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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
COMMISSION FILE NUMBER: 1-13861
MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
PROVINCE OF ONTARIO, CANADA
(State or Other Jurisdiction of Incorporation or Organization)
2550 Argentia Road, Suite 205
Mississauga, Ontario, Canada L5N 5R1
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (905) 858-1368
Securities registered or to be registered pursuant to Section 12(b) of the Act.
(Title of each class) (Name of each exchange on which registered)
COMMON STOCK, NO PAR VALUE NASDAQ SmallCap and Boston Stock
Exchange
REDEEMABLE COMMON STOCK NASDAQ SmallCap and Boston Stock
PURCHASE WARRANTS Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE NASDAQ SmallCap and Boston Stock
Exchange
REDEEMABLE COMMON STOCK NASDAQ SmallCap and Boston Stock
PURCHASE WARRANTS Exchange
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act. NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent files pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock (based upon the
closing sales price of these shares as reported on the NASDAQ Stock Market's
SmallCap Market on March 20, 2000) of the registrant held by non-affiliates
on March 20, 1999 was approximately US$18,313,516.
As of March 20, 2000, 5,232,433 shares of the registrant's Common Stock
were outstanding.
All figures in US dollars unless otherwise noted.
PART I
ITEM 1: BUSINESS
BACKGROUND
Med-Emerg International Inc. ("Med-Emerg" or the "Company"), based in
Ontario, Canada, is a provider of a broad range of quality healthcare
management services. Established in 1983, the Company specializes in the
coordination and contract staffing of emergency physicians for hospitals and
clinics in Canada. Though emergency-related services are still an important
component of the Company's business, Med-Emerg has expanded to offer a wide
variety of medical services including nurse staffing, physician management
services and an internet-based healthcare network.
Med-Emerg is positioned to establish industry leadership in Canada by
providing integrated professional management services in the delivery of
healthcare to the Canadian healthcare consumer. The Company's operations are
divided into three divisions, Physician and Nurse Recruitment Services,
Physician Management Services and an internet based healthcare network called
Healthyconnect.com. Med-Emerg's strategy is to remain focused on these three
divisions while continuing to broaden its consolidation of physicians over a
wider geographic base. Med-Emerg believes that it is well positioned to
benefit from the aging of the baby boomer population, to capitalize on recent
developments within the North American healthcare environment and internet
technology. Specifically, the Company's strategy is to leverage its 16 years
of physician recruitment experience in becoming a dominant player in
Physician Management Services and to develop an internet-based healthcare
network that connects physicians, patients, third party payors and consumers
to a "virtual world" of healthcare products and services.
THE COMPANY
The "Company" refers to: (i) Med-Emerg International Inc.;(ii) its
wholly-owned subsidiaries, Med-Emerg Urgent Care Centres Inc., Med-Emerg
Dundas Urgent Care Centre Inc., JC Medical Management Inc., YFMC Healthcare
Inc., 927563 Ontario Inc. and 927564 Ontario Inc.; (iii) its indirect
wholly-owned subsidiaries Med-Emerg Inc. and Med Plus Health Centres Ltd.,
which is wholly-owned by 927563 Ontario Inc. and 927564 Ontario Inc.,
respectively; (iv) its 75% owned subsidiary, Doctors on Call Ltd.; (v) its
45% owned subsidiary Medical Urgent Care Inc.; (vi) its 51% owned subsidiary
Caremedics (Elmvale) Inc.; and, (vii) its 51% owned subsidiary York Lanes
Health Centres Inc.
As part of its business strategy, the Company intends to pursue rapid growth,
including possible acquisitions of, and joint ventures with, related and
complementary businesses. In June 1998, the Company acquired all of the
outstanding capital stock of a 6-physician family practice clinic, JC Medical
Management Inc. In September 1998, the Company acquired 75% of the
outstanding capital in a 24-hour on-call physician service, Doctors on Call
Ltd. During the first quarter of 1999, the Company acquired a 45% interest in
Medical Urgent Care Inc., a 51% interest in Caremedics (Elmvale) Inc. and a
51% interest in York Lanes Health Centres Inc., and entered in management
services agreements with all three companies. In November 1999, the Company
acquired all of the issued and outstanding capital stock of YFMC Healthcare
Inc., a company that manages 22 medical walk-in and family practice clinics.
The Company has recently entered into a Business Combination Agreement, dated
February 16, 2000, with Laser Rejuvenation Clinics Ltd. ("LRC"), a company
that provides full service laser procedures.
The Company provides emergency medical services to hospitals and to other
medical groups through its Physician and Nurse Recruitment Division and
clinical medical services to the public, in clinics through its Physician
Management Services Division. In September 1997, the Company launched its
Urgent Care Centres program, which provides on-site emergency medical
services. The Company intends to continue to aggressively market its
facilities and services as a viable outsource alternative to public
hospitals' present emergency room operations.
THE PHYSICIAN AND NURSE RECRUITMENT DIVISION
Competitive pressures have focused the attention of many healthcare
administrators, in the public sector, on the need for better staffing of
their medical professionals. Hospitals have increasingly turned to contract
staffing firms with specialized skills to help solve physician contract and
scheduling problems.
The Physician and Nurse Recruitment Division was established in 1983 as a
medical staffing and recruitment business. The Company provides physician
staffing, nurse staffing and administrative support to emergency departments
and physician recruitment services to Canadian hospitals and physician
groups. The administrative services include billing, maintenance of records
and coordinating with third party payors. Under its contracts with hospitals,
the Company provides emergency department physician coverage. The Company
also coordinates the scheduling of staff physicians which provides emergency
department coverage and assists the hospital's administrative and medical
staff in such areas as quality assurance, risk management, departmental
accreditation and marketing.
The Company's hospital physician staffing services are reimbursed either
based on a monthly fee payable by the hospital or on a per shift basis. As of
February 29, 2000, the Company had 14 hospital physician contracts, of which
10 were contracted to pay monthly administration fees, two were contracted to
pay on a per-shift basis and two were contracted to pay based on a percentage
of billings generated by the physicians on each shift. As of February 29,
2000, the Company was providing physician coverage for a total of
approximately 550 shifts per month, representing over 6,300 hours per month.
The Company's nurse staffing services are reimbursed at a fixed rate per hour
of coverage provided. The Company had six hospital nursing contracts as at
February 29, 2000, which provided a total of approximately 1,648 hours in the
month of February.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in
hospitals that have contracted for the Company's contract staffing services.
The Company then enters into contracts with physicians who meet its
qualifications and provides those physicians as candidates for admission to
the hospital's medical staff. The Company requires all physicians to be
currently licensed to practice medicine in the Province of Ontario and to be
Advanced Cardiac Life Support ("ACLS") or Advanced Trauma Life Support
("ATLS") certified before entering into a contract for the physician's
services.
The terms and conditions of the Company's contracts with physicians generally
provide that the Company, on a best efforts basis, will place the physician
in a functioning facility and the Company will collect all fees due to the
physician for rendering services. The Company then pays the physician for the
medical services provided based on the terms of the contract between the
Company and the physician. These contracts contain the following provisions:
Each physician is not an employee of the Company but is instead an
independent contractor of services to various medical facilities under
contract with the Company; Each physician must remain in good standing with
the College of Physicians & Surgeons of the Province of Ontario and be
licensed to practice medicine in the Province of Ontario; Each physician must
remain in good standing with the Canadian Medical Protective Association
("CMPA") and have appropriate CMPA coverage to provide physician services to
patients while working with the Company. Physicians are bound by a
non-competition restriction not to provide services at any hospital where the
Company has a contract for one year following the contract term. Each
physician full-time contract has a term of twelve months and renews
automatically for an additional twelve months.
CONTRACTS WITH HOSPITALS FOR PHYSICIAN STAFFING. The Company coordinates the
scheduling of staff physicians to provide coverage on a negotiated basis to a
hospital's emergency department.
The Company generally provides contract physician staffing services to
hospitals on the following arrangements: fee-for-service contracts and
physicians per shift that the Company provides to the hospital. In addition,
physicians under contract to the Company authorize the Company to bill and
collect fees. Depending upon the hospital patient volume, the Company may
receive a subsidy from
the hospital. Pursuant to such contracts, the Company assumes responsibility
for billing and collection and assumes risks of administrative error and
subsequent non-payment. All of these factors are taken into consideration by
the Company in arriving at appropriate contractual arrangements with
healthcare institutions and professionals. The hospital contracts are
generally for one year, are generally terminable by either party upon two
months written notice, and automatically renew if not terminated.
When determining the split arrangement to be used in the physician
compensation model for the Company's fee-for-service contracts, the Company
considers a hospital's emergency room patient volume, the monthly gross
margin targets set by the Company, the location of the hospital in relation
to the supply of physicians, and shift coverage offered or required by the
hospital.
When determining the fixed administrative fee to be charged to the hospital,
the Company considers several factors including location of the hospital in
relation to the availability of physicians, number of physicians from which
to draw, the number of physician shifts required, and patient volumes.
For the majority of the hospital staffing contracts, the Company's monthly
fee is due on the 1st of the month for which shift coverage is being
provided. For a few of the Company's contracts, the fee is not due until the
end of the month for which shift coverage was provided. For all of the
Company's hospital staffing contracts (fee-for-service and fixed fee) the
physicians are paid on the 15th of each month for services rendered up to the
15th of the prior month.
CONTRACTS WITH NURSES. The Company identifies, recruits and screens potential
candidates to serve as emergency room nurses in hospitals that have
contracted for the Company's staffing services. The Company then enters into
contracts with nurses who meet its qualifications. The Company requires all
nurses to be Basic Life Support ("BLS") certified and prefers Advanced
Cardiac Life Support ("ACLS") certification. Nurses must have a minimum of
two years' experience in emergency departments and pass a written examination
that tests their skills as a critical care nurse.
The Company bills a fixed hourly rate to the hospital for each hour of
service provided by a nurse under contract with the Company. The nurses are
paid a lower fixed hourly rate on the 15th and 30th of each month.
CONTRACTS WITH HOSPITALS FOR NURSE STAFFING. The Company provides nursing
coverage to hospital emergency departments on a shift-by-shift basis. The
Company charges a fixed hourly rate for every hour of nursing coverage
provided. The hospital contracts are generally for one year, are terminable
by either party upon three months written notice, and automatically renew if
not terminated.
THE PHYSICIAN AND NURSE RECRUITMENT DIVISION'S OPERATIONS
The principal operating activities of the Physician and Nurse Recruitment
Division include the following:
RECRUITMENT AND CREDENTIALS. Med-Emerg has developed into one of the larger
providers of physician recruitment and placement services to many communities
and hospitals across Canada. Services include the complete assessment of a
community's needs, practice opportunities, the development of a recruitment
strategy and implementation process.
The recruitment and certifying of credentials of qualified independent
contract physicians is a central aspect of the Company's operations.
Full-time employees of the Company are dedicated to recruiting and certifying
credentials of the independent contract physicians for the Company. The
Company recruits physicians from three groups. The first group is recruited
directly from postgraduate training programs. Seminars are currently held in
most of the teaching hospitals in Ontario, with plans to provide seminars
across Canada to educate all the residents in family medicine and other
specialties about career opportunities in the Company. The second and third
groups recruited are established family physicians with an interest in
emergency medicine and full-time emergentologists. The Company has developed
a database that tracks the physicians during their medical career. This
database enhances the Company's ability to maximize the medical service
contribution of each physician. In the Canadian healthcare environment where
there exists a significant shortage of qualified physicians, one measure of
value of a Physician Management Organization is its ability to access in a
timely manner the quantity of physicians in an organization's database. As
part of its
recruiting strategy, the Company has established a stock option plan and
group benefits plan in which its contracted physicians can participate. The
Company believes that this will encourage physicians to make long-term
commitments.
Qualified independent contract nurses are recruited through advertising,
word-of-mouth and trade shows. Nurses must have two years of experience in
critical care nursing and possess Basic Life Support ("BLS") training and
preferably Advanced Cardiac Life Support ("ACLS") training.
QUALITY ASSURANCE. The Company maintains a Quality Assurance program designed
to ensure consistency in clinical practice performance. These systems are
subject to review and examination by independent hospital credential and
regulatory agencies. As part of the Company's quality assurance program, all
physicians are required to have ACLS and ATLS certification, provide a
Certificate of Professional Conduct from the College of Physicians and
Surgeons of Ontario, be approved by the credentialing committee in their
respective hospitals that are governed by the Public Hospital Act, maintain
adequate malpractice coverage, and maintain continuing medical education
credits. Principally, quality assurance is the responsibility of Dr. Stephen
Fowler, the Company's Executive Medical Director. The efficiency of these
systems, and the performance of the Company's contract physicians, are
critical to maintaining a good relationship with the hospitals, as well as
minimizing the exposure of the Company to liability claims.
TIME SCHEDULING. The scheduling of physician hours and nurse hours is
performed monthly. For physician services, hospitals are provided a monthly
physician coverage schedule prior to the first of each month. Under some of
the hospital contracts, multiple physician coverage is required during
certain periods. For nursing services, hospitals contact the Company with
their shift requirements. Because of varying other demands on the contract
nurses and physicians, the scheduling process is complex and requires
significant management attention.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage of physicians are comprised of two elements: (i) hospital
administrative fees; and (ii) physician services. Under each hospital
contract, the Company has the responsibility for the billing and collection
of physician fees. The Company's bad debt experience in collection of
physician fees has historically been less than 1% of allowable billings. In
addition, the Company charges each hospital a fee for its recruiting and
staffing services either on a fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides for the administration of
fringe benefit programs, which may include but are not limited to life
insurance, health insurance, professional dues and disability insurance.
CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. Hospitals have increasingly
turned to consulting specialists with specialized skills to strengthen the
management of their professional medical staff and specific clinical
departments, to better control costs, and to assist hospitals in meeting
their healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring physician. In the past few years,
consulting contracts have been conducted with Hotel-Dieu Grace Hospital in
Windsor, Canada and The Wellesley Hospital in Toronto, Canada. In 1998, a
consulting contract was completed for the Chatham-Kent Health Alliance and
the Company is currently working on a consulting contract with Northumberland
Health Care Corporation.
The Company has also conducted several international consulting assignments
for healthcare clients in Saipan, the Cayman Islands, Malaysia and India,
including feasibility studies, identification of medical service needs,
planning of healthcare delivery systems and developing marketing strategies.
In 1997, the Company completed a consulting assignment to provide an
integrated strategic plan for the delivery of health and social services in
the Northwest Territories in Canada, the costs of which were funded by the
Northwest Territory Provincial government.
The Company expects to continue its growth through staffing additional
hospital contracts. In particular, the Company intends to both strategically
target hospitals and physician groups. Management actively seeks
opportunities to competitively bid for hospital contracts.
In addition, the Company intends to take advantage of the government's plans
to restructure the delivery of Canadian medical care through fewer but more
efficient hospitals and hospital groups.
Management expects that hospitals will increasingly look to outsourcing from
third party providers. Specifically, the Company expects that hospitals will
seek opportunities for emergency care specialists not only to staff the
emergency departments but also to administer and operate all aspects of those
departments.
THE PHYSICIAN MANAGEMENT SERVICES DIVISION
As of March 20, 2000, the Company has an ownership interest in and manages 30
clinics in Canada. The locations of and services provided at the Company's
clinics are as follows:
The Company operates 30 clinics that offer both family practice and walk-in
services for patients. Other services that may be provided at the clinics are
travel medicine, chiropractic, massage therapy, weight loss program, internal
medicine, paediatrics, haemotology and professional family counseling. The
Company manages the clinics by providing scheduling, staffing, recruiting,
billing, collections and accounting services to the clinic. In the clinics
where the Company does not own 100% of the outstanding capital stock, the
Company has entered into a 5 year management services contract whereby the
Company receives a monthly management fee to provide the management services.
In August 1996, the Company acquired the assets and physician contracts of
St. George Medical Clinic, a Health Services Organization (HSO), and merged
the operations into the Central Clinic. The clinic is funded under a
contractual agreement with the Ministry of Health to provide primary care at
a clinic for a specified number of registered patients. The Ministry
allocates a specific payment for each patient on a monthly basis, whether the
services are used or not. The monthly fee is determined by the age and sex of
the patient and is referred to as the capitation rate. As at December 31,
1999, the average monthly capitation rate was $12.83 CDN per patient with
approximately 5,444 patients enrolled under the HSO program. Under the
fee-for-service model, a fee is billed to the Ministry only when a patient
visits the clinic and a service is performed. The fee-for-service rates are
set by the Ministry and vary depending on the type of medical service
performed.
In addition to family practice and walk-in clinics, the Company has an
ownership interest in and manages Urgent Care Centres through which it offers
on-site, one-stop medical care comparable to the services provided in a
traditional emergency department. The Urgent Care Centre concept consists of
a group of emergency trained physicians, a medical laboratory, a diagnostic
radiology service, and a pharmacy, each of which must be present for the
others to co-exist, and each of which is provided by a separately owned
company. The Company operates the clinic component of the Urgent Care Centre.
The Company provides emergency medical services, including emergency
physician staffing, emergency nurse staffing, receptionist staffing,
physician billing services, all financial services, inventory control,
Medical Directorship and other operational components such as quality
improvement and risk management initiatives.
The Company opened its first Urgent Care Centre on September 19, 1997. In
January 1999, the Company acquired a 45% interest in Medical Urgent Care
Inc., a company that operates the Britannia Urgent Care Centre. The Company
has a 5 year agreement to provide management services to the Britannia Urgent
Care Centre for a percentage of the revenues generated by the clinic
component.
HEALTHYCONNECT.COM DIVISION
HealthyConnect.com, an internet-based e-commerce health portal, was launched
on March 22, 2000. HealthyConnect.com has been strategically designed to
provide an end to end solution for the information needs of the healthcare
sector. We will pursue both a business to business and business to consumer
e-commerce strategy connecting physicians, hospitals, third-party payors and
consumers and will allow all participants to access and exchange healthcare
related information, purchase healthcare products and services, and
communicate more cost-effectively with one another. HealthyConnect.com will
deliver healthcare services and products and provide timely access to
reliable healthcare information through the utilization of advanced
telecommunication technology.
Targeted purchasers of HealthyConnect.com on line applications, are
consumers, healthcare institutions, physicians and other healthcare providers
and healthcare product suppliers. Consumers
will benefit from 24-hour, 7-day a week access, via the internet and
telephone, to Med-Emerg's healthcare service provider network. In addition,
consumers will have multiple site secure access to their own and their family
members' electronic medical records, access to a physician management health
and wellness centre and convenient at-home shopping for healthcare products
and services.
HealthyConnect.com's secure, 128-bit encrypted web browser system
incorporates state-of-the-art security and privacy, and is fully compliant
with healthcare industry guidelines. The web-based products have been
field-tested over the past 3 months. HealthyConnect.com will enable
physicians and other healthcare providers to access reliable information and
provide them with additional support in delivering cost effective, high
quality healthcare services. Benefits include 24-hour coverage for patients,
access to a comprehensive physician medical reference database, online
continuing medical education courses, tools for chronic disease management,
and participation in clinical trials and web casting. HealthyConnect.com will
link healthcare product and service suppliers with our clinical network
family. Convenient and secure access and at home/office browsing and
purchasing capabilities will facilitate direct sales opportunities for member
suppliers. Healthcare product and service suppliers that may benefit from
using HealthyConnect.com include pharmaceutical companies, insurance
companies, employers, government, managed care organizations, physicians and
hospitals.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing
capability and e-commerce goods and services to its customers.
HealthyConnect.com has negotiated a relationship with AstraTek, headquartered
in New York, N.Y. AstraTek is a software product development firm, delivering
advanced technologies to Fortune 1000 companies and financial institutions.
AstraTek provides mission critical computing such as distributed computing,
multi-tier client-server systems, and object-oriented technology. The core
proficiencies at AstraTek include Windows NT development from driver level to
application level, using Visual C++, Visual Basic, MFC, ATL and OLE
automation. AstraTek assisted in the development and launch of the
HealthyConnect.com portal. HealthyConnect.com has also negotiated a
relationship with Data General, headquartered in Westborough, Massachusetts.
Data General is a leading supplier of servers and storage systems, and services
for information systems users worldwide. Data General designs, manufactures,
markets, and supports two major families of open systems, AViion-Registered
Trademark-servers and CLARiion-Registered Trademark- mass storage products,
which represent over 90 percent of current product revenues. Data General and
its subsidiaries, distributors and representatives serve customers in more than
70 countries. Data General works closely with leading software and services
suppliers who understand specific customer problems and provide effective and
affordable business solutions. Data General will provide a consolidated
computing infrastructure to support HealthyConnect.com including hardware,
software and network support.
GOVERNMENT REGULATION
The provision of medical services in Canada is for the most part under
provincial jurisdiction. Under the Health Insurance Act, the government of
Ontario is responsible for paying physicians for the provision of insured
services to residents of Ontario. Individual physicians' billings under OHIP
are subject to threshold amounts, or soft caps. Once a physician reaches a
prescribed level in the 12-month period beginning April 1 of each year, the
government reduces payments to the physician by a prescribed fraction. Any
changes in reimbursement regulations, policies, practices, interpretations or
statutes that place material limitations on reimbursement amounts or
practices could adversely affect the operations of the Company, absent, or
prior to, satisfactory renegotiations of contracts with clients and
arrangements with contracted physicians.
Under a combination of statutory provisions, both Federal and provincial,
physicians are prohibited from billing their patients for fees in excess of
those payable for services listed in the OHIP Schedule of Benefits. The
Canada Health Act allows for cash contributions by the Federal government in
respect of insured health services provided under provincial healthcare
insurance plans. In order for a province to qualify for a full cash
contribution, there is a requirement that the provincial healthcare insurance
plan satisfy the criteria set out in the Canada Health Act. In addition, the
provincial plan must ensure that no payments are permitted in respect of
insured health services that have been subject to extra billing.
Continuing budgetary constraints at both the Federal and provincial level and
the rapidly escalating costs of healthcare and reimbursement programs have
led, and may continue to lead, to significant reductions in government and
other third party reimbursements for certain medical charges. The Company's
independent contracted physicians as well as the Company are subject to
periodic audits by government reimbursement programs to determine the
adequacy of coding procedures and reasonableness of charges.
Business corporations are legally prohibited from providing, or holding
themselves out as providers of, medical care in many provinces. While the
Company will seek to structure its operations to comply with the corporate
practice of medicine laws of each province in which it operates, there can be
no assurance that, given varying and uncertain interpretations of such laws,
the Company would be found in compliance with restrictions on the corporate
practice of medicine in all provinces. A determination that the Company is in
violation of applicable restrictions on the practice of medicine in any
province in which it operates or could operate could have a material adverse
effect on the Company if the Company were unable to restructure its
operations to comply with the requirements of such province.
Due to increasing government fiscal restraint, Ontario's health care system
is currently undergoing a significant restructuring by the provincial
government. Based on a determination that the Ontario public healthcare
system was not fiscally efficient, in 1997 the Province of Ontario enacted
the Savings and Restructuring Act, which gives its provincial government the
ability to implement a health care system restructuring plan. The new
legislation established the Health Services Restructuring Commission, which
has broad decision making authority over every aspect of a public hospital's
operations, including all aspects of operations, fiscal policy, public
funding and even the continuance or cessation of a public hospital's
existence. The objective of the legislation is to induce public hospitals'
care delivery systems in the Ontario health care area to improve the quality
of health care and particularly to install efficiencies of cost in the
delivery of medical services to the 11 million person population of the
Province of Ontario (37% of all of Canada). Inefficient hospitals run the
risk of the loss of public funding if they fail to meet the objectives of the
Commission. Accordingly, the incentives are in place to induce public
hospitals to find solutions to achieve the desired efficiencies, including
outsourcing available from and through private sector organizations, such as
the Company.
PROPOSED HEALTHCARE LEGISLATION
The Health Services Restructuring Commission (HSRC), established under Bill
26, has the mandate and authority to facilitate and accelerate hospital
restructuring in Ontario. This legislation contains measures intended to
control public and private spending on healthcare as well as to provide
universal public access to the healthcare system. The Company cannot predict
what effect, if any, this and other healthcare legislation will have on its
operations. Significant changes in Canada's healthcare system are likely to
have a gradual but substantial impact on the manner in which the Company
conducts its business and could have a material effect on its results of
operations.
Despite pronouncements by the Ontario Minister of Health that managed care
options, such as in the United States, are being considered, it is not
evident that U.S. styled managed care will play a significant role in the
fee-for-service sector of the publicly funded healthcare system. Management
believes that government actions in the area of legislation to date indicate
a present intent to let the healthcare system proceed without intervening
directly in the management of patient care, although there can be no
assurance thereof. In the future, greater emphasis may be placed on such
managed care tools as utilization review, practice guidelines, and outcome
measurement. The current move away from traditional fee-for-service
mechanisms may have a similar effect as physicians attempt to minimize the
risk they face and as the government strives for accountability and
value-for-dollar assurances.
COMPETITION
Competition in the industry is based on the scope, quality and cost of
services provided. Certain of the Company's current and potential competitors
have substantially greater financial resources than the Company. While
management believes that it competes on the basis of the quality of its
services, the larger resources of its competitors may give them certain cost
advantages over the Company (e.g., in the areas of malpractice insurance,
cost savings from internal billing and collection and a broader scope of
services). The clinics operated by the Physician Management Services Division
compete with hospitals and other private physicians. The Urgent Care Centre
competes with hospital emergency rooms. The Company believes that the varied
physician practice alternatives coupled with competitive remuneration plans
create a significant incentive for physicians to provide patient services
through the Company.
EMPLOYEES
As of February 29, 2000, the Company had 94 full-time employees, of whom 4
were employed in general executive positions, 29 were employed in
administration and 61 were employed in the Company's clinics. In addition, as
of such date, approximately 310 physicians and 40 nurses were actively
working as independent contractors of the Company. These physicians and
nurses are not employees of the Company.
ITEM 2: PROPERTIES
The Company's principal executive office is located at 2550 Argentia Road,
Suite 205, Mississauga, Ontario. The principal office occupies approximately
5,560 square feet of space under a lease that expires in February, 2001 at an
average annual rental rate of approximately $71,140.
One of the Company's largest clinics, the Central Clinic is located at 458
Central Avenue, London, Ontario. The Clinic occupies approximately 6,400
square feet of space under a lease that expires December 31, 2002 at an
average annual rental rate of approximately $63,870. The Pond Mills clinic is
located at 1166 Commissioners Road East, London, Ontario, N5Z 4R3. This lease
is currently on a month-to-month basis for approximately $3,000 per month.
The Glenderry Clinic is located at 2760 Derry Road West, Mississauga,
Ontario. The Clinic occupies approximately 2,600 square feet at an annual
rental rate of approximately $46,575.
YFMC Healthcare Inc. has an administrative office located at 441 MacLaren
Street, Ottawa, Ontario. Annual rent totals approximately $9,690 for 1,800
square feet. The lease expires in July 2004.
ITEM 3: LEGAL PROCEEDINGS
The Company is presently party to one legal proceeding that was commenced on
July 4, 1997 in the General Division of the Ontario Court. This proceeding
relates to the recapitalization of the Company, which occurred in November,
1996, in which the Estate of Dr. Donald Munro ("Estate") contributed 75,000
of its 150,000 Med-Emerg Common Shares to the capital of the Company. The
Estate, the applicant in the proceeding, has taken the position that it
continues to be the beneficial owner of 150,000 shares of Med-Emerg Common
Shares. The Company disagrees with the Estate's position and intends to
defend this action vigorously. However, in the event that the Company is
unsuccessful in its action, the Company may be required to return to the
Estate the 75,000 Med-Emerg Common Shares which were previously surrendered.
There has been no further correspondence or action with respect to this claim
since 1997.
In addition, in the future, the Company could be subject to claims arising
from its contracts with hospitals or other institutions or professional
associations to which it provides services.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on Friday,
November 5, 1999. At this meeting, the following matters were voted on by the
Company's shareholders:
(A) ELECTION OF DIRECTORS
Ramesh Zacharias, Carl Pahapill, William Thomson, Robert Rubin, Jeffrey
Lyons, Martin Scullion and Camille Chebeir were duly elected as directors of
the Company to serve until the next Annual Meeting of Shareholders or until
their respective successors have been duly elected and qualified. The vote
was as follows:
Names Votes Cast in Favour Votes Withheld
----- -------------------- --------------
Ramesh Zacharias 3,066,220 15,200
Carl Pahapill 3,066,420 15,000
William Thomson 3,066,420 15,000
Robert Rubin 3,066,420 15,000
Jeffrey Lyons 3,066,420 15,000
Martin Scullion 3,066,420 15,000
Camille Chebeir 3,066,220 15,200
(B) APPROVAL OF THE ISSUANCE OF UP TO 1,799,502 ADDITIONAL SHARES OF COMMON
STOCK
The Company's shareholders approved the issuance of an aggregate of up to
1,799,502 additional shares of Med-Emerg pursuant to a tender offer and to
adopt the Business Combination Agreement whereby Med-Emerg shall exchange 1
share of Med-Emerg common stock for every 6.875 YFMC shares, 0.125 of a
Med-Emerg Series A Warrant for each YFMC Series A Warrant, 0.125 of a
Med-Emerg Series B Warrant for each YFMC Series B Warrant, 0.125 Med-Emerg
stock options for every YFMC stock option and 0.10 Med-Emerg common stock for
every YFMC first preferred share, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions
-------------------- ------------------ -----------
2,426,535 18,300 8,100
(C) APPOINTMENT OF AUDITORS
The shareholders of the Company ratified the appointment of Schwartz,
Levitsky, Feldman, LLP, Chartered Accountants as the Company's independent
auditors, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions
-------------------- ------------------ -----------
3,069,120 11,500 800
(D) AMENDMENT TO COMPANY'S STOCK OPTION PLAN
The Company's shareholders approved the amendment to the Company' Stock
Option Plan to increase the number of options to acquire Med-Emerg Common
Shares that may be granted from 638,000 to 1,000,000, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions
-------------------- ------------------ -----------
2,426,335 26,000 600
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
The Common Shares and Redeemable Common Stock Purchase Warrants are listed
for trading under the symbols "MDER" and "MDERW", respectively, on the NASDAQ
SmallCap Market and under the symbols "MEI" and MEIW", respectively, on the
Boston Stock Exchange. The Common Shares and Redeemable Common Stock Purchase
Warrants have been listed on both Exchanges since February 12, 1998. Prior to
that date the Common Shares and Redeemable Common Stock Purchase Warrants
were privately held.
The following table sets forth the range of high and low sales prices from
February 12, 1998:
COMMON SHARES
--------------------------
HIGH LOW
First Quarter, 1998 (from Feb.12/98) US$ 4-3/4 US$ 3-3/8
Second Quarter, 1998 4 2-13/16
Third Quarter, 1998 3-1/4 1-11/16
Fourth Quarter, 1998 2 1
First Quarter, 1999 2-1/4 1-1/32
Second Quarter, 1999 2-1/2 1-1/16
Third Quarter, 1999 2-1/16 1-1/2
Fourth Quarter, 1999 2-11/16 1
There were 49 holders of record of the Company's Common Stock and 2 holders
of record of the Company's Redeemable Common Stocks Purchase Warrants as of
March 20, 2000.
The Company has not declared cash dividends on its Common Stock in the last
two fiscal years.
There were no unregistered sales of securities during the last fiscal year.
The net proceeds to the Company from its Initial Public Offering after
deducting underwriting discounts and commissions and other expenses of the
Offering, were US $3,737,158. The Company used the net proceeds of the
Offering as follows:
Amount
(U.S. Dollars)
--------------
Repayment of Lines of Credit (1) $ 862,108
Repayment of Bridge Notes (2) 546,589
Working Capital Requirements 869,023
Acquisitions (3) 735,442
Urgent Care Centre 147,147
Dividends on Preferred Shares 221,247
Capital Assets 226,949
Share Repurchase Plan (4) 77,965
Purchase of Note Receivable 50,688
Proceeds used to date 3,737,158
----------
General Corporate Purposes and
Potential Acquisitions -
----------
$3,737,158
(1) Represents repayment of an aggregate of US $250,000 of loans against
line of credit provided to the Company by Robert Rubin, a director of
the Company. The loan bore interest at 2% over the prime rate in effect
from time to time as reported in The Wall Street Journal. The Company
used these loans for working capital and certain costs associated with
the opening of the first urgent care centre. Also represents repayment
of approximately $890,000 (US $600,200) against the Company's
outstanding balance on its bank credit facility, such balance bearing
interest on an annual basis at the facility's announced prime rate plus
1.5%. The proceeds borrowed from the bank credit facility were used by
the Company as working
capital.
(2) Represents repayment of the principal and accrued interest on the 8%
promissory notes sold in the January 1997 private placement ("Bridge
Financing"). The proceeds from the Bridge Financing were applied to
reduce the Company's bank borrowings.
(3) The Company completed six acquisitions since the completion of the
Initial Public Offering. All of the shares of J.C. Medical Management
Inc. were purchased in June, 1998. 75% of the shares of Doctors on Call
Ltd. were purchased in September, 1998. 45% of the shares of
Mississauga Urgent Care Inc. were purchased in January, 1999. 51% of
the shares in York Lanes Health Centres were purchased in February,
1999. 51% of the shares of Caremedics (Elmvale) Inc. were purchased in
March, 1999. All of the shares of YFMC Heathcare Inc. were purchased in
November, 1999.
(4) The Company repurchased 44,500 shares of its Common Stock between
October, 1998 and January, 1999.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto, other financial
data, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
STATEMENT OF OPERATIONS DATA:
US $
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
STATEMENT OF OPERATIONS DATA:
Revenue $12,648,428 $10,308,103 $ 8,358,937 $ 7,953,775 $8,016,895
Physician Fees and Other Direct Costs 8,877,139 7,984,116 6,319,934 6,290,047 6,136,000
Gross Profit 3,771,289 2,323,987 2,039,004 1,663,728 1,880,895
Operating Expenses before Depreciation
and Amortization (1) and
Healthy Connect.com
-- Canadian GAAP 3,707,128 2,246,225 1,995,439 4,315,983 2,052,150
-- U.S. GAAP 3,680,333 2,422,974 2,101,456 4,359,053 2,052,150
Depreciation and Amortization 361,333 124,239 92,548 57,632 36,015
HealthyConnect.com 798,943 84,530 -- -- --
Operating Income (Loss)
-- Canadian GAAP (1,096,115) (131,007) (48,983) (2,709,887) (207,270)
-- U.S. GAAP (1,069,320) (307,756) (155,001) (2,752,957) (207,270)
Other Income (Expense) (44,495) (12,584) (321,335) (40,780) 40,093
Provision for Income Taxes (Recovery) (262,140) (37,333) (29,332) (107,761) 52,149
Net Income (Loss)
-- Canadian GAAP (878,470) (106,258) (340,987) (2,642,906) (219,325)
-- U.S. GAAP (851,675) (283,007) (447,004) (2,685,976) (219,325)
Net Income per Common Share (2)
-- Canadian GAAP $ (0.26) $ (0.04) $ (0.18) $ (0.87) $ (0.09)
Basic and Fully Diluted Income (Loss)
per Common Share (2)
-- Canadian GAAP $ (0.30) $ (0.08) $ (0.18) $ (0.87) $ (0.09)
Primary and Fully Diluted Income
(Loss) per Common Share
-- U.S. GAAP $ (0.25) $ (0.10) $ (0.23) $ (0.88) $ (0.09)
BALANCE SHEET DATA:
Working Capital $ (882,234) $ 1,499,329 $(1,349,530) $ (870,509) $ (353,293)
Total Assets 10,066,935 5,455,832 3,636,418 2,583,717 1,984,846
Long-term Debt 518,339 66,837 55,475 - -
Shareholders' Equity 5,230,930 3,703,504 9,760 196,335 (227,845)
OTHER DATA:
EBITDA (3)
-- Canadian GAAP $ (734,782) $ (6,768) $ 43,565 $(2,652,255) $ (234,628)
-- U.S. GAAP $ (707,988) $ (183,517) $ (62,452) $(2,695,325) $ (234,628)
(1) At December 31, 1997, operating expenses included stock compensation
expense of $100,400 for shares issued to a director. At December 31,
1996, operating expenses included stock compensation expenses of
$1,271,214 for shares issued to a shareholder and $934,033 for the
issuance of stock options to a director.
(2) Net income (loss) per common share reflects net income (loss) before
preferred share dividends divided by the weighted average number of
common shares outstanding. Basic and fully diluted income (loss) per
common share reflects net income (loss) available to common
shareholders divided by the weighted average number of common shares
outstanding.
(3) EBITDA is the sum of income before interest, taxes, depreciation and
amortization expense. EBITDA should not be considered as an alternative
to net income (loss) or to cash flows from operating activities (all as
determined in accordance with generally accepted accounting
principles). EBITDA is presented because it is a widely used financial
indicator of a company's ability to service indebtedness and other
factors.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Med-Emerg International Inc. ("Med-Emerg" or the "Company"), based in
Ontario, Canada, is a provider of a broad range of quality healthcare
management services. Established in 1983, the Company specializes in the
coordination and contract staffing of emergency physicians for hospitals and
clinics in Canada. Though emergency-related services are still an important
component of the Company's business, Med-Emerg has expanded to offer a wide
variety of medical services including recruitment, nurse staffing, physician
management services and an internet-based healthcare network.
Med-Emerg is positioned to establish industry leadership by providing
integrated professional management services in the delivery of healthcare to
the healthcare consumer. The Company's operations are divided into three
divisions: Physician and Nurse Recruitment Services, Physician Management
Services and an internet based healthcare network called HealthyConnect.com.
Med-Emerg's strategy is to remain focussed on these three divisions while
continuing to broaden its consolidation of physicians over a wider geographic
base. Med-Emerg believes that it is well positioned to benefit from the aging
of the baby boomer population, to capitalize on recent developments within
the North American healthcare environment and to integrate opportunities
available through internet technology. Specifically, the Company's strategy
is to leverage its 15 years of physician recruitment experience in becoming a
dominant player in Physician Management Services and to develop an
internet-based healthcare network that connects physicians, patients, third
party payors and consumers to a "virtual world" of healthcare products,
services and health information.
The Company continues to promote its medical manpower staffing services
throughout Canada. Demand for emergency care has grown significantly over the
past ten years, notwithstanding the small proportion of physicians focusing
on emergency medicine. Moreover, recruitment of experienced emergency
medicine practitioners by hospitals in other countries is intense and such
demand is expected to continue for some time. Given the uncertainties
associated with patient volumes in several Ontario hospital emergency
departments, the pool of available physicians willing to practice emergency
medicine has been declining.
The Company's ability to provide solutions and source physicians and highly
skilled nurses will be enhanced by its success in developing its dominant
status in the Physician Management Services Organization (PMSO) sector. The
Company's business strategy is to integrate and through its physicians
program offer the family physician a comprehensive practice opportunity.
Management believes that the creation of a dominant PMSO status will
significantly contribute to the Company's efforts in growing its emergency
services recruitment division.
On March 22, 2000, the Company launched HealthyConnect.com, an internet-based
e-commerce health portal. HealthyConnect.com has been strategically designed
to provide an end to end solution for the information needs of the healthcare
sector. The Company will pursue both a business to business and business to
consumer e-commerce strategy connecting physicians, hospitals, third-party
payors and consumers and will allow all participants to access and exchange
healthcare related information, purchase healthcare products and services,
and communicate more cost-effectively with one another. HealthyConnect.com
will deliver healthcare services and products and provide timely access to
reliable healthcare information through the utilization of advanced
telecommunication technology.
Targeted purchasers of HealthyConnect.com on line applications are consumers,
healthcare institutions, physicians and other healthcare providers and
healthcare product suppliers. Consumers will benefit from 24-hour, 7-day a
week access, via the internet and telephone, to Med-Emerg's healthcare
service provider network. In addition, consumers will have multiple site
secure access to their own and their family members' electronic medical
records, access to a physician management health and wellness centre and
convenient at-home shopping for healthcare products and services.
HealthyConnect.com will enable physicians and other healthcare providers to
access reliable information and provide them with additional support in
delivering cost effective, high quality
healthcare services. Benefits include 24-hour coverage for patients, access
to a comprehensive physician medical reference database, online continuing
medical education courses, tools for chronic disease management, and
participation in clinical trials and web casting. HealthyConnect.com will
link healthcare product and service suppliers with our clinical network
family. Convenient and secure access and at home/office browsing and
purchasing capabilities will facilitate direct sales opportunities for member
suppliers. Healthcare product and service suppliers that may benefit from
using HealthyConnect.com include pharmaceutical companies, insurance
companies, employers, government, managed care organizations, physicians and
hospitals.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing
capability and e-commerce goods and services to its customers.
HealthyConnect.com has negotiated, amongst others, a relationship with
AstraTek, a software product development firm, delivering advanced
technologies to Fortune 1000 companies and financial institutions and Data
General, a leading supplier of servers and storage systems, and services for
information systems users worldwide. AstraTek assisted in the development and
launch of the HealthyConnect.com portal. Data General will provide a
consolidated computing infrastructure to support HealthyConnect.com including
hardware, software and network support.
Management of Med-Emerg sees HealthyConnect.com as a significant opportunity
to create a profitable business line while providing healthcare organizations
with new web-based technologies to increase practice efficiency, achieve
measurable cost savings and improve the quality of care.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement to purchase all of the issued and outstanding shares of
Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common
share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
US$3.00 per share for every 12.85 shares of LRC. The closing of the
transaction is subject to regulatory and shareholders approval. LRC is a
publicly listed company on the Canadian Venture Exchange that offers a full
range of laser cosmetic procedures in its clinic operations located in the
provinces of Ontario, Alberta and British Columbia.
On November 5, 1999, the shareholders of the Company approved the issuance of
up to 1,799,502 additional common shares in connection with the take over bid
by the Company for all the issued and outstanding securities of YFMC
Healthcare Inc. ("YFMC"), a Canadian physician management services
organization that owns and manages 22 medical clinics. Pursuant to the
business combination agreement, dated August 10, 1999, the Company mailed a
take-over bid circular on November 5, 1999 to all YFMC shareholders making an
offer to purchase all the issued and outstanding securities of YFMC on the
following basis:
a. In the case of holders of YFMC Common Shares, one Med-Emerg Common
Share for every 6 7/8 shares of YFMC
b. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series
A Warrant for every 8 warrants of YFMC
c. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series
B Warrant for every 8 warrants of YFMC
d. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common
Share, subject to certain conditions, one Med-Emerg Common Shares for
every 10 YFMC First Preferred Shares.
The Company issued 1,758,556 Common Shares to complete the transaction. In
addition, Med-Emerg substituted for every eight options to acquire YFMC
Common Shares under the YFMC Stock Option Plan, the right to acquire one
Med-Emerg Common Share at an exercise price of US$1.75.
In March 1999, the Company purchased 51% of the outstanding capital of
Caremedics (Elmvale) Inc. ("Elmvale"), a multi-physician primary healthcare
clinic located in Ottawa, Canada. The Company entered into a five-year
management services agreement to manage the clinic for a monthly fee based on
revenues generated by the clinic.
In February 1999, the Company became party to a lease for the clinic located
within York University ("York Lanes") in Toronto, Canada. The Company has
entered into a five-year management services agreement to manage the clinic
for a monthly fee based on revenues generated by the clinic. The Company has
a 51% interest in the company that owns the clinic.
In January 1999, the Company acquired a 45% interest in an Urgent Care
Centre, Medical Urgent Care Inc. ("MUCI"). The Company developed and opened
its first Urgent Care Centre in September 1997. The Urgent Care Centre
concept consists of a group of emergency trained physicians, a medical
laboratory, a diagnostic radiology service, and a pharmacy, each of which
must be present for the others to co-exist, and each of which is provided by
a separately owned company. The Company manages the clinic component of the
Urgent Care Centre and provides the support staff for this component.
Ownership of Medical Urgent Care Inc. is shared with the group of emergency
trained physicians that provides the medical service in the clinic component.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
REVENUES. Revenues increased by $2,340,325 or 22.7% from $10,308,103 in 1998
to $12,648,428 in 1999. The revenue growth is attributable to the acquisition
of YFMC, the acquisitions of MUCI, York Lanes and Elmvale, growth in existing
clinic business and growth in nurse staffing.
Revenues generated by Physician Management Services increased by $2,361,062
or 94.5% from $2,498,762 in 1998 to $4,859,824 during 1999. The three
acquisitions that were completed in the second and third quarters of 1998
contributed $685,188 additional revenue to 1999. The three acquisitions that
were completed during the first quarter of 1999 contributed $562,615
additional revenue to 1999. The acquisition of YFMC Healthcare Inc. added
total revenue of $547,141 for the two months of operations included in the
consolidated results of the Company. The Dundas Urgent Care Centre was a
start-up operation in 1998. In 1999, this Centre contributed $395,746 to
revenue. The remaining increase in Physician Management Services revenue is a
result of increased patient volumes and additional physicians working in the
family practice and walk-in clinics.
Revenues from Physician and Nurse Recruiting decreased by $17,120 to
$7,788,604 during 1999 from $7,805,724 during 1998. Revenues from contracts
in the Physician Recruiting decreased $582,650 due to a net decrease in the
number of physician staffing contracts from 16 contracts to 12. The decrease
in Physician Recruiting revenue was offset by revenue of $294,790 generated
from a one-time short-term contract with Customs and Immigration Canada for
the provision of physicians and nurses to Bosnia refugees. In addition, the
nurse staffing component of this division contributed an additional $270,740
to revenue in 1999 as compared to 1998. This increase came from a significant
increase in the provision of services to one hospital under an existing
contract plus the net addition of five contracts.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which
primarily represents fees to contract physicians, increased $893,023 or 11.2%
from $7,984,116 in 1998 to $8,877,139 in 1999. Physician fees and other
direct costs decreased as a percent of revenue, representing 70.2% of
revenues for 1999 and 77.5% of revenues for 1998. The decrease as a percent
of revenue is largely due to the mix of revenue between Physician & Nurse
Recruiting and Physician Management Services. As the Physician Management
Services revenues increase, the larger gross margin related to Physician
Management Services results in a decrease in physician fees and other direct
costs as a percent of revenue.
OPERATING EXPENSES. Operating expenses in 1999 include $798,943 of expenses
relating to the development of HealthyConnect.com, an internet based
e-commerce health portal. Operating expenses before HealthyConnect.com have
increased by $1,460,927 or 65.0% from $2,246,200 in 1998. There are several
factors contributing to the increase in operating expenses, including the
clinic acquisitions in 1998 and 1999, and the operations of the Dundas Urgent
Care Centre.
During the second and third quarters of 1998, the company completed the
acquisitions of two companies, JC Medical Management Inc. and Doctors On Call
Ltd., and acquired the remaining two-thirds of the Glenderry Medical Walk-in
Clinic. These acquisitions added $133,438 to operating expenses in 1999.
During the first quarter of 1999, the company completed the acquisition of a
controlling interest in three other companies, all of which operate medical
clinics, adding a total of $542,830 to operating expenses. The acquisition of
YFMC Healthcare Inc. in the fourth quarter of 1999 added $349,740 to
operating expenses.
During the first ten months of 1998, the Dundas Urgent Care Centre was
considered a start-up operation. During 1999, this Urgent Care Centre added
$169,170 to operating expenses. The remaining increase in operating expenses
of $265,749 for 1999 compared to 1998 relates to an increase in general
overhead costs.
NET LOSS. As a result of the above items, the Company reported a net loss of
$878,468 for 1999 as compared to net loss of $106,258 for 1998. The company's
effective tax rate increased to approximately 44% in 1999 from approximately
26% in 1998 due to the change in status under Canadian taxation rules from a
privately-held company to a company with shares that are publicly traded.
Under U.S GAAP, the Company reported a net loss of $851,675 for the year
ended December 31, 1999 as compared to a net loss of $283,007 for the year
ended December 31, 1998.
FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SERVICE REVENUES. Revenues increased by $1,949,166 or 23.3% from
$8,358,937 for the year ended December 31, 1997 to $10,308,103 for the
comparable period in 1998. The increase is due to: (i) revenue generated from
the acquisitions of JC Medical Management Inc. and Doctors on Call Ltd., (ii)
additional revenue recorded on the increase in ownership of Glenderry Walk-in
Clinic from 33 1/3% to 100%, (iii) revenue generated from the emergency nurse
staffing service launched in 1998, and (iv) general increase in patient
volumes in both the physician staffing service and clinic operations.
For the year ended December 31, 1998, revenues of Physician and Nurse
Recruitment division increased by $1,238,091 or 18.9% to $7,805,724 from
$6,567,633 for the year ended December 31, 1997. The launch of the nurse
staffing service in April 1998 contributed $299,633 to the increase in
revenue during 1998. Revenue from the physician staffing service increased as
a result of: (i) a significant increase in the amount of physician coverage
provided under two hospital contracts, (ii) two new hospital contracts during
1998 and two contracts that commenced during the fourth quarter of 1997 and
continued throughout 1998, (iii) three new hospital contracts under which the
Company provided coverage for the summer months only. The increase in revenue
was offset by the termination of one large and four smaller hospital
contracts, the one-time consulting fee that was received in 1997 and a
one-time overseas physician placement for the Canadian government during the
fourth quarter of 1997.
For the year ended December 31, 1998, operating income from the Physician and
Nurse Recruiting division decreased by $83,128 to $705,152 from income of
$788,280 for the year ended December 31, 1997. During 1997, operating income
of $229,194 was earned on a one-time consulting fee. This decrease in income
was offset in 1998 by the operating income of $52,746 earned from the nurse
staffing service launched in April 1998 and the gross margin realized on the
increased revenue from physician staffing contracts.
For the year ended December 31, 1998, revenues of the Physician Management
Services division increased by $711,075 or 39.7% to $2,498,763 from
$1,791,705 for the year ended December 31, 1997. The acquisitions of JC
Medical Management Inc. in June 1998 and Doctors on Call Ltd. in September
1998 contributed $303,458 and 38,473, respectively, to the increase in
revenue. In addition, the consolidation of Glenderry Medical Walk-in Clinic
at 100% since August 1998 versus 33 1/3% in 1997, resulted in an increase in
revenue of $163,939. In September 1997, the Company opened its first Urgent
Care Centre. During the start-up period, no revenue was recognized from the
operations of this Urgent Care Centre. Upon completion of the start-up
period, the Company recognized $74,375 in revenue in 1998 from the Urgent
Care Centre. In addition, the services provided to the two clinics at the
Lester B. Pearson International Airport were increased in April 1998,
resulting in additional revenue of $79,239. The remaining increase in revenue
is attributable to increased patient volumes in 1998 compared to 1997 at the
Pond Mills and Central clinics.
For the year ended December 31, 1998, operating income for the Physician
Management Services division increased by $10,641 to $290,826 from $280,185
for the year ended December 31, 1997. The increase was due to the operating
income from the acquisitions of JC Medical Management Inc.,
Doctors on Call Ltd. and Glenderry Medical Walk-in Clinic, which was offset
by increased head office costs for salaries and general overhead related to
the overall management of the clinics.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees
to contract physicians, represent the largest single variable expense. These
fees are earned primarily through the Company's Physician and Nurse
Recruiting services to the hospital emergency department contracts. Physician
fees and other direct costs for the year ended December 31 increased by
$1,664,182 or 26.3% from $6,319,934 in 1997 to $7,984,116 in 1998. Physician
fees and other direct costs represented 75.6% of net revenues for the year
ended December 31, 1997 and 77.5% of net revenues for the year ended December
31, 1998. In 1997 other direct costs include travel, marketing and consulting
costs related to international projects, representing 2.4% of net revenues
for the year. The 1997 costs relate to the undertaking of a consulting
project in the Northwest Territories, Canada.
OPERATING EXPENSES. In 1997, operating expenses increased by $335,316 or
16.8% from $1,995,439 for the year ended December 31, 1997 to $2,330,755 for
the year ended December 31, 1998. Operating costs include general operating
expenses and stock compensation expense. The general operating expenses,
excluding stock compensation expense, represents 22.6% of net revenues for
the year ended December 31, 1998 and 22.7% of net revenues for the year ended
December 31, 1997. The stock compensation expense of $100,400 in 1997
represents shares issued to a director.
Under U.S. GAAP, operating expenses for the period ending December 31, 1998
includes additional charges of $179,749 for development and start-up costs as
compared to $106,017 at December 31, 1997. For U.S. GAAP, the start-up costs
of $145,520 at December 31, 1998 and $106,017 at December 31, 1997 are
expensed as incurred whereas under Canadian GAAP these costs are deferred and
amortized over a prescribed benefit period.
OTHER EXPENSE. Other expense decreased by $308,751 or 96.1% from $321,135 to
$12,584 for the year ended December 31, 1997 and 1998 respectively. In 1998,
other expense includes interest expense for less than two months on the
bridge promissory notes. In 1997, other expense is due primarily to interest
on increased bank borrowings, interest charged on the bridge promissory
notes, foreign exchange loss on the U.S. dollar promissory notes and the
amortization of deferred financing charges relating to the bridge shares
issued in January 1997.
NET LOSS. As a result of the above items, the Company had a net loss of
$106,258 for the year ended December 31, 1998 as compared to a net loss of
$340,987 for the year ended December 31, 1997.
Under U.S. GAAP, the Company reported net loss of $283,007 for the year ended
December 31, 1998 as compared to a net loss of $447,044 for the year ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Through its acquisitions completed in the first quarter of 1999, the Company
assumed bank term loans with current balances totaling $526,711.
Approximately $148,903 was loaned to a subsidiary of the Company under the
Small Business Investment Loans program in which the Canadian government
guarantees 90% of the principal balance of the loan. The remaining balance
consists of capital loans for asset purchases and clinic acquisitions.
As at December 31, 1999, the company's working capital deficit totaled
$882,234. The company has available credit facilities for up to approximately
CDN$4,500,000 (US$3,117,855). The Company established credit facilities that
provide operating lines of credit amounting to CDN$2,600,000 (US$1,801,427),
bearing interest at the bank's prime lending rate plus 0.5% to 1.0% per annum
with interest payable monthly, and capital lines of credit amounting to
CDN$850,000 (US$588,928). The capital lines of credit bear varying interest
rates from the bank's prime lending rate plus 0.75% to 9.65% per annum. As at
December 31, 1999, the Company has drawn approximately CDN$2,022,202
(US$1,401,096) against the operating facility and CDN$381,744 (US$264,494)
against the capital facility. Subsequent to year end, the Company has drawn
an additional CDN$85,137 (US$58,988) against a capital facility.
On March 1, 2000, the Company issued a Private Placement Memorandum for
equity financing. The Company currently is in the process of raising gross
proceeds of US$1,700,000 for the issuance of 935,000 common shares. As at
March 30, 2000, US$500,000 has been raised.
In order to provide the financing necessary for the further development of
HealthyConnect.com and the continued pursuit of the company's long-term
acquisition strategy, the company expects to issue equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. There can be no assurance that such additional financing
will be available on terms acceptable to the company.
Forward-looking statements of Med-Emerg International Inc. included herein or
incorporated by reference including, but not limited to, those regarding
future business prospects, the acquisition of additional clinics, the
adequacy of capital resources and other statements regarding trends relating
to various revenue and expense items, could be affected by a number of
uncertainties and other factors beyond management's control.
YEAR 2000
Med-Emerg has developed a program designed to identify, assess, and remediate
potential malfunctions and failures that may result from the inability of
computers and embedded computer chips within the Company's information
systems and equipment to appropriately identify and utilize date-sensitive
information relating to periods subsequent to December 31, 1999. This issue
is commonly referred to as the "Year 2000 issue" and affects not only the
Company, but virtually all companies and organizations with which the Company
does business.
To address the Year 2000 issue, the Company has formed a Year 2000 committee
comprised of representatives from a cross-section of the Company's
operations. The committee developed a plan to address the Year 2000 issue
within all facets of the Company's operations. The plan includes processes to
inventory, assess, remediate or replace as necessary the Company's
information systems and equipment. In addition, the committee is assessing
the compliance of all companies and organizations with which the Company does
business.
The Company has completed the inventory phase of its plan and is in the
process of assessing the identified systems and equipment. Based on the
assessments completed to date, the Company estimates that expenditures to
remedy or replace potential Year 2000 problems will not exceed $50,000. This
includes amounts in connection with standardizing certain of the information
systems at the clinic level that would have been spent regardless of the Year
2000 issue.
The foregoing estimates and conclusions regarding the Company's Year 2000
plan contain forward looking statements and are based on management's best
estimates of future events. Risks to completing the Year 2000 plan include
availability of resources, the Company's ability to discover and correct
potential Year 2000 problems that could have a serious impact on specific
systems, equipment or facilities, the ability of material suppliers and
businesses to achieve Year 2000 compliance, the proper functioning of new
systems and the integration of those systems and related software into the
Company's operations. Some of these risks are beyond the Company's control.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and the related notes, together with the
report of Schwartz Levitsky Feldman LLP thereon, are set forth in Item 14.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
KPMG was previously the auditors for Med-Emerg International, Inc. KPMG's
appointment as auditors for the Company was terminated during the 1998
calendar year and Schwartz Levitsky Feldman, LLP was engaged as independent
auditors for the Company and its subsidiaries. The decision to change
auditors was approved by the Company's board of directors.
There have not been disagreements with the auditors on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in connection with
their opinion to the subject matter of the disagreement.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
NAME AGE POSITION
- ---- --- --------
William Thomson, CA. 58 Chairman of the Board
Ramesh Zacharias, M.D., FRCSC 48 Chief Executive Officer,
Director
Carl W. Pahapill, CA 41 Chief Operating Officer,
President and Director
Kathryn Gamble, CA. 32 Vice President of Finance,
Chief Financial Officer,
Secretary
Stephen Fowler, M.D. 50 Executive Medical Director
Martin Scullion 54 General Manager, Director
Donald Wilson, M.D. 40 Executive Medical, Director
Robert M. Rubin 58 Director
Jeffery Lyons 59 Director
Camille Chebeir 62 Director
Alex Kalpaxis 46 Chief Technology Officer
Donald Ross 48 Chair, Health Application
Development
WILLIAM E. THOMSON, C.A. Mr. William Thomson has been a Director of the
Company since January 1996 and is currently the non-executive Chairman.
Mr. Thomson is President of William E. Thomson Associates Inc., one of Canada's
best known crisis management firms. Mr. Thomson has been director since 1996.
Mr. Thomson has been President and Chief Executive Officer of Speedware
Corporation, a TSE listed information technology company, since June 1998.
Mr. Thomson is Chairman of Asia Media Group Corp. in Singapore, and Esna
Technologies Ltd. In addition, Mr. Thomson acts as a director of the
following companies: TPI Plastics Ltd., Elegant Communications Ltd.,
Imperial Plastech Corp., Electrical Contacts Ltd., The Aurora Fund and
Media Groupings Far East Ptc Ltd.
RAMESH ZACHARIAS, M.D., FRCSC. Dr. Ramesh Zacharias is the founder and
remains the Chief Executive Officer of Med-Emerg Inc. He is a surgeon and
leading expert in the design and delivery of emergency care. He has provided
consulting services regarding the delivery of emergency care in the
Caribbean, Saipan and Malaysia and provided management consulting services
regarding the operation of medical clinics in Canada, the United States and
Russia. Dr. Zacharias provides medical leadership to both Med-Emerg Inc.
and its on-line subsidiary, Healthy Connect.com.
CARL W. PAHAPILL, C.A. Mr. Carl Pahapill joined the Company as President in
February 1996 and became a Director of the Company in October 1996. From 1994
to 1995, Mr. Pahapill was the Chief Operating Officer of Signature Brands
Limited, a publicly traded food processing company (TSE). From 1984 to 1993,
Mr. Pahapill was a Partner at BDO Dunwoody Chartered Accountants. Mr.
Pahapill provides business strategic leadership for the company's operations
including its drive to deliver its web-based portal, HealthyConnect.com.
KATHRYN GAMBLE, C.A. Ms. Kathryn Gamble joined the Company in January 1996
serving as the Company's Vice President of Finance and became the Company's
Chief Financial Officer in October 1996. From February 1995 to December 1995,
Ms. Gamble was the Corporate Controller for Signature Brands Limited, a
publicly traded food processing company (TSE). From February 1993 to February
1995, Ms. Gamble was an Audit Analyst with Abitibi Price Inc., a publicly
traded company (TSE, NYSE).
STEPHEN FOWLER, MD. Dr. Fowler functions as the Executive Medical Director
and is responsible for medical oversight of the Company's operations. Dr.
Fowler has over 20 years experience in the delivery of emergency medicine and
primary care family services. He was formerly the Chief of Family Medicine at
Credit Valley Hospital in Mississauga, Ontario, from 1985 to 1992 and then
the Emergency Department Director at the same hospital 1991 to 1997. Dr.
Fowler joined MEI in 1996 as Associate Medical Director.
MARTIN SCULLION. Mr. Scullion joined YFMC in 1996 and served as its CEO from
1998 to 1999. From 1988 to 1995 he was president of PEL Plastics Ltd. From
1974 to 1988 Mr. Scullion was vice-president, marketing for FCA International
Ltd., a publicly traded company of the Montreal Stock Exchange and Toronto
Stock Exchange. Mr. Scullion is responsible for operations of the physician
management services division.
DONALD WILSON, MD. Dr. Wilson founded YFMC in 1992 and served as its
president prior to joining Med-Emerg. He has practiced family medicine since
1988 and is licenced in Quebec and Ontario. Dr. Wilson is responsible for
quality assurance and the integration of new services into the company's
clinic operations division.
ROBERT M. RUBIN Mr. Rubin has served as a director of the Company since
October 1996. Since June 1992, Mr. Rubin has served as a director of Diplomat
Corporation, a publicly traded company involved in the sale of infant wear
and babycare products through direct mail order catalogues.
Since November 20, 1992, Mr. Rubin has served as the Chairman of the Board of
Directors of Western Power & Equipment Corp. ("WPEC"), a construction
equipment distributor. Between
October, 1990 and January 1, 1994, Mr. Rubin served as the Chairman of the
Board and Chief Executive Officer of American United Global Inc., a
technology and communication company and majority owner of WPEC ("AUGI") and
since January 1, 1994, solely as Chairman of the Board of AUGI. Mr. Rubin was
the founder, President, Chief Executive Officer and a Director of Superior
Care, Inc. ("SCI") from its inception in 1976 until May 1986 and continued as
a Director of SCI (now known as Olsten Corporation until the latter part of
1987). Olsten, a New York Stock Exchange listed company, is engaged in
providing home care and institutional staffing services and health care
management services. Mr. Rubin is also a Director and minority stockholder of
Response USA, Inc., a public company engaged in the sale and distribution of
personal emergency response systems.
JEFFERY LYONS, Q.C. Mr. Lyons recently joined the board of Directors of
Med-Emerg. Mr. Lyons practices municipal law, administrative law and public
policy with Morrison, Brown, Sosnovitch, Barristers and Solicitors in
Toronto, Ontario. He currently serves as the Vice Chair of the Toronto Police
Services Board and as a Director of VIA Rail Canada Inc., CAMVEC Corporation,
and Infocorp Computer Solutions Ltd. He was the former Chairman of the
Toronto Transit Commission and was on the governing body (Bencher) of the Law
Society of Upper Canada from 1983-1991. Mr. Lyons is also a member of the
Molson Indy Board of Trustees and Governor's Council of North York General
Hospital.
CAMILLE CHEBEIR. Mr. Chebeir is President of Sedco Services, Inc., New York,
responsible for a prominent Saudi family on its off-shore investments and
overseeing management of its U.S. portfolio. Mr. Chebeir serves as a Managing
Director of Metro West, a multipurpose Real Estate Development - Florida. He
is a member of the boards of several U.S. and overseas companies within
Sedco's business activities. Mr. Chebeir was previously with the National
Commercial Bank, New York, serving from 1983 to 1989 as Vice
President-Operations and from 1989 to 1992 as Executive Vice President
managing its New York branch. Mr. Chebeir is a former President of Arab
Bankers Association of North America. From 1960 to 1983, Mr. Chebeir held a
number of executive positions with Citibank, N.A. offices in Beirut, Lebanon,
Manama, Brahrain and Athens, Greece. Mr. Chebeir holds Degrees in Banking
from St. Joseph University, Beirut, Lebanon.
ALEX KALPAXIS, CHIEF TECHNOLOGY OFFICER. Mr. Kalpaxis is currently the
Chairman of AstraTek Inc. In his role as HealthyConnect.com's Chief
Technology Officer, Mr. Kalpaxis is responsible for the technology vision,
direction and proprietary product development of HealthyConnect.com. He is a
recognized expert in advanced software technology. Recently speaking at the
"Object Oriented Technology for Securities Industry" seminar sponsored by the
Institute for International Research. Before founding AstraTek, he had a
fourteen year career at Bankers Trust. As the Bank's Chief Technologist, he
led projects in infrastructure development, LAN systems, databases and tools,
object technology, and engineering. Mr. Kalpaxis is one of the key leaders
who developed the global Bankers Trust Technical Architecture. This
multi-year effort defined the strategies and standards for technology for the
next five to ten years, including design, development, deployment and
operation. Previously at Bankers Trust he managed the Micro Systems and
Networks Group where he developed a number of innovative projects, including
the original version of the BTAS security system, the PC version of the BIDDs
trading system, the PC version of the FSDX publisher/subscriber system and a
stream encryption driver for LANs. Before he joined Bankers Trust he was a
research engineer for the Photonics Laser Institute at the City University of
New York, a nationally renowned institute, were he obtained several patents
related to electronics and optical fields. He has received several awards,
including the Simon Sokin Medal for Excellence in Experimental Physics. Tadeo
Holdings Inc. is a holding company. AstraTek is a recently acquired wholly
owned subsidiary. AstraTek is a software product development and professional
services firm, delivering advanced technologies to Fortune 1000 companies and
financial institutions. AstraTek's Visual Audit product for Excel are now
part of Viasoft's (NASDAQ symbol VIAS) OnMark 2000 suite of software
solutions for the Year 2000 problem.
DR. DONALD ROSS, CHAIR, HEALTH APPLICATION DEVELOPMENT. Dr. Ross is an
experienced, versatile, and results-oriented health care executive
specializing in regulatory, scientific and operational issues in
not-for-profit public and private health care. With proven capability in
corporate leadership and public relations, government affairs, business
development and marketing, Don built a successful integrated health
management company for a major international health care organization. Don,
with both academic and professional experience in quality assurance,
utilization management, outcome research and clinical decision making, has
spoken at numerous national and international
conferences on trends and opportunities in healthcare and has created an
extensive national and international network. In addition to his professional
experience, Don holds a Masters degree in Clinical Epidemiology, is a Doctor
of Dental Medicine, and has an honors Bachelors degree in neurophysiology
from the University of British Columbia. Currently, Don is completing a
Masters in Business Administration. He is a member of the Canadian College of
Health Service Executives as well as board member of First Canadian Health
Inc.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the cash compensation, as well as certain
other compensation paid or accrued to the Company's Chairman, Chief Executive
Officer and Chief Operating Officer for the fiscal year ended December 31,
1999. No other executive officer has a total annual salary and bonus of more
than U.S.$100,000 during the reporting periods.
Annual Compensation (US$)
-------------------------
Other
Name And Principal Position Salary Bonus Compensation
- --------------------------- ------ ----- ------------
Ramesh Zacharias 1999 $179,048 $67,300 $4,938(1)
Chief Executive Officer 1998 $151,088 $ 0 $5,186(1)
1997 $147,349 $ 0 $9,436(1)
Carl Pahapill 1999 $152,771 $67,300 $6,730
Chief Operating Officer, President 1998 $118,038 $16,863 $6,745
1997 $126,403 $ 0 $7,223
(1) In addition to being the Chief Executive Officer of the Company, Dr.
Zacharias on occasion covers physician assignments that the Company is
otherwise unable to fill. For each assignment that Dr. Zacharias
covers, he is paid as an independent contracting physician. This amount
represents fees paid to Dr. Zacharias for services rendered as a
physician.
Employment Agreements
All of the Company's executive officers intend to offer their full business
time to the affairs of the Company. The Company entered into employment
agreements with both Dr. Zacharias and Mr. Pahapill. Dr. Zacharias' agreement
provides that he will devote all of his business time to the Company in
consideration of an annual salary of US$225,000 effective August 1, 1999 and
a bonus of US $67,300 based on performance. The annual salary increases to
US$250,000 per year during the final year. The agreement is for a term of
three years, but may be terminated by the Company for cause, or without cause
with penalty. Mr. Pahapill's agreement is for a term of three years, but may
be terminated by the Company for cause or without cause with penalty. The
agreement provides that Mr. Pahapill devote all of his business time to the
Company in consideration of an annual salary of US$200,000 effective August
1, 1999 and a bonus of US$67,300 based on performance. The annual salary
increases to US$225,000 per year during the final year.
Stock Option Plan
In November 1999, the Board of Directors and shareholders adopted and
approved the Company's Stock Option Plan (the "Plan"). The Plan is to be
administered by the Board of Directors or a committee appointed by the Board.
Pursuant to the Plan, options to acquire an aggregate of 1,000,000 shares of
Common Stock may be granted, 710,900 of which have been granted as of March
20, 2000. The Plan is to provide for grants to employees and directors of the
Company. During the fiscal 1999, Med-Emerg granted 440,000 options to
eligible employees at an exercise price between US$1.25 and US$1.87, and
800,000 options to the Named Executive Officers at an exercise price of
US$1.50 under the Plan. No options were granted to eligible physicians during
the fiscal year ended December 31, 1999.
COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN*
AMONG MED-EMERG INTERNATIONAL, INC.,
THE NASDAQ HEALTH SERVICES INDEX AND THE RUSSELL 2000 INDEX
[GRAPH]
CUMULATIVE TOTAL RETURN
2/12/98 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
MED-EMERG INTERNATIONAL, INC. 100 91 66 43 35 29 47 38 38
RUSSELL 2000 100 109 106 85 98 91 106 98 99
NASDAQ HEALTH SERVICES 100 106 96 72 82 73 91 67 67
$100 INVESTED ON 2/12/98 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 20, 2000, certain information with
respect to stock ownership of (i) all persons known by the Company to be
beneficial owners of 5% or more of its outstanding shares of Common Stock; (ii)
all directors and officers as a group.
Shares Of Percentage
Name of Beneficial Owner(2) Common Stock Ownership
- --------------------------- ------------ ----------
1245841 Ontario Inc (3) 1,042,544 17.4%
Ramesh Zacharias (4) 1,607,544 26.1%
M.D., FRCSC
Robert Rubin (5) 750,000 12.8%
Carl Pahapill (6) 665,000 11.5%
Donald Wilson (7) 592,783 11.2%
Martin Scullion (8) 547,561 10.4%
Hampton House
International (9) 274,375 5.2%
Ambrose Group 170,000 5.5%
All Officers and Directors as
a group (9 persons)
(4)(5)(6)(7)(8)(10) 4,467,888 55.1%
(1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a
right to acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to
be outstanding for the purposes of computing the percentage ownership
of any other person shown in the table.
(2) Unless otherwise indicated, the address is c/o Med-Emerg International,
Inc., 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1,
Canada.
(3) 1245841 Ontario Inc. is a Canadian company which is owned by Ramesh and
Victoria Zacharias.
(4) Includes (i) 292,544 shares owned by 1245841 Ontario Inc., which is
owned by Dr. and Mrs. Zacharias (ii) 565,000 shares issuable upon
exercise of currently exercisable options granted under the Company's
1997 Stock Option Plan to Dr. Zacharias, and (iii) 750,000 shares of
Common stock issuable upon conversion of up to 500,000 shares of
Convertible Preferred Stock which preferred stock is currently held by
1245841 Ontario Inc., a company owned by Dr. and Mrs. Zacharias. For a
period of ten years from issuance, each share of preferred stock is
convertible into 1.5 shares of Common Stock and thereafter into such
number of shares of Common Stock as is equal to U.S.$4,500,000 divided
by the then current market price of the Common Stock on the date of
conversion. For purposes of the above chart, the number of shares of
Common Stock issuable upon conversion of the Preferred Stock was
calculated by assuming a one for one and one-half conversion. Dr.
Zacharias and Mrs. Zacharias each disclaim beneficial ownership of the
shares owned by the other.
(5) Includes 700,000 shares of Common Stock currently issuable upon
exercise of options.
(6) Includes 100,000 shares of Common Stock and 565,000 shares issuable
upon exercise of options.
(7) Includes 580,283 shares of Common Stock and 57,085 shares issuable upon
exercise of warrants and options.
(8) Includes 535,061 shares of Common Stock and 57,085 shares issuable upon
exercise of warrants and options.
(9) These shares may be deemed to be owned by Peter Deeb, a past director
of the Company. Mr. Deeb owns 75% of Hampton House and is its Chairman
and Chief Executive Officer.
(10) Represents 2,426,221 voting securities currently owned and 2,041,667
voting securities issuable upon exercise of currently exercisable
options issued under the Company's Stock Option Plan to Directors and
Officers.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between 1994 and 1996, the Company loaned an aggregate of $103,004 to Dr.
Zacharias and Victoria Zacharias. In February 1998, the Company repurchased
37,456 shares of its common stock from Ramesh and Victoria Zacharias at a
purchase price of US $2.75 per share. The aggregate consideration payable by
the Company was used to repay all outstanding amounts owed by Dr. Zacharias
and Victoria Zacharias and their affiliated companies.
In June 1996, the Company loaned Cdn$60,000 (US$43,940) to Carl Pahapill, the
Company's President, to purchase 100,000 shares of Common Stock in the
Company. The loan is non-interest bearing, unsecured with no specific terms
of repayment.
On November 1, 1996, the Company effected a recapitalization whereby Dr.
Zacharias, the Company's Chief Executive Officer and Director, and Victoria
Zacharias, Dr. Zacharias' wife, converted an aggregate of 2,203,333 shares of
Common Stock into an aggregate of 500,000 shares of preferred stock. In 1997,
the shares were transferred to 1245841 Ontario Inc., a company owned by Dr.
and Mrs. Zacharias.
On November 1, 1996, the Company granted Robert Rubin, a director, an option
to purchase 700,000 shares of Common Stock at US$.75 per share and approved
the issuance of 50,000 shares of Common Stock, all of which shares were
issued in 1997 in consideration of services rendered to the Company as
director. On December 31, 1999, Mr. Rubin exercised options for 58,333 common
shares. Under a US $800,000 line of credit previously established between Mr.
Rubin and the Company, Mr. Rubin advanced an aggregate of US $250,000 from
July 1997 to January 1998.
In connection with the Bridge Financing in January 1997, the Company issued
8% promissory notes in the principal amount of US$500,000 and an aggregate of
125,000 shares of Common Stock to four investors for gross proceeds of
US$500,000. Robert Rubin, a director of the Company, purchased a promissory
note in the principal amount of US$150,000 and 37,500 shares of Common Stock.
To comply with the National Association of Securities Dealers, Inc., Mr.
Rubin and the another investor agreed to surrender to the Company for
cancellation without consideration an aggregate of 62,500 shares of Common
Stock obtained in the Bridge Financing. The Company remained obligated to
repay the promissory notes issued to the two investors in the aggregate
principal amount of US$250,000, upon the closing of the Initial Public
Offering.
On February 25, 2000, the Company granted to each of Carl Pahapill and Dr.
Ramesh Zacharias 500,000 fully vested non-escrowed shares of
HealthyConnect.com, Inc. and an additional escrowed 500,000 shares of
HealthyConnect.com, Inc. released upon meeting certain conditions.
Except with respect to the non-interest bearing loans made to the Zacharias'
and Mr. Pahapill, the Company believes all previous transactions between the
Company and its officers, directors or 5% stockholders, and their affiliates
were made on terms no less favorable to the Company than those available from
unaffiliated parties. In the future, the Company will present all proposed
transactions with affiliated parties to the Board of Directors for its
consideration and approval. Any such transaction will be approved by a
majority of the disinterested directors.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following financial statements and exhibits are filed as part of this
Annual Report:
A. FINANCIAL STATEMENTS
Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Deficit
Consolidated Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
B. EXHIBITS
Number Description
- ------ -----------
3.1* Certificate of Incorporation and Amendments thereto of the Company.
3.2* By-laws of the Company.
10.1 Employment Agreement between the Company and Ramesh Zacharias.
10.2 Employment Agreement between the Company and Carl Pahapill.
10.3* Operating lease covering the Company's facilities.
10.4 Deleted.
10.4.1** 1997 Stock Option Plan (as amended).
10.5* Loan Agreement between the Company and Carl Pahapill.
10.6* Corporate Resolution Regarding November Recapitalization.
10.7* Form of Hospital Contract.
10.8* Form of Physician Contract for Clinical Operations.
10.9* Form of Physician Contract for Emergency Services.
10.10* Letter of Credit Agreement dated April 17, 1997 between the Company
and Robert Rubin.
10.11* Amendment to April 17, 1997 Letter of Credit Agreement between the
Company and Robert Rubin dated January 30, 1998.
21.1 Deleted.
21.1.1 List of Subsidiaries
23.1 Consent of Schwartz Levitsky Feldman, LLP, Chartered Accountants.
* Incorporated by reference to Registrant's registration statement on Form
F-1, Registration Statement No. 333-21899.
** Incorporated by reference to Registrant's registration statement on Form
S-8, filed on March 15, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MED-EMERG INTERNATIONAL, INC.
/s/ Carl Pahapill
-------------------------------
Carl W. Pahapill, CA
President and Chief Operating Officer
DATE: March 30, 2000
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 the capacities and on the dates indicated.
/s/ Carl Pahapill
-------------------------------
Carl W. Pahapill
Director
DATE: March 30, 2000
/s/ Ramesh Zacharias
-------------------------------
Ramesh Zacharias
Director
DATE: March 30, 2000
/s/ Jeffery Lyons
-------------------------------
Jeffery Lyons
Director
DATE: March 30, 2000
/s/ Kathryn Gamble
-------------------------------
Kathryn Gamble
Director
DATE: March 30, 2000
/s/ Martin Scullion
-------------------------------
Martin Scullion
Director
DATE: March 30, 2000
AUDITORS' REPORT
To the Shareholders of
Med-Emerg International, Inc.
We have audited the consolidated balance sheets of Med-Emerg International,
Inc. as at December 31, 1999 and 1998 and the consolidated statements of
operations and deficit and cash flows for each of the years ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 1999 and 1998 and the results of its operations cash flows for each of
the years then ended in accordance with generally accepted accounting
principles.
Canadian generally accepted accounting principles differ in some respects from
those applicable in the United States of America (note 18).
/s/ Schwartz Levitsky Feldman, LLP
Chartered Accountants
Toronto, Ontario
March 16, 2000
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1999 AND 1998
(IN US$)
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and short term investments $ 229,966 $ 1,090,582
Accounts receivable (note 4) 2,453,700 1,806,094
Prepaid expenses and other 281,385 286,906
------------ ------------
2,965,051 3,183,582
------------ ------------
Capital assets (note 5) 2,329,847 576,974
Other assets (note 6) 4,005,768 1,239,880
Deferred income taxes (note 12) 766,270 454,415
------------ ------------
$ 10,066,936 $ 5,454,851
------------ ------------
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Bank Indebtedness (note 7) $ 1,401,096 $ 136,678
Accounts payable and accrued liabilities 1,917,153 1,490,764
Restructuring reserve (note 3) 356,889 -
Current portion of long-term debt (note 8) 172,145 57,080
------------ ------------
3,847,283 1,684,522
Long term debt (note 8) 518,338 66,825
Deferred income taxes (note 12) 470,384 -
------------ ------------
4,836,005 1,751,347
------------ ------------
Commitments and contingencies (note 15)
Capital Stock (note 9) 8,251,290 5,981,830
Convertible Debenture (note 10) 405,371 405,371
Contributed surplus (note 11) 1,022,100 980,325
Deficit (4,335,566) (3,322,903)
Cumulative translation adjustment (112,264) (341,119)
------------ ------------
5,230,931 3,703,504
------------ ------------
$ 10,066,936 $ 5,454,851
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN US$)
1999 1998 1997
------------ ------------ ------------
REVENUE $ 12,648,428 $ 10,308,103 $ 8,358,937
PHYSICIAN FEES AND OTHER DIRECT COSTS 8,877,139 7,984,116 6,319,934
------------ ------------ ------------
3,771,289 2,323,987 2,039,003
------------ ------------ ------------
EXPENSES
Salaries and benefits 1,838,276 1,214,351 1,234,737
General and administration 493,541 361,813 371,846
Occupancy costs and supplies 872,109 319,187 270,631
Public company costs 301,591 202,518 -
Travel and marketing 201,610 148,330 118,225
HealthyConnect.com development costs 798,943 84,555 -
------------ ------------ ------------
4,506,070 2,330,754 1,995,439
------------ ------------ ------------
(LOSS) INCOME BEFORE DEPRECIATION, INTEREST AND
FINANCING EXPENSE, GOODWILL AMORTIZATION & TAXES (734,781) (6,767) 43,564
Depreciation 194,097 79,417 48,799
Interest and financing expense 44,494 12,584 321,335
Goodwill amortization 167,235 44,822 43,749
------------ ------------ ------------
405,826 136,823 413,883
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,140,607) (143,590) (370,319)
Income taxes (recovery) (262,138) (37,333) (29,332)
------------ ------------ ------------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (878,469) (106,257) (340,987)
Preferred share dividends (134,194) (117,752) -
------------ ------------ ------------
NET LOSS (1,012,663) (224,009) (340,987)
Deficit, beginning of the year (3,322,903) (7,130,277) (6,789,290)
Restatement of excess of redemption price over
issuance price of preference shares (note 9b) - 4,031,383 -
------------ ------------ ------------
DEFICIT, END OF THE YEAR $ (4,335,566) $ (3,322,903) $ (7,130,277)
------------ ------------ ------------
------------ ------------ ------------
BASIC AND FULLY DILUTED LOSS, PER SHARE (NOTE 13) $ (0.30) $ (0.08) $ (0.18)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,371,322 2,975,853 1,941,510
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT DECEMBER 31, 1999, 1998 AND 1997
(IN US$)
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (878,469) $ (106,257) $ (340,987)
Adjustments for:
Amortization of capital assets 194,097 79,417 48,799
Goodwill amortization 167,235 44,822 43,749
Amortization of bridge financing cost - - 196,934
Deferred income taxes 180,877 (343,267) (29,127)
Stock compensation 26,174 - 100,400
----------- ----------- -----------
(310,086) (325,284) 19,768
Increase (decrease) in non-cash working capital components (note 14) 172,783 (643,303) (40,555)
----------- ----------- -----------
(137,302) (968,587) (20,787)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets (1,817,699) (295,772) (281,606)
Business acquisitions (note 3) (630,453) (610,338) -
Other assets (note 14) 23,890 174,173 (378,922)
----------- ----------- -----------
(2,424,262) (731,937) (660,528)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank indebtedness 1,222,815 (846,365) 112,061
Issuance of common shares (note 9a) - 3,921,464 229,395
Issuance of warrants (note 9c) 41,775 106,111 -
Repurchase of shares (1,542) (113,025) -
Cancellation of surrendered common shares (note 9a) - (119,313) -
Repurchase and cancellation of shares from a director (note 9a) (96,944) -
Issuance of convertible debenture (note 10) - 405,371 -
Term loans 555,089 - -
Obligation under capital lease (12,047) 42,036 92,022
Issuance/(repayment) of promissory notes - (634,754) 575,920
Due from affiliates - 38,487 (3,491)
Dividends paid on preference shares (100,575) (117,752) -
----------- ----------- -----------
1,705,515 2,585,313 1,005,907
----------- ----------- -----------
Effect of foreign currency exchange rate changes (4,566) (181,808) 8,170
INCREASE (DECREASE) IN CASH AND SHORT-TERM (860,616) 702,979 332,762
INVESTMENTS
Cash and short-term investments, beginning of year 1,090,582 387,603 54,841
----------- ----------- -----------
Cash and short-term investments, end of year $ 229,966 $ 1,090,582 $ 387,603
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. is a publicly traded company listed on the
NASDAQ Exchange. The Company completed its initial public offering in
February, 1998.
Med-Emerg International Inc. is a physician management services organization
specializing in the delivery of emergency and primary healthcare related
services. The Company is committed through information technology and its
physician management services to delivering an internet-based healthcare
network with the objective of delivering quality and timely access to
healthcare products and services. The Company has decided to continue to
focus on the development of its internet based technology of
HealthyConnect.com. Therefore, the Company has an on-going requirement to
raise capital to finance the on-going technology developments of
HealthyConnect.com.
The Company's operations are divided into three divisions, Physician and
Nurse Recruitment, Physician Management Services and HealthyConnect.com.
On a contractual basis, the Company provides emergency department physician
and nurse recruitment, staffing and administrative support services to
hospitals. At December 31, 1999, the Company had 14 contracts for physician
staffing and 6 contracts for nurse staffing.
Under physician management services, the Company owns and manages medical
clinic facilities providing physicians with the ability to practice within a
professional managed network enabling the physician to concentrate on the
clinical aspects of their practices. All the clinic assets including medical
equipment are owned by the company. At December 31, 1999, the Company owned
and managed 30 clinics.
HealthyConnect.com is an internet-based health portal that will connect
physicians, patients, third party payors and consumers to a "virtual world"
of healthcare products and services. The Company is electronically connecting
its clinical facilities and establishing strategic partnerships in delivering
a comprehensive healthcare program.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are expressed in US dollars and are
prepared in accordance with Canadian generally accepted accounting
principles. Differences between Canadian and United States accounting
principles are described in Note 18.
The translation of the Financial Statements from Canadian dollars into United
states dollars is performed for the convenience of the reader. Balance Sheet
accounts are translated using the closing exchange rates in effect at the
Balance Sheet date and income and expense accounts are translated using an
average rate prevailing during each reporting period. No representation is
made that the Canadian dollar amounts could have been, or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included
in the cumulative translation adjustments in the shareholders' equity.
a) Basis of Consolidation
The financial statements consolidate, with minority interest, the accounts of
Med-Emerg International Inc. and its wholly and partially owned subsidiaries
(collectively called the "Company").
Significant intercompany accounts and transactions have been eliminated.
b) Product Development and Start-up Costs
Direct costs incurred, net of any revenue, during the development and
start-up period for a new clinic are deferred until the clinic reaches a
commercial level of activity and is then amortized on a straight-line basis
over five years. Direct costs incurred to develop HealthyConnect.com have
been expensed as start-up costs of a technology organization in accordance
with the more conservative accounting treatment under U.S. GAAP.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the reported amounts of
revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
d) Capital Assets
Capital assets are recorded at cost and are amortized over their estimated
useful lives at the undernoted rates and methods:
Furniture and fixtures 20% Declining balance
Medical Equipment 10% Declining balance
Computer software 100% Declining balance
Computer hardware 30% Declining balance
Leasehold improvements 5-10 years Straight-line
e) Goodwill
Goodwill is recorded at cost and is being amortized over a period of 10 to 20
years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can
be recovered through projected future operating results. Impairment, if any,
is measured based on discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds or based on the fair
value of the related business unit or activity. The assessment of the
recoverability of intangible assets will be impacted if estimated future
operating cash flows and future operating results are not achieved.
f) Physician Contracts
In conjunction with the acquisition of YFMC Healthcare Inc. as described in
note 3, the Company has assigned a value for long-term physician contracts
secured under the transaction. These costs are being amortized over sixty
months.
g) Revenue Recognition
The Company recognizes revenues in its Physician and Nurse Recruiting
division under its contracts with hospitals as its services are rendered,
based on an accrual of the monthly fee for actual shifts worked, in
accordance with the terms of the contracts. In addition, the Company
recognizes revenues in its Physician Management Services division as medical
services are rendered by physicians under contract with the Company, in
accordance with the Provincial Health Insurance Plans. The Company bills and
collects from these plans all fees relating to medical services rendered by
the physicians.
h) Deferred Income Taxes
The Company follows the "asset and liability method" of accounting for
deferred income taxes under Canadian GAAP pursuant to which recognition is
given to deferred taxes on all "temporary differences" (differences between
accounting basis and tax basis of the Company's assets and liabilities) using
tax rates expected to apply to taxable income in the years in which temporary
differences are expected to be realized. The Company records deferred tax
assets for the future tax benefits of non-capital losses carried forward,
less a provision for any deferred tax assets where it is more likely than not
that the asset will not be realized.
The Company did not recognize future tax benefits in connection with capital
losses carried forward because it is not currently likely that the company
would realize these tax benefits.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
3. BUSINESS ACQUISITIONS
Effective November 5, 1999, the Company purchased all of the outstanding
securities of YFMC Healthcare Inc. in exchange for similar securities of
Med-Emerg International Inc. on the following basis:
i. In the case of holders of YFMC Common Shares, one Med-Emerg
Common Share was issued for every 6 7/8 shares of YFMC. This
resulted in the issuance of 1,658,566 Med-Emerg Common Shares.
ii. In the case of holders of YFMC Preferred Shares, one Med-Emerg
Common Share was issued for every 10 YFMC First Preferred
Shares, resulting in the issuance of 100,000 Med-Emerg Common
Shares.
iii. In the case of holders of YFMC Series A Warrants, one
Med-Emerg Series A Warrant was issued for every 8 warrants of
YFMC, resulting in the issuance of 44,585 Med-Emerg Series A
Warrants.
iv. In the case of holders of YFMC Series B Warrants, one
Med-Emerg Series B Warrant was issued for every 8 warrants of
YFMC, resulting in the issuance of 44,585 Med-Emerg Series B
Warrants.
v. In the case of holders of YFMC stock options, one Med-Emerg
stock option for every 8 YFMC stock options.
The Company has determined that there will be integration costs associated
with the business combination with YFMC Healthcare Inc. The Company plans to
dispose of duplicate functions and unprofitable operations as part of a
formal plan of integration. A liability of $356,889 has been established as
the estimated cost of the integration plan. The Company expects to complete
the plan by June 30, 2000.
The following pro forma statement of operations summarizes the results of
operations as if the business combination had occurred on January 1, 1999:
Revenue $15,248,272
Physician fees and other direct costs 9,511,661
-----------
5,736,611
-----------
Expenses
Salaries and benefits 2,761,128
General and administration 756,671
Occupancy costs and supplies 1,604,892
Public company costs 301,591
Travel and marketing 255,438
HealthyConnect.com development costs 798,943
-----------
6,478,663
-----------
Loss before amortization, interest and financing
expenses, goodwill amortization and taxes (742,052)
Amortization 568,295
Interest and financing expense 64,771
Goodwill amortization 216,042
-----------
849,108
-----------
Loss before income taxes (1,591,160)
Income taxes (recovery) (406,974)
-----------
Net loss $(1,184,186)
-----------
-----------
In addition, during the fiscal year 1999, the Company also acquired ownership
interest in the following companies that operate medical clinics: 45% of
Medical Urgent Care Inc., 51% of Caremedics (Elmvale) Inc. and 51% of York
Lanes Health Centres Ltd. The following is a summary of the assets purchased
and liabilities assumed:
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
3. BUSINESS ACQUISITIONS (cont'd)
YFMC
Healthcare Other
Inc. Acquisitions Total
------------------------------------------
Current assets $ 666,495 $ 23,052 $ 689,547
Capital assets 1,381,885 374,136 1,756,021
Other long-term assets 702,656 - 702,656
Goodwill 1,736,571 170,821 1,907,392
Less liabilities assumed (1,399,221) (361,612) (1,760,833)
Less reverse for restructuring (352,107) - (352,107)
Less minority interest - (28,221) (28,221)
------------------------------------------
Purchase price 2,736,279 178,176 2,914,455
Less: share consideration (2,232,906) - (2,232,906)
Less: stock options and warrants (41,775) - (41,775)
------------------------------------------
Cash consideration $ 461,598 $ 178,176 $ 639,774
------------------------------------------
------------------------------------------
4. ACCOUNTS RECEIVABLE
1999 1998
-------------------------
Trade receivable $2,526,370 $1,844,939
Allowance for doubtful accounts (72,670) (38,845)
-------------------------
$2,453,700 $1,806,094
-------------------------
-------------------------
5. CAPITAL ASSETS
1999 1998
---------------------------------------- --------
Accumulated
Cost Amortization Net Net
---------------------------------------- --------
Furniture and fixtures $ 184,057 $ 82,954 $ 101,103 $ 52,825
Medical equipment 457,245 63,938 393,307 104,690
Computer software 126,739 78,357 48,382 10,695
Computer hardware 451,528 238,382 213,146 184,141
Leasehold improvements 1,794,288 220,379 1,573,909 224,623
---------------------------------------- --------
$3,013,857 $684,010 $2,329,847 $576,974
---------------------------------------- --------
---------------------------------------- --------
Amortization for the year amounted to $171,663 ($79,389 for December 31,
1998).
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
6. OTHER ASSETS
1999 1998
------------------------
Goodwill at cost(net of accumulated amortization of
$172,160; $82,955 at December 31, 1998) $2,828,700 $ 792,734
Physician contracts (net of accumulated amortization
of $23,095; $nil at December 31, 1998) 669,762 -
Deferred start-up costs (net of amortization of
$46,323; $7,277 at December 31, 1998) 255,040 284,063
Deferred charges relating to proposed financing 143,851 68,273
Note receivable 52,085 49,095
Due from affiliates, non-interest bearing, no
specific terms of repayments 7,830 -
Loan to officer, unsecured, non-interest bearing,
repayable over a five-year period commencing February, 2000 41,571 39,185
Other 6,929 6,530
------------------------
$4,005,768 $1,239,880
------------------------
------------------------
Note receivable
On June 29, 1998, the company purchased a note receivable, payable by the
Estate of Dr. Donald Munro ("Estate"). The security for the note includes the
150,000 shares of Common Shares of the company and any proceeds from the sale
of the Common Shares by the Estate must be applied to repay the note. The
company demanded repayment of the note on April 1, 1999.
7. BANK INDEBTEDNESS
The Company has credit facilities providing a total of $1,801,427 in demand
operating lines of credit. The lines of credit bear interest at rates varying
from prime plus 0.5% to prime plus 1% per annum. As security for one
operating line, the Company has provided a first-ranking general assignment
of accounts receivable, a general security, an assignment of all risk
insurance policies and an assignment of key man life insurance of a director
in the amount of $692,857. As security on another operating line, YFMC
Healthcare Inc., a wholly-owned subsidiary of the Company, has provided a
General Security Agreement. As security on a third facility, YFMC Healthcare
(Alberta) Inc., a wholly-owned subsidiary of YFMC Healthcare Inc., has
provided a General Security Agreement, unlimited guarantee of advances from
YFMC Healthcare Inc. and an endorsement of fire insurance covering all office
and equipment of YFMC Healthcare (Alberta) Inc.
8. LONG-TERM DEBT
1999 1998
--------------------
Commercial term loan payable, interest at prime + 2%, repayable in
equal monthly installments of $4,835 principal and interest secured by
general security agreement, due June 2003 203,094 -
Bank loan payable, interest at prime + 2.5%, repayable in equal
monthly installments of $1,519 plus interest government guaranteed, due
September 2003 148,903 -
Bank loan, interest at 9.65%, repayable in equal monthly installments
of $1,684 principal plus interest, secured by personal guarantee of
a Shareholder, due August 2003 61,400 -
Promissory note payable, non-interest bearing, repayable in equal
monthly installments of $1,925, due June 2002 55,813 -
Non-revolving bank loan, interest at prime + 0.75%, repayable in equal monthly
installments of $1,197 plus interest, secured by General Security
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
8. LONG-TERM DEBT (cont'd)
1999 1998
--------------------
Agreement, chattel mortgage and assignment of risk and key man
life Insurance 52,906 -
Loans payable, interest rates varying from prime to prime + 1.5%,
with monthly installments of principal and interest totaling $2,940, due
between April 2000 and August 2002, secured by general security agreements 57,500 -
Obligations under capital lease 70,894 123,905
Due to related parties, non-interest bearing, no specific terms of
repayment 39,973 -
--------------------
690,483 123,905
Less: current portion (172,145) (57,080)
--------------------
518,338 66,825
--------------------
--------------------
The non-revolving bank loan is an available line of credit amounting to
$692,857 for use in the acquisition of capital assets. At December 31, 1999,
the Company had drawn $67,034 against the facility. Subsequent to December
31, 1999, the Company has drawn an additional $58,988 against the facility.
9. CAPITAL STOCK
AUTHORIZED
Unlimited number of the following classes of shares and warrants:
Preference shares, voting, non-redeemable, non-retractable, having a
cumulative dividend of US$0.27 per share, convertible to common shares;
Class "A", redeemable, retractable, non-cumulative preferred shares;
Class "B", redeemable, retractable, non-cumulative preferred shares;
Special shares, issuable in series, with rights, privileges and
restrictions to be fixed by the directors;
Common shares
Common shares purchase warrants, redeemable, entitling holder to
purchase one share of common stock at a price of US$4.50 per share up
to February 11, 2003.
ISSUED
1999 1998
------------------------
500,000 Preference shares $ 445,717 $ 445,717
4,912,433 Common shares (3,096,544 in 1998) 7,699,462 5,430,002
1,437,500 Common stock purchase warrants 106,111 106,111
------------------------
$8,251,290 $5,981,830
------------------------
------------------------
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
Common Shares
Number Amount
--------------------------------
Balance, December 31, 1997 1,990,000 $1,853,785
Shares surrendered for cancellation (62,500) (128,990)
Shares repurchased for directors and cancelled (37,456) (96,944)
Shares issued in connection with initial public 1,250,000 3,921,464
offering
Shares repurchased and cancelled (43,500) (119,313)
--------------------------------
Balance, December 31, 1998 3,096,544 5,430,002
Shares repurchased and cancelled (1,000) (1,542)
Shares issued in connection with an acquisition 1,758,556 2,232,906
Shares issued under stock option plan 58,333 38,096
--------------------------------
Balance, December 31, 1999 4,912,433 $7,699,462
--------------------------------
--------------------------------
Warrants
-------------------------------
Number Amount
-------------------------------
Balance, December 31, 1997 - $ -
Warrants issued in connection with initial public 1,437,500 106,111
offering
Balance, December 31, 1999 and 1998 1,437,500 $ 106,111
--------------------------------
--------------------------------
(a) Common Shares
In January 1997, the Company completed a private offering and sale of
promissory notes ("Bridge Notes") with a principal amount of $500,000. The
Bridge Note holders also received 125,000 common shares having an ascribed
value of $2.05 per common share. The value ascribed to the common shares was
accounted for as a financing. Upon closing of the Offering, the Company
repaid the principal balance of $500,000 plus interest on the promissory
notes. In addition, the Company repaid $150,000 due to a director of the
Company. Immediately preceding the closing of the Offering, certain investors
in the Company's January 1997 private offering surrendered for cancellation
an aggregate of 62,500 common shares. The effect of this event is a reduction
in shareholders' equity of $128,990 and an equal reduction of other assets.
At December 31, 1997, the Company had issued 50,000 common shares to a
director of the Company. The issuance of these shares was accounted for as
compensation expense of $100,400 as the related services were rendered by the
director.
Concurrent with the closing of the Initial Public Offering on February 20,
1998, the Company repurchased 37,456 Common Shares held by a director.
On February 20, 1998 the Company completed an Initial Public Offering (the
"Offering") of 1,250,000 shares of Common Stock and 1,437,500 Class A
Redeemable Common Stock Purchase Warrants for net initial public offering
proceeds of $3,921,464.
In October 1998, the Board of Directors approved the repurchase over a
three-month period of up to 5% of the outstanding common Shares of the
Company. The Company repurchased and cancelled 44,500 common shares for an
aggregate cost of $73,875. Share capital was reduced by $120,855 based on the
assigned value per share and contributed surplus was increased by $46,292.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
On November 5, 1999 the Company completed the acquisition of YFMC Healthcare
Inc. ("YFMC"), as more fully described in Note 3 and issued 1,758,566 common
shares.
On December 31, 1999, a director exercised stock options, resulting in the
issuance of 58,333 Common Shares.
(b) Preference Shares
Each preferred share is convertible into one and one-half shares of common
stock of the Company at the option of the holder for a ten year period from
the date of issuance. At the end of the ten year period, the Preferred Shares
are convertible at the option of the holder into such number of shares of the
Company's Common Shares as is equal to the ascribed value of $4,500,000
divided by the then current market value of the Common Shares. The preferred
shares are entitled to receive a cumulative dividend of $0.27 per share
payable in cash or equivalent common shares based on their then quoted market
value from the date of closing of the initial public offering. The preference
shares were, at the time of their issue, redeemable and retractable by the
holder. On October 24, 1997, the attributes of the shares were changed and
the shares ceased to be redeemable and retractable.
The December 31, 1999 quarterly dividend in the amount of $33,618 has not
been paid but has been accrued in the accounts.
On August 21, 1998, the shareholders approved a reduction in the stated
capital of the preferred shares. The issuance of the preferred shares was
originally recorded in the amount of $4,500,000, based on the value ascribed
to the shares translated at the exchange rate in effect at the date of
issuance, and resulted in a charge of $4,031,383 to retained earnings, which
represents the excess of the value ascribed to the preferred shares issued
over the carrying value of the common shares cancelled. In 1998, the Company
reduced the stated capital of the preferred shares by $4,031,383 and reduced
the deficit by the same amount.
(c) Warrants and Stock Option Plans
Under a stock option plan, a director was granted an option on November 1,
1996 to purchase 700,000 common shares of the Company at an exercise price of
$0.75 per share. The difference of $934,033 between the fair market value of
$2.05 per share and the exercise price of $0.75 per share has been charged to
earnings and contributed surplus in 1996. On November 1, 1999 the Company
entered into a Consulting Agreement with the director to provide consulting
services. Compensation under the Consulting Agreement provides for the
payment of the consulting fee to the director by the exercise of his options
on an equal basis every quarter over the next three years with the original
exercise price of $0.75 per share charged to earnings as consulting services
rendered. On December 31, 1999, 58,333 options were exercised.
In connection with the Initial Public Offering, the Company issued 1,437,500
Class A Redeemable Common Stock Purchase Warrants for gross proceeds of $0.10
per warrant. Each warrant entitles the holder to purchase one share of common
stock at a price of $4.50 for a four year period commencing one year from the
date of completion of the offering. In addition, the Underwriters were
granted warrants entitling the Underwriters to purchase up to 125,000 shares
of Common Stock and 125,000 warrants at a price per share of Common Stock or
warrant equal to 150% of the Initial Public Offering price.
During 1998, the Company granted warrants to purchase 125,000 shares of
common stock to a private investor. Each warrant entitles the holder to
purchase one share of common stock at a price of $4.65 for a one-year period
following the effective date of a registration statement to be filed with the
Securities and Exchange Commission to register the warrant stock.
On September 27, 1999, the Company granted to each of two officers options to
acquire 400,000 common shares at a price of $1.50 per share, of which 200,000
options to purchase common shares do not vest until certain performance
criteria are met.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
9. CAPITAL STOCK (cont'd)
In connection with the November 1999 acquisition of YFMC Healthcare Inc., the
Company issued 44,585 Series A Warrants entitling the holders to purchase one
share of Med-Emerg common stock at $2.70, 44,585 Series B Warrants entitling
the holders to purchase one share of Med-Emerg common stock at $3.40, and for
every 8 YFMC stock options, 1 option of Med-Emerg was issued at an exercise
price of $1.75 for a total of 64,785 options issued.
Pursuant to the Stock Option Plan approved by the Shareholders, options to
acquire an aggregate of 1,000,000 shares of common stock may be granted. The
Stock Option Plan is to provide for grants to employees, consultants and
directors of the Company to enable them to purchase shares. As at December
31, 1999, 364,100 options were still available to be granted under the Stock
Option Plan.
The following table summarizes the stock options granted by the Company:
Number of Shares
Option price -----------------------
Expiry date per share 1999 1998
- -------------------------------------------------------------------------------
April 2002 $2.50 176,500 207,100
April 2002 $4.25 19,400 19,400
April 2002 $0.75 641,667 700,000
Between September 2000
And September 2003 $1.75 64,785 -
Between $1.25
January 2004 and $1.87 340,000 -
July 2004 $1.50 800,000 -
August 2004 $1.85 100,000 -
-----------------------
2,142,352 926,500
-----------------------
-----------------------
1999 1998
-----------------------
Outstanding, beginning of year 926,500 926,500
Granted 1,304,785 -
Exercised (58,333) -
Cancelled (30,600) -
-----------------------
Outstanding, end of year 2,142,352 926,500
-----------------------
-----------------------
10. CONVERTIBLE DEBENTURE
As part of the consideration for the purchase of JC Medical Management Inc.
described in Note 3, the company issued a convertible debenture in the amount
of $405,371. The debenture is convertible into 132,000 shares of common stock
of the company if the company's stock meets a certain trading threshold
within two years. Until the trading threshold is met, the company must pay a
fixed monthly amount of $3,365. It is management's expectation that the
trading threshold will be met within the two-year period.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
11. CONTRIBUTED SURPLUS
1999 1998
-----------------------
Stock compensation - difference between fair market value
and exercise price (note 9c) $ 934,033 $934,033
Share repurchase - difference between cost per share and
assigned value (note 9a) 46,292 46,292
Fair value of warrants and stock options issued in
connection with the acquisition of YFMC Healthcare Inc. 41,775 -
-----------------------
$1,022,100 $980,325
-----------------------
-----------------------
12. DEFERRED INCOME TAXES
In fiscal 1998, the Company implemented the recommendations of CICA Handbook
Section 3465, Accounting for Income Taxes. Under the new recommendations, the
"asset and liability method" of accounting for deferred income taxes is used,
which gives recognition to deferred taxes on all "temporary differences"
(differences between accounting basis and tax basis of the Company's assets
and liabilities) using current enacted tax rates. In addition, the new
recommendations requires the Company to record all deferred tax assets,
including future tax benefits of capital losses carried forward, and to
record a "valuation allowance" for any deferred tax assets where it is more
likely than not that the asset will not be realized. Prior to the adoption of
the new recommendations, income tax expense was determined using the deferral
method of tax allocation. There was no material impact on the financial
statements resulting from this change.
The components of the future tax benefit classified by source of temporary
differences that gave rise to the benefit are as follows:
1999 1998
-------------------------
Accounting amortization in excess of tax amortization $ (138,406) $ 9,998
Losses available to offset future income taxes 1,256,821 533,920
Share issue costs 460,006 584,086
Valuation allowance (812,151) (673,589)
-------------------------
$ 766,270 $ 454,415
-------------------------
-------------------------
At December 31, 1999, the Company has non-capital losses available for
carry-forward of $1,834,684. These losses expire between 2003 and 2005. In
addition, the Company has capital loss carry-forwards of approximately
$254,971, which may be applied against future taxable capital gains. No
accounting recognition has been given to the capital loss carry-forwards.
In connection with the acquisition of YFMC Healthcare Inc., the Company
determined that the fair market value of the capital assets was greater than
the tax value. The Company has recognized a liability for the temporary
difference in the amount of $470,384.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
13. EARNINGS PER SHARE
1999 1998 1997
-------------------------------------
Net loss before preferred share dividend
and goodwill, per share $(0.21) $(0.02) $(0.15)
Goodwill, per share (0.05) (0.02) (0.03)
-------------------------------------
Net loss before preferred share dividend,
per share (0.26) (0.04) (0.18)
Preferred share dividends, per share (0.04) (0.04) -
-------------------------------------
Basic and fully diluted loss, per share $(0.30) $(0.08) $(0.18)
-------------------------------------
-------------------------------------
14. NOTES TO THE STATEMENT OF CASH FLOWS
(i) Changes in Non-Cash Working Capital Components
1999 1998 1997
----------------------------------------
Accounts receivable $(522,234) $(405,110) $ (40,986)
Prepaid expenses and other 22,337 (55,310) (409,434)
Accounts payable and accrued liabilities 325,999 (182,883) 409,865
Reserve for restructuring 346,681 - -
----------------------------------------
$ 172,783 $(643,303) $ (40,555)
----------------------------------------
----------------------------------------
(ii) Changes in Other Assets
1999 1998 1997
----------------------------------------
Increase in deferred financing charges $ (69,377) $ 310,139 $(296,459)
Increase in deferred start-up costs - (145,571) (115,974)
Loan to Preventative Health Innovations - - 35,317
Inc.
Increase in due from affiliates (7,607) - -
Increase in investment in Interhealth - - (1,806)
Non-cash stock option benefit 39,260 - -
Non-cash changes in goodwill 61,614 9,605 -
----------------------------------------
$ 23,890 $ 174,173 $(378,922)
----------------------------------------
----------------------------------------
(iii) Interest and Income Taxes Paid
Operating activities reflect interest paid of $44,332 during the year ended
December 31, 1999 (December 31, 1998 - $46,691; December 31, 1997 - $87,865)
and income taxes paid of $nil during the year ended December 31, 1999
(December 31, 1998 - $nil; December 31, 1997 - $nil).
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
15. COMMITMENTS
The Company is committed to payments under operating leases of its premises and
equipment totaling $2,623,166. Annual payments under operating leases are as
follows:
2000 $ 764,226
2001 676,336
2002 542,419
2003 325,483
2004 154,244
Thereafter 160,458
-----------
$ 2,623,166
-----------
-----------
Obligations under capital lease of total $64,883. Annual payments under capital
leases are as follows:
2000 $ 44,635
2001 14,458
2002 5,037
2003 753
-----------
$ 64,883
-----------
-----------
Rent and leasing expenses charged to operations for the year ended December 31,
1999 was $593,691 (December 31, 1998 - $192,773).
16. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying value of accounts receivable, short-term investments, bank
indebtedness, and accounts payable approximates the fair value because of the
short-term maturities on these items.
The carrying amount of the long-term assets approximates the fair value of these
assets.
The fair value of the company's long-term debt is estimated on the quoted market
prices for the same or similar debt instruments. The fair value of the long-term
debt approximates the carrying value.
17. SUBSEQUENT EVENTS
On February 7, 2000, the Company secured $377,358 in supplier financing for the
purchase of hardware, software and network support for the launch of
HealthyConnect.com's e-health portal.
On February 10, 2000, the Company issued 320,000 shares to TekInsight.com Inc.,
a software engineering development company for the development and launch of
HealthyConnect.com's e-health portal.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement to purchase all of the issued and outstanding shares of
Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common
share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
$3.00 per share for every 12.85 shares of LRC. The Company will issue
approximately 1,167,000 common shares and approximately 389,000 warrants to
purchase common shares in connection with the acquisition. The closing of the
transaction is subject to regulatory and shareholder approvals.
On February 25, 2000, 75,000 stock options were granted to directors under the
Stock Option Plan for their directorship services. The options have an exercise
price of $2.62 per share and expire in February 2005.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
17. SUBSEQUENT EVENTS (cont'd)
On February 25, 2000, the Board of Directors approved the issuance of 150,000
options to be granted to employees and physicians at management's discretion.
On February 25, 2000, the Board of Directors authorized the issuance of shares
of HealthyConnect.com, Inc. as follows: 12,000,000 shares to Med-Emerg
International Inc., 2,400,000 shares to officers and directors and 350,000 stock
options to directors. HealthyConnect.com, Inc., a Delaware corporation, is a
subsidiary of Med-Emerg International Inc.
On March 1, 2000, the Company issued a Private Placement Memorandum for equity
financing. The Company currently is in the process of raising gross proceeds of
$1,700,000 for the issuance of 935,000 common shares. To date, $400,000 has been
raised. After deducting commissions and financing costs including the deferred
financing costs as listed in Note 6, the Company will receive net proceeds of
approximately $1,508,000.
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"), which
conform in all material respects applicable to the Company, with those in the
United States ("U.S. GAAP") during the periods presented except with respect to
the following:
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
CONSOLIDATED STATEMENTS OF OPERATIONS
If United States GAAP were employed, net loss for the period would be adjusted
as follows:
1999 1998 1997
--------- --------- ---------
Net loss based on Canadian GAAP $(878,470) $(106,258) $(340,987)
Start-up costs amortized/(deferred) 35,720 (176,749) (106,017)
Goodwill amortization (8,925) - -
--------- --------- ---------
Net loss based on United States GAAP $(851,675) $(283,007) $(447,004)
--------- --------- ---------
Primary loss per share $ (0.25) $ (0.10) $ (0.23)
--------- --------- ---------
--------- --------- ---------
If United States GAAP were employed, deficit, other assets, deferred start-up
costs, and total liabilities would be adjusted as follows:
1999 1998
----------- -----------
Deficit based on Canadian GAAP $(4,335,566) $(3,322,903)
Start-up costs deferred (255,040) (274,683)
Goodwill amortization (8,925) -
----------- -----------
$(4,599,531) $(3,597,586)
----------- -----------
----------- -----------
Other assets based on Canadian GAAP $ 4,005,768 $ 1,239,880
Start-up costs deferred (255,040) (274,683)
Goodwill on purchase of YFMC Healthcare Inc. 1,087,872 -
----------- -----------
$ 4,838,600 $ 965,197
----------- -----------
----------- -----------
Total liabilities based on Canadian GAAP $ 4,836,005 $ 1,751,347
Convertible debenture 405,371 405,371
----------- -----------
$ 5,241,376 $ 2,156,718
----------- -----------
----------- -----------
(a) Deferred Income Taxes
Under U.S. GAAP, the Company is required to follow Statement of Financial
Accounting Standards (SFAS No. 109) "Accounting for Income Taxes", which
requires the use of the "asset and liability method" of accounting for deferred
income taxes, which gives recognition to deferred taxes on all "temporary
differences" (differences between accounting basis and tax basis of the
Company's assets and liabilities, such as the non-deductible values attributed
to assets in a business combination) using current enacted tax rates. In
addition, SFAS No. 109 requires the Company to record all deferred tax assets,
including future tax benefits of capital losses carried forward, and to record a
"valuation allowance" for any deferred tax assets where it is more likely than
not that the asset will not be realized. The Company has followed this method
under Canadian GAAP.
(b) Deferred Start-up Costs
Under Canadian GAAP, development and start-up costs, which meet certain
criteria, are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(c) Convertible Debenture
Under U.S. GAAP, convertible debentures are presented as liabilities, regardless
of the attributes of the convertible debenture, and transferred to equity upon
conversion, whereas, under Canadian GAAP, the likelihood of conversion to equity
is considered in determining the classification between liability or equity.
(d) Earnings Per Share
U.S. GAAP requires common shares and warrants to purchase common shares, issued
or exercisable at prices below the initial public offering ("I.P.O.") price and
which were issued within one year prior to the initial filing of the
registration statement relating to the I.P.O., to be treated as if the common
shares were outstanding from the beginning of the period in the calculation of
weighted average number of common shares outstanding and loss per share, even
where such inclusion is anti-dilutive. Primary earnings per common share is
determined using the weighted average number of shares outstanding during the
year, adjusted to reflect the application of the treasury stock method for
outstanding options and warrants in accordance with U.S. GAAP.
(e) Stock Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), was issued by the Financial Accounting Standards Board
in October 1995. SFAS 123 establishes financial accounting and reporting
standards for transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees, as well as stock-based employee
compensation plans. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are to be
accounted for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
For those transactions described in note 9 and under SFAS 123:
- - the issuance of 125,000 common shares to promissory note holders
resulted in a charge to income (finance expense) over the term of the
related promissory note payable, at $2.05 per share equal to $256,250 of
which $196,943 has been charged to earnings in the year ended December
31, 1997 and $50,470 has been charged to earnings in the year ended
December 31, 1998.
- - the issuance of 50,000 shares to a director for services rendered
resulted in a charge to income at $2.05 per share equal to $100,400 in
the year ended December 31, 1997.
- - the issuance of an option on November 1, 1996 to a director to acquire
700,000 shares (note 9) has resulted in a charge to income equal to
$934,033 in 1996 based on $2.05 per share, and the "minimum value"
method of calculation permitted under SFAS 123 for non-public entities.
As allowed by SFAS 123, the Company has decided to continue to use Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" in
accounting for the Company's Stock Option Plan (the "Plan") for U.S. GAAP
purposes, pursuant to which there is no significant difference between U.S. and
Canadian GAAP in the accounting for the granting of options under the Plan.
(f) Goodwill
Under U.S. GAAP, the purchase price of an acquisition involving the issuance of
shares is determined based on the share price for the period surrounding the
announcement date of the acquisition. The share price used for the YFMC
Healthcare Inc. acquisition under U.S. GAAP was $1.859. Under Canadian GAAP, the
purchase price is determined based on the share price on the date the
transaction is consummated. The share price used for the YFMC Healthcare Inc.
acquisition under Canadian GAAP was $1.25.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(g) Shareholders' Equity
Under U.S. GAAP, loans issued to officers to acquire stock are presented as a
deduction from shareholders' equity (deficit).
Under Canadian GAAP, the detachable stock purchase warrants issued in
conjunction with the private stock offering on January 22, 1996 and subsequently
surrendered, all as described in note 13, have been given no recognition in the
financial statements.
Under U.S. GAAP, detachable stock purchase warrants are given separate
recognition from the primary security issued. Upon initial recognition, the
carrying amount of the two securities is allocated based on the relative fair
values at the date of issuance. Under U.S. GAAP, based on an ascribed fair value
of $0.364 for each of the 1,000,000 share warrants issued, share capital would
be lower by $36,406 and, given that the stock purchase warrants were cancelled
during the year, the carrying amount of contributed surplus would be increased
by $36,406.
The effect on shareholders' equity would be as follows:
1999 1998
Capital stock (as previously shown) $ 8,251,290 $ 5,981,830
Captial stock issued on purchase of YFMC Healthcare Inc. 1,087,872 -
Ascribed fair value of share purchase warrants issued (36,406) (36,406)
----------- -----------
Capital stock - U.S. GAAP 9,302,756 5,945,424
Share purchase loan to officer (44,978) (44,978)
----------- -----------
Net capital stock - U.S. GAAP $ 9,257,778 $ 5,900,446
----------- -----------
Convertible debenture (as previously shown) $ 405,371 $ 405,371
Convertible debenture included in long-term debt (405,371) (405,371)
----------- -----------
Convertible debenture - U.S. GAAP $ - $ -
----------- -----------
Contributed surplus (as previoulsy shown) $ 1,022,100 $ 980,325
Share purchase warrants 36,406 36,406
----------- -----------
Contributed surplus - U.S. GAAP $ 1,058,506 $ 1,016,731
----------- -----------
Deficit - U.S. GAAP $(4,599,531) $(3,597,589)
----------- -----------
Shareholders equity (deficit) - U.S. GAAP $ 5,716,753 $ 3,319,588
----------- -----------
----------- -----------
(h) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), was issued by the Financial Accounting Standards Board in
June 1997. SFAS 123 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier period provided for comparative purposes is
required.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
1999 1998 1997
--------- --------- ---------
Net income (loss) (US GAAP) $(851,675) $(283,007) $(447,004)
Foreign currency translation
adjustment (4,565) (181,810) 8,170
--------- --------- ---------
Comprehensive income $(856,240) $(464,817) $(438,834)
--------- --------- ---------
--------- --------- ---------
19. SEGMENTED INFORMATION
The Company operates under three divisions: Physician and Nurse Recruitment,
Physician Management Services and HealthyConnect.com. All of the Company's
operations are in Canada.
The Physician and Nurse Recruitment involves contracting with hospitals for the
provision of physician staffing, nurse staffing and administrative support
services. The Company also contracts with clinical facilities and local
communities for the locum or permanent placement of a physician in a community.
The Physician Management Services division owns and manages medical clinic
facilities, which provide physicians with the ability to practice medicine in a
professionally managed environment. The clinics include family practice, walk-in
services, and other related services such as massage therapy and chiropractic
services.
The HealthyConnect.com division, created in 1998, involves electronically
linking clinical facilities and other healthcare service providers into a
network. This internet-based network will provide healthcare professionals and
consumers access to medical services, products, communications and information
tools.
Details are as follows:
1999
----------------------------------------------------------
Physician Physician
& Nurse Management HealthyConnect
Recruiting Services .com Consolidated
----------------------------------------------------------
Revenue $ 7,831,708 $ 4,816,720 $ - $ 12,648,428
Gross margin 1,303,184 2,468,105 - 3,771,289
Operating income before Corporate Overhead
and Public Company-related costs 818,215 468,805 (798,943) 488,076
Corporate Overhead (570,434) (350,833) - (921,267)
Operating loss before Public Company-related costs 247,781 117,972 (798,943) (433,190)
Public-Company-related costs (301,592)
Operating loss (734,782)
Assets employed at year end 3,348,895 6,718,041 - 10,066,935
Depreciation and amortization 108,984 252,349 - 361,333
Capital expenditures 97,650 1,720,048 - 1,817,699
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
19. SEGMENTED INFORMATION (cont'd)
1998
----------------------------------------------------------
Physician Physician
& Nurse Management HealthyConnect
Recruiting Services .com Consolidated
----------------------------------------------------------
Revenue $ 7,806,149 $ 2,498,898 $ - $ 10,305,046
Gross margin 1,303,807 1,019,491 - 2,323,298
Operating income before Corporate Overhead
and Public Company-related costs 814,022 341,159 (84,530) 1,070,650
Corporate Overhead (662,787) (212,171) - (874,958)
Operating loss before Public Company-related costs 151,234 128,988 (84,530) 195,692
Public-Company-related costs (202,458)
Operating loss (6,766)
Assets employed at year end 3,864,407 1,492,126 98,463 5,454,997
Depreciation and amortization 42,591 81,611 - 124,202
Capital expenditures 154,761 140,923 - 295,684
1997
---------------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services Consolidated
---------------------------------------------------
Revenue $ 6,567,318 $ 1,791,619 $ 8,358,937
Gross margin 1,275,607 763,397 2,039,004
Operating income before Corporate Overhead
and Public Company-related costs 813,776 347,186 1,160,962
Corporate Overhead (799,019) (217,979) (1,016,998)
Operating income before Stock Compensation 14,758 129,207 143,965
Stock Compensation (100,400)
Operating loss 43,565
Assets employed at year end 2,409,916 1,226,502 3,636,418
Depreciation and amortization 46,979 45,569 92,548
Capital expenditures 66,460 215,146 281,606
20. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
21. COMPARATIVE FIGURES
Certain figures in the 1998 financial statements have been reclassified to
conform with the basis of presentation in 1999.