Edgar Filing: Medical Care Technologies Inc.

f10q0912_medicalcare.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-53665

MEDICAL CARE TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

26-4227137

(I.R.S. Employer Identification No.)

Room 815, No. 2 Building Beixiaojie, Dongzhimen Nei

Beijing, People’s Republic of China 10009

(Address of principal executive offices, including zip code.)

(8610) 6407 0580

(Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 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 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,” “non-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

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 number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 3,433,896,955 as of November 19, 2012.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Medical Care Technologies Inc.

(A Development Stage Company)

September 30, 2012

	Index

Consolidated Balance Sheets	F-1

Consolidated Statements of Expenses	F-2

Consolidated Statements of Cash Flows	F-3

Consolidated Statement of Stockholders’ Equity (Deficit)	F-4 to F-5

Notes to the Consolidated Financial Statements	F-6 to F-22

Medical Care Technologies Inc.

(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
	2012			2011

ASSETS

Current Assets

Cash and cash equivalents	$	742		$	3,380
Prepaid expenses and deposit		221,068			41,682
Total Current Assets		221,810			45,062

Property and equipment, net of accumulated depreciation of $50,000 and $50,000, respectively		31,002			6,200
Intangible asset		897,148			457,695
Deferred financing costs		2,693			4,964

Total Assets	$	1,152,653		$	513,921

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable	$	166,386		$	90,679
Accrued liabilities		277,110			20,606
Convertible note payable, net of unamortized discount of $10,402 and $23,100, respectively		70,887			93,596
Derivative liability		95,398			155,958
Due to related parties		423,577			79,635
Loan from related party		285,645			–
Loans payable		59,183			80,981

Total Current Liabilities		1,378,186			521,455

Convertible note payable, net of unamortized discount of $31,426 and $45,500, respectively		2,936			954
Loans payable		–			130,000

Total Liabilities		1,381,122			652,409

Commitments and Contingency

Stockholders’ Deficit

Preferred Stock: 100,000,000 shares authorized, $0.00001 par value, No shares issued and outstanding as of September 30, 2012 and December 31, 2011		–			–

Common Stock: 8,000,000,000 shares authorized, $0.00001 par value, 3,243,896,955 and 328,898,953 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively		32,439			3,289

Additional Paid-in Capital		6,194,911			4,047,627

Deficit Accumulated During the Development Stage		(6,757,478	)		(4,340,564	)

Total Stockholders’ Deficit		(530,128	)		(289,648	)

Non-controlling Interest		301,659			151,160

Total Stockholders’ Deficit		(228,469	)		(138,488	)

Total Liabilities and Stockholders’ Deficit	$	1,152,653		$	513,921

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

F-1

Medical Care Technologies Inc.

(A Development Stage Company)

Consolidated Statements of Expenses

(Unaudited)

													Period from
													February 27, 2007
	For the Three Months Ended						For the Nine Months Ended						(Inception)
	September 30,						September 30,						to September 30,
	2012			2011			2012			2011			2012

Expenses

General and administrative	$	372,569		$	223,073		$	786,872		$	727,226		$	2,586,665
Depreciation and amortization expense		–			8,942			–			18,402			504,918
Management fees		45,020			129,687			272,193			305,783			1,505,640
Total Operating Expenses		(417,589	)		(361,702	)		(1,059,065	)		(1,051,411	)		(4,597,223	)

Other Income (Expense)

Interest expense		(136,938	)		(135,748	)		(367,063	)		(323,152	)		(854,571	)
Loss on derivative		(156,072	)		(7,381	)		(531,544	)		(78,210	)		(717,712	)
Loss on extinguishment of debt		–			–			(18,387	)		–			(55,612	)
Loss on settlement of debt		–			–			–			(13,750	)		(13,750	)
Loss on contract cancellation		–			–			(450,000	)		–			(450,000	)
Foreign currency exchange gain (loss)		(530	)		434			(551	)		431			(1,657	)
Total Other Income (Expense)		(293,540	)		(142,695	)		(1,367,545	)		(414,681	)		(2,093,302	)

Loss Before Discontinued Operations		(711,129	)		(504,397	)		(2,426,610	)		(1,466,092	)		(6,690,525	)

Loss from Discontinued Operations		–			–			–			–			(87,310	)

Net Loss	$	(711,129	)	$	(504,397	)	$	(2,426,610	)	$	(1,466,092	)	$	(6,777,835	)

Net Loss attributable to non-controlling interest		1,318			2,857			9,696			6,198			20,357

Net Loss Attributable to Medical Care Technologies Inc.	$	(709,811	)	$	(501,540	)	$	(2,416,914	)	$	(1,459,894	)	$	(6,757,478	)

Net Loss Per Common Share – Basic and Diluted available to Medical Care Technologies Inc.:	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

Weighted Average Common Shares Outstanding –Basic and Diluted		2,513,008,000			229,920,000			1,418,963,000			192,895,000

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

F-2

Medical Care Technologies Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

							Period from February 27, 2007
	For the Nine Months Ended						(Date of Inception)
	September 30,						to September 30,
	2012			2011			2012
Cash Flows From Operating Activities:
Net loss	$	(2,426,610	)	$	(1,466,092	)	$	(6,777,835	)
Adjustment to reconcile net loss to net cash used in operating activities:
Donated services and expenses		–			–			10,500
Depreciation and amortization		–			18,402			504,918
Stock-based compensation		755,487			731,121			3,074,570
Accretion of discount on convertible debt		292,691			301,387			744,314
Loss on derivative		531,544			78,210			717,712
Loss on extinguishment of debt		18,387			13,750			55,612
Loss on settlement of debt		–			–			13,750
Loss on contract cancellation		450,000			–			450,000
Amortization of debt financing costs		40,630			8,523			53,916

Changes in operating assets and liabilities:
Prepaid expenses and deposit		15,927			(13,498	)		(25,755	)
Accounts payable		101,403			46,012			229,778
Accrued liabilities		22,886			12,378			52,941
Net Cash Used in Operating Activities		(197,655	)		(269,807	)		(895,579	)

Cash Flows From Investing Activities:
Purchase of property, plant and equipment		–			–			(6,200	)
Cash paid for purchase of clinic license		(153,808	)		(257,695	)		(611,503	)
Net Cash Used in Investing Activities		(153,808	)		(257,695	)		(617,703	)

Cash Flows From Financing Activities:
Proceeds from sale of common stock for cash		–			–			141,000
Proceeds from loans payable		–			–			221,189
Proceeds from convertible note payable, net of debt financing costs		40,000			444,500			576,750
Due to related party		148,630			11,794			253,069
Contributions from non-controlling interest		160,195			97,515			322,016
Cash Provided by Financing Activities		348,825			553,809			1,514,024

(Decrease) Increase in Cash and Cash Equivalents		(2,638	)		26,307			742

Cash and Cash Equivalents – Beginning of Period		3,380			391			–

Cash and Cash Equivalents – End of Period	$	742		$	26,698		$	742
Supplemental Disclosures:
Interest paid		–			–			–
Income taxes paid		–			–			–

Non-Cash Disclosures:
Account payable paid through issuance of stock and convertible notes	$	54,500					$	54,500
Deposit paid directly by related party	$	195,312		$	–		$	195,312
Acquisition of property and equipment in accounts payable	$	24,802		$	–		$	24,802
Debt discount	$	276,100		$	78,901		$	795,804
Cancellation of shares	$	–		$	–		$	573
Conversion of derivative liability	$	877,428		$	391,816		$	1,467,371
Settlement of debt – non-cash	$	–		$	10,000		$	–
Reclassification of related party debt to/from accounts payable	$	–		$	–		$	48,249
Shares issued for acquisition of assets	$	–		$	–		$	504,918
Shares issued upon conversion of convertible debt and accrued interest	$	294,160		$	–		$	755,881
Purchase of clinic license paid directly by related party	$	285,645		$	306,933		$	285,645
Issuance of convertible notes to settle loans payable	$	152,000		$	–		$	152,000

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

F-3

Medical Care Technologies Inc.

(A Development Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

(Unaudited)

	Common Stock						Additional Paid-in			Deficit Accumulated During Development			Non– 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 unaudited consolidated financial statements

F-4

	Common Stock				Additional Paid-in			Deficit Accumulated During Development			Non– 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	45,000,000		450		411,490			–			–			411,940

Issuance of common stock upon conversion ofconvertible 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 year	–		–		–			(1,972,887	)		(10,661	)		(1,983,548	)

Contribution from non-controlling interest	–		–		–			–			161,821			161,821

Balance – December 31, 2011	328,898,953	$	3,289	$	4,047,627		$	(4,340,564	)	$	151,160		$	(138,488	)

Issuance of common stock for cash	42,857,142		429		14,571			–			–			15,000

Issuance of common stock for consulting and advisory services	668,018,606		6,680		445,547			–			–			452,227

Issuance of common stock for management services	200,000,000		2,000		158,000			–			–			160,000

Issuance of common stock for administrative services	150,000,000		1,500		102,000			–			–			103,500

Issuance of common stock for engineering services	65,000,000		650		39,975			–			–			40,625

Issuance of common stock upon conversion of convertible debt	1,306,655,588		13,067		281,093			–			–			294,160

Issuance of common stock for financing fees	38,022,222		380		33,979			–			–			34,359

Issuance of common stock for commitment fees	444,444,444		4,444		195,556			–			–			200,000

Conversion feature on convertible debt	–		–		877,428			–			–			877,428

Stock-based compensation	–		–		(865	)		–			–			(865	)

Net loss for the period	–		–		–			(2,416,914	)		(9,696	)		(2,426,610	)

Contribution from non-controlling interest	–		–		–			–			160,195			160,195
Balance – September 30, 2012	3,243,896,955	$	32,439	$	6,194,911		$	(6,757,478	)	$	301,659		$	(228,469	)

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

F-5

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

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 was 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”.

Basis of Presentation

These accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s December 31, 2011 Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2011 as reported on Form 10-K, have been omitted.

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 never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. 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. As at September 30, 2012, the Company has a working capital deficit of $1,156,376 and has accumulated losses of $6,757,478 since inception. 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.

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.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

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 impact on its financial position or results of operations.

F-6

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

2.	Property and Equipment

	Cost $		Accumulated Depreciation $		September 30, 2012 Net Carrying Value $		December 31, 2011 Net Carrying Value $

Computer hardware		30,000		30,000		–		–
Equipment		20,000		20,000		–		–
Leasehold improvements		31,002		–		31,002		6,200
		81,002		50,000		31,002		6,200

3.	Related Party Transactions

On April 23, 2012, the Company entered into a CEO Agreement with the Chief Executive Officer (the “CEO”) of the Company, which has an initial term of 1 year commencing December 1, 2011. Pursuant to the agreement, the Company agreed to pay the CEO an annual compensation of $120,000 commencing February 1, 2012 and issued 120,000,000 restricted shares of common stock to the CEO with a fair value of $96,000.

On December 30, 2010, the Company issued 500,000 stock options to the CEO 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 vested 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 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 nine months ended September 30, 2012, the Company recorded stock-based compensation of $906 as management fees.

During the nine months ended September 30, 2012, the Company recognized a total of $181,906 of management fees for the CEO of the Company. At September 30, 2012, the Company is indebted to the CEO of the Company for $154,500 for management fees. The Company is also indebted to the CEO of the Company and a company controlled by the CEO of the Company for $29,003 for expenses paid on behalf of the Company. These amounts are unsecured, bear no interest and are due on demand.

On February 1, 2011, the Company entered into an Executive Officer Employment Agreement with its President (former Chief Operating Officer). Pursuant to the agreement, the Company agreed to pay a base compensation to be determined at such time when the Company secures a major financing in excess of $1,000,000. The Company issued 2,000,000 restricted shares of common stock for the first year of service at a fair value of $28,000. The Company will determine the stock based compensation for subsequent years 30 days prior to the anniversary date of the agreement. The term of the agreement is 36 months and the agreement is automatically renewable for successive one year. On August 1, 2011, the Company amended the Executive Officer Employment Agreement. Pursuant to the amendment, the Company issued 8,000,000 shares of common stock at a fair value of $113,600. On April 23, 2012, the Company further amended the Executive Officer Employment Agreement. Pursuant to the 2nd amendment, the Company agreed to pay an annual salary of $60,000 and issued an additional 80,000,000 restricted shares of common stock with a fair value of $64,000.

On February 1, 2011, the Company issued 100,000 stock options to the President 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 vested on January 1, 2012, and 25,000 stock options vested 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 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 nine months ended September 30, 2012, the Company recorded stock-based compensation of $136 as management fees

During the nine months ended September 30, 2012, the Company recognized a total of $90,267 of management fees for the President of the Company. At September 30, 2012, the Company is indebted to the President of the Company for $26,151 for management fees. The Company is also indebted to the President of the Company for $8,328 for expenses paid on behalf of the Company. These amounts are unsecured, bear no interest and are due on demand.

F-7

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

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 vested 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 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 nine months ended September 30, 2012, the Company recorded stock-based compensation of $272 as management fees.

On June 12, 2012, the Company entered into a loan agreement (the “Loan Agreement”) with Ocean Wise International Industrial Limited, a Hong Kong corporation (“Ocean Wise”), pursuant to which the Company received a loan of $285,645 from Ocean Wise to be used for the Company’s joint venture costs for its Shenzhen Phase 1 and 2 licenses. The loan accrues interest at 12% per annum and matures on December 12, 2012. In the event of default, all principal and accrued interest will become immediately due and payable and the Company will be required to pay Ocean Wise an initial penalty equal to 40% of the Company’s joint venture share in Reachout Holdings Limited (“Reachout”), which penalty will increase an additional 5% for every 5 days such default continues. Ocean Wise and the Company currently own 35% and 65%, respectively, in Reachout, a Hong Kong corporation. At September 30, 2012, accrued interest of $10,283 is included in due to related parties.

In May 2012, Ocean Wise made a deposit of $195,312 on behalf of Reachout to the government of China for the license to operate healthcare center in Shenzhen, China. The deposit will be returned to Ocean Wise in November 2012. The related liability to Ocean Wise is included in due to related parties.

4.	Loans payable

The following table summarizes the change in loans payable for the nine months ended September 30, 2012:

Balance at December 31, 2011	$	210,981
Settlement of loan payable through issuance of convertible notes		(152,000	)
Foreign exchange translation		202
Balance at September 30, 2012	$	59,183

As of September 30, 2012, the Company is in default of loans amounting to $59,183.

5.	Convertible Notes Payable

On June 1, 2011, the Company entered into a Securities Purchase Agreement with Asher for the sale of a Convertible Promissory Note (the “Note”) in the principal amount of $32,500. The Company received net proceeds from the issuance of the Note in the amount of $30,000 and incurred debt financing costs of $2,500, which was amortized over the term of the Note. The Note, which is due on March 6, 2012, bears interest at the rate of 8% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at the election of Asher at any time after 180 days from June 1, 2011 at a conversion price 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 derivative treatment would not become applicable until the Note becomes convertible on November 28, 2011.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $27,056 as a derivative liability, reducing the carrying value of the convertible loan to $5,444 upon the commencement of the conversion period on November 28, 2011. The initial fair value of the derivative liability at November 28, 2011 of $27,056 was determined using the Black Scholes option pricing model with a quoted market price of $0.0029, a conversion price of $0.002, expected volatility of 241%, no expected dividends, an expected term of 0.27 years and a risk-free interest rate of 0.03%. The discount on the convertible loan is accreted over the term of the convertible loan.

On December 12, 2011, the Company issued 8,333,333 restricted shares of common stock upon the conversion of the principal amount of $10,000. Before the conversion of the note on December 12, 2011, the Company recorded accretion of $2,037. Upon the conversion of the note, the Company recognized unamortized discount of $7,698 as interest expense. The fair value of the derivative liability at December 12, 2011 was $57,269 and $17,621 was reclassified to additional paid-in capital upon conversion of the principal amount of $10,000. The fair value of the derivative liability at December 12, 2011 was determined using the Black Scholes option pricing model with a quoted market price of $0.003, a conversion price of $0.0012, expected volatility of 271%, no expected dividends, an expected term of 0.23 years and a risk-free interest rate of 0.01%.

F-8

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

On December 22, 2011, the Company issued 7,692,308 restricted shares of common stock upon the conversion of the principal amount of $10,000. Before the conversion of the note on December 22, 2011, the Company recorded accretion of $1,384. Upon the conversion of the note, the Company recognized unamortized discount of $7,083 as interest expense. The fair value of the derivative liability at December 22, 2011 was $34,299 and $15,244 was reclassified to additional paid-in capital upon conversion of the principal amount of $10,000. The fair value of the derivative liability at December 22, 2011 was determined using the Black Scholes option pricing model with a quoted market price of $0.0027, a conversion price of $0.0013, expected volatility of 371%, no expected dividends, an expected term of 0.21 years and a risk-free interest rate of 0.01%.

On January 3, 2012, the Company modified the terms of the convertible promissory note. The conversion rate for the convertible note was amended to the lesser of the variable conversion price of 65% discount to the average of the 3 closing bid prices of the common stock during the 10 trading day period prior to the conversion and the fixed conversion price of $0.0005.

The modification was analyzed under ASC 470-50 “Debt – Modifications and Extinguishments,” to determine if extinguishment accounting was applicable. Pursuant to ASC 470-50-40-11, the guidance found in ASC 470-50 does not apply to previously bifurcated embedded conversion options accounted for under ASC 815. As a result of the guidance found in ASC 470-50, it was concluded there was no extinguishment of debt, no gain or loss was recognized upon modification and no change to the carrying value of the debt was recognized.

The Company then analyzed the modification of the conversion feature pursuant to ASC 815 “Derivatives and Hedging”. The change in terms of the conversion features would have resulted in a change in the fair value of the derivative liability. As the derivative liability is marked to fair value at each reporting period, the change in fair value as a result of the modification was recorded during the nine months ended September 30, 2012.

During the nine months ended September 30, 2012, the Company issued 27,600,000 restricted shares of common stock upon the conversion of the principal amount of $12,500 and accrued interest of $1,300. Before the conversion of the note, the Compa recorded accretion of $1,782. Upon the conversion of the note, the Company recognized unamortized discount of $6,194 as interest expense. The fair value of the derivative liability of $36,700 was reclassified to additional paid-in capital upon conversion of the principal amount of $12,500. The fair value of the derivative liability at the conversion dates was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0015 to $0.0020, a conversion price of $0.0005, expected volatility ranging from 347% to 411%, no expected dividends, an expected term ranging from 0.11 to 0.15 years and a risk-free interest rate ranging from 0.02% to 0.04%.

During the nine months ended September 30, 2012, the Company recognized a loss of $20,084 on the change in fair value of the derivative liability.

On June 1, 2011, the Company entered into a Convertible Promissory Note agreement for $55,000. 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.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $79,141 as a derivative liability, reduced the carrying value of the convertible loan to $0 and recognized a “day 1” derivative loss of $24,141. The initial fair value of the derivative liability at June 1, 2011 of $79,141 was determined using the Black Scholes option pricing model with a quoted market price of $0.0180, a conversion price of $0.0094, expected volatility of 186%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.18%. The discount on the convertible loan is accreted over the term of the convertible loan.

On December 9, 2011, the Company modified the terms of the 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 of the Company, 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 the Company’s common stock during the previous 20 trading days.

The modified debenture also provides that 30,000,000 shares of the Company’s common stock will be held in escrow pursuant to a stock escrow agreement among the Company, the note holder and the escrow agent.

F-9

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

Pursuant to ASC 470-50, “Debt – Modification and Extinguishment,” it was determined that the original and modified notes are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The modified note was initially recorded at fair value and that amount was compared to the carrying value of the original note prior to modification to determine the gain or loss on extinguishment of debt.

On December 9, 2011, prior to the modification of the convertible note, the carrying value of the convertible note was $61,586 (principal amount of $55,000 plus accrued interest of $2,302 plus derivative liability of $55,611 less unamortized discount of $51,327).

The Company determined the fair value of the embedded conversion feature of the modified debt pursuant to ASC 815, “Derivatives and Hedging.” The initial fair value of the derivative liability of the modified debt instrument at December 9, 2011 was determined using the Black Scholes option pricing model with a quoted market price of $0.0022, a conversion price of $0.0011, expected volatility of 205%, no expected dividends, an expected term of two years and a risk-free interest rate of 0.22%. The Company recognized the fair value of the embedded conversion feature of $98,811 as a derivative liability, reduced the value of the convertible loan to $0 and recognized a “day 1” derivative loss of $43,811.

The fair value of the modified debt of $98,811 (principal amount of $55,000 plus derivative liability of $98,811 less unamortized discount of $55,000) was compared to the carrying value of the original debt of $61,586 and the Company recorded a loss on extinguishment of debt of $37,225.

On December 19, 2011, the Company issued 9,000,000 restricted shares of common stock upon the conversion of the principal amount of $9,000. Before the conversion of the modified note on December 19, 2011, the Company recorded accretion of $543. Upon the conversion of the note, the Company recognized the unamortized discount of $8,911 as interest expense. The fair value of the derivative liability at December 19, 2011 was $153,398 and $25,101 was reclassified to additional paid-in capital upon the conversion of the principal amount of $9,000. The fair value of the derivative liability at December 19, 2011 was determined using the Black Scholes option pricing model with a quote market price of $0.0030, a conversion price of $0.0010, expected volatility of 217%, no expected dividends, an expected term of 1.98 years and a risk-free interest rate of 0.24%.

During the nine months ended September 30, 2012, the Company issued 118,408,241 restricted shares of common stock upon the conversion of the principal amount of $46,000 and accrued interest of $1,710. Before the conversion of the modified note, the Company recorded accretion of $9,241. Upon the conversion of the note, the Company recognized the unamortized discount of $36,170 as interest expense. The fair value of the derivative liability of $113,376 was reclassified to additional paid-in capital upon the conversion of the principal amount of $46,000. The fair value of the derivative liability at the conversion dates was determined using the Black Scholes option pricing model with a quote market price ranging from $0.0005 to $0.0025, a conversion price ranging from $0.0003 to $0.0010, expected volatility ranging from 216% to 279%, no expected dividends, an expected term ranging from 1.49 to 1.93 years and a risk-free interest rate ranging from 0.22% to 0.27%.

During the nine months ended September 30, 2012, a loss of $7,883 was recognized on the change in fair value of the derivative liability.

On July 20, 2011, the Company entered into a Securities Purchase Agreement with Asher for the sale of a Convertible Promissory Note (the “Note”) in the principal amount of $32,500. The Company received net proceeds from the issuance of the Note in the amount of $30,000 and incurred debt financing costs of $2,500, which was amortized over the term of the Note. The Note, which is due on April 23, 2012, bears interest at the rate of 8% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at the election of Asher at any time after 180 days from July 20, 2011 at a conversion price 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 derivative treatment would not become applicable until the Note becomes convertible on January 16, 2012.

The modification was analyzed under ASC 470-50 “Debt – Modifications and Extinguishments,” to determine if extinguishment accounting was applicable. As a result of the guidance found in ASC 470-50, it was concluded there was no extinguishment of debt, no gain or loss was recognized upon modification and no change to the carrying value of the debt was recognized.

F-10

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $115,621 as a derivative liability, reduced the carrying value of the convertible loan to $0, and recognized a “day 1”derivative loss of $83,121 upon the commencement of the conversion period on January 16, 2012. The initial fair value of the derivative liability at January 26, 2012 of $115,621 was determined using the Black Scholes option pricing model with a quoted market price of $0.0021, a conversion price of $0.0005, expected volatility of 350%, no expected dividends, an expected term of 0.27 year and a risk-free interest rate of 0.03%. The discount on the convertible loan is accreted over the term of the convertible loan.

During the nine months ended September 30, 2012, the Company issued 90,588,585 restricted shares of common stock upon the conversion of the principal amount of $32,500 and accrued interest of $1,300. Before the conversion of the note, the Company recorded accretion of $7,541. Upon the conversion of the note, the Company recognized unamortized discount of $24,959 as interest expense. The fair value of the derivative liability of $102,748 was reclassified to additional paid-in capital upon the conversion of principal amount of $32,500. The fair value of the derivative liability at the conversion dates was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0009 to $0.0017, a conversion price ranging from $0.0003 to $0.0005, expected volatility ranging from 299% to 360%, no expected dividends, an expected term ranging from 0.10 to 0.23 years and a risk-free interest rate ranging from 0.05% to 0.10%.

During the nine months ended September 30, 2012, a loss of $70,248 was recognized on the change in fair value of the derivative liability.

On September 9, 2011, the Company entered into a Securities Purchase Agreement with Asher for the sale of a Convertible Promissory Note (the “Note”) in the principal amount of $45,000. The Company received net proceeds from the issuance of the Note in the amount of $42,500 and incurred debt financing costs of $2,500, which will be amortized over the term of the Note. The Note, which is due on June 12, 2012, bears interest at the rate of 8% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at the election of Asher at any time after 180 days from September 9, 2011 at a conversion price equal to a 45% discount to the average of the 3 closing bid prices of the common stock during the 10 trading day period prior to conversion. The derivative treatment would not become applicable until the Note becomes convertible on March 7, 2012.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $172,698 as a derivative liability, reduced the carrying value of the convertible loan to $0, and recognized a “day 1” derivative loss of $127,698 upon the commencement of the conversion period on March 7, 2012. The initial fair value of the derivative liability at March 7, 2012 of $172,698 was determined using the Black Scholes option pricing model with a quoted market price of $0.0013, a conversion price of $0.0003, expected volatility of 368%, no expected dividends, an expected term of 0.27 year and a risk-free interest rate of 0.08%. The discount on the convertible loan is accreted over the term of the convertible loan.

During the nine months ended September 30, 2012, the Company issued 170,376,223 restricted shares of common stock upon the conversion of principal amount of $45,000 and accrued interest of $1,800. Before the conversion of the note, the Company recorded accretion of $13,623. Upon the conversion of the note, the Company recognized unamortized discount of $29,509 as interest expense. The fair value of the derivative liability of $120,559 was reclassified to additional paid-in capital upon the conversion of principal amount of $45,000. The fair value of the derivative liability at the conversion dates was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0005 to $0.0013, a conversion price ranging from $0.0002 to $0.0008, expected volatility ranging from 218% to 511%, no expected dividends, an expected term ranging from 0.08 to 0.22 years and a risk-free interest rate ranging from 0.05% to 0.09%.

During the nine months ended September 30, 2012, a loss of $75,557 was recognized on the change in fair value of the derivative liability.

F-11

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

On November 17, 2011, the Company entered into Convertible Promissory Note agreement for $25,000. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to 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 November 17, 2012.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $16,365 as a derivative liability and reduced the carrying value of the convertible loan to $8,635. The initial fair value of the derivative liability at November 17, 2011 of $16,365 was determined using the Black Scholes option pricing model with a quoted market price of $0.003, a conversion price of $0.0033, expected volatility of 223%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.10%. The discount on the convertible loan is accreted over the term of the convertible loan.

On May 21, 2011, the Company modified the terms of the convertible promissory note. The modified note bears interest at 12% per annum and all unpaid principal and accrued interest on the modified note shall be due and payable on May 21, 2013. 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 a conversion price per share equal to 50% of the lowest closing bid price of Company’s common stock during the previous 15 trading days.

On May 21, 2012, prior to the modification of the convertible note, the carrying value of the convertible note was $47,888 (principal amount of $25,000 plus accrued interest of $1,019 plus derivative liability of $32,050 less unamortized discount of $10,181).

The Company determined the fair value of the embedded conversion feature of the modified debt pursuant to ASC 815, “Derivatives and Hedging.” The initial fair value of the derivative liability of the modified debt instrument at May 21, 2012 was determined using the Black Scholes option pricing model with a quoted market price of $0.0001, a conversion price of $0.0004, expected volatility of 305%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.21%. The Company recognized the fair value of the embedded conversion feature of $66,275 as a derivative liability and reduced the value of the convertible loan to $0.

The fair value of the modified debt of $66,275 (principal amount of $25,000 plus derivative liability of $66,275 less unamortized discount of $25,000) was compared to the carrying value of the original debt of $47,888 and the Company recorded a loss on extinguishment of debt of $18,387.

During the nine months ended September 30, 2012, the Company issued 72,571,428 restricted shares of common stock upon the conversion of the principal amount of $25,000 and accrued interest of $400. Before the conversion of the note, the Company recorded accretion of $816. Upon the conversion of the note, the Company recognized unamortized discount of $24,184 as interest expense. The fair value of the derivative liability of $47,224 was reclassified to additional paid-in capital upon the conversion of principal amount of $25,000. The fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0007 to $0.001, a conversion price of $0.0004, expected volatility ranging from 305% to 312%, no expected dividends, an expected term ranging from 0.86 to 0.99 years and a risk-free interest rate ranging from 0.18% to 0.21%.

During the nine months ended September 30, 2012, a gain of $20,849 was recognized on the change in fair value of the derivative liability.

On March 6, 2012, the Company entered into Convertible Promissory Note agreement for $10,000. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to 80% 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 10% per year and the principal amount and any interest thereon are due on March 5, 2013.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $14,058 as a derivative liability, reduced the carrying value of the convertible loan to $0 and recognized a “day 1” derivative loss of $4,058. The initial fair value of the derivative liability at March 6, 2012 of $14,058 was determined using the Black Scholes option pricing model with a quoted market price of $0.001, a conversion price of $0.0006, expected volatility of 270%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.17%. The discount on the convertible loan is accreted over the term of the convertible loan.

F-12

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

During the nine months ended September 30, 2012, a loss of $2,168 was recognized on the change in fair value of the derivative liability.

On March 8, 2012, the Company entered into Convertible Promissory Note agreement for $5,000. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to 80% 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 6% per year and the principal amount and any interest thereon are due on March 7, 2013.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $7,547 as a derivative liability, reduced the carrying value of the convertible loan to $0 and recognized a “day 1” derivative loss of $2,547 on derivative liability. The initial fair value of the derivative liability at March 8, 2012 of $7,547 was determined using the Black Scholes option pricing model with a quoted market price of $0.0013, a conversion price of $0.0007, expected volatility of 270%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.18%. The discount on the convertible loan is accreted over the term of the convertible loan.

During the nine months ended September 30, 2012, a loss of $1,114 was recognized on the change in fair value of the derivative liability.

On May 29, 2012, the Company entered into Convertible Promissory Note agreement for $65,000 in connection with a debt purchase agreement of an existing loan payable for the same amount. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to 50% 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 10% per year and the principal amount and any interest thereon are due on November 29, 2014.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $114,237 as a derivative liability, reduced the carrying value of the convertible loan to $0 and recognized a “day 1” derivative loss of $49,237. The initial fair value of the derivative liability at May 29, 2012 of $114,237 was determined using the Black Scholes option pricing model with a quoted market price of $0.0007, a conversion price of $0.0004, expected volatility of 246%, no expected dividends, an expected term of 2.5 years and a risk-free interest rate of 0.36%. The discount on the convertible loan is accreted over the term of the convertible loan.

During the nine months ended September 30, 2012, the Company issued 345,000,000 restricted shares of common stock upon the conversion of the principal amount of $48,625. Before the conversion of the note, the Company recorded accretion of $781. Upon the conversion of the note, the Company recognized unamortized discount of $48,112 as interest expense. The fair value of the derivative liability of $196,515 was reclassified to additional paid-in capital upon the conversion of principal amount of $48,625. The fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0004 to $0.0011, a conversion price ranging from $0.00008 to $0.0004, expected volatility ranging from 240% to 260%, no expected dividends, an expected term ranging from 2.16 to 2.50 years and a risk-free interest rate ranging from 0.23% to 0.36%.

During the nine months ended September 30, 2012, a loss of $171,038 was recognized on the change in fair value of the derivative liability.

During the nine months ended September 30, 2012, the Company issued 355,000,000 restricted shares of common stock upon the conversion of the principal amount of $49,425. Before the conversion of the note, the Company recorded accretion of $789. Upon the conversion of the note, the Company recognized unamortized discount of $48,892 as interest expense. The fair value of the derivative liability of $213,716 was reclassified to additional paid-in capital upon the conversion of principal amount of $49,425. The fair value of the derivative liability was determined using the Black Scholes option pricing model with a quoted market price ranging from $0.0004 to $0.0011, a conversion price ranging from $0.00008 to $0.0004, expected volatility ranging from 240% to 260%, no expected dividends, an expected term ranging from 2.16 to 2.50 years and a risk-free interest rate ranging from 0.23% to 0.37%.

F-13

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

During the nine months ended September 30, 2012, a loss of $186,309 was recognized on the change in fair value of the derivative liability.

On July 19, 2012, the Company entered into a Convertible Promissory Note agreement in the principal amount of $29,500 (the “Note”) and incurred debt financing costs of $2,000, which will be amortized over the term of the Note. The Note, which is due on January 13, 2013, bears interest at the rate of 10% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 12% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at any time after 180 days from July 19, 2012 at a conversion price equal to 35% of the average of the 3 lowest trading prices of the common stock during the 90 trading day period prior to conversion. The derivative treatment would not become applicable until the Note becomes convertible on January 15, 2013.

On August 13, 2012, the Company entered into a Convertible Promissory Note agreement in the principal amount of $35,000 (the “Note”) and incurred debt financing costs of $2,000, which will be amortized over the term of the Note. The Note, which is due on February 13, 2013, bears interest at the rate of 10% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 12% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at any time after 180 days from August 13, 2012 at a conversion price equal to 35% of the average of the 3 lowest trading prices of the common stock during the 30 trading day period prior to conversion. The derivative treatment would not become applicable until the Note becomes convertible on February 9, 2013.

On September 26, 2012, the Company entered into a Convertible Promissory Note agreement in the principal amount of $28,600 (the “Note”) pursuant to an amendment of an existing loan payable amounting to $22,000. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to 50% of the average of the lowest 5 intraday prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 10% per year and the principal amount and any interest thereon are due on September 26, 2013. From and after the 10th day after an event of default, the interest rate to any unpaid amounts owed shall be increased to 18% per annum.

Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature of $46,592 as a derivative liability, reduced the carrying value of the convertible loan to $0 and recognized a “day 1” derivative loss of $17,992. The initial fair value of the derivative liability at September 26, 2012 of $46,592 was determined using the Black Scholes option pricing model with a quoted market price of $0.0004, a conversion price of $0.0002, expected volatility of 317%, no expected dividends, an expected term of one year and a risk-free interest rate of 0.17%. The discount on the convertible loan is accreted over the term of the convertible loan.

On September 26, 2012, the Company issued 127,111,111 shares of common stock upon the conversion of the principal amount of $28,600. Upon the conversion of the note, the Company recognized unamortized discount of $28,600 as interest expense. The fair value of the derivative liability of $46,592 was reclassified to additional paid-in capital upon the conversion of principal amount of $28,600.

6.	Common and Preferred Stock

The preferred stock may be divided into and issued in series by the Board of Directors. The Board is authorized to fix and determine the designations, rights, qualifications, preferences, limitations and terms, within legal limitations. As of September 30, 2012 and December 31, 2011, there was no preferred stock issued and outstanding.

On March 29, 2012, the Company held a Special Meeting of Shareholders and authorized the increasing of authorized capital of the Company from 500,000,000 shares of common stock with a par value of $0.00001 per share to 8,000,000,000 shares of common stock with a par value of $0.00001 per share and granted discretionary authority to the Company’s Board of Directors to implement a reverse stock split of the Company’s common stock, on a basis of up to five hundred pre-consolidation shares within twelve months of the date of the Special Meeting.

During the three months ended September 30, 2012:

On July 26, 2012, the Company issued 42,857,142 shares of common stock at $0.00035 per share for proceeds of $15,000. The Company also granted an option to purchase an additional 42,857,142 shares of common stock with an exercise price of $0.00035 per share to the investor. The option expires on November 23, 2012.

F-14

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

b)	The Company issued 470,000,000 shares of common stock at a fair value of $244,000 for consulting services.

c)	The Company issued 95,000,000 shares of common stock at a fair value of $54,000 for administrative services.

d)	The Company issued 32,500,000 shares of common stock at a fair value of $14,625 for engineering services.

e)	The Company issued 768,253,968 shares of common stock upon the conversions of various convertible notes as described in Note 5.

F-15

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

During the three months ended June 30, 2012:

f)	The Company issued 168,018,606 shares of common stock at a fair value of $167,227 for consulting services.

g)	The Company issued 200,000,000 shares of common stock at a fair value of $160,000 for management services.

h)	The Company issued 55,000,000 shares of common stock at a fair value of $49,500 for administrative services.

i)	The Company issued 32,500,000 shares of common stock at a fair value of $26,000 for engineering services.

j)	The Company issued 364,247,689 shares of common stock upon the conversions of various convertible notes as described in Note 5.

k)	The Company issued 4,688,889 shares of common stock at a fair value of $4,359 pursuant to the finder’ fees agreement as described in Note 11(f).

l)	The Company issued 444,444,444 shares of common stock at a fair value of $200,000 for commitment fees.

During the three months ended March 31, 2012:

In November 2011, the Company granted 90,000,000 shares of common stock pursuant to a consulting agreement. The award vests over the 9-month term of the agreement. For the three months ended March 31, 2012, the Company recognized stock-based compensation of $41,000 which is equivalent to the fair value of the 30,000,000 shares that vested during the period. Refer to Note 11(e).

n)	The Company issued 174,153,931 shares of common stock upon the conversions of various convertible notes as described in Note 5.

o)	The Company issued 33,333,333 restricted shares of common stock at a fair value of $30,000 for structuring and due diligence fee pursuant to the term sheet as described in Note 11(n).

7.	Stock Options

On December 30, 2010, the Company adopted a stock option plan named 2010 Stock Option Plan (the “Plan”), the purpose of which is 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. Prior to grant of options under the Plan, there were 10,000,000 shares of common stock available for issuance under the Plan.

During the year ended December 31, 2010, the Company granted 1,350,000 stock options with an exercise price of $0.25 per share. All 1,350,000 stock options are exercisable until December 30, 2015. Of the 1,350,000 stock options, 458,330 stock options vest on June 28, 2011, 383,335 stock options vest on December 28, 2011 and 508,335 stock options vest on June 28, 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 years, a risk-free rate of 3.38%, an expected volatility of 251%, and a 0% dividend yield. The weighted average fair value of stock options granted was $0.011 per share.

During the year ended December 31, 2011, the Company granted 350,000 stock options with an exercise price of $0.25 per share. Of the 350,000 stock options, 250,000 stock options are exercisable until December 30, 2015 and 100,000 stock options are exercisable until February 1, 2016. Of the 350,000 stock options, 100,000 stock options vest on June 28, 2011, 50,000 stock options vest on August 1, 2011, 75,000 stock options vest on December 28, 2011, 25,000 stock options vest on January 1, 2012, 75,000 stock options vest on June 28, 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 9.47 years, a risk-free rate of 2.37%, an expected volatility of 214%, and a 0% dividend yield. The weighted average fair value of stock options granted was $0.0093 per share.

During the nine months ended September 30, 2012, the Company reversed stock-based compensation of $1,907 included in general and administrative expense and recorded $1,042 as management fees. During the nine months ended September 30, 2011, the Company recorded stock-based compensation of $14,476 as general and administrative expense and $4,883 as management fees.

During the nine months ended September 30, 2012, the Company granted an option to an investor to purchase 42,857,142 shares of common stock. The option is exercisable at $0.00035 per share until November 23, 2012.

F-16

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

A summary of the Company’s stock option activity is as follows:

	Number of Options #		Weighted Average Exercise Price $		Weighted Average Remaining Contractual Life (years) #		Aggregate Intrinsic Value $

Outstanding, December 31, 2010		1,350,000		0.25

Granted		350,000		0.25

Outstanding, December 31, 2011		1,700,000		0.25

Granted		42,857,142		0.00035

Outstanding, September 30, 2012		44,557,142		0.00987		0.27		6,429

Exercisable, September 30, 2012		44,557,142		0.00987		0.27		6,429

A summary of the status of the Company’s non-vested stock options as of September 30, 2012, and changes during the nine months ended September 30, 2012 are presented below:

Non-vested options	Number of Options #			Weighted Average Grant Date Fair Value $

Non-vested at December 31, 2010		1,350,000			0.011

Granted		350,000			0.018
Vested		(1,066,665	)		0.015

Non-vested at December 31, 2011		633,335			0.008

Granted		42,857,142			–
Vested		(43,490,477	)		–

Non-vested at September 30, 2012		–			–

At September 30, 2012, there was $nil of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. There was $6,429 intrinsic value associated with the outstanding options at September 30, 2012.

8.	Share Purchase Warrants

A summary of the changes in the Company’s share purchase warrants is presented below:

	Number of Warrants #			Exercise Price $


Balance, December 31, 2010 and 2011		500,000			0.15

Expired		(500,000	)		0.15

Balance, September 30, 2012		–			–

F-17

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

9.	Derivative Instruments

In June 2008, the FASB ratified ASC 815-15, “Derivatives and Hedging – Embedded Derivatives” (“ASC 815-15”). ASC 815-15, specifies that a contract that would otherwise meet the definition of a derivative, but is both (a) indexed to its own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. ASC 815-15 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock, including evaluating the instrument’s contingent exercise and settlement provisions, and thus able to qualify for the ASC 815-15 scope exception. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. ASC 815-15 is effective for the first annual reporting period beginning after December 15, 2008 and early adoption is prohibited.

Convertible Debt – The embedded conversion option in the Company’s convertible notes described in Note 5 contain a conversion feature that qualifies for embedded derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the consolidated statement of operations as a gain or loss on derivative financial instruments.

The following table summarizes the change in derivative liabilities for the nine months ended September 30, 2012:

Balance at December 31, 2011	$	155,958
Addition of new derivative liability		285,324
Settlement of derivative liability through conversion of debt		(877,428	)
Derivative loss included in other income (expense)		531,544
Balance at September 30, 2012	$	95,398

10.	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 and China, 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-18

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

Assets and liabilities measured at fair value on a recurring basis were presented on the Company's consolidated balance sheet as of September 30, 2012 and December 31, 2011 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 September 30, 2012		Balance as of December 31, 2011
Liabilities:
Derivative Liabilities	$	–	$	–	$	95,398	$	95,398	$	155,958

Total liabilities measured at fair value	$	–	$	–	$	95,398	$	95,398	$	155,958

11.	Commitments

On May 10, 2011, the Company entered into a management advisory services agreement with a consultant for an initial period of one year. In consideration for such services, the Company is required to make payments of $25,000 per quarter as well as any out-of-pocket expenses. In the event that the Company is unable to make such payments, they are given the option to issue shares for such services totalling 7,500,000. On June 29, 2011, the Company issued 3,750,000 shares of common stock at a fair value of $63,750, registered under the June 2, 2011 S-8 Registration Statement. On August 15, 2011, the Company issued 1,250,000 shares of common stock at a fair value of $17,250, registered under the June 2, 2011 S-8 Registration Statement.

On May 18, 2011, ReachOut entered into two office lease agreements, which commenced on May 22, 2011 until May 21, 2017. The minimum rent from May 22, 2011 to May 21, 2013 is $5,550 (RMB35,060) per month, the minimum rent from May 22, 2013 to May 21, 2014 is $5,889 (RMB37,200) per month, the minimum rent from May 22, 2014 to May 21, 2015 is $6,079 (RMB38,400), the minimum rent from May 22, 2015 to May 21, 2016 is $6,269 (RMB39,600) and the minimum rent from May 22, 2016 to May 21, 2017 is $6,554 (RMB41,400). On May 1, 2012, the Company and the lessor agreed to cease the rent payment until the opening of the health center.

On September 1, 2011, the Company entered into a medical director services agreement for a period of 2 years. Pursuant to the agreement, the Company agreed to issue 2,000,000 shares of common stock as follows: 1,000,000 shares within 10 days of the execution of the agreement; and 1,000,000 shares on September 1, 2012. On September 19, 2011, the Company issued 1,000,000 restricted shares of common stock at a fair value of $10,000. During the quarter ended September 30, 2012, the medical director agreed to waive the 1,000,000 shares issuable on September 1, 2012.

On October 15, 2011, ReachOut entered into an interior design contract with G-Design Consultant Inc. and Art Team Limited (“G-Design”). Pursuant to the agreement, ReachOut agreed to pay a total sum not to exceed $31,002. The amount is payable as follows: $6,200 to be paid when the preliminary design phase and presentation have been accomplished; $13,951 to be paid on completion and acceptance of the final design concept; $10,851 to be paid when all completed design or construction drawings have been approved by Chinese government officials and departments and is ready to be used for construction. The Company paid $6,200 to G-Design on November 14, 2011. During the nine months ended September 30, 2012, the Company accrued $13,951 upon the completion and acceptance of the final design concept and $10,851 upon the approval by the Chinese government on the completed design and construction drawings.

On November 11, 2011, the Company entered into a business advisory and consulting agreement with a consultant for a term of nine months. In consideration for such services, the Company agreed to issue 10,000,000 shares of common stock of the Company each month, for a total of 90,000,000 shares of common stock, which will be registered under a Form S-8 Registration. Pursuant to the agreement, during the period ended December 31, 2011 and September 30, 2012, the Company recognized $49,000 and $41,000, respectively, of expense related to this agreement. On March 31, 2012, the agreement was terminated. Refer to Note 6(m).

F-19

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

On November 29, 2011, the Company entered into a finder’s fee agreement with Vince Trapasso (“Trapasso”) whereby the Company agreed to pay finder’s fee in cash equal to 5% and in restricted common shares equal to 5% of the total dollar amount of the financing provided by those persons or entities who were introduced by Trapasso. The initial term of the agreement is one year and the agreement will automatically be renewed at the expiration of the first year of service and at each anniversary of the agreement. After the first anniversary, the agreement can be terminated by either party with 10 days notice. During the year ended December 31, 2011, the Company paid $2,750 to Trapasso. During the nine months ended September 30, 2012, the Company issued 4,688,889 restricted shares of common stock to Trapasso. Refer to Note 6(k).

On March 8, 2012, the Company entered into a business consulting services agreement with a consultant whereby the Company agreed to issue 65,000,000 shares of common stock, which will be registered under a Form S-8 Registration agreement. The term of this agreement shall commence on the date common stock share compensation is delivered to the consultant and shall continue for a period of 120 days thereafter. On July 17, 2012, the Company has not issued any shares to the consultant and has entered into another agreement in replacement of the March 8, 2012 agreement. Refer to Note 11(w).

On April 1, 2012, the Company entered into a business advisory and consulting agreement with a consultant for a term of nine months. In consideration for such services, the Company agreed to issue 90,000,000 shares of common stock of the Company, which will be registered under a Form S-8 Registration. The 90,000,000 shares will be issued in tranches throughout the term of the agreement as follows: i) 30,000,000 shares upon execution of the agreement or upon effective filing of the Form S-8; ii) 30,000,000 shares on or before August 1, 2012 and; iii) 30,000,000 shares on or before November 1, 2012. As of September 24, 2012, the Company has fully issued the 90,000,000 shares of common stock at a total fair value of $60,000.

On April 1, 2012, the Company entered into an administrative services agreement for a term of one year. In consideration for such services, the Company agreed to issue 60,000,000 shares of common stock of the Company, which will be registered under a Form S-8 Registration. The 60,000,000 shares will be issued pro rata on a monthly basis with the pro rata shares being due at the end of each month. As of September 24, 2012, the Company has fully issued the 60,000,000 shares of common stock at a total fair value of $46,000.

On April 9, 2012, the Company entered into a business development services agreement for a period of one year for general consulting services in connection with acquiring medical centre licenses and/or operational centres in China. Pursuant to the agreement, the Company agreed to issue 31,885,300 shares of common stock for the introduction of three opportunities for the Company to acquire ownership within a medical center joint venture in China. The 31,885,300 shares are issuable as follows: i) 17,918,606 shares upon execution of the agreement; ii) 3,981,913 shares after the signing of the first letter of intent to enter into a joint venture to develop a medical center; iii) 3,981,913 shares when the Company signs a contract for the first joint venture medical center in China; iv) 2,986,434 shares when the Company signs a contract for the second joint venture medical center in China; iv) 2,986,434 shares when the Company signs a contract for the third joint venture medical center in China. During the nine months ended September 30, 2012, the Company issued 17,918,606 shares at a fair value of $16,127.

k)	On April 23, 2012, the Company entered into a consulting agreement for legal services pursuant to which the Company issued 10,000,000 shares of common stock with a fair value of $8,000. The Company will register the shares on an S-8 registration statement.

On May 1, 2012, the Company entered into an administrative and support services agreement for a term of one year. In consideration for such services, the Company agreed to issue 60,000,000 shares of common stock of the Company, which will be registered under a Form S-8 Registration. The 60,000,000 shares will be issued pro rata on a monthly basis with the pro rata shares being due at the end of each month. As of September 24, 2012, the Company has fully issued the 60,000,000 shares of common stock at a total fair value of $36,500.

On May 1, 2012, the Company entered into an engineering services agreement for a term of four months. In consideration for such services, the Company agreed to pay the consultant at a rate of $16,250 for each month for which services are provided. The Company will also issue 65,000,000 shares of common stock of the Company, which will be registered under a Form S-8 Registration. As of September 24, 2012, the Company has fully issued the 65,000,000 shares of common stock at a total fair value of $40,625.

F-20

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

n)	On May 2, 2012, the Company finalized, executed and delivered a Reserve Equity Financing Agreement (the “Financing Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with AGS Capital Group, LLC ("AGS").

Pursuant to the terms of the Financing Agreement, for a period of 48 months commencing on the date of effectiveness of the registration statement, AGS shall purchase up to $10,000,000 (the “Commitment Amount”) of the Company’s common stock. The purchase price of the shares under the Financing Agreement is equal to ninety percent (90%) of the lowest closing bid price of the Company’s common stock during the 20 consecutive trading days after the Company delivers to AGS a notice in writing requiring AGS to purchase shares, as further provided for pursuant to the terms of the Financing Agreement. The Company cannot issue any such notices to AGS until a registration statement covering these purchases is declared effective by the Securities and Exchange Commission (the “SEC’) and the number of shares sold in each advance shall not exceed 250% of the average daily trading volume. The Company is prohibited from taking certain actions, including issuing shares or convertible securities where the purchase price is determined using any floating discount. The Company is required to pay a fee of $250,000 in case of termination of the agreement.

As compensation for AGS's structuring, legal, administrative and due diligence costs associated with the Financing Agreement, the Company issued 33,333,333 restricted common shares of the Company. As further consideration for AGS entering into the Financing Agreement, the Company also issued 444,444,444 restricted common shares to AGS, which equals to two percent (2%) of the Commitment Amount.

In connection with the execution of the Financing Agreement, the Company entered into the Registration Rights Agreement with AGS. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to file a registration statement with the SEC to cover the shares issued and to be issued to AGS pursuant to the Financing Agreement.

On July 17, 2012, the Company terminated the financing agreement and registration rights agreement. As of September 30, 2012, the Company has accrued the termination fee of $250,000 pursuant to the terms of the agreement. The termination fee and the fair value of the 444,444,444 shares of $200,000 are reported as a loss on contract cancellation in the consolidated statements of expenses.

On May 8, 2012, the Company entering into a business consulting services agreement with a consultant whereby the Company agreed to issue 77,000,000 shares of common stock, which will be registered under a Form S-8 Registration agreement. The term of this agreement shall commence on the date common stock share compensation is delivered to the consultant and shall continue for a period of 120 days thereafter. On August 27, 2012, the Company issued 77,000,000 shares of common stock at a fair value of $38,500.

p)	On May 16, 2012, the Company entered into a China logistics consulting agreement for a term of ten months. In consideration for such services, the Company issued 55,000,000 restricted shares of common stock at a fair value of $66,000.

q)	On May 17, 2012, the Company entered into a communications consulting agreement for a term of three months. In consideration for such services, the Company issued 100,000 restricted shares of common stock at a fair value of $100.

On May 18, 2012, the Company entered into an administrative services agreement for a term of one year. In consideration for such services, the Company agreed to issue 60,00,000 restricted shares of common stock, payable as follows: i) 30,000,000 shares upon execution of the agreement and; ii) 30,000,000 shares on or before November 18, 2012. On May 18, 2012, the Company issued 30,000,000 restricted shares of common stock at a fair value of $21,000.

On June 1, 2012, the Company entered into an advisory agreement for a term of six months. In consideration for such services, the Company agreed to issue 80,000,000 restricted shares of common stock of the Company, payable as follows: i) 30,000,000 shares upon execution of the agreement and; ii) 50,000,000 shares on or before September 15, 2012. On June 1, 2012, the Company issued 30,000,000 restricted shares of common stock at a fair value of $24,000. On September 15, 2012, the Company recognized $20,000 of expense for the 50,000,000 shares that vested.

t)	On June 1, 2012, the Company entered into a consulting agreement for a term of seven months. In consideration for such services, the Company issued 5,000,000 restricted shares of common stock of the Company at a fair value of $4,000.

u)	On June 1, 2012, the Company entered into a chief technology officer agreement for a term of six months. In consideration for such services, the Company issued 5,000,000 restricted shares of common stock of the Company at a fair value of $4,000.

F-21

Medical Care Technologies Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

On June 15, 2012, the Company entered into a medical director agreement for a term of six months. In consideration for such services, the Company agreed to issue 30,000,000 restricted shares of common stock, payable as follows: i) 15,000,000 shares upon execution of the agreement; and ii) 15,000,000 shares on August 15, 2012. On June 15, 2012, the Company issued 15,000,000 shares of common stock at a fair value of $15,000. On August 20, 2012, the Company issued 15,000,000 shares of common stock at a fair value of $7,500.

On July 17, 2012, the Company entered into a business consulting services agreement with a consultant whereby the Company issued 70,000,000 restricted shares of common stock. The term of this agreement shall commence on the date common stock share compensation is delivered to the consultant and shall continue for a period of 120 days thereafter. This agreement is for replacement of the agreement as described in Note 11(g). On July 18, 2012, the Company issued 70,000,000 shares of common stock at a fair value of $49,000.

On July 31, 2012, the Company entered into a marketing consulting agreement for a term of four months. In consideration for such services, the Company agreed to issue 198,000,000 shares of common stock upon the execution of the agreement. Pursuant to the agreement, the Company recognized $99,000 of expense for the 198,000,000 shares of common stock upon the execution of the agreement.

12.	Subsequent Events

On October 8, 2012, the Company entered into an Executive Officer Employment Agreement and appointed a new Chief Operating Officer (the “COO”). Pursuant to the agreement, on October 9, 2012, the Company issued 80,000,000 shares of common stock to the COO. The agreement is for 6 months, renewal upon mutual agreement.

b)	Subsequent to September 30, 2012, the Company issued 160,000,000 shares of common stock upon the conversion of $12,800 of convertible note as described in Note 5(h).

F-22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This quarterly 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 and wellness centers and; selling and distributing pharmaceutical and nutraceutical products. 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 healthcare services will be geared towards the advancing economic middle-class families. Specializing in the care of children between the ages of 3-16, our business objectives are to enhance the overall well-being of the family and community and to expand our pediatric services to include preventative health and wellness education. Through our children’s health facilities, we plan to also distribute a diverse range of industry-leading pharmaceutical and nutraceutical product lines. Our main mission is simple – to become a healthcare service provider leader in children’s health. 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.

In 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 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, provides 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.

In summer 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.

In May 2012, a growth opportunity was presented for a new location in a major Tier-1 city. We were officially invited to apply for a license to open a health center in Shenzhen. We applied and quickly received approval from the Chinese Ministry of Health. Shenzhen is considered to be China’s first and most successful “Special Economic Zone”, and is regarded as one of the fastest growing cities in the world with a population of over 10 million people. Shenzhen has grown beyond the borders of the original Zone and now encompasses an area of 790 sq. miles, larger than New York, London or Los Angeles! With a booming economy, Shenzhen has developed very rapidly into a vibrant commercial powerhouse fueled by the ambitions of its upwardly mobile, educated, entrepreneurial inhabitants. For many Chinese, Shenzhen represents China’s 21st century future (Business in Asia, March, 2012). Once license approval was granted, our consultants in Shenzhen moved to quickly select an eminent site for the health center, close to the 2011 Universiade location, in an area of this thriving city which teems with young, urban professional families. Zoning approvals from the city government have also been granted and all required licenses, bonds and zoning fees have been paid.

Currently, we hope to add subsequent locations in other 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.

We have been in discussions with the regulatory authorities to expand into Shanghai, Beijing, Kunshan, Zuhai, and Heilongjiang and it is our plan to open children’s health clinics in these areas.

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 3 years are expected to come from 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, market and sell pharmaceutical and nutraceutical products. Accordingly, we must raise enough cash from private investors, through equity financings or by developing strategic alliances with other leading, world class players in the health industry. Our sources for cash are funds raised through loans and convertible promissory notes from friends, family, private investment firms and our joint venture partner, Ocean Wise International Industrial Limited. Our success or failure will be determined by opening a number of pediatric health centers throughout China and running them successfully.

Results of Operations

Comparison of Nine Months Ended September 30, 2012 and 2011

Revenues

During the nine months ended September 30, 2012, we did not generate any revenues.

Expenses

General and administrative expenses for the nine months ended September 30, 2012 was $786,872, as compared to general and administrative expenses for the nine months ended September 30, 2011 of $727,226. These expenses are mainly comprised of audit and accounting of $64,688 (2011 - $55,350), transfer agent and filing fees of $31,486 (2011 - $21,500), legal expense of $23,592 (2011 - $17,263), financial advisory and consulting of $586,173 (2011 - $387,535), promotions and investor relations of $36,731 (2011 - $184,125) and travel of $12,371 (2011 - $23,708).

Management fees for the nine months ended September 30, 2012 was $272,193 as compared to management fees for the nine months ended September 30, 2011 of $305,783.

Other expenses for the nine months ended September 30, 2012 totalled $1,367,545 as compared to $414,681 for the nine months ended September 30, 2011. The increase was mainly due to interest expense of $367,063 (2011 - $323,152), loss on derivative of $531,544 (2011 - $78,210) – both expenses were as a result of more convertible note borrowings in addition to debt conversions into shares of common stock of the Company and, lastly, loss on contract cancellation of $450,000 (2011 - $nil) as a result of the termination of the financing agreement and registration rights agreement with AGS.

Net loss

As a result of the foregoing for the nine months ended September 30, 2012, net loss increased to a loss of $2,426,610, compared to a net loss of $1,466,092 during the nine months ended September 30, 2011. Net loss from inception (February 27, 2007) through September 30, 2012 was $6,777,835.

Liquidity and Capital Resources

Overview

As of September 30, 2012, we had cash on hand of $742. We believe that cash on hand, as of the date of this report, will not be sufficient to fund operations, working capital needs and other short-term cash requirements.

We entered into a security sale agreement, dated July 17, 2012 with a private accredited investor, for the purchase of $15,000 of our common stock for a purchase price of $0.00035 per share. The agreement provides, among other things, that we will register the shares on a Form S-1 registration statement within 120 days and use our best efforts to have such registration statement declared effective as soon as practicable. The investor also has a right, for 120 days, to purchase an additional 42,857,142 shares of our common stock at $0.00035 per share.

On July 19, 2012, we issued a convertible promissory note to Nicholas J. Morano, LLC, a Texas limited liability company (“Morano”), in the principal amount of $29,500. The Note matures on January 21, 2013, and accrues interest at 10% per annum. The Note contains default events which, if triggered, will result in a default interest rate of 12% per annum The Note may be prepaid in whole or in part. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at the election of Morano at any time after 180 days from issuance of the Note at a conversion price equal to a 35% discount to the average of the lowest three closing bid prices of the common stock during the 90 trading day period prior to conversion.

On July 23, 2012, we provided formal notice to terminate the $10 million reserve equity financing agreement entered into on April 27, 2012 with AGS Capital Group, LLC (“AGS”). AGS did not render any services to us or purchase any shares of our common stock pursuant to the terms in the financing agreement. Our cancellation notice provided for the return of 444,444,444 shares which were issued pursuant to the financing agreement. The termination provision in the financing agreement provides that if we terminate the agreement, we shall pay a termination fee of $250,000 within three days of such notice. Notwithstanding such provision, we are currently in negotiation with AGS and hope to resolve this matter amicably. Should there not be a favorable outcome to the negotiations, there may be potential liability or litigation with respect to the termination of the financing. We have pursued other and more favourable financing for our capital needs.

On August 13, 2012, we entered into a convertible promissory note agreement in the principal amount of $35,000. We incurred debt financing costs of $2,000, which will be amortized over the term of the Note. The Note, which is due on February 13, 2013, bears interest at the rate of 10% per annum. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate of 12% per annum from the due date thereof until the same is paid. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at any time after 180 days from August 13, 2012 at a conversion price equal to 35% of the average of the 3 lowest trading prices of the common stock during the 30 trading day period prior to conversion.

To date, our limited cash resources have been used to pay for our office and administrative expenses in Beijing, our license application fees in both Dongguan and Shenzhen, China, and legal, accounting and professional services required to prepare and file our reports with the U.S. Securities and Exchange Commission (“SEC”). As of record date, we have no cash and are currently sourcing additional financings on favorable terms.

At September 30, 2012, we had cash and cash equivalents of $742, and total liabilities of $1,381,122. At December 31, 2011, cash and cash equivalents were $3,380 and total liabilities were $652,409.

Our outstanding liabilities at September 30, 2012 consisted of $443,496 in accounts payable and accrued liabilities, $73,823 in convertible notes, $95,398 in derivative liabilities from convertible notes, $709,222 in related party debts and, $59,183 in loans payable.

From February 27, 2007 (inception date) to September 30, 2012, we incurred a net loss of $6,757,478 and had a working capital deficiency of $1,156,376.

The following table summarizes our net cash used in operating activities, net cash used in investing activities and net cash provided by (used in) financing activities for the periods presented:

	Nine Months Ended September 30,
	2012			2011
Net cash used in operating activities	$	(197,655	)	$	(269,807	)
Net cash used in investing activities		(153,808	)		(257,695	)
Cash provided by financing activities		348,825			553,809

Operating Activities

For the nine months ended September 30, 2012, cash used in operating activities was $197,655, compared to cash used in operating activities of $269,807 in the same period of 2011. Before changes in operating assets and liabilities, cash was used by operations primarily through stock-based compensation of $755,487 (2011 – 731,121), accretion on discount of convertible debt of $$292,691 (2011 - $301,387), loss on derivative of $531,544 (2011 - $78,210) and, loss on contract cancellation of $450,000 (2011 - $nil).

Net changes in operating assets and liabilities provided $140,216 for the nine months of September 30, 2012 compared to $44,892 in the same period in 2011. Corporate activity during the nine months ended September 30, 2012 resulted in a $124,289 increase in accrued liabilities and accounts payable compared to $58,390 increase over the corresponding period in 2011.

Investing Activities

Cash used in investing activities for the nine months ended September 30, 2012 was $153,808 (2011 - $257,695) and was used for the purchase of the Shenzhen health centre license.

Financing Activities

For the nine months ended September 30, 2012, net cash provided by financing activities was $348,825 (2011 - $553,809) for the same period of 2011. There were higher borrowings in 2011 by the Company via convertible notes.

Limited Capital

On July 19, 2012, we issued a convertible promissory note (the “Note”) to Nicholas J. Morano, LLC, a Texas limited liability company (“Morano”), in the principal amount of $29,500. The Note matures on January 21, 2013, and accrues interest at 10% per annum. The Note contains default events which, if triggered, will result in a default interest rate of 12% per annum The Note may be prepaid in whole or in part. All principal and accrued interest on the Note is convertible into shares of the Company’s common stock at the election of Morano at any time after 180 days from issuance of the Note at a conversion price equal to a 35% discount to the average of the lowest three closing bid prices of the common stock during the 90 trading day period prior to conversion.

We have used these funds to pay for our office and administrative expenses in Beijing, our license application fees in both Dongguan and Shenzhen, China, and legal, accounting and professional services required to prepare and file our reports with the U.S. Securities and Exchange Commission (“SEC”). As of record date, we have no cash and we are currently sourcing additional financings on favorable terms.

Other than as described above, we have no commitments for any additional financing. Although we have entered into verbal discussions with both current and new potential investors, there can be no assurance that we will be able to raise adequate financing to sustain our corporate and operational needs. Our failure to raise capital for the short-term would significantly hinder our ability to operate and continue with our business operations.

Our ability to achieve profitable operations depends on developing revenue through the operation of private pediatric health centers throughout China. Our expectations are that we will not begin to show revenues from the operation of pediatric health centers until opened and operating.

In the near future, we believe that cash expected to be generated from operations and amounts estimated to be available through new financings and from other sources of debt will be sufficient to fund operations, working capital needs, capital expenditure requirements, and financing obligations. We expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, but may also issue additional equity either directly or in connection with potential acquisitions.

However, until we can generate revenues from our operations, we plan to pursue additional financing, mainly for the short-term. There can be no assurance that financings for operations and working capital needs will be available.

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 children’s health and wellness center in Shenzhen, China, in addition to being able to continue our growth strategy and expand our health and wellness centers throughout China.

We have not generated revenues since inception and have never paid any dividends and are unlikely to pay dividends in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from our shareholders, the ability of the Company to obtain necessary equity financing to continue operations and to open and operate our planned children’s health and wellness centers to attain profitable operations.

As at September 30, 2012, we have a working capital deficit of $1,156,376 and have accumulated losses of $6,757,478 since inception. These factors raise substantial doubt regarding our ability to continue as a going concern.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of September 30, 2012, our internal control over financial reporting was not effective based on those criteria due to a lack of segregation of duties, a lack of qualified accounting staff and an overreliance on consultants in our accounting and financial reporting process. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Notwithstanding, at this time management has decided that considering the abilities of the persons involved and the control procedures now in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to further segregate duties do not justify the substantial expenses associated with such increases. Management will periodically re-evaluate this situation.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

For the nine months ended September 30, 2012:

On July 17, 2012, the Company entered into a business consulting services agreement with a consultant whereby the Company agreed to issue 70,000,000 restricted shares of common stock. The term of this agreement shall commence on the date common stock share compensation is delivered to the consultant and shall continue for a period of 120 days thereafter. On July 18, 2012, the Company issued 70,000,000 restricted shares of common stock.

On July 17, 2012, the Company accepted stock subscriptions for 42,857,142 shares at $0.00035 per share for proceeds of $15,000. On July 26, 2012, the Company issued the 42,857,142 shares. The Company also issued an option to purchase an additional 42,857,142 shares with an exercise price of $0.00035 per share to the investor. The option expires on November 23, 2012.

c)	On June 1, 2012, the Company entered into a services agreement for a term of seven months with a consultant whereby the Company agreed to issue 5,000,000 restricted shares of common stock. On July 18, 2012, the Company issued 5,000,000 restricted shares of common stock.

On June 15, 2012, the Company entered into a medical director agreement for a term of six months. In consideration for such services, the Company agreed to issue 30,000,000 restricted shares of common stock, payable as follows: i) 15,000,000 shares upon execution of the agreement; and ii) 15,000,000 shares on August 15, 2012. On June 15, 2012, the Company issued 15,000,000 restricted shares of common stock and on August 20, 2012, the Company issued the remaining 15,000,000 restricted shares of common stock.

e)	Pursuant to a May 8, 2012 business consulting services agreement and on August 27, 2012, the Company issued 77,000,000 restricted shares of common stock to the consultant.

On May 29, 2012, the Company secured a $130,000 loan payable with two Convertible Promissory Notes for $65,000 each. Pursuant to the convertible note agreements, the loans are convertible into shares of common stock at a variable conversion price equal to 50% 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 notes bear interest at 10% per year and the principal amount and any interest thereon are due on November 29, 2014. During the quarter ended September 30, 2012, the Company issued 580,000,000 shares of common stock upon the conversion of the principal amounts of $71,050.

Subsequent to the nine months ended September 30, 2012:

a)	On October 8, 2012, the Company entered into an Executive Officer Employment Agreement and appointed a new Chief Operating Officer. Pursuant to the agreement, on October 9, 2012, the Company issued 80,000,000 shares of restricted common stock.

b)	On October 25, 2012, the Company issued 160,000,000 shares of common stock upon the conversion of $12,800 of one of the May 29, 2012 convertible notes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following documents are included herein:

Exhibit No.		Document Description

31.1		Certification of Principal Executive Officer pursuant to 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer).

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial Officer).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MEDICAL CARE TECHNOLOGIES INC.

Dated: November 19, 2012	BY:	/s/ Ning C. Wu
		Ning C. Wu
		Chief Executive Officer and Director (Principal Executive Officer)

Dated: November 19, 2012	BY:	/s/ Hui Liu
		Hui Liu
		Treasurer and Director (Principal Financial Officer, Principal Accounting Officer)