<PAGE>
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 1-13861
MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
PROVINCE OF ONTARIO, CANADA
(State or Other Jurisdiction of Incorporation or Organization)
2550 Argentia Road, Suite 205
Mississauga, Ontario, Canada L5N 5R1
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (905) 858-1368
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 [ ]
As of April 30, 1999, 3,095,544 shares of the registrant's Common Stock
were outstanding.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Consolidated Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
---------- -----------
CDN $ CDN $
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 999,423 $ 1,669,899
Accounts receivable 2,838,728 2,765,491
Prepaid and other 697,654 439,310
----------- -----------
4,535,805 4,874,700
LOANS AND ADVANCES 177,640 135,175
CAPITAL ASSETS 1,402,445 883,463
OTHER ASSETS 1,934,392 1,763,330
DEFERRED INCOME TAXES 770,155 695,800
----------- -----------
$ 8,820,437 $ 8,352,468
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Bank indebtedness $ 148,918 $ 209,281
Accounts payable and accrued liabilities 2,423,206 2,282,658
Lease obligation - current portion 89,474 87,401
----------- -----------
2,661,598 2,579,340
BANK TERM LOAN 378,698 -
OBLIGATIONS UNDER CAPITAL LEASE 79,514 102,322
DUE TO MINORITY SHAREHOLDERS 16,553 -
----------- -----------
3,136,363 2,681,662
----------- -----------
MINORITY INTEREST 161,173 -
SHAREHOLDERS' EQUITY
Capital stock 8,325,811 8,328,164
Convertible debenture 590,625 590,625
Contributed surplus 1,316,980 1,316,980
Deficit (4,710,515) (4,564,963)
----------- -----------
5,522,901 5,670,806
----------- -----------
$ 8,820,437 $ 8,352,468
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998(unaudited)
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
March 31 March 31
1999 1998
---------- -----------
CDN $ CDN $
<S> <C> <C>
REVENUE $ 4,229,185 $ 3,605,099
PHYSICIAN FEES AND OTHER DIRECT COSTS 3,075,038 2,881,442
----------- -----------
1,154,147 723,657
----------- -----------
EXPENSES
Salaries and benefits 519,517 415,122
General and administration 161,422 113,999
Occupancy costs and supplies 212,447 104,614
Product development 155,149 -
Public company costs 118,603 -
Travel and marketing 57,765 37,950
----------- -----------
1,224,903 671,685
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS (70,756) 51,972
Interest and financing expense 2,665 5,247
Depreciation and amortization 95,567 31,821
----------- -----------
NET INCOME BEFORE TAXES (168,988) 14,904
Income tax recovery (expense) 74,355 (3,875)
----------- -----------
NET INCOME (LOSS) $ (94,633) $ 11,029
PREFERRED SHARE DIVIDENDS (50,919) (20,987)
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (145,552) $ (9,958)
----------- -----------
----------- -----------
NET INCOME (LOSS) BEFORE PREFERRED SHARE DIVIDEND,
PER COMMON SHARE $ (0.03) $ 0.00
PREFERRED SHARE DIVIDEND, PER COMMON SHARE (0.02) 0.00
----------- -----------
BASIC AND FULLY DILUTED INCOME (LOSS), PER COMMON SHARE $ (0.05) $ 0.00
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,095,588 2,501,131
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Consolidated Statements of Changes in Financial Position
Three months ended March 31, 1999 (unaudited) and 1998 (unaudited)
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
March 31 March 31
1999 1998
---------- -----------
CDN $ CDN $
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (94,633) $ 11,029
Items not affecting cash
Depreciation and amortization 95,567 31,821
Deferred income taxes (74,355) (5,702)
---------- -----------
(73,421) 37,148
Changes in non-cash operating items
Accounts receivable (73,237) (208,000)
Prepaid and other (258,344) 85,258
Accounts payable and accrued liabilities 140,549 (148,255)
---------- -----------
Cash provided by (used in) operating activities (264,453) (233,849)
---------- -----------
INVESTING ACTIVITIES
Acquisitions (194,520) -
Additions to capital assets (576,091) (15,055)
Loans and advances (42,466) -
Other assets (15,000) 543,764
Minority interest 161,173 -
---------- -----------
(666,904) 528,709
---------- -----------
FINANCING ACTIVITIES
Bank term loan 378,698 -
Issuance of common shares and warrants - 4,936,468
Repurchase of common shares (2,353) -
Obligation under capital lease (20,735) (8,131)
Repayment of promissory note - (941,074)
Due to minority shareholders 16,553 -
Dividends declared (50,919) (20,987)
---------- -----------
321,244 3,966,276
---------- -----------
Increase (decrease) in cash position (610,113) 4,261,136
Cash position, net, beginning of the period 1,460,618 (851,834)
---------- -----------
Cash position, net, end of period $ 850,505 $ 3,409,302
---------- -----------
---------- -----------
Cash position is comprised of:
Cash $ 999,423 $ 3,554,635
Bank indebtedness (148,918) (145,333)
---------- -----------
$ 850,505 $ 3,409,302
---------- -----------
---------- -----------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. is a publicly traded company listed on
the NASDAQ Exchange. The Company completed its initial public offering
in February, 1998.
Med-Emerg International Inc. is a physician management services
organization specializing in the delivery of emergency and primary
healthcare related services. The Company is committed through
information technology and its platform as a management services
organization to delivering an internet-based healthcare network with
the objective of delivering quality, timely and access to healthcare
products and services.
The Company's operations are divided into three divisions, Physician
and Nurse Recruitment, Physician Management Services and Integrated
Health Services Delivery Network.
On a contractual basis, the Company provides emergency department
physician and nurse recruitment, staffing and administrative support
services to hospitals. At March 31, 1999, the Company had 18 contracts
under its management.
Under physician management services, the Company owns and manages
medical clinic facilities providing physicians with the ability to
practice within a professional managed network enabling the physician
to concentrate on the clinical aspects of their practices. All the
clinic assets including medical equipment are owned by the company. At
March 31, 1999, the Company owned and managed 10 clinics.
The Company has newly created a division called Integrated Health
Service Delivery Network (IHSDN). IHSDN is an internet-based network
that connects physicians, patients, third party payors and consumers
to a "virtual world" of healthcare products and services. The Company
is electronically connecting its clinical facilities and establishing
strategic partnerships in delivering a comprehensive healthcare
program.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles for interim financial reporting. These financial statements
consolidate, with minority interest, the accounts of Med-Emerg
International Inc. and all wholly- and partially-owned subsidiaries of
Med-Emerg International Inc.
In the opinion of management, the unaudited interim consolidated
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals, which are necessary for
a fair presentation of the financial position, and the results of
operations for the interim periods presented. The results of
operations for any interim period are not necessarily indicative of
the results for the full year.
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, 1998.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
3. ACQUISITIONS
During the first quarter of 1999, the Company acquired ownership
interests in the following companies that operate medical clinics: 45%
of Medical Urgent Care Inc., 51% of Caremedics (Elmvale) Inc. and 51%
of York Lanes Health Centres Ltd.
The following is a summary of assets purchased and liabilities assumes:
<TABLE>
<CAPTION>
Medical Caremedics York Lanes
Urgent Care (Elmvale) Health
Inc. Inc. Centres Ltd. Total
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets $ 20,983 $ 28,182 $ 19,891 $ 69,056
Capital assets 475,069 13,937 60,000 549,006
Goodwill 167,788 26,706 - 194,494
Less liabilities assumed (423,840) (10,484) (40,744) (475,068)
Less minority interest (129,480) 25,659 (39,147) (142,968)
------------- ----------- ----------- ---------
$ 110,520 $ 84,000 - $ 194,520
------------- ----------- ----------- ---------
------------- ----------- ----------- ---------
</TABLE>
4. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"), which conform in all material respects applicable
to the Company, with those in the United States ("U.S. GAAP") during
the periods presented except with respect to the following:
Consolidated statements of operations
If United States GAAP were employed, net loss for the period would be
adjusted as follows:
<TABLE>
<CAPTION>
March March
1999 1998
--------- ---------
<S> <C> <C>
Net income (loss) based on Canadian GAAP $ (94,633) $ 11,029
Deferred start-up costs amortized/(deferred) 16,710 (85,125)
Deferred acquisition costs (60,653) -
--------- ---------
Net loss based on United States GAAP $(138,576) $ (74,096)
--------- ---------
Primary loss per share $ (0.06) $ (0.05)
--------- ---------
--------- ---------
</TABLE>
If United States GAAP were employed, deficit, other assets, prepaid
and other assets, and total liabilities would be adjusted as follows:
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
4. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
<TABLE>
<CAPTION>
March December
1999 1998
----------- -----------
<S> <C> <C>
Deficit based on Canadian GAAP $(4,710,515) $(4,564,963)
Deferred start-up costs (404,462) (421,172)
Deferred acquisition costs (106,877) (46,224)
------------ ------------
$(5,221,854) $(5,032,359)
------------ ------------
------------ ------------
Other assets based on Canadian GAAP $ 1,934,392 $ 1,763,330
Deferred start-up costs (404,462) (421,172)
------------ ------------
$ 1,529,930 $ 1,342,158
------------ ------------
------------ ------------
Prepaid and other assets based on
Canadian GAAP $ 697,654 $ 439,310
Deferred acquisition costs (106,877) (46,224)
------------ ------------
$ 590,777 $ 393,086
------------ ------------
------------ ------------
Total liabilities based on Canadian GAAP $ 3,136,363 $ 2,681,662
Convertible debenture 590,625 590,625
------------ ------------
$ 3,726,988 $ 3,272,287
------------ ------------
------------ ------------
</TABLE>
(a) Deferred Income Taxes
Under U.S. GAAP, the Company is required to follow Statement
of Financial Accounting Standards (SFAS No. 109) "Accounting
for Income Taxes", which requires the use of the "asset and
liability method" of accounting for deferred income taxes,
which gives recognition to deferred taxes on all "temporary
differences" (differences between accounting basis and tax
basis of the Company's assets and liabilities, such as the
non-deductible values attributed to assets in a business
combination) using current enacted tax rates. In addition,
SFAS No. 109 requires the Company to record all deferred tax
assets, including future tax benefits of capital losses
carried forward, and to record a "valuation allowance" for any
deferred tax assets where it is more likely than not that the
asset will not be realized. The Company has followed this
method under Canadian GAAP.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
4. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(b) Deferred Start-up Costs
Under Canadian GAAP, development and start-up costs, which
meet certain criteria, are deferred and amortized. Under
United States GAAP, development and start-up costs are
expensed as incurred.
(c) Deferred Acquisition Costs
Under Canadian GAAP, pre-acquisition costs, which meet
certain criteria, are deferred and amortized. Under United
States GAAP, development and start-up costs are expensed as
incurred.
(d) Convertible Debenture
Under U.S. GAAP, convertible debentures are presented as
liabilities, regardless of the attributes of the convertible
debenture, and transferred to equity upon conversion,
whereas, under Canadian GAAP, the likelihood of conversion to
equity is considered in determining the classification
between liability or equity.
(e) Earnings Per Share
U.S. GAAP requires common shares and warrants to purchase
common shares, issued or exercisable at prices below the
initial public offering ("I.P.O.") price and which were
issued within one year prior to the initial filing of the
registration statement relating to the I.P.O., to be treated
as if the common shares were outstanding from the beginning
of the period in the calculation of weighted average number
of common shares outstanding and loss per share, even where
such inclusion is anti-dilutive. Primary earnings per common
share is determined using the weighted average number of
shares outstanding during the year, adjusted to reflect the
application of the treasury stock method for outstanding
options and warrants in accordance with U.S. GAAP.
(f) Stock Compensation
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was
issued by the Financial Accounting Standards Board in October
1995. SFAS 123 establishes financial accounting and reporting
standards for transactions in which an entity issues its
equity instruments to acquire goods or services from
non-employees, as well as stock-based employee compensation
plans. All transactions in which goods or services are the
consideration received for the issuance of equity instruments
are to be accounted for based on the fair value of the
consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
For those transactions described in note 10 of the audited
consolidated financial statements for Med-Emerg International
Inc. for the year ended December 31, 1998 and under SFAS 123:
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
4. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
- the issuance of 125,000 common shares to promissory
note holders resulted in a charge to income (finance
expense) over the term of the related promissory
note payable, at $2.78 (US$2.05) per share equal to
$347,500 of which $272,648 has been charged to
earnings in the year ended December 31, 1997 and
$74,852 has been charged to earnings in the period
ended March 31, 1998.
- the issuance of 50,000 shares to a director for
services rendered resulted in a charge to income at
$2.78 (US$2.05) per share equal to $139,000 in the
year ended December 31, 1997.
- the issuance of an option on November 1, 1996 to a
director to acquire 700,000 shares (note 13) has
resulted in a charge to income equal to $1,246,000
in 1996 based on $2.78 (US$2.05) per share, and the
"minimum value" method of calculation permitted
under SFAS 123 for non-public entities.
As allowed by SFAS 123, the Company has decided to continue
to use Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" in accounting for the
Company's Stock Option Plan (the "Plan") for U.S. GAAP
purposes, pursuant to which there is no significant
difference between U.S. and Canadian GAAP in the accounting
for the granting of options under the Plan.
(g) Shareholders' Equity
Under U.S. GAAP, loans issued to officers to acquire stock
are presented as a deduction from shareholders' equity
(deficit).
Under Canadian GAAP, the detachable stock purchase warrants
issued as in conjunction with the private stock offering on
January 22, 1996 and subsequently surrendered, all as
described in note 13, have been given no recognition in the
financial statements.
Under U.S. GAAP, detachable stock purchase warrants are given
separate recognition from the primary security issued. Upon
initial recognition, the carrying amount of the two
securities is allocated based on the relative fair values at
the date of issuance. Under U.S. GAAP, based on an ascribed
fair value of $0.50 for each of the 1,000,000 share warrants
issued, share capital would be lower by $50,000 and, given
that the stock purchase warrants were cancelled during the
year, the carrying amount of contributed surplus would be
increased by $50,000.
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
March December
1999 1998
----------- -----------
<S> <C> <C>
Capital stock (as previously shown) $ 8,325,811 $ 8,328,164
Ascribed fair value of share purchase
warrants issued (50,000) (50,000)
----------- -----------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
4. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
<TABLE>
<CAPTION>
<S> <C> <C>
Capital stock - U.S. GAAP 8,275,811 8,278,164
Share purchase loan to officer (60,000) (60,000)
----------- -----------
Net capital stock - U.S. GAAP 8,215,811 8,218,165
----------- -----------
Convertible debenture (as previously shown) 590,625 590,625
Convertible debenture included in long-term debt (590,625) (590,625)
----------- -----------
Convertible debenture - U.S. GAAP - -
Contributed surplus (as previously shown) 1,316,980 1,316,980
Share purchase warrants 50,000 50,000
----------- -----------
Contributed surplus - U.S. GAAP 1,366,980 1,366,980
----------- -----------
Deficit - U.S. GAAP (5,221,854) (5,032,359)
----------- -----------
Shareholders' equity (deficit) - U.S. GAAP $ 4,360,937 $ 4,552,785
----------- -----------
----------- -----------
</TABLE>
(h) Consolidated Statement of Changes in Financial Position
Operating activities reflect interest paid of $13,209 during
the period ended March 31, 1999 (March 31, 1998 - $24,448)
and income taxes paid of nil during the period ended March
31, 1999 (March 31, 1998 - nil).
Under U.S. GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of
changes in financial position. Accordingly, the $60,363
decrease at March 31, 1999 (March 31, 1998 - $1,399,071
decrease) would be presented as a financing activity for each
year.
(i) Comprehensive Income
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), was issued by
the Financial Accounting Standards Board in June 1997. SFAS
123 establishes standards for reporting and display of
comprehensive income and its components in the financial
statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial
statements for earlier period provided for comparative
purposes is required. The adoption of SFAS 130 will have no
impact on the Company's consolidated results of operations,
financial position or cash flows.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
5. SEGMENTED INFORMATION
The Company operates under three divisions: Physician and Nurse
Recruitment, Physician Management Services and Integrated Health
Services Delivery Network (IHSDN).
The Physician and Nurse Recruitment involves contracting with
hospitals for the provision of physician staffing, nurse staffing
and administrative support services. The Company also contracts with
clinical facilities and local communities for the locum or permanent
placement of a physician in a community.
The Physician Management Services division owns and manages medical
clinic facilities, which provide physicians with the ability to
practice medicine in a professionally managed environment. The
clinics include family practice, walk-in services, and other related
services such as massage therapy and chiropractic services.
The IHSDN division involves electronically linking clinic facilities
and other healthcare service providers into a network. This
internet-based network will provide healthcare professionals and
consumers access to medical services, products, communications and
information tools.
Details are as follows:
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services IHSDN Consolidated
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue 2,765,863 1,553,322 - 4,229,185
Gross margin 455,290 698,857 - 1,154,147
Operating income before Corporate Overhead
& Public Company-related costs 330,183 181,350 (155,148) 356,385
Corporate Overhead (308,538)
Public Company-related costs (118,603)
---------
Operating loss (70,756)
Assets employed at year end 5,548,357 3,060,664 211,416 8,820,437
Depreciation and amortization 36,004 59,563 - 95,567
Capital expenditures 17,857 558,234 - 576,091
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1999 and 1998
5. SEGMENTED INFORMATION (cont'd)
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services IHSDN Consolidated
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue 2,884,452 720,647 - 3,605,099
Gross margin 421,490 302,167 - 723,657
Operating income before Corporate Overhead
& Public Company-related costs 239,438 151,977 - 391,415
Corporate Overhead (309,655)
Public Company-related costs (35,035)
---------
Operating income 46,725
Assets employed at year end 6,036,253 1,530,286 - 7,566,539
Depreciation and amortization 13,500 18,321 - 31,821
Capital expenditures 11,419 3,636 - 15,055
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Med-Emerg International, Inc. ("Med-Emerg" or the "Company"), based in
Ontario, Canada, is a provider of a broad range of quality healthcare
management services. Established in 1983, the Company specializes in the
coordination and contract staffing of emergency physicians for hospitals and
clinics in Canada. Though emergency-related services are still an important
component of the Company's business, Med-Emerg has expanded to offer a wide
variety of medical services including nurse staffing, physician management
services and an internet-based healthcare network.
Med-Emerg is positioned to establish industry leadership in Canada by
providing integrated professional management services in the delivery of
healthcare to the Canadian healthcare consumer. The Company's operations are
divided into three divisions: Physician and Nurse Recruitment Services,
Physician Management Services and an internet based healthcare network called
HealthyConnect.com. Med-Emerg's strategy is to remain focussed on these three
divisions while continuing to broaden its consolidation of physicians over a
wider geographic base. Med-Emerg believes that it is well positioned to
benefit from the aging of the baby boomer population, to capitalize on recent
developments within the North American healthcare environment and to
integrate opportunities available through internet technology. Specifically,
the Company's strategy is to leverage its 15 years of physician recruitment
experience in becoming a dominant player in Physician Management Services and
to develop an internet-based healthcare network that connects physicians,
patients, third party payors and consumers to a "virtual world" of healthcare
products and services.
In the first quarter of 1999, the company launched an internet-based
healthcare network, called HealthyConnect.com, that will allow participants
to access and exchange healthcare related information, purchase healthcare
products and services, and communicate more cost-effectively with one
another. HealthyConnect.com provides a platform by which the Company can
benefit from business opportunities that are complementary to its other two
divisions. These opportunities include the provision of clinical trial
services, the marketing of patient focussed medical information, and the
ability of third party service providers to efficiently conduct their
operations through an electronically integrated business partnership.
This integrated and rapidly growing Canadian Physician Management Services
structure will be well positioned to provide physicians with the beneficial
aspects of managed care, including dealing with the business complexities of
cross-relationships with service providers, and day-to-day operating
efficiencies required to maximize earnings from their practice of medicine.
In January of 1999, the Company acquired a 45% interest in an Urgent Care
Centre, Medical Urgent Care Inc. The Company developed and opened its first
Urgent Care Centre in September 1997. The Urgent Care Centre concept consists
of a group of emergency trained physicians, a medical laboratory, a
diagnostic radiology service, and a pharmacy, each of which must be present
for the others to co-exist, and each of which is provided by a separately
owned company. The Company manages the clinic component of the Urgent Care
Centre and provides the support staff for this component. Ownership of
Medical Urgent Care Inc. is shared with the group of emergency trained
physicians that provides the medical service in the clinic component.
In February, 1999, the Company became party to a lease for the clinic located
within York University in Toronto, Canada. The Company has entered into a
five-year management services agreement to manage to clinic for a monthly fee
based on revenues generated by the clinic. The Company has a 51% interest in
the company that owns the clinic.
In March of 1999, the Company purchased 51% of the outstanding capital of
Caremedics (Elmvale) Inc., a multi-physician primary healthcare clinic
located in Ottawa, Canada. The Company entered into a five-year management
services agreement to manage the clinic for a monthly fee based on revenues
generated by the clinic.
<PAGE>
Complementary to the development of the Physician Management Services
Organization (PMSO) and internet business, the Company continues to promote
its medical manpower staffing services throughout Canada. Demand for
emergency care has grown significantly over the past ten years,
notwithstanding the small proportion of physicians focusing on emergency
medicine. Moreover, recruitment of experienced emergency medicine
practitioners by hospitals in other countries is intense and such demand is
expected to continue for some time. Given the uncertainties associated with
patient volumes in several Ontario hospital emergency departments, the pool
of available physicians willing to practice emergency medicine has been
declining.
The Company's ability to provide solutions and source physicians and highly
skilled nurses will be enhanced by its success in developing its dominant
status in the Physician Management Services Organization (PMSO) sector. The
Company's business strategy is to integrate and through its physicians
program offer the family physician a comprehensive practice opportunity.
Management believes that the creation of a dominant PMSO status in Canada
will significantly contribute to the Company's efforts in growing its
emergency services recruitment division. It is management's intention to
continue to market its PMSO services to the Canadian physician community,
which totals approximately 55,000 members strong and collects annual billings
of approximately $11.0 billion.
RESULTS OF OPERATIONS
First Quarter Ended March 31, 1999 compared to First Quarter Ended March 31,
1998
REVENUES. Revenues increased by $624,086 or 17.3% from $3,605,099 in the
first quarter of 1998 to $4,229,185 in the first quarter of 1999. The revenue
growth is attributable to the clinic acquisitions, growth in existing clinic
business and growth in nurse staffing, offset by a decline in the hospital
staffing revenue.
Revenues generated by Physician Management Services increased by $832,675 or
115% from $720,647 in the first quarter of 1998 to $1,553,322 during the
first quarter of 1999. The three acquisitions that were completed in the
second and third quarters of 1998 contributed $457,481 additional revenue to
the first quarter of 1999. The three acquisitions that were completed during
the first quarter of 1999 contributed $115,998 to revenue. The Dundas Urgent
Care Centre was a start-up operation in 1998. In 1999, this Centre
contributed $180,274 to first quarter revenues. The remaining increase in
Physician Management Services revenue is a result of increased patient
volumes and additional physicians working in the family practice and walk-in
clinics.
Revenues from Physician and Nurse Recruiting decreased by $208,589 or 7.2% to
$2,675,863 during the first quarter of 1999 from $2,884,452 during same
period for 1998. The decrease in revenue occurred in the physician staffing
component of this division. Two new contracts entered into in the latter part
of fiscal 1998 and a consulting project competed in March 1999 contributed to
revenue in the first quarter of 1999, but five contracts from the first
quarter of 1998 were not renewed. The net loss of revenue from these
contracts caused first quarter revenues to decrease by $441,652 compared to
the same period last year. Offsetting this net loss in revenue was an
increase of $111,552 in revenue earned from existing and continuing
contracts. This is due to increased patient volumes and new contract pricing.
The nurse staffing component contributed an additional $121,511 to revenue in
the first quarter of 1999 as compared to the same period last year. This
increase came from a significant increase in the provision of services to one
hospital under an existing contract plus the net addition of one contract.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which
primarily represents fees to contract physicians, increased $193,596 or 5.4%
from $2,881,442 in the first quarter of 1998 to $3,075,038 in the first
quarter of 1999. Physician fees and other direct costs decreased as a percent
of revenue, representing 72.7% of revenues for the quarter ended March 31,
1999 and 79.9% of revenues for the quarter ended March 31, 1998. The decrease
as a percent of revenue is largely due to the mix of revenue between
Physician & Nurse Recruiting and Physician Management Services. As the
Physician Management Services revenues increase, the larger gross margin
related to Physician Management Services causes a decrease in physician fees
and other direct costs as a percent of revenue.
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Physician fees and other direct costs of the Physician Management Services
division increased by $435,985 or 104% from the first quarter of 1998
compared to the same period in 1999. This increase is consistent with the
increase in revenue.
Physician fees and other direct costs of the Physician & Nurse Recruiting
division decreased by $242,389 or 9.8% from the first quarter of 1998
compared to the same period in 1999. This decrease is consistent with the
decrease in revenue.
OPERATING EXPENSES. Operating expenses have increased by $550,636 or 81.3% to
$1,227,568 in the first quarter of 1999 from $676,932 in the first quarter of
1998. There are several factors contributing to the increase in operating
expenses, including the development of the IHSDN division, the clinic
acquisitions in 1998 and 1999, and the operations of the Dundas Urgent Care
Centre.
The company recently launched an integrated health services delivery network
called HealthyConnect.com. This internet-based healthcare network will
connect physicians, hospitals, third party payors and consumers and allow all
participants to access and exchange healthcare related information, purchase
products and services, and communicate more cost-effectively with one
another. During the first quarter of 1999, the company expense $155,149 on
the development of this concept.
During the second and third quarters of 1998, the company completed the
acquisitions of two companies, JC Medical Management Inc. and Doctors On Call
Ltd., and acquired the remaining two-thirds of the Glenderry Medical Walk-in
Clinic. These acquisitions added $115,053 to operating expenses in the first
quarter of 1999. During the first quarter of 1999, the company completed the
acquisition of a controlling interest in three other companies, all of which
operate medical clinics. These acquisitions added $118,820 to operating
expenses in the first quarter of 1999.
During the first quarter of 1998, the Dundas Urgent Care Centre was
considered a start-up operation. During 1999, this Urgent Care Centre added
$78,943 to operating expenses. The remaining increase in operating expenses
of $82,671 from first quarter of 1998 to first quarter of 1999 relates to an
increase in general overhead costs.
NET LOSS. As a result of the above items, the Company reported a net loss of
$94,633 for the three months ended March 31, 1999 as compared to net income
of $11,029 for the three months ended March 31, 1998. The company's effective
tax rate increased to approximately 44% in 1999 from approximately 26% in
1998 due to the change in status under Canadian taxation rules from a
privately-held company to a company with shares that are publicly traded.
LIQUIDITY AND CAPITAL RESOURCES
Through its acquisitions completed in the first quarter of 1999, the Company
assumed bank term loans in the amount of $378,698. Approximately $270,632 was
loaned to subsidiaries of the Company under the Small Business Investment
Loans program in which the Canadian government guarantees 75% to 90% of the
principal balance of the loan. The remaining balance consists of capital
loans for asset purchases.
As at March 31, 1999, the company's working capital totaled $1,874,207. In
addition, the company has available credit facilities for up to approximately
$3,000,000. The Company established credit facilities in June 1998 that
provide an available demand, revolving, operating line of credit amounting to
$2,000,000, bearing interest at the bank's prime lending rate plus 0.5% per
annum with interest payable monthly, and an available demand, non-revolving,
capital line of credit amounting to $1,000,000. The capital line of credit
bears interest at the bank's prime lending rate plus 0.75% per annum with
interest payable monthly. The company believes that the combination of funds
available under the company's bank credit facility, together with its current
cash position, should be sufficient to meet the company's operating
requirements through 1999.
In addition, in order to provide the funds necessary for the further
development of HealthyConnect.com and the continued pursuit of the company's
long-term acquisition strategy, the company expects to issue
<PAGE>
equity and debt securities, the availability and terms of which will depend
upon market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the company.
Forward-looking statements of Med-Emerg International Inc. included herein or
incorporated by reference including, but not limited to, those regarding
future business prospects, the acquisition of additional clinics, the
adequacy of capital resources and other statements regarding trends relating
to various revenue and expense items, could be affected by a number of
uncertainties and other factors beyond management's control.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure required.
<PAGE>
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/ Carl Pahapill
------------------------
Carl Pahapill
President and Chief Operating Officer
Date: June 16, 1999
