<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-13861
------------------------
MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 May 15, 2000, 5,653,825 shares of the registrant's Common Stock were
outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (AUDITED)
(IN US$)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term investments........................... $ 113,669 $ 229,966
Accounts receivable....................................... 2,732,461 2,453,700
Prepaid expenses and other................................ 349,389 281,385
----------- -----------
3,195,519 2,965,051
----------- -----------
Capital assets.............................................. 2,174,684 2,329,847
Other assets................................................ 3,714,559 4,005,768
Deferred income taxes....................................... 880,736 766,270
----------- -----------
$ 9,965,498 $10,066,936
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Bank Indebtedness (note 3)................................ $ 1,101,002 $ 1,401,096
Accounts payable and accrued liabilities.................. 2,337,334 1,917,153
Restructuring reserve..................................... 251,825 356,889
Current portion of long-term debt......................... 179,896 172,145
----------- -----------
3,870,057 3,847,283
Long term debt.............................................. 496,192 518,339
Deferred income taxes....................................... 467,083 470,384
----------- -----------
Commitments (note 7)........................................ 4,833,332 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................................................... (4,794,733) (4,335,566)
Cumulative translation adjustment......................... (149,067) (112,264)
----------- -----------
5,132,166 5,230,931
----------- -----------
$ 9,965,498 $10,066,936
=========== ===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
(IN US$)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
2000 1999
----------- -----------
<S> <C> <C>
REVENUE..................................................... $ 3,799,593 $ 2,797,820
PHYSICIAN FEES AND OTHER DIRECT COSTS....................... 2,274,554 2,034,293
----------- -----------
1,525,039 763,527
----------- -----------
EXPENSES
Salaries and benefits..................................... 705,371 343,687
General and administration................................ 159,735 106,789
Occupancy costs and supplies.............................. 432,362 140,544
Public company costs...................................... 21,692 78,462
Physician recruitment and marketing....................... 47,943 38,214
----------- -----------
1,367,103 707,696
----------- -----------
INCOME BEFORE HEALTHYCONNECT.COM, DEPRECIATION, AMORTIZATION
INTEREST, TAXES & FINANCING COSTS......................... 157,936 55,831
HealthyConnect.com development costs...................... 465,944 102,639
----------- -----------
LOSS BEFORE DEPRECIATION, AMORTIZATION, INTEREST, TAXES &
FINANCING COSTS........................................... (308,008) (46,808)
----------- -----------
Depreciation.............................................. 95,850 63,222
Interest and financing expense............................ 49,604 1,763
Goodwill amortization..................................... 91,166 --
----------- -----------
236,620 64,985
----------- -----------
LOSS BEFORE INCOME TAXES.................................... (544,628) (111,794)
Income taxes (recovery)................................... (119,819) (49,190)
----------- -----------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS................... (424,809) (62,604)
Preferred share dividends................................. (34,358) (33,685)
----------- -----------
NET LOSS.................................................... (459,167) (96,289)
Deficit, beginning of the period............................ (4,335,566) (7,130,277)
-- --
----------- -----------
DEFICIT, END OF THE PERIOD.................................. $(4,794,733) $(7,226,566)
=========== ===========
BASIC AND FULLY DILUTED LOSS, PER SHARE..................... $ (0.09) $ (0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES.................... 5,243,825 2,975,853
=========== ===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT MARCH 31, 2000 AND 1999 (UNAUDITED)
(IN US$)
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
2000 1999
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period................................... $(424,809) $ (62,604)
Adjustments for:
Amortization of capital assets.......................... 95,850 63,222
Goodwill amortization................................... 91,166 --
Deferred income taxes................................... (117,767) (49,190)
Stock compensation...................................... 40,133 --
--------- ----------
(315,427) (48,572)
Decrease in non-cash working capital components........... (69,231) (126,377)
--------- ----------
(384,658) (174,949)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets............................... 42,942 (381,113)
Business acquisitions (note 4)............................ -- (128,685)
Other assets.............................................. 200,043 79,558
--------- ----------
242,985 (430,240)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank indebtedness......................................... (300,094) --
Issuance of common shares................................. 357,072 --
Repurchase of shares...................................... 0 (1,542)
Term loans advanced....................................... 58,573 250,528
Obligation under capital lease............................ -- (13,717)
Repayment of debt......................................... (72,969) --
Dividends paid on preference shares....................... -- (33,685)
--------- ----------
42,582 201,584
--------- ----------
Effect of foreign currency exchange rate changes............ (17,205) (123,243)
DECREASE IN CASH AND SHORT-TERM INVESTMENTS................. (116,296) (526,848)
Cash and short-term investments, beginning of period........ 229,965 1,090,582
--------- ----------
Cash and short-term investments, end of period.............. $ 113,669 $ 563,734
========= ==========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 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 March 31, 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
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
3. BANK COVENANTS
The Company is required to comply with its bank covenant ratios. At
March 31, 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
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 June 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
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Elmvale) Inc. and 51% of York Lanes Health Centres Ltd. The following is a
summary of the assets purchased and liabilities assumed:
<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>
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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>
MARCH MARCH
2000 1999
--------- --------
<S> <C> <C>
Net income (loss) based on Canadian GAAP.................... $(424,808) $(62,605)
Start-up costs amortized/(deferred)......................... 11,055 11,055
Deferred acquisition costs.................................. (15,641) (40,125)
--------- --------
Net loss based on United States GAAP........................ $(429,394) $(91,675)
--------- --------
Primary loss per share...................................... $ (0.08) $ (0.03)
========= ========
</TABLE>
If United States GAAP were employed, deficit, other assets, prepaid and
other assets, and total liabilities would be adjusted as follows:
<TABLE>
<CAPTION>
MARCH DECEMBER
2000 1999
----------- -----------
<S> <C> <C>
Deficit based on Canadian GAAP.............................. $(4,794,733) $(4,335,566)
Start-up costs deferred..................................... (241,754) (255,040)
Goodwill amortization....................................... (91,166) (8,925)
----------- -----------
$(4,945,321) $(4,599,531)
=========== ===========
Other assets based on Canadian GAAP......................... $ 3,714,559 $ 4,005,768
Start-up costs deferred..................................... (241,754) (255,040)
Goodwill on purchase of YFMC Healthcare Inc................. 1,094,907 1,087,872
----------- -----------
$ 4,567,412 $ 4,838,600
=========== ===========
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (con't)
<TABLE>
<S> <C> <C>
Total liabilities based on Canadian GAAP.................... $4,833,332 $4,836,005
Convertible debenture....................................... 405,371 405,371
---------- ----------
$5,238,703 $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.
(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.
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(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.
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.
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(g) Shareholders' Equity
Under U.S. GAAP, loans issued to officers to acquire stock are presented
as a deduction from shareholders' equity (deficit).
Under Canadian GAAP, the detachable stock purchase warrants issued 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.
The effect on shareholders' equity would be as follows:
<TABLE>
<CAPTION>
MARCH 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........................................ (4,945,321) (4,599,531)
----------- -----------
Shareholders' equity (deficit) -- U.S. GAAP................. $ 5,768,168 $ 5,716,753
=========== ===========
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
5. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
(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.
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.
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
6. SEGMENTED INFORMATION (cont'd)
Details are as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------
PHYSICIAN PHYSICIAN
& NURSE MANAGEMENT
RECRUITING SERVICES IHSDN CONSOLIDATED
---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Revenue...................................... 1,880,177 1,919,416 -- 3,799,593
Gross margin................................. 304,087 1,220,952 -- 1,525,039
Operating income before Corporate Overhead &
Public Company-related costs............... 206,013 205,666 (465,944) (54,265)
Corporate Overhead........................... (232,051)
Public Company-related costs................. (21,692)
---------
Operating loss............................... (308,008)
Assets employed at end of period............. 3,975,896 5,989,602 -- 9,965,498
Depreciation and amortization................ 25,459 70,391 -- 95,850
Capital expenditures......................... 23,315 19,619 -- 42,934
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------
PHYSICIAN PHYSICIAN
& NURSE MANAGEMENT
RECRUITING SERVICES IHSDN CONSOLIDATED
---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Revenue...................................... 1,770,219 1,027,601 -- 2,797,820
Gross margin................................. 301,197 462,330 -- 763,527
Operating income before Corporate Overhead &
Public Company-related costs............... 218,433 119,973 (102,639) 235,767
Corporate Overhead........................... (204,113)
Public Company-related costs................. (78,462)
---------
Operating loss............................... (46,808)
Assets employed at end of period............. 3,677,575 2,028,676 140,131 5,846,382
Depreciation and amortization................ 23,818 39,404 -- 63,222
Capital expenditures......................... 11,813 369,300 -- 381,113
</TABLE>
<PAGE>
MED-EMERG INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
7. COMMITMENTS
On March 1, 2000, the Company issued a private placement memorandum for
equity financing. The Company currently is in the process of raising gross
proceeds of US$1,700,000 for the issuance of 935,000 common shares. To date
the Company has raised gross proceeds of US$600,000.
The Company is in the process of negotiating an agency agreement to raise
funds for its development initiatives in HealthyConnect.com.
<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
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on-line product offering. DocISP.com provides free unrestriced internet acces,
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 May 3, 2000, HealthyConnnect.com, Inc. and Harmonie Group, Inc. (Boston,
Massachusetts) a leading provider of hospital based web enabled patient
information management software, entered into a Letter of Intent whereby
HealthyConnect.com, Inc. intends to acquire all of the outstanding shares of
Harmonie Group, Inc. through a share exchange. 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. The acquisition, which is subject to the
completion of due diligence and execution of a definitive agreement, is
scheduled to close on May 31, 2000.
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HealthyConnect.com will enable physicians and other healthcare providers to
access reliable information and provide them with additional support in
delivering cost effective, high quality healthcare services. Benefits include
24-hour coverage for patients, access to a comprehensive physician medical
reference database, online continuing medical education courses, tools for
chronic disease management, and participation in clinical trials and web
casting. HealthyConnect.com will link healthcare product and service suppliers
with our clinical network family. Convenient and secure access and at
home/office browsing and purchasing capabilities will facilitate direct sales
opportunities for member suppliers. Healthcare product and service suppliers
that may benefit from using HealthyConnect.com include pharmaceutical companies,
insurance companies, employers, government, managed care organizations,
physicians and hospitals.
HealthyConnect.com has assembled several key strategic partners that will
provide health information content, end to end transaction processing capability
and e-commerce goods and services to its customers. HealthyConnect.com has
negotiated, amongst others, a relationship with AstraTek, a software product
development firm, delivering advanced technologies to Fortune 1000 companies and
financial institutions and Data General, a leading supplier of servers and
storage systems, and services for information systems users worldwide. AstraTek
assisted in the development and launch of the HealthyConnect.com portal. Data
General will provide a consolidated computing infrastructure to support
HealthyConnect.com including hardware, software and network support.
Management of Med-Emerg sees HealthyConnect.com as a significant opportunity to
create a profitable business line while providing healthcare organizations with
new web-based technologies to increase practice efficiency, achieve measurable
cost savings and improve the quality of care.
On February 18, 2000, the Company announced the signing of a Business
Combination Agreement to purchase all of the issued and outstanding shares of
Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common
share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of
US$3.00 per share for every 12.85 shares of LRC. The closing of the transaction
is subject to regulatory and shareholders approval. LRC is a publicly listed
company on the Canadian Venture Exchange that offers a full range of laser
cosmetic procedures in its clinic operations located in the provinces of
Ontario, Alberta and British Columbia.
On November 5, 1999, the shareholders of the Company approved the issuance of up
to 1,799,502 additional common shares in connection with the take over bid by
the Company for all the issued and outstanding securities of YFMC
Healthcare Inc. ("YFMC"), a Canadian physician management services organization
that owns and manages 22 medical clinics. Pursuant to the business combination
agreement, dated August 10, 1999, the Company mailed a take-over bid circular on
November 5, 1999 to all YFMC shareholders making an offer to purchase all the
issued and outstanding securities of YFMC on the following basis:
a. In the case of holders of YFMC Common Shares, one Med-Emerg Common Share for
every 6 7/8 shares of YFMC
b. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series A
Warrant for every 8 warrants of YFMC
c. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series B
Warrant for every 8 warrants of YFMC
d. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common Share,
subject to certain conditions, one Med-Emerg Common Shares for every 10 YFMC
First Preferred Shares.
The Company issued 1,758,556 Common Shares to complete the transaction. In
addition, Med-Emerg substituted for every eight options to acquire YFMC Common
Shares under the YFMC Stock Option Plan, the right to acquire one Med-Emerg
Common Share at an exercise price of $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
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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
First Quarter Ended March 31, 2000 compared to First Quarter Ended March 31,
1999
REVENUES. Revenues increased by $1,001,773 or 35.8% from $2,797,820 in the
first quarter of 1999 to $3,799,593 in the first quarter of 2000. The revenue
growth is attributable to the clinic acquisitions and growth in nurse staffing.
Revenues generated by Physician Management Services increased by $891,815 or
86.8% from $1,027,601 in the first quarter of 1999 to $1,919,416 during the
first quarter of 2000. The acquisition of YFMC Healthcare Inc. acquired in the
last quarter of 1999 contributed $842,227 to revenue.
Revenues from Physician and Nurse Recruiting increased by $109,958 or 6.2% to
$1,880,177 during the first quarter of 2000 from $1,770,719 during same period
for 1999. The increase in revenue is attributed to the nurse staffing component
which contributed an additional $39,380 to revenue in the first quarter of 2000
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 two contracts.
PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which
primarily represents fees to contract physicians, increased $240,261 or 11.8%
from $2,034,293 in the first quarter of 1999 to $2,274,553 in the first quarter
of 2000. Physician fees and other direct costs decreased as a percent of
revenue, representing 59.9% of revenues for the quarter ended March 31, 2000 and
72.7% of revenues for the quarter ended March 31, 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 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.
Physician fees and other direct costs of the Physician Management Services
division increased by $133,193 or 23.6% from the first quarter of 2000 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 increased by $107,068 or 7.3% from the first quarter of 2000 compared
to the same period in 1999. This increase is consistent with the increase in
revenue.
OPERATING EXPENSES. Operating expenses have increased by $1,022,712 or 126.2%
to $1,833,047 in the first quarter of 2000 from $810,335 in the first quarter of
1999. There are several factors contributing to
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the increase in operating expenses, including the development of the IHSDN
division and the clinic acquisitions in 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 first quarter of 2000, the company expensed $465,944 on the
development of this concept and $102,639 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, in the first quarter of 1999
and acquired YFMC Healthcare Inc. in the last quarter of 1999. These
acquisitions added $748,796 to operating expenses in the first quarter of 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 $157,936 for the three months ended March 31, 2000 as
compared to $55,831 for the three months ended March 31, 1999. The Company
reported a net loss of $424,809 for the three months ended March 31, 2000 as
compared $62,604 for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Through its acquisitions completed in the first quarter of 1999, the Company
assumed bank term loans with current balances totaling $526,711. Approximately
$148,903 was loaned to a subsidiary of the Company under the Small Business
Investment Loans program in which the Canadian government guarantees 90% of the
principal balance of the loan. The remaining balance consists of capital loans
for asset purchases and clinic acquisitions.
As at March 31, 2000, the company's working capital deficit totaled $674,538.
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 credit bear varying interest
rates from the bank's prime lending rate plus 0.75% to 9.65% per annum. As at
March 31, 2000, the Company has drawn approximately CDN$1,600,306 (US$1,101,002)
against the operating facility and CDN$515,385 (US$354,584) against the capital
facility.
On March 1, 2000, the Company issued a private placement memorandum for equity
financing. The Company currently is in the process of raising gross proceeds of
US$1,700,000 for the issuance of 935,000 common shares. In March, the company
raised gross proceeds of US$500,000 on the issuance of 250,000 shares of
Med-Emerg International Inc. Subsequent to the end of the quarter, the company
raised additional gross proceeds of US$100,000 on the issuance of 50,000 shares.
The Company is in the process of negotiating an agency agreement to raise funds
for its development initiatives in HealthyConnect.com.
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
<PAGE>
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: __________________________________
Carl Pahapill
President and Chief Operating
Officer
Date: May 15, 2000
