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                              UNITED STATES     
                       
                    SECURITIES AND EXCHANGE COMMISSION     
                             
                          Washington, D.C. 20549     
 
                               ----------------
                                 
                              FORM 10-KSB/A     
                 
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)     
                     
                  OF THE SECURITIES EXCHANGE ACT OF 1934     
                  
               For the Fiscal Year Ended December 31, 1998     
                        
                     Commission file number 000-28790     
 
                               ----------------
                           
                        MEDCARE TECHNOLOGIES, INC.     
          
       (Name of small business issuer as specified in its charter)     
                                     
             DELAWARE                              87-0429962     
                          
 (State or other jurisdiction of                (I.R.S. Employer     
                                     
  incorporation or organization)              Identification No.)     
                                     
1515 West 22nd Street, Suite 1210                    60523     
                                      
       Oak Brook, Illinois                         (Zip Code)     
       
    (Address of principal executive
             offices)     
       
    Registrant's telephone number, including area code: (888) 479-7900     
           
        Securities registered under Section 12(b) of the Act: None     
             
          Securities registered under Section 12(g) of the Act:     
      
   Common Stock, $.001 par value, listed on the NASDAQ SmallCap Market     
   
   Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for
the past 90 days. Yes  X   No          
   
   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K(X) [X]     
      
   Revenues for last fiscal year were $786,586     
   
   Aggregate market value of Common Stock, $0.001 par value, held by non-
affiliates of the registrant as of April 26, 1999: $52,370,514. Number of
shares of Common Stock, $0.001 par value, outstanding as of April 26, 1999:
7,831,105.     
                   
                DOCUMENTS INCORPORATED BY REFERENCE: None     
 
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                          ANNUAL REPORT ON FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
                                     PART I
 
<S>                                                                        <C>
Item 1.Business...........................................................   3
 
Item 2.Properties.........................................................  10
 
Item 3.Legal Proceedings..................................................  10
 
Item 4.Submissions of Matters to a Vote of Security Holders...............  10
 
                                    PART II
 
Item 5.Market for the Registrants' Common Equity and Related Stockholder
 Matters..................................................................  11
 
Item 6.Management's Discussion and Analysis of Financial Condition and
 Results of Operations....................................................  11
 
Item 7.Financial Statements...............................................  15
 
Item 8.Changes in and Disagreements With Accountants on Accounting and
 Financial Disclosure.                                                      27
 
                                    PART III
 
Item 9.Directors and Executive Officers of the Registrant.................  27
 
Item 10.Executive Compensation............................................  27
 
Item 11.Security Ownership of Certain Beneficial Owners and Management....  27
 
Item 12.Certain Relationships and Related Transactions....................  27
 
                                    PART IV
 
Item 13.Exhibits, Financial Statement Schedules, and Reports on Form 8-K..  27
</TABLE>
 
                                       2
<PAGE>
 
                                    PART I
 
Item 1. Business
 
   Except for the historical information contained herein, the discussion in
this Annual Report on Form 10-KSB contains certain forward-looking statements
that involve risk and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements made
in this document should be read as being applicable to all related forward-
looking statements wherever they appear in this document. The Company's actual
results could differ materially from those discussed here. Factors that could
cause differences include those discussed below in "Risk Factors", as well as
those discussed elsewhere herein.
 
                                  THE COMPANY
 
   MedCare Technologies, Corporation is the operating subsidiary that is
wholly owned by Medcare Technologies, Inc. Medcare Technologies, Inc.
("MedCare" or the "Company") believes it is the leading source of conservative
incontinence treatment support services in the country. The Company believes
it has achieved this leadership position based on its relationships with over
300 physicians currently utilizing the MedCare Program (as defined below). The
Company was originally incorporated in the state of Utah in 1986. In 1996, a
migratory merger was completed changing the Company's domicile to Delaware. In
1995, the Company acquired the MedCare Program and began offering the program
to doctors in 1996. The Company did not generate any revenues until 1997 and
launched the program nationally in 1998.
 
                            DESCRIPTION OF BUSINESS
 
   During 1998, the Company engaged in only one type of business, the offering
of the MedCare Program, as described below. On January 21, 1999, the Company
formed a new, wholly owned subsidiary of the Company, Medcareonline.com, Inc.
In January 1999, the Company, through Medcareonline.com, Inc., announced its
intention to offer a comprehensive healthcare portal offering adult gender
specific health information.
 
The Medcare Program
 
   The "MedCare Program" is a discrete package of equipment, software and
services developed by MedCare to assist physicians in providing non-
pharmaceutical, non-invasive treatment to patients suffering from urinary
incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic
constipation, fecal incontinence and disordered defecation. The MedCare
Program is used by physicians to support a treatment plan based primarily on
behavioral modification techniques such as electromyography ("EMG")
biofeedback, pelvic floor muscle exercise, and bladder and bowel retraining.
Utilizing the MedCare Program, physicians help patients activate and
strengthen the various sensory response mechanisms that maintain bladder and
bowel control. Therapy is provided through computerized instrumental EMG
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened and
coordinated.
 
                                       3
<PAGE>
 
   UI is the involuntary loss of bladder control and represents a significant
cause of disability and dependence. Incontinence is one of the most prevalent,
yet severely unrecognized problems in health care today (1). And as society
ages, the physical, emotional and financial costs to those suffering and their
caregivers, as well as the health care system, is expected to increase
dramatically.
 
   Despite the prevalence of incontinence, the Company believes it is widely
under diagnosed and under reported primarily because of the social stigma
attached to UI. Many individuals are either too ashamed or too embarrassed to
report the problem to their doctor or to a health care professional (2), (3).
Instead, the Company believes a large number of people prematurely turn to the
use of absorbent materials and supportive aids without having their condition
properly diagnosed and treated.
 
   In March 1996, the US. Department of Health and Human Services published a
Clinical Practice Guideline which estimated that UI affects approximately 13
million Americans (of which 85% are women) at an annual cost of $16 billion.
 
   Incontinence is a symptom rather than a disease. UI can be caused from a
variety of pathologic, anatomic and physiological factors including: damage to
pelvic muscles from pregnancy, spina bifida, spinal injury, bladder
infections, drug side effects, multiple sclerosis, Parkinson's disease,
stroke, diabetes, age-related changes in lower urinary tract, obesity and
surgery (hysterectomy, cesarean section or prostatectomy) that may damage the
bladder or urinary tract.
 
 Effectiveness of EMG Biofeedback
 
   Over the years, the value and effectiveness of neuromuscular reeducation
therapy and behavioral techniques in conjunction with developments in
technology has resulted in increased awareness of the benefits of such a
program.
 
   In the December 16, 1998 issue of the Journal of the American Medical
Association, a study entitled "Behavioral vs. Drug Treatment for Urge Urinary
Incontinence in Older Women" was published. This study concluded that
behavioral therapy was more effective than drugs in treating UI. A group of
scientists studied 197 women between the ages of 55 to 92 over an eight week
period. Patients undergoing behavioral therapy reported an 81% reduction in
incontinence episodes, compared to a 69% decrease for those taking drug
therapy (oxybutynin), and a 39% decline for those on a placebo. Further, 76%
of patients assigned to both drug and placebo therapy wanted to change to
another treatment, versus only 14% of the patients receiving behavioral
therapy.
 
 Utilization of the MedCare Program
 
   The MedCare Program is used by physicians in private office, clinic or
hospital settings. The Company believes it can continue to grow by contracting
with more physician practices in the future.
 
   As of March 18, 1999, the Company had 78 contracted MedCare program sites.
These sites are located in the following cities: Norman, OK (Dr. Michael M.
Blue), Anderson, SC (Dr. Bill Hinnat), Athens, GA (Dr. Mark Ellsion), Augusta,
GA (2) (Dr. Goldsmith and Dr. Harry Oldman), Birmingham, AL (Dr. William
Johnson), Roswell, GA (Dr. Omar Eubanks), Warner Robins, GA (Dr. F. Marshall
Parker), Savannah, GA (Dr. David Ostman), Glen Cove, NY (Dr. Eric Hochberg),
Greensburg, PA (Dr. James Mayo), Jersey City, NJ (Dr. Anthony Mangia), Mine
Hill, NJ (Dr. Marc Colton), Natick, MA (Dr. Emmanuel Friedman), New York, NY
(Dr. Robert
--------
(1) Urinary Incontinence Guideline Panel. "Urinary Incontinence in Adults:
    Clinical Practice Guidelines." AHCPR Pub-9-9-0038. Rockville, MD: Agency
    for Health Care Policy & Research; PHS, HHS: March 1992.
(2) Legace, EA, et al. "Prevalence and severity of urinary incontinence in
    ambulatory adults: an UPRNet study." J Fram Pract 35,610-4: 1993 June.
(3) Wallace, K. "Female pelvic floor functions, dysfunctions, and behavioral
    approaches to treatment." Clinics in Urinary Incontinence.
 
                                       4
<PAGE>
 
Gluck), Stamford, CT (Dr. Jonathan Waxberg), Yonkers, NY (Dr. Stanley Boczko),
Alexandria, VA (Dr. Roger Weiderhorn), Baltimore, MD (2) (Dr. Marcella
Ronneburg), Fayetteville, NC (Dr. Garrett Franzoni), Owings Mills, MD (2) (Dr.
Sanford Siegel), Shelby, NC (Dr. Shem Blackley), Newport News, VA (Dr. Peter
Han), Jacksonville, NC (Dr. Robert Kell), Wilmington, NC (Dr. John Cashman),
Fremont, CA (Dr. Scott Kramer), Kirkland, WA (Dr. John Paul Isabell), Los
Gatos, CA (2) (Dr. Anthony Damore and Dr. Robert Panvini), Reno, Nevada (Dr.
Angelo Kanellos), San Mateo, CA (Dr. Hessell), Concord, CA (Dr. Nigro), Walnut
Creek, CA (Dr. Nigro), San Francisco, CA (Dr. David A. Ronk), Beverly Hills,
CA (Dr. Sherman Bruckner), Fullerton, CA (Dr. Nicholas Thanos), Los Angeles,
CA (Dr. William Barba), Mission Viejo, CA (Dr. Marc Winter), Laguna Hills, CA
(Dr. Marc Winter), Orange, CA (Dr. Arthur Goldstein), Newport Beach, CA (Dr.
Arthur Goldstein), Rancho Mirage, CA (Dr. Sheldon Barroff), Oceanside, CA (Dr.
Bradley Frasier), Downey, CA (Dr. Msihal), Tarzana, CA (Dr. Richard Leff),
Palm Beach, CA (Dr. E. Jacome), San Rapeal, CA (Dr. John Hessell), Dallas, TX
(Dr. Brian Feagins), Fort Worth, TX (Dr. A.E. Thurman), Kingwood, TX (Dr.
Robert Rosen), Scottsdale, AZ (Dr. Mary Ellen Shannon), San Anthonio, TX (2)
(Dr. Tristan Castaneda and Dr. Robert Schorlemer), Oklahoma City, OK (Dr. Sam
Little), Elyria, OH (Dr. J. Patrick Spirank), Findlay, OH (Dr. Prem Agrawal),
Fridley, MN (Dr. J. Randolph Beahrs), Huntington, WV (Dr. Larry Caserta),
Indianapolis, IN (Dr. Sally Bradley), Maplewood, MN (Dr. Ingrid Wilbrand-
Cowley), Terre Haute, IN (Dr. Douglas Claybrook), Toledo, OH (Drs. Haselhuhn
and Seal), Dayton, OH (Dr. Daniel Miller), St. Paul, MN (Dr. Siegel), Batavia,
IL (Dr. John Zito, Jr.), Bloomington, IL (Dr. Vicken Chalian), Buffalo Grove,
IL (Dr. Randall Kahan), Chicago, IL (Dr. Maura Brennan), Elgin, IL (Dr. James
I. Pinto), Galesburg, IL (Dr. Jeffrey Koszczuk), Joliet, IL (Dr. Gregory
Lewis), Lake Forest, IL (Dr. David Schewitz), Kirkwood, MO (Dr. N. Saha),
Wentzville, MO (Dr. Stan Hanks), Cordova, TN (Dr. Yari Walzer), Castro Valley,
CA (Dr. N.V. Bulusa)
 
 Marketing of the MedCare Program
 
   MedCare's marketing and sales strategy is designed to promote general
awareness of incontinence and that an effective treatment program is readily
available. The majority of the Company's advertising consists of a combination
of brochures, print ads, direct mail, radio, TV, doctor referrals, seminars
and general public relations within a defined area.
 
 The Program Management Agreement
   
   Each physician or practice (a "Practice") that contracts with MedCare to
utilize the MedCare Program signs a Program Management Agreement which defines
the terms and conditions of the relationship. The Practice has exclusive
authority and responsibility for professional supervision and judgements
required in the diagnosis of patients and in the selection and performance of
procedures for the benefit of the Practice's patients. MedCare provides
various support and administrative services and assistance in operating the
Program, but is not a provider or supplier of medical or professional
services. MedCare leases the equipment and support personnel to the Practice
and trains the support personnel to assist the Practice, operate the equipment
and educate all the patients. The Practice has the right to approve or
disapprove the support personnel provided by MedCare and must supervise all
activities of the support personnel. The Practice agrees to engage MedCare on
an exclusive basis as manager of the Practice's programs for the treatment of
the patient conditions using behavioral and biofeedback techniques. The
Practice is required to provide, at its own expense, an area of sufficient
space for the performance of the MedCare Program.     
 
 Governmental Regulation Issues Concerning the Program Management Agreement
 
   Under the Company's Program Management Agreement, MedCare is not a provider
of health care services. MedCare merely supplies personnel, equipment and
proprietary techniques to providers of health care. The physicians or medical
groups that contract with MedCare are the providers of services to their own
patients. MedCare simply manages the incontinence treatment programs in the
physicians' offices. The Company is subject to the Federal Anti-Kickback
Statute but does not believe that an applicable government authority would
find the parties' performance of their duties and obligations under the
Program Management Agreement to violate this statute.
 
                                       5
<PAGE>
 
 Competitive Treatment Options for Incontinence
 
   To the best of the Company's knowledge, the only direct competitors to the
MedCare Program are a number of small incontinence clinics, or ancillary
programs, offered by doctors, hospitals or therapists, scattered across North
America that use a combination of currently available non-invasive alternative
treatment options to treat UI patients. While it is believed that most of
these clinics have limited financial strength for adequate marketing and
advertising, the Company expects better financed and more sophisticated
competition to emerge in the future.
 
   Some currently available alternatives for the treatment of urinary
incontinence include absorbent products and diapers, surgery, indwelling
catheters, implanting devices, injectable materials, electrical stimulation,
mechanical devices, and drugs.
 
Environmental Matters
 
   The Company believes it conducts its business in compliance with all
environmental laws presently applicable to its facilities. To date, there have
been no expenses incurred by the Company related to environmental issues.
 
Intellectual Property and Other Proprietary Rights
 
   The Company's ability to compete and expand effectively will depend, in
part, on its ability to develop and maintain certain proprietary aspects of
its treatment program for bladder and bowel incontinence and its business and
marketing models and strategies. The Company relies on an unpatented treatment
protocol, and there can be no assurances that others may not independently
develop the same or similar program or otherwise obtain access to the
Company's unpatented protocols. There can be no assurance that any
confidentiality agreements between the Company and its employees will provide
meaningful protection for the Company's trade secrets, know-how or other
information in the event of any unauthorized use or disclosure of such trade
secrets, know-how or other proprietary information. While certain proprietary
aspects of MedCare's clinical and business protocols remain an important part
of the business, the Company believes its long term success as a business will
depend primarily upon its high quality clinical outcomes and service,
continued business development and marketing skills.
 
Employees
 
   At December 31, 1998, the Company employed 52 full time and no part-time
persons. To the best of the Company's knowledge, none of the Company's
officers or directors is bound by restrictive covenants from prior employers.
None of the Company's employees are represented by labor unions or other
collective bargaining groups. The Company considers its relationship with its
employees to be excellent.
 
Medcareonline.com
 
   Medcareonline.com will offer wide ranging direct-to-consumer health
information, such as health travel advisory, health news, symposiums, medical
journals and publications, and extensive research and web based services for
physicians. Part of the Company's strategy is to increase site content,
features and services, including adding an online health magazine and
advertising on traditional and non-traditional media. In addition, the Company
plans to add e-commerce, which will eventually include a wide range of health
related products and services.
 
   Medcareonline.com also plans to offer free web hosting and home page
services for physicians, specifically targeting male and female health
specialties. In addition to information on the location of their office, hours
of operation, profiles of doctors and services offered, Medcareonline.com will
also allow physicians to easily customize content on their websites, send and
retrieve e-mail, conduct e-commerce and allow patients to interact on various
health topics in "disease and condition" specific chat rooms.
 
   As of December 31, 1998, the Company had not generated any revenues nor
incurred any expenses related to Medcareonline.com.
 
                                       6
<PAGE>
 
 Competitive Business Conditions for Medcareonline.com
 
   The market for internet services and internet advertising is intensely
competitive. There are no substantial barriers to entry in these markets and
Medcareonline.com expects competition to intensify. The Company believes that
the number of companies relying on fees from internet based advertising has
increased substantially during the past year. The Company believes the main
competitive factors in this market are brand recognition, user base,
performance, ease of use, variety of value-added services, features and
quality of support.
 
   Many of Medcareonline.com's existing competitors, as well as a number of
potential new competitors, have longer operating histories in the internet
market, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than Medcareonline.com.
Such competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential employees, distribution partners, advertisers and content providers.
Further, these competitors may develop internet search and retrieval services
or other online services that are equal or superior to those of
Medcareonline.com or that achieve greater market acceptance than
Medcareonline.com.
 
   Medcareonline.com will also compete with traditional advertising media,
such as print, radio and television, for a share of advertisers' total
advertising budgets. If advertisers do not perceive internet advertising to be
as effective as traditional media, Medcareonline.com's business may be
adversely affected.
 
                                 RISK FACTORS
 
No Market Studies
 
   In formulating its business plan, the Company has relied on the judgment of
its officers, directors and consultants. No formal independent market studies
concerning the demand for the Company's proposed services have been conducted,
nor are any planned.
 
Lack of Operating History
 
   Although the Company was organized in 1986, it did not become active until
1995 and has been continually developing its MedCare Program since that time.
Since the Company has not proven the essential elements of profitable
operations, investors bear the risk of complete loss of their investment in
the event the Company's business plan is unsuccessful. In addition, the
business model for Medcareonline.com is evolving and relies substantially upon
the sale of products and advertising on the Internet, which is a developing
industry. The Company has only limited experience in managing the clinics and
internet business and is expanding its operations, which may or may not
provide profits to the Company. The Company had no revenues in 1995 or 1996
and $91,802 in 1997. In 1998, the Company had revenues of $786,586. The
Company has also not been profitable, having an accumulated loss of $2,721,918
in 1997, which increased to an accumulated loss of $6,491,871 in 1998.
 
   The Company's business must be considered in light of the risks, expenses
and problems frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets. The
Company may not be able to succeed in addressing such risks.
 
Resale of Securities May Negatively Affect Funding Attempts and Cause Dilution
 
   Some of the Company's securities are currently being registered for resale
with the SEC on Form SB-2. In addition, there are securities, options and
warrants outstanding that are not subject to the Form SB-2 registration
statement. In total, if all the securities, options, warrants and employee
stock options, including those not subject to the current Form SB-2
registration statement, were to be exercised, it would result in 10,797,813
shares outstanding. This will have the effect of causing a dilution of the
share price of the Common Stock. The shares being registered may cause the
Company to receive funds as a result of the exercise of the options and
warrants at a price less than the current market price of the Common Stock.
This will result in downward pressure on the price of the Common Stock. If the
price of the Common Stock is reduced, some potential financiers will either
wait to see what effect the shares will have on the market or offer funding at
rates unacceptable to the Company.
 
                                       7
<PAGE>
 
Continued Control by Existing Management
 
   The Company's management currently owns a substantial stake in the
Company's outstanding Common Stock. Many of the shares of Common Stock will be
issued as a result of the exercise of options, warrants and other instruments
and will provide that management will obtain additional shares in the Common
Stock of the Company. Accordingly, new shareholders will lack an effective
vote with respect to the election of directors and other corporate matters.
 
Dividends
 
   The Company's Board of Directors presently intends to cause the Company to
follow a policy of retaining earnings, if any, for the purpose of increasing
the net worth and reserves of the Company. Therefore, there can be no
assurance that any holder of Common Stock will receive any cash, stock or
other dividends on his shares of Common Stock. Future dividends on Common
Stock, if any, will depend on future earnings, financing requirements and
other factors. Since its inception, the Company has paid no dividends to
shareholders.
 
Dependence on Executive Officers
 
   The Company is highly dependent on the services of its officers. Attracting
and retaining qualified personnel is critical to the Company's business plan.
No assurances can be given that the Company will be able to retain or attract
such qualified personnel or agents. Should the Company be unable to attract
and retain the qualified personnel necessary, the ability of the Company to
implement its business plan successfully would be limited.
 
Nasdaq Eligibility and Maintenance
 
   Under the current rules for initial Nasdaq SmallCap Market listing, a
company must have at least $4,000,000 in total assets, at least $2,000,000 in
stockholders' equity, and a minimum bid price of $3.00 per share. For
continued listing, a company must maintain at least $2,000,000 in total
assets, at least $1,000,000 in stockholders' equity and a minimum bid price of
$1.00 per share. The Company's Nasdaq SmallCap Market application was accepted
on July 15, 1998 and the Company began trading on that market on July 20,
1998. If the Company should experience losses from operations, it may be
unable to maintain the standards for continued listing and the listed
securities could be subject to delisting from Nasdaq Small Cap Market Trading.
Trading in the securities would thereafter be conducted in the over-the-
counter market on an electronic bulletin board established for securities that
do not meet the listing requirements or in what are commonly referred to as
the "pink sheets." As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Company's
securities.
 
Risk of Low-Priced Stocks
   
   If the Company's securities were delisted from the Nasdaq Small Cap Market
and no other exclusion from the definition of a "penny stock" under applicable
Securities and Exchange Commission regulations were available, such securities
would be subject to the penny stock rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined
as investors with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with a spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination
for the purchase and must have received the purchaser's written consent to the
transaction prior to sale.     
 
Adverse Effect of Shares Eligible for Future Sale
 
   Substantially all of the 7,831,105 outstanding shares of Common Stock of
the Company are freely tradable, without restriction or registration under the
Securities Act (other than the sale volume restrictions of Rule 144 applicable
to shares held beneficially by persons who may be deemed to be affiliates of
the Company). The
 
                                       8
<PAGE>
 
Company's directors, officers and family members of the officers and directors
are under no lockup letters or other form of restriction on the sale of their
securities. Following the registration for resale of certain of the Company's
securities, an additional 2,661,364 shares will be available for sale by the
affiliates and other persons. This is an estimate of the maximum number of
shares to be resold. Any sale of these securities could have a detrimental
effect on existing shareholders.
 
Reimbursement and Related Matters
 
   In both the United States and elsewhere, sales of health care products and
services are dependent, in part, on the availability of reimbursement from
third parties, such as government and private insurance plans. In the United
States and in certain foreign countries, third-party reimbursement is
currently generally available for certain procedures, such as surgery and
biofeedback training by EMG application, and generally unavailable for patient
management products such as diapers, pads, and urethral plugs. While the
Company's treatment program is currently covered by third party payers, there
can be no assurances that such coverage will remain in effect in the future.
 
Regulation by Federal and State Government
 
   The business of the Company is heavily regulated at a federal and state
level. Legislation relating to the manner in which patients receive treatment
is being enacted on a continuous basis. This legislation may have a negative
effect on the way the Company does business in ways that cannot be predicted
by the Company. This poses a serious risk to the viability of the programs of
the Company and whether or not the Company can do business in the future.
Should legislation be enacted negative to the programs of the Company it could
cause the business of the Company to terminate.
 
Potential Fluctuations in Quarterly Results
 
   The Company's operating results have varied on a quarterly basis during its
limited operating history, and the Company expects to experience significant
fluctuation in future quarterly operating results. Such fluctuations have been
and may in the future be caused by numerous factors, many of which are outside
of the Company's control. The Company believes that period to period
comparisons of its results of operations will not necessarily be meaningful
and should not be relied upon as an indication of future performance. Also, it
is likely that in some future quarter or quarters, MedCare's operating results
will be below the expectations of public market analysts and investors. In
such an event, the price of MedCare's Common Stock would be materially and
adversely affected.
 
Medcareonline.com
 
   Medcareonline.com will operate in a new and rapidly evolving market.
Medcareonline.com's business may be adversely affected if usage of the
internet or other online services does not continue to grow. The internet as
an advertising medium has not been available for a sufficient period of time
to gauge its effectiveness as compared with traditional advertising media.
Therefore, the internet is an unproven medium for advertising-supported
services. Accordingly, Medcareonline.com's future operating results will
depend substantially upon the increased use of the internet for information,
publication, distribution and commerce and the emergence of the internet as an
effective advertising medium. Medcareonline.com's ability to generate
significant advertising revenues will also depend on, among other things, the
development of a large base of users of Medcareonline.com's services
possessing demographic characteristics attractive to advertisers, the ability
of Medcareonline.com to accurately measure its user base and the ability of
Medcareonline.com to develop or acquire effective advertising delivery and
measurement systems. Many of Medcareonline.com's potential advertisers have
only limited experience with the internet as an advertising medium, have not
yet devoted a significant portion of their advertising expenditures to
internet based advertising, and may not find advertising to be effective for
promoting their products and services relative to traditional print and
broadcast media. The adoption of internet advertising, particularly by those
entities that have historically relied upon traditional media
 
                                       9
<PAGE>
 
for advertising, requires the acceptance of a new way of conducting business
and exchanging information. Entities that already have invested substantial
resources in other methods of conducting business may be reluctant to adopt a
new strategy that may limit or compete with their existing efforts. The market
for internet advertising may not continue to emerge or become sustainable. If
the market fails to develop or develops more slowly than expected,
Medcareonline.com's business may be materially and adversely affected. No
standards have been widely accepted for the measurement of the effectiveness
of internet based advertising and there can be no assurance that such
standards will develop sufficiently to support the internet as an effective
advertising medium. In addition, there is intense competition in the sale of
advertising on the internet, resulting in a wide range of rates quoted and a
variety of pricing models. This makes it difficult to project future levels of
revenues and rates. As a result of these risks, Medcareonline.com may not
succeed in generating significant future advertising revenues from internet
based advertising. The failure to do so may have a material adverse affect on
the Company's business.
 
   In addition, Medcareonline.com will be dependent on its ability to generate
a high volume of traffic to its website. Accordingly, the performance of the
website is critical to MedCare's reputation, its ability to attract
advertisers, and to achieve market acceptance of Medcareonline.com. Any system
failure that causes interruptions in the availability or that increases
response time of Medcareonline.com's services could reduce user satisfaction
and traffic to the website, and if sustained or repeated, would reduce the
attractiveness of Medcareonline.com to advertisers and consumers.
 
Item 2: Properties
 
   The Company's principal office is located at 1515 West 22nd Street, Suite
1210, Oak Brook, Illinois, 60521. This office is 2400 square feet and is
subleased for $5,100 per month, plus operating expenses of approximately $400
per month, for one year, with an option to renew every year for 5 years. The
Company also leases 1,500 square feet of office space located in Vancouver,
British Columbia for $2,000 per month, plus operating expenses of
approximately $200 per month. This space has been leased for a period of one
year, with an option to renew for a second year.
 
   The Company does not purchase or lease property on behalf of its MedCare
Program participants. Instead, the Company typically enters into a Practice
Management Agreement with a physician in order to manage the incontinence
portion of their practice, that calls for the Company to provide trained
support personnel, electromyography equipment and a comprehensive policy and
procedures manual. The physician is required to provide a dedicated examining
room, typically 10' x 10' or larger in size, at no charge and for the duration
of the agreement, usually for a five year term.
 
Item 3: Legal Proceedings
 
   The Company is not involved in any pending legal proceedings other than
various claims and lawsuits arising in the normal course of business. The
Company's management does not believe that any such claims or lawsuits will
have a material adverse effect on its financial statements.
 
Item 4: Submission of Matters to a Vote of Security Holders
 
   There were no matters submitted to a vote of the security holders in the
fourth quarter of 1998.
 
                                      10
<PAGE>
 
                                    PART II
 
Item 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
 
 (a) Market Information
 
   The Company's Common Stock is listed on the Nasdaq Small Cap Market under
the symbol "MCAR". The following table sets forth the high and low sale prices
for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                  High     Low
                                                                --------  ------
      <S>                                                       <C>       <C>
      First Quarter 1997.......................................    $8.25   $6.75
      Second Quarter 1997......................................  $8.0625   $6.25
      Third Quarter 1997.......................................    $9.25  $6.875
      Fourth Quarter 1997......................................   $8.125  $7.625
 
      First Quarter 1998.......................................   $9.375  $7.375
      Second Quarter 1998......................................   $11.25   $9.00
      Third Quarter 1998.......................................    $9.31   $6.00
      Fourth Quarter 1998......................................  $7.4375  $4.875
</TABLE>
 
 (b) Holders
 
   As of March 25, 1999 there were approximately 350 stockholders of record of
the Company's Common Stock.
 
 (c) Dividend Policy
 
   The Company has never paid a dividend and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
 
Item 6: Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
   The following discussion should be read in conjunction with the financial
statements and notes thereto included in Item 7 of this Form 10-KSB. Except
for the historical information contained herein, the discussion in this Annual
Report on Form 10-KSB contains certain forward-looking statements that involve
risk and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could
differ materially from those discussed here. Factors that could cause
differences include those discussed below in "Risk Factors", as well as
discussed elsewhere herein.
 
Overview
   
   The "MedCare Program" is a discrete package of equipment, software and
services developed by MedCare to assist physicians in providing non-
pharmaceutical, non-invasive treatment to patients suffering from urinary
incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic
constipation, fecal incontinence and disordered defecation. The MedCare
Program is used by physicians to support a treatment plan based primarily on
behavioral modification techniques such as electromyography ("EMG")
biofeedback, pelvic floor muscle exercise, and bladder and bowel retraining.
Utilizing the MedCare Program, physicians help patients activate and
strengthen the various sensory response mechanisms that maintain bladder and
bowel control. Therapy is provided through computerized instrumental EMG
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened and
coordinated.     
 
   To date, MedCare has not received significant revenues due to the early
stage nature of the Company's business and has incurred ongoing operating
losses due to costs related to research, business development, management and
staff recruitment, establishing training systems and providing ongoing
training, development of advertising and marketing programs, and other costs
associated with establishing corporate infrastructure necessary for
contracting with additional physicians for utilization of the MedCare Program
on a national basis. Although planned principal operations have commenced,
substantial revenues have yet to be realized.
 
                                      11
<PAGE>
 
Results of Operations
 
   Revenues. The Company had revenues of $786,586, $91,802 and $0 for the
years ended December 31, 1998, 1997 and 1996 respectively. During 1998, the
Company changed the profile of the type of physician practices it would
contract with from single physician practice offices to multi physician
practice offices. Existing offices that were not profitable and no longer met
the profile were closed. As of December 31, 1998, the Company operated at 25
sites and is expecting to begin operating at its remaining contracted sites
during the first half of 1999. To date, the Company has not relied on any
revenues for funding. During the next several years, the Company expects to
derive the majority of its potential revenues from the commencement of
operations of the MedCare Program at additional sites in the United States,
and possibly select foreign markets. In addition, during 1999, the Company
expects to begin generating revenue from the sale of advertising from its new
wholly-owned subsidiary, Medcareonline.com. As of December 31, 1998, there
have been no revenues or expenses related to Mecareonline.com.
 
   General and Administrative Expenses. During 1998, the Company incurred
$4,689,400 in general and administrative expenses, an increase of 209% over
1997 expenses of $1,515,459. During 1996, the Company incurred expenses of
$452,037. The Company experienced a $.52 per share loss for the year ended
December 31, 1998, versus a $.21 per share loss for the year ended December
31, 1997 and a $.08 per share loss for the year ended December 31, 1996. This
increase is primarily attributable to costs associated with the development of
advertising and marketing programs, public relations, hiring and training
expenses of clinical and managerial personnel, travel, legal and accounting,
and ongoing general operating expenses.
 
   Interest Income. Interest income was $162,109, $119,146 and $2,801 for the
years ended December 31, 1998, 1997 and 1996, respectively. Interest earned in
the future will be dependent on Company funding cycles and prevailing interest
rates.
 
   Provision for Income Taxes. As of December 31, 1998, the Company's
accumulated deficit was $6,491,871, and as a result, there has been no
provision for income taxes to date. The Company has net operating losses that
will expire beginning with the year 2002 in the amount of $5,050,407 unless
utilized by the Company.
 
Liquidity and Capital Resources
 
   At December 31, 1998, the Company had a cash balance of $2,826,086,
compared to a cash balance of $3,440,791 at December 31, 1997 and $219,775 at
December 31, 1996.
 
   During 1998, the Company used $3,381,600 of net cash from operating
activities as compared to $1,373,592 of net cash used in 1997. The increase in
the net cash used in operating activities was due mainly to the increase in
the general and administrative expenses explained above.
 
   Net cash used in investing activities was $315,335 for 1998, compared to
net cash used of $33,642 in 1997. The increase in the net cash used in
investing activities was due to the purchase of additional computer and
medical equipment to support the expansion of operations during 1998.
 
   Net cash provided by financing activities was $3,082,230 for 1998, compared
to net cash provided of $4,628,250 in 1997. The Company has financed its
operations primarily through private placements of Common Shares, Preferred
Shares and the exercise of stock options as described below.
   
   During fiscal 1998, 200,000 warrants to purchase Common Stock were
exercised at $6 per share, or $1,200,000. In addition, on November 6, 1998,
the Company issued 300,000 shares of its common stock at $5.00 per share to
Lyons Capital Corporation, a Bermuda corporation, with a warrant to purchase
an additional 300,000 shares at $5.00 per share pursuant to an offering made
under Rule 506 promulgated under the Securities Act of 1933, as amended ("Rule
506"). The warrant is exercisable until October 14, 2004. The proceeds were
used for working capital and expansion of operations.     
 
                                      12
<PAGE>
 
   
   On February 1, 1997, pursuant to Rule 506, 176,000 shares of Common Stock
were offered at a price of $6.25 per share, for a total offering of
$1,100,000. This offering was completed on February 4, 1997. The proceeds were
used for working capital and expansion of operations.     
 
   On July 7, 1997, pursuant to Rule 506, 300,000 shares of Common Stock were
offered at $6.00 per share, plus 300,000 warrants exercisable at $6.00 per
warrant until July 7, 2002, for a total offering of $1,800,000. This offering
was completed on July 30, 1997 and the proceeds used for working capital and
expansion of the MedCare Program.
   
   On June 20, 1997, pursuant to Rule 506, the Company began offering for sale
Series A Preferred Stock of the Company for $10,000 per share, in minimum
subscription amounts of at least ten shares ($100,000) and increments of five
shares in excess thereof. The offering closed on July 8, 1997 with the minimum
offering of $1,650,000 placed. The proceeds were used for working capital and
expansion of operations.     
 
   The Preferred Stock was accompanied by warrants to purchase a total of
258,302 shares of Common Stock of the Company at an exercise price of $7.346
per share ("conversion warrants"). In addition, the purchasers of the
preferred stock also received preferred stock warrants to purchase an equal
amount of preferred stock under the same terms as the original offering. In
conjunction with this offering, an Escrow Agreement was entered into with
Swartz Investments LLC, a Georgia limited liability company, as Placement
Agent and with First Union National Bank of Georgia as Escrow Agent.
 
   At this time, the Company also filed a Certificate of Designation with the
State of Delaware that designated 1,000 shares of the Company's one million
shares of authorized preferred stock to be Series A Preferred Stock. This
stock has an eight percent (8%) per annum accretion rate. No dividend rights
have been granted to this stock.
 
   The conversion terms outlined in the Certificate of Designation state that
holders of the Series A Preferred Stock can convert their stock using the
following formula per share of Series A Preferred Stock:
 
                         (.08)(N/365)(10,000) + 10,000
                               Conversion Price
 
   At December 31, 1998, the Conversion Price is determined as the lesser of
$7.346 or 80% of the average closing bid price of the Company's Common Stock
for the five trading days immediately preceding the date of conversion.
 
   The Company also has the right to redeem the Series A Preferred Stock upon
receipt of notice of conversion at various rates, depending on the length of
time since issuance.
 
   Of the original 258,302 conversion warrants that were issued, 36,755 shares
were forfeited due to the early conversion of preferred shares. In addition,
Swartz Investments exercised all but 6,500 of its warrants utilizing the
cashless exercise option resulting in 8,990 shares being issued. The remaining
conversion warrants are still outstanding.
 
   In June of 1998, the preferred stock investors converted 165 preferred
warrants into preferred stock. Upon conversion of the preferred warrants, the
investors and the Company deposited into an escrow account the proceeds of
$1,650,000 and the related preferred stock pending final approval of the
Company's registration statement. In addition, the Company and the investors
entered into an agreement which provided for the investors to receive three
month warrants at an exercise price of $7.346 per share and to forfeit any
rights to additional preferred warrants, nine month warrants, 12 month
warrants and 15 month warrants. Of the original four investors who
participated in the escrow agreement, three withdrew their proceeds of
$1,400,000 and forfeited the related preferred stock and warrants. The
forfeited preferred stock and related warrants were canceled. The remaining
investor, Concordia Partners, released its investment of $250,000 to the
Company and received 25 shares of new preferred stock and 11,344 warrants
exercisable three months after their issuance date at an exercise price of
$7.346 per share. In total, as of December 31, 1998, there were 50 preferred
shares outstanding, all of which are owned by Concordia Partners.
 
                                      13
<PAGE>
 
   The Company's future funding requirements will depend on numerous factors,
including the Company's ability to establish and operate profitably current
and future MedCare Program locations, recruiting and training qualified
management and clinical personnel, competing against any potential
technological advances in the treatment of UI and other afflictions of the
pelvic floor area, and the Company's ability to compete against better
capitalized corporations who offer alternative or similar treatment options
for urinary incontinence and other afflictions of the pelvic floor area.
 
Year 2000
 
   The Year 2000 issue arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with 20 instead of 19. If not
corrected, many computer applications could fail or create erroneous results.
 
   Management has initiated a comprehensive program to prepare the company's
systems for the year 2000. The Company is actively engaged in testing and
fixing applications to ensure they are Year 2000 ready. The Company does not
separately track the internal costs incurred for the Year 2000 project but
such costs are principally the related payroll costs for certain corporate
staff. The Company currently does not expect remediation costs to be material
nor does it expect any significant interruption to its operations because of
Year 2000 problems.
 
   The Company is in the process of contacting all third parties with which it
has significant relationships, to determine the extent to which the Company
could be vulnerable to failure by any of them to obtain Year 2000 compliance.
Some of the Company's major suppliers and financial institutions have
confirmed that they anticipate being Year 2000 compliant on or before December
31, 1999, although many have only indicated that they have Year 2000 readiness
programs. To date, the Company is not aware of any significant third parties
with a Year 2000 issue that could materially impact the Company's operations,
liquidity or capital resources. However, the company has no means of ensuring
that third parties will be Year 2000 ready and the potential effect of third-
party non-compliance is currently not determinable.
 
   The Company has devoted and will continue to devote the resources necessary
to ensure that all Year 2000 issues are properly addressed. However, there can
be no assurance that all Year 2000 problems are detected. Further, there can
be no assurance that the Company's assessment of its third-party relationships
will be accurate. Some of the potential scenarios that could occur include (1)
corruption of data in the Company's internal systems and (2) failure of
government and insurance companies' reimbursement programs. If any of these
situations were to occur, the Company's operations could be temporarily
interrupted. The Company intends to develop Year 2000 contingency plans for
continuing operations in the event such problems arise.
 
                                      14
<PAGE>
 
Item 7: Financial Statements
 
                          INDEPENDENT AUDITORS REPORT
 
Board of Directors
MedCare Technologies, Inc. and Subsidiaries
Oak Brook, Illinois 60521
 
   We have audited the consolidated balance sheet of MedCare Technologies,
Inc. and Subsidiaries, (the Company), as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
 
   We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at December 31, 1998 and 1997, and the consolidated results of their
operations and their consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
 
                                          Clancy and Co., P.L.L.C.
 
Phoenix, Arizona
March 2, 1999
 
                                      15
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
                           December 31, 1998 and 1997
 
<TABLE>
<CAPTION>
                       ASSETS                            1998         1997
                       ------                         -----------  -----------
<S>                                                   <C>          <C>
Current Assets
  Cash............................................... $ 2,826,086  $ 3,440,791
  Accounts Receivable, net of Allowance for Doubtful
   Accounts of $45,165 and $0........................     271,240       67,530
  Prepaid Expenses...................................           0       43,569
                                                      -----------  -----------
    Total Current Assets.............................   3,097,326    3,551,890
  Property and Equipment, Net (Note 3)...............     283,630       33,526
  Intangible Assets--the MedCare Program, net of
   Accumulated Amortization of $68 and $0............         932        1,000
                                                      -----------  -----------
    Total Assets..................................... $ 3,381,888  $ 3,586,416
                                                      ===========  ===========
<CAPTION>
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
<S>                                                   <C>          <C>
Current Liabilities..................................
  Accounts Payable and Other Accrued Liabilities..... $   469,743  $    15,796
  Notes Payable--Related Parties.....................           0        1,000
                                                      -----------  -----------
    Total Current Liabilities........................     469,743       16,796
Stockholders' Equity
  Preferred Stock $.25 Par Value, Authorized
   1,000,000; Issued and outstanding, 50 and 165
   Convertible Series A at December 31, 1998 and
   1997..............................................          12           41
  Common Stock--$0.001 Par Value Authorized
   100,000,000; Issued and outstanding, 7,825,105 and
   6,992,185 Shares at December 31, 1998 and 1997....       7,825        6,992
  Additional Paid in Capital.........................   9,396,179    6,284,505
  Retained Earnings (Deficit)........................  (6,491,871)  (2,721,918)
                                                      -----------  -----------
    Total Stockholder' Equity........................   2,912,145    3,569,620
                                                      -----------  -----------
    Total Liabilities and Equity..................... $ 3,381,888  $ 3,586,416
                                                      ===========  ===========
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                       16
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                 For the Years Ended December 31, 1998 and 1997
 
<TABLE>   
<CAPTION>
                                                      Year Ended   Year Ended
                                                       December     December
                                                       31, 1998     31, 1997
                                                      -----------  -----------
<S>                                                   <C>          <C>
Revenues............................................. $   786,586  $    91,802
General and Administrative Expenses..................   4,689,400    1,515,459
                                                      -----------  -----------
Operating Loss.......................................  (3,902,814)  (1,423,657)
Other Income (Expense)
  Interest Income....................................     162,109      119,146
  Loss From Discontinued Operations..................           0       (4,489)
  Gain on Sale of Subsidiary.........................           0       15,770
                                                      -----------  -----------
    Total Other Income (Expense).....................     162,109      130,427
                                                      -----------  -----------
Net Loss.............................................  (3,740,705)  (1,293,230)
Less: Preferred Deemed Dividends.....................     (29,248)    (247,712)
                                                      -----------  -----------
Net Loss Available to Common Stockholders............ $(3,769,953) $(1,540,942)
                                                      ===========  ===========
Earnings Per Common Share and Common Share
 Equivalents......................................... $     (0.52) $     (0.21)
Weighted Number of Common Shares Outstanding.........   7,302,387    7,270,185
</TABLE>    
 
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                       17
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                 For the Years Ended December 31, 1998 and 1997
 
<TABLE>   
<CAPTION>
                            Preferred
                              Stock       Common Stock   Additional    Retained
                          ------------- ----------------   Paid In     Earnings
                          Shares Amount  Shares   Amount   Capital     (Deficit)      Total
                          ------ ------ --------- ------ -----------  -----------  -----------
<S>                       <C>    <C>    <C>       <C>    <C>          <C>          <C>
Balance, December 31,
 1996...................      0     0   6,445,185 $6,445 $ 1,372,631  $(1,169,693) $   209,383
Recovery of Write Off of
 Excess of Liabilities
 over Assets on Sale of
 Manon Consulting, Ltd..                                                  (11,283)     (11,283)
Issuance of Common Stock
 Under 1996 Stock Option
 Plan at $4.50 Per Share
 Through December 31,
 1997...................                   17,000     17      76,483                    76,500
Issuance of Common Stock
 Under 1995 Stock Option
 Plan at $3.00 Per Share
 Through December 31,
 1997...................                   54,000     54     161,946                   162,000
Issuance of Common Stock
 Under a Private
 Placement Dated March
 25, 1997, at $6.25 Per
 Share..................                  176,000    176   1,099,824                 1,100,000
Issuance of Preferred
 Stock Under a Private
 Placement Dated July 8,
 1997, at $10,000 Per
 Share..................    165    41                      1,649,959                 1,650,000
Less cost of Private
 Placement..............                                    (123,750)                 (123,750)
Periodic Imputed Cost of
 Preferred Stock Issued
 on July 8, 1997........                                     247,712                   247,712
Issuance of Common Stock
 Under a Private
 Placement Dated July 7,
 1997, at $6.00 Per
 Share..................                  300,000    300   1,799,700                 1,800,000
Net Loss Available to
 Common Stockholders for
 the Year Ended December
 31, 1997...............                                               (1,540,942)  (1,540,942)
                           ----   ---   --------- ------ -----------  -----------  -----------
Balance, December 31,
 1997...................    165    41   6,992,185  6,992   6,284,505   (2,721,918)   3,569,620
Issuance of Common Stock
 For Prior Year
 Consulting Agreement...                    6,000      6          (6)                        0
Issuance of Common Stock
 For Prior Period Error.                    1,194      1          (1)                        0
Issuance of Common Stock
 For Warrants Exercised
 on March 31, 1998, at
 $6.00 Per Share........                  200,000    200   1,199,800                 1,200,000
Issuance of Common Stock
 at $7.346 in an
 Exercise of Cashless
 Warrants...............                    8,990      9          (9)                        0
Placement of Preferred
 Stock in Escrow at
 $10,000 Per Share Per
 Offering Dated June
 1998...................    165    41                      1,649,959                 1,650,000
Withdrawal of Funds In
 Escrow Per Offering
 Dated June, 1998, at
 $10,000 Per Share......   (140)  (35)                    (1,399,965)               (1,400,000)
Offering Costs
 Associated With Three
 Month Warrant to
 Purchase 25 Shares of
 Preferred Stock........                                     (13,770)                  (13,770)
Issuance of Common Stock
 Under a 506D Offering
 on November 6, 1998 at
 $5.00 Per Share........                  300,000    300   1,499,700                 1,500,000
Issuance of Common Stock
 for Conversion of
 Preferred Stock at
 Various Prices Per
 Share..................   (140)  (35)    272,736    273        (238)
Issuance of Common Stock
 Under 1995 Stock Option
 Plan at $3.00 Per
 Share..................      0     0      34,000     34     101,966                   102,000
Issuance of Common Stock
 Under 1996 Stock Option
 Plan at $4.50 Per
 Share..................      0     0      10,000     10      44,990                    45,000
Preferred Deemed
 Dividend...............                                      29,248                    29,248
Net Loss Available to
 Common Stockholders for
 the Year Ended December
 31, 1998...............                                               (3,769,953)  (3,769,953)
                           ----   ---   --------- ------ -----------  -----------  -----------
Balance, December 31,
 1998...................     50   $12   7,825,105 $7,825 $ 9,396,179  $(6,491,871) $ 2,912,145
                           ====   ===   ========= ====== ===========  ===========  ===========
</TABLE>    
 
   The accompanying notes are an integral part of these financial statements.
 
                                       18
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                 For the Years Ended December 31, 1998 and 1997
 
<TABLE>
<CAPTION>
                                                      Year Ended   Year Ended
                                                       December     December
                                                       31, 1998     31, 1997
                                                      -----------  -----------
<S>                                                   <C>          <C>
Cash Flows From Operating Activities
  Net Loss........................................... $(3,769,953) $(1,540,942)
  Adjustments to Reconcile Net Loss to Net Cash Used
   In Operating Activities
    Preferred Deemed Dividends.......................      29,248      247,712
    Depreciation and Amortization....................      65,300        9,546
    Net Assets of Manon Consulting, Ltd..............           0      (11,281)
    Changes in Assets and Liabilities
      (Increase) Decrease in Accounts Receivable.....    (203,710)     (39,935)
      (Increase) Decrease in Prepaid Expenses........      43,569      (34,697)
      Increase (Decrease) in Accounts Payable and
       Other Accrued Liabilities.....................     453,946       (3,995)
                                                      -----------  -----------
        Total Adjustments............................     388,353      167,350
                                                      -----------  -----------
        Net Cash Used In Operating Activities........  (3,381,600)  (1,373,592)
                                                      -----------  -----------
Cash Flows From Investing Activities
  Purchase of Property and Equipment.................    (315,335)     (33,642)
                                                      -----------  -----------
        Net Cash Used In Investing Activities........    (315,335)     (33,642)
                                                      -----------  -----------
Cash Flows From Financing Activities
  Proceeds From Sale of Common Stock.................   2,847,000    3,138,500
  Proceeds From the Sale of Preferred Stock..........     250,000    1,650,000
  Offering Costs.....................................     (13,770)    (123,750)
  Advances (Repayments) Notes Payable................      (1,000)     (24,000)
  Advances (Repayments) To Officers..................           0      (12,500)
                                                      -----------  -----------
        Net Cash Provided By Financing Activities....   3,082,230    4,628,250
                                                      -----------  -----------
Increase (Decrease) in Cash and Cash Equivalents.....    (614,705)   3,221,016
 
Cash and Cash Equivalents, Beginning of Year.........   3,440,791      219,775
                                                      -----------  -----------
Cash and Cash Equivalents, End of Year............... $ 2,826,086  $ 3,440,791
                                                      ===========  ===========
Supplemental Information:
  Cash paid for:
    Interest......................................... $         0  $         0
                                                      ===========  ===========
    Income taxes..................................... $         0  $         0
                                                      ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       19
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                       NOTES TO THE FINANCIAL STATEMENTS
 
                          December 31, 1998 and 1997
 
Note 1--Organization
   
   Medcare Technologies, Inc. (the Company), a Delaware Corporation, has an
authorized capital of 101,000,000 shares of which 100,000,000 shares are
common stock with a par value of $.001 and 1,000,000 shares are preferred
stock with a par value of $.25 per share.     
   
   The Company has developed The MedCare Program, a nonsurgical, nondrug,
noninvasive and cost-effective treatment program for urinary and rectal
incontinence, and other pelvic disorders, utilizing behavioral and biofeedback
techniques such as electromyography, designed to activate and strengthen the
various sensory response mechanisms that maintain bladder and bowel control.
    
   The Company engages in a Program Management Agreement with each Practice,
which is defined as a physician or group of physicians, involved on a regular
basis in the diagnosis, evaluation and treatment of urinary and rectal
incontinence, as well as other pelvic dysfunction. The agreements have various
expiration dates, typically run for a period of three (3) to five (5) years,
and may be terminated upon the occurrence of certain conditions as set forth
in the agreement. Each Practice also agrees to sign a Confidentiality and
Noncompetition Agreement as a condition precedent to the performance by the
Company of its obligations.
 
Note 2--Significant Accounting Policies
 
 A. Method of Accounting
 
   The Company's financial statements are prepared using the accrual method of
accounting.
 
 B. Cash and Cash Equivalents
 
   The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
 
 C. Concentration of Credit Risk
 
   The Company maintains cash balances in excess of $100,000 at a local bank.
The balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company also maintains U.S. Dollar cash balances in Canadian
banks, that are not insured.
 
 D. Principles of Consolidation
 
   The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Medcare Technologies, Corporation. All
material intercompany transactions have been eliminated in consolidation.
 
 E. Property and Equipment
 
   Property and equipment, stated at cost, is depreciated under the straight-
line method over their estimated useful lives ranging from three to seven
years.
 
                                      20
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Continued)
 
 
 F. Revenue Recognition
 
   Revenues are recognized at time of performance of services. The Company
agrees to provide on an exclusive basis equipment, personnel and
administrative services to the Practice in connection with the Practice's
establishment and operation of the Program. Each Practice agrees to pay the
Company a management fee for each patient visit to the Practice during which a
patient receives services under the Program. The Company invoices the Practice
for the management fee each calendar month, which is due in full, within
forty-five (45) to sixty (60) days of the date of such invoice.
 
 G. Use of Estimates
 
   Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
 
 H. Income Taxes
 
   The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes."
Under SFAS 109, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. See Note 10.
 
 I. Per Share of Common Stock
 
   Basic earnings or loss per share has been computed based on the weighted
average number of common shares and common share equivalents outstanding. All
earnings or loss per share amounts in the financial statements are basic
earnings or loss per share, as defined by SFAS No. 128, "Earnings Per Share."
Diluted earnings or loss per share does not differ materially from basic
earnings or loss per share for all periods presented. The number of shares
used in computing earnings (loss) per common share at December 31, 1998 and
1997 was 7,302,387 and 7,270,185, respectively.
 
 J. Stock-Based Compensation
 
   The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Compensation cost for stock options, if any,
is measured as the excess of the quoted market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the stock.
 
   SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company has
elected to remain on its current method of accounting as described above, and
has adopted the disclosure requirements of SFAS No. 123, effective January
1997. See Note 6.
 
 K. Business Segment Information
 
   The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on January 1, 1998. The Company operates
in one industry segment, that being the treatment of urinary and rectal
incontinence, and all of the activity flows through the Company's subsidiary.
There were no material amounts of sales or transfers among geographic areas or
major customers within the United States.
 
                                      21
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Continued)
 
 
 L. Presentation
 
   Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
 
 M. Pending Accounting Pronouncements
 
   It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
 
Note 3--Property and Equipment
 
   Property and equipment consists of the following at December 31:
 
<TABLE>
<CAPTION>
                                                               1998     1997
                                                             -------- ---------
      <S>                                                    <C>      <C>
      Office Equipment...................................... $ 11,930 $   9,541
      Computer Equipment....................................  164,931    11,528
      Medical Equipment.....................................  127,315    29,799
      Computer Software.....................................   48,832         0
      Building Improvements.................................   11,695         0
      Furniture.............................................    1,500         0
                                                             -------- ---------
      Total.................................................  366,203    50,868
      Less Accumulated Depreciation......................... (82,573)  (17,342)
                                                             -------- ---------
      Net Book Value........................................ $283,630 $  33,526
                                                             ======== =========
</TABLE>
 
   Depreciation charged to expense during the years ended December 31, 1998
and 1997 was $65,231 and $9,546, respectively.
 
Note 4--Long-Lived Assets--The MedCare Program
 
   On August 14, 1995, the Company acquired the rights to The MedCare Program,
a urinary incontinence procedure in exchange for 2,000,000 shares of its
common stock. The transaction was accounted for in accordance with the process
for valuation of intangible assets as described in Statement No. 17 of the
Accounting Principles Board. The Company intends to amortize the cost of the
system over 15 years, based on Management's estimated useful life of the
protocol, beginning with the first year in which commercial sales occur.
Management reassesses annually the estimated useful life. Such amortization
will result in charges against earnings of $68 per year for each of the years.
Amortization expense charged to operations during the years ended December 31,
1998, was $68.
 
Note 5--Notes Payable--Related Party
 
   During the year ended December 31, 1997, an Officer of the Company advanced
the Company $1,000, which was due on demand and with no interest rate
currently applicable. The Company repaid this loan in March 1998.
 
Note 6--Stock Options
 
   The Company has five stock option plans that provide for the granting of
stock options to officers and key employees. The objectives of these plans
include attracting and retaining the best personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees the opportunity to acquire common stock. Options outstanding under
the Company's five stock option plans have been granted at prices which are
either equal to or above the market value of the stock on the date of grant
and expire at various dates after the grant date.
 
                                      22
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Continued)
 
 
   The status of the Company's stock option plans is summarized below as of
December 31:
 
<TABLE>
<CAPTION>
                                                         Number of    Option
                                                          Shares       Price
                                                         ---------  -----------
      <S>                                                <C>        <C>
      Outstanding at December 31, 1995 .................   500,000        $3.00
      Granted Under the 1996 Stock Option Plan .........   300,000         4.50
      Exercised Under the 1995 Stock Option Plan........   (36,000)        3.00
      Exercised Under the 1996 Stock Option Plan........    (3,000)        4.50
                                                         ---------  -----------
      Options Outstanding at December 31, 1996..........   761,000    3.00-4.50
      Granted Under the 1997 Stock Option Plan..........   200,000         4.50
      Granted Under the 1997 Stock Option Plan..........   300,000         6.50
      Exercised Under the 1995 Stock Option Plan........   (54,000)        3.00
      Exercised Under the 1996 Stock Option Plan........   (17,000)        4.50
                                                         ---------  -----------
      Options Outstanding at December 31, 1997.......... 1,190,000    3.00-6.50
      Exercised Under the 1995 Stock Option Plan........   (34,000)        3.00
      Exercised Under the 1996 Stock Option Plan........   (10,000)        4.50
      Granted Under the 1998 Stock Option Plan..........   500,000    6.50-9.25
      Granted Under the 1999 Stock Option Plan..........   200,000    6.00-9.25
                                                         ---------  -----------
      Options Outstanding at December 31, 1998.......... 1,846,000  $3.00-$6.50
                                                         =========  ===========
</TABLE>
 
   The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," under which no compensation cost for stock
options is recognized for stock options awards granted at or above fair market
value. Had compensation expense for the Company's stock-based compensation
plans been determined under SFAS No. 123, based on the fair market value at
the grant dates, the Company's pro forma net loss and pro forma net loss per
share would have been reflected as follows:
 
<TABLE>
<CAPTION>
                                                            1998        1997
                                                         ----------  ----------
      <S>                                                <C>         <C>
      Net Loss
        As reported..................................... $3,769,953  $1,540,942
        Pro forma....................................... $5,145,919  $2,728,965
      Net Loss Per Share
        As reported..................................... $    (0.52) $    (0.21)
        Pro forma....................................... $    (0.70) $    (0.38)
</TABLE>
 
   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumption used for those options granted in 1998 and 1997, respectively:
dividend yield of 0%, expected volatility of 58% and 47%, risk-free interest
rates of 5% and 5%, and expected lives of 8 and 8 years.
 
Note 7--Stock Warrants
 
   In July, 1997, the Company offered 300,000 shares of common stock at $6.00
each, along with an additional 300,000 common stock purchase warrants at $6.00
each, exercisable until July 7, 2002. In March 1998, 200,000 warrants to
purchase shares of common stock were exercised at $6.00 per share, or
$1,200,000.
 
   In November 1998, the Company issued through a Rule 506 Regulation D
Private Placement, 300,000 shares of restricted common stock at $5.00 per
share, or $1,500,000, and granted 300,000 common stock purchase warrants
exercisable at $5.00 until October 14, 2004.
 
                                      23
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Continued)
 
 
Note 8--Preferred Stock--Series A
 
   On June 20, 1997, the Company began offering for sale a Regulation D
offering under Rule 506. This offering was for the Series A Preferred Stock of
the Company and was sold for $10,000 per share, in minimum subscription
amounts of at lease ten shares ($100,000) and in increments of five shares in
excess thereof. The total offering was for $3,000,000, with a minimum of
$1,650,000. The offering closed on July 8, 1997, with the minimum offering
placed. The preferred stock was accompanied by warrants to purchase a number
of shares of common stock of the Company equal to 33 1/3% multiplied by the
aggregate purchase price of the Subscriber's preferred stock outstanding on
each of nine, twelve and fifteen months following the closing date of the
offering, divided by the Fixed Conversion Price as herein defined.
 
   The Series A Preferred Shareholder is entitled to convert, subject to the
Company's right of redemption, if the conversion price is less than the Fixed
Conversion Price at the time of receipt of a notice of conversion. The
conversion price is equal to the lesser of 115% of the average Closing Bid
Price for five trading days ending on June 6, 1997, which is $7.346 (The Fixed
Conversion Price) or a discount, ranging from 10% to 20% over a 12 months
period beginning July 8, 1997, of the average Closing Bid Price for five
trading days immediately preceding the Date of Conversion divided into the
original purchase price of the preferred stock, plus an 8% per annum accretion
rate equal to the period that has passed since the closing date.
 
   During the year ended December 31, 1998, 140 shares of preferred stock were
converted to 272,736 shares of common stock at various prices per share. In
addition, 25 shares of preferred stock were issued to an investor at $10,000
per share in accordance with the terms of the original offering.
 
Note 9--Discontinued Operations of a Business Segment
 
   On January 1, 1997, the Company sold Manon Consulting, LTD at book value.
No revenues or expenses are included in the consolidated financial statements
for the year ended December 31, 1997. The Company reported a gain on the
transaction of $15,770.
 
Note 10--Income Taxes
 
   There is no current or deferred tax expense for the years ended December
31, 1998 and 1997, due to the Company's loss position. The benefits of timing
differences have not been previously recorded.
 
   The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, as
appropriate. Realization of the future tax benefits related to the deferred
tax assets is dependent on many factors, including the Company's ability to
generate taxable income within the net operating loss carryforward period.
Management has considered these factors in reaching its conclusion as to the
valuation allowance for financial reporting purposes. The income tax effect of
temporary differences comprising the deferred tax assets and deferred tax
liabilities on the accompanying consolidated balance sheet is a result of the
following:
 
<TABLE>
<CAPTION>
                                                              1998       1997
                                                           ----------  --------
      <S>                                                  <C>         <C>
      Deferred Taxes
        NOL Carryforwards................................. $1,767,643  $628,462
        Organization Costs................................    195,563   198,974
        Accrued Expenses..................................     93,163         0
        Depreciation......................................     (3,519)    1,156
                                                           ----------  --------
          Total........................................... $2,052,850  $828,592
      Valuation Allowance................................. (2,052,850) (828,592)
                                                           ----------  --------
          Net Deferred Tax Assets......................... $        0  $      0
                                                           ==========  ========
</TABLE>
 
                                      24
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Continued)
 
 
   A reconciliation between the statutory federal income tax rate (35%) and
the effective rate of income tax expense for each of the years during the
period ended December 31 follows:
 
<TABLE>
<CAPTION>
                                                                 1998    1997
                                                                 -----   -----
      <S>                                                        <C>     <C>
      Statutory Federal Income Tax Rate......................... (35.0)% (35.0)%
      Accretion of Preferred Stock Dividend.....................   0.3%    5.6%
      Other.....................................................   0.1%    0.5%
      Increase in Valuation Allowance...........................  34.6%   28.9%
                                                                 -----   -----
      Effective Income Tax Rate.................................   0.0%    0.0%
</TABLE>
 
   The Company has available net operating loss carryforwards of $5,050,407
for tax purposes to offset future taxable income. The net operating loss
carryforwards expire as follows:
 
<TABLE>
             <S>                            <C>
             2002.......................... $      316
             2003..........................      1,030
             2004..........................     21,707
             2005..........................     10,201
             2011..........................    447,758
             2012..........................  1,314,593
             2013..........................  3,254,802
                                            ----------
                                            $5,050,407
                                            ==========
</TABLE>
 
Note 11--Commitments and Contingencies
 
   Operating Leases--The company leases office space and office equipment
under various noncancelable operating lease agreements which expire through
2003. The Company has a second office located in Vancouver, Canada, which is
owned by one of the Company's directors, and is leased to the Company for
$2,000 per month. There is an option to renew for an additional year. Rental
expense charged to operations during the years ended December 31, 1998 and
1997 was approximately $90,000 and $24,000, respectively.
 
   Future minimum payments under noncancelable operating leases are as
follows:
 
<TABLE>
             <S>                               <C>
             1999............................. $66,082
             2000............................. $67,544
             2001............................. $66,486
             2002............................. $67,107
             2003............................. $ 5,602
</TABLE>
 
   Employment Agreements--The Company has employment and stock option
agreements with its President and Chief Executive Officer. The employment
agreement provides for the officer to earn a minimum of $150,000 annually.
Effective January 1, 1999, the officer shall earn a minimum of $200,000
annually through January 1, 2000. The officer is also eligible for an annual
bonus for each fiscal year of the Company during the term based on performance
standards as the Board or compensation committee designates. The officer shall
also receive monthly an automobile allowance of five hundred ($500) per month.
The stock option agreement grants the officer (a) an option to acquire five
hundred thousand (500,000) shares at an exercise price per share of $6.50,
300,000 of which have vested, and (b) an option to acquire one hundred
thousand (100,000) shares at an exercise price per share of $6.00, which have
vested. The options granted shall terminate on July 1, 2005.
 
                                      25
<PAGE>
 
                  MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                NOTES TO THE FINANCIAL STATEMENTS--(Concluded)
 
 
Note 12--MedCare Program Sites
 
   The following program site locations were operating as of December 31,
1998: Norman, Oklahoma; Buffalo Grove, Illinois; Raleigh, North Carolina;
Stamford, Connecticut; Kankakee, Illinois; Shelby, North Carolina; Kingwood,
Texas; Mine Hill, New Jersey; Toledo, Ohio; Natick, Massachusetts; Fremont,
California; Findlay, Ohio; Roswell, Georgia; Newport News, Virginia; Dallas,
Texas; Owings Mills, Maryland; New York, New York; Baltimore, Maryland;
Fayetteville, North Carolina; San Antonio, Texas; Alexandria, Virginia;
Augusta, Georgia; Wentzville, Maryland; Amherst, Ohio; and Scottsdale,
Arizona.
 
                                      26
<PAGE>
 
Item 8: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
 
   None
 
                                   PART III
   
Item 9: Directors and Executive Officers of the Registrant     
 
<TABLE>   
<CAPTION>
                                                              Director/Officer
       Name          Age               Position                    Since
       ----          ---               --------               ----------------
<S>                  <C> <C>                                  <C>
Harmel S. Rayat      37  Chairman & Director                   September 1995
Jeffrey S. Aronin    31  President, CEO & Director             July 1997
Gregory Wujek        37  VP of Managed Care & Director         August 1998
Dr. Michael M. Blue  54  Director                              August 1996
Alan P. Jagiello     33  CFO, Treasurer, Secretary & Director  March 1999
</TABLE>    
   
Information Concerning Current Officers and Directors     
   
   The following narrative describes the positions held by the Company's
current officers and directors. Except for Jeff Aronin, CEO and President, the
officers were appointed to their positions, and continue in such positions at
the discretion of the directors. Jeff Aronin has an employment contract with
the Company as described under the heading "Executive Compensation". During
1998, the Board met four times and each board member attended at least 75% of
the board and committee meetings that were held while they were in office. The
Company has established both a compensation and audit committee, each of which
is comprised of the two non-employee directors (Harmel S. Rayat and Dr.
Michael M. Blue).     
   
   HARMEL S. RAYAT (Age 37) Chairman of the Board, Director. Mr. Rayat is one
of the co-developers of the MedCare Program. Mr. Rayat has been in the venture
capital industry since 1981 and since January 1993 has been the president of
Hartford Capital Corporation, a company which specializes in providing early
stage funding and investment banking services to emerging growth corporations.
From January 1989 through December 1992, Mr. Rayat was the President and CEO
of K.S. Rayat & Company, an investment banking and venture capital company,
where he was responsible for research, due diligence and investment strategy
in early stage, venture capital investments. Mr. Rayat has been a director of
the Company since September 1995, President from June 1996 until June 1997 and
is currently Chairman. Mr. Rayat also serves as a director for American
Alliance Corporation and Scottsdale Scientific, Inc., both non-reporting
companies trading on the NASD OTC Bulletin Board.     
   
   JEFFREY S. ARONIN (Age 31) President and Chief Executive Officer, Director.
Mr. Aronin has extensive experience in the healthcare industry, with
particular expertise in corporate development, sales management, health care
marketing and managed health care. Mr. Aronin joined Carter Wallace, a major
pharmaceutical firm, in May of 1989. At Carter Wallace, Mr. Aronin held many
positions as he advanced through management in sales marketing and managed
care. In September 1995, Mr. Aronin left Carter Wallace to join American
Health Products Corporation, where he ran the marketing division focusing on
marketing and business development and made significant contributions toward
the growth of its business. Mr. Aronin joined the Company as its President and
Chief Operating Officer in July 1997, at which time he also became a member of
its Board of Directors. He holds a degree in marketing and finance as well as
an MBA .     
   
   GREGORY WUJEK (Age 37) Vice President of Managed Care, Director. Mr. Wujek
joined the Company in November 1997 and brought with him over 10 years of
sales/marketing and management experience in the healthcare industry. Over the
course of seven years, Mr. Wujek worked at Forest Laboratories, an
international pharmaceutical concern, holding positions in sales/marketing and
management and his last two years as Director of the Managed Care Department.
In this role, Mr. Wujek directed and assisted in all industry related areas
such as sales, marketing, contract negotiation, pricing, product launches,
military and government contracting, and     
 
                                      27
<PAGE>
 
   
management. Prior to joining the Company, Mr. Wujek held the position of Vice
President of Sales at SMG Marketing Group, a consulting firm to the healthcare
industry. Mr. Wujek consulted for several international pharmaceutical
companies on the dynamics of marketing to the managed care marketplace. Mr.
Wujek is responsible for directing and assisting with the day to day
operations of both the sales and clinical departments, IS functions, and
marketing the MedCare Program to all areas of managed care.     
   
   MICHAEL M. BLUE, M.D. (Age 54) Director. Dr. Blue is a Board-certified
urologist who has practiced general urology for over twenty years. He is a
member of the American Medical Association, Oklahoma State Medical
Association, South Central Urological Association and the American Urological
Association. Dr. Blue has been a sole practitioner in private practice for the
past twenty years. Dr. Blue joined the Board of Directors of the Company in
August 1996 and is responsible for supervising and continuing the development
of all medical aspects of the MedCare program, as well as interacting and
answering questions from other doctors utilizing the MedCare Program.     
   
   ALAN P. JAGIELLO (Age 33) Chief Financial Officer, Secretary, Treasurer,
Director. Mr. Jagiello is a certified public accountant with over 10 years of
experience in public accounting at Arthur Andersen LLP. Prior to joining the
Company in December 1998, Mr. Jagiello worked in Arthur Andersen's U.S.
Professional Standards Group, where he consulted with clients and audit
engagement teams on technical matters of accounting and Securities and
Exchange Commission reporting. The Professional Standards Group sets, monitors
and disseminates policies on accounting and auditing standards for Arthur
Andersen worldwide and represents the firm before the Financial Accounting
Standards Board, the Securities and Exchange Commission, the American
Institute of Certified Public Accountants and the International Accounting
Standards Committee. Before joining this group, Mr. Jagiello assisted numerous
clients ranging from large, multinational corporations to closely held
businesses, and has provided due diligence services on acquisitions, performed
benchmarking projects and prepared internal control recommendations. Mr.
Jagiello, has authored a number of publications regarding technical accounting
issues and is a member of the American Institute of Certified Public
Accountants.     
   
   None of the foregoing persons is related by blood, marriage or adoption to
any other such person.     
   
Section 16(a) Beneficial Ownership Reporting Compliance     
   
   Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and persons who
own more than 10 percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("the Commission"). Directors, officers and
greater than 10 percent beneficial owners are required by applicable
regulations to furnish the Company with copies of all forms they file with the
Commission pursuant to Section 16(a). Other than the Company's Chairman, the
Company is not aware of any beneficial owner of more than 10 percent of its
registered Common Stock for purposes of Section 16(a).     
   
   Based solely upon a review of the copies of the forms furnished to the
Company, the Company believes that during fiscal 1998 all filing requirements
applicable to its directors and executive officers were satisfied.     
   
Item 10: Executive Compensation     
   
   The following table shows, for the three-year period ended December 31,
1998, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for such year, to the Company's Chief Executive
Officer and the Company's other most highly compensated executive officers.
Except as set forth on the following table, no executive officer of the
Company had a total annual salary and bonus for 1998 that exceeded $100,000.
    
                                      28
<PAGE>
 
                           
                        Summary Compensation Table     
 
<TABLE>   
<CAPTION>
                                                         Securities
                                                         Underlying
                                                          Options    All Other
Name and Principal Position  Year  Salary   Bonus  Other  Granted   Compensation
---------------------------  ---- -------- ------- ----- ---------- ------------
<S>                          <C>  <C>      <C>     <C>   <C>        <C>
Harmel S. Rayat............  1998 $ 25,000 $     0  $ 0         0     $     0
 Chairman, (CEO until
  August, 1998)              1997 $ 40,000 $     0  $ 0         0     $     0
                             1996 $      0 $     0  $ 0   160,000     $     0
 
Jeff Aronin................  1998 $118,750 $51,000  $ 0   100,000     $12,000
 President, (CEO since
  August, 1998)              1997 $ 46,433 $     0  $ 0   500,000     $ 3,000
                             1996 $      0 $     0  $ 0               $     0
 
Greg Wujek.................  1998 $ 95,000 $27,500  $ 0   155,000     $ 3,600
 VP of Managed Care          1997 $ 12,050 $     0  $ 0         0     $     0
                             1996 $      0 $     0  $ 0         0     $     0
</TABLE>    
   
Stock Option Grants in 1998     
   
   Shown below is further information regarding employee stock options awarded
during 1998 to the named officers and directors:     
 
<TABLE>   
<CAPTION>
                                       Number of  % of Total
                                       Securities  Options
                                       Underlying Granted to Exercise Expiration
      Name                              Options   Employees   Price      Date
      ----                             ---------- ---------- -------- ----------
      <S>                              <C>        <C>        <C>      <C>
      Harmel S. Rayat.................        0       0%        N/A       N/A
      Jeff Aronin.....................  100,000      24%      $6.00      2009
      Greg Wujek......................  155,000      38%      $7.00      2005
</TABLE>    
   
Aggregated Option Exercises During 1998 and Year-End Option Values     
   
   The following table shows certain information about unexercised options at
year-end with respect to the named officers and directors:     
 
<TABLE>   
<CAPTION>
                            Common Shares Underlying  Value of Unexercised In-
                             Unexercised Options on       The-Money Options
                                    12/31/98                 on 12/31/98
                            ------------------------- -------------------------
      Name                  Exercisable Unexercisable Exercisable Unexercisable
      ----                  ----------- ------------- ----------- -------------
      <S>                   <C>         <C>           <C>         <C>
      Harmel S. Rayat......         0            0            0          0
      Jeff Aronin..........   400,000      200,000      $15,625        $ 0
      Greg Wujek...........    67,500       87,500      $     0        $ 0
</TABLE>    
   
   There were no options exercised by any of the officers listed above in
1998.     
   
   The value of the options is calculated using the fair market value of the
Company's Common Stock on December 31, 1998 ($6.16 per share) minus the
exercise price per share, of the in-the-money options, multiplied by the
number of shares subject to each option.     
   
Employment Contracts     
   
   On December 15, 1998, the Company entered into an employment agreement with
Jeff Aronin, CEO and President. The employment agreement is for two years from
December 9, 1998 and is automatically extended for successive one-year periods
unless the Company or Mr. Aronin delivers to the other party written notice
specifying such party's intent not to extend or re-extend the term for an
additional one-year period. The employment agreement entitles Mr. Aronin to
receive an annual base salary of not less than $150,000; provided,     
 
                                      29
<PAGE>
 
   
however, that, effective January 1, 1999, Mr. Aronin will receive an annual
base salary of not less than $200,000. In addition to the base salary, Mr.
Aronin will be eligible for an annual bonus for each fiscal year during the
term based on such performance standards as the Board or compensation
committee designated by the Board may establish. The Company also entered into
a stock option agreement with Mr. Aronin, which grants him an option to
purchase 500,000 shares at $6.50 per share (300,000 of which options are
already vested) and an additional option to purchase 100,000 shares at $6.00
(all of which options are vested). Upon any change in control, all of the
aforementioned options vest immediately.     
   
Item 11: Security Ownership of Certain Beneficial Owners and Management     
   
   The following table sets forth, as of March 25, 1999, the beneficial
ownership of the Company's Common Stock by each nominee, director and
executive officer of the Company, each person known by the Company to
beneficially own more than 5% of the Company's Common Stock outstanding as of
such date and the executive officers and directors of the Company as a group.
    
<TABLE>   
<CAPTION>
                                                              Number of
      Person or Group                                          Shares   Percent
      ---------------                                         --------- -------
      <S>                                                     <C>       <C>
      Harmel S. Rayat........................................ 2,000,000  25.5%
       216-1628 West First Avenue
       Vancouver, B.C. V6J 1G1 Canada
 
      Jeff Aronin............................................   401,000   4.9%
       1515 West 22nd Street
       Oak Brook, Illinois 60523
 
      Greg Wujek.............................................    67,500    .8%
       1515 West 22nd Street
       Oak Brook, Illinois 60523
 
      Alan Jagiello..........................................       -0-    N/A
       1515 West 22nd Street
       Oak Brook, Illinois 60523
 
      Dr. Michael Blue.......................................   119,000   1.4%
       500 E. Robinson St., Suite 700
       Norman, Oklahoma 73071
 
      Lyons Capital Corporation..............................   600,000   7.4%
       Brenda C. Pratt
       President, Secretary, Treasurer
       and sole shareholder
       24 Reid Street
       Hamilton, HM11
       Bermuda
 
      Matrix Capital Corp....................................   600,000   7.4%
       Eric Smith, President and sole shareholder
       P.O. Box 69, Front Street
       Grand Turk, Turks & Caicos Islands
 
      Directors and Executive Officers as a group (5
       persons).............................................. 2,587,500  30.7%
</TABLE>    
   
Item 12: Certain Relationships and Related Transactions     
      
   None.     
 
                                      30
<PAGE>
 
                                    PART IV
 
Item 13: Exhibits and Reports on Form 8-K
 
   The exhibits listed in the accompanying index to exhibits are filed as part
of this Annual Report on Form 10KSB.
 
   Reports on Form 8-K:
 
   On October 7, 1998, the Company filed a Form 8-K to disclose the
resignation of Kundan S. Rayat as Secretary, Treasurer and a Director of the
Company and Valerie Boeldt- Umbright as a Director of the Company. Greg Wujek
was then elected to the Board of Directors and was named the new Secretary and
Treasurer. In addition, Harmel S. Rayat resigned as the CEO of the Company and
Jeff Aronin was elected to replace him.
 
   On November 19, 1998, the Company filed a Form 8-K to disclose that it had
issued 300,000 shares of its common stock at $5.00 per share to Lyons Capital
Corp., a Bermuda corporation, with a warrant to purchase an additional 300,000
shares at $5.00 per share as an offering pursuant to Regulation D, Rule 506.
The warrant is exercisable until October 14, 2004.
 
   On February 7, 1999, the Company filed a Form 8-K to disclose that it had
formed a new wholly owned subsidiary of the Company, Medcareonline.com, Inc.
 
                                      31
<PAGE>
 
                                   SIGNATURES
 
   Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 25th day of
March, 1999.
 
                                          MedCare Technologies, Inc.
 
                                                    /s/ Jeff Aronin
                                          By___________________________________
                                                        Jeff Aronin
                                                     CEO and President
 
                                                    /s/ Alan Jagiello
                                          By: _________________________________
                                                        Alan Jagiello
                                                             CFO
 
   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----
 
 
<S>                                  <C>                           <C>
        /s/ Jeff Aronin              CEO and President               March 25, 1999
____________________________________
            Jeff Aronin
 
       /s/ Alan Jagiello             CFO                             March 25, 1999
____________________________________
           Alan Jagiello
</TABLE>
 
 
 
                                       32
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>   
<CAPTION>
  Exhibit
  Number                         Exhibit Description
  -------                        -------------------
 
 <C>       <S>                                                              <C>
  3a.      Articles of Incorporation of Medcare Technologies, Inc. as
           amended to date. (Incorporated by reference to Exhibit 1 to
           Medcare Technologies Form 10-KSB for the year ended December
           31, 1997)
  3b.      By-Laws of Medcare Technologies, Inc. (Incorporated by
           reference to Exhibit 2 to Medcare Technologies Form 10-KSB for
           the year ended December 31, 1997).
  4a.      * Certificate of Designation
  4b.      * Subscription Agreement
  4c.      * Nine-Month Warrant
  4d.      * Twelve-Month Warrant
  4e.      * Fifteen-Month Warrant
  4f.      * Preferred Warrants
  4g.      * Registration Rights
  4h.      * Instructions to Transfer Agent
  4i.      * Agreement and Amendment
  4j.      * Agreement and Amendment for Queensway Financial Holdings
           Ltd.
  4k.      * Three-Month Warrant
  4l.      * Swartz Warrant
  4m.      * Escrow Agreement
  4n.      * Exhibit A to Escrow Agreement
 10a.      * 1995 Stock Option Plan
 10b.      * 1996 Stock Option Plan
 10c.      * 1997 Stock Option Plan
 10d.      **1998 Stock Option Plan
 10e.      **1999 Stock Option Plan
 10f.      **Employment and Stock Agreement, dated as of December 9, 1998
            between Medcare Technologies, Inc. and Jeffrey S. Aronin
 10g.      **Sublease dated as of December 31, 1997 between Medcare
            Technologies, Inc. and Delta Dental Plans Association
  21.      **Subsidiaries of the Registrant
  27.      **Financial Data Schedule
</TABLE>    
   
 *--Incorporated by reference to Medcare Technologies Form SB-2, File number
333-41611     
   
**--Incorporated by reference to Medcare Technologies 1998 Form 10-KSB     
 
                                       33