<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
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 August 15, 2000, 5,653,825 shares of the registrant's
Common Stock were outstanding.
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (AUDITED)
(IN US$)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term investments $ 156,229 $ 229,965
Accounts receivable 2,364,887 2,453,701
Prepaid expenses and other 504,800 281,384
-------------- --------------
3,025,916 2,965,050
-------------- --------------
Capital assets 3,621,517 2,329,847
Other assets 3,649,782 4,005,769
Deferred income taxes 1,006,999 766,270
-------------- --------------
$ 11,304,214 $ 10,066,936
============== ==============
LIABILITIES
CURRENT LIABILITIES
Bank Indebtedness (note 3) $ 1,601,333 $ 1,401,096
Accounts payable and accrued liabilities 2,258,980 1,917,153
Restructuring reserve 165,611 356,889
Current portion of long-term debt 134,348 172,145
-------------- --------------
4,160,272 3,847,283
Long term debt 416,714 518,339
Minority interest 1,541,559 --
Deferred income taxes 458,534 470,383
-------------- --------------
Commitments (note 7) 6,577,079 4,836,005
-------------- --------------
SHAREHOLDERS' EQUITY
Capital Stock 8,648,495 8,251,290
Convertible Debenture 405,371 405,371
Contributed surplus 1,022,100 1,022,100
Deficit (5,471,823) (4,335,566)
Cumulative translation adjustment 122,992 (112,264)
-------------- --------------
4,727,135 5,230,931
-------------- --------------
$ 11,304,214 $ 10,066,936
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED),
AND JUNE 30, 1999 (UNAUDITED)
(IN US$)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 4,519,225 $ 3,099,076 $ 8,318,818 $ 5,896,897
PHYSICIAN FEES AND OTHER DIRECT COSTS 2,843,671 2,223,994 5,118,225 4,258,288
----------- ----------- ----------- -----------
1,675,554 875,082 3,200,593 1,638,609
----------- ----------- ----------- -----------
EXPENSES
Salaries and benefits 928,130 407,421 1,633,501 751,108
General and administration 101,001 152,856 260,736 259,645
Occupancy costs and supplies 475,178 182,326 907,540 322,871
Public company costs 33,785 75,139 55,477 153,600
Physician recruitment and marketing 28,076 36,908 76,019 75,123
----------- ----------- ----------- -----------
1,566,170 854,650 2,933,273 1,562,347
----------- ----------- ----------- -----------
INCOME BEFORE HEALTHYCONNECT.COM, DEPRECIATION,
AMORTIZATION, INTEREST, TAXES & FINANCING COSTS 109,384 20,432 267,320 76,262
HealthyConnect.com development costs 703,192 103,503 1,169,136 206,142
INCOME BEFORE DEPRECIATION, AMORTIZATION ----------- ----------- ----------- -----------
INTEREST, TAXES & FINANCING COSTS (593,808) (83,071) (901,816) (129,880)
----------- ----------- ----------- -----------
Depreciation 91,083 61,411 186,933 110,280
Interest and financing expense 45,341 5,811 94,946 7,573
Goodwill amortization 94,174 15,249 185,339 29,603
----------- ----------- ----------- -----------
230,598 82,471 467,218 147,456
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND GOODWILL AMORTIZATION (824,406) (165,542) (1,369,034) (277,336)
Income taxes (recovery) (181,369) (72,838) (301,186) (122,028)
----------- ----------- ----------- -----------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (643,037) (92,704) (1,067,848) (155,308)
Preferred share dividends (34,051) (33,032) (68,409) (66,717)
----------- ----------- ----------- -----------
NET LOSS (677,088) (125,736) (1,136,257) (222,025)
Deficit, beginning of the year (4,794,735) (7,226,566) (4,335,566) (7,130,277)
----------- ----------- ----------- -----------
DEFICIT, END OF THE YEAR $(5,471,823) $(7,352,302) $(5,471,823) $(7,352,302)
=========== =========== =========== ===========
BASIC AND FULLY DILUTED LOSS, PER SHARE $ (0.12) $ (0.04) $ (0.20) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,653,825 2,975,853 5,653,825 2,975,853
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED)
(IN US$)
<TABLE>
<CAPTION>
June 30 June 30
2000 1999
--------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (1,067,848) $ (155,307)
Adjustments for:
Amortization of capital assets 186,933 110,280
Goodwill amortization 185,339 29,603
Amortization of bridge financing costs - (136,156)
Deferred income taxes (301,186) (122,028)
Stock compensation 39,398 -
--------------------- -------------------
(957,364) (273,608)
Increase (decrease) in non-cash working capital components (16,812) (180,376)
--------------------- -------------------
(974,176) (453,984)
--------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets (1,478,603) (428,805)
Business acquisitions (note 4) - (130,365)
Other assets 170,648 (21,128)
--------------------- -------------------
(1,307,955) (580,298)
--------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank indebtedness 200,237 226,371
Issue of common shares 357,806 -
Repurchase of shares - (1,542)
Term loans - -
Obligation / (obligations repaid) under capital lease (37,797) (28,347)
Issuance/(repayment) of debt (101,625) -
Due from affiliates - 20,197
Minority interest 1,541,559 -
Dividends paid on preference shares - (67,042)
--------------------- -------------------
1,960,180 149,637
--------------------- -------------------
Effect of foreign currency exchange rate changes 248,215 (111,886)
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (73,736) (996,531)
Cash and short-term investments, beginning of year 229,965 1,090,582
--------------------- -------------------
Cash and short-term investments, end of year $ 156,229 $ 94,051
===================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. is a publicly traded company listed on the
NASDAQ Exchange. The Company completed its initial public offering in
February, 1998.
Med-Emerg International Inc. is a physician management services
organization specializing in the delivery of emergency and primary
healthcare related services. The Company is committed through
information technology and its physician management services to
delivering an internet-based healthcare network with the objective of
delivering quality and timely access to healthcare products and
services. The Company has decided to continue to focus on the
development of its internet based technology of HealthyConnect.com.
Therefore, the Company has an on-going requirement to raise capital to
finance the on-going technology developments of HealthyConnect.com.
The Company's operations are divided into three divisions, Physician
and Nurse Recruitment, Physician Management Services and
HealthyConnect.com.
On a contractual basis, the Company provides emergency department
physician and nurse recruitment, staffing and administrative support
services to hospitals. At June 30, 2000, the Company had 14 contracts
for physician staffing and 6 contracts for nurse staffing.
Under physician management services, the Company owns and manages
medical clinic facilities providing physicians with the ability to
practice within a professional managed network enabling the physician
to concentrate on the clinical aspects of their practices. All the
clinic assets including medical equipment are owned by the company. At
June 30, 2000, the Company owned and managed 28 clinics.
HealthyConnect.com is an internet-based health portal that will connect
physicians, patients, third party payors and consumers to a "virtual
world" of healthcare products and services. The Company is
electronically connecting its clinical facilities and establishing
strategic partnerships in delivering a comprehensive healthcare
program.
2. 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, 1999.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
3. BANK COVENANTS
The Company is required to comply with its bank covenant ratios. At
June 30, 2000 the Company was not in compliance with these covenants.
The Company is in the process of raising capital as indicated in note 7
under commitments.
4. ACQUISITIONS
On June 19, 2000, the Company, through its subsidiary,
Healthyconnect.com, Inc., purchased all of the outstanding securities
of Harmonie Group, Inc. (Boston, Massachusetts), a leading provider
of hospital based web enabled patient information management
software. The Company purchased the securities of Harmonie in
exchange for 2,600,000 Healthyconnect.com, Inc. common shares.
Further, in the event that Healthyconnect.com, Inc. does not become
a publicly traded company within fourteen months of the close of the
transaction, the former shareholders of Harmonie shall have the
option to convert the Healthyconnect.com, Inc. common shares into
an aggregate 1,100,000 Med-Emerg common shares and a $1,425,000
convertible debenture, payable at Med-Emerg's sole option, in either
cash or shares, for a period of five (5) years.
Effective November 5, 1999, the Company purchased all of the
outstanding securities of YFMC Healthcare Inc. in exchange for similar
securities of Med-Emerg International Inc. on the following basis:
i. In the case of holders of YFMC Common Shares, one Med-Emerg
Common Share was issued for every 6 7/8 shares of YFMC. This
resulted in the issuance of 1,658,566 Med-Emerg Common Shares.
ii. In the case of holders of YFMC Preferred Shares, one Med-Emerg
Common Share was issued for every 10 YFMC First Preferred
Shares, resulting in the issuance of 100,000 Med-Emerg Common
Shares.
iii. In the case of holders of YFMC Series A Warrants, one
Med-Emerg Series A Warrant was issued for every 8 warrants of
YFMC, resulting in the issuance of 44,585 Med-Emerg Series A
Warrants.
iv. In the case of holders of YFMC Series B Warrants, one
Med-Emerg Series B Warrant was issued for every 8 warrants of
YFMC, resulting in the issuance of 44,585 Med-Emerg Series B
Warrants.
v. In the case of holders of YFMC stock options, one Med-Emerg
stock option for every 8 YFMC stock options.
The Company has determined that there will be integration costs
associated with the business combination with YFMC Healthcare Inc. The
Company plans to dispose of duplicate functions and unprofitable
operations as part of a formal plan of integration. At December 31,
1999 a liability of $356,889 has been established as the estimated cost
of the integration plan. The Company expects to complete the plan by
September 30, 2000.
In addition, during the fiscal year 1999, the Company also acquired
ownership interest in the following companies that operate medical
clinics: 45% of Medical Urgent Care Inc., 51% of Caremedics (Elmvale)
Inc. and 51% of York Lanes Health Centres Ltd. The following is a
summary of the assets purchased and liabilities assumed with the
exception of Harmonie Group, Inc.:
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
4. ACQUISITIONS (cont'd)
<TABLE>
<CAPTION>
YFMC
Healthcare Other
Inc. Acquisitions Total
--------------------------------------------------
<S> <C> <C> <C>
Current assets $ 666,495 $ 23,052 $ 689,547
Capital assets 1,381,885 374,136 1,756,021
Other long-term assets 702,656 -- 702,656
Goodwill 1,736,571 170,821 1,907,392
Less liabilities assumed (1,394,439) (361,612) (1,756,051)
Less reverse for restructuring (356,889) -- (356,889)
Less minority interest -- (28,221) (28,221)
--------------------------------------------------
Purchase price 2,736,279 178,176 2,914,455
Less: share consideration (2,232,906) -- (2,232,906)
Less: stock options and warrants (41,775) -- (41,775)
--------------------------------------------------
Cash consideration $ 461,598 $ 178,176 $ 639,774
--------------------------------------------------
--------------------------------------------------
</TABLE>
5. 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>
June June
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) based on Canadian GAAP $(1,067,846) $ (248,422)
Start-up costs amortized/(deferred) 11,055 11,055
Deferred acquisition costs
----------- -----------
Net loss based on United States GAAP $(1,056,791) $ (237,367)
----------- -----------
Primary loss per share $ (0.19) $ (0.08)
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
If United States GAAP were employed, deficit, other assets, prepaid and
other assets, and total liabilities would be adjusted as follows:
<TABLE>
<CAPTION>
June December
2000 1999
------------- -------------
<S> <C> <C>
Deficit based on Canadian GAAP $ (5,471,821) $ (4,335,566)
Start-up costs deferred (231,096) (255,040)
Goodwill amortization (185,339) (8,925)
------------- -------------
$ (5,888,256) $ (4,599,531)
------------- -------------
------------- -------------
Other assets based on Canadian GAAP $ 3,649,782 $ 4,005,768
Start-up costs deferred (231,096) (255,040)
Goodwill on purchase of YFMC Healthcare Inc. 1,098,895 1,087,872
------------- -------------
$ 4,517,581 $ 4,838,600
------------- -------------
------------- -------------
Total liabilities based on Canadian GAAP $ 6,577,078 $ 4,836,005
Convertible debenture 405,371 405,371
------------- -------------
$ 6,982,449 $ 5,241,376
------------- -------------
------------- -------------
</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.
(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.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(c) Convertible Debenture
Under U.S. GAAP, convertible debentures are presented as
liabilities, regardless of the attributes of the convertible
debenture, and transferred to equity upon conversion, whereas,
under Canadian GAAP, the likelihood of conversion to equity is
considered in determining the classification between liability
or equity.
(d) Earnings Per Share
U.S. GAAP requires common shares and warrants to purchase common
shares, issued or exercisable at prices below the initial public
offering ("I.P.O.") price and which were issued within one year
prior to the initial filing of the registration statement
relating to the I.P.O., to be treated as if the common shares
were outstanding from the beginning of the period in the
calculation of weighted average number of common shares
outstanding and loss per share, even where such inclusion is
anti-dilutive. Primary earnings per common share is determined
using the weighted average number of shares outstanding during
the year, adjusted to reflect the application of the treasury
stock method for outstanding options and warrants in accordance
with U.S. GAAP.
(e) Stock Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123), was issued by the
Financial Accounting Standards Board in October 1995. SFAS 123
establishes financial accounting and reporting standards for
transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees, as well as
stock-based employee compensation plans. All transactions in
which goods or services are the consideration received for the
issuance of equity instruments are to be accounted for based on
the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably
measurable.
For those transactions described in note 9 of the audited
consolidated financial statements for Med-Emerg International
Inc. for the year ended December 31, 1999 and under SFAS 123:
- the issuance of 125,000 common shares to promissory note
holders resulted in a charge to income (finance expense)
over the term of the related promissory note payable, at
$2.05 per share equal to $256,250 of which $196,943 has been
charged to earnings in the year ended December 31, 1997 and
$50,470 has been charged to earnings in the period ended
December 31, 1998.
- the issuance of 50,000 shares to a director for services
rendered resulted in a charge to income at $2.05 per share
equal to $100,400 in the year ended December 31, 1997.
- the issuance of an option on November 1, 1996 to a director
to acquire 700,000 shares (note 13) has resulted in a charge
to income equal to $934,033 in 1996 based on $2.05 per
share, and the "minimum value" method of calculation
permitted under SFAS 123 for non-public entities.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
As allowed by SFAS 123, the Company has decided to continue to
use Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" in accounting for the Company's Stock
Option Plan (the "Plan") for U.S. GAAP purposes, pursuant to
which there is no significant difference between U.S. and
Canadian GAAP in the accounting for the granting of options
under the Plan.
(f) Goodwill
Under U.S. GAAP, the purchase price of an acquisition involving
the issuance of shares is determined based on the share price
for the period surrounding the announcement date of the
acquisition. The share price used for the YFMC Healthcare Inc.
acquisition under U.S. GAAP was $1.859. Under Canadian GAAP, the
purchase price is determined based on the share price on the
date the transaction is consummated. The share price used for
the YFMC Healthcare Inc.
acquisition under Canadian GAAP was $1.25.
(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
$0.364 for each of the 1,000,000 share warrants issued, share
capital would be lower by $36,406 and, given that the stock
purchase warrants were cancelled during the year, the carrying
amount of contributed surplus would be increased by $36,406.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
June December
2000 1999
-------------- --------------
<S> <C> <C>
Capital stock (as previously shown) $ 8,648,495 $ 8,251,290
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 9,699,961 9,302,756
Share purchase loan to officer (44,978) (44,978)
-------------- --------------
Net capital stock - U.S. GAAP 9,654,983 9,257,778
-------------- --------------
Convertible debenture (as previously shown) 405,371 405,371
Convertible debenture included in long-term debt (405,371) (405,371)
-------------- --------------
Convertible debenture - U.S. GAAP - -
Contributed surplus (as previously shown) 1,022,100 1,022,100
Share purchase warrants 36,406 36,406
-------------- --------------
Contributed surplus - U.S. GAAP 1,058,506 1,058,506
-------------- --------------
Deficit - U.S. GAAP (5,888,256) (4,599,531)
-------------- --------------
Shareholders' equity (deficit) - U.S. GAAP $ 4,825,233 $ 5,716,753
-------------- --------------
-------------- --------------
</TABLE>
(h) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), was issued by the Financial
Accounting Standards Board in June 1997. SFAS 123 establishes
standards for reporting and display of comprehensive income and
its components in the financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier period
provided for comparative purposes is required.
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
6. 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>
June 30, 2000
---------------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services IHSDN Consolidated
---------------------------------------------------
Three months ended June 30, 2000
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 1,915,858 2,603,367 - 4,519,225
Gross Margin 397,740 1,277,815 - 1,675,555
Operating income before Corporate Overhead 260,082 256,911 (703,192) (186,199)
& Public Company-related costs
Corporate Overhead - - - (373,823)
Public Company-related costs - - - (33,785)
------------
Operating loss (593,807)
Six months ended June 30, 2000
---------------------------------------------------
Revenue 3,795,981 4,522,837 - 8,318,818
Gross Margin 701,649 2,498,944 - 3,200,593
Operating income before Corporate Overhead 465,992 461,931 (1,168,682) (240,759)
& Public Company-related costs
Corporate Overhead (605,602)
Public Company-related costs (55,454)
-----------
Operating loss (901,816)
Assets employed at period end 3,369,491 7,191,655 743,066 11,304,212
Depreciation and amortization - 372,277 - 372,277
--------------------------------------------------
--------------------------------------------------
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2000 and 1999
6. SEGMENTED INFORMATION (cont'd)
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------------------------
Physician Physician
& Nurse Management
Recruiting Services IHSDN Consolidated
---------- ----------- ----- ------------
Three months ended June 30, 1999
--------------------------------
<S> <C> <C> <C> <C>
Revenue 1,976,830 1,122,246 - 3,099,076
Gross margin 336,401 538,680 - 875,082
Operating income before Corporate Overhead
& Public Company-related costs 237,741 76,292 (103,950) 210,084
Corporate Overhead - - - (218,017)
Public Company-related costs - - - (75,139)
------------
Operating loss (83,071)
Six months ended June 30, 1999
----------------------------------------------------------
Revenue 3,746,896 2,150,001 - 5,896,897
Gross margin 637,572 1,001,037 - 1,638,609
Operating income before Corporate Overhead
& Public Company-related costs 456,248 196,654 (206,739) 446,163
Corporate Overhead (422,261)
Public Company-related costs (153,780)
------------
Operating loss (129,879)
Assets employed at period end 3,564,238 2,045,197 184,715 5,794,149
Depreciation and amortization 48,926 90,957 - 139,883
</TABLE>
7. COMMITMENTS
On March 1, 2000, the Company issued a private placement memorandum for
equity financing pursuant to which the Company sold 300,000 shares
of its common stock at a price of $2.00 per share resulting in gross
proceeds of $600,000.
On May 25, 2000, the Company and Healthyconnect.com, Inc. entered into
an agency agreement with BNP (Canada) Securities Inc. wherein BNP
will act as agent for a private placement of Healthyconnect.com, Inc.
Common Shares. The terms and conditions of the agreement, provides,
amongst other things, the following: (1) the size of the offering
will have an aggregate value of $6,000,000US, representing a
value of 30% of the Healthyconnect.com, Inc. Common Shares;
(2) Subscribers of the offering shall have the right to convert
their Healthyconnect.com, Inc. Common Shares into Med-Emerg
Common Shares, exchangeable upon certain conditions to be
negotiated. In the event that subscribers of the offering
elect to convert their Healthyconnect.com, Inc. Common Shares
into Med-Emerg Common Shares, then holders of Med-Emerg Common
Shares, at such time, will have their interests in Med-Emerg
diluted. To date, the Company raised $300,000 on the issuance of
433,928 common shares and 433,928 warrants (convertible at
$0.69136USD) shares of HealthyConnect.com, Inc.
<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 recruitment, nurse staffing, physician management services
and an internet-based healthcare network.
Med-Emerg is positioned to establish industry leadership by providing integrated
professional management services in the delivery of healthcare to the healthcare
consumer. The Company's operations are divided into three divisions: Physician
and Nurse Recruitment Services, Physician Management Services and an internet
based healthcare network called HealthyConnect.com. Med-Emerg's strategy is to
remain focussed on these three divisions while continuing to broaden its
consolidation of physicians over a wider geographic base. Med-Emerg believes
that it is well positioned to benefit from the aging of the baby boomer
population, to capitalize on recent developments within the North American
healthcare environment and to integrate opportunities available through internet
technology. Specifically, the Company's strategy is to leverage its 15 years of
physician recruitment experience in becoming a dominant player in Physician
Management Services and to develop an internet-based healthcare network that
connects physicians, patients, third party payors and consumers to a "virtual
world" of healthcare products, services and health information.
The Company continues to promote its medical manpower staffing services
throughout Canada. Demand for emergency care has grown significantly over the
past ten years, notwithstanding the small proportion of physicians focusing on
emergency medicine. Moreover, recruitment of experienced emergency medicine
practitioners by hospitals in other countries is intense and such demand is
expected to continue for some time. Given the uncertainties associated with
patient volumes in several Ontario hospital emergency departments, the pool of
available physicians willing to practice emergency medicine has been declining.
The Company's ability to provide solutions and source physicians and highly
skilled nurses will be enhanced by its success in developing its dominant status
in the Physician Management Services Organization (PMSO) sector. The Company's
business strategy is to integrate and through its physicians program offer the
family physician a comprehensive practice opportunity. Management believes that
the creation of a dominant PMSO status will significantly contribute to the
Company's efforts in growing its emergency services recruitment division.
On March 22, 2000, the Company launched HealthyConnect.com, an internet-based
e-commerce health portal. HealthyConnect.com has been strategically designed to
provide an end to end solution for the information needs of the healthcare
sector. The Company will pursue both a business to business and business to
consumer e-commerce strategy connecting physicians, hospitals, third-party
payors and consumers and will allow all participants to access and exchange
healthcare related information, purchase healthcare products and services, and
communicate more cost-effectively with one another. HealthyConnect.com will
deliver healthcare services and products and provide timely access to reliable
healthcare information through the utilization of advanced telecommunication
technology.
Targeted purchasers of HealthyConnect.com on line applications are consumers,
healthcare institutions, physicians and other healthcare providers and
healthcare product suppliers. Consumers will benefit from 24-hour, 7-day a week
access, via the internet and telephone, to Med-Emerg's healthcare service
provider network. In addition, consumers will have multiple site secure access
to their own and their family members' electronic medical records, access to a
physician management health and wellness centre and convenient at-home shopping
for healthcare products and services.
On March 29, 2000, HealthyConnect.com, Inc. and DocISP.com (King of Prussia,
Pennsylvania), an internet service provider designed for physicians and allied
health professionals, entered into a joint venture agreement to combine their
on-line product offering. DocISP.com provides free unrestricted internet
<PAGE>
access, web site hosting and support, e-mail, e-health commerce, customized
medical news, research, practice management systems and tools, continuing
medical education, and various other web-enabled capabilities currently under
development. HealthyConnect.com and DocISP.com will co-brand their products and
employ existing distribution and sales resources to establish products in the
market.
On June 19, 2000, HealthyConnect.com, Inc. and Harmonie Group, Inc. (Boston,
Massachusetts), entered into an agreement and plan of merger whereby
Healthyconnect.com, Inc. purchased all of the outstanding shares of
Harmonie Group, Inc. in exchange for 2,600,000 common shares of
Healthyconnect.com, Inc. As part of the transaction, the Company entered
into a conditional stock exchange agreement with the shareholders
of Harmonie Group, Inc., which provides that, in the event that
Healthyconnect.com, Inc. does not become a publicly traded company
within fourteen months of the close of the transaction, the Harmonie
Group, Inc. shareholders shall have the option to convert the
Healthyconnect.com, Inc. common shares into an aggregate 1,100,000
Med-Emerg common shares and a $1,425,000 convertible debenture, payable
at Med-Emerg's sole option, in either cash or shares. Harmonie Group, Inc.
developed a software called HARMONIE WEBKIT FOR HEALTH CARE, which delivers
three essential functions: authoring/editing system, advanced content
management capabilities and utilization of legacy data.
On June 21, 2000, HealthyConnect.com, Inc. and Travelbyus.com Ltd. entered
into agreement which combines online consumer products in the travel and
healthcare sectors. The terms of the agreement provide, amongst other things,
for the issuance of 1,200,000 HealthConnect.com, Inc. common shares to
Travelbyus and, in addition, the purchase by Travelbyus of $2,500,000US of
HealthyConnect.com, Inc. stock in exchange for 1,000,000 Travelbyus common
shares.
HealthyConnect.com will enable physicians and other healthcare providers to
access reliable information and provide them with additional support in
delivering cost effective, high quality healthcare services. Benefits include
24-hour coverage for patients, access to a comprehensive physician medical
reference database, online continuing medical education courses, tools for
chronic disease management, and participation in clinical trials and web
casting. HealthyConnect.com will link healthcare product and service suppliers
with our clinical network family. Convenient and secure access and at
home/office browsing and purchasing capabilities will facilitate direct sales
opportunities for member suppliers. Healthcare product and service suppliers
that may benefit from using HealthyConnect.com include pharmaceutical companies,
insurance companies, employers, government, managed care organizations,
physicians and hospitals.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing capability
and e-commerce goods and services to its customers. HealthyConnect.com has
negotiated, amongst others, a relationship with AstraTek, a software product
development firm, delivering advanced technologies to Fortune 1000 companies and
financial institutions and Data General, a leading supplier of servers and
storage systems, and services for information systems users worldwide. AstraTek
assisted in the development and launch of the HealthyConnect.com portal. Data
General will provide a consolidated computing infrastructure to support
HealthyConnect.com including hardware, software and network support.
Management of Med-Emerg sees HealthyConnect.com as a significant opportunity to
create a profitable business line while providing healthcare organizations with
new web-based technologies to increase practice efficiency, achieve measurable
cost savings and improve the quality of care.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement ("BCA") to purchase all of the issued and outstanding
shares of Laser Rejuvenation Clinics Ltd. ("LRC"), a publicly listed company
on the Canadian Venture Exchange, on the basis of one Med-Emerg common share
and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
US$3.00 per share for every 12.85 shares of LRC. The BCA contained certain
conditions which were not met, thereby terminating the BCA and all
obligations of both parties under the BCA.
On November 5, 1999, the shareholders of the Company approved the issuance of up
to 1,799,502 additional common shares in connection with the take over bid by
the Company for all the issued and outstanding securities of YFMC Healthcare
Inc. ("YFMC"), a Canadian physician management services organization that owns
and manages 22 medical clinics. Pursuant to the business combination agreement,
dated August 10, 1999, the Company mailed a take-over bid circular on November
5, 1999 to all YFMC shareholders making an offer to purchase all the issued and
outstanding securities of YFMC on the following basis:
a. In the case of holders of YFMC Common Shares, one Med-Emerg Common
Share for every 6 7/8 shares of YFMC
<PAGE>
b. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series
A Warrant for every 8 warrants of YFMC
c. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series
B Warrant for every 8 warrants of YFMC
d. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common
Share, subject to certain conditions, one Med-Emerg Common Shares for
every 10 YFMC First Preferred Shares.
The Company issued 1,758,556 Common Shares to complete the transaction. In
addition, Med-Emerg substituted for every eight options to acquire YFMC Common
Shares under the YFMC Stock Option Plan, the right to acquire one Med-Emerg
Common Share at an exercise price of $1.75.
In March 1999, the Company purchased 51% of the outstanding capital of
Caremedics (Elmvale) Inc. ("Elmvale"), a multi-physician primary healthcare
clinic located in Ottawa, Canada. The Company entered into a five-year
management services agreement to manage the clinic for a monthly fee based on
revenues generated by the clinic.
In February 1999, the Company became party to a lease for the clinic located
within York University ("York Lanes") in Toronto, Canada. The Company has
entered into a five-year management services agreement to manage the clinic for
a monthly fee based on revenues generated by the clinic. The Company has a 51%
interest in the company that owns the clinic.
In January 1999, the Company acquired a 45% interest in an Urgent Care Centre,
Medical Urgent Care Inc. ("MUCI"). The Company developed and opened its first
Urgent Care Centre in September 1997. The Urgent Care Centre concept consists of
a group of emergency trained physicians, a medical laboratory, a diagnostic
radiology service, and a pharmacy, each of which must be present for the others
to co-exist, and each of which is provided by a separately owned company. The
Company manages the clinic component of the Urgent Care Centre and provides the
support staff for this component. Ownership of Medical Urgent Care Inc. is
shared with the group of emergency trained physicians that provides the medical
service in the clinic component.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 compared to Six Months Ended
June 30, 1999
REVENUES. Revenues increased by $1,420,149 or 45.8% from $3,099,076 in the
second quarter of 1999 to $4,519,225 in the second quarter of 2000.
Year-to-date revenue increased by $2,421,921 or 41% to $8,318,818 for the six
months ended June 30, 2000 compared to $5,896,897 for the same period in
1999. The revenue growth is largely attributable to the acquisitions of YFMC
Healthcare Inc.
Revenues generated by Physician Management Services increased by $1,481,121 or
132% from $1,122,246 in the second quarter of 1999 to $2,603,367 during the
second quarter of 2000. For the six months ended June 30, 2000, Physician
Management Services revenue was $4,522,837, which represents an increase of
$2,372,836 over the six months ended June 30, 1999. The acquisition of YFMC
Healthcare Inc. acquired in November 1999 contributed $1,524,390 to revenue
for the three months ended and $2,366,617 for the six months ended June 30,
2000.
Revenues from Physician and Nurse Recruiting decreased by $60,972 or 3.0%
from $1,976,830 in the second quarter of 1999 to $1,915,858 during the second
quarter of 2000. Revenues for the six months ended June 30, 2000 were
$3,795,981, a $49,085 increase from the same period in 1999.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which
primarily represents fees to contract physicians, increased $619,677 or 27.8%
from $2,223,994 in the second quarter of 1999 to $2,843,671 in the second
quarter of 2000. For the six months ended June 30, 2000, physician fees and
direct costs increased $859,937 or 20.1% to $5,118,225 from $4,258,288 for
the six months ended June 30, 1999. Physician fees and other direct costs
decreased as a percent of revenue, representing 61.5% of revenues for the six
months ended June 30, 2000 and 72.2% of revenues for the six months ended
June 30, 1999. 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
<PAGE>
Management Services revenues increase, the larger gross margin related to
Physician Management Services results in a decrease in physician fees and other
direct costs as a percent of revenue.
OPERATING EXPENSES. Operating expenses have increased by $2,333,922 or 132%
to $4,102,410 in the first six months of 2000 from $1,768,488 in the first
six months of 1999. For the second quarter ended June 30, 2000, operating
expenses were $2,269,363 which represents an increase of $1,311,210 or 136%
increase over operating expenses for the second quarter ended June 30, 1999.
There are several factors contributing to the increase in operating expenses,
including the development of the HealthyConnect.com division and the
acquisition of YFMC Healthcare Inc. in November 1999.
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 second quarter of 2000, the company expensed $703,192 on
the development of this concept, for a total year-to-date HealthyConnect.com
development expense of $1,169,136.
During the fourth quarter of 1999, the company completed the acquisitions of
YFMC Healthcare Inc. This acquisition added $527,722 to operating expenses in
the second quarter of 2000 and $1,276,518 for the six months ended June 30,
2000.
NET PROFIT/LOSS. As a result of the above items, the Company reported income
before HealthyConnect.com, depreciation, amortization, interest, taxes, and
financing costs of $109,384 for the three months ended June 30, 2000 as
compared to net income of $20,432 for the three months ended June 30, 1999.
Income before HealthyConnect.com, depreciation, amortization, interest,
taxes, and financing costs for the six months ended June 30, 2000 was
$267,320 as compared to income of $76,262 for the six months ended June 30,
1999. The company reported a net loss of $643,037 for the three months ended
June 30, 2000 as compared to a net loss of $92,704 for the three months ended
June 30, 1999. For the six months ended, June 30, 2000, the Company reported
a net loss of $1,067,848 as compared to a net loss of $155,308 for the six
months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2000, the company's working capital deficit totaled
$1,134,356. In addition, the company has available credit facilities for up
to approximately CDN$4,500,000 (US$3,095,975). The Company established credit
facilities that provide operating lines of credit amounting to CDN$2,600,000
(US$1,788,786), bearing interest at the bank's prime lending rate plus 0.5%
to 1.0% per annum with interest payable monthly, and capital lines of credit
amounting to CDN$1,850,000 (US$1,272,800). The capital lines of interest of
credit bear varying interest rates from the bank's prime lending rate plus
0.75% to 9.65% per annum. As at June 30, 2000, the Company has drawn
approximately $1,601,333 against the operating facility and $354,584 against
the capital facility.
In March 2000, the Company raised gross proceeds of $500,000 on the issuance
of 250,000 shares of Med-Emerg International Inc. In April 2000, the Company
raised an additional $100,000 on the issuance of 50,000 shares.
<PAGE>
The Company is in the process of raising funds for its development
initiatives in HealthyConnect.com. Subsequent to the end of the quarter, the
Company, through its agent BNP (Canada) Securities Inc., raised gross
proceeds of $300,000 on the issuance of 433,928 common shares and 433,928
warrants (convertible at $0.69136USD) shares of HealthyConnect.com,
a subsidiary of Med-Emerg International Inc. In addition, the Company
borrowed $175,000 from its strategic partner, Travel By Us, for the
continuing development of HealthyConnect.com. The $175,000 is repayable on
terms to be negotiated by the parties.
In order to provide the financing necessary for the further development of
HealthyConnect.com and the continued pursuit of the company's long-term
acquisition strategy, the company expects to issue equity and debt securities,
the availability and terms of which will depend upon market and other
conditions. There can be no assurance that such additional financing will be
available on terms acceptable to the company.
Forward-looking statements of Med-Emerg International Inc. included herein or
incorporated by reference including, but not limited to, those regarding future
business prospects, the acquisition of additional clinics, the adequacy of
capital resources and other statements regarding trends relating to various
revenue and expense items, could be affected by a number of uncertainties and
other factors beyond management's control.
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/ Ramesh Zacharias
Ramesh Zacharias
Chief Executive Officer
Date: August 22, 2000
