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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 1-13861
MED-EMERG INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
PROVINCE OF ONTARIO, CANADA
(State or Other Jurisdiction of Incorporation or Organization)
2550 Argentia Road, Suite 205
Mississauga, Ontario, Canada L5N 5R1
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (905) 858-1368
Securities registered or to be registered pursuant to Section 12(b) of the Act.
(Title of each class) (Name of each exchange on which registered)
COMMON STOCK, NO PAR VALUE OTC Bulletin Board and Boston Stock
Exchange
REDEEMABLE COMMON STOCK OTC Bulletin Board and Boston Stock
PURCHASE WARRANTS Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE OTC Bulletin Board and Boston Stock
Exchange
REDEEMABLE COMMON STOCK OTC Bulletin Board and Boston Stock
PURCHASE WARRANTS Exchange
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act. NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Common Stock (based upon the
closing sales price of the Company's Common Stock as reported on the OTC
Bulletin Board on March 27, 2001) of the registrant held by non-affiliates on
December 31, 2001 was approximately US$ 8,328,444.
As of April 10, 2002, 9,253,827 shares of the registrant's Common Stock
were outstanding.
All figures in US dollars unless otherwise noted.
PART I
ITEM 1: BUSINESS
BACKGROUND
Med-Emerg International Inc. (MEII) was founded in 1983 by Dr. Ramesh Zacharias
to provide emergency room (ER) physician coverage to rural hospitals during
nights and weekends. The Company quickly grew into one of Canada's largest
providers of ER physician coverage. Since inception, the Company has provided
staffing solutions to over 60 hospitals across the country.
The Company has also conducted several international consulting assignments for
healthcare clients in Saipan, the Cayman Islands, Malaysia and India, including
feasibility studies, identification of medical service needs, planning of
healthcare delivery systems and developing marketing strategies. In 1997, the
Company completed a consulting assignment to provide an integrated strategic
plan for the delivery of health and social services in the Northwest Territories
in Canada, the costs of which were funded by the Northwest Territory Provincial
government.
Med-Emerg has demonstrated industry leadership in Canada by providing integrated
professional management services in the delivery of healthcare to the Canadian
healthcare consumer. The Company's operations are divided into five units;
Hospital Staffing, Medical Clinics, Department of National Defence,
Pharmaceutical Support and Long-Term Care. The Company intends to broaden its
recruiting and management services over a wider geographic base, as well as
pursuing opportunities for its expertise in the pharmaceutical industry and
increasing medical personnel staffed under its contract with the Department of
National Defence. 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 the current restructuring
initiatives within the healthcare industry. Specifically, the Company's strategy
is to leverage its 18 years of physician recruitment experience to become a
dominant player in healthcare management services.
THE COMPANY
The "Company" includes: (i) Med-Emerg International Inc.; (ii) its' wholly-owned
subsidiaries, Med-Emerg Urgent Care Centres Inc., Med-Emerg Health Centres Inc.,
YFMC Healthcare Inc., 927563 Ontario Inc. and 927564 Ontario Inc.; (iii) its
indirect wholly-owned subsidiaries Med-Emerg Inc. and Med Plus Health Centres
Ltd., which is wholly-owned by 927563 Ontario Inc. and 927564 Ontario Inc.,
respectively; (iv) its 75% owned subsidiary, Doctors on Call Ltd.; and, (v) its
51% owned subsidiary Caremedics (Elmvale) Inc.; (vi) its indirect wholly-owned
subsidiaries of 1180668 Ontario Inc., owner of 1024528 Ontario Ltd. o/a
Caresource Physiotherapy and 1292363 Ontario Corp., which are wholly-owned by
1189543 Ontario Inc., a subsidiary of YFMC Healthcare Inc.
The Company's operations are divided into five units: Hospital Staffing,
Medicals Clinics, Department of National Defense, Pharmaceutical Support and
Long-Term Care. The following represents a brief description of those units.
HOSPITAL STAFFING
Hospitals have increasingly turned to consulting specialists with specialized
skills to strengthen the management of their professional medical staff and
specific clinical departments, to better control costs, and to assist hospitals
in meeting their healthcare coverage needs and obligations to patients who are
indigent, uninsured or unassigned to a referring physician.
The Company provides ER physician staffing services to approximately 22
hospitals in Ontario, a mix of rural and urban facilities including tertiary
care centers. In 1991, the Company introduced registered nurses into its
staffing mix, when it developed a cost-effective model for the Lester B. Pearson
International Airport utilizing "expanded role" registered nurses. The Company
went on to launch a business devoted entirely to the provision of emergency
trained registered nurses to hospitals in 1997. In 2001, the hospital staffing
unit provided approximately 3500 hours of physician coverage and 1200 hours of
nursing coverage per month for its' clients. The Company pays its physicians on
an hourly or sessional basis, and receives a fixed monthly administrative
management fee from each hospital.
In addition to hospital staffing, the Company has experience in providing unique
integrated staffing solutions in other healthcare settings. In 1996, the Company
was approached by the Whitby Mental Health Centre to recruit five new primary
care physicians to augment their existing resources. Upon a review of the
patient population, the types of cases being treated, and the total cost of the
current system, the Company pioneered an integrated health care model, combining
Primary Care Physicians with Primary Health Care Nurse Practitioners, becoming
the first organization to introduce Nurse Practitioners into a mental health
setting. The program, now operational for four years, has received high
satisfaction ratings from both staff and patients. Recently, the Company was the
recipient of the ACE award from the Ministry of Health for Innovation in Health
Care Delivery Design. The Company has since been invited by a large multi-site
psychiatric facility to provide a review of its primary care program with a
possible implementation of the same type of delivery model that was used at the
Whitby site.
During the early and mid 1990's, the Company was retained by Correction Services
Canada (CSC) to provide staff to deliver health services compliant with
provincial and community standards, while dealing with the constraints inherent
within a corrections environment. Between 1991 and 1996, the Company provided
services to the Kingston Penitentiary, Warkworth Institution, the Regional
Treatment Centre, Millhaven Penitentiary and Bath Institute. The Company's
responsibilities in these institutions included:
- - the performance of examinations and assessments of the physical well-being
of the inmates;
- - the determination of appropriate specialist back-up and consultation;
- - the arrangement of medical services outside of the institutional
environment;
- - the initiation of preventative health programs; and
- - the prescription of medications.
The Company was cognizant of cost and safety controls related to patient
transfers, and was instrumental in the development of on-site specialist
coverage and consultation. The Company has over five years of experience serving
the unique needs of inmate populations and providing comprehensive medical
programs. In March 1994, the Company submitted a proposal to develop and teach a
comprehensive nursing program to the Warkworth Institution and the Kingston
Penitentiary. The program included the development of an education program, to
be taught by professional experienced teachers, relevant teaching methodologies
and the ability to build on additional teaching components.
CONTRACTUAL ARRANGEMENTS
MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and
screens potential candidates to serve as emergency room physicians in hospitals
for the Company's contract staffing services. The Company then enters into
contracts with physicians who meet its qualifications and provides those
physicians as candidates for admission to the hospital's medical staff. The
Company requires all physicians to be currently licensed to practice medicine in
the Province of Ontario and to be Advanced Cardiac Life Support ("ACLS") or
Advanced Trauma Life Support ("ATLS") certified before entering into a contract
for the physician's services.
The terms and conditions of the Company's contracts with physicians generally
provide that the Company, on a best efforts basis, place the physician in a
functioning facility and the Company collects all fees due to the physician for
rendering services. The Company then pays the physician for the medical services
provided based on terms agreed to between the Company and the physician. These
contracts generally contain the following provisions: each physician is not an
employee of the Company but is instead an independent contractor of services to
various medical facilities under contract with the Company; each physician must
remain in good standing with the College of Physicians & Surgeons of the
Province of Ontario and be licensed to practice medicine in the Province of
Ontario; each physician must remain in good standing with the Canadian Medical
Protective Association ("CMPA") and have appropriate CMPA coverage to provide
physician services to patients while working with the Company. Physicians are
bound by a non-competition restriction not to provide services at any hospital
where the Company has a contract for one year following the contract term. Each
physician full-time contract has a term of twelve months and renews
automatically for an additional twelve months.
CONTRACTS WITH HOSPITALS FOR PHYSICIAN STAFFING. The Company coordinates the
scheduling of staff physicians to provide coverage on a negotiated basis to a
hospital's emergency department.
The Company generally provides contract physician staffing services to hospitals
on either of the following arrangements: fee-for-service contracts, or fixed fee
per shift to the hospital. In addition, physicians under contract to the Company
authorize the Company to bill and collect fees. Depending upon the hospital
patient volume, the Company may receive a subsidy from the hospital. Pursuant to
such contracts, the Company assumes responsibility for billing and collection
and assumes risks of administrative error and subsequent non-payment. All of
these factors are taken into consideration by the Company in arriving at
appropriate contractual arrangements with healthcare institutions and
professionals. The hospital contracts are generally for one year, are generally
terminable by either party upon two months written notice, and automatically
renew if not terminated.
When determining the split arrangement to be used in the physician compensation
model for the Company's fee-for-service contracts, the Company considers a
hospital's emergency room patient volume, the monthly gross margin targets set
by the Company, the location of the hospital in relation to the supply of
physicians, and shift coverage offered or required by the hospital.
When determining the fixed administrative fee to be charged to the hospital, the
Company considers several factors including location of the hospital in relation
to the availability of physicians, number of physicians from which to draw, the
number of physician shifts required, and patient volumes.
For all but one of the hospital staffing contracts, the Company's monthly fee is
due on the first of the month for which shift coverage is being provided. For
all of the Company's hospital staffing contracts (fee-for-service and fixed fee)
the physicians are paid on the 15th of each month for services rendered up to
the 15th of the prior month.
CONTRACTS WITH HOSPITALS FOR NURSE STAFFING. The Company provides nursing
coverage to hospital emergency departments on a shift-by-shift basis. The
Company charges a fixed hourly rate for every hour of nursing coverage provided.
The hospital contracts are generally for one year, are terminable by either
party upon three months written notice, and automatically renew if not
terminated.
CONTRACTS WITH NURSES. The Company identifies, recruits and screens potential
candidates to serve as emergency room nurses in hospitals that have contracted
for the Company's staffing services. The Company then enters into contracts with
nurses who meet its qualifications. The Company requires all nurses to be Basic
Life Support ("BLS") certified and prefers Advanced Cardiac Life Support
("ACLS") certification. Nurses must have a minimum of two years experience in
emergency departments and pass a written examination that tests their skills as
a critical care nurse.
The Company bills a fixed hourly rate to the hospital for each hour of service
provided by a nurse under contract with the Company. The nurses are paid a lower
fixed hourly rate on the 15th and 30th of each month.
HOSPITAL STAFFING OPERATIONS
The principal operating activities of the Hospital Staffing include the
following:
RECRUITMENT AND CREDENTIALS. Med-Emerg has developed into one of the larger
providers of physician recruitment and placement services to many communities
and hospitals across Canada. Services include the complete assessment of a
community's needs, practice opportunities, the development of a recruitment
strategy and implementation process.
The recruitment and certifying of credentials of qualified independent contract
physicians is a central aspect of the Company's operations. Full-time employees
of the Company are dedicated to recruiting and certifying credentials of the
independent contract physicians for the Company. The Company recruits physicians
from three groups. The first group is recruited directly from postgraduate
training programs. Seminars are held in most of the teaching hospitals in
Ontario, with plans to provide seminars across Canada to educate all the
residents in family medicine and other specialties about career opportunities in
the Company. The second and third groups recruited are established family
physicians with an interest in emergency medicine and full-time
emergentologists. The Company has developed a database that tracks the
physicians during their medical career. This database enhances the Company's
ability to maximize the medical service contribution of each physician. In the
Canadian healthcare environment where there exists a significant shortage of
qualified physicians, one measure of value of a physician management
organization is its ability to access, in a timely manner, the quantity of
physicians in an organization's database. As part of its recruiting strategy,
the Company has established a stock option plan and group benefits plan in which
its contracted physicians can participate. The Company believes that this will
encourage physicians to make long-term commitments.
Qualified independent contract nurses are recruited through advertising,
word-of-mouth and trade shows. Nurses must have two years of experience in
critical care nursing and possess Basic Life Support ("BLS") training and
preferably Advanced Cardiac Life Support ("ACLS") training.
QUALITY ASSURANCE. The Company maintains a Quality Assurance program designed to
ensure consistency in clinical practice performance. These systems are subject
to review and examination by independent hospital credential and regulatory
agencies. As part of the Company's quality assurance program, all physicians are
required to have ACLS and ATLS certification, provide a Certificate of
Professional Conduct from the College of Physicians and Surgeons of Ontario, be
approved by the credentialing committee in their respective hospitals that are
governed by the Public Hospital Act, maintain adequate malpractice coverage, and
maintain continuing medical education credits. The efficiency of these systems,
and the performance of the Company's contract physicians, are critical to
maintaining a good relationship with the hospitals, as well as minimizing the
exposure of the Company to liability claims.
TIME SCHEDULING. The scheduling of physician hours and nurse hours is performed
monthly. For physician services, hospitals are provided a monthly physician
coverage schedule prior to the first of each month. Under some of the hospital
contracts, multiple physician coverage is required during certain periods. For
nursing services, hospitals contact the Company with their shift requirements.
Because of varying other demands on the contract nurses and physicians, the
scheduling process is complex and requires significant management attention.
BILLING AND COLLECTION OF SERVICES. Fees generated by emergency department
coverage of physicians are comprised of two elements: (i) hospital
administrative fees; and (ii) physician services. Under each hospital contract,
the Company has the responsibility for the billing and collection of physician
fees. The Company's bad debt experience in collection of physician fees has
historically been less than 1% of allowable billings. In addition, the Company
charges each hospital a fee for its recruiting and staffing services either on a
fixed fee or fee-for-service basis.
PERSONNEL ADMINISTRATION. The Company assists the contracted physicians in
personnel administration, which includes the administration of physician fee
reimbursement. In addition, the Company provides for the administration of
fringe benefit programs, which may include but are not limited to life
insurance, health insurance, professional dues and disability insurance.
The Company expects to continue its growth through staffing additional hospital
contracts. In particular, the Company intends to both strategically target
hospitals and physician groups. Management actively seeks opportunities to
competitively bid for hospital contracts.
In addition, the Company intends to take advantage of the government's plans to
restructure the delivery of Canadian medical care through fewer, but more
efficient hospitals and hospital groups. Management expects that hospitals will
increasingly look to outsourcing from third party providers. Specifically, the
Company expects that hospitals will seek opportunities for emergency care
specialists not only to staff the emergency departments, but also to administer
and operate all aspects of those departments.
MEDICAL CLINICS
The Company began expanding its healthcare services in the early 1990's, in
response to the changing needs of patient care. The Company opened three
Immediate Care clinics in London and Mississauga, well before the concept became
popular in Ontario. Today, the Company is one of the largest physician practice
management companies, owning and operating 23 family practice clinics throughout
Canada; located in Ottawa (14), Toronto (2), London (2), Winnipeg (1), Edmonton
(2) and Calgary (2). In addition to its own clinics, the Company also provides
administrative support services to physician practices including management,
billing, staffing etc.
During 2001, the Company began a major restructuring of its clinic facilities.
Several small, unprofitable sites were closed or consolidated into larger group
practices that will leverage the overhead costs into a more profitable model.
The Company then developed business relationships with several of the large
retail pharmacy chains to build or manage group medical practices adjacent to
drug stores. In addition, the Company was engaged by several small rural
communities to assist in the development of their physician recruitment and
retention programs. One of the projects signed in 2001, resulted in the Company
being retained to build and manage a multi-physician practice that is adjacent
to the local pharmacy. The clinic will be electronically linked to the
hospital's information technology systems providing seamless access to patient
information.
DEPARTMENT OF NATIONAL DEFENCE
In August of 1998, the Company was approached by the Department of National
Defence (DND) to recruit a civilian anesthetist. The civilian physician was
needed to support the DND's Advanced Surgical Centre in Coralici, Bosnia for a
period of three months. The DND approved the Company's candidate and formalized
a contract for the provision of anesthetist coverage by this physician.
In May of 1999, with the arrival of refugees from Kosovo, Citizenship and
Immigration Canada (CIC) retained the Company to coordinate and provide on site
services to the refugee population at Canadian Forces Base (CFB) Borden and CFB
Gagetown. The Company, with its extensive network of primary care physicians, ER
physicians, specialists and nurse practitioners was able to provide the above
services within 72 hours at CFB Borden and within seven days at CFB Gagetown.
Physicians were recruited from within its own pool of physicians in addition to
utilizing relationships with external sources. The Company continued to provide
the on-site service and necessary administration for the duration of the stay of
the refugees approximately 10 weeks.
In March of 2001, the Company was then awarded the administrative management
services contract, the largest of its kind, to provide up to 400 medical
personnel to the thirty-three Canadian Forces Bases across Canada. The contract
has two stages, an initial period of three years with another three year renewal
option extending to March 31, 2007. As the service administrator, the Company
recruits, schedules and pays physicians, nurses, dentists, physiotherapists and
other regulated healthcare professionals to provide services as required by the
local health authority resident on each base. The Company is paid a monthly
administrative management fee by the DND that is linked to the number of
providers being managed at any one time. Within the first nine months of the
contract, the Company had placed over 500 employees and independent healthcare
professionals in all 39 bases across Canada. This exceeded the service delivery
expectations of the Canadian Forces and demonstrated the Company's ability to
manage large multi-site, multi-provider contracts, on a national basis.
For the DND, the primary benefit from this contract will be the existence of a
"one stop shopping" arrangement for the Local Health Authority. As part of a
national organization, the Company's recruiters source health service providers
from all regions of Canada. By developing a long-term relationship with their
employees and sub-contractors, and being able to react quickly to changing local
conditions, the Company provides some stability in the workforce and enhances
continuity in the delivery of patient care for the DND.
PHARMACEUTICAL SUPPORT
On March 15th, 2001, the Company signed a contract to become the national
coordinator for the community-based infusion of RemicadeTM. This multi-year
contract with Schering-Plough Canada capitalizes on the Company's national
network of health placement coordinators to provide timely access to clinics for
the treatment of patients with disabling rheumatoid arthritis and Crohn's
Disease. The Company has established 12 infusion sites, and is projected to open
approximately five more by the end of December 31st, 2002.
LONG-TERM CARE
The problem of physician shortages is evident not only in hospitals in Ontario
but also in its long-term care facilities. The Company has received requests
from long-term care facilities for physicians available to provide admission
physical assessments and regular primary care to residents. Residents of these
facilities are typically not cared for by their family physicians once they are
transferred to long term care facilities, thus they lack routine primary
healthcare. In April 2002, the Company will commence providing physicians and
nurse practitioners to select long-term care facilities in Ontario, and expects
to increase this number during 2002.
GOVERNMENT REGULATION
The provision of medical services in Canada is, for the most part, under
provincial jurisdiction. Under the Health Insurance Act, the government of
Ontario is responsible for paying physicians for the provision of insured
services to residents of Ontario. Individual physicians' billings under the
Ontario Health Insurance Plan (OHIP) are subject to threshold amounts, or soft
caps. Once a physician reaches a prescribed level in the 12-month period
beginning April 1 of each year, the government reduces payments to the physician
by a prescribed fraction. Any changes in reimbursement regulations, policies,
practices, interpretations or statutes that place material limitations on
reimbursement amounts or practices could adversely affect the operations of the
Company, absent, or prior to, satisfactory renegotiations of contracts with
clients and arrangements with contracted physicians.
Under a combination of statutory provisions, both federal and provincial,
physicians are prohibited from billing their patients for fees in excess of
those payable for services listed in the OHIP Schedule of Benefits. The Canada
Health Act allows for cash contributions by the federal government in respect of
insured health services provided under provincial healthcare insurance plans. In
order for a province to qualify for a full cash contribution, there is a
requirement that the provincial healthcare insurance plan satisfy the criteria
set out in the Canada Health Act. In
addition, the provincial plan must ensure that no payments are permitted in
respect of insured health services that have been subject to extra billing.
Continuing budgetary constraints at both the federal and provincial level and
the rapidly escalating costs of healthcare and reimbursement programs have led,
and may continue to lead, to significant reductions in government and other
third party reimbursements for certain medical charges. The Company's
independent contracted physicians as well as the Company are subject to periodic
audits by government reimbursement programs to determine the adequacy of coding
procedures and reasonableness of charges.
Business corporations are legally prohibited from providing, or holding
themselves out as providers of, medical care in many provinces. While the
Company will seek to structure its operations to comply with the corporate
practice of medicine laws of each province in which it operates, there can be no
assurance that, given varying and uncertain interpretations of such laws, the
Company would be found in compliance with restrictions on the corporate practice
of medicine in all provinces. A determination that the Company is in violation
of applicable restrictions on the practice of medicine in any province in which
it operates or could operate could have a material adverse effect on the Company
if the Company were unable to restructure its operations to comply with the
requirements of such province.
COMPETITION
The Company competes with a variety of healthcare service providers. These
include the entire range of licensed physicians in private practice; physicians
practicing in hospitals or under contract to other healthcare institutions;
nurses employed in various healthcare settings; and other healthcare providers
such as pharmacists, dentists, physiotherapists and regulated healthcare
professionals.
Competition in the industry is based on the scope, quality and cost of services
provided. Certain of the Company's current and potential competitors have
substantially greater financial resources than the Company. While management
believes that it competes on the basis of the quality of its services, the
larger resources of its competitors may give them certain cost advantages over
the Company (e.g., in the areas of malpractice insurance, cost savings from
internal billing and collection and a broader scope of services).
EMPLOYEES
As of March 27, 2002, the Company had 428 full-time employees, 38 were employed
in administration, 57 were employed in the Company's clinics and 333 were
employed to carry out the contract with the DND. In addition, as of such date,
approximately 550 physicians and 55 nurses were actively working as independent
contractors for the Company. The Company believes its' relations with its'
employees to be good. The Company's employees do not belong to a union and there
is no collective bargaining agreement covering employees.
ITEM 2: PROPERTIES
The Company's principal executive office is located at 2550 Argentia Road, Suite
205, Mississauga, Ontario. The principal office occupies approximately 7,500
square feet of space under a lease that expires in April, 2004 at an average
annual rental rate of approximately $100,000. The Company believes that its
current office space is adequate for its Company's future needs.
ITEM 3: LEGAL PROCEEDINGS
The Company is in receipt of a claim by a landlord of certain premises
previously occupied by the Company for damages for breach of contract. The
landlord is alleging that the Company renewed the lease for the premises and is
claiming rent for the entire renewal term. The amount of damages claimed is
approximately $121,000 plus interest and costs. The Company does not believe
that it renewed the lease and has instructed its solicitors to defend the action
and believes that the action is without merit.
The Company has been made aware of a potential claim for monies owing, in the
approximate amount of $25,000. The Company is disputing the quantum claimed and
in the event that the party commences legal proceedings, the Company will
counterclaim for damages suffered by it.
YMFC HealthCare Inc., a wholly owned subsidiary of the Company, is in receipt of
a letter from Canada Customs and Revenue Agency ("CCRA") dated April 30, 2001,
adjusting YFMC's Goods and Services Tax returns for the
period from December 31, 1992, to December 31, 1996. The total amount claimed by
CCRA for this period is $249,000. In the event that YFMC becomes liable to pay
any such amount to CCRA, the Company will claim an indemnity for such amount
against the directors and certain named principals of YFMC pursuant to the
Company's rights under the Business Combination Agreement executed on August 10,
1999. Counsel has confirmed that CCRA does not intend to pursue YFMC for these
amounts.
Other than the above, the Company is not subject to any material legal
proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fiscal
quarter ended, December 31, 2001.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Shares and Redeemable Common Stock Purchase Warrants are listed for
trading under the symbols "MDER" and "MDERW", respectively, on the OTC Bulletin
Board and under the symbols "MEI" and "MEIW", respectively, on the Boston Stock
Exchange. The Common Shares and Redeemable Common Stock Purchase Warrants have
been listed on the Boston Stock Exchange since February 12, 1998. From February
12, 1998 to April 16, 2001 the Company's Common shares and Redeemable Common
Stock Purchase Warrants were listed on the NASDAQ Small Cap Market. Since April
16, 2001, the Company's Common Shares have been listed on the OTC Bulletin
Board.
The following table sets forth the range of high and low sales prices from First
Quarter of 2000:
COMMON SHARES
-------------
HIGH LOW
First Quarter, 2000 3.6875 1.5625
Second Quarter, 2000 3.0625 1.625
Third Quarter, 2000 2.125 .875
Fourth Quarter, 2000 1.75 .375
First Quarter, 2001 .688 .406
Second Quarter, 2001 1.05 .53
Third Quarter, 2001 1.3 .70
Fourth Quarter, 2001 1.24 .55
There were 49 holders of record of the Company's Common Stock as of April 10,
2002.
The Company has never paid or declared cash or stock dividends on its common
stock. The payment of cash dividends, if any, is at the discretion of the Board
of Directors and will depend upon the Company's earnings, capital requirements,
financial condition and other relevant factors. The Company intends, for the
foreseeable future, to retain any future earnings for use in its business.
On March 31, 2000 the Company issued 1,040,000 common shares for net proceeds of
approximately $750,000.
On May 2, 2000 the Company issued 42,500 common shares for net proceeds of
$83,700 by way of a private placement. On May 18 and November 15, 2000, 155,554
shares were issued to a director for services rendered.
On December 31, 2000 the Company issued 13,000 common shares to an employee. The
fair value of these shares was $ 22,000 at the time of issue. The issue of these
shares is reflected as compensation expense.
On February 13, 2001 a director was issued 486,112 common shares in
consideration of services. The fair value of these shares was $ 243,000 at the
time of issue.
Pursuant to an agreement dated April 6, 2001, the Company issued 1,000,000
common shares through private placement for proceeds of approximately $493,000
(before issuance costs).
During the year a former employee surrendered 41,607 common shares in settlement
of a loan.
As part of the disposition of HCCI as described in Note 4, the Company issued 1,
077,440 common shares to the minority shareholders of HCCI.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company is qualified
by reference to and should be read in conjunction with the consolidated
financial statements, related notes thereto, other financial data, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
US $
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ------------ ------------ -----------
STATEMENT OF OPERATIONS DATA:
Revenue 23,058,455 $ 15,532,767 $ 12,648,428 $ 10,308,103 $ 8,358,937
Physician Fees and Other Direct Costs 16,869,850 10,011,764 8,877,139 7,984,116 6,319,934
----------- ----------- ------------ ------------ -----------
Gross Profit 6,188,605 5,521,003 3,771,289 2,323,987 2,039,004
Operating Expenses before undernoted
items
-- Canadian GAAP 5,903,954 6,103,860 3,707,128 2,246,225 1,995,439
-- U.S. GAAP 5,903,954 6,103,860 3,680,333 2,422,974 2,101,456
Depreciation and Amortization 3,503,728 1,590,006 361,333 124,239 92,548
HealthyConnect.com 1,855,113 1,730,691 798,943 84,530 -
----------- ----------- ------------ ------------ -----------
Operating Income (Loss)
-- Canadian GAAP (5,074,190) (3,903,554) (1,096,115) (131,007) (48,983)
-- U.S. GAAP (5,912,663) (3,942,984) (1,069,320) (307,756) (155,001)
Other Income (Expense) (934,405) 439,541 (44,495) (12,584) (321,335)
Provision for Income Taxes (Recovery) 1,248,016 (978,189) (262,140) (37,333) (29,332)
Net Income (Loss)
-- Canadian GAAP (7,355,966) (2,298,841) (878,470) (106,258) (340,987)
-- U.S. GAAP (8,219,901) (3,497,856) (851,675) (283,007) (447,004)
Net Income per Common Share (1)
-- Canadian GAAP (0.89) (0.37) $ (0.26) $ (0.04) $ (0.18)
Basic Loss per Common Share (1)
-- Canadian GAAP (0.91) (0.40) $ (0.30) $ (0.08) $ (0.18)
Basic Loss per Common Share
-- U.S. GAAP (1.01) (0.60) $ (0.25) $ (0.10) $ (0.23)
BALANCE SHEET DATA:
Working (Deficit) Capital $(1,931,980) $(2,471,958) $ (882,234) $ 1,499,329 $(1,349,530)
Total Assets 3,355,545 9,268,922 10,066,935 5,455,832 3,636,418
Long-term Debt 590,536 11,537 518,339 66,837 55,475
Shareholders' (Deficit) Equity (1,844,350) 4,142,345 5,230,930 3,703,504 9,760
(1) Net income (loss) per common share reflects net income (loss) before
preferred share dividends divided by the weighted average number of common
shares outstanding. Basic income (loss) per common share reflects net income
(loss) available to common shareholders divided by the weighted average
number of common shares outstanding.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Med-Emerg International Inc. ("Med-Emerg" or the "Company"), based in Ontario,
Canada, is a provider of a broad range of quality healthcare management
services. Established in 1983, the Company specializes in the coordination and
contract staffing of emergency physicians for hospitals and clinics in Canada.
Though emergency-related services are still an important component of the
Company's business, Med-Emerg has expanded to offer a wide variety of medical
services including nurse staffing, medical clinics, the recruitment of various
healthcare professionals to fulfill a contract with the Department of National
Defence, and a contract with Schering Plough Canada Inc. a leading
pharmaceutical company, to provide infusion services to patients.
The Company 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 five units:
Hospital Staffing, Medical Clinics, Department of National Defence,
Pharmaceutical Support, and Long-Term Care.
In 2001, the Company was awarded the contract for civilian in-garrison
healthcare services for the Department of National Defence. The contract, the
largest of its kind in Canada is a six year agreement that will see the Company
recruit and staff an annual complement in excess of 800 full time healthcare
providers in all Canadian Forces Bases. The Company receives an annual
administrative fee to recruit and manage required personnel. Annual revenue for
services provided under this contract is expected to exceed $20 million. The
Company's staffs who manage this project have previous Canadian military
experience and this experience has been instrumental to match the project
requirements to the specific needs of the Canadian Forces. This contract and its
supporting infrastructure create a horizontal platform to allow the Company to
secure of other major government staffing contracts.
In March 2001, the Company and Schering Canada Inc., a leading Canadian
pharmaceutical supplier, entered into an agreement to pay the Company a
management fee to recruit, credential and install new infusion sites across
Canada to deliver RemicadeTM infusion services to patients suffering from
Crohn's Disease and rheumatoid arthritis. RemicadeTM reduces inflammation in
patients with Crohn's disease and rheumatoid arthritis. It is estimated that
approximately 40,000 patients in Canada suffer from the debilitating effects of
these two diseases. Under this agreement, the Company coordinates and manages
infusion services for patients referred to it by Schering Canada Inc. at its
clinic locations. By December, 2001, there were approximately 500 patients
registered with the Company for this program, receiving regular infusions. It is
anticipated that the number of patients participating in this program will reach
1,000 by the end of 2002.
In April, 2002, the Company commenced providing physicians and nurse
practitioners to four long-term care facilities in Ontario. The Company intends
to expand this business unit in 2002.
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.
FINANCIAL OVERVIEW
During 2001, the Company incurred significant losses. The Company reported a net
loss of $ 7,355,966 for the year ended December 31, 2001 compared to a net loss
of $2,298,841 for the year ended December 31, 2000. The loss amounted to $ 0.91
per share for the year ended December 31, 2001 compared with a loss of $ 0.40
per share the previous year.
Unusual losses of $ 6.2 million were incurred for the year ended December 31,
2001, primarily as a result of a write down of other assets and a write down of
the Company's interest in HealthyConnect.com. The write down of the carrying of
the YFMC acquisition amounted to $ 2.5 million and the write down of the
Company's interest in HealthyConnect.com. amounted to $1.85 million. The Company
also wrote off deferred start up and incorporation expenses for an urgent care
clinic of approximately $200,000.
REVENUE
The Company's revenue for the year ended December 31, 2001 increased to $23.1
million, compared to $ 15.5 million for the year ended December 31, 2000, an
increase of approximately 48%. This revenue growth was largely attributable to
the Department of National Defence management service contract that commenced in
2001.
Revenue from the DND contract amounted to $9.0 million the year ended December
31, 2001 compared to nil in the prior year. As at December 31, 2001 the Company
was providing approximately 500 medical personnel at the DND bases across
Canada, and expects this number of medical personnel to increase during 2002.
Revenues generated by the medical clinics totaled $ 7.5 million the year ended
December 31, 2001 compared to $8.3 million for the prior year, a decrease of
9.8%. This decrease was due to the closure of unprofitable clinics.
Revenues from the hospital staffing unit decreased to $6.6 million the year
ended December 31, 2001 compared to $7.2 million for the prior year, a decrease
of 8.7%. The decrease in revenues resulted from the completion of a large
international contract during the previous period and the loss of a staffing
contract due to a government-imposed closure of a large emergency room facility.
GROSS MARGIN
Gross Margin (revenue less physician and other direct costs) increased to $6.2
million for the year ended December 31, 2001 compared to $5.5 million for the
prior year, an increase of 12.1%. This growth in gross margin was due to the
Department of National Defence management service contract.
Physician fees and direct costs, primarily fees paid to contract physicians,
increased to $16.9 million for the year ended December 31, 2001 compared to
$10.0 million for the prior year, an increase of 68.5%. Physician fees and other
direct costs increased as a percent of revenue to 73.2% of revenue for the year
ended December 31, 2001 compared to 64.5% of revenue for the year ended December
31, 2000. This increase reflected the inclusion of the DND contract where
physician fees are a greater percentage of revenue than that of the Company's
other business units.
OPERATING EXPENSES
Operating expenses totaled $5.9 million for the year ended December 31, 2001
compared to $6.1 million in the prior year, a decrease of 3.3%. The decrease in
operating expenses was due to a reduction of consulting expenses.
OTHER EXPENSES (INCOME)
On April 6, 2001, stock options were granted to senior officers, directors and a
third party. The intrinsic value of the options granted was approximately
$100,000, and was charged to earnings.
In order to reduce operating losses, the Company also sold a clinic in April
2001 with minimal disposition cost. The Company subsequently ceased management
of a medical clinic that had incurred losses of approximately $100,000 during
the year.
In September 2001, the Company disposed of its interest in HealthyConnect.com
(HCCI), a subsidiary operating as an internet-based e-commerce health portal.
The disposition resulted in a write down of $1.85 million.
Due to the impairment of certain assets, the Company wrote down the carrying
values of other assets to their fair value in December 2001. The write down
totaled $2.5 million, comprised of $800,000 of fixed assets, $1.2 million of
goodwill, and $500,000 of physician contract assets.
In December 2001, the Company also wrote off deferred start up and incorporation
expenses for an urgent care clinic of approximately $200,000.
AMORTIZATION AND INTEREST
Interest and financing costs increased by approximately $ 135,000 during the
year ended December 31, 2001 compared to the prior year, due to higher interest
rates on financing the DND contract.
INCOME TAXES
As a result of HealthyConnect.com, the Company no longer had a deferred tax
asset related to software development costs.
The Company's income tax recovery is based on an effective tax rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2001, the Company's working capital deficit totaled $
1,931,980.
In the course of the year, the Company raised gross proceeds of $493,000 through
the issuance of 1,000,000 common shares.
The Company sold its interest in HealthyConnect.com and received 1,929,921
shares in Next Generation Technology Holdings, Inc. (NGTH), as proceeds,
pursuant to a supplement to the merger agreement dated September 27, 2001. The
NGTH shares were subsequently sold for gross proceeds of $ 385,984.
During the year, the Company was in violation of its loan covenants. At the
request of its (secondary) bankers, the Company repaid, in full, two operating
lines and certain term loans owing to those bankers, totaling $306,441. This
resulted in the retirement of credit facilities that had been provided to YFMC
Healthcare Inc., a wholly-owned subsidiary of the Company, and to YFMC
Healthcare (Alberta) Inc., a wholly-owned subsidiary of YFMC Healthcare Inc.
The Company was also in default of certain terms and conditions pertaining for
credit facilities from its primary banker, HSBC bank, including margin limits
and financial covenants. As security for the operating line, the Company had
provided a first-ranking general assignment of accounts receivable, a general
security, an assignment of all risk insurance policies and an assignment of key
man life insurance of a director. As at December 31, 2001, the Company has drawn
approximately $1.26 million under these credit facilities.
In January, 2002, HSBC terminated those credit facilities. At the request of the
Company and its Guarantors, HSBC subsequently agreed to forbear from immediately
enforcing its rights to continue the credit facilities subject to certain terms
and conditions as documented in Note 10 to the financial statements.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and the related notes, together
with the report of Schwartz Levitsky Feldman LLP thereon, are set forth in
Item 14.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have not been disagreements with the auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
NAME AGE POSITION
- ---- --- --------
William Thomson, C.A. 60 Chairman of the Board
Dr. Frank Baillie, M.D., Ch.B., FRCSC 50 Director
Patrick Michaud, M.B.A., C.G.A. 50 Director
Ramesh Zacharias, M.D., FRCSC 50 Chief Executive Officer,
Director
Donald Ross, D.M.D., M.Sc. 50 V.P. Operations
John Jarman, B.Com, C.A. 50 Chief Financial Officer
NAME POSITION PRINCIPAL OCCUPATION AND POSITIONS HELD
- ---- -------- ---------------------------------------
William E. Chairman Mr. Thomson has been the Chair of the Company since
Thomson(1)(2)(3) January 1996. Mr. Thomson is President of William
E. Thomson Associates Inc., whose activities include
the operation of companies in crisis, monitoring the
clients of financial institutions, counseling Boards
of Directors, Chief Executive Officers and senior
management during periods of change, growth, initial
public offerings and other financings, and general
consulting and financial intermediation services. Mr.
Thomson has operated companies in diverse fields
including information technology, manufacturing,
hospitality, forest products, medical services,
financial services, transportation, and tier two
automotive supplies. Mr. Thomson is also chairman of
Esna Technologies Ltd., Asia Media Group Corporation,
TPI Plastics Ltd., and HealthworksTMS. In addition, he
serves as a director of the following companies:
Elegant Communications Ltd., Electrical Contacts Ltd.,
The Aurora Fund, Delfour Corporation, Imperial
Plastech Inc., and Redpearl Funding Corporation.
Dr. Frank Baillie(1) Director Dr. Frank Baillie has been a Director of the Company
since January 1, 2002. Dr. Frank Baillie has over
twenty years of clinical and managerial experience as
an Emergency Physician and General Surgeon in an
academic setting. Dr. Baillie has maintained a
surgical practice at McMaster University Medical
Centre in Hamilton, Ontario since 1979. He also
introduced emergency physician staffing and
postgraduate training in Emergency Medicine at
McMaster's Faculty of Health Sciences. He has managed
a number of medical programs, including Hamilton
General Hospital, Chedoke McMaster Hospital and St.
Peter's Hospital. Dr. Baillie has provided
consultative services regarding the delivery of
emergency care for the Ontario government as well as
internationally in Thailand, Malaysia, Kerala Province
in India, Beijing and Abu Dhabi. Currently, Dr.
Baillie is Associate Professor of Surgery and
Postgraduate Surgical Program Director at McMaster
University Faculty of Health Sciences, he is the
International Medical Liaison Officer for the Hamilton
Health Sciences Corporation, and the Medical Director
for Ontario CritiCall Service.
Patrick Director Patrick Michaud has been a Director of the Company
Michaud(1)(2)(3) since May 1, 2001. He is Chief Financial Officer
of GlycoDesign Inc., a clinical stage
biopharmaceutical company specializing in the
development of glycotherapeutics. Prior to
GlycoDesign, Patrick was self-employed as an
independent financial consultant, providing consulting
services to various companies, assisting them in their
strategic planning, financial/management systems,
developing business plans, and raising capital. Prior
to this time, he was CFO of two public companies,
including a Canadian merchant bank, with several
successful public and private equity issues. He has
served as a director of two publicly traded healthcare
companies. Mr. Michaud received a B.Eng. from the
Royal Military College of Canada, a MBA from the
University of Western Ontario, and is a Certified
General Accountant.
Ramesh Zacharias President Dr. Ramesh Zacharias is the founder of Med-Emerg
and Chief and serves as the President and Chief Executive
Executive Officer, and Executive Medical Director, of
Officer and Med-Emerg Inc. He has practiced medicine in Canada
Director since 1981 and has extensive experience in the
delivery of emergency and primary, medical care. He
has provided consulting services regarding the
delivery of emergency care internationally in the
Caribbean, Saipan and Malaysia and provided
management-consulting services regarding the operation
of medical clinics in Canada, the United States and
Russia. In this continued role in providing medical
insight and with his extensive business experience, he
provides the strategic guidance and leadership to the
Med-Emerg management team. Under his leadership, the
Company has grown to become the leading Canadian
medical clinic management and medical staffing
organization.
Donald Ross Vice President Dr. Ross has been Vice-President of Med-Emerg
Operations International Inc. since November 1, 2000 and is
responsible for the operations of the Company. He is
an experienced healthcare executive, responsible for
hands-on day-to-day operations. In addition to his
professional experience, Don holds a Masters degree in
Clinical Epidemiology, is a Doctor of Dental Medicine,
and has an honours Bachelors degree in neurophysiology
from the University of British Columbia. Prior to
working with Med-Emerg, Don was the Executive Vice
President (Health Care) of Aetna Canada for five years
and has extensive experience in managing clinical
business units in the public and private sectors.
John Jarman Chief Mr. Jarman is a chartered accountant having
Financial articled at PriceWaterhouseCoopers and has been the
Officer Company's CFO since January 2, 2001. He has
consulted to the healthcare industry and brings more
than eighteen years experience in senior management
positions prior to working with Med-Emerg Inc. John
graduated from the University of Toronto with a
Bachelor of Commerce. He has broad experience in
corporate finance, acquisitions, and strategic
alliances.
NOTES:
(1) Member of the Nominating and Governance Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the cash compensation, as well as certain other
compensation paid or accrued to the Company's Chief Executive Officer for the
fiscal years ended December 31, 2001, 2000 and December 31, 1999. No other
executive officer has a total annual salary and bonus of more than $100,000
during the reporting periods.
ANNUAL COMPENSATION (US$)
-------------------------
OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ------- ------------
Ramesh Zacharias 2001 $218,882 $ 0 $ 8,998(1)
Chief Executive Officer 2000 $227,000 $ 0 $ 9,713(1)
1999 $179,048 $67,300 $ 4,938(1)
(1) In addition to being the Chief Executive Officer of the Company, Dr.
Zacharias on occasion covers physician assignments that the Company is
otherwise unable to fill. For each assignment that Dr. Zacharias covers,
he is paid as an independent contracting physician. This amount
represents fees paid to Dr. Zacharias for services rendered as a
physician.
Employment Agreements
All of the Company's executive officers intend to offer their full business time
to the affairs of the Company. The Company entered into an employment agreement
with Dr. Zacharias on August 1, 1997. Dr. Zacharias' agreement provides that he
will devote all of his business time to the Company in consideration of an
annual salary of $225,000 effective August 1, 1999 and a bonus of up to $67,300
based on performance. The agreement is for a term of three years, but may be
terminated by the Company for cause, or without cause with penalty.
Stock Option Plan
In November 1999, the Board of Directors and shareholders adopted and approved
the Company's Stock Option Plan (the "Plan"). The Plan provides for grants to
both employees and directors of the Company. The Plan is to be administered by
the Board of Directors or a committee appointed by the Board. The Plan was
amended to authorize the Company to issue options to acquire an aggregate of
2,090,000 shares of Common Stock, 1,941,300 of which have been granted as of
December 31, 2001. As at December 31, 2001, 148,700 options were still available
to be granted under the Stock Option Plan.
During the fiscal 2001, 12,500 options were cancelled or let to expire. No
options were granted to eligible physicians during the fiscal year ended
December 31, 2001.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 28, 2002 certain information with
respect to stock ownership of (i) all Officers and Directors; (ii)persons known
by the Company to be beneficial owners of 5% or more of its outstanding shares
of Common Stock; (iii) all directors and officers as a group.
SHARES OF PERCENTAGE
COMMON STOCK(1) OWNERSHIP
NAME OF BENEFICIAL OWNER(2)
1245841 Ontario Inc
and Ramesh Zacharias
M.D., FRCSC(3)(4) 2,150,989 21.0%
William Thomson, C.A.(5) 410,000 4.1%
Patrick Michaud, B.M.A., C.G.A.(6) 10,000 0.1%
John Jarman, B.Com., C.A.(7) 100,000 1.0%
Donald Ross, D.M.D., M.Sc.(7) 100,000 1.0%
All Officers and Directors as
a group(4)(5)(6)(8) 2,770,989 24.7%
(1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purposes of computing the percentage ownership of any other person
shown in the table.
(2) Unless otherwise indicated, the address is c/o Med-Emerg International,
Inc., 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5R1, Canada.
(3) 1245841 Ontario Inc. is a Canadian company which is owned by Ramesh and
Victoria Zacharias. Dr. Zacharias and Mrs. Zacharias each disclaim
beneficial ownership of the shares owned by the other
(4) Includes (i) 292,544 shares owned by 1245841 Ontario Inc., which is owned by
Dr. and Mrs. Zacharias (ii) 365,000 shares issuable upon exercise of
currently exercisable options granted under the Company's 1997 Stock Option
Plan to Dr. Zacharias, and (iii) 750,000 shares of Common stock issuable
upon conversion of up to 500,000 shares of Convertible Preferred Stock which
preferred stock is currently held by 1245841 Ontario Inc., for a period of
ten years from issuance, each share of preferred stock is convertible into
1.5 shares of Common Stock and thereafter into such number of shares of
Common Stock as is equal to U.S.$4,500,000 divided by the then current
market price of the Common Stock on the date of conversion, for purposes of
the above chart, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock was calculated by assuming a one for one
and one-half conversion. (iv) 140,375 common shares issuable as of May 7,
2001 as a stock dividend payable on the preference shares, but which have
not as of the date hereof been formally issued from treasury. (v) options to
purchase up to 500,000 common shares granted by the board of directors on
April 06, 2001, and (vi) 103,070 common shares issuable as of March 22, 2002
as a stock dividend payable on the preference shares, but which have not as
of the date hereof been formally issued from treasury.
(5) Includes 420,000 shares of Common Stock issuable upon exercise of warrants
and options.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of options.
(7) Includes 100,000 shares of Common Stock issuable upon exercise of options.
(8) Represents 1,042,544 voting securities currently owned and 1,528,445 voting
securities issuable upon exercise of currently exercisable options issued
under the Company's Stock Option Plan to Directors and Officers.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 7, 2001, the Company granted to Dr. Ramesh Zacharias 500,000 fully vested
non-escrowed options of the Company of which 250,000 options vested immediately
and the balance on January 1, 2002.
The Company's former President, repaid an employee loan (non-interest bearing,
unsecured) in the year ended December 31, 2001, by transferring 41,607 shares of
Common Stock back to the Company.
The Company believes all previous transactions between the Company and its
officers, directors or 5% stockholders, and their affiliates were made on terms
no less favorable to the Company than those available from unaffiliated parties.
In the future, the Company will present all proposed transactions with
affiliated parties to the Board of Directors for its consideration and approval.
Any such transaction will be approved by a majority of the disinterested
directors.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following financial statements and exhibits are filed as part of this Annual
Report:
A. FINANCIAL STATEMENTS
Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Deficit
Consolidated Statement of Changes in Financial Position
Notes to Consolidated Financial Statements
B. EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
3.1* Certificate of Incorporation and Amendments thereto of the Company.
3.2* By-laws of the Company.
10.3* Operating lease covering the Company's facilities.
10.4 Deleted.
10.4.1** 1997 Stock Option Plan (as amended).
10.5* Loan Agreement between the Company and Carl Pahapill.
10.6* Corporate Resolution Regarding November Recapitalization.
10.7* Form of Hospital Contract.
10.8* Form of Physician Contract for Clinical Operations.
10.9* Form of Physician Contract for Emergency Services.
10.10* Letter of Credit Agreement dated April 17, 1997 between the
Company and Robert Rubin.
10.11* Amendment to April 17, 1997 Letter of Credit Agreement between
the Company and Robert Rubin dated January 30, 1998.
21.1 Deleted.
21.1.1 List of Subsidiaries
* Incorporated by reference to Registrant's registration statement on Form F-1,
Registration Statement No. 333-21899.
** Incorporated by reference to Registrant's registration statement on Form S-8,
filed on March 15, 2000.
(c) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended,
December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MED-EMERG INTERNATIONAL, INC.
/s/ Ramesh Zacharias
-------------------------------
Ramesh Zacharias
Director, Chief Executive Officer
DATE: April 10, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ William Thomson
-------------------------------
William Thomson
Chairman of the Board
DATE: April 10, 2002
/s/ Ramesh Zacharias
-------------------------------
Ramesh Zacharias
Director, Chief Executive Officer
DATE: April 10, 2002
/s/ Dr. Frank Baillie
-------------------------------
Dr. Frank Baillie
Director
DATE: April 10, 2002
/s/ Patrick Michaud
-------------------------------
Patrick Michaud
Director
DATE: April 10, 2002
/s/ John Jarman
-------------------------------
John Jarman
Chief Financial Officer
DATE: April 10, 2002
AUDITORS' REPORT
To the Shareholders of
Med-Emerg International, Inc.
We have audited the consolidated balance sheets of Med-Emerg International, Inc.
as at December 31, 2001 and 2000 and the consolidated statements of operations
and deficit and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000 and the results of its operations and cash flows for each of the years
then ended in accordance with Canadian generally accepted accounting principles.
/s/ Schwartz Levitsky Feldman, LLP
Chartered Accountants
Toronto, Ontario
March 16, 2002
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the consolidated financial statements are affected
by conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 2 to the
consolidated financial statements. Our report to the shareholders dated March
16, 2002 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
/s/ Schwartz Levitsky Feldman, LLP
Chartered Accountants
Toronto, Ontario
March 16, 2002
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2001 AND 2000
(IN US$)
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash and short term investments $ 4,806 $ 6,117
Accounts receivable (note 5) 2,418,664 1,994,446
Prepaid expenses and other 147,528 231,167
Short term investments (note 9) 102,051 -
------------ ------------
2,673,049 2,231,730
------------ ------------
OTHER ASSETS
Capital assets (note 6) 682,496 1,667,716
Goodwill (note 7) - 1,837,275
Other assets (note 8) - 3,372,761
Future income taxes (note 14) - 159,440
------------ ------------
Total assets $ 3,355,545 $ 9,268,922
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Indebtedness (note 10) $ 1,128,330 $ 1,452,028
Accounts payable and accrued liabilities 3,311,897 2,721,131
Restructuring reserve 11,513 36,908
Due to shareholder - 175,059
Current portion of long-term debt (note 11) 153,289 318,562
------------ ------------
4,605,029 4,703,688
Long term debt (note 11) 590,536 11,537
------------ ------------
Total Liabilities 5,195,565 4,715,225
------------ ------------
Minority interest 4,330 411,352
Shareholders' Equity
Capital Stock (note 12) 11,350,336 10,058,975
Contributed surplus (note 13) 1,174,300 1,022,100
Deficit (13,990,374) (6,634,408)
Cumulative translation adjustment (378,612) (304,322)
------------ ------------
(1,844,350) 4,142,345
------------ ------------
Commitments and contingencies (note 17)
$ 3,355,545 $ 9,268,922
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(IN US$)
2001 2000
-------------- --------------
REVENUE $ 23,058,455 $ 15,532,767
PHYSICIAN FEES AND OTHER DIRECT COSTS 16,869,850 10,011,764
-------------- --------------
6,188,605 5,521,003
-------------- --------------
EXPENSES
Salaries and benefits $ 3,027,587 $ 2,769,613
General and administration 989,250 1,360,378
Occupancy costs and supplies 1,511,971 1,663,739
Public company costs 112,512 164,532
Travel & Marketing 262,634 145,598
-------------- --------------
Total operating expenses 5,903,954 6,103,860
-------------- --------------
INCOME (LOSS) FROM OPERATIONS
284,651 (582,857)
Interest and financing expenses 451,924 315,925
Amortization of capital assets 1,015,404 276,494
Amortization of goodwill 1,779,253 454,164
Amortization of other assets 709,071 859,348
HealthyConnect.com development costs 1,855,113 1,730,691
Dilution Gain (25,462) (1,188,525)
Stock compensation expenses 100,000
Restructuring and other expenses 149,002 433,059
Loss on Disposition 258,941
-------------- --------------
6,293,246 2,881,156
-------------- --------------
LOSS BEFORE INCOME TAXES (6,008,595) (3,464,013)
Income taxes (recovery) 1,248,016 (978,189)
-------------- --------------
NET LOSS BEFORE MINORITY INTEREST & PREFERRED SHARES (7,256,611) (2,485,824)
Minority Interest (35,515) (318,223)
-------------- --------------
NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (7,221,096) (2,167,601)
Preferred share dividends (134,870) (131,240)
-------------- --------------
NET LOSS (7,355,966) (2,298,841)
DEFICIT, BEGINNING OF THE YEAR (6,634,408) (4,335,567)
-------------- --------------
DEFICIT, END OF THE YEAR $ (13,990,374) $ (6,634,408)
============== ==============
BASIC LOSS PER COMMON SHARE (NOTE 15) $ (0.91) $ (0.40)
============== ==============
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 8,111,873 5,802,669
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT DECEMBER 31, 2001 AND 2000
(IN US$)
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (7,221,096) $ (2,167,601)
Adjustments for:
Amortization of capital assets 1,015,404 315,925
Amortization of Goodwill and other assets 2,601,238 1,313,512
Deferred income taxes 1,248,016 (978,189)
Dilution gain from HealthyConnect.com (25,462) (1,188,525)
Writedown investment in HealthyConnect.com 1,588,794
Loss on disposition 258,941 433,058
Minority interest (35,515) (318,223)
Non cash compensation 52,200 855,775
Stock compensation 100,000
------------- -------------
(417,480) (1,734,268)
Increase in non-cash working capital components (note 16) (929,109) 981,039
------------- -------------
(1,346,589) (753,229)
============= =============
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to capital assets (151,287) (137,718)
Proceeds of Disposal - 33,828
Other assets 2,441,131 (94,536)
Sale of investment in clinic (15,099) -
Investment in HealthyConnect.com (1,690,845)
------------- -------------
583,900 (198,426)
============= =============
CASH FLOWS FROM FINANCING ACTIVITIES
Bank indebtedness (323,698) 104,530
Issue of common shares 1,291,361 954,204
Obligation /(obligations repaid)under capital lease - (26,424)
Issuance/(repayment) of debt 413,726 (333,960)
Due to minority interest (533,160)
Due to shareholder (175,059) 175,059
Dividends paid on preference shares - (98,430)
------------- -------------
673,170 774,979
------------- -------------
Effect of foreign currency exchange rate changes 88,208 (47,172)
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (1,311) (223,848)
Cash and short-term investments, beginning of year 6,117 229,965
------------- -------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 4,806 $ 6,117
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Med-Emerg International Inc. is a leading private sector provider of quality
healthcare management services to the Canadian healthcare industry.
The Company is publicly traded and listed on the OTC Bulletin Board and the
Boston Stock Exchange. The Company completed its initial public offering in
February 1998.
The Company's operations are divided into five business units: Hospital
Staffing, Medical Clinics, Department of National Defence, Pharmaceutical
Support and Long-Term Care. The Company intends to broaden its healthcare
management services over a wider geographic base.
For hospital staffing, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals, on
a contractual basis. At December 31, 2001, the Company had 17 contracts for
physician staffing and 10 contracts for nurse staffing.
The Company owns and manages 23 medical clinic facilities. This unit provides
physicians with the ability to practice within a professional managed network
and to concentrate on the clinical aspects of their practices.
The Company provides medical personnel to the entire Canadian Forces. The
Company provides in-garrison healthcare at bases across Canada. Through this
contract the Company recruits, schedules and manages physicians, nurses,
dentists, physiotherapists and other regulated healthcare professionals to
provide services as required by the Canadian Forces health authority resident at
each base.
The Company provides special access Remicade(TM) infusion services to patients
suffering from Crohn's Disease and rheumatoid arthritis at clinic locations
across Canada.
In April, 2002 the Company will commence providing physician and nurse
practitioners to select long-term care facilities in Ontario.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Going concern
The consolidated financial statements have been prepared on principles
applicable to a going concern which assumes that the Company will be able to
realize its assets and discharge its obligations in the normal course of
business. As at December 31, 2001, the Company had a working capital deficiency
of $ 1,931,980 and a shareholders' deficit of $ 1,844,350. The Company has
reached the limit on its line of credit and its bankers have not approved any
additional credit facility. The Company negotiated repayment terms with two
banks during 2001. On January 25, 2002, one of the Company's operating banks
terminated its credit facility with the Company due to breaches of covenants
under the terms of the loan, and also made demand for repayment of the entire
debt. At the request of the Company and its guarantors, that bank agreed to
forbear from immediately enforcing its rights and to continue its credit
facilities subject to repayment of its obligations of all loans in full on or
before April 30, 2002. The Company is in the process of seeking available
alternative financing from private sources in order to meet this demand.
Management has implemented certain plans and is seeking alternative financing,
which it believes will alleviate these conditions. These plans include:
1) closure of non-profitable clinics, termination of redundant staff and
cost-cutting measures;
2) negotiating discounts with creditors; and
3) disposition of redundant assets.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
Management is of the opinion that if their efforts to obtain alternative
financing are successful, these plans will enable them to return to
profitability in the foreseeable future. Consequently, on that basis, they have
prepared the financial statements on a going concern basis.
Should the Company be unable to obtain alternative financing, it may not be able
to continue as a going concern. As a result, certain assets and liabilities
currently reflected in the balance sheet at book values would have to be
adjusted to liquidated values.
b) Basis of Consolidation and Presentation
The financial statements reflect the consolidated accounts of Med-Emerg
International Inc. and its wholly and partially owned subsidiaries (collectively
called the "Company").
Significant intercompany accounts and transactions have been eliminated.
The consolidated financial statements are expressed in US dollars and are
prepared in accordance with Canadian generally accepted accounting principles.
Differences between Canadian and United States accounting principles are
described in Note 21.
The translation of the Financial Statements from Canadian dollars into United
States dollars is presented for the convenience of the reader. Balance sheet
accounts are translated using the closing exchange rates in effect at the
balance sheet date, and income and expense accounts are translated using an
average rate prevailing during each reporting period. No representation is made
that the Canadian dollar amounts could have been, or could be, converted into
United States dollars at the rates on the respective dates and or at any other
certain rates. Adjustments resulting from the translation are included in the
cumulative translation adjustments in the shareholders' equity.
c) Use of Estimates
The preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities during the reporting period.
Significant areas requiring the use of estimates relate to the other assets: 1)
the reported amounts of revenues and expenses, 2) the disclosure of contingent
assets, 3) the carrying value of goodwill and the rate of amortization related
thereto. Actual results could differ from those estimates.
d) Short term investments
Short term investments comprise marketable securities and are recorded at the
lower of cost and market value.
e) Capital Assets
Capital assets are recorded at cost and are amortized over their estimated
useful lives at the undernoted rates and methods:
Furniture and fixtures 20% Declining balance
Medical Equipment 10% Declining balance
Computer software 100% Declining balance
Computer hardware 30% Declining balance
Leasehold improvements 5-10 years Straight-line
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
f) Impairment charges
When events and circumstances warrant a review, the Company evaluates the
carrying value of its assets for potential impairment. An impairment loss is
recognized when the estimated net realizable value of any asset is less than its
carrying value. Any impairment in assets is written down and charged to earnings
in the year.
g) Revenue Recognition
The Company recognizes revenues in its hospital staffing unit under its
contracts with hospitals as its services are rendered, based on an accrual of
the monthly fee for actual shifts worked, in accordance with the terms of the
contracts. In addition, the Company recognizes revenues in its medical clinics
as medical services are rendered by physicians under contract in accordance with
the provincial health insurance plans. The Company bills and collects from these
plans, all fees relating to medical services rendered by the physicians. For the
Department of National Defence, the Company recognizes revenue based on billings
as services are rendered and services of physicians are performed.
h) Future Income Taxes
The Company accounts for income taxes using the asset and liability method.
Future tax assets and liabilities are recognized for the future taxes
attributable to the temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
carrying values. Future tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. A
valuation allowance against future tax assets is provided to the extent that the
realizations of these future tax assets is not more likely than not.
i) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and in banks.
3. CHANGE IN ACCOUNTING POLICIES
During the fourth quarter of fiscal 2001, the Company retroactively adopted the
new recommendations of the Canadian Institute of Chartered Accountants for
calculating and reporting earnings per share. Under the new recommendations,
basic and diluted earnings per share have been computed using the weighted
average number of common shares outstanding during each year. Diluted earnings
per share are calculated using the treasury stock method, which reflects the
effect of potentially dilutive securities, including stock options, share
purchase price warrants, preferred shares and notes payable, when dilutive.
Prior to the adoption of the new recommendations, diluted earnings per share
were calculated by adjusting basic earnings per share for the effect of all
dilutive securities outstanding and inputing interest income on the cash
proceeds derived from the exercise of such securities. The result of applying
the new recommendations had no effect on basic loss per share due to the
anti-dilutive impact of the losses generated by the Company during the years
before and after adoption of the new recommendations.
4. BUSINESS ACQUISITIONS AND DISPOSITIONS
On November 5, 1999, the Company purchased all of the outstanding securities of
YFMC Healthcare Inc. a Canadian physician management services organization that
owns and manages medical clinics in exchange for common shares of the Company.
The Company disposed of the York Lanes Health Centre clinic on March 31, 2001.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
4. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONT'D)
On September 1, 2001, the Company purchased all the assets of a medical clinic
operating in Winnipeg, Manitoba.
On September 18, 2001 the Company disposed of its ownership interest in
HealthyConnect.com Inc.("HCCI"). All outstanding issues between the Company and
HCCI were settled as follows:
1) all amounts due and payable under a lease agreement were cancelled,
releasing the Company from any remaining obligations;
2) the Company received 1,000,000 HCCI shares and issued 200,000 shares to pay
outstanding accounts;
3) certain of the former HCCI shareholders exercised their right to exchange
HCCI shares for 1,077,440 shares of the Company and a promissory note of
$590,536. One promissory note in the amount of $356,248 was converted to
common shares (restricted) to complete this transaction at the company's
option. The outstanding promissory notes bear an interest rate of 7% and
become due payable in five years after issuance. The Company may pay
principal amount and accrued interest in the note at any time, upon five
business days notice, prior to maturity. The Company may make payment of the
note in the form of cash or shares or a combination of cash and shares with
an aggregate market value equal to the principal amount of the note plus
accrued interest upon the note. With the completion of the merger between
HCCI and Next Generation Technology Holdings, Inc. (NGTH), the Company was
entitled to receive and additional 1,923 share of HCCI Common Stock for every
share of HCCI Common Stock surrendered by former shareholders of Harmonie
Group, Inc. for a total additional shares of HCCI of 3,355,070. At the
closing of these transactions the Company held 18,099,776 shares in HCCI
which were converted to 1,929,921 shares in NGTH pursuant to a supplement to
the merger agreement dated September 27, 2001. The Company proceeded to
dispose of its interest in NGTH during the year and the value of the
remaining investment is $102,051 as at balance sheet date.
5. ACCOUNTS RECEIVABLE
2001 2000
---------------------------
Trade receivable $ 2,567,660 $ 2,076,243
Allowance for doubtful accounts (148,996) (81,797)
---------------------------
$ 2,418,664 $ 1,994,446
===========================
6. CAPITAL ASSETS
2001 2000
------------------------------------------- ----------
Accumulated
Cost Amortization Net Net
------------------------------------------- ----------
Furniture and fixtures $ 207,787 $ 114,195 $ 93,592 $ 93,783
Medical equipment 367,271 106,520 260,751 301,982
Computer software 172,465 153,960 18,505 11,851
Computer hardware 454,739 310,264 144,475 161,108
Leasehold improvements 1,253,564 1,088,391 165,173 1,098,992
------------------------------------------- ----------
$2,455,826 $1,773,330 $ 682,496 $1,667,716
=========================================== ==========
Amortization of capital assets for the year amounted to $1,015,404 ($276,494 for
December 31, 2000)
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
6. CAPITAL ASSETS
During the year, the Company reviewed the carrying value of leasehold
improvements and determined that the fair market value of leasehold improvements
was in excess of the carrying value, and as a result, the carrying value was
written down by $807,000.
7. GOODWILL
2001 2000
Goodwill $ - $ 1,837,275
During the fourth quarter, the Company reviewed the carrying value of goodwill
and determined that the carrying value of goodwill was permanently impaired, and
the carrying value was written off in the fourth quarter.
8. OTHER ASSETS
2001 2000
-------------------------------------------
Physician contracts - 511,282
Deferred start-up costs - 200,907
Note receivable - 50,133
Due from related parties 1,542
Software development costs 2,608,897
-------------------------------------------
$ - $ 3,372,761
===========================================
During the fourth quarter, the Company reviewed the carrying value of Other
Assets and determined that Other Assets were permanently impaired, and as a
result the carrying value was written off at year end.
9. SHORT TERM INVESTMENTS
2001 2000
------------------------
Short Term Investments $ 102,051 NIL
========================
As part of the disposition of HealthyConnect.com, Inc., the Company acquired
shares of NGTH (Note 4). As at December 31, 2001 the Company owned 510,255 NGTH
shares acquired at $0.20 each.
10. BANK INDEBTEDNESS
The Company had credit facilities with three banks, HSBC Canada Inc. (HSBC), the
Toronto Dominion Bank (TD), and the Bank of Nova Scotia (BNS). During the year,
the Company was in violation of its loan covenants with these banks.
During the year the Company repaid operating lines and certain term loans
totaling $306,441 to these banks.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
10. BANK INDEBTEDNESS (CONT'D)
As at December 31st, 2001 the Company had drawn approximately $1,265,000 from
HSBC. These lines of credit with HSBC bear interest at rates varying from prime
plus 0.5% to prime plus + 3%. As security for these lines, the Company has
provided a first-ranking general assignment of accounts receivable, a general
security, an assignment of all risk insurance policies and an assignment of key
man life insurance of a director.
On January 25, 2002, HSBC made demand for payment from the Company of all its
indebtedness, and made demand on the existing Guarantors. HSBC gave each of the
Borrowers and the Guarantors a notice of intention to enforce security. At the
request of the Company, HSBC agreed to forbear from immediately enforcing its
rights and to continue the credit facilities subject to certain conditions. The
more significant terms are as follows.
(i) The demand operating line was cancelled and $ 1,224,259 owing
under the operating loan was added to the existing capital loan
of $72,380, resulting in a principal amount owing of
$1,296,639.
(ii) the capital loan was reduced to $ 1,233,856 on payment of
$62,783 made by the Company as a term of accepting the
forbearance agreement. HSBC, at the request of the Company,
subsequently agreed to forbear from enforcing its rights and to
continue its credit facilities, on the condition that the Company
retires all obligations to HSBC if payment is made by
April 30, 2002.
(iii) If requested by HSBC, the Company will consent to the
appointment by HSBC of a monitor to review the affairs of the
Company periodically, on terms and conditions satisfactory to the
bank.
(iv) The Company will take steps to ensure that the position of its
other creditors is not materially altered and that all current
priority claims are paid in full as the same fall due.
(v) The Company is restricted from entering into transactions
including but not limited to the incurrence of capital
expenditures and payments of corporate dividends.
It is a condition of the forbearance contemplated herein that the Company shall
retire all obligations of the borrower to HSBC in full by April 30, 2002. If
payment is made by April 30, 2002 (and no later), HSBC will thereupon forgive
the principal sum of $292,118.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
11. LONG-TERM DEBT
2001 2000
---------------------
Conmercial term loan payable, interest at prime + 2%, repayable in equal
monthly installments of $8,763 principal and interest, due June 2002 48,199 144,285
Bank loan, interest at 10.9%, repayable in equal monthly installments of
$1,475 principal plus interest, secured by personal guarantee of a
shareholder, due August 2003 25,937 43,930
Promissory note payable, repayable in equal monthly installments of
$1,744, due June 2002 8,720 31,492
Non-revolving bank loan, interest at prime + 3.0%, repayable in equal
monthly installments of $1,976 plus interest, secured by General Security
Agreement, chattel mortgage and assignment of risk and key man life
insurance 68,290 84,183
Loans payable, interest rates varying from prime to prime + 1.5%, due
between April 2000 and August 2002 21,517
Obligations under capital lease 2,143 4,693
Promissory note payable, interest at 7% and become due payable in five years
after issuance, can be retired anytime, upon the issuance of
common shares, strictly at the discretion of the Company 590,536
---------------------
743,825 330,100
Less: current portion (153,289) (318,563)
---------------------
590,536 11,537
=====================
As at December 31, 2001, the Company was in violation of certain loan convenants
and its bankers have requested repayment of the advances.
12. CAPITAL STOCK
AUTHORIZED
Unlimited number of the following classes of shares and warrants:
Preference shares, voting, non-redeemable, non-retractable, having a
cumulative dividend of US$0.27 per share, convertible to common
shares;
Class "A", redeemable, retractable, non-cumulative preferred shares;
Class "B", redeemable, retractable, non-cumulative preferred shares;
Special shares, issuable in series, with rights, privileges and
restricitions to be fixed by the directors;
Common shares
Common shares purchase warrants, redeemable, entitling holder to
purchase one share of common stock at a price of US$4.50 per share
up to February 11, 2003.
ISSUED
2001 2000
----------------------------------
500,000 Preference shares $ 445,717 $ 445,717
9,253,827 Common shares (2,000-7,017,994) 10,798,508 9,507,147
1,437,500 Common stock purchase warrants 106,111 106,111
----------------------------------
$ 11,350,336 $ 10,058,975
==================================
Common Shares
-----------------------------
Number Amount
-----------------------------
Balance, December 31, 1999 4,912,433 7,699,462
Shares issued in return for services 974,666 855,775
Shares issued in connection with a private placement 1,082,500 853,480
Shares issued as a dividend on preferred shares 48,395 98,430
-----------------------------
Balance, December 31, 2000 7,017,994 9,507,147
Shares issued in connection with a private placement 1,000,000 493,481
Shares cancelled (41,607) (37,446)
Shares issued in return for services 200,000 109,461
Shares issued in connection with a disposition 1,077,440 725,865
-----------------------------
Balance, December 31, 2001 9,253,827 10,798,508
=============================
Warrants
--------------------------
Number Amount
--------------------------
Balance, December 31, 1997 - $ -
Warrants issued in connection with initial public offering 1,437,500 106,111
--------------------------
Balance, December 31, 2001, 2000 and 1999. 1,437,500 $ 106,111
==========================
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
12. CAPITAL STOCK (CONT'D)
(a) Preference Shares
Each preferred share is convertible into one and one-half shares of common
shares of the Company at the option of the holder for a ten-year period from the
date of issuance. At the end of the ten year period, the preferred shares are
convertible at the option of the holder, into such number of shares of the
Company's common shares as is equal to $4,500,000 divided by the then market
value of the common shares. The preferred shares are entitled to receive a
cumulative dividend of $0.27 per share payable in cash or equivalent common
shares based on the quoted market value of the common shares at the date of
closing the initial public offering. The preference shares were originally
redeemable and retractable by the holder; on October 24, 1997, the attributes of
the shares were changed and the shares have since have since ceased to be
redeemable and retractable.
Preference share quarterly dividends of $33,618 are payable either by cash or
issuance of equivalent common shares. The December 31, 1999 and March 31 and
June 30, 2000 quarterly dividends were paid on November 13, 2000 through the
issue of 48,395 common shares. The September 30, 2000 and December 31, 2000
quarterly dividends were accrued in the accounts but not paid as at year end.
All quarterly dividends since December 31, 2000, have not been paid, but have
been accrued in the accounts.
(b) Warrants and Stock Option Plans
The Company maintains a share option plan (the "Plan") for the benefit of
directors, officers and employees. Pursuant to an amendment of the Plan, the
maximum number of options that may be granted shall not exceed 2,090,000.
Options expire no later than five years from date of grant. During the year,
1,090,000 share options were granted under the Plan with an exercise price of
$0.50, and 10,000 options were granted with an exercise price of $1.05 of
which 550,000 vested immediately and the balance vested after year end. As at
December 31, 2001, 148,700 options were still to be granted under the Stock
Option Plan.
During the year, the Company granted 500,000 options to purchase common shares
at an exercise price of $0.50 as consideration for services rendered by a
financial intermediary, for a private placement. These options vest immediately.
The Company recognizes the value of options as an expense when stock options are
issued under the Plan. The expense is measured based on the intrinsic value of
the options at the time they are granted. The difference of $100,000 between the
market value of $0.563 per share at year end and the exercise price of $0.50 per
share for options granted April 6, 2001 has been charged to earnings and
contributed surplus. The options exercise price was based on the prior day
closing value of the Common Stock or $0.563 as at April 5, 2001. Any
consideration received on the exercise of stock options by the holder is
credited to share capital.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
12. CAPITAL STOCK (CONT'D)
STOCK OPTIONS
Number of Shares
Option price ----------------------------------
Expiry date per share (US$) 2001 2000
- ------------------------------------------------------------------------------------
Apr-02 $2.50 157,600 157,600
Apr-02 $4.25 16,200 16,200
Between September 2000
and September 2003 $1.75 12,500 25,000
Jan-04 Between $1.25
and $1.87 242,500 242,500
Jul-04 $1.50 400,000 400,000
Aug-04 $1.85 12,500 12,500
April-06 $0.50 1,590,000
May-06 $0.50 10,000
--------------------------------
2,441,300 853,800
================================
2001 2000
----------------------------------------
Outstanding, beginning of year 853,800 2,142,352
Granted 1,600,000
Exercised - (641,666)
Cancelled (12,500) (646,886)
----------------------------------------
Outstanding, end of year 2,441,300 853,800
========================================
In connection with the Company's initial public offering, the Company issued
1,437,500 Class A Redeemable Common Stock Purchase Warrants for gross proceeds
of $0.10 per warrant. Each warrant entitles the holder to purchase one share of
common stock at a price of $4.50 for a four year period expiring February 11,
2003. In addition, the Underwriters were granted warrants entitling to purchase
up to 125,000 shares of Common Stock and 125,000 warrants at a price per share
of common share or warrant equal to 150% of the Initial Public Offering price.
13. CONTRIBUTED SURPLUS
2001 2000
----------------------------------
Stock compensation - difference between fair market value
and exercise price $ 1,086,233 $ 934,033
Share repurchase - difference between cost per share and
assigned value 46,292 46,292
Fair value of warrants and stock options issued in connection
with the acquisition of YFMC Healthcare Inc. 41,775 41,775
----------------------------------
$ 1,174,300 $ 1,022,100
==================================
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
14. FUTURE INCOME TAXES
In 1998, the Company implemented the recommendations of CICA, Accounting for
Income Taxes. Under the new recommendations, the "asset and liability method" of
accounting for income taxes is used. Prior to the adoption of the new
recommendations, income tax expense was determined using the deferral method of
tax allocation. There was no material impact on the financial statements
resulting from this change.
The tax effect of temporary differences that give rise to significant future tax
assets and tax liabilities of the Company are presented below:
2001 2000
------------------------------
Accounting amortization in excess of tax depreciation $ 87,630 $(1,472,492)
Losses available to offset future income taxes 1,823,349 1,941,925
Share issue costs 335,990 356,896
Valuation allowance (2,246,969) (666,889)
------------------------------
Deferred income taxes $ - $ 159,440
==============================
At December 31, 2001, the Company has non-capital losses available to reduce
future federal and provincial taxable income of approximately $ 4.5 million.
These non-capital losses expire between 2003 and 2008. In addition, the Company
has capital loss carry-forwards of approximately $ 1.8 million, which may be
applied against future taxable capital gains. The future tax benefits available
as a result of these losses have been fully provided for in the Financial
Statements.
15. BASIC LOSS PER SHARE
Basic net loss per share is calculated using the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
calculated using the treasury stock method in accordance with the new
recommendations of Handbook section 3500. Had share options and common share
purchase warrants been exercised, and the preferred shares and note payable been
converted, the effect on the basic loss per share would be anti-dilutive.
2001 2000
------------------------------------
Net loss before preferred share dividend
and goodwill, per share $ (0.67) $ (0.29)
Goodwill, per share (0.22) (0.08)
------------------------------------
Net loss before preferred share dividend,
per share (0.89) (0.37)
Preferred share dividends, per share (0.02) (0.03)
------------------------------------
Basic loss, per share $ (0.91) $ (0.40)
====================================
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
16. NOTES TO THE STATEMENT OF CASH FLOWS
(i) Changes in Non-Cash Working Capital Components
2001 2000
-------------------------------------
Accounts receivable $ (419,730) $ 369,115
Prepaid expenses and other (5,548) 39,868
Income taxes recoverable (1,088,576) 0
Accounts payable and accrued
liabilities 610,140 880,184
Reserve for restructuring (25,395) (308,128)
-------------------------------------
$ (929,109) $ 981,039
=====================================
(ii) Interest and Income Taxes Paid
Operating expenses reflect interest paid of $ 345,221 during the year ended
December 31, 2001 (December 31, 2000 - $ 276,494); and income taxes paid of $nil
during the year ended December 31, 2001 (December 31, 2000 - $ nil).
17. COMMITMENTS
The Company is committed to payments under operating and capital leases of its
premises and equipment totaling $2,255,893. Annual payments under the capital
and operating leases are as follows:
2002 $ 782,338
2003 427,973
2004 259,628
2005 165,856
2006 and thereafter 620,098
-----------
$ 2,255,893
===========
18. CONTINGENT LIABILITIES
The Company is in receipt of a claim by a landlord of certain premises
previously occupied by the Company for damages for breach of contract. The
landlord is alleging that the Company renewed the lease for the premises and is
claiming rent for the entire renewal term. The amount of damages claimed is
approximately $121,000 plus interest and costs. The Company does not believe
that the lease was renewed, has instructed its solicitors to defend the action
and believes that the action is without merit.
The Company has been made aware of a potential claim from a previous director
for monies owing, in the approximate amount of $25,000. The Company is
disputing the claim. In the event that the plaintiff commences legal
proceedings, the Company intends to counterclaim for damages.
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
18. CONTINGENT LIABILITIES (CON'T)
YMFC HealthCare Inc., a wholly owned subsidiary of the Company, is in receipt of
a letter from Canada Customs and Revenue Agency ("CCRA") dated April 30, 2001,
adjusting YFMC's Goods and Services Tax returns for the period from December 31,
1992, to December 31, 1996. The total amount claimed by CCRA for this period is
$249,000. In the event that YFMC is ultimately found liable, the Company intends
to claim an indemnity for such amount against the directors and certain named
principals of YFMC pursuant to the Company's rights under the purchase agreement
for YFMC executed on August 10, 1999. The Company's legal counsel has advised
that CCRA does not intend to pursue YFMC for these amounts.
As at December 31st, 2001, HSBC had issued letters of guarantee in the amount of
$84,000 to another bank. There were no amounts drawn under these letters of
guarantee during 2001. HSBC has subsequently cancelled these letters of
guarantee.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, short-term investments, bank
indebtedness, and accounts payable approximate their fair value due to the
short-term maturity of these items.
The carrying amount of the long-term assets approximates the fair value of these
assets.
The fair value of long-term debt approximates the carrying value. The fair value
of the Company's long-term debt is estimated based on the quoted market prices
for similar debt securities.
20. SUBSEQUENT EVENTS
HSBC demanded repayment of its loans in January 25, 2002 as described in
Note 10.
21. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"), which
conform in all material respects with those in the United States ("U.S. GAAP")
during the periods presented, except with respect to the following:
(a) 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.
(b) 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
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
21. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CON'T)
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.
As described in Note 12, the following transactions would be accounted for
differently under SFAS 123:
- - the issuance of 50,000 common shares in payment of a legal services
provided to HCCI, its subsidiary.
- - the issuance of 150,000 shares in payment of a services delivered to HCCI.
- - the issuance of an option on April 6, 2001, to a third party as an
arrangement fee, to acquire 500,000 shares has resulted in a charge to
income equal to $250,000 in the year.
- - the issuance of 58,000 common shares to a third party as an arrangement fee
has resulted in a charge to income equal to $52,000 in the year
Had compensation cost been determined based on the fair value at the grant date
for options granted during 2001 and 2000, consistent with the method of SFAS No
123, accounting for stock based compensation, the Company's pro forma loss and
pro forma loss per share for the years ended December 31, 2001 and 2000 would
not have been materially different.
(c) 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 under U.S. GAAP used for
the YFMC Healthcare Inc. acquisition 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.
Consolidated statements of operations
If United States GAAP were employed, net loss for the period would be adjusted
as follows:
2001 2000
----------------------------------
Net loss based on Canadian GAAP $ (7,355,966) $ (2,298,841)
Start-up costs amortized/(deferred) 194,562 43,904
Goodwill amortization (1,033,035) (54,394)
Dilution gain (25,462) (1,188,525)
----------------------------------
Net loss based on United States GAAP $ (8,219,901) $ (3,497,856)
----------------------------------
Primary loss per share $ (1.01) $ (0.60)
==================================
EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
21. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CON'T)
Under US GAAP the effect on the accumulated deficit of other assets, deferred
start-up costs, goodwill amortization and dilution gain would be adjusted as
follows:
2001 2000
------------------------------------
Deficit based on Canadian GAAP $(13,990,374) $ (6,634,408)
Start-up costs deferred (200,907)
Goodwill amortization (1,096,800) (63,319)
Dilution Gain (25,462) (1,188,525)
------------------------------------
$(15,112,636) $(8,087,159)
====================================
(d) Shareholders' Equity
Under U.S. GAAP, loans issued to officers to acquire stock are presented as a
deduction from shareholders' equity. Under Canadian GAAP, these loans are
presented as current or long term debt.
Under U.S. GAAP, detachable stock purchase warrants are given separate
recognition from the primary security issued. Upon initial recognition, the
carrying amount of the two securities is allocated based on the relative fair
values at the date of issuance. Under Canadian GAAP, the detachable stock
purchase warrants issued in conjunction with the private stock offering on
January 22, 1996 and subsequently surrendered, have been given no recognition in
the financial statements. Under U.S. GAAP, based on an ascribed fair value of
$0.364 for each of the 1,000,000 share warrants issued, share capital would be
lower by $36,406 and, given that the stock purchase warrants were cancelled
during the year, the carrying amount of contributed surplus would be increased
by $36,406.
Under US GAAP the effect on shareholders' equity, of the above, would be as
follows:
2001 2000
-----------------------------------
Capital stock (as previously shown) $ 11,350,336 $ 10,058,975
Capital stock issued on purchase of YFMC Healthcare Inc. 1,087,872 1,087,872
Ascribed fair value of share purchase warrants issued (36,406) (36,406)
-----------------------------------
Capital stock - U.S. GAAP 12,401,802 11,110,441
Contributed surplus (as previously shown) $ 1,174,300 $ 1,022,100
Share purchase warrants 36,406 36,406
-----------------------------------
Contributed surplus - U.S. GAAP $ 1,210,706 $ 1,058,506
-----------------------------------
Deficit - U.S. GAAP $(15,112,636) $ (8,087,159)
Cumulative translation adjustment (378,612) (304,322)
-----------------------------------
Shareholders equity (deficit) - U.S. GAAP $ (1,878,740) $ 3,777,466
===================================
(e) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130),
MED-EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
21. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. SFAS 130 became effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier period provided for comparative purposes is required.
2001 2000
--------------------------------------
Net income (loss) (US GAAP) $ (8,219,901) $ (3,497,856)
Foreign currency translation
adjustment (74,290) (192,058)
--------------------------------------
Comprehensive income $ (8,294,191) $ (3,689,914)
======================================
(f) Revenue Reporting
Under U.S GAAP, EITF 99-19 outlines the items, which should be considered in
determining whether revenue should be reported on a gross or on a net basis. In
assessing whether revenue should be reported gross with separate display of cost
of sales to arrive at gross profit, or on a net basis, the SEC staff considers
whether the company:
(1) acts as a principal in the transaction;
(2) takes title to the products;
(3) has risks and rewards of ownership, such as risk of loss for collection,
delivery, or returns; and
(4) acts as agent or broker with compensation on a commission or fee basis.
The Company acts both as principal and as an agent or broker in the management
of the clinics. As a result the revenue amount reported in the financial
statements are a mix of both gross and net revenues. Under US GAAP, the effect
on the mix of gross and net revenue in the income statement would be as follows:
2001 2000
Revenue on a gross basis (Physician & Nurse
recruiting healthcare services) 15,576,763 7,241,184
Revenue on a net basis (Physician management
services) 3,697,758 4,392,907
---------- ----------
Total revenue (net basis) 19,274,521 11,634,091
Less: Physician fees & other direct expenses 13,085,916 6,113,088
---------- ----------
Gross margin (net basis) 6,188,605 5,521,003
========== ==========
(g) Recently Issued Accounting Standards
In the United States, the following standards were recently issued by the
Financial Accounting Standards Board during 2001.
SFAS No. 141 - Business Combinations and SFAS No. 142 - Goodwill and
Other Intangible Assets. SFAS No. 41 requires that companies use only
the purchase method for acquisitions occurring after June 30, 2001.
SFAS No. 142 requires that
EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
21. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)
goodwill and intangible assets acquired after June 30, 2001 should no
longer be amortized but reviewed annually for impairment.
SFAS No. 143 - Accounting for asset retirement obligations - this
standard requires that entities record the fair value of a liability
for an asset retirement obligation in the period in which it is
incurred. This standard is effective for fiscal years beginning after
June 15, 2002
SFAS No. 144 - Accounting for the impairment or disposal of long-lived
assets. This standard supercedes. SFAS No. 121 - Accounting for the
impairment of long-lived assets and for long-lived assets to be
disposed of. This standard requires that businesses recognize
impairment when the financial statement carrying amount of long-lived
asset or asset group exceeds its fair value and is not recoverable.
The Company believes that the above standards would not have a material impact
on its financial position, results of operations or cash flows as it relates to
the reconciliation of Canadian and United States accounting policy differences.
22. SEGMENTED INFORMATION
The Company operates under five business units: Hospital Staffing, Medical
Clinics, Department of Defence, Pharmaceutical Support and Long-Term Care
(Long-Term Care commenced in 2002). The hospital staffing unit 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. In the table below, the hospital staffing unit
includes the revenue and cost for the pharmaceutical support unit providing
infusions services to patients.
The medical clinics unit 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 Department of Defence involves recruiting and staffing for the fulfillment
of a government contract. The Company recruits, schedules and manages
physicians, nurses, dentists, physiotherapists and other regulated healthcare
professionals as required by the Canadian Forces health authority resident on
each base.
The segmented information for the business units are as follows:
2001
------------------------------------------------------------
Hospital Medical
Staffing Clinics DND Consolidated
------------------------------------------------------------
Revenue 6,609,340 7,481,692 $ 8,967,423 $ 23,058,455
Gross margin 1,103,358 3,697,758 1,387,489 6,188,605
Income (loss) before undernoted items 206,617 (428,180) 506,214 284,651
Assets employed at end of period 916,229 1,545,016 894,300 3,355,545
Depreciation and amortization 64,629 3,421,503 17,596 3,503,728
EMERG INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
22. SEGMENTED INFORMATION (CON'T)
2000
------------------------------------------------------------
Hospital Medical
Staffing Clinics DND Consolidated
------------------------------------------------------------
Revenue $ 7,241,184 $ 8,291,583 $ - $ 15,532,767
Gross margin 1,128,096 4,392,908 - $ 5,521,004
Income (loss) before undernoted items (139,198) (443,659) (582,857)
Assets employed at end of period 3,209,530 6,175,040 9,384,570
Depreciation and amortization 513,778 843,628 1,357,406
Depreciation for Healthy Connect.Com
for the period 272,031
23. RELATED PARTY
Consulting fees of approximately $ 70,000 were paid to a director.
24. COMPARATIVE FIGURES
Certain figures in the 2001 financial statements have been reclassified to
conform with the basis of presentation in 2000.