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
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(MARK
ONE) |
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x |
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
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FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004 |
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OR |
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o |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
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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)
|
6711 Mississauga Road, Suite
404 |
|
Mississauga, Ontario,
Canada |
L5N 2W3 |
|
(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 |
OTC
Bulletin Board |
|
REDEEMABLE
COMMON STOCK PURCHASE WARRANTS |
OTC
Bulletin Board |
|
Securities
registered or to be registered pursuant to Section 12(g) of the
Act. |
| |
|
|
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.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether registrant is an accelerated filer (as defined in Exchange
Act Rule 126-2).
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 March 31, 2005) of the registrant held by non-affiliates on December 31, 2004
was approximately $23,311,000.
As of
March 31, 2005, 58,277,696 shares of the registrant’s common stock were
outstanding. (All figures in US
dollars unless otherwise noted.)
PART I
BACKGROUND
Based
in Ontario, Canada, Med Emerg International Inc (“MEII”) is an established
health care solutions provider. Founded in 1983, initially to provide contract
staffing of emergency room physicians and nurses, the Company has expanded to
offer a wide variety of healthcare staffing solutions and medical services to
governments, communities and facilities across Canada.
In
these times, with the Canadian Healthcare system facing continuous challenges on
several fronts, opportunities exist for a company like MEII to deliver
innovative solutions within the confines of the Canada Health Act. Demand for
more complex services from an ageing population, the capital and human resource
requirements of new lifesaving technology and the need to retrofit existing
ageing facilities all place strain on the system. The situation is exacerbated
by burn-out in the workplace caused by declining enrolments in health
professions and increased levels of retirement by the existing practitioners.
The increasing severity of the condition now manifests itself in daily headlines
announcing long waiting lists for elective surgery, shortages of family
physicians and the governments struggle to keep pace with the ever increasing
costs of a publicly funded, universally available healthcare system.
The
Company currently employs staff covering 26 categories of healthcare
professionals including physicians, dentists, pharmacists and nurses.
As a
healthcare solutions provider, MEII in addition to its staffing business
provides medical services such as chronic pain management and intravenous
infusion services for pharmaceutical companies in conveniently located
community-based clinics.
As a
result of its many years of healthcare experience, MEII has developed a
comprehensive understanding of primary care renewal, project evaluation, and
healthcare human resource planning.
The
recent equity investment from a group of Canadian and International investors
provides MEII with an international recruiting expertise and capability in
addition to its Canadian healthcare operations.
The
Company's operations are divided into four units: Staffing Solutions, Medical
Services, Government Healthcare Services and Healthcare Consulting
Services.
STAFFING
SOLUTIONS
Hospitals
are increasingly turning to third-party experts to devise and implement
improvements to the recruitment and management of their clinical staff. We
provide physician staffing services to approximately 30 healthcare facilities in
various provinces, including rural and urban facilities as well as tertiary care
centers. In 2004 the company introduced Primary Health Care Nurse Practitioners
to our mix of healthcare providers in hospitals.
MEII
has developed a unique integrated staffing solution as a result of an approach
by the Whitby Mental Health Centre to recruit primary care physicians. Reviewing
the patient population, the nature of the cases being treated, and the total
cost of the current system, MEII pioneered an integrated health care model
combining Primary Care Physicians with Primary Care Nurse Practitioners. This
was the first time a nurse practitioner function was introduced into a mental
health setting. The program, now in its ninth year of operation, has received
high satisfaction ratings from both staff and patients, resulting in the Whitby
Mental Health Centre receiving the ACE award from the Ministry of Health for
Innovation in Health Care Delivery Design. In June 2002, the Centre for
Addiction and Mental Health awarded MEII a similar contract for primary care
services.
Since
1990, the Company has been involved in the provision of healthcare services in
some of the most difficult environments. The Company currently provides after
hours physician coverage to 8 federal penitentiaries in Ontario, and has
developed a unique delivery model in a provincial penitentiary in Nova Scotia,
using Physician Assistants supported telephonically by emergency
physicians.
In
March 2005, MEII reached an understanding with a provincial pharmacist
association, to create a program to provide temporary placement of pharmacists
in pharmacies across the province. MEII will be responsible for the recruitment,
credentialing, placement and monitoring of the pharmacists.
MEDICAL
SERVICES
In
addition to its healthcare staffing solutions, MEII provides innovative medical
services directly to healthcare consumers.
Infusion
Services
In
March 2001, Med-Emerg entered into an agreement with Schering-Plough Canada to
become a coordinator for the community-based infusion of Remicade™, in
Ontario. This contract capitalizes on the Company's access to clinics for
the treatment of patients with disabling rheumatoid arthritis and Crohn's
disease. The Company has established over 20 infusion sites to-date and
delivered over 6,000 infusions in 2004. MEII is expecting continued growth for
this service, as the trend seems to be to move infusion services from
institution settings into community based settings.
Pain
Management Services
Med-Emerg’s
chronic pain management service, CPM Health Centres (“CPM”), was launched in
November 2004 with the acquisition of the Scarborough Pain Clinic. A second
location, in downtown Toronto, was opened in December 2004. CPM has developed a
standardized approach to the treatment of chronic pain, using an integrated
multi-disciplinary approach including anesthetists, ER physicians,
physiotherapists and chiropractors, amongst others.
It is
estimated that more than 10% of Canadians suffer from chronic pain (unexplained
pain lasting more than 6 months). This equates to more than 800,000 people
living in southern Ontario who would potentially access medical services for the
treatment of pain. Existing facilities in the region are backlogged with waiting
times of 4-6 months. Due to the large demand, existing facilities in the rural
areas are backlogged with waiting times of between 4-12 months.
With
the objective of reducing these waiting times, the Company has created a
two-pronged approach to improving service availability to that require
professional chronic pain management care. The Company developed and launched a
training program specifically designed to educate emergency room physicians in
chronic pain management. The first group has completed the didactic portion of
the training program. Med-Emerg is now scheduling these doctors in our
Toronto-area clinics to complete the clinical portion of their
training.
Preliminary
plans have been completed to increase the capacity and throughput of the
Scarborough clinic by doubling the number of clinical pain providers and
increasing the hours and days of operation of the facility. This clinic is
currently receiving approximately 50 new referrals per week with a waiting time
of almost three months to book initial assessment appointments. The volume of
referrals will more than satisfy the increased capacity, once the clinic has
been modified and the new providers are in place.
Plans
are underway to open additional sites in 2005.
GOVERNMENT
HEALTHCARE SERVICES
In
March of 2001, the Company was awarded an administrative management services
contract, the largest of its kind, to provide medical staffing for military
bases of the Department of National Defence (DND) across Canada. The contract
had an initial period of three years ending on March 31, 2004, but 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. As of January 2005,
Med-Emerg was supplying more than 750 healthcare providers to DND under this
contract. 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. Because of its long-term relationships with its employees and
sub-contractors, and its ability to react quickly to changing local conditions,
the Company provides stability in the workforce and enhances continuity in the
delivery of patient care for the DND.
In May
2004, Public Works and Government Services Canada (PWGSC) re-tendered the
Contract, which was set to expire March 31, 2005. Med-Emerg responded to the
tender proposal and its bid was one of three considered by PWGSC. In December
2004 Med-Emerg learned that it was not successful in its bid to win a follow-on
contract with DND. Its contractual relationship with the Canadian government for
DND medical staffing services will accordingly end on March 31st,
2005.
After
learning that its bid had not been successful, in January 2005 the Company
launched a Cdn.$100,000,000 lawsuit against the winning bidder and a former
employee of the Company. Med-Emerg believes that the successful bidder
used confidential information obtained through the hiring of a former Med-Emerg
employee to win the contract, and that the former Med-Emerg employee retained by
the successful bidder breached his legal obligations by disclosing financial and
other information confidential to Med-Emerg. On January 31, 2005, the
Company filed a complaint with the Canadian International Trade Tribunal
(CITT). The CITT is the administrative tribunal in Canada with the
jurisdiction to conduct inquiries into complaints by potential suppliers
concerning procurement by the federal government departments and agencies,
including DND and PWGSC. In its submission to the CITT, Med-Emerg questioned the
manner in which the Government of Canada’s procurement for the DND medical
staffing contract, valued at $448,810,965, was conducted, including the
evaluation of its proposal submitted in response to the Request for Proposal
(RFP). Specifically, Med-Emerg alleges that PWGSC:
| |
Ø |
Awarded
the contract to a bidder that did not meet the mandatory requirements of
the bid; |
| |
Ø |
Introduced
unpublished evaluation criteria to the evaluation process,
and |
| |
Ø |
Failed
to properly apply the published evaluation
criteria. |
In
filing the complaint, Med-Emerg seeks to terminate the contract award to the
winning bidder, to have Med-Emerg awarded the contract, or in the alternative,
to have a new bid process conducted. In the further alternative, the
Company asks that it be compensated for lost profit on the contract and the
costs associated with the filing of the complaint. . The CITT accepted the
complaint for inquiry on February 8, 2005. Subsequent to the commencement
of the inquiry, PWGSC filed a motion to have the complaint dismissed on the
grounds that the CITT did not have jurisdiction over a health services contract.
The motion was denied. The CITT has until June 15, 2005 to rule on the
complaint.
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. The Company is
currently working with the four Atlantic provinces (New Brunswick, Nova Scotia,
PEI and New Foundland and Labrador) and has created an innovative health human
resource planning tool which is focused on a needs based model as opposed to the
traditional supply based design. The Atlantic project has received wide
recognition in the marketplace, and it is reasonable to expect new business
opportunities as a result of this. The Company was recently awarded a contract
by the Canadian Nurses Association to develop the standard of practice for nurse
practitioners across Canada. In addition, the Company is working on other
smaller healthcare consulting projects.
FACTORS
AFFECTING MEII’S BUSINESS
REGULATION
OF HEALTHCARE IN CANADA
The
provision of medical services in Canada is, for the most part, under provincial
jurisdiction. Currently provincial governments are responsible for paying
physicians for the provision of insured services to residents of their province.
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 Provincial 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 provincial laws relating to the
corporate practice, given varying and uncertain interpretations of such laws,
the Company could be found in non-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.
COMPETITION
The
Company competes with a variety of healthcare service providers. These include
the following by MEII business unit:
| |
• |
Staffing
Solutions: Third party staffing agencies (nursing); Small groups of
physicians that provide competitive services to local hospitals
(physicians) |
| |
• |
Medical
Services: Public hospitals; Homecare agencies; and Physician practice
management companies |
| |
• |
Government
Healthcare Services: Regional players that provide services for only one
or two regulated health professions and national staffing
agencies |
| |
• |
Healthcare
Consulting: Independent consulting
companies. |
EMPLOYEES
As of
December 2004, the Company had 495 active full-time employees, 24 were employed
in administration, 10 were involved in staffing solutions, 22 were active in
medical services, 3 were in the consulting division and, and 436 were employed
to carry out the contract with the DND. The Company believes its relations with
its employees to be good. The Company’s employees do not belong to a union and
there is no collective bargaining agreement covering the employees. The Company
also has approximately 560 contractors engaged on a full and part-time basis, of
which about 300 are involved in the DND contract.
Our
principal executive office is located at 6711 Mississauga Road, Suite 404,
Mississauga, Ontario. The principal office occupies approximately 9,000 square
feet of space under lease agreements that expire December 31, 2007, at an
average annual rental rate of approximately $156,000 (CDN$202,000). We believe
that our current office space is adequate for our future needs.
|
ITEM
3: |
LEGAL
PROCEEDINGS |
Claims
have been made against the Company for general damages for breach of contract
and in tort. A claim for approximately $423,000 has been made against the
company for wrongful termination of a person working on a third party contract.
The Company’s lawyers are of the opinion that the amount claimed grossly exceeds
what a court would award in light of the current law. Another claim of
approximately $ 1,833,000 plus interest and costs has been made against the
Company, for amongst other things, defamation and economic loss in regards to a
healthcare provider working on a third-party contract. The Company’s lawyers are
of the opinion that the amounts claimed are excessive and that if there is any
liability on the Company, then the third-party contractor should be responsible
to indemnify the Company. Since the Company’s lawyers are of the opinion that
these claims are unlikely to succeed, no provision has been made in respect
thereof in these consolidated financial statements.
YFMC
HealthCare Inc. (“YFMC”), a wholly owned subsidiary of the Company, is in
receipt of a letter from Canada Revenue Agency ("CRA") 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 CRA for this period is
$249,000. In the event that YFMC becomes liable to pay any such amount to CRA,
the Company will claim an indemnity for such amount against the directors and
certain named principals of YFMC pursuant to the Company’s rights under the
Business Combination Agreement executed on August 10, 1999. The Company’s legal
counsel has advised that CRA does not intend to pursue YFMC for these amounts.
On
January 25, 2005, MEII filed a statement of claim against Calian Limited
(“Calian”) and a former employee of MEII, seeking Cdn$100,000,000 in damages, in
regards to the recent contract award by Public Works and Government Services
Canada (“PWGSC”) to provide services to the Canadian Forces, Department of
National Defence. This contract would have been an extension of a current
contract which expires March 31, 2005. We have been advised that Calian intends
to defend the claim.
On
February 8, 2005, the Canadian International Trade Tribunal (“CITT”) announced
that it would conduct an inquiry into the award by PWGSC, of a medical staffing
contract, to Calian. MEII filed a complaint with the CITT on January 31, 2005
alleging that PWGSC:
| |
• |
Awarded
the contract to a bidder that did not meet the mandatory requirements of
the bid; |
| |
• |
Introduced
unpublished evaluation criteria to the evaluation process;
and |
| |
• |
Failed
to properly apply the published evaluation
criteria. |
If the
CITT determines that the complaint by MEII is valid, it could recommend that the
contract award to Calian be terminated and a contract awarded to MEII, that the
proposals be re-evaluated or that a new solicitation should take place, in no
particular order of probability. In certain circumstances, MEII may be able to
seek compensation for the lost opportunity.
Other
than the above, the Company is not a party in any material legal
proceedings.
|
ITEM
4: |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS |
There
were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended, December 31, 2004.
PART
II
|
ITEM
5: |
MARKET
FOR REGISTRANT’S COMMON EQUITY AND 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 OTC Bulletin
Board. From February 12, 1998 to April 16, 2001 the Company’s common shares and
redeemable common stock purchase warrants were listed on the NASDAQ Small Cap
Market. Since April 16, 2001, the Company’s common shares have been listed on
the OTC Bulletin Board.
The
following table sets forth the range of high and low sales prices from First
Quarter of 2003:
| |
|
COMMON
SHARES |
|
| |
|
HIGH |
|
LOW |
|
|
Fourth
Quarter, 2004 |
|
$ |
.55 |
|
$ |
.40 |
|
|
Third
Quarter, 2004 |
|
$ |
.57 |
|
$ |
.32 |
|
|
Second
Quarter, 2004 |
|
$ |
.65 |
|
$ |
.34 |
|
|
First
Quarter, 2004 |
|
$ |
.69 |
|
$ |
.33 |
|
|
Fourth
Quarter, 2003 |
|
$ |
.58 |
|
$ |
.29 |
|
|
Third
Quarter, 2003 |
|
$ |
.57 |
|
$ |
.37 |
|
|
Second
Quarter, 2003 |
|
$ |
.68 |
|
$ |
.40 |
|
|
First
Quarter, 2003 |
|
$ |
.77 |
|
$ |
.53 |
|
The
Company has never paid or declared cash or stock dividends on its common stock.
The payment of cash dividends, if any, is at the discretion of the Board of
Directors and will depend upon the Company’s earnings, capital requirements,
financial condition and other relevant factors. The Company intends, for the
foreseeable future, to retain any future earnings for use in its
business.
In
early 2004, 5,092 shares of common stock were issued to an investor pursuant to
the acquisition of YMFC Healthcare Inc. on November 4, 1999 by
MEII.
Effective
June 15, 2004, the Company issued 39,360,272 common shares as part of an equity
financing (the “Financing”). As a condition of the Financing, Preferred Shares,
50% of which were indirectly held by Dr. Zacharias, the CEO of MEII, were
converted into 9,348,000 common shares and preferred share dividends, in the
amount of $579,582, were forgiven. The preferred shares were redeemable in 2006,
for common shares then valued at $4,500,000. In addition to issuing the common
shares, MEII also issued, anti-dilution warrants (the “New Warrants”) to
purchase common shares of MEII at prices of either $0.50 per common share or
$1.00 per common share. The exercise of the New Warrants is directly tied to the
exercise of existing options and warrants at $0.50 per common share and $1.00
per common share that are currently outstanding. The exercise of the New
Warrants is intended to allow the new investors and former preferred shareholder
to maintain their pro rata share of their equity position.
During
the first quarter of 2005 the terms of the 1,437,500 common stock purchase
warrants issued in February 1998 were amended, extending the expiry of these
warrants from February 11, 2005 to February 11, 2006. MEII has also amended the
terms of the warrants to provide that if the common stock of MEII, closes at
$.70 or greater for thirty consecutive trading days, MEII has the right to
redeem the Warrants at $.01 per Warrant upon ten days prior notice.
|
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.
| |
|
US
$ |
|
| |
|
YEAR
ENDED DECEMBER 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Statement
of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
48,447,687 |
|
|
54,335,558 |
|
|
37,428,043 |
|
|
Physician fees
and other direct costs |
|
|
43,693,380 |
|
|
49,217,416 |
|
|
34,382,752 |
|
|
Gross
profit |
|
|
4,754,307 |
|
|
5,118,142 |
|
|
3,045,291 |
|
|
Operating
expenses before under noted items |
|
|
4,810,341 |
|
|
4,678,665 |
|
|
2,704,529 |
|
|
Depreciation
and amortization |
|
|
182,399 |
|
|
120,924 |
|
|
102,345 |
|
|
Other
expenses |
|
|
1,102,772 |
|
|
1,730,587 |
|
|
827,336 |
|
| |
|
|
6,095,512 |
|
|
6,530,176 |
|
|
3,634,210 |
|
|
Loss
before income taxes |
|
|
(1,341,205 |
) |
|
(1,412,034 |
) |
|
(588,919 |
) |
|
Income
taxes (recovery) |
|
|
0 |
|
|
(2,458 |
) |
|
0 |
|
|
Minority
interest |
|
|
0 |
|
|
(2,095 |
) |
|
(2,211 |
) |
|
Discontinued
operations |
|
|
0 |
|
|
(167,169 |
) |
|
(16,956 |
) |
|
Net
loss |
|
|
(1,341,205 |
) |
|
(1,574,650 |
) |
|
(603,664 |
) |
|
Preferred share
dividends |
|
|
(34,173 |
) |