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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
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(g) of the Act.
(Title of each class) (Name of each exchange on which registered)
COMMON STOCK, NO PAR VALUE OTC Bulletin Board
REDEEMABLE COMMON STOCK
PURCHASE WARRANTS OTC Bulletin Board
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 whether registrant is an accelerated
filer (as defined in Exchange Act Rule 12(b)-2). Yes [ ] No [X]
The aggregate market value of the shares of Common Stock
(based upon the closing sales price of the Company's Common Stock as
reported on the OTC Bulletin Board on May 11, 2004) of the registrant
held by non-affiliates on March 31, 2004 was approximately
US$6,220,126.
As of March 31, 2004, 9,569,424 shares of the registrant's
Common Stock were outstanding.
(All figures in US dollars unless otherwise indicated.)
1
MED-EMERG INTERNATIONAL INC.
MARCH 31, 2004 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Signatures
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition, Med
Emerg International Inc. ("MEII" or the "Company") disclaims any obligations to
update any forward-looking statements to reflect events or circumstances after
the date hereof.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as at March 31, 2004 (unaudited) and December 31,
2003 (audited)
Consolidated Statements of Operations and Deficit for the three months ended
March 31, 2004 and 2003 (unaudited)
Consolidated Statement of Cash Flows for the three months ended March 31, 2004
and 2003 (unaudited)
Notes to Unaudited Consolidated Financial Statements
3
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003 (AUDITED)
(IN US$)
MARCH 31 DECEMBER 31
2004 2003
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 428,733 $ 129,132
Accounts receivable (note 5) 4,126,232 3,409,771
Prepaid expenses and other 100,193 81,041
Discontinued operations 14,495 102,740
-------------- -------------
4,669,653 3,722,684
Long term investment 133,455 134,979
Property, plant and equipment 185,447 186,562
-------------- -------------
$ 4,988,555 $4,044,225
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Demand loan (note 6) $ 773,429 $ -
Accounts payable and accrued liabilities 5,822,555 6,717,406
Discontinued operations 4,705 60,703
-------------- -------------
6,600,689 6,778,109
LONG-TERM LIABILITIES
Long term debt (note 8) 1,186,063 -
-------------- -------------
7,786,752 6,778,109
-------------- -------------
Contingent liabilities (note 13)
SHAREHOLDERS' DEFICIT
Capital stock 11,544,736 11,544,736
Contributed surplus (note 10) 2,438,219 2,397,849
Convertible debentures (note 9) 455,098 414,434
Deficit (16,441,106) (16,265,370)
Cumulative translation adjustment (795,144) (825,533)
-------------- -------------
(2,798,197) (2,733,884)
-------------- -------------
$ 4,988,555 $4,044,225
-------------- -------------
-------------- -------------
The accompanying notes are an integral part of these consolidated
financial statements.
4
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
(IN US$)
MARCH 31 MARCH 31
2004 2003
---------------- ---------------
REVENUE $ 12,553,601 $ 11,267,941
PHYSICIAN FEES AND OTHER DIRECT COSTS 11,369,867 10,292,647
---------------- ---------------
1,183,734 975,294
---------------- ---------------
EXPENSES
Salaries and benefits 624,969 496,180
General and administration 270,231 249,628
Occupancy costs and supplies 96,043 79,178
Travel & marketing 113,510 73,956
---------------- ---------------
1,104,753 898,942
---------------- ---------------
INCOME BEFORE UNDERNOTED ITEMS 78,981 76,352
---------------- ---------------
Interest and financing expense 129,120 150,697
Amortization of property, plant and equipment 19,849 21,223
Stock compensation expenses (note 10) 40,370 733,627
---------------- ---------------
189,339 905,547
---------------- ---------------
NET LOSS BEFORE MINORITY INTEREST AND PREFERRED SHARE DIVIDENDS (110,358) (829,195)
Minority interest - 201
---------------- ---------------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (110,358) (829,396)
Preferred share dividends 33,750 33,750
---------------- ---------------
NET LOSS BEFORE DISCONTINUED OPERATIONS (144,108) (863,146)
LOSS FROM OPERATIONS OF DISCONTINUED COMPONENT (3,456) (59,956)
---------------- ---------------
NET LOSS FOR THE PERIOD (147,564) (923,102)
DEFICIT, BEGINNING OF THE PERIOD (16,265,370) (14,333,572)
Convertible debenture charges (note 9) (28,172) (24,589)
---------------- ---------------
DEFICIT, END OF THE PERIOD $ (16,441,106) $ (15,281,263)
---------------- ---------------
---------------- ---------------
BASIC LOSS PER COMMON SHARE
Continuing operations $ (0.02) $ (0.09)
Discontinued operations (0.00) (0.01)
---------------- ---------------
---------------- ---------------
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 9,569,424 9,444,332
---------------- ---------------
---------------- ---------------
The accompanying notes are an integral part of these consolidated
financial statements.
5
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
(IN US$)
MARCH 31 MARCH 31
2004 2003
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period before discontinued operations $ (144,108) $ (863,146)
Adjustments for:
Amortization of property, plant and equipment 19,849 21,223
Minority interest - 705
Stock compensation expenses (note 10) 40,370 733,627
Convertible debentures (note 9) 12,492 31,475
Investment in AIM Health Group Ltd. 1,524 -
-------------- -------------
(69,873) (76,116)
Increase (decrease) in non-cash working capital components (444,401) (267,681)
Discontinued operations 28,791 100,594
-------------- -------------
(485,483) (243,203)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (18,734) (48,450)
Discontinued operations - (78,136)
-------------- -------------
(18,734) (126,586)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Demand loan (note 6) 773,429 442,774
Deferred financing costs incurred - 26,095
Issuance (repayment) of debt - (105,000)
Discontinued operations - (3,980)
-------------- -------------
773,429 359,889
-------------- -------------
Effect of foreign currency exchange rate changes 30,389 (152,727)
-------------- -------------
INCREASE (DECREASE) IN CASH 299,601 (162,627)
Cash, beginning of period 129,132 89,617
-------------- -------------
Cash, end of period $ 428,733 $ (73,010)
-------------- -------------
-------------- -------------
The accompanying notes are integral part of these consolidated
financial statements.
6
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. ("MEII" or the "Company") is a private sector
provider of quality healthcare management services to the Canadian healthcare
industry.
The Company is publicly traded and listed on the OTC Bulletin Board. The Company
completed its initial public offering in February 1998.
The Company's operations were divided into five units during the 2003 fiscal
year. Subsequent to 2003 the Company is no longer involved in the Medical
Clinics business. MEII's four remaining business units are: Hospital Staffing,
Government Healthcare Services (including Department of National Defence),
Pharmaceutical Support and Healthcare Consulting.
For Hospital Staffing, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals, on
a contractual basis, and physician and nurse practitioners to select long-term
facilities in Ontario. At March 31, 2004, the Company had 21 contracts for
physician staffing and five contracts for nurse staffing.
The Company provides medical personnel to the entire Canadian Forces ("CF"). The
Company provides in-garrison healthcare at bases across Canada. Through this
contract the Company recruits, schedules and manages physicians, nurses,
dentists, physiotherapists and other healthcare professionals to provide
services as required by the CF health authority resident at each base.
The Company provides special access Remicade(TM) infusion services to patients
suffering from Crohn's disease and rheumatoid arthritis at clinic locations
across Canada. The Company recently signed an agreement with Novartis
Pharmaceuticals Canada Inc. and has begun to supply Zometa(TM) for treating
cancer patients with bone metastases.
MEII provides Healthcare Consulting services to select Canadian private and
public institutions on issues related to a variety of healthcare topics.
2. BASIS OF PRESENTATION
These financial statements consolidate, with minority interest, the accounts of
MEII and all wholly- and partially-owned subsidiaries of MEII. 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 9.
In the opinion of management, the unaudited interim consolidated financial
statements follow the same accounting policies and methods of application as the
most recent audited annual financial statements.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004.
These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003.
Significant intercompany accounts and transactions have been eliminated on
consolidation.
7
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Going concern
The consolidated financial statements have been prepared on principles
applicable to a going concern which assumes that the Company will be able to
realize its assets and discharge its obligations in the normal course of
business. As at March 31, 2004, the Company had a working capital deficiency of
$1,931,036 ($3,055,425 as at December 31, 2003) and a shareholders' deficit of
$2,798,197 ($2,733,884 as at December 31, 2003).
On June 28th, 2002 the Company discharged its primary banker HSBC Bank Canada
("HSBC") and MEII currently relies on an asset-based lender.
Management continues to pursue opportunities to enhance profitability. These
plans include:
1) pursuing suitable financing opportunities;
2) negotiating discounts with suppliers or improved pricing
The Company's ability to continue as a going concern is dependent on the
successful implementation of this plan.
On January 13, 2004 the Company signed a Letter of Intent ("LOI") concerning a
prospective share exchange between MEII and Global Healthcare Workforce Ltd.
("GHW"), a company incorporated in the United Kingdom. The closing date for this
deal is expected to be on or before May 31, 2004. Pursuant to the terms of the
LOI, GHW provided a guarantee for a bank facility of $381,300 ($500,000 CDN) for
MEII, which is secured by an irrevocable short-term standby letter of credit in
the aggregate amount of $381,300 ($500,000 CDN) provided by a foreign bank. The
bank facility was available to MEII on February 23, 2004. On April 22, 2004 the
Company announced that it has amended the LOI with GHW extending the closing
date to not later than May 31, 2004, unless further extended by GHW. All other
terms and conditions of the letter of intent remain unchanged.
Should the Company be unable to successfully implement its plan, it may not be
able to continue as a going concern. As a result, certain assets and liabilities
currently reflected in the balance sheet at book value may have to be adjusted
to liquidated values.
b) Use of estimates
The preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities during the reporting period. Significant
areas requiring the use of estimates relate to: 1) the reported amounts of
revenues and expenses, 2) the disclosure of contingent liabilities, 3) the
carrying value of property, plant, and equipment and the rate of amortization
related thereto. Actual results could differ from those estimates.
8
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
c) Long term investments
Investments are accounted for at cost when the conditions for equity accounting
are not present, and on the equity basis when significant influence exists.
Declines in market values of investments are expensed when such declines are
considered to be other than temporary.
d) Property, plant and equipment
Property, plant and equipment are recorded at cost and are amortized over their
estimated useful lives at the undernoted rates and methods:
Furniture and fixtures 20% Declining balance
Computer software 100% Declining balance
Computer hardware 30% Declining balance
Leasehold improvements 5-10 years Straight-line
e) Impairment charges
At least annually and when events and circumstances warrant a review, the
Company evaluates the carrying value of its assets for potential impairment. An
impairment loss is recognized when the estimated net realizable value of any
asset is less than its carrying value. Any impairment in assets is written down
and charged to earnings in the year.
f) Revenue recognition
The company has adopted the provisions of Emerging Issues Committee ("EIC") -
123, issued by the Canadian Institute of Chartered Accountants (CICA) which
became effective on January 1, 2002. EIC - 123 addresses the reporting of
revenue on a gross basis as a principal versus on a net basis as an agent.
The following is a description of MEII's revenue recognition policies for each
of the significant business units.
(1) Hospital Staffing and Pharmaceutical Support:
Revenue is reported on a gross basis.
MEII acts as a principal in providing these services. MEII contracts with
emergency room physician and nursing personnel to provide services to hospitals
in Ontario, a mix of rural and urban facilities including tertiary care centres.
Under contracts with Schering-Plough Canada and Novartis Pharmaceuticals Canada
Inc, MEII acts as the coordinator for the community-based infusion of certain
medications for the treatment of patients with rheumatoid arthritis, Chron's
disease and certain cancers.
In 2002, MEII commenced a new line of business, which involves contracting with
physicians and nurse practitioners to provide services to long-term care
facilities in Ontario.
9
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
(2) Government Healthcare Services (Includes Department of National Defence
("DND")):
Revenue is reported on a gross basis.
MEII has an administrative management contract with Public Works and Government
Services Canada ("PWGSC") to provide personnel to Canadian armed forces across
Canada on behalf of the Minister of National Defence.
Under the terms of the contract, MEII has the responsibility to hire medical
personnel and support staff and where necessary provide appropriate training and
supervision of the work performed at the respective bases across Canada. MEII
bills DND for the work performed by these individuals and in turns pays the
medical personnel and support staff based on the terms of the respective
contracts signed with them.
(3) Healthcare Consulting:
Revenue is reported on a gross basis.
g) Future income taxes
The Company accounts for income taxes using the asset and liability method.
Future tax assets and liabilities are recognized for the future taxes
attributable to the temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
carrying values. Future tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. A
valuation allowance against future tax assets is provided to the extent that the
realizations of these future tax assets is not more likely than not.
h) Cash
Cash consists of cash on hand and in banks.
i) Foreign currency translation
During 2002, the Company adopted the recommendation of the CICA handbook section
1650 Foreign Currency Translation. The amended standard eliminates the deferral
and amortization approach to exchange gains and losses on long-term monetary
items and requires the disclosure of the exchange gains and losses included in
the calculation of net income. There is no material effect of this change in
accounting policy on the financial statements of the Company.
The Company maintains its books and records in Canadian dollars. The financial
statements are converted to U.S. dollars as the Company is a reporting issuer in
the United States of America. The
10
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
translation method used is the current rate method. Under the current rate
method all assets and liabilities are translated at the current rate prevailing
at the balance sheet date, shareholders' deficit is translated at historical
rates and all income and expense items are translated at average rates for the
year. Due to the fact that items in the financial statements are being
translated at different rates according to their nature, a translation
adjustment is created. This translation adjustment has been included in the
cumulative translation adjustment.
j) Stock compensation
The Company has adopted section 3870 issued by the CICA in respect of stock
based compensation and other stock based payments. This section requires that a
fair value based method of accounting be applied to all stock based payments to
non-employees and to direct awards of stock to employees. The standard requires
either the recognition of a compensation expense for grants of stock, stock
options, and other equity instruments to employees based on the estimated fair
value of the instruments at the grant date, or alternatively, the disclosure of
pro forma net earnings and earnings per share data as if stock based
compensation had been recognized in earnings.
4. DISCONTINUED OPERATIONS
ONTARIO MEDICAL CLINICS SALE
On September 5, 2003 the Company entered into a transaction with AIM Health
Group Inc. ("AIM") to dispose of MEII's Ontario-based clinic operations and more
specifically the following clinics: Elmvale, Merivale, Herongate, Kanata,
Orleans, Hillside, Hampton, PSA, Caresource, Pond Mills, Central, Glenderry,
Dundas and Wallaceburg.
The Company sold the subsidiary corporations that owned these clinics to AIM.
The names of these corporations are as follows: 1189543 Ontario Inc. (and its
subsidiaries 1180668 Ontario Inc., 1292363 Ontario Corporation and 1024528
Ontario Inc.), Med-Plus Health Centres Ltd. (and its subsidiary Glenderry
Medical Walk-In Clinic Inc.), Med-Emerg Urgent Care Inc. and Caremedics
(Elmvale) Inc.
MEII sold all of the shares owned by MEII in these companies (including all
assets and liabilities of the companies identified above), complete with all
lease and employee obligations.
In consideration for the sale of the shares of these corporations, MEII received
$591,017 ($775,000 CDN). The purchase price was settled as follows:
I. $381,300 ($500,000 CDN) cash upon signing the purchase and sale agreement
on September 5, 2003.
II. $38,130 ($50,000 CDN) cash upon the date of closing of the transaction of
the purchase and sale for the purchased shares
III. $38,130 ($50,000 CDN) cash on the later of the renegotiation of certain
contractual obligations related to one of the clinic operations
IV. $133,455 ($175,000 CDN) by way of issuance by AIM of 175,000 Class A
preference shares in the capital of AIM, with a face value of $0.77 ($1
CDN) per share on September 30, 2003.
This transaction resulted in a $104,138 gain on disposition of these clinic
companies as the net assets of the companies sold were less than proceeds
received by MEII.
11
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
4. DISCONTINUED OPERATIONS (CONT'D)
The Company has accounted for the investment using the cost method at a value of
$0.77 ($1 CDN) for each Class A preference share. It is the Company's intention
to hold the Class A preference shares for greater than one year and accordingly
it has classified the investment as long-term.
Each Class A preference share entitles the holder to receive for each fiscal
year as declared by the board of directors of AIM a cumulative dividend at an
amount equal to the greater of:
I. Three (3%) percent of the amount recorded in the stated capital account
maintained in respect of the Class A preference shares of AIM ("fixed
dividends"); and
II. Twenty (20%) of the cumulative net income of the clinic corporations
calculated under generally accepted accounting principles on a basis
consistent with those of the previous years ("variable dividends").
The cumulative amount of the fixed dividends paid to the holders of Class A
preference shares in prior years shall reduce the variable dividends payable to
the holders of Class A preference shares in a given year.
MEII and AIM will continue to work together to ensure the long-term successful
development of these clinics.
ALBERTA MEDICAL CLINICS SALE
On December 31, 2003 MEII's indirect wholly-owned subsidiary YFMC Healthcare
(Alberta) Inc. sold certain assets of the following four medical clinics located
in the province of Alberta: Martindale Medical Centre, McKnight Village Medical
Clinic, Jasper Avenue Medical Clinic, West Edmonton Mall Medical Centre. In
consideration of the sale MEII shall receive $15,252 ($20,000 CDN) in cash
during the 2004 fiscal year, of which an amount of $3,813 ($5,000 CDN) has been
received to date.
This transaction resulted in a $51,581 loss on disposition of these clinic
companies as the net assets of the companies sold were higher than proceeds
received by MEII.
MANITOBA MEDICAL CLINIC SALE
During the fourth quarter of 2003 MEII sold certain assets of the Wildwood
Medical Centre located in Winnipeg, Manitoba. In consideration for the sale,
MEII received $6,482($8,500 CDN) in cash. This transaction resulted in net loss
of $19,024 upon disposition as the net assets of the companies sold were higher
than proceeds received by MEII.
5. ACCOUNTS RECEIVABLE
Included in Accounts Receivable is an amount of $756,500 ($991,998 CDN) owing
from Sunnybrook Womens' College Hospital ("Sunnybrook") for nursing services
provided in June 2003, to assist in battling the SARS crisis, which affected the
Province of Ontario. The funds to settle this account were previously remitted
to the Company by the Ontario Ministry of Health. Subsequently, the Ontario
Ministry of Health requested that these funds be repaid and in turn that the
Company should seek compensation directly from Sunnybrook. Accordingly, the
Company has recorded a receivable from Sunnybrook and a payable to Ontario
Ministry of Health for the equivalent amount. The Company is in the process of
reconciling the amounts charged to Sunnybrook and is of the opinion that any
adjustments are immaterial and the amount is collectible.
12
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
6. DEMAND LOAN
The demand loan amount includes amounts owing to Morrison Financial Services
Limited ("MFSL") under the terms described in note 7. Also included is an amount
of $183,024 ($240,000 CDN) utilized from the line of credit provided by GHW
[Refer note 3(a)].
7. REFINANCING ACTIVITIES
a) On May 24, 2002 the Company issued a $720,000 discounted secured debenture,
with net proceeds of $600,000 and repaid bank loans from the net proceeds.
The terms of the secured debenture include:
1. maturity date of June 1, 2003
2. an effective interest rate of 23.4% per annum
3. convertible into common shares at $1 per share at the option of the holder
4. 216,000 restricted common shares issued to the debenture holders
5. redeemable on or before 180th day from the date of the closing at 115% of
the principal amount, and any date thereafter at 120% of the principal
amount.
A principal shareholder of the Company guaranteed the debenture, providing as
security, unrestricted free trading common shares of the Company equivalent to
150% of the face value of the debenture. In exchange for the guarantee, the
Company issued to the guarantor shareholder common share purchase options to
purchase 100,000 common shares at $1.00 per share. In the event that the market
value of the common shares provided as security falls below 200% of the face
amount of the debenture, the Company was required to pledge additional
securities to return the market value to 200% of the face amount.
The secured debenture was repaid, in full, on July 2, 2003.
b) On June 28, 2002, MFSL paid HSBC $475,406 on MEII's behalf. This had the
effect of reducing the Company's total debt by $228,459 since the obligation to
HSBC was eliminated at a discounted value. MFSL provided the Company with a
full-recourse invoice discounted facility in an amount not to exceed $555,597
based on purchasing and advancing up to 75% of the face amount of a qualifying
invoice with the balance held on reserve until the invoice is collected in full.
The facility had a term of one year, with an annualized interest rate of 34.22%
that matured on June 28, 2003. The Company renegotiated this loan agreement with
MFSL. The following clauses of the agreement were amended as follows:
1. Facility: The maximum amount of the facility increased from $571,951
($750,000 CDN) in aggregate advances outstanding from time to time, to a
maximum of $762,602 ($1,000,000 CDN). The advance rate increased from 75%
of the face amount of qualifying invoices to 80%.
2. Term: The term of the facility is for a one year period that commenced on
July 1, 2003.
3. Discount fees: The discount fees charged are reduced from 34.22% to 24% on
an annualized basis.
In addition to the specific Standard Form Assignments (General), all amounts due
to MFSL are secured by a general security agreement on all assets and
undertakings of MEII.
13
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
8. LONG TERM DEBT
The amount of $1,186,063 ($1,555,285 CDN) pertains to the long term portion of
the Goods and Services Tax which is payable over a period of five years, as per
an agreement between the Company and Canada Customs and Revenue Agency ("CCRA").
The total amount payable towards this debt is $1,460,600 ($1,915,285 CDN), and
as per the agreement, an amount of $22,878 ($30,000 CDN) is payable monthly and
is reviewable every six months. Accordingly, the current portion of this debt
$274,537 ($360,000 CDN) has been classified under Accounts payable and accrued
liabilities. The CCRA will register a Lien under the Personal Property Security
Act with the Province of Ontario to secure its position.
9. CONVERTIBLE DEBENTURES
The convertible debentures were issued on September 30, 2001, are due on
September 30, 2006 and bear interest at 7%. MEII may pay the principal amount
and accrued interest at any time prior to maturity by way of cash or shares of
MEII common stock or a combination of cash and MEII common stock at the
discretion of the Company. Accordingly, these debentures have been reflected in
the financial statements at its estimated present value and included in
shareholder's deficit.
UNDISCOUNTED TOTAL PRESENT VALUE
------------------ -------------
Principal due on September 30, 2006 $590,536 $92,130
Interest due on September 30, 2006 206,688 32,245
-------- -------
$797,224 $124,375
-------- -------
The above debentures will be accreted to their principal values at the rate of
45% per annum on the net present values shown. During the first quarter of 2004,
an amount of $28,172 was accreted to principal with corresponding charge to
retained earnings.
Convertible debentures at December 31, 2001 $124,375
Interest costs in 2002 52,985
Convertible debenture charges in 2002 84,080
---------------
Convertible debentures at December 31, 2002 261,440
---------------
Interest costs in 2003 46,998
Convertible debenture charges in 2003 105,996
---------------
Convertible debentures at December 31, 2003 $414,434
---------------
Interest costs in 2004 12,492
Convertible debenture charges in 2004 28,172
---------------
Convertible debentures at March 31, 2004 $455,098
===============
10. CONTRIBUTED SURPLUS
During the first quarter of 2004, 100,000 options were granted with an exercise
price of $0.50 per option. The options vest immediately and are available for a
term of five years expiring on January 30, 2009. Due to the issuance of new
options the fair value amounting to $40,370 has been determined using an option
pricing model (Black Scholes) as per section 3870 of the CICA handbook. This
amount has been credited to contributed surplus.
During the first quarter of 2003, the terms of warrants were amended entitling
each warrant holder to purchase one share of common stock at a price of $0.50
(previously $4.50). Due to this amendment, the fair value amounting to $733,627
had been determined, and was credited to contributed surplus.
14
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
11. 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 with those in the United States ("U.S. GAAP")
during the periods presented, except with respect to the following:
(a) Deficit
Under Canadian GAAP, the convertible debentures have been presented in
Shareholders' deficit as the Company has the option to satisfy the debt by way
of cash or shares or a combination of cash and shares. The debentures have been
discounted to reflect the net present value as at the balance sheet date. Under
U.S. GAAP, these obligations should be shown as long-term debt on the balance
sheet.
If U.S. GAAP were employed, deficit for the period would be adjusted as follows:
MARCH DECEMBER
2004 2003
Deficit based on Canadian GAAP $ (16,441,106) $ (16,265,370)
Convertible debentures (note 7) (261,281) (289,453)
-------------------------------------
Deficit based on US GAAP $ (16,702,387) $ (16,554,823)
=====================================
(b) Shareholders' deficit
Under Canadian GAAP, the purchase price of an acquisition is determined based on
the share price on the date the transaction is consummated. Under U.S. GAAP, the
purchase price of an acquisition where shares are issued 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
Canadian GAAP was $1.25. The share price used for the YFMC Healthcare Inc.
acquisition under U.S. GAAP was $1.859.
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 Canadian GAAP, the detachable stock
purchase warrants issued in conjunction with the private stock offering on
January 22, 1996 and subsequently surrendered, have been given no recognition in
the financial statements. 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,
the carrying amount of contributed surplus would be increased by $36,406.
15
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
11. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)
Under U.S. GAAP the effect on shareholders' deficit would be adjusted as
follows:
MARCH DECEMBER
2004 2003
Capital stock $11,544,736 $11,544,736
Capital stock issued on purchase of YFMC Healthcare Inc. 1,087,872 1,087,872
Ascribed fair value of share purchase warrants issued (36,406) (36,406)
--------------- --------------
Capital stock - U.S. GAAP 12,596,202 12,596,202
--------------- --------------
Contributed surplus 2,438,219 2,397,849
Share purchase warrants 36,406 36,406
--------------- --------------
Paid-in-capital - U.S. GAAP 2,474,625 2,434,255
--------------- --------------
Deficit - U.S. GAAP (16,702,387) (16,554,823)
Cumulative translation adjustment (795,144) (825,533)
--------------- --------------
Shareholders' deficit - U.S. GAAP $(2,426,704) $(2,349,899)
=============== ==============
(c) Comprehensive loss
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), establishes standards for reporting and display of
comprehensive loss and its components in the financial statements. Under U.S.
GAAP, the comprehensive loss for the three months ended March 31, 2004 and 2003
would be adjusted as follows:
MARCH MARCH
2004 2003
Net loss - U.S. GAAP $ (147,564) $ (923,102)
Foreign currency translation adjustment 30,389 (152,727)
------------------ ------------------
Comprehensive loss $ (117,175) $(1,075,829)
================== ==================
(d) Recently issued Accounting Standards
The following standards were issued by the Financial Accounting Standards Board
during 2003 and 2002:
SFAS No. 143 - Accounting for asset retirement obligations - this
standard requires that entities record the fair value of a liability
for an asset retirement obligation in the period in which it is
incurred. This standard is effective for fiscal years beginning after
June 15, 2002.
16
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
11. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)
SFAS No. 144 - Accounting for the impairment or disposal of long-lived
assets. This standard supercedes SFAS No. 121 - Accounting for the
impairment of long-lived assets and for long-lived assets to be
disposed of. This standard requires that businesses recognize
impairment when the financial statement carrying amount of long-lived
asset or asset group exceeds its fair value and is not recoverable.
SFAS No. 145 - Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB No. 13, and Technical Corrections. SFAS 145 updates,
clarifies and simplifies existing accounting pronouncements. SFAS 145
rescinds Statement No. 4, which required all gains and losses from
extinguishments of debt to be aggregated and, if material, classified
as an extraordinary items, net of related income tax effect. As a
result, the criteria in APB Opinion No. 30 will now be used to
classify those gains and losses because Statement No. 4 has been
rescinded. Statement No. 44 was issued to establish accounting
requirements for the effects of transition to provisions of the Motor
Carrier Act of 1980. Because the transition has been completed,
Statement No. 44 is no longer necessary.
SFAS No. 146 - Accounting for Cost Associated with the Exit of
Disposal Activities. SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred
rather than at the date of commitment to an exit or disposal plan.
Previous accounting guidance was provided by Emerging Issues Task
Force ("EITF") Issue No. 94-3. SFAS 146 replaces EITF94-3. The
Statement is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002.
SFAS No. 147 - Acquisition of certain financial institutions an
amendment of SFAS 72 and 144 and SFAS interpretation number 9 issued
October 2002 and relates to acquisitions of financial institutions.
SFAS No. 148 - Accounting for stock based compensation-transition and
disclosure an amendment of SFAS 123 issued December 2002 and permits
two additional transition methods for entities that adopt the fair
value based method of accounting for stock based employee compensation
to avoid the ramp-up effect arising from prospective application. This
statement also improves the prominence and clarity of the pro-forma
disclosures required by SFAS 123.
SFAS No. 149 - Amendment of statement 133 on derivative instruments
and hedging activities. This statement amends and clarifies financial
accounting and reporting for derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under FASB 133 accounting for derivative instruments and
hedging activities.
SFAS No. 150- Accounting for certain financial instruments with
characteristics of both liabilities and equity. This statement
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity.
The Company believes that the above standards would not have a material impact
on its financial position, results of operations or cash flows as it relates to
the reconciliation of Canadian and United States accounting policy differences.
17
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
12. ECONOMIC DEPENDENCE
Approximately 81% of revenue and 54% of gross margin is derived from one
customer (85% of revenue and 56% of gross margin during the first three months
of 2003). Receivables for this customer amounted to 58% of total receivables as
at March 31, 2004 (57% of total receivables as at March 31, 2003). The loss of a
material amount of revenue to this customer could have a material adverse effect
on operations of the Company.
13. CONTINGENT LIABILITIES
(i) YMFC HealthCare Inc., a wholly owned subsidiary of the Company, is in
receipt of a letter from Canada Customs and Revenue Agency ("CCRA")
dated April 30, 2001, adjusting YFMC's Goods and Services Tax returns
for the period from December 31, 1992, to December 31, 1996. The total
amount claimed by CCRA for this period is $249,000. In the event that
YFMC is ultimately found liable, the Company intends to claim an
indemnity for such amount against the directors and certain named
principals of YFMC pursuant to the Company's rights under the purchase
agreement for YFMC executed on August 10, 1999. The Company's legal
counsel has advised that CCRA does not intend to pursue YFMC for these
amounts.
(ii) There is uncertainty with respect to the Company's liability for Goods
and Services tax pertaining to certain services, which it provides.
The measurement of this uncertainty is not determinable and
accordingly no provision has been made in respect thereof in these
financial statements.
(iii) There is uncertainty with respect to the Company's liability for
Workers Safety and Insurance Board premiums pertaining to its contract
with PWGSC. The measurement of this uncertainty is not determinable
and accordingly no provision has been made in respect thereof in these
financial statements.
(iv) A claim has been made against the Company for general damages for
breach of contract and in tort. No specific amount of damages are
claimed, and it is not possible to estimate what the damages might be.
The Company's lawyers are of the opinion that this claim is unlikely
to succeed, and accordingly no provision has been made in respect
thereof in these financial statements.
(v) Med-Emerg is in receipt of a letter dated April 19, 2004 from Brain
Research and International Networks Inc ("Brainworks") with respect to
certain changes to the arrangement to provide mental health support
services to DND. On April 13, 2004, Brainworks was informed by DND
that effective May1, 2004, the provision of mental health support
services would be provided by Med-Emerg directly, instead of through
Brainworks. Brainworks is contending there are several issues with
respect to the arrangement between itself, DND, and Med-Emerg that
have not been addressed as a result of these changes. To date, a
Statement of Claim has not been filed.
Any liability resulting from the above will be reflected as a charge to income
in the year incurred.
14. SUBSEQUENT EVENTS
On January 13, 2004 the Company signed a Letter of Intent ("LOI") concerning a
prospective share exchange between MEII and Global Healthcare Workforce Ltd.
("GHW"), a company incorporated in
18
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 2004 and 2003
14. SUBSEQUENT EVENTS (CONT'D)
the United Kingdom. The scheduled closing date for this transaction was April
21, 2004, unless extended by MEII and GHW. The closing date has been extended to
May 31st, 2004.
The transaction, which is subject to material due diligence, provides for all
shareholders of GHW to transfer 100% of their shares of GHW to MEII, and MEII
shall in exchange issue to such shareholders shares of MEII as are equal to on a
fully diluted basis 75% of the share equity of MEII resulting in the former GHW
shareholders controlling the majority of MEII's outstanding common shares. The
equity shall be calculated without taking into account the existing MEII
1,437,500 warrants and the 2,325,000 options currently outstanding. GHW
shareholders will be granted a warrant (pro rata to each of their shareholdings)
whereby for each warrant or option share subsequently issued, GHW shareholders
shall be issued, at the same price per share as the exercise price of the
warrant share or option issued, three common shares of MEII. The preference
shareholders shall also be issued, at the same price per share as the exercise
price of the warrant issued, one common share of MEII for every two warrants or
option shares or option issued shares.
Prior to or at the closing date the following items must occur:
a) All outstanding MEII preference shares to be converted to MEII common
shares, and prior to the closing date MEII shall have no more than 15
million common shares issued and outstanding.
b) As of the closing date, GHW shall have in its bank accounts five
million dollars of free cash.
c) Ramesh Zacaharias shall be appointed President and Chief Medical
Officer of MEII.
d) MEII shall restructure certain liabilities currently outstanding that
will be agreed upon with GHW.
e) The board of MEII shall initially be made up of seven members - four
designated by GHW and three designated by the current MEII
shareholders. One of MEII's designated directors shall be Ramesh
Zacharias.
At closing, there must be approval by the board of directors of each company and
all necessary consents or approvals must be obtained from required third parties
in connection with this transaction.
15. COMPARATIVE FIGURES
Certain figures in the 2003 financial statements have been reclassified and
restated to conform with the basis of presentation in 2004.
19
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements of Med-Emerg International Inc. ("MEII" or the
"Company") 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.
OVERVIEW
MEII, 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 and nurses for
hospitals and clinics in Canada. Though emergency-related services are still an
important component of the Company's business, MEII has expanded to offer a wide
variety of medical services including non-hospital staffing, healthcare
staffing, the recruitment and staffing of various healthcare professionals to
fulfill a contract with the Department of National Defence ("DND"), contracts
with leading pharmaceutical companies, to provide infusion services to patients
and a range of healthcare consulting services.
The Company is positioned to build on its industry leadership by providing
integrated professional management services in the delivery of healthcare to the
healthcare consumer. The Company's operations are divided into four units:
Hospital Staffing, Government Healthcare Services, Pharmaceutical Support, and
Healthcare Consulting Services.
HOSPITAL STAFFING
The Company provides ER physicians and Intensive Care Unit ("ICU") nurse
staffing services to approximately 26 hospitals in Ontario, a mix of rural and
urban facilities including tertiary care centers. In 1991, the Company
introduced registered nurses into its staffing mix, when it developed a
cost-effective model for the Lester B. Pearson International Airport utilizing
"expanded role" registered nurses. The Company went on to launch a business
devoted entirely to the provision of emergency trained registered nurses to
hospitals in 1997. During the first quarter of 2004, the hospital staffing unit
provided approximately 15,000 hours of physician and 2,500 hours of nursing
coverage respectively. The Company pays its physicians on an hourly or sessional
basis, and receives a fixed monthly administrative management fee from each
hospital.
HOSPITAL STAFFING OPERATIONS
The principal operating activities of the Hospital Staffing Division include the
following:
RECRUITMENT AND CREDENTIALING. MEII has developed into one of the larger
providers of physician and nurse 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 and nurses are a central aspect of the Company's operations.
Full-time employees of the Company are dedicated to recruiting and verifying
credentials of the independent contract physicians for the Company.
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. The efficiency of these systems, and the
20
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 and nurse hours is performed daily,
weekly or 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 attention
by MEII's staff.
BILLING AND COLLECTION SERVICES. Fees generated by emergency department coverage
of physicians are comprised of two elements: (i) hospital administrative fees
which are on a fixed fee or a fee-for-service basis; 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. With recent technological developments it is anticipated that bad
debts will reduce further.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians with
administration, including 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.
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.
CONTRACTS WITH HOSPITALS FOR PHYSICIAN STAFFING.
MEII provides contract physician staffing services to hospitals on either
fee-for-service contracts, or fixed fee per shift contracts. Physicians under
contract to the Company authorize the Company to bill and collect fees. Pursuant
to such contracts, MEII 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 and automatically renew if not
terminated.
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 and
automatically renew if not terminated.
RECRUITMENT OF ER NURSES.
The Company recruits and screens potential candidates to serve as emergency room
nurses in hospitals that have contracted for the Company's staffing services.
The Company requires all nurses to meet its qualification criteria.
21
GOVERNMENT HEALTHCARE SERVICES
DEPARTMENT OF NATIONAL DEFENCE ("DND")
In March of 2001, the Company was awarded the administrative management services
contract, the largest of its kind, to provide medical personnel to the Canadian
Armed Forces ("CF") bases across Canada. The contract had an initial period of
three years ending on March 31, 2004, but recently the contract was amended and
extended until March 31, 2005. As the service administrator, the Company
recruits, credentials, schedules and pays physicians, nurses, dentists,
physiotherapists and other regulated healthcare professionals as required by the
local health authority resident on each base. The Company is paid a monthly
administrative management fee by the DND that is linked to the number of
providers being managed.
The primary benefit to DND from this contract is the creation of a "one stop
shopping" arrangement for the military base. As part of a national organization,
the Company's recruiters source health service providers from all regions of
Canada. By developing a long-term relationship with their employees and
sub-contractors, and being able to react quickly to changing local conditions,
the Company provides some stability in the workforce and enhances continuity in
the delivery of patient care for the DND.
PHARMACEUTICAL SUPPORT
MEII continues to develop the Integrated Infusion Service ("IIS") which provides
clients/patients with a safe, comfortable and convenient infusion care setting
to ensure the optimal administration of special drug therapies. In addition to
providing infusions of Remicade(TM) (Schering Plough) to patients with Crohn's
disease and rheumatoid arthritis, MEII has recently signed an agreement to
supply Zometa(TM) (Novartis) for treating cancer patients with bone metastases.
It is expected that the IIS team will provide over 12,000 infusions in 2004.
The IIS team of dedicated health care providers and coordinators develop
individualized plans for each client/patient ensuring compliance to prescribed
therapies for optimal health outcomes. MEII has alliances with many key
healthcare groups forming a unique team focused on a "continuum of care"
delivering the best service to patients and the prescribing physicians. Each
infusion clinic follows rigorous standard operating procedures ensuring a
consistent, highly professional infusion service. The number of infusion clinics
is expected to increase for both Schering and Novartis from 16 to 25 by year-end
2004. The IIS team is dedicated to ensure "Patient Compliance with Care".
HEALTHCARE CONSULTING
Over the years, MEII has developed significant experience in international and
domestic healthcare consulting. Currently the Company is involved with several
provincial governments, advising on a variety of issues related to primary care
staffing, training and integrated service delivery models. MEII is also advising
several aboriginal communities with regards to healthcare infrastructure and
delivery issues. MEII relies on a broad network of industry professionals to
augment its resident expertise. The Company thereby ensures that industry
leading minds and experience are brought to bear in all situations.
RESULTS OF OPERATIONS
NET LOSS
The Company reported a net loss of $147,564 for the three months ended March 31,
2004 compared to a net loss of $923,102 for the three months ended March 31,
2003. The loss amounted to $0.02 per share for continuing operations and $0.00
loss for discontinued operations for the three months ended
22
March 31, 2004 compared with a loss of $0.10 per share for continuing operations
and $0.01 per share for discontinued operations for the three months ended March
31, 2003. The main reason for the decrease in loss during the first three months
of 2004 is the lower amount of non-cash Stock compensation expense recorded.
Furthermore, the company has implemented their strategic plan of realigning the
business units and the consolidation and closure of non-performing medical
clinics. MEII continues to pursue profitable contracts that are consistent with
the current operating strategy.
REVENUE
The Company's revenue for the three months ended March 31, 2004 increased to
$12,553,601, compared to $ 11,267,941 for the three months ended March 31, 2003
or by 11%.
This revenue growth was mainly attributable to the Hospital staffing division
and the Pharmaceutical division, which had increased revenues in the first three
months of 2004 compared to the prior year.
Revenue from the Government Healthcare Services division amounted to $10,108,851
for the three months ended March 31, 2004 compared to $9,528,324 for the three
months ended March 31, 2003. This increase is mainly due to the US Dollar, which
has declined significantly against the Canadian dollar in 2004 as compared to
2003. The revenue in Canadian dollars has actually reduced for the first three
months of 2004 as compared to 2003. As at March 31, 2004, the Company provided
approximately 730 medical personnel at DND bases across Canada, compared to 845
as at March 31, 2003.
Revenue from the Hospital Staffing division increased to $2,025,745 for the
three months ended March 31, 2004 compared to $1,558,386 for the three months
ended March 31, 2003 an increase of approximately 30%. This is partly due to the
decline of the US Dollar, and partly due to increase in Hospital staffing
revenues.
Revenue from the Pharmaceutical Support division increased to $266,621 for the
three months ended March 31, 2004 compared to $172,428 for the three months
ended March 31, 2003 an increase of approximately 55%.
GROSS MARGIN
Gross Margin (revenue less physician and other direct costs) for the three
months ended March 31, 2004 increased to $1,183,734 compared to $975,294 for the
three months ended March 31, 2003, an increase of approximately 21%. This
increase in gross margin was due to the Hospital Staffing, and Pharmaceutical
support business divisions experiencing higher volumes.
Physician fees and direct costs, primarily fees paid to contract physicians
remained comparable to the prior period at approximately 91%.
OPERATING EXPENSES
Operating expenses from continuing operations totaled $1,104,753 for the three
months ended March 31, 2004 compared to $898,942 for the three months ended
March 31, 2003, an increase of approximately 23%. The increase results mainly
from an increase in salaries and benefits and travel and marketing as compared
to the prior period.
AMORTIZATION AND INTEREST
Interest and financing costs decreased from $150,697 for the three months ended
March 31, 2003 to $129,120 for the three months ended March 31, 2004. This is
due to the fact that the company negotiated lower borrowing rates on its loan
facilities, and repaid the secured debenture.
23
INCOME TAXES
The Company has loss carry forwards of approximately $4.0 million to be applied
against future corporate income taxes. This benefit has not been reflected in
these statements.
LIQUIDITY AND CAPITAL RESOURCES
a) On May 24, 2002 the Company issued a $720,000 discounted secured debenture,
with net proceeds of $600,000 and repaid bank loans from the net proceeds.
The terms of the secured debenture include:
1. maturity date of June 1, 2003
2. an effective interest rate of 23.4% per annum
3. convertible into common shares at $1 per share at the option of the
holder
4. 216,000 restricted common shares issued to the debenture holders
5. redeemable on or before 180th day from the date of the closing at 115%
of the principal amount, and any date thereafter at 120% of the
principal amount.
A principal shareholder of the Company guaranteed the debenture, providing as
security, unrestricted free trading common shares of the Company equivalent to
150% of the face value of the debenture. In exchange for the guarantee, the
Company issued to the guarantor shareholder common share purchase options to
purchase 100,000 common shares at $1.00 per share. In the event that the market
value of the common shares provided as security falls below 200 % of the face
amount of the debenture, the Company was required to pledge additional
securities to return the market value to 200% of the face amount.
The secured debenture was repaid, in full, on July 2, 2003.
b) On June 28, 2002, MFSL paid HSBC $475,406 on MEII's behalf. This had the
effect of reducing the Company's total debt by $228,459 since the obligation to
the HSBC was eliminated at a discounted value. MFSL provided the Company with a
full-recourse invoice discounted facility in an amount not to exceed $555,597
based on purchasing and advancing up to 75% of the face amount of a qualifying
invoice with the balance held on reserve until the invoice is collected in full.
The facility had a term of one year, with an annualized interest rate of 34.22%
that matured on June 28, 2003. The Company renegotiated this loan agreement with
MFSL. The following clauses of the agreement were amended as follows:
1. Facility: The maximum amount of the facility increased from $571,951
($750,000 CDN) in aggregate advances outstanding from time to time, to
a maximum of $762,602 ($1,000,000 CDN). The advance rate increased
from 75% of the face amount of qualifying invoices to 80%.
2. Term: The term of the facility is for a one year period that commenced
on July 1, 2003.
3. Discount fees: The discount fees charged are reduced from 34.22% to
24% on an annualized basis.
In addition to the specific Standard Form Assignments (General), all amounts due
to MFSL are secured by a general security agreement on all assets and
undertakings of MEII.
24
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no financial instruments that are sensitive to changes in interest
rates or exposed to foreign currency exchange gains/losses.
ITEM 4: CONTROLS AND PROCEDURES
Included on the signature page of this report is the Certification that is
required under Section 302 of the Sarbanes-Oxley Act of 2002. This section of
the report contains information concerning the controls evaluation referred to
in the Section 302 Certifications and the information contained herein should be
read in conjunction with the Certification.
Internal controls are designed with the objective of ensuring that assets are
safeguarded, transactions are authorized, and financial reports are prepared on
a timely basis in accordance with generally accepted accounting principles in
the United States. The disclosure procedures are designed to comply with the
regulations established by the Securities and Exchange Commission.
Internal controls, no matter how designed, have limitations. It is the Company's
intent that the internal controls be conceived to provide adequate, but not
absolute, assurance that the objectives of the controls are met on a consistent
basis. Management plans to continue its review of internal controls and
disclosure procedures on an ongoing basis.
The Company's chief executive officer and chief financial officer, after
supervising and participating in an evaluation of the effectiveness of the
Company's internal and disclosure controls and procedures during the three
months ended March 31, 2004 (the "Evaluation Date"), have concluded that as of
the Evaluation Date, the Company's internal and disclosure controls and
procedures were effective.
There were no significant changes in the Company's internal and disclosure
controls or in other factors that could significantly affect such internal and
disclosure controls subsequent to the date of their evaluation.
25
PART II: OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit 32.1 Certification by the Chief Executive Officer Relating to a Periodic
Report Containing Financial Statements.*
Exhibit 32.2 Certification by the Chief Financial Officer Relating to a Periodic
Report Containing Financial Statements.*
EXHIBIT 31
CERTIFICATIONS
I, Dr. Ramesh Zacharias, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Med-Emerg
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
third fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
26
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
_______________________
Dr. Ramesh Zacharias
Chief Executive Officer
I, William Danis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Med-Emerg
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
third fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
_______________________
William Danis
Chief Financial Officer
27
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Med-Emerg International Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dr.
Ramesh Zacharias Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Dated: May 14, 2004
By:
---------------------------------
Name: Dr. Ramesh Zacharias
Title: Chief Executive Officer
28
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Med-Emerg International Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
Danis Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to
the best of my knowledge:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Dated: May 14, 2004
By:
----------------------------------
Name: William Danis
Title: Chief Financial Officer
(b) Reports on Form 8-K
None.
* The Exhibit attached to this Form 10-Q shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to liability under that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MED-EMERG INTERNATIONAL INC.
By: /s/ Ramesh Zacharias
------------------------------------
Ramesh Zacharias
Chief Executive Officer
Date: May 14, 2004
30
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 2004
MED-EMERG INTERNATIONAL INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 1-13861 N/A
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) (Identification No.)
organization)
2550 Argentia Road, Ontario L5N 5R1
Canada
(Address of Principal Executive (Zip Code)
Office)
Registrant's telephone number, including area code: (905) 868-1368
Not Applicable
- ------------------------------------------------------------
Former name or former address; if changed since last report)
ITEM 5. OTHER EVENTS
On April 14, 2004, Med-Emerg International Inc. (OTC BB: MDER, MDERW)
("Med-Emerg") amended its letter of intent with Global Healthcare Workforce
Limited ("GHW") of London, UK, to provide for an extension of the closing date
of its proposed acquisition of GHW to not later than May 31, 2004, unless
further extended by GHW. In connection therewith, on April 21, 2004, Med-Emerg
issued a press release announcing the extension of the closing date.
ITEM 7. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
99.1 Press release dated April 21, 2004.
99.2 Amendment to Letter of Intent dated April 14, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
MED-EMERG INTERNATIONAL INC.
By /s/ Ramesh Zacharias
-----------------------------
Ramesh Zacharias
Chief Executive Officer
Dated: April 22, 2004