
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated revenues since inception and has a working capital deficit of $476,393 at December 31, 2011. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
2.  
Significant Accounting Policies
 
a) 
Basic Presentation and Consolidation
 
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. These consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Aventerra Explorations Ltd, a company incorporated in England, and the accounts of an incorporated venture, ReachOut Holdings Limited, in which the Company holds a 65% interest and maintains majority voting control. All inter-company accounts and transactions have been eliminated.
 
The Company entered into a joint venture agreement, pursuant to which the Company and the joint venture partner incorporated a new Hong Kong company on March 18, 2011 called ReachOut Holdings Limited for the purpose of operating children’s healthcare centers.
 
b) 
Reclassification
 
Certain prior year amounts have been reclassified to conform with the current year presentation.
 
c)
Use of Estimates
 
The preparation of financial statements in conformity with US 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. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
d) 
Cash and Cash Equivalents
 
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

 
F-7

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
 
e)
Property and Equipment
 
Property and equipment consists of computer hardware and equipment and is recorded at cost and amortized over its estimated life on a straight-line basis:
 
                Computer hardware 
3 years
                Equipment 
4 years
              
f)
Intangible Asset
 
Intangible asset consists of a business license for operating a children’s healthcare center in Dongguan, China and is recorded at cost. The license will be amortized over the remaining term of the joint venture agreement once operations commence.  At December 31, 2011, the healthcare center is not in operation. Refer to Note 12.
 
g)
Earnings (Loss) Per Share
 
The Company computes net earnings (loss) per share in accordance with ASC 260 "Earnings per Share". ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. At December 31, 2011 and 2010, there were 55,251,374 and 1,611,282 potential dilutive common shares, respectively.
 
h)
Financial Instruments and Fair Value Measurements
 
ASC 820 “Fair Value Measurements” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
 
Level 1
 
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
Level 2
 
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
Level 3
 
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
 
The Company’s financial instruments consist principally of cash, accounts payable, convertible note payable, loans payable and amounts due to related parties. Pursuant to ASC 820, the fair value of cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
 
The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
 
 
F-8

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
 
Assets and liabilities measured at fair value on a recurring basis were presented on the Company's consolidated balance sheet as of December 31, 2011 and 2010 as follows:

   
Fair Value Measurements Using
 
   
Quoted Price in Active Markets for Identical Instruments (Level 1)
   
Significant Other Observable Inputs (Level 2)
   
Significant Unobservable Inputs (Level 3)
   
Balance as of December 31, 2011
   
Balance as of December 31, 2010
 
Liabilities:
                             
Derivative Liabilities
  $     $     $ 155,958     $ 155,958     $ 6,095  
                                         
Total liabilities measured at fair value
  $     $     $
155,958
    $
155,958
    $
6,095
 
 
i)
Income Taxes
 
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Any interest and penalties related to uncertain tax positions would be recorded as part of income tax expense. No such interest or penalties were incurred in 2011 or 2010.
 
j)
Foreign Currency Translation
 
The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in Canadian dollars and Chinese renminbi and management has adopted ASC 830 “Foreign Currency Translation Matters”. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
 
k)
Stock-based Compensation
 
The Company records stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, and ASC 505-50, “Equity-Based Payments to Non-Employees” using the fair value method.
 
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
 
l)
Comprehensive Income
 
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. For the years ended December 31, 2011 and 2010, the Company had no items that represent comprehensive income.
 
m)
Recently Adopted Accounting Pronouncements
 
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
 
 
F-9

 

Medical Care Technologies Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
 
3.  
Asset Acquisition Agreement
 
 
a)
On January 9, 2010, the Company entered into an Asset Acquisition Agreement to acquire various computers, software, and technologies (the “assets”) held by Great Union Corporation (“Great Union”), a Hong Kong corporation. In consideration, the Company agreed to issue 57,300,000 shares of its common stock, which represents a controlling interest in Medical Care Technologies, Inc. As a result of this transaction, there was a change of control.
 
Based on the change in ownership, the assets were recorded based on historical basis and totaled $471,128. Pursuant to the agreement, on February 1, 2010, the Company cancelled 57,300,000 shares of common stock from the former President of the Company and issued these shares to Great Union.
 
The assets acquired are stated at cost and has the following remaining useful lives.  Amortization is calculated using straight-line method over the remaining lives.
 
                Computer hardware 
1 year
                Equipment 
2 years
                Computer software and database 
1 year 
 
At December 31, 2011, the acquired assets were fully amortized.  During the year ended December 31, 2011, the Company recorded amortization expense of $10,000 (2010 - $461,128).
 
4.
Property and Equipment
 
   
Cost
$
   
Accumulated
Depreciation
$
   
December 31,
2011
Net Carrying
Value
$
   
December 31,
2010
Net Carrying
Value
$
 
                         
Computer hardware
    30,000       30,000              
Equipment
    20,000       20,000             10,000  
Leasehold improvements
    6,200             6,200        
                                 
      56,200       50,000       6,200       10,000  
 
5.  
Related Party Transactions
 
a) 
During the year ended December 31, 2011, the Company recognized $60,000 of management fees for the President of the Company. At December 31, 2011, the Company is indebted to the President of the Company for $75,000 for management fees owed to the President of the Company. The Company is also indebted to the President of the Company for $2,156 for expenses paid on behalf of the Company.  These amounts are unsecured, bear no interest and are due on demand.
 
b)
On February 1, 2011, the Company entered into an employment agreement with its Chief Operating Officer (“COO”). Pursuant to the agreement, the Company granted 2,000,000 shares of common stock with a fair value of $28,000, based on the quoted market price of the stock on the date of grant. This grant is for the first year of service. The term of the agreement is 36 months and the agreement is automatically renewable for successive one year.  On August 1, 2011, the employment agreement was amended.  Pursuant to the amendment, the Company issued 8,000,000 restricted shares of common stock with a fair value of $113,600 to the COO.  See Notes 8(c) and (x).
 
At December 31, 2011, the Company is indebted to the COO of the Company for $2,479 for expenses paid on behalf of the Company. This amount is unsecured, bears no interest and is due on demand.
 
c)
On February 1, 2011, the Company issued 100,000 stock options to the COO with an exercise price of $0.25 per share. The 100,000 stock options are exercisable until February 1, 2016. 50,000 stock options vested on August 1, 2011, 25,000 stock options vest on January 1, 2012, and 25,000 stock options vest on August 1, 2012. The fair value for these stock options was estimated at the date of grant using the Black-Scholes option-pricing model assuming a weighted average expected life of 10.01 years, a risk-free rate of 3.48%, an expected volatility of 250%, and a 0% dividend yield. The weighted fair value of stock options was $0.014 per share. During the year ended December 31, 2011, the Company recorded stock-based compensation of $1,263 as management fees.
 
 
F-10

 
 
Medical Care Technologies Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
 
d)
On December 30, 2010, the Company issued 500,000 stock options to the President of the Company with an exercise price of $0.25 per share.  The 500,000 stock options are exercisable until December 30, 2015.  125,000 stock options vested on June 28, 2011, 125,000 vested on Dec 28, 2011, and 250,000 stock options vest on June 28, 2012.  The fair value for these stock options were estimated at the date of grant using the Black-Scholes option-pricing model assuming a weighted average expected life of 10.01 years, a risk-free rate of 3.38%, an expected volatility of 251%, and a 0% dividend yield. The weighted fair value of stock options was $0.011 per share. During the years ended December 31, 2011and 2010, the Company recorded stock-based compensation of $4,576 and $16 as management fees.
 
e) 
On December 30, 2010, the Company issued an aggregate of 250,000 stock options to four directors of the Company with an exercise price of $0.25 per share.  The 250,000 stock options are exercisable until December 30, 2015.  99,998 stock options vested on June 28, 2011, 75,001 stock options vested on December 28, 2011, and 75,001 stock options vest on June 28, 2012.  The fair value for these stock options were estimated at the date of grant using the Black-Scholes option-pricing model assuming a weighted average expected life of 10.01 years, a risk-free rate of 3.38%, an expected volatility of 251%, and a 0% dividend yield. The weighted fair value of stock options was $0.011 per share. During the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation of $2,467 and $10 as management fees.
 
f)
On September 13, 2010, the Company issued 38,000,000 shares of common stock to the President of the Company at a fair value of $836,000 for management services.
 
g)
On September 2, 2010, the Company issued 1,000,000 shares of common stock to a director of the Company at a fair value of $23,000 for 1 year of service as a director of the Company commencing September 2, 2010.
 
h)
On September 1, 2010, the Company issued 500,000 shares of common stock to two directors of the Company at a fair value of $11,500.
 
6.  
Loans payable
 
a)
On August 8, 2009, the Company received $5,900 (Cdn$6,000) and entered into a promissory note agreement. Under the terms of the note, the principal of the loan is unsecured and bears no interest if repaid by April 1, 2010. The Company failed to make the principal repayment on April 1, 2010. The note currently bears interest of 12% per annum and is payable in annual installments commencing April 1, 2011. In the event of default, the principal and all accrued interest shall be due and payable thereon.  At December 31, 2011, the Company has not repaid the note.
 
b)
On August 9, 2009, the Company borrowed $22,000 and entered into a promissory note agreement. Under the terms of the note, the principal of the loan is unsecured and bears no interest if repaid by April 1, 2010. The Company failed to make the principal repayment on April 1, 2010. The note currently bears interest of 12% per annum and is payable in annual installments commencing April 1, 2011. In the event of default, the principal and all accrued interest shall be due and payable thereon. At December 31, 2011, the Company has not repaid the note.
 
c)
On August 9, 2009, the Company borrowed $28,740 and entered into a promissory note. Under the terms of the note, the principal of the loan is unsecured and bears no interest if repaid by April 1, 2010. The Company failed to make the principal repayment on April 1, 2010. The note currently bears interest of 12% per annum and is payable in annual installments commencing April 1, 2011. In the event of default, the principal and all accrued interest shall be due and payable thereon. At December 31, 2011, the Company has not repaid the note.
 
d)
On November 18, 2009, the Company borrowed $14,000 pursuant to a promissory note. Under the terms of the note, the principal of the loan is unsecured and bears no interest if repaid by April 1, 2010. The Company failed to make the principal repayment on April 1, 2010. The note currently bears interest of 12% per annum and is payable in annual installments commencing April 1, 2011. In the event of default, the principal and all accrued interest shall be due and payable thereon. At December 31, 2011, the Company has not repaid the note.
 
e)
On March 30, 2010 the Company borrowed $10,341 pursuant to a promissory note. Under the terms of the note, the principal of the loan is unsecured and bears no interest if repaid by April 1, 2010. The Company failed to make the principal repayment on April 1, 2010. The note currently bears interest of 12% per annum and is payable in annual installments commencing April 1, 2011. In the event of default, the principal and all accrued interest shall be due and payable thereon. At December 31, 2011, the Company has not repaid the note.
 
f)
On November 16, 2010, the Company borrowed $10,000 pursuant to a promissory note which is unsecured, bears interest at 6% per annum and due on November 16, 2011.  On June 1, 2011, the Company issued 1,250,000 shares of common stock with a fair value of $23,750 for settlement of the $10,000 promissory note. Since the fair value of the shares issued was more than the promissory note, the Company recognized a loss on the shares issued for the promissory note of $13,750.
 
 
F-11

 
 
Medical Care Technologies Inc.