-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QdeLHU+2d/QEOwgjXqnyPoTDtFQwNhLLGIXw3g1RlasOW7tDZJMPsPHL0CRLntTS KfqLjN95eRK0zKPTBbHSOg== 0000912057-00-015188.txt : 20000331 0000912057-00-015188.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-015188 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MED EMERG INTERNATIONAL INC CENTRAL INDEX KEY: 0001030179 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13861 FILM NUMBER: 588745 BUSINESS ADDRESS: STREET 1: 2550 ARGENTINA ROAD SUITE 205 CITY: MISSISSAUGA ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 9058581368 10-K 1 10-K 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER: 1-13861 MED-EMERG INTERNATIONAL INC. (Exact Name of Registrant as Specified in Its Charter) PROVINCE OF ONTARIO, CANADA (State or Other Jurisdiction of Incorporation or Organization) 2550 Argentia Road, Suite 205 Mississauga, Ontario, Canada L5N 5R1 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (905) 858-1368 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 NASDAQ SmallCap and Boston Stock Exchange REDEEMABLE COMMON STOCK NASDAQ SmallCap 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 NASDAQ SmallCap and Boston Stock Exchange REDEEMABLE COMMON STOCK NASDAQ SmallCap 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 files 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. [ ] The aggregate market value of the shares of Common Stock (based upon the closing sales price of these shares as reported on the NASDAQ Stock Market's SmallCap Market on March 20, 2000) of the registrant held by non-affiliates on March 20, 1999 was approximately US$18,313,516. As of March 20, 2000, 5,232,433 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. ("Med-Emerg" or the "Company"), based in Ontario, Canada, is a provider of a broad range of quality healthcare management services. Established in 1983, the Company specializes in the coordination and contract staffing of emergency physicians for hospitals and clinics in Canada. Though emergency-related services are still an important component of the Company's business, Med-Emerg has expanded to offer a wide variety of medical services including nurse staffing, physician management services and an internet-based healthcare network. Med-Emerg is positioned to establish industry leadership in Canada by providing integrated professional management services in the delivery of healthcare to the Canadian healthcare consumer. The Company's operations are divided into three divisions, Physician and Nurse Recruitment Services, Physician Management Services and an internet based healthcare network called Healthyconnect.com. Med-Emerg's strategy is to remain focused on these three divisions while continuing to broaden its consolidation of physicians over a wider geographic base. Med-Emerg believes that it is well positioned to benefit from the aging of the baby boomer population, to capitalize on recent developments within the North American healthcare environment and internet technology. Specifically, the Company's strategy is to leverage its 16 years of physician recruitment experience in becoming a dominant player in Physician Management Services and to develop an internet-based healthcare network that connects physicians, patients, third party payors and consumers to a "virtual world" of healthcare products and services. THE COMPANY The "Company" refers to: (i) Med-Emerg International Inc.;(ii) its wholly-owned subsidiaries, Med-Emerg Urgent Care Centres Inc., Med-Emerg Dundas Urgent Care Centre Inc., JC Medical Management 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.; (v) its 45% owned subsidiary Medical Urgent Care Inc.; (vi) its 51% owned subsidiary Caremedics (Elmvale) Inc.; and, (vii) its 51% owned subsidiary York Lanes Health Centres Inc. As part of its business strategy, the Company intends to pursue rapid growth, including possible acquisitions of, and joint ventures with, related and complementary businesses. In June 1998, the Company acquired all of the outstanding capital stock of a 6-physician family practice clinic, JC Medical Management Inc. In September 1998, the Company acquired 75% of the outstanding capital in a 24-hour on-call physician service, Doctors on Call Ltd. During the first quarter of 1999, the Company acquired a 45% interest in Medical Urgent Care Inc., a 51% interest in Caremedics (Elmvale) Inc. and a 51% interest in York Lanes Health Centres Inc., and entered in management services agreements with all three companies. In November 1999, the Company acquired all of the issued and outstanding capital stock of YFMC Healthcare Inc., a company that manages 22 medical walk-in and family practice clinics. The Company has recently entered into a Business Combination Agreement, dated February 16, 2000, with Laser Rejuvenation Clinics Ltd. ("LRC"), a company that provides full service laser procedures. The Company provides emergency medical services to hospitals and to other medical groups through its Physician and Nurse Recruitment Division and clinical medical services to the public, in clinics through its Physician Management Services Division. In September 1997, the Company launched its Urgent Care Centres program, which provides on-site emergency medical services. The Company intends to continue to aggressively market its facilities and services as a viable outsource alternative to public hospitals' present emergency room operations. THE PHYSICIAN AND NURSE RECRUITMENT DIVISION Competitive pressures have focused the attention of many healthcare administrators, in the public sector, on the need for better staffing of their medical professionals. Hospitals have increasingly turned to contract staffing firms with specialized skills to help solve physician contract and scheduling problems. The Physician and Nurse Recruitment Division was established in 1983 as a medical staffing and recruitment business. The Company provides physician staffing, nurse staffing and administrative support to emergency departments and physician recruitment services to Canadian hospitals and physician groups. The administrative services include billing, maintenance of records and coordinating with third party payors. Under its contracts with hospitals, the Company provides emergency department physician coverage. The Company also coordinates the scheduling of staff physicians which provides emergency department coverage and assists the hospital's administrative and medical staff in such areas as quality assurance, risk management, departmental accreditation and marketing. The Company's hospital physician staffing services are reimbursed either based on a monthly fee payable by the hospital or on a per shift basis. As of February 29, 2000, the Company had 14 hospital physician contracts, of which 10 were contracted to pay monthly administration fees, two were contracted to pay on a per-shift basis and two were contracted to pay based on a percentage of billings generated by the physicians on each shift. As of February 29, 2000, the Company was providing physician coverage for a total of approximately 550 shifts per month, representing over 6,300 hours per month. The Company's nurse staffing services are reimbursed at a fixed rate per hour of coverage provided. The Company had six hospital nursing contracts as at February 29, 2000, which provided a total of approximately 1,648 hours in the month of February. CONTRACTUAL ARRANGEMENTS MANAGEMENT CONTRACTS WITH PHYSICIANS. The Company identifies, recruits and screens potential candidates to serve as emergency room physicians in hospitals that have contracted 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, will place the physician in a functioning facility and the Company will collect all fees due to the physician for rendering services. The Company then pays the physician for the medical services provided based on the terms of the contract between the Company and the physician. These contracts 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 the following arrangements: fee-for-service contracts and physicians per shift that the Company provides 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 the majority of the hospital staffing contracts, the Company's monthly fee is due on the 1st of the month for which shift coverage is being provided. For a few of the Company's contracts, the fee is not due until the end of the month for which shift coverage was 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 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. 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. THE PHYSICIAN AND NURSE RECRUITMENT DIVISION'S OPERATIONS The principal operating activities of the Physician and Nurse Recruitment Division 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 currently 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. Principally, quality assurance is the responsibility of Dr. Stephen Fowler, the Company's Executive Medical Director. 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. CONSULTING AND HEALTHCARE MANAGEMENT SERVICES. 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. In the past few years, consulting contracts have been conducted with Hotel-Dieu Grace Hospital in Windsor, Canada and The Wellesley Hospital in Toronto, Canada. In 1998, a consulting contract was completed for the Chatham-Kent Health Alliance and the Company is currently working on a consulting contract with Northumberland Health Care Corporation. 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. 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. THE PHYSICIAN MANAGEMENT SERVICES DIVISION As of March 20, 2000, the Company has an ownership interest in and manages 30 clinics in Canada. The locations of and services provided at the Company's clinics are as follows: The Company operates 30 clinics that offer both family practice and walk-in services for patients. Other services that may be provided at the clinics are travel medicine, chiropractic, massage therapy, weight loss program, internal medicine, paediatrics, haemotology and professional family counseling. The Company manages the clinics by providing scheduling, staffing, recruiting, billing, collections and accounting services to the clinic. In the clinics where the Company does not own 100% of the outstanding capital stock, the Company has entered into a 5 year management services contract whereby the Company receives a monthly management fee to provide the management services. In August 1996, the Company acquired the assets and physician contracts of St. George Medical Clinic, a Health Services Organization (HSO), and merged the operations into the Central Clinic. The clinic is funded under a contractual agreement with the Ministry of Health to provide primary care at a clinic for a specified number of registered patients. The Ministry allocates a specific payment for each patient on a monthly basis, whether the services are used or not. The monthly fee is determined by the age and sex of the patient and is referred to as the capitation rate. As at December 31, 1999, the average monthly capitation rate was $12.83 CDN per patient with approximately 5,444 patients enrolled under the HSO program. Under the fee-for-service model, a fee is billed to the Ministry only when a patient visits the clinic and a service is performed. The fee-for-service rates are set by the Ministry and vary depending on the type of medical service performed. In addition to family practice and walk-in clinics, the Company has an ownership interest in and manages Urgent Care Centres through which it offers on-site, one-stop medical care comparable to the services provided in a traditional emergency department. The Urgent Care Centre concept consists of a group of emergency trained physicians, a medical laboratory, a diagnostic radiology service, and a pharmacy, each of which must be present for the others to co-exist, and each of which is provided by a separately owned company. The Company operates the clinic component of the Urgent Care Centre. The Company provides emergency medical services, including emergency physician staffing, emergency nurse staffing, receptionist staffing, physician billing services, all financial services, inventory control, Medical Directorship and other operational components such as quality improvement and risk management initiatives. The Company opened its first Urgent Care Centre on September 19, 1997. In January 1999, the Company acquired a 45% interest in Medical Urgent Care Inc., a company that operates the Britannia Urgent Care Centre. The Company has a 5 year agreement to provide management services to the Britannia Urgent Care Centre for a percentage of the revenues generated by the clinic component. HEALTHYCONNECT.COM DIVISION HealthyConnect.com, an internet-based e-commerce health portal, was launched on March 22, 2000. HealthyConnect.com has been strategically designed to provide an end to end solution for the information needs of the healthcare sector. We will pursue both a business to business and business to consumer e-commerce strategy connecting physicians, hospitals, third-party payors and consumers and will allow all participants to access and exchange healthcare related information, purchase healthcare products and services, and communicate more cost-effectively with one another. HealthyConnect.com will deliver healthcare services and products and provide timely access to reliable healthcare information through the utilization of advanced telecommunication technology. Targeted purchasers of HealthyConnect.com on line applications, are consumers, healthcare institutions, physicians and other healthcare providers and healthcare product suppliers. Consumers will benefit from 24-hour, 7-day a week access, via the internet and telephone, to Med-Emerg's healthcare service provider network. In addition, consumers will have multiple site secure access to their own and their family members' electronic medical records, access to a physician management health and wellness centre and convenient at-home shopping for healthcare products and services. HealthyConnect.com's secure, 128-bit encrypted web browser system incorporates state-of-the-art security and privacy, and is fully compliant with healthcare industry guidelines. The web-based products have been field-tested over the past 3 months. HealthyConnect.com will enable physicians and other healthcare providers to access reliable information and provide them with additional support in delivering cost effective, high quality healthcare services. Benefits include 24-hour coverage for patients, access to a comprehensive physician medical reference database, online continuing medical education courses, tools for chronic disease management, and participation in clinical trials and web casting. HealthyConnect.com will link healthcare product and service suppliers with our clinical network family. Convenient and secure access and at home/office browsing and purchasing capabilities will facilitate direct sales opportunities for member suppliers. Healthcare product and service suppliers that may benefit from using HealthyConnect.com include pharmaceutical companies, insurance companies, employers, government, managed care organizations, physicians and hospitals. HealthyConnect.com has assembled several key strategic partners that will provide health information content, end to end transaction processing capability and e-commerce goods and services to its customers. HealthyConnect.com has negotiated a relationship with AstraTek, headquartered in New York, N.Y. AstraTek is a software product development firm, delivering advanced technologies to Fortune 1000 companies and financial institutions. AstraTek provides mission critical computing such as distributed computing, multi-tier client-server systems, and object-oriented technology. The core proficiencies at AstraTek include Windows NT development from driver level to application level, using Visual C++, Visual Basic, MFC, ATL and OLE automation. AstraTek assisted in the development and launch of the HealthyConnect.com portal. HealthyConnect.com has also negotiated a relationship with Data General, headquartered in Westborough, Massachusetts. Data General is a leading supplier of servers and storage systems, and services for information systems users worldwide. Data General designs, manufactures, markets, and supports two major families of open systems, AViion-Registered Trademark-servers and CLARiion-Registered Trademark- mass storage products, which represent over 90 percent of current product revenues. Data General and its subsidiaries, distributors and representatives serve customers in more than 70 countries. Data General works closely with leading software and services suppliers who understand specific customer problems and provide effective and affordable business solutions. Data General will provide a consolidated computing infrastructure to support HealthyConnect.com including hardware, software and network support. 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 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. Due to increasing government fiscal restraint, Ontario's health care system is currently undergoing a significant restructuring by the provincial government. Based on a determination that the Ontario public healthcare system was not fiscally efficient, in 1997 the Province of Ontario enacted the Savings and Restructuring Act, which gives its provincial government the ability to implement a health care system restructuring plan. The new legislation established the Health Services Restructuring Commission, which has broad decision making authority over every aspect of a public hospital's operations, including all aspects of operations, fiscal policy, public funding and even the continuance or cessation of a public hospital's existence. The objective of the legislation is to induce public hospitals' care delivery systems in the Ontario health care area to improve the quality of health care and particularly to install efficiencies of cost in the delivery of medical services to the 11 million person population of the Province of Ontario (37% of all of Canada). Inefficient hospitals run the risk of the loss of public funding if they fail to meet the objectives of the Commission. Accordingly, the incentives are in place to induce public hospitals to find solutions to achieve the desired efficiencies, including outsourcing available from and through private sector organizations, such as the Company. PROPOSED HEALTHCARE LEGISLATION The Health Services Restructuring Commission (HSRC), established under Bill 26, has the mandate and authority to facilitate and accelerate hospital restructuring in Ontario. This legislation contains measures intended to control public and private spending on healthcare as well as to provide universal public access to the healthcare system. The Company cannot predict what effect, if any, this and other healthcare legislation will have on its operations. Significant changes in Canada's healthcare system are likely to have a gradual but substantial impact on the manner in which the Company conducts its business and could have a material effect on its results of operations. Despite pronouncements by the Ontario Minister of Health that managed care options, such as in the United States, are being considered, it is not evident that U.S. styled managed care will play a significant role in the fee-for-service sector of the publicly funded healthcare system. Management believes that government actions in the area of legislation to date indicate a present intent to let the healthcare system proceed without intervening directly in the management of patient care, although there can be no assurance thereof. In the future, greater emphasis may be placed on such managed care tools as utilization review, practice guidelines, and outcome measurement. The current move away from traditional fee-for-service mechanisms may have a similar effect as physicians attempt to minimize the risk they face and as the government strives for accountability and value-for-dollar assurances. COMPETITION 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). The clinics operated by the Physician Management Services Division compete with hospitals and other private physicians. The Urgent Care Centre competes with hospital emergency rooms. The Company believes that the varied physician practice alternatives coupled with competitive remuneration plans create a significant incentive for physicians to provide patient services through the Company. EMPLOYEES As of February 29, 2000, the Company had 94 full-time employees, of whom 4 were employed in general executive positions, 29 were employed in administration and 61 were employed in the Company's clinics. In addition, as of such date, approximately 310 physicians and 40 nurses were actively working as independent contractors of the Company. These physicians and nurses are not employees of the Company. ITEM 2: PROPERTIES The Company's principal executive office is located at 2550 Argentia Road, Suite 205, Mississauga, Ontario. The principal office occupies approximately 5,560 square feet of space under a lease that expires in February, 2001 at an average annual rental rate of approximately $71,140. One of the Company's largest clinics, the Central Clinic is located at 458 Central Avenue, London, Ontario. The Clinic occupies approximately 6,400 square feet of space under a lease that expires December 31, 2002 at an average annual rental rate of approximately $63,870. The Pond Mills clinic is located at 1166 Commissioners Road East, London, Ontario, N5Z 4R3. This lease is currently on a month-to-month basis for approximately $3,000 per month. The Glenderry Clinic is located at 2760 Derry Road West, Mississauga, Ontario. The Clinic occupies approximately 2,600 square feet at an annual rental rate of approximately $46,575. YFMC Healthcare Inc. has an administrative office located at 441 MacLaren Street, Ottawa, Ontario. Annual rent totals approximately $9,690 for 1,800 square feet. The lease expires in July 2004. ITEM 3: LEGAL PROCEEDINGS The Company is presently party to one legal proceeding that was commenced on July 4, 1997 in the General Division of the Ontario Court. This proceeding relates to the recapitalization of the Company, which occurred in November, 1996, in which the Estate of Dr. Donald Munro ("Estate") contributed 75,000 of its 150,000 Med-Emerg Common Shares to the capital of the Company. The Estate, the applicant in the proceeding, has taken the position that it continues to be the beneficial owner of 150,000 shares of Med-Emerg Common Shares. The Company disagrees with the Estate's position and intends to defend this action vigorously. However, in the event that the Company is unsuccessful in its action, the Company may be required to return to the Estate the 75,000 Med-Emerg Common Shares which were previously surrendered. There has been no further correspondence or action with respect to this claim since 1997. In addition, in the future, the Company could be subject to claims arising from its contracts with hospitals or other institutions or professional associations to which it provides services. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held on Friday, November 5, 1999. At this meeting, the following matters were voted on by the Company's shareholders: (A) ELECTION OF DIRECTORS Ramesh Zacharias, Carl Pahapill, William Thomson, Robert Rubin, Jeffrey Lyons, Martin Scullion and Camille Chebeir were duly elected as directors of the Company to serve until the next Annual Meeting of Shareholders or until their respective successors have been duly elected and qualified. The vote was as follows:
Names Votes Cast in Favour Votes Withheld ----- -------------------- -------------- Ramesh Zacharias 3,066,220 15,200 Carl Pahapill 3,066,420 15,000 William Thomson 3,066,420 15,000 Robert Rubin 3,066,420 15,000 Jeffrey Lyons 3,066,420 15,000 Martin Scullion 3,066,420 15,000 Camille Chebeir 3,066,220 15,200
(B) APPROVAL OF THE ISSUANCE OF UP TO 1,799,502 ADDITIONAL SHARES OF COMMON STOCK The Company's shareholders approved the issuance of an aggregate of up to 1,799,502 additional shares of Med-Emerg pursuant to a tender offer and to adopt the Business Combination Agreement whereby Med-Emerg shall exchange 1 share of Med-Emerg common stock for every 6.875 YFMC shares, 0.125 of a Med-Emerg Series A Warrant for each YFMC Series A Warrant, 0.125 of a Med-Emerg Series B Warrant for each YFMC Series B Warrant, 0.125 Med-Emerg stock options for every YFMC stock option and 0.10 Med-Emerg common stock for every YFMC first preferred share, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions -------------------- ------------------ ----------- 2,426,535 18,300 8,100
(C) APPOINTMENT OF AUDITORS The shareholders of the Company ratified the appointment of Schwartz, Levitsky, Feldman, LLP, Chartered Accountants as the Company's independent auditors, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions -------------------- ------------------ ----------- 3,069,120 11,500 800
(D) AMENDMENT TO COMPANY'S STOCK OPTION PLAN The Company's shareholders approved the amendment to the Company' Stock Option Plan to increase the number of options to acquire Med-Emerg Common Shares that may be granted from 638,000 to 1,000,000, by the following vote:
Votes Cast in Favour Votes Cast Against Abstentions -------------------- ------------------ ----------- 2,426,335 26,000 600
PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY & 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 NASDAQ SmallCap Market 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 both Exchanges since February 12, 1998. Prior to that date the Common Shares and Redeemable Common Stock Purchase Warrants were privately held. The following table sets forth the range of high and low sales prices from February 12, 1998:
COMMON SHARES -------------------------- HIGH LOW First Quarter, 1998 (from Feb.12/98) US$ 4-3/4 US$ 3-3/8 Second Quarter, 1998 4 2-13/16 Third Quarter, 1998 3-1/4 1-11/16 Fourth Quarter, 1998 2 1 First Quarter, 1999 2-1/4 1-1/32 Second Quarter, 1999 2-1/2 1-1/16 Third Quarter, 1999 2-1/16 1-1/2 Fourth Quarter, 1999 2-11/16 1
There were 49 holders of record of the Company's Common Stock and 2 holders of record of the Company's Redeemable Common Stocks Purchase Warrants as of March 20, 2000. The Company has not declared cash dividends on its Common Stock in the last two fiscal years. There were no unregistered sales of securities during the last fiscal year. The net proceeds to the Company from its Initial Public Offering after deducting underwriting discounts and commissions and other expenses of the Offering, were US $3,737,158. The Company used the net proceeds of the Offering as follows:
Amount (U.S. Dollars) -------------- Repayment of Lines of Credit (1) $ 862,108 Repayment of Bridge Notes (2) 546,589 Working Capital Requirements 869,023 Acquisitions (3) 735,442 Urgent Care Centre 147,147 Dividends on Preferred Shares 221,247 Capital Assets 226,949 Share Repurchase Plan (4) 77,965 Purchase of Note Receivable 50,688 Proceeds used to date 3,737,158 ---------- General Corporate Purposes and Potential Acquisitions - ---------- $3,737,158
(1) Represents repayment of an aggregate of US $250,000 of loans against line of credit provided to the Company by Robert Rubin, a director of the Company. The loan bore interest at 2% over the prime rate in effect from time to time as reported in The Wall Street Journal. The Company used these loans for working capital and certain costs associated with the opening of the first urgent care centre. Also represents repayment of approximately $890,000 (US $600,200) against the Company's outstanding balance on its bank credit facility, such balance bearing interest on an annual basis at the facility's announced prime rate plus 1.5%. The proceeds borrowed from the bank credit facility were used by the Company as working capital. (2) Represents repayment of the principal and accrued interest on the 8% promissory notes sold in the January 1997 private placement ("Bridge Financing"). The proceeds from the Bridge Financing were applied to reduce the Company's bank borrowings. (3) The Company completed six acquisitions since the completion of the Initial Public Offering. All of the shares of J.C. Medical Management Inc. were purchased in June, 1998. 75% of the shares of Doctors on Call Ltd. were purchased in September, 1998. 45% of the shares of Mississauga Urgent Care Inc. were purchased in January, 1999. 51% of the shares in York Lanes Health Centres were purchased in February, 1999. 51% of the shares of Caremedics (Elmvale) Inc. were purchased in March, 1999. All of the shares of YFMC Heathcare Inc. were purchased in November, 1999. (4) The Company repurchased 44,500 shares of its Common Stock between October, 1998 and January, 1999. 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. STATEMENT OF OPERATIONS DATA:
US $ YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ---------- STATEMENT OF OPERATIONS DATA: Revenue $12,648,428 $10,308,103 $ 8,358,937 $ 7,953,775 $8,016,895 Physician Fees and Other Direct Costs 8,877,139 7,984,116 6,319,934 6,290,047 6,136,000 Gross Profit 3,771,289 2,323,987 2,039,004 1,663,728 1,880,895 Operating Expenses before Depreciation and Amortization (1) and Healthy Connect.com -- Canadian GAAP 3,707,128 2,246,225 1,995,439 4,315,983 2,052,150 -- U.S. GAAP 3,680,333 2,422,974 2,101,456 4,359,053 2,052,150 Depreciation and Amortization 361,333 124,239 92,548 57,632 36,015 HealthyConnect.com 798,943 84,530 -- -- -- Operating Income (Loss) -- Canadian GAAP (1,096,115) (131,007) (48,983) (2,709,887) (207,270) -- U.S. GAAP (1,069,320) (307,756) (155,001) (2,752,957) (207,270) Other Income (Expense) (44,495) (12,584) (321,335) (40,780) 40,093 Provision for Income Taxes (Recovery) (262,140) (37,333) (29,332) (107,761) 52,149 Net Income (Loss) -- Canadian GAAP (878,470) (106,258) (340,987) (2,642,906) (219,325) -- U.S. GAAP (851,675) (283,007) (447,004) (2,685,976) (219,325) Net Income per Common Share (2) -- Canadian GAAP $ (0.26) $ (0.04) $ (0.18) $ (0.87) $ (0.09) Basic and Fully Diluted Income (Loss) per Common Share (2) -- Canadian GAAP $ (0.30) $ (0.08) $ (0.18) $ (0.87) $ (0.09) Primary and Fully Diluted Income (Loss) per Common Share -- U.S. GAAP $ (0.25) $ (0.10) $ (0.23) $ (0.88) $ (0.09) BALANCE SHEET DATA: Working Capital $ (882,234) $ 1,499,329 $(1,349,530) $ (870,509) $ (353,293) Total Assets 10,066,935 5,455,832 3,636,418 2,583,717 1,984,846 Long-term Debt 518,339 66,837 55,475 - - Shareholders' Equity 5,230,930 3,703,504 9,760 196,335 (227,845) OTHER DATA: EBITDA (3) -- Canadian GAAP $ (734,782) $ (6,768) $ 43,565 $(2,652,255) $ (234,628) -- U.S. GAAP $ (707,988) $ (183,517) $ (62,452) $(2,695,325) $ (234,628)
(1) At December 31, 1997, operating expenses included stock compensation expense of $100,400 for shares issued to a director. At December 31, 1996, operating expenses included stock compensation expenses of $1,271,214 for shares issued to a shareholder and $934,033 for the issuance of stock options to a director. (2) 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 and fully diluted income (loss) per common share reflects net income (loss) available to common shareholders divided by the weighted average number of common shares outstanding. (3) EBITDA is the sum of income before interest, taxes, depreciation and amortization expense. EBITDA should not be considered as an alternative to net income (loss) or to cash flows from operating activities (all as determined in accordance with generally accepted accounting principles). EBITDA is presented because it is a widely used financial indicator of a company's ability to service indebtedness and other factors. 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 recruitment, nurse staffing, physician management services and an internet-based healthcare network. Med-Emerg is positioned to establish industry leadership by providing integrated professional management services in the delivery of healthcare to the healthcare consumer. The Company's operations are divided into three divisions: Physician and Nurse Recruitment Services, Physician Management Services and an internet based healthcare network called HealthyConnect.com. Med-Emerg's strategy is to remain focussed on these three divisions while continuing to broaden its consolidation of physicians over a wider geographic base. Med-Emerg believes that it is well positioned to benefit from the aging of the baby boomer population, to capitalize on recent developments within the North American healthcare environment and to integrate opportunities available through internet technology. Specifically, the Company's strategy is to leverage its 15 years of physician recruitment experience in becoming a dominant player in Physician Management Services and to develop an internet-based healthcare network that connects physicians, patients, third party payors and consumers to a "virtual world" of healthcare products, services and health information. The Company continues to promote its medical manpower staffing services throughout Canada. Demand for emergency care has grown significantly over the past ten years, notwithstanding the small proportion of physicians focusing on emergency medicine. Moreover, recruitment of experienced emergency medicine practitioners by hospitals in other countries is intense and such demand is expected to continue for some time. Given the uncertainties associated with patient volumes in several Ontario hospital emergency departments, the pool of available physicians willing to practice emergency medicine has been declining. The Company's ability to provide solutions and source physicians and highly skilled nurses will be enhanced by its success in developing its dominant status in the Physician Management Services Organization (PMSO) sector. The Company's business strategy is to integrate and through its physicians program offer the family physician a comprehensive practice opportunity. Management believes that the creation of a dominant PMSO status will significantly contribute to the Company's efforts in growing its emergency services recruitment division. On March 22, 2000, the Company launched HealthyConnect.com, an internet-based e-commerce health portal. HealthyConnect.com has been strategically designed to provide an end to end solution for the information needs of the healthcare sector. The Company will pursue both a business to business and business to consumer e-commerce strategy connecting physicians, hospitals, third-party payors and consumers and will allow all participants to access and exchange healthcare related information, purchase healthcare products and services, and communicate more cost-effectively with one another. HealthyConnect.com will deliver healthcare services and products and provide timely access to reliable healthcare information through the utilization of advanced telecommunication technology. Targeted purchasers of HealthyConnect.com on line applications are consumers, healthcare institutions, physicians and other healthcare providers and healthcare product suppliers. Consumers will benefit from 24-hour, 7-day a week access, via the internet and telephone, to Med-Emerg's healthcare service provider network. In addition, consumers will have multiple site secure access to their own and their family members' electronic medical records, access to a physician management health and wellness centre and convenient at-home shopping for healthcare products and services. HealthyConnect.com will enable physicians and other healthcare providers to access reliable information and provide them with additional support in delivering cost effective, high quality healthcare services. Benefits include 24-hour coverage for patients, access to a comprehensive physician medical reference database, online continuing medical education courses, tools for chronic disease management, and participation in clinical trials and web casting. HealthyConnect.com will link healthcare product and service suppliers with our clinical network family. Convenient and secure access and at home/office browsing and purchasing capabilities will facilitate direct sales opportunities for member suppliers. Healthcare product and service suppliers that may benefit from using HealthyConnect.com include pharmaceutical companies, insurance companies, employers, government, managed care organizations, physicians and hospitals. HealthyConnect.com has assembled several key strategic partners that will provide health information content, end to end transaction processing capability and e-commerce goods and services to its customers. HealthyConnect.com has negotiated, amongst others, a relationship with AstraTek, a software product development firm, delivering advanced technologies to Fortune 1000 companies and financial institutions and Data General, a leading supplier of servers and storage systems, and services for information systems users worldwide. AstraTek assisted in the development and launch of the HealthyConnect.com portal. Data General will provide a consolidated computing infrastructure to support HealthyConnect.com including hardware, software and network support. Management of Med-Emerg sees HealthyConnect.com as a significant opportunity to create a profitable business line while providing healthcare organizations with new web-based technologies to increase practice efficiency, achieve measurable cost savings and improve the quality of care. On February 18, 2000, the Company announced the signing of a Business Combination Agreement to purchase all of the issued and outstanding shares of Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of US$3.00 per share for every 12.85 shares of LRC. The closing of the transaction is subject to regulatory and shareholders approval. LRC is a publicly listed company on the Canadian Venture Exchange that offers a full range of laser cosmetic procedures in its clinic operations located in the provinces of Ontario, Alberta and British Columbia. On November 5, 1999, the shareholders of the Company approved the issuance of up to 1,799,502 additional common shares in connection with the take over bid by the Company for all the issued and outstanding securities of YFMC Healthcare Inc. ("YFMC"), a Canadian physician management services organization that owns and manages 22 medical clinics. Pursuant to the business combination agreement, dated August 10, 1999, the Company mailed a take-over bid circular on November 5, 1999 to all YFMC shareholders making an offer to purchase all the issued and outstanding securities of YFMC on the following basis: a. In the case of holders of YFMC Common Shares, one Med-Emerg Common Share for every 6 7/8 shares of YFMC b. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series A Warrant for every 8 warrants of YFMC c. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series B Warrant for every 8 warrants of YFMC d. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common Share, subject to certain conditions, one Med-Emerg Common Shares for every 10 YFMC First Preferred Shares. The Company issued 1,758,556 Common Shares to complete the transaction. In addition, Med-Emerg substituted for every eight options to acquire YFMC Common Shares under the YFMC Stock Option Plan, the right to acquire one Med-Emerg Common Share at an exercise price of US$1.75. In March 1999, the Company purchased 51% of the outstanding capital of Caremedics (Elmvale) Inc. ("Elmvale"), a multi-physician primary healthcare clinic located in Ottawa, Canada. The Company entered into a five-year management services agreement to manage the clinic for a monthly fee based on revenues generated by the clinic. In February 1999, the Company became party to a lease for the clinic located within York University ("York Lanes") in Toronto, Canada. The Company has entered into a five-year management services agreement to manage the clinic for a monthly fee based on revenues generated by the clinic. The Company has a 51% interest in the company that owns the clinic. In January 1999, the Company acquired a 45% interest in an Urgent Care Centre, Medical Urgent Care Inc. ("MUCI"). The Company developed and opened its first Urgent Care Centre in September 1997. The Urgent Care Centre concept consists of a group of emergency trained physicians, a medical laboratory, a diagnostic radiology service, and a pharmacy, each of which must be present for the others to co-exist, and each of which is provided by a separately owned company. The Company manages the clinic component of the Urgent Care Centre and provides the support staff for this component. Ownership of Medical Urgent Care Inc. is shared with the group of emergency trained physicians that provides the medical service in the clinic component. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998 REVENUES. Revenues increased by $2,340,325 or 22.7% from $10,308,103 in 1998 to $12,648,428 in 1999. The revenue growth is attributable to the acquisition of YFMC, the acquisitions of MUCI, York Lanes and Elmvale, growth in existing clinic business and growth in nurse staffing. Revenues generated by Physician Management Services increased by $2,361,062 or 94.5% from $2,498,762 in 1998 to $4,859,824 during 1999. The three acquisitions that were completed in the second and third quarters of 1998 contributed $685,188 additional revenue to 1999. The three acquisitions that were completed during the first quarter of 1999 contributed $562,615 additional revenue to 1999. The acquisition of YFMC Healthcare Inc. added total revenue of $547,141 for the two months of operations included in the consolidated results of the Company. The Dundas Urgent Care Centre was a start-up operation in 1998. In 1999, this Centre contributed $395,746 to revenue. The remaining increase in Physician Management Services revenue is a result of increased patient volumes and additional physicians working in the family practice and walk-in clinics. Revenues from Physician and Nurse Recruiting decreased by $17,120 to $7,788,604 during 1999 from $7,805,724 during 1998. Revenues from contracts in the Physician Recruiting decreased $582,650 due to a net decrease in the number of physician staffing contracts from 16 contracts to 12. The decrease in Physician Recruiting revenue was offset by revenue of $294,790 generated from a one-time short-term contract with Customs and Immigration Canada for the provision of physicians and nurses to Bosnia refugees. In addition, the nurse staffing component of this division contributed an additional $270,740 to revenue in 1999 as compared to 1998. This increase came from a significant increase in the provision of services to one hospital under an existing contract plus the net addition of five contracts. PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees and direct costs, which primarily represents fees to contract physicians, increased $893,023 or 11.2% from $7,984,116 in 1998 to $8,877,139 in 1999. Physician fees and other direct costs decreased as a percent of revenue, representing 70.2% of revenues for 1999 and 77.5% of revenues for 1998. The decrease as a percent of revenue is largely due to the mix of revenue between Physician & Nurse Recruiting and Physician Management Services. As the Physician Management Services revenues increase, the larger gross margin related to Physician Management Services results in a decrease in physician fees and other direct costs as a percent of revenue. OPERATING EXPENSES. Operating expenses in 1999 include $798,943 of expenses relating to the development of HealthyConnect.com, an internet based e-commerce health portal. Operating expenses before HealthyConnect.com have increased by $1,460,927 or 65.0% from $2,246,200 in 1998. There are several factors contributing to the increase in operating expenses, including the clinic acquisitions in 1998 and 1999, and the operations of the Dundas Urgent Care Centre. During the second and third quarters of 1998, the company completed the acquisitions of two companies, JC Medical Management Inc. and Doctors On Call Ltd., and acquired the remaining two-thirds of the Glenderry Medical Walk-in Clinic. These acquisitions added $133,438 to operating expenses in 1999. During the first quarter of 1999, the company completed the acquisition of a controlling interest in three other companies, all of which operate medical clinics, adding a total of $542,830 to operating expenses. The acquisition of YFMC Healthcare Inc. in the fourth quarter of 1999 added $349,740 to operating expenses. During the first ten months of 1998, the Dundas Urgent Care Centre was considered a start-up operation. During 1999, this Urgent Care Centre added $169,170 to operating expenses. The remaining increase in operating expenses of $265,749 for 1999 compared to 1998 relates to an increase in general overhead costs. NET LOSS. As a result of the above items, the Company reported a net loss of $878,468 for 1999 as compared to net loss of $106,258 for 1998. The company's effective tax rate increased to approximately 44% in 1999 from approximately 26% in 1998 due to the change in status under Canadian taxation rules from a privately-held company to a company with shares that are publicly traded. Under U.S GAAP, the Company reported a net loss of $851,675 for the year ended December 31, 1999 as compared to a net loss of $283,007 for the year ended December 31, 1998. FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997 NET SERVICE REVENUES. Revenues increased by $1,949,166 or 23.3% from $8,358,937 for the year ended December 31, 1997 to $10,308,103 for the comparable period in 1998. The increase is due to: (i) revenue generated from the acquisitions of JC Medical Management Inc. and Doctors on Call Ltd., (ii) additional revenue recorded on the increase in ownership of Glenderry Walk-in Clinic from 33 1/3% to 100%, (iii) revenue generated from the emergency nurse staffing service launched in 1998, and (iv) general increase in patient volumes in both the physician staffing service and clinic operations. For the year ended December 31, 1998, revenues of Physician and Nurse Recruitment division increased by $1,238,091 or 18.9% to $7,805,724 from $6,567,633 for the year ended December 31, 1997. The launch of the nurse staffing service in April 1998 contributed $299,633 to the increase in revenue during 1998. Revenue from the physician staffing service increased as a result of: (i) a significant increase in the amount of physician coverage provided under two hospital contracts, (ii) two new hospital contracts during 1998 and two contracts that commenced during the fourth quarter of 1997 and continued throughout 1998, (iii) three new hospital contracts under which the Company provided coverage for the summer months only. The increase in revenue was offset by the termination of one large and four smaller hospital contracts, the one-time consulting fee that was received in 1997 and a one-time overseas physician placement for the Canadian government during the fourth quarter of 1997. For the year ended December 31, 1998, operating income from the Physician and Nurse Recruiting division decreased by $83,128 to $705,152 from income of $788,280 for the year ended December 31, 1997. During 1997, operating income of $229,194 was earned on a one-time consulting fee. This decrease in income was offset in 1998 by the operating income of $52,746 earned from the nurse staffing service launched in April 1998 and the gross margin realized on the increased revenue from physician staffing contracts. For the year ended December 31, 1998, revenues of the Physician Management Services division increased by $711,075 or 39.7% to $2,498,763 from $1,791,705 for the year ended December 31, 1997. The acquisitions of JC Medical Management Inc. in June 1998 and Doctors on Call Ltd. in September 1998 contributed $303,458 and 38,473, respectively, to the increase in revenue. In addition, the consolidation of Glenderry Medical Walk-in Clinic at 100% since August 1998 versus 33 1/3% in 1997, resulted in an increase in revenue of $163,939. In September 1997, the Company opened its first Urgent Care Centre. During the start-up period, no revenue was recognized from the operations of this Urgent Care Centre. Upon completion of the start-up period, the Company recognized $74,375 in revenue in 1998 from the Urgent Care Centre. In addition, the services provided to the two clinics at the Lester B. Pearson International Airport were increased in April 1998, resulting in additional revenue of $79,239. The remaining increase in revenue is attributable to increased patient volumes in 1998 compared to 1997 at the Pond Mills and Central clinics. For the year ended December 31, 1998, operating income for the Physician Management Services division increased by $10,641 to $290,826 from $280,185 for the year ended December 31, 1997. The increase was due to the operating income from the acquisitions of JC Medical Management Inc., Doctors on Call Ltd. and Glenderry Medical Walk-in Clinic, which was offset by increased head office costs for salaries and general overhead related to the overall management of the clinics. PHYSICIAN FEES AND OTHER DIRECT COSTS. Physician fees, which represent fees to contract physicians, represent the largest single variable expense. These fees are earned primarily through the Company's Physician and Nurse Recruiting services to the hospital emergency department contracts. Physician fees and other direct costs for the year ended December 31 increased by $1,664,182 or 26.3% from $6,319,934 in 1997 to $7,984,116 in 1998. Physician fees and other direct costs represented 75.6% of net revenues for the year ended December 31, 1997 and 77.5% of net revenues for the year ended December 31, 1998. In 1997 other direct costs include travel, marketing and consulting costs related to international projects, representing 2.4% of net revenues for the year. The 1997 costs relate to the undertaking of a consulting project in the Northwest Territories, Canada. OPERATING EXPENSES. In 1997, operating expenses increased by $335,316 or 16.8% from $1,995,439 for the year ended December 31, 1997 to $2,330,755 for the year ended December 31, 1998. Operating costs include general operating expenses and stock compensation expense. The general operating expenses, excluding stock compensation expense, represents 22.6% of net revenues for the year ended December 31, 1998 and 22.7% of net revenues for the year ended December 31, 1997. The stock compensation expense of $100,400 in 1997 represents shares issued to a director. Under U.S. GAAP, operating expenses for the period ending December 31, 1998 includes additional charges of $179,749 for development and start-up costs as compared to $106,017 at December 31, 1997. For U.S. GAAP, the start-up costs of $145,520 at December 31, 1998 and $106,017 at December 31, 1997 are expensed as incurred whereas under Canadian GAAP these costs are deferred and amortized over a prescribed benefit period. OTHER EXPENSE. Other expense decreased by $308,751 or 96.1% from $321,135 to $12,584 for the year ended December 31, 1997 and 1998 respectively. In 1998, other expense includes interest expense for less than two months on the bridge promissory notes. In 1997, other expense is due primarily to interest on increased bank borrowings, interest charged on the bridge promissory notes, foreign exchange loss on the U.S. dollar promissory notes and the amortization of deferred financing charges relating to the bridge shares issued in January 1997. NET LOSS. As a result of the above items, the Company had a net loss of $106,258 for the year ended December 31, 1998 as compared to a net loss of $340,987 for the year ended December 31, 1997. Under U.S. GAAP, the Company reported net loss of $283,007 for the year ended December 31, 1998 as compared to a net loss of $447,044 for the year ended December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Through its acquisitions completed in the first quarter of 1999, the Company assumed bank term loans with current balances totaling $526,711. Approximately $148,903 was loaned to a subsidiary of the Company under the Small Business Investment Loans program in which the Canadian government guarantees 90% of the principal balance of the loan. The remaining balance consists of capital loans for asset purchases and clinic acquisitions. As at December 31, 1999, the company's working capital deficit totaled $882,234. The company has available credit facilities for up to approximately CDN$4,500,000 (US$3,117,855). The Company established credit facilities that provide operating lines of credit amounting to CDN$2,600,000 (US$1,801,427), bearing interest at the bank's prime lending rate plus 0.5% to 1.0% per annum with interest payable monthly, and capital lines of credit amounting to CDN$850,000 (US$588,928). The capital lines of credit bear varying interest rates from the bank's prime lending rate plus 0.75% to 9.65% per annum. As at December 31, 1999, the Company has drawn approximately CDN$2,022,202 (US$1,401,096) against the operating facility and CDN$381,744 (US$264,494) against the capital facility. Subsequent to year end, the Company has drawn an additional CDN$85,137 (US$58,988) against a capital facility. On March 1, 2000, the Company issued a Private Placement Memorandum for equity financing. The Company currently is in the process of raising gross proceeds of US$1,700,000 for the issuance of 935,000 common shares. As at March 30, 2000, US$500,000 has been raised. In order to provide the financing necessary for the further development of HealthyConnect.com and the continued pursuit of the company's long-term acquisition strategy, the company expects to issue equity and debt securities, the availability and terms of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the company. Forward-looking statements of Med-Emerg International Inc. included herein or incorporated by reference including, but not limited to, those regarding future business prospects, the acquisition of additional clinics, the adequacy of capital resources and other statements regarding trends relating to various revenue and expense items, could be affected by a number of uncertainties and other factors beyond management's control. YEAR 2000 Med-Emerg has developed a program designed to identify, assess, and remediate potential malfunctions and failures that may result from the inability of computers and embedded computer chips within the Company's information systems and equipment to appropriately identify and utilize date-sensitive information relating to periods subsequent to December 31, 1999. This issue is commonly referred to as the "Year 2000 issue" and affects not only the Company, but virtually all companies and organizations with which the Company does business. To address the Year 2000 issue, the Company has formed a Year 2000 committee comprised of representatives from a cross-section of the Company's operations. The committee developed a plan to address the Year 2000 issue within all facets of the Company's operations. The plan includes processes to inventory, assess, remediate or replace as necessary the Company's information systems and equipment. In addition, the committee is assessing the compliance of all companies and organizations with which the Company does business. The Company has completed the inventory phase of its plan and is in the process of assessing the identified systems and equipment. Based on the assessments completed to date, the Company estimates that expenditures to remedy or replace potential Year 2000 problems will not exceed $50,000. This includes amounts in connection with standardizing certain of the information systems at the clinic level that would have been spent regardless of the Year 2000 issue. The foregoing estimates and conclusions regarding the Company's Year 2000 plan contain forward looking statements and are based on management's best estimates of future events. Risks to completing the Year 2000 plan include availability of resources, the Company's ability to discover and correct potential Year 2000 problems that could have a serious impact on specific systems, equipment or facilities, the ability of material suppliers and businesses to achieve Year 2000 compliance, the proper functioning of new systems and the integration of those systems and related software into the Company's operations. Some of these risks are beyond the Company's control. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's 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 KPMG was previously the auditors for Med-Emerg International, Inc. KPMG's appointment as auditors for the Company was terminated during the 1998 calendar year and Schwartz Levitsky Feldman, LLP was engaged as independent auditors for the Company and its subsidiaries. The decision to change auditors was approved by the Company's board of directors. 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, CA. 58 Chairman of the Board Ramesh Zacharias, M.D., FRCSC 48 Chief Executive Officer, Director Carl W. Pahapill, CA 41 Chief Operating Officer, President and Director Kathryn Gamble, CA. 32 Vice President of Finance, Chief Financial Officer, Secretary Stephen Fowler, M.D. 50 Executive Medical Director Martin Scullion 54 General Manager, Director Donald Wilson, M.D. 40 Executive Medical, Director Robert M. Rubin 58 Director Jeffery Lyons 59 Director Camille Chebeir 62 Director Alex Kalpaxis 46 Chief Technology Officer Donald Ross 48 Chair, Health Application Development
WILLIAM E. THOMSON, C.A. Mr. William Thomson has been a Director of the Company since January 1996 and is currently the non-executive Chairman. Mr. Thomson is President of William E. Thomson Associates Inc., one of Canada's best known crisis management firms. Mr. Thomson has been director since 1996. Mr. Thomson has been President and Chief Executive Officer of Speedware Corporation, a TSE listed information technology company, since June 1998. Mr. Thomson is Chairman of Asia Media Group Corp. in Singapore, and Esna Technologies Ltd. In addition, Mr. Thomson acts as a director of the following companies: TPI Plastics Ltd., Elegant Communications Ltd., Imperial Plastech Corp., Electrical Contacts Ltd., The Aurora Fund and Media Groupings Far East Ptc Ltd. RAMESH ZACHARIAS, M.D., FRCSC. Dr. Ramesh Zacharias is the founder and remains the Chief Executive Officer of Med-Emerg Inc. He is a surgeon and leading expert in the design and delivery of emergency care. He has provided consulting services regarding the delivery of emergency care in the Caribbean, Saipan and Malaysia and provided management consulting services regarding the operation of medical clinics in Canada, the United States and Russia. Dr. Zacharias provides medical leadership to both Med-Emerg Inc. and its on-line subsidiary, Healthy Connect.com. CARL W. PAHAPILL, C.A. Mr. Carl Pahapill joined the Company as President in February 1996 and became a Director of the Company in October 1996. From 1994 to 1995, Mr. Pahapill was the Chief Operating Officer of Signature Brands Limited, a publicly traded food processing company (TSE). From 1984 to 1993, Mr. Pahapill was a Partner at BDO Dunwoody Chartered Accountants. Mr. Pahapill provides business strategic leadership for the company's operations including its drive to deliver its web-based portal, HealthyConnect.com. KATHRYN GAMBLE, C.A. Ms. Kathryn Gamble joined the Company in January 1996 serving as the Company's Vice President of Finance and became the Company's Chief Financial Officer in October 1996. From February 1995 to December 1995, Ms. Gamble was the Corporate Controller for Signature Brands Limited, a publicly traded food processing company (TSE). From February 1993 to February 1995, Ms. Gamble was an Audit Analyst with Abitibi Price Inc., a publicly traded company (TSE, NYSE). STEPHEN FOWLER, MD. Dr. Fowler functions as the Executive Medical Director and is responsible for medical oversight of the Company's operations. Dr. Fowler has over 20 years experience in the delivery of emergency medicine and primary care family services. He was formerly the Chief of Family Medicine at Credit Valley Hospital in Mississauga, Ontario, from 1985 to 1992 and then the Emergency Department Director at the same hospital 1991 to 1997. Dr. Fowler joined MEI in 1996 as Associate Medical Director. MARTIN SCULLION. Mr. Scullion joined YFMC in 1996 and served as its CEO from 1998 to 1999. From 1988 to 1995 he was president of PEL Plastics Ltd. From 1974 to 1988 Mr. Scullion was vice-president, marketing for FCA International Ltd., a publicly traded company of the Montreal Stock Exchange and Toronto Stock Exchange. Mr. Scullion is responsible for operations of the physician management services division. DONALD WILSON, MD. Dr. Wilson founded YFMC in 1992 and served as its president prior to joining Med-Emerg. He has practiced family medicine since 1988 and is licenced in Quebec and Ontario. Dr. Wilson is responsible for quality assurance and the integration of new services into the company's clinic operations division. ROBERT M. RUBIN Mr. Rubin has served as a director of the Company since October 1996. Since June 1992, Mr. Rubin has served as a director of Diplomat Corporation, a publicly traded company involved in the sale of infant wear and babycare products through direct mail order catalogues. Since November 20, 1992, Mr. Rubin has served as the Chairman of the Board of Directors of Western Power & Equipment Corp. ("WPEC"), a construction equipment distributor. Between October, 1990 and January 1, 1994, Mr. Rubin served as the Chairman of the Board and Chief Executive Officer of American United Global Inc., a technology and communication company and majority owner of WPEC ("AUGI") and since January 1, 1994, solely as Chairman of the Board of AUGI. Mr. Rubin was the founder, President, Chief Executive Officer and a Director of Superior Care, Inc. ("SCI") from its inception in 1976 until May 1986 and continued as a Director of SCI (now known as Olsten Corporation until the latter part of 1987). Olsten, a New York Stock Exchange listed company, is engaged in providing home care and institutional staffing services and health care management services. Mr. Rubin is also a Director and minority stockholder of Response USA, Inc., a public company engaged in the sale and distribution of personal emergency response systems. JEFFERY LYONS, Q.C. Mr. Lyons recently joined the board of Directors of Med-Emerg. Mr. Lyons practices municipal law, administrative law and public policy with Morrison, Brown, Sosnovitch, Barristers and Solicitors in Toronto, Ontario. He currently serves as the Vice Chair of the Toronto Police Services Board and as a Director of VIA Rail Canada Inc., CAMVEC Corporation, and Infocorp Computer Solutions Ltd. He was the former Chairman of the Toronto Transit Commission and was on the governing body (Bencher) of the Law Society of Upper Canada from 1983-1991. Mr. Lyons is also a member of the Molson Indy Board of Trustees and Governor's Council of North York General Hospital. CAMILLE CHEBEIR. Mr. Chebeir is President of Sedco Services, Inc., New York, responsible for a prominent Saudi family on its off-shore investments and overseeing management of its U.S. portfolio. Mr. Chebeir serves as a Managing Director of Metro West, a multipurpose Real Estate Development - Florida. He is a member of the boards of several U.S. and overseas companies within Sedco's business activities. Mr. Chebeir was previously with the National Commercial Bank, New York, serving from 1983 to 1989 as Vice President-Operations and from 1989 to 1992 as Executive Vice President managing its New York branch. Mr. Chebeir is a former President of Arab Bankers Association of North America. From 1960 to 1983, Mr. Chebeir held a number of executive positions with Citibank, N.A. offices in Beirut, Lebanon, Manama, Brahrain and Athens, Greece. Mr. Chebeir holds Degrees in Banking from St. Joseph University, Beirut, Lebanon. ALEX KALPAXIS, CHIEF TECHNOLOGY OFFICER. Mr. Kalpaxis is currently the Chairman of AstraTek Inc. In his role as HealthyConnect.com's Chief Technology Officer, Mr. Kalpaxis is responsible for the technology vision, direction and proprietary product development of HealthyConnect.com. He is a recognized expert in advanced software technology. Recently speaking at the "Object Oriented Technology for Securities Industry" seminar sponsored by the Institute for International Research. Before founding AstraTek, he had a fourteen year career at Bankers Trust. As the Bank's Chief Technologist, he led projects in infrastructure development, LAN systems, databases and tools, object technology, and engineering. Mr. Kalpaxis is one of the key leaders who developed the global Bankers Trust Technical Architecture. This multi-year effort defined the strategies and standards for technology for the next five to ten years, including design, development, deployment and operation. Previously at Bankers Trust he managed the Micro Systems and Networks Group where he developed a number of innovative projects, including the original version of the BTAS security system, the PC version of the BIDDs trading system, the PC version of the FSDX publisher/subscriber system and a stream encryption driver for LANs. Before he joined Bankers Trust he was a research engineer for the Photonics Laser Institute at the City University of New York, a nationally renowned institute, were he obtained several patents related to electronics and optical fields. He has received several awards, including the Simon Sokin Medal for Excellence in Experimental Physics. Tadeo Holdings Inc. is a holding company. AstraTek is a recently acquired wholly owned subsidiary. AstraTek is a software product development and professional services firm, delivering advanced technologies to Fortune 1000 companies and financial institutions. AstraTek's Visual Audit product for Excel are now part of Viasoft's (NASDAQ symbol VIAS) OnMark 2000 suite of software solutions for the Year 2000 problem. DR. DONALD ROSS, CHAIR, HEALTH APPLICATION DEVELOPMENT. Dr. Ross is an experienced, versatile, and results-oriented health care executive specializing in regulatory, scientific and operational issues in not-for-profit public and private health care. With proven capability in corporate leadership and public relations, government affairs, business development and marketing, Don built a successful integrated health management company for a major international health care organization. Don, with both academic and professional experience in quality assurance, utilization management, outcome research and clinical decision making, has spoken at numerous national and international conferences on trends and opportunities in healthcare and has created an extensive national and international network. In addition to his professional experience, Don holds a Masters degree in Clinical Epidemiology, is a Doctor of Dental Medicine, and has an honors Bachelors degree in neurophysiology from the University of British Columbia. Currently, Don is completing a Masters in Business Administration. He is a member of the Canadian College of Health Service Executives as well as board member of First Canadian Health Inc. 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 Chairman, Chief Executive Officer and Chief Operating Officer for the fiscal year ended December 31, 1999. No other executive officer has a total annual salary and bonus of more than U.S.$100,000 during the reporting periods.
Annual Compensation (US$) ------------------------- Other Name And Principal Position Salary Bonus Compensation - --------------------------- ------ ----- ------------ Ramesh Zacharias 1999 $179,048 $67,300 $4,938(1) Chief Executive Officer 1998 $151,088 $ 0 $5,186(1) 1997 $147,349 $ 0 $9,436(1) Carl Pahapill 1999 $152,771 $67,300 $6,730 Chief Operating Officer, President 1998 $118,038 $16,863 $6,745 1997 $126,403 $ 0 $7,223
(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 employment agreements with both Dr. Zacharias and Mr. Pahapill. Dr. Zacharias' agreement provides that he will devote all of his business time to the Company in consideration of an annual salary of US$225,000 effective August 1, 1999 and a bonus of US $67,300 based on performance. The annual salary increases to US$250,000 per year during the final year. The agreement is for a term of three years, but may be terminated by the Company for cause, or without cause with penalty. Mr. Pahapill's agreement is for a term of three years, but may be terminated by the Company for cause or without cause with penalty. The agreement provides that Mr. Pahapill devote all of his business time to the Company in consideration of an annual salary of US$200,000 effective August 1, 1999 and a bonus of US$67,300 based on performance. The annual salary increases to US$225,000 per year during the final year. 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 is to be administered by the Board of Directors or a committee appointed by the Board. Pursuant to the Plan, options to acquire an aggregate of 1,000,000 shares of Common Stock may be granted, 710,900 of which have been granted as of March 20, 2000. The Plan is to provide for grants to employees and directors of the Company. During the fiscal 1999, Med-Emerg granted 440,000 options to eligible employees at an exercise price between US$1.25 and US$1.87, and 800,000 options to the Named Executive Officers at an exercise price of US$1.50 under the Plan. No options were granted to eligible physicians during the fiscal year ended December 31, 1999. COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN* AMONG MED-EMERG INTERNATIONAL, INC., THE NASDAQ HEALTH SERVICES INDEX AND THE RUSSELL 2000 INDEX [GRAPH]
CUMULATIVE TOTAL RETURN 2/12/98 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99 MED-EMERG INTERNATIONAL, INC. 100 91 66 43 35 29 47 38 38 RUSSELL 2000 100 109 106 85 98 91 106 98 99 NASDAQ HEALTH SERVICES 100 106 96 72 82 73 91 67 67
$100 INVESTED ON 2/12/98 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 20, 2000, certain information with respect to stock ownership of (i) all persons known by the Company to be beneficial owners of 5% or more of its outstanding shares of Common Stock; (ii) all directors and officers as a group.
Shares Of Percentage Name of Beneficial Owner(2) Common Stock Ownership - --------------------------- ------------ ---------- 1245841 Ontario Inc (3) 1,042,544 17.4% Ramesh Zacharias (4) 1,607,544 26.1% M.D., FRCSC Robert Rubin (5) 750,000 12.8% Carl Pahapill (6) 665,000 11.5% Donald Wilson (7) 592,783 11.2% Martin Scullion (8) 547,561 10.4% Hampton House International (9) 274,375 5.2% Ambrose Group 170,000 5.5% All Officers and Directors as a group (9 persons) (4)(5)(6)(7)(8)(10) 4,467,888 55.1%
(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. (4) Includes (i) 292,544 shares owned by 1245841 Ontario Inc., which is owned by Dr. and Mrs. Zacharias (ii) 565,000 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., a company owned by Dr. and Mrs. Zacharias. 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. Dr. Zacharias and Mrs. Zacharias each disclaim beneficial ownership of the shares owned by the other. (5) Includes 700,000 shares of Common Stock currently issuable upon exercise of options. (6) Includes 100,000 shares of Common Stock and 565,000 shares issuable upon exercise of options. (7) Includes 580,283 shares of Common Stock and 57,085 shares issuable upon exercise of warrants and options. (8) Includes 535,061 shares of Common Stock and 57,085 shares issuable upon exercise of warrants and options. (9) These shares may be deemed to be owned by Peter Deeb, a past director of the Company. Mr. Deeb owns 75% of Hampton House and is its Chairman and Chief Executive Officer. (10) Represents 2,426,221 voting securities currently owned and 2,041,667 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 Between 1994 and 1996, the Company loaned an aggregate of $103,004 to Dr. Zacharias and Victoria Zacharias. In February 1998, the Company repurchased 37,456 shares of its common stock from Ramesh and Victoria Zacharias at a purchase price of US $2.75 per share. The aggregate consideration payable by the Company was used to repay all outstanding amounts owed by Dr. Zacharias and Victoria Zacharias and their affiliated companies. In June 1996, the Company loaned Cdn$60,000 (US$43,940) to Carl Pahapill, the Company's President, to purchase 100,000 shares of Common Stock in the Company. The loan is non-interest bearing, unsecured with no specific terms of repayment. On November 1, 1996, the Company effected a recapitalization whereby Dr. Zacharias, the Company's Chief Executive Officer and Director, and Victoria Zacharias, Dr. Zacharias' wife, converted an aggregate of 2,203,333 shares of Common Stock into an aggregate of 500,000 shares of preferred stock. In 1997, the shares were transferred to 1245841 Ontario Inc., a company owned by Dr. and Mrs. Zacharias. On November 1, 1996, the Company granted Robert Rubin, a director, an option to purchase 700,000 shares of Common Stock at US$.75 per share and approved the issuance of 50,000 shares of Common Stock, all of which shares were issued in 1997 in consideration of services rendered to the Company as director. On December 31, 1999, Mr. Rubin exercised options for 58,333 common shares. Under a US $800,000 line of credit previously established between Mr. Rubin and the Company, Mr. Rubin advanced an aggregate of US $250,000 from July 1997 to January 1998. In connection with the Bridge Financing in January 1997, the Company issued 8% promissory notes in the principal amount of US$500,000 and an aggregate of 125,000 shares of Common Stock to four investors for gross proceeds of US$500,000. Robert Rubin, a director of the Company, purchased a promissory note in the principal amount of US$150,000 and 37,500 shares of Common Stock. To comply with the National Association of Securities Dealers, Inc., Mr. Rubin and the another investor agreed to surrender to the Company for cancellation without consideration an aggregate of 62,500 shares of Common Stock obtained in the Bridge Financing. The Company remained obligated to repay the promissory notes issued to the two investors in the aggregate principal amount of US$250,000, upon the closing of the Initial Public Offering. On February 25, 2000, the Company granted to each of Carl Pahapill and Dr. Ramesh Zacharias 500,000 fully vested non-escrowed shares of HealthyConnect.com, Inc. and an additional escrowed 500,000 shares of HealthyConnect.com, Inc. released upon meeting certain conditions. Except with respect to the non-interest bearing loans made to the Zacharias' and Mr. Pahapill, 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. 10.1 Employment Agreement between the Company and Ramesh Zacharias. 10.2 Employment Agreement between the Company and Carl Pahapill. 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 23.1 Consent of Schwartz Levitsky Feldman, LLP, Chartered Accountants.
* 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. 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/ Carl Pahapill ------------------------------- Carl W. Pahapill, CA President and Chief Operating Officer DATE: March 30, 2000 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/ Carl Pahapill ------------------------------- Carl W. Pahapill Director DATE: March 30, 2000 /s/ Ramesh Zacharias ------------------------------- Ramesh Zacharias Director DATE: March 30, 2000 /s/ Jeffery Lyons ------------------------------- Jeffery Lyons Director DATE: March 30, 2000 /s/ Kathryn Gamble ------------------------------- Kathryn Gamble Director DATE: March 30, 2000 /s/ Martin Scullion ------------------------------- Martin Scullion Director DATE: March 30, 2000 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, 1999 and 1998 and the consolidated statements of operations and deficit and cash flows for each of the years ended. These 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 audit. We conducted our audits in accordance with 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, 1999 and 1998 and the results of its operations cash flows for each of the years then ended in accordance with generally accepted accounting principles. Canadian generally accepted accounting principles differ in some respects from those applicable in the United States of America (note 18). /s/ Schwartz Levitsky Feldman, LLP Chartered Accountants Toronto, Ontario March 16, 2000 MED-EMERG INTERNATIONAL INC. CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 1999 AND 1998 (IN US$)
1999 1998 ------------ ------------ ASSETS CURRENT ASSETS Cash and short term investments $ 229,966 $ 1,090,582 Accounts receivable (note 4) 2,453,700 1,806,094 Prepaid expenses and other 281,385 286,906 ------------ ------------ 2,965,051 3,183,582 ------------ ------------ Capital assets (note 5) 2,329,847 576,974 Other assets (note 6) 4,005,768 1,239,880 Deferred income taxes (note 12) 766,270 454,415 ------------ ------------ $ 10,066,936 $ 5,454,851 ------------ ------------ ------------ ------------ LIABILITIES CURRENT LIABILITIES Bank Indebtedness (note 7) $ 1,401,096 $ 136,678 Accounts payable and accrued liabilities 1,917,153 1,490,764 Restructuring reserve (note 3) 356,889 - Current portion of long-term debt (note 8) 172,145 57,080 ------------ ------------ 3,847,283 1,684,522 Long term debt (note 8) 518,338 66,825 Deferred income taxes (note 12) 470,384 - ------------ ------------ 4,836,005 1,751,347 ------------ ------------ Commitments and contingencies (note 15) Capital Stock (note 9) 8,251,290 5,981,830 Convertible Debenture (note 10) 405,371 405,371 Contributed surplus (note 11) 1,022,100 980,325 Deficit (4,335,566) (3,322,903) Cumulative translation adjustment (112,264) (341,119) ------------ ------------ 5,230,931 3,703,504 ------------ ------------ $ 10,066,936 $ 5,454,851 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. MED-EMERG INTERNATIONAL INC. CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT FOR THE YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN US$)
1999 1998 1997 ------------ ------------ ------------ REVENUE $ 12,648,428 $ 10,308,103 $ 8,358,937 PHYSICIAN FEES AND OTHER DIRECT COSTS 8,877,139 7,984,116 6,319,934 ------------ ------------ ------------ 3,771,289 2,323,987 2,039,003 ------------ ------------ ------------ EXPENSES Salaries and benefits 1,838,276 1,214,351 1,234,737 General and administration 493,541 361,813 371,846 Occupancy costs and supplies 872,109 319,187 270,631 Public company costs 301,591 202,518 - Travel and marketing 201,610 148,330 118,225 HealthyConnect.com development costs 798,943 84,555 - ------------ ------------ ------------ 4,506,070 2,330,754 1,995,439 ------------ ------------ ------------ (LOSS) INCOME BEFORE DEPRECIATION, INTEREST AND FINANCING EXPENSE, GOODWILL AMORTIZATION & TAXES (734,781) (6,767) 43,564 Depreciation 194,097 79,417 48,799 Interest and financing expense 44,494 12,584 321,335 Goodwill amortization 167,235 44,822 43,749 ------------ ------------ ------------ 405,826 136,823 413,883 ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (1,140,607) (143,590) (370,319) Income taxes (recovery) (262,138) (37,333) (29,332) ------------ ------------ ------------ NET LOSS BEFORE PREFERRED SHARE DIVIDENDS (878,469) (106,257) (340,987) Preferred share dividends (134,194) (117,752) - ------------ ------------ ------------ NET LOSS (1,012,663) (224,009) (340,987) Deficit, beginning of the year (3,322,903) (7,130,277) (6,789,290) Restatement of excess of redemption price over issuance price of preference shares (note 9b) - 4,031,383 - ------------ ------------ ------------ DEFICIT, END OF THE YEAR $ (4,335,566) $ (3,322,903) $ (7,130,277) ------------ ------------ ------------ ------------ ------------ ------------ BASIC AND FULLY DILUTED LOSS, PER SHARE (NOTE 13) $ (0.30) $ (0.08) $ (0.18) ------------ ------------ ------------ ------------ ------------ ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,371,322 2,975,853 1,941,510 ------------ ------------ ------------ ------------ ------------ ------------
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, 1999, 1998 AND 1997 (IN US$)
1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year $ (878,469) $ (106,257) $ (340,987) Adjustments for: Amortization of capital assets 194,097 79,417 48,799 Goodwill amortization 167,235 44,822 43,749 Amortization of bridge financing cost - - 196,934 Deferred income taxes 180,877 (343,267) (29,127) Stock compensation 26,174 - 100,400 ----------- ----------- ----------- (310,086) (325,284) 19,768 Increase (decrease) in non-cash working capital components (note 14) 172,783 (643,303) (40,555) ----------- ----------- ----------- (137,302) (968,587) (20,787) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to capital assets (1,817,699) (295,772) (281,606) Business acquisitions (note 3) (630,453) (610,338) - Other assets (note 14) 23,890 174,173 (378,922) ----------- ----------- ----------- (2,424,262) (731,937) (660,528) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank indebtedness 1,222,815 (846,365) 112,061 Issuance of common shares (note 9a) - 3,921,464 229,395 Issuance of warrants (note 9c) 41,775 106,111 - Repurchase of shares (1,542) (113,025) - Cancellation of surrendered common shares (note 9a) - (119,313) - Repurchase and cancellation of shares from a director (note 9a) (96,944) - Issuance of convertible debenture (note 10) - 405,371 - Term loans 555,089 - - Obligation under capital lease (12,047) 42,036 92,022 Issuance/(repayment) of promissory notes - (634,754) 575,920 Due from affiliates - 38,487 (3,491) Dividends paid on preference shares (100,575) (117,752) - ----------- ----------- ----------- 1,705,515 2,585,313 1,005,907 ----------- ----------- ----------- Effect of foreign currency exchange rate changes (4,566) (181,808) 8,170 INCREASE (DECREASE) IN CASH AND SHORT-TERM (860,616) 702,979 332,762 INVESTMENTS Cash and short-term investments, beginning of year 1,090,582 387,603 54,841 ----------- ----------- ----------- Cash and short-term investments, end of year $ 229,966 $ 1,090,582 $ 387,603 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Med-Emerg International Inc. is a publicly traded company listed on the NASDAQ Exchange. The Company completed its initial public offering in February, 1998. Med-Emerg International Inc. is a physician management services organization specializing in the delivery of emergency and primary healthcare related services. The Company is committed through information technology and its physician management services to delivering an internet-based healthcare network with the objective of delivering quality and timely access to healthcare products and services. The Company has decided to continue to focus on the development of its internet based technology of HealthyConnect.com. Therefore, the Company has an on-going requirement to raise capital to finance the on-going technology developments of HealthyConnect.com. The Company's operations are divided into three divisions, Physician and Nurse Recruitment, Physician Management Services and HealthyConnect.com. On a contractual basis, the Company provides emergency department physician and nurse recruitment, staffing and administrative support services to hospitals. At December 31, 1999, the Company had 14 contracts for physician staffing and 6 contracts for nurse staffing. Under physician management services, the Company owns and manages medical clinic facilities providing physicians with the ability to practice within a professional managed network enabling the physician to concentrate on the clinical aspects of their practices. All the clinic assets including medical equipment are owned by the company. At December 31, 1999, the Company owned and managed 30 clinics. HealthyConnect.com is an internet-based health portal that will connect physicians, patients, third party payors and consumers to a "virtual world" of healthcare products and services. The Company is electronically connecting its clinical facilities and establishing strategic partnerships in delivering a comprehensive healthcare program. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 18. The translation of the Financial Statements from Canadian dollars into United states dollars is performed 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. a) Basis of Consolidation The financial statements consolidate, with minority interest, the 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. b) Product Development and Start-up Costs Direct costs incurred, net of any revenue, during the development and start-up period for a new clinic are deferred until the clinic reaches a commercial level of activity and is then amortized on a straight-line basis over five years. Direct costs incurred to develop HealthyConnect.com have been expensed as start-up costs of a technology organization in accordance with the more conservative accounting treatment under U.S. GAAP. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) c) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. d) 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
e) Goodwill Goodwill is recorded at cost and is being amortized over a period of 10 to 20 years. The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through projected future operating results. Impairment, if any, is measured based on discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds or based on the fair value of the related business unit or activity. The assessment of the recoverability of intangible assets will be impacted if estimated future operating cash flows and future operating results are not achieved. f) Physician Contracts In conjunction with the acquisition of YFMC Healthcare Inc. as described in note 3, the Company has assigned a value for long-term physician contracts secured under the transaction. These costs are being amortized over sixty months. g) Revenue Recognition The Company recognizes revenues in its Physician and Nurse Recruiting division 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 Physician Management Services division as medical services are rendered by physicians under contract with the Company, 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. h) Deferred Income Taxes The Company follows the "asset and liability method" of accounting for deferred income taxes under Canadian GAAP pursuant to which recognition is given to deferred taxes on all "temporary differences" (differences between accounting basis and tax basis of the Company's assets and liabilities) using tax rates expected to apply to taxable income in the years in which temporary differences are expected to be realized. The Company records deferred tax assets for the future tax benefits of non-capital losses carried forward, less a provision for any deferred tax assets where it is more likely than not that the asset will not be realized. The Company did not recognize future tax benefits in connection with capital losses carried forward because it is not currently likely that the company would realize these tax benefits. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 3. BUSINESS ACQUISITIONS Effective November 5, 1999, the Company purchased all of the outstanding securities of YFMC Healthcare Inc. in exchange for similar securities of Med-Emerg International Inc. on the following basis: i. In the case of holders of YFMC Common Shares, one Med-Emerg Common Share was issued for every 6 7/8 shares of YFMC. This resulted in the issuance of 1,658,566 Med-Emerg Common Shares. ii. In the case of holders of YFMC Preferred Shares, one Med-Emerg Common Share was issued for every 10 YFMC First Preferred Shares, resulting in the issuance of 100,000 Med-Emerg Common Shares. iii. In the case of holders of YFMC Series A Warrants, one Med-Emerg Series A Warrant was issued for every 8 warrants of YFMC, resulting in the issuance of 44,585 Med-Emerg Series A Warrants. iv. In the case of holders of YFMC Series B Warrants, one Med-Emerg Series B Warrant was issued for every 8 warrants of YFMC, resulting in the issuance of 44,585 Med-Emerg Series B Warrants. v. In the case of holders of YFMC stock options, one Med-Emerg stock option for every 8 YFMC stock options. The Company has determined that there will be integration costs associated with the business combination with YFMC Healthcare Inc. The Company plans to dispose of duplicate functions and unprofitable operations as part of a formal plan of integration. A liability of $356,889 has been established as the estimated cost of the integration plan. The Company expects to complete the plan by June 30, 2000. The following pro forma statement of operations summarizes the results of operations as if the business combination had occurred on January 1, 1999: Revenue $15,248,272 Physician fees and other direct costs 9,511,661 ----------- 5,736,611 ----------- Expenses Salaries and benefits 2,761,128 General and administration 756,671 Occupancy costs and supplies 1,604,892 Public company costs 301,591 Travel and marketing 255,438 HealthyConnect.com development costs 798,943 ----------- 6,478,663 ----------- Loss before amortization, interest and financing expenses, goodwill amortization and taxes (742,052) Amortization 568,295 Interest and financing expense 64,771 Goodwill amortization 216,042 ----------- 849,108 ----------- Loss before income taxes (1,591,160) Income taxes (recovery) (406,974) ----------- Net loss $(1,184,186) ----------- -----------
In addition, during the fiscal year 1999, the Company also acquired ownership interest in the following companies that operate medical clinics: 45% of Medical Urgent Care Inc., 51% of Caremedics (Elmvale) Inc. and 51% of York Lanes Health Centres Ltd. The following is a summary of the assets purchased and liabilities assumed: MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 3. BUSINESS ACQUISITIONS (cont'd)
YFMC Healthcare Other Inc. Acquisitions Total ------------------------------------------ Current assets $ 666,495 $ 23,052 $ 689,547 Capital assets 1,381,885 374,136 1,756,021 Other long-term assets 702,656 - 702,656 Goodwill 1,736,571 170,821 1,907,392 Less liabilities assumed (1,399,221) (361,612) (1,760,833) Less reverse for restructuring (352,107) - (352,107) Less minority interest - (28,221) (28,221) ------------------------------------------ Purchase price 2,736,279 178,176 2,914,455 Less: share consideration (2,232,906) - (2,232,906) Less: stock options and warrants (41,775) - (41,775) ------------------------------------------ Cash consideration $ 461,598 $ 178,176 $ 639,774 ------------------------------------------ ------------------------------------------
4. ACCOUNTS RECEIVABLE
1999 1998 ------------------------- Trade receivable $2,526,370 $1,844,939 Allowance for doubtful accounts (72,670) (38,845) ------------------------- $2,453,700 $1,806,094 ------------------------- -------------------------
5. CAPITAL ASSETS
1999 1998 ---------------------------------------- -------- Accumulated Cost Amortization Net Net ---------------------------------------- -------- Furniture and fixtures $ 184,057 $ 82,954 $ 101,103 $ 52,825 Medical equipment 457,245 63,938 393,307 104,690 Computer software 126,739 78,357 48,382 10,695 Computer hardware 451,528 238,382 213,146 184,141 Leasehold improvements 1,794,288 220,379 1,573,909 224,623 ---------------------------------------- -------- $3,013,857 $684,010 $2,329,847 $576,974 ---------------------------------------- -------- ---------------------------------------- --------
Amortization for the year amounted to $171,663 ($79,389 for December 31, 1998). MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 6. OTHER ASSETS
1999 1998 ------------------------ Goodwill at cost(net of accumulated amortization of $172,160; $82,955 at December 31, 1998) $2,828,700 $ 792,734 Physician contracts (net of accumulated amortization of $23,095; $nil at December 31, 1998) 669,762 - Deferred start-up costs (net of amortization of $46,323; $7,277 at December 31, 1998) 255,040 284,063 Deferred charges relating to proposed financing 143,851 68,273 Note receivable 52,085 49,095 Due from affiliates, non-interest bearing, no specific terms of repayments 7,830 - Loan to officer, unsecured, non-interest bearing, repayable over a five-year period commencing February, 2000 41,571 39,185 Other 6,929 6,530 ------------------------ $4,005,768 $1,239,880 ------------------------ ------------------------
Note receivable On June 29, 1998, the company purchased a note receivable, payable by the Estate of Dr. Donald Munro ("Estate"). The security for the note includes the 150,000 shares of Common Shares of the company and any proceeds from the sale of the Common Shares by the Estate must be applied to repay the note. The company demanded repayment of the note on April 1, 1999. 7. BANK INDEBTEDNESS The Company has credit facilities providing a total of $1,801,427 in demand operating lines of credit. The lines of credit bear interest at rates varying from prime plus 0.5% to prime plus 1% per annum. As security for one operating line, 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 in the amount of $692,857. As security on another operating line, YFMC Healthcare Inc., a wholly-owned subsidiary of the Company, has provided a General Security Agreement. As security on a third facility, YFMC Healthcare (Alberta) Inc., a wholly-owned subsidiary of YFMC Healthcare Inc., has provided a General Security Agreement, unlimited guarantee of advances from YFMC Healthcare Inc. and an endorsement of fire insurance covering all office and equipment of YFMC Healthcare (Alberta) Inc. 8. LONG-TERM DEBT
1999 1998 -------------------- Commercial term loan payable, interest at prime + 2%, repayable in equal monthly installments of $4,835 principal and interest secured by general security agreement, due June 2003 203,094 - Bank loan payable, interest at prime + 2.5%, repayable in equal monthly installments of $1,519 plus interest government guaranteed, due September 2003 148,903 - Bank loan, interest at 9.65%, repayable in equal monthly installments of $1,684 principal plus interest, secured by personal guarantee of a Shareholder, due August 2003 61,400 - Promissory note payable, non-interest bearing, repayable in equal monthly installments of $1,925, due June 2002 55,813 - Non-revolving bank loan, interest at prime + 0.75%, repayable in equal monthly installments of $1,197 plus interest, secured by General Security MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 8. LONG-TERM DEBT (cont'd) 1999 1998 -------------------- Agreement, chattel mortgage and assignment of risk and key man life Insurance 52,906 - Loans payable, interest rates varying from prime to prime + 1.5%, with monthly installments of principal and interest totaling $2,940, due between April 2000 and August 2002, secured by general security agreements 57,500 - Obligations under capital lease 70,894 123,905 Due to related parties, non-interest bearing, no specific terms of repayment 39,973 - -------------------- 690,483 123,905 Less: current portion (172,145) (57,080) -------------------- 518,338 66,825 -------------------- --------------------
The non-revolving bank loan is an available line of credit amounting to $692,857 for use in the acquisition of capital assets. At December 31, 1999, the Company had drawn $67,034 against the facility. Subsequent to December 31, 1999, the Company has drawn an additional $58,988 against the facility. 9. 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 restrictions 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
1999 1998 ------------------------ 500,000 Preference shares $ 445,717 $ 445,717 4,912,433 Common shares (3,096,544 in 1998) 7,699,462 5,430,002 1,437,500 Common stock purchase warrants 106,111 106,111 ------------------------ $8,251,290 $5,981,830 ------------------------ ------------------------
MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 9. CAPITAL STOCK (cont'd)
Common Shares Number Amount -------------------------------- Balance, December 31, 1997 1,990,000 $1,853,785 Shares surrendered for cancellation (62,500) (128,990) Shares repurchased for directors and cancelled (37,456) (96,944) Shares issued in connection with initial public 1,250,000 3,921,464 offering Shares repurchased and cancelled (43,500) (119,313) -------------------------------- Balance, December 31, 1998 3,096,544 5,430,002 Shares repurchased and cancelled (1,000) (1,542) Shares issued in connection with an acquisition 1,758,556 2,232,906 Shares issued under stock option plan 58,333 38,096 -------------------------------- Balance, December 31, 1999 4,912,433 $7,699,462 -------------------------------- -------------------------------- Warrants ------------------------------- Number Amount ------------------------------- Balance, December 31, 1997 - $ - Warrants issued in connection with initial public 1,437,500 106,111 offering Balance, December 31, 1999 and 1998 1,437,500 $ 106,111 -------------------------------- --------------------------------
(a) Common Shares In January 1997, the Company completed a private offering and sale of promissory notes ("Bridge Notes") with a principal amount of $500,000. The Bridge Note holders also received 125,000 common shares having an ascribed value of $2.05 per common share. The value ascribed to the common shares was accounted for as a financing. Upon closing of the Offering, the Company repaid the principal balance of $500,000 plus interest on the promissory notes. In addition, the Company repaid $150,000 due to a director of the Company. Immediately preceding the closing of the Offering, certain investors in the Company's January 1997 private offering surrendered for cancellation an aggregate of 62,500 common shares. The effect of this event is a reduction in shareholders' equity of $128,990 and an equal reduction of other assets. At December 31, 1997, the Company had issued 50,000 common shares to a director of the Company. The issuance of these shares was accounted for as compensation expense of $100,400 as the related services were rendered by the director. Concurrent with the closing of the Initial Public Offering on February 20, 1998, the Company repurchased 37,456 Common Shares held by a director. On February 20, 1998 the Company completed an Initial Public Offering (the "Offering") of 1,250,000 shares of Common Stock and 1,437,500 Class A Redeemable Common Stock Purchase Warrants for net initial public offering proceeds of $3,921,464. In October 1998, the Board of Directors approved the repurchase over a three-month period of up to 5% of the outstanding common Shares of the Company. The Company repurchased and cancelled 44,500 common shares for an aggregate cost of $73,875. Share capital was reduced by $120,855 based on the assigned value per share and contributed surplus was increased by $46,292. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 9. CAPITAL STOCK (cont'd) On November 5, 1999 the Company completed the acquisition of YFMC Healthcare Inc. ("YFMC"), as more fully described in Note 3 and issued 1,758,566 common shares. On December 31, 1999, a director exercised stock options, resulting in the issuance of 58,333 Common Shares. (b) Preference Shares Each preferred share is convertible into one and one-half shares of common stock 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 the ascribed value of $4,500,000 divided by the then current 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 their then quoted market value from the date of closing of the initial public offering. The preference shares were, at the time of their issue, redeemable and retractable by the holder. On October 24, 1997, the attributes of the shares were changed and the shares ceased to be redeemable and retractable. The December 31, 1999 quarterly dividend in the amount of $33,618 has not been paid but has been accrued in the accounts. On August 21, 1998, the shareholders approved a reduction in the stated capital of the preferred shares. The issuance of the preferred shares was originally recorded in the amount of $4,500,000, based on the value ascribed to the shares translated at the exchange rate in effect at the date of issuance, and resulted in a charge of $4,031,383 to retained earnings, which represents the excess of the value ascribed to the preferred shares issued over the carrying value of the common shares cancelled. In 1998, the Company reduced the stated capital of the preferred shares by $4,031,383 and reduced the deficit by the same amount. (c) Warrants and Stock Option Plans Under a stock option plan, a director was granted an option on November 1, 1996 to purchase 700,000 common shares of the Company at an exercise price of $0.75 per share. The difference of $934,033 between the fair market value of $2.05 per share and the exercise price of $0.75 per share has been charged to earnings and contributed surplus in 1996. On November 1, 1999 the Company entered into a Consulting Agreement with the director to provide consulting services. Compensation under the Consulting Agreement provides for the payment of the consulting fee to the director by the exercise of his options on an equal basis every quarter over the next three years with the original exercise price of $0.75 per share charged to earnings as consulting services rendered. On December 31, 1999, 58,333 options were exercised. In connection with the 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 commencing one year from the date of completion of the offering. In addition, the Underwriters were granted warrants entitling the Underwriters to purchase up to 125,000 shares of Common Stock and 125,000 warrants at a price per share of Common Stock or warrant equal to 150% of the Initial Public Offering price. During 1998, the Company granted warrants to purchase 125,000 shares of common stock to a private investor. Each warrant entitles the holder to purchase one share of common stock at a price of $4.65 for a one-year period following the effective date of a registration statement to be filed with the Securities and Exchange Commission to register the warrant stock. On September 27, 1999, the Company granted to each of two officers options to acquire 400,000 common shares at a price of $1.50 per share, of which 200,000 options to purchase common shares do not vest until certain performance criteria are met. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 9. CAPITAL STOCK (cont'd) In connection with the November 1999 acquisition of YFMC Healthcare Inc., the Company issued 44,585 Series A Warrants entitling the holders to purchase one share of Med-Emerg common stock at $2.70, 44,585 Series B Warrants entitling the holders to purchase one share of Med-Emerg common stock at $3.40, and for every 8 YFMC stock options, 1 option of Med-Emerg was issued at an exercise price of $1.75 for a total of 64,785 options issued. Pursuant to the Stock Option Plan approved by the Shareholders, options to acquire an aggregate of 1,000,000 shares of common stock may be granted. The Stock Option Plan is to provide for grants to employees, consultants and directors of the Company to enable them to purchase shares. As at December 31, 1999, 364,100 options were still available to be granted under the Stock Option Plan. The following table summarizes the stock options granted by the Company:
Number of Shares Option price ----------------------- Expiry date per share 1999 1998 - ------------------------------------------------------------------------------- April 2002 $2.50 176,500 207,100 April 2002 $4.25 19,400 19,400 April 2002 $0.75 641,667 700,000 Between September 2000 And September 2003 $1.75 64,785 - Between $1.25 January 2004 and $1.87 340,000 - July 2004 $1.50 800,000 - August 2004 $1.85 100,000 - ----------------------- 2,142,352 926,500 ----------------------- ----------------------- 1999 1998 ----------------------- Outstanding, beginning of year 926,500 926,500 Granted 1,304,785 - Exercised (58,333) - Cancelled (30,600) - ----------------------- Outstanding, end of year 2,142,352 926,500 ----------------------- -----------------------
10. CONVERTIBLE DEBENTURE As part of the consideration for the purchase of JC Medical Management Inc. described in Note 3, the company issued a convertible debenture in the amount of $405,371. The debenture is convertible into 132,000 shares of common stock of the company if the company's stock meets a certain trading threshold within two years. Until the trading threshold is met, the company must pay a fixed monthly amount of $3,365. It is management's expectation that the trading threshold will be met within the two-year period. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 11. CONTRIBUTED SURPLUS
1999 1998 ----------------------- Stock compensation - difference between fair market value and exercise price (note 9c) $ 934,033 $934,033 Share repurchase - difference between cost per share and assigned value (note 9a) 46,292 46,292 Fair value of warrants and stock options issued in connection with the acquisition of YFMC Healthcare Inc. 41,775 - ----------------------- $1,022,100 $980,325 ----------------------- -----------------------
12. DEFERRED INCOME TAXES In fiscal 1998, the Company implemented the recommendations of CICA Handbook Section 3465, Accounting for Income Taxes. Under the new recommendations, the "asset and liability method" of accounting for deferred income taxes is used, which gives recognition to deferred taxes on all "temporary differences" (differences between accounting basis and tax basis of the Company's assets and liabilities) using current enacted tax rates. In addition, the new recommendations requires the Company to record all deferred tax assets, including future tax benefits of capital losses carried forward, and to record a "valuation allowance" for any deferred tax assets where it is more likely than not that the asset will not be realized. 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 components of the future tax benefit classified by source of temporary differences that gave rise to the benefit are as follows: 1999 1998 ------------------------- Accounting amortization in excess of tax amortization $ (138,406) $ 9,998 Losses available to offset future income taxes 1,256,821 533,920 Share issue costs 460,006 584,086 Valuation allowance (812,151) (673,589) ------------------------- $ 766,270 $ 454,415 ------------------------- -------------------------
At December 31, 1999, the Company has non-capital losses available for carry-forward of $1,834,684. These losses expire between 2003 and 2005. In addition, the Company has capital loss carry-forwards of approximately $254,971, which may be applied against future taxable capital gains. No accounting recognition has been given to the capital loss carry-forwards. In connection with the acquisition of YFMC Healthcare Inc., the Company determined that the fair market value of the capital assets was greater than the tax value. The Company has recognized a liability for the temporary difference in the amount of $470,384. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 13. EARNINGS PER SHARE
1999 1998 1997 ------------------------------------- Net loss before preferred share dividend and goodwill, per share $(0.21) $(0.02) $(0.15) Goodwill, per share (0.05) (0.02) (0.03) ------------------------------------- Net loss before preferred share dividend, per share (0.26) (0.04) (0.18) Preferred share dividends, per share (0.04) (0.04) - ------------------------------------- Basic and fully diluted loss, per share $(0.30) $(0.08) $(0.18) ------------------------------------- -------------------------------------
14. NOTES TO THE STATEMENT OF CASH FLOWS (i) Changes in Non-Cash Working Capital Components
1999 1998 1997 ---------------------------------------- Accounts receivable $(522,234) $(405,110) $ (40,986) Prepaid expenses and other 22,337 (55,310) (409,434) Accounts payable and accrued liabilities 325,999 (182,883) 409,865 Reserve for restructuring 346,681 - - ---------------------------------------- $ 172,783 $(643,303) $ (40,555) ---------------------------------------- ----------------------------------------
(ii) Changes in Other Assets
1999 1998 1997 ---------------------------------------- Increase in deferred financing charges $ (69,377) $ 310,139 $(296,459) Increase in deferred start-up costs - (145,571) (115,974) Loan to Preventative Health Innovations - - 35,317 Inc. Increase in due from affiliates (7,607) - - Increase in investment in Interhealth - - (1,806) Non-cash stock option benefit 39,260 - - Non-cash changes in goodwill 61,614 9,605 - ---------------------------------------- $ 23,890 $ 174,173 $(378,922) ---------------------------------------- ----------------------------------------
(iii) Interest and Income Taxes Paid Operating activities reflect interest paid of $44,332 during the year ended December 31, 1999 (December 31, 1998 - $46,691; December 31, 1997 - $87,865) and income taxes paid of $nil during the year ended December 31, 1999 (December 31, 1998 - $nil; December 31, 1997 - $nil). MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 15. COMMITMENTS The Company is committed to payments under operating leases of its premises and equipment totaling $2,623,166. Annual payments under operating leases are as follows: 2000 $ 764,226 2001 676,336 2002 542,419 2003 325,483 2004 154,244 Thereafter 160,458 ----------- $ 2,623,166 ----------- ----------- Obligations under capital lease of total $64,883. Annual payments under capital leases are as follows: 2000 $ 44,635 2001 14,458 2002 5,037 2003 753 ----------- $ 64,883 ----------- ----------- Rent and leasing expenses charged to operations for the year ended December 31, 1999 was $593,691 (December 31, 1998 - $192,773). 16. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments The carrying value of accounts receivable, short-term investments, bank indebtedness, and accounts payable approximates the fair value because of the short-term maturities on these items. The carrying amount of the long-term assets approximates the fair value of these assets. The fair value of the company's long-term debt is estimated on the quoted market prices for the same or similar debt instruments. The fair value of the long-term debt approximates the carrying value. 17. SUBSEQUENT EVENTS On February 7, 2000, the Company secured $377,358 in supplier financing for the purchase of hardware, software and network support for the launch of HealthyConnect.com's e-health portal. On February 10, 2000, the Company issued 320,000 shares to TekInsight.com Inc., a software engineering development company for the development and launch of HealthyConnect.com's e-health portal. On February 18, 2000, the Company announced the signing of a Business Combination Agreement to purchase all of the issued and outstanding shares of Laser Rejuvenation Clinics Ltd. ("LRC") on the basis of one Med-Emerg common share and 1/3 of a warrant to purchase a Med-Emerg common share at a price of $3.00 per share for every 12.85 shares of LRC. The Company will issue approximately 1,167,000 common shares and approximately 389,000 warrants to purchase common shares in connection with the acquisition. The closing of the transaction is subject to regulatory and shareholder approvals. On February 25, 2000, 75,000 stock options were granted to directors under the Stock Option Plan for their directorship services. The options have an exercise price of $2.62 per share and expire in February 2005. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 17. SUBSEQUENT EVENTS (cont'd) On February 25, 2000, the Board of Directors approved the issuance of 150,000 options to be granted to employees and physicians at management's discretion. On February 25, 2000, the Board of Directors authorized the issuance of shares of HealthyConnect.com, Inc. as follows: 12,000,000 shares to Med-Emerg International Inc., 2,400,000 shares to officers and directors and 350,000 stock options to directors. HealthyConnect.com, Inc., a Delaware corporation, is a subsidiary of Med-Emerg International Inc. On March 1, 2000, the Company issued a Private Placement Memorandum for equity financing. The Company currently is in the process of raising gross proceeds of $1,700,000 for the issuance of 935,000 common shares. To date, $400,000 has been raised. After deducting commissions and financing costs including the deferred financing costs as listed in Note 6, the Company will receive net proceeds of approximately $1,508,000. 18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), which conform in all material respects applicable to the Company, with those in the United States ("U.S. GAAP") during the periods presented except with respect to the following: MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd) CONSOLIDATED STATEMENTS OF OPERATIONS If United States GAAP were employed, net loss for the period would be adjusted as follows:
1999 1998 1997 --------- --------- --------- Net loss based on Canadian GAAP $(878,470) $(106,258) $(340,987) Start-up costs amortized/(deferred) 35,720 (176,749) (106,017) Goodwill amortization (8,925) - - --------- --------- --------- Net loss based on United States GAAP $(851,675) $(283,007) $(447,004) --------- --------- --------- Primary loss per share $ (0.25) $ (0.10) $ (0.23) --------- --------- --------- --------- --------- --------- If United States GAAP were employed, deficit, other assets, deferred start-up costs, and total liabilities would be adjusted as follows: 1999 1998 ----------- ----------- Deficit based on Canadian GAAP $(4,335,566) $(3,322,903) Start-up costs deferred (255,040) (274,683) Goodwill amortization (8,925) - ----------- ----------- $(4,599,531) $(3,597,586) ----------- ----------- ----------- ----------- Other assets based on Canadian GAAP $ 4,005,768 $ 1,239,880 Start-up costs deferred (255,040) (274,683) Goodwill on purchase of YFMC Healthcare Inc. 1,087,872 - ----------- ----------- $ 4,838,600 $ 965,197 ----------- ----------- ----------- ----------- Total liabilities based on Canadian GAAP $ 4,836,005 $ 1,751,347 Convertible debenture 405,371 405,371 ----------- ----------- $ 5,241,376 $ 2,156,718 ----------- ----------- ----------- -----------
(a) Deferred Income Taxes Under U.S. GAAP, the Company is required to follow Statement of Financial Accounting Standards (SFAS No. 109) "Accounting for Income Taxes", which requires the use of the "asset and liability method" of accounting for deferred income taxes, which gives recognition to deferred taxes on all "temporary differences" (differences between accounting basis and tax basis of the Company's assets and liabilities, such as the non-deductible values attributed to assets in a business combination) using current enacted tax rates. In addition, SFAS No. 109 requires the Company to record all deferred tax assets, including future tax benefits of capital losses carried forward, and to record a "valuation allowance" for any deferred tax assets where it is more likely than not that the asset will not be realized. The Company has followed this method under Canadian GAAP. (b) Deferred Start-up Costs Under Canadian GAAP, development and start-up costs, which meet certain criteria, are deferred and amortized. Under United States GAAP, development and start-up costs are expensed as incurred. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd) (c) Convertible Debenture Under U.S. GAAP, convertible debentures are presented as liabilities, regardless of the attributes of the convertible debenture, and transferred to equity upon conversion, whereas, under Canadian GAAP, the likelihood of conversion to equity is considered in determining the classification between liability or equity. (d) Earnings Per Share U.S. GAAP requires common shares and warrants to purchase common shares, issued or exercisable at prices below the initial public offering ("I.P.O.") price and which were issued within one year prior to the initial filing of the registration statement relating to the I.P.O., to be treated as if the common shares were outstanding from the beginning of the period in the calculation of weighted average number of common shares outstanding and loss per share, even where such inclusion is anti-dilutive. Primary earnings per common share is determined using the weighted average number of shares outstanding during the year, adjusted to reflect the application of the treasury stock method for outstanding options and warrants in accordance with U.S. GAAP. (e) Stock Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), was issued by the Financial Accounting Standards Board in October 1995. SFAS 123 establishes financial accounting and reporting standards for transactions in which an entity issues its equity instruments to acquire goods or services from non-employees, as well as stock-based employee compensation plans. All transactions in which goods or services are the consideration received for the issuance of equity instruments are to be accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. For those transactions described in note 9 and under SFAS 123: - - the issuance of 125,000 common shares to promissory note holders resulted in a charge to income (finance expense) over the term of the related promissory note payable, at $2.05 per share equal to $256,250 of which $196,943 has been charged to earnings in the year ended December 31, 1997 and $50,470 has been charged to earnings in the year ended December 31, 1998. - - the issuance of 50,000 shares to a director for services rendered resulted in a charge to income at $2.05 per share equal to $100,400 in the year ended December 31, 1997. - - the issuance of an option on November 1, 1996 to a director to acquire 700,000 shares (note 9) has resulted in a charge to income equal to $934,033 in 1996 based on $2.05 per share, and the "minimum value" method of calculation permitted under SFAS 123 for non-public entities. As allowed by SFAS 123, the Company has decided to continue to use Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for the Company's Stock Option Plan (the "Plan") for U.S. GAAP purposes, pursuant to which there is no significant difference between U.S. and Canadian GAAP in the accounting for the granting of options under the Plan. (f) Goodwill Under U.S. GAAP, the purchase price of an acquisition involving the issuance of shares is determined based on the share price for the period surrounding the announcement date of the acquisition. The share price used for the YFMC Healthcare Inc. acquisition under U.S. GAAP was $1.859. Under Canadian GAAP, the purchase price is determined based on the share price on the date the transaction is consummated. The share price used for the YFMC Healthcare Inc. acquisition under Canadian GAAP was $1.25. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd) (g) Shareholders' Equity Under U.S. GAAP, loans issued to officers to acquire stock are presented as a deduction from shareholders' equity (deficit). Under Canadian GAAP, the detachable stock purchase warrants issued in conjunction with the private stock offering on January 22, 1996 and subsequently surrendered, all as described in note 13, have been given no recognition in the financial statements. Under U.S. GAAP, detachable stock purchase warrants are given separate recognition from the primary security issued. Upon initial recognition, the carrying amount of the two securities is allocated based on the relative fair values at the date of issuance. Under U.S. GAAP, based on an ascribed fair value of $0.364 for each of the 1,000,000 share warrants issued, share capital would be lower by $36,406 and, given that the stock purchase warrants were cancelled during the year, the carrying amount of contributed surplus would be increased by $36,406. The effect on shareholders' equity would be as follows:
1999 1998 Capital stock (as previously shown) $ 8,251,290 $ 5,981,830 Captial stock issued on purchase of YFMC Healthcare Inc. 1,087,872 - Ascribed fair value of share purchase warrants issued (36,406) (36,406) ----------- ----------- Capital stock - U.S. GAAP 9,302,756 5,945,424 Share purchase loan to officer (44,978) (44,978) ----------- ----------- Net capital stock - U.S. GAAP $ 9,257,778 $ 5,900,446 ----------- ----------- Convertible debenture (as previously shown) $ 405,371 $ 405,371 Convertible debenture included in long-term debt (405,371) (405,371) ----------- ----------- Convertible debenture - U.S. GAAP $ - $ - ----------- ----------- Contributed surplus (as previoulsy shown) $ 1,022,100 $ 980,325 Share purchase warrants 36,406 36,406 ----------- ----------- Contributed surplus - U.S. GAAP $ 1,058,506 $ 1,016,731 ----------- ----------- Deficit - U.S. GAAP $(4,599,531) $(3,597,589) ----------- ----------- Shareholders equity (deficit) - U.S. GAAP $ 5,716,753 $ 3,319,588 ----------- ----------- ----------- -----------
(h) Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), was issued by the Financial Accounting Standards Board in June 1997. SFAS 123 establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier period provided for comparative purposes is required. MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)
1999 1998 1997 --------- --------- --------- Net income (loss) (US GAAP) $(851,675) $(283,007) $(447,004) Foreign currency translation adjustment (4,565) (181,810) 8,170 --------- --------- --------- Comprehensive income $(856,240) $(464,817) $(438,834) --------- --------- --------- --------- --------- ---------
19. SEGMENTED INFORMATION The Company operates under three divisions: Physician and Nurse Recruitment, Physician Management Services and HealthyConnect.com. All of the Company's operations are in Canada. The Physician and Nurse Recruitment involves contracting with hospitals for the provision of physician staffing, nurse staffing and administrative support services. The Company also contracts with clinical facilities and local communities for the locum or permanent placement of a physician in a community. The Physician Management Services division owns and manages medical clinic facilities, which provide physicians with the ability to practice medicine in a professionally managed environment. The clinics include family practice, walk-in services, and other related services such as massage therapy and chiropractic services. The HealthyConnect.com division, created in 1998, involves electronically linking clinical facilities and other healthcare service providers into a network. This internet-based network will provide healthcare professionals and consumers access to medical services, products, communications and information tools. Details are as follows:
1999 ---------------------------------------------------------- Physician Physician & Nurse Management HealthyConnect Recruiting Services .com Consolidated ---------------------------------------------------------- Revenue $ 7,831,708 $ 4,816,720 $ - $ 12,648,428 Gross margin 1,303,184 2,468,105 - 3,771,289 Operating income before Corporate Overhead and Public Company-related costs 818,215 468,805 (798,943) 488,076 Corporate Overhead (570,434) (350,833) - (921,267) Operating loss before Public Company-related costs 247,781 117,972 (798,943) (433,190) Public-Company-related costs (301,592) Operating loss (734,782) Assets employed at year end 3,348,895 6,718,041 - 10,066,935 Depreciation and amortization 108,984 252,349 - 361,333 Capital expenditures 97,650 1,720,048 - 1,817,699
MED-EMERG INTERNATIONAL INC. Notes to Consolidated Financial Statements December 31, 1999 and 1998 19. SEGMENTED INFORMATION (cont'd)
1998 ---------------------------------------------------------- Physician Physician & Nurse Management HealthyConnect Recruiting Services .com Consolidated ---------------------------------------------------------- Revenue $ 7,806,149 $ 2,498,898 $ - $ 10,305,046 Gross margin 1,303,807 1,019,491 - 2,323,298 Operating income before Corporate Overhead and Public Company-related costs 814,022 341,159 (84,530) 1,070,650 Corporate Overhead (662,787) (212,171) - (874,958) Operating loss before Public Company-related costs 151,234 128,988 (84,530) 195,692 Public-Company-related costs (202,458) Operating loss (6,766) Assets employed at year end 3,864,407 1,492,126 98,463 5,454,997 Depreciation and amortization 42,591 81,611 - 124,202 Capital expenditures 154,761 140,923 - 295,684
1997 --------------------------------------------------- Physician Physician & Nurse Management Recruiting Services Consolidated --------------------------------------------------- Revenue $ 6,567,318 $ 1,791,619 $ 8,358,937 Gross margin 1,275,607 763,397 2,039,004 Operating income before Corporate Overhead and Public Company-related costs 813,776 347,186 1,160,962 Corporate Overhead (799,019) (217,979) (1,016,998) Operating income before Stock Compensation 14,758 129,207 143,965 Stock Compensation (100,400) Operating loss 43,565 Assets employed at year end 2,409,916 1,226,502 3,636,418 Depreciation and amortization 46,979 45,569 92,548 Capital expenditures 66,460 215,146 281,606
20. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The year 2000 issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the entity, including those related to customers, suppliers, or other third parties, have been fully resolved. 21. COMPARATIVE FIGURES Certain figures in the 1998 financial statements have been reclassified to conform with the basis of presentation in 1999. EX-10.1 2 EX-10.1 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND RAMESH ZACHARIAS. Exhibit 10.1 EMPLOYMENT AGREEMENT MEMORANDUM OF AGREEMENT made as of the 1st day of August, 1999. B E T W E E N: MED-EMERG INTERNATIONAL INC., a corporation incorporated under the BUSINESS CORPORATIONS ACT (Ontario) (hereinafter referred to as the "Corporation") OF THE FIRST PART - and - RAMESH ZACHARIAS of the City of Mississauga (hereinafter referred to as the "Executive") OF THE SECOND PART WHEREAS the Corporation desires to continue to employ the Executive as its Chief Executive Officer and whereas the Executive is willing to continue such employment, all on the terms and conditions and for the remuneration as hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the covenants, agreements and payments herein set out and provided for, the parties hereto hereby respectively covenant and agree as follows: 1. EFFECTIVE DATE The employment of the Executive by the Corporation shall continue, with the terms set forth below effective the date hereof (the "Commencement Date"). The agreement made between the Executive and the Corporation dated May 15, 1997 is terminated and is of no further force or effect, and is superseded by this agreement, on and as of the Commencement Date. Notwithstanding the foregoing or any other provision of this Agreement, any stock options granted to the Executive prior to the date hereof shall remain in full force and effect. 2. TITLE The Corporation will employ the Executive and the Executive will serve the Corporation as Chief Executive Officer. 3. DURATION OF AGREEMENT This agreement shall continue for an initial term of three years from the Commencement Date and shall be subject to successive extensions, each for a period of one year (subject to termination as herein otherwise provided) unless terminated by the Corporation effective the third anniversary of the Commencement Date upon written notice given by the Corporation to the Executive at least 180 days prior to the third anniversary of the Commencement Date, such notice to be effective on the third anniversary of the Commencement Date, or unless terminated by the Corporation on any other anniversary of the Commencement Date following the third anniversary of the Commencement Date upon written notice given by the Corporation to the Executive at least 180 days prior to the anniversary date upon which this agreement is to be terminated, such notice to be effective on such anniversary date. The Executive shall be entitled to terminate his employment by voluntary resignation at any time by providing three months prior written notice to the Corporation. Upon receipt of such notice, the Corporation may in its discretion determine the termination of employment to be effective as of a date prior to the expiration of the three-month period. 4. DUTIES Schedule "A" sets out the purpose of the position of Chief Executive Officer, his duties and responsibilities, his requirement to observe and conduct relationships and the standards for measuring his performance. The Executive hereby agrees to serve the Corporation loyally, faithfully, diligently and to the best of his ability and shall use his utmost efforts to promote and advance the business and welfare of the Corporation and its affiliates, as described in Schedule "A". The term "affiliate" as used in this agreement has the meaning given to it by the SECURITIES ACT of Ontario. The Executive will be entitled to work a maximum of six shifts per month as a physician in hospital emergency departments or urgent care clinics upon compensation similar to any physician working on those shifts. Any physician on-call requirements will be compensated at the same rates paid to any Corporation physician. These emergency and on-call shifts are to preserve the Executive's expertise as a practising physician which is in integral part of his position as Chief Executive Officer of the Corporation. They are not to interfere with his duties as Chief Executive Officer of the Corporation. 5. HOURS OF WORK The Executive shall devote to the affairs of the Corporation substantially the whole of his time, attention and abilities during normal business hours and at such other times as his duties may reasonably require, unless prevented by ill-health. 6. SALARY AND BONUS The Corporation will pay the Executive by way of remuneration for his services under this agreement a salary of US$225,000 per annum commencing on the Commencement Date and US$250,000 commencing on the first anniversary of the Commencement Date. The salary shall be paid bi-weekly. The Executive shall receive a one-time bonus of Cdn$100,000, to be paid as to Cdn$50,000 at the time YFMC Healthcare Inc. becomes a subsidiary of the Corporation and as to the other Cdn$50,000 at the time of the completion of the financing(s) referred to in paragraph 10. 7. EXPENSES The Executive shall be required to undertake such travel as is required by the Corporation and the Corporation shall reimburse the Executive all reasonable travelling, hotel, entertainment and other expenses properly incurred by him in the proper performance of his duties upon production of appropriate receipts. 8. HOLIDAYS The Executive shall be entitled, in addition to statutory holidays, to six weeks' holiday in each 12-month period under this agreement. Unused holiday entitlement may not be carried forward to the next 12-month period unless otherwise agreed with the Corporation. 9. ADDITIONAL BENEFITS Subject as hereinafter provided, during the continuance of this agreement, the Corporation will provide to the Executive the benefits described in Schedule "B" to this agreement. The benefits described in paragraph 1 of Schedule "B" are the benefits currently available to senior employees of the Corporation and its affiliates. Paragraph 1 of Schedule "B" may be amended from time to time at the Corporation's discretion so long as such amended benefits are made available to senior employees of the Corporation and its affiliates and are not a dilution or reduction of the then current benefits provided to the Executive by the Corporation taken as a whole. 10. OPTIONS The Corporation has granted to the Executive options to purchase 400,000 common shares of the Corporation at an exercise price of $1.50 per share. Such options shall be exercisable, as to 200,000 common shares, at the time YFMC Healthcare Inc. becomes a subsidiary of the Corporation, and as to 200,000 common shares, at the time the Corporation completes (the) equity financing(s) in the aggregate amount of not less than US$10,000,000 to be used for the purpose of launching the information technology initiative of the Corporation, provided that the options shall not be exercisable in any event until after April 27, 2000. The options shall have a term of five years. The options shall otherwise be on the terms and conditions set forth in the Corporation's director and employee stock option plan. 11. TERMINATION (a) This agreement may be terminated by the Corporation immediately and without any liability for any damages or compensation for breach of contract, wrongful dismissal or otherwise, if the Executive shall: (i) become mentally incapacitated or, for any 26 weeks in any 12 consecutive months, become physically incapacitated such that he is unable to perform his obligations under this agreement; or (ii) be convicted of any indictable offence for which a sentence of imprisonment can be imposed by law; or (iii) commit any act of dishonesty; or (iv) be guilty of any misconduct relating to the discharge of his duties hereunder; or (v) be guilty of any neglect in the discharge of his duties hereunder or commit any wilful or persistent breach of any of the provisions of this agreement. (b) If this agreement is terminated by the Corporation by notice pursuant to subparagraph 3(a) or by the Executive by notice pursuant to subparagraph 3(b), then the Corporation shall forthwith pay to the Executive his salary (less usual and statutory deductions), at the rate and at the normal times in effect at the time notice of termination is given, through to the termination date. (c) The payments referred to in (b) will be paid in the most tax beneficial manner to the Executive. 12. NO OTHER COMMERCIAL INTERESTS The Executive shall not at any time during the continuance of this agreement be or become a director of any Corporation or be engaged, concerned or interested in, directly or indirectly, and whether independently or as any employee of, any other business, trade or occupation, except that the Executive may: (i) become engaged, concerned or interested in any other business, trade or occupation or become a director of another Corporation, with the prior written consent of the Corporation; or (ii) hold or become beneficially interested in not more than 5% of any class of securities in any corporation if such class of securities is listed on a recognized stock exchange or an unlisted securities market unless the Corporation otherwise requires on the grounds that such corporation carries on a business competitive with that of the Corporation or its affiliates. Notwithstanding the foregoing or any other provisions of this Agreement, the Executive may carry on the activities identified in Schedule "C". 13. HEALTH AND SAFETY The Corporation attaches great importance to the health and safety of its employees and recognizes a duty to prevent, where possible, personal injury by ensuring that the design, construction, operation and maintenance of all equipment and facilities and systems are in accordance with all applicable health and safety requirements. In order to achieve this aim, the Executive must ensure not only that he complies with all requirements of the Corporation, but also that the Corporation has in place appropriate procedures so that appropriate training and instruction is given to all employees in order to prevent injury to themselves and others. 14. DIVIDENDS AND PREFERRED SHARES Dividends declared and payable on any preferred shares of the Corporation held by the Executive or any member of his immediate family are to paid out in cash if shares which could be paid out as dividends would not be tradeable free of any restriction, holding period or escrow, whether contained in the Corporation's constating documents, required by law, imposed by securities regulators or agreements with underwriters, or otherwise. 15. CONFIDENTIALITY The Executive shall not at any time, other than in the course of his duties, without the prior consent in writing of the Corporation, divulge or make known to anyone any secrets of any technical, commercial or financial nature or other information of a confidential nature, unless such information is already in the public domain, relating to the business or customers of the Corporation or its affiliates. All papers and documents used by the Executive in the course of his employment are and will remain the property of the Corporation and will be delivered up to the Corporation on termination of this agreement. The provisions of this paragraph shall survive the expiration or earlier termination for any reason whatsoever of this agreement. 16. PATENTS, SECRETS AND IMPROVEMENTS (a) As relating to the business of the Corporation, any discovery, invention, secret process, improvement, formula, plan, idea, know-how or adaptation or improvement thereto or to any existing idea, process or other property of the Corporation including, without limitation, any new, or any adaptation of existing, software or hardware, whether or not patentable or otherwise subject to legal protection, made, discovered, conceived or created by the Executive while in the service of the Corporation, during the term of this agreement, in any way affecting or relating to the business of the Corporation shall forthwith be disclosed to the Corporation and shall belong to and be the absolute property of the Corporation. (b) The Executive shall if and whenever required so to do by the Corporation at the expense of the Corporation, apply to join with the Corporation in applying for patents, copyrights or other legal protection in Canada and in any part of the world for any such discovery, invention, process or improvement as aforesaid and shall at the expense of the Corporation execute all instruments and do all things necessary for vesting the said patent, copyright or other legal protection when obtained and all right, title to and interest in the same in the Corporation absolutely and as sole beneficial owner or in any such other person as the Corporation may specify. 17. CONDUCT By accepting employment and continuing to be employed by the Corporation, the Executive hereby undertakes and covenants with the Corporation as follows: (i) not without the previous consent of the Corporation directly or indirectly to receive (other than as agent for the Corporation) or retain any discount, rebate, fee, gratuity, commission or payment from a third party for any service, matter or thing connected with his duties and services as an employee of the Corporation; (ii) (as long as termination of employment hereunder is not pursuant to clause (a) of paragraph 11, and if termination is pursuant to clause (b) of paragraph 11, the payment referred to in such clause is made) not within 12 months after ceasing to be employed (except with the written consent of the Corporation which shall not be unreasonably withheld) whether on his own behalf or on behalf of any person, firm or corporation directly or indirectly to seek to procure orders from or do business with any person, firm or corporation who on the date of his ceasing to be employed or at any time in the 12 months prior to that date was a client or customer of the Corporation and with whom in the course of his employment with the Corporation had dealings, provided always that the preceding covenants contained in this paragraph 17(ii) shall not be deemed to prohibit the Executive from seeking or procuring orders or from doing business in any business endeavour (including, without limitation, the medical and emergency care service area) as long as the preceding covenants contained in this paragraph 17(ii) are fully and completely complied with (for purposes of greater certainty, a client or customer shall be the actual hospital or other specific entity for which the Corporation is providing services or with which the Corporation has contracted to provide services, for example, if the Corporation is providing services to a specific hospital, the Executive will be precluded from soliciting work from or doing work for that hospital in accordance with the terms of this restriction, but will not be precluded from soliciting or providing services to other hospitals or health providers not directly serviced by the Corporation or from dealing with OHIP in general; the intention of this restriction is to ensure that, if the relationship between the Corporation and the Executive is terminated (except for termination under Section 11(a) or termination under Section 11(b) if, in the latter case, the payment referred to in Section 11(b) is no made), direct contacts of the Corporation are not to be interfered with, but that the Executive is able to carry on work in the medical and emergency care service area); and (iii) not during the term of employment hereunder, nor for a period of 24 months thereafter, to solicit, entice, procure or endeavour to persuade any other employee of the Corporation to leave the employment of the Corporation. Although the Executive and the Corporation recognize and accept that the above restrictions are reasonable having regard to the nature of the Corporation's business and the Corporation's interest in preserving its goodwill and customer connections, the Corporation will only withhold its consent to (i) or (ii) above where it is evident that the business of the Corporation will be prejudiced by not withholding such consent and to that extent, should any of the foregoing restrictions be found to be unreasonable and unenforceable, they shall be deemed to be modified only to the extent necessary to give effect to the remaining provisions of this paragraph. 18. NOTICES Any notice, direction or other instrument required or permitted to be given to the Executive hereunder shall be in writing and may be given by mailing the same, postage prepaid addressed to the Executive at 1486 Hollywell Avenue, Mississauga, Ontario L5N 4P2 or by delivering the same. Any notice, direction or other instrument required or permitted to be given to the Corporation hereunder shall be in writing and may be given by mailing the same, postage prepaid, or delivering the same addressed to the Corporation at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5RI, Attention: President. Any notice, direction or other instrument aforesaid if delivered shall be deemed to have been. given or made on the date on which it was delivered or if mailed, shall be deemed to have been given or made on the fourth business day following the day on which it was mailed. The Executive or the Corporation may change his or its address for service from time to time by notice given in accordance with the foregoing. 19. LEGAL COSTS The Executive hereby acknowledges receipt of a copy of this Agreement duly signed by the Employer and having been advised by the Corporation to obtain and having been given the opportunity to arrange for independent legal advice with respect to this Agreement, each of the matters herein set forth and the implications thereof. The Corporation shall pay the Executive's legal costs incurred with respect to the Executive's entering into of this agreement up to a maximum of Cdn$5,000. 20. ENTIRE AGREEMENT AND SEVERABILITY This agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. There are not and shall not be any verbal statements, representations, warranties, or agreements between the parties with respect to the subject matter hereof. No waiver of any breach of this agreement shall be effective unless made in writing by the party giving such waiver and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived. The invalidity or unenforceability of any term, covenant or condition contained in this agreement shall not affect the validity or enforceability of any other term, covenant or condition hereof, but shall be deemed to be severable and upon such severance, the remainder of the agreement shall be valid and enforceable. Notwithstanding the foregoing, this agreement may be amended or modified in any respect from time to time by written instrument signed by the parties hereto. 21. GOVERNING LAW This agreement shall in all respects be construed and enforced in accordance with and governed by the laws of the Province of Ontario. Each of the parties hereto hereby irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. 22. RIGHTS OF ENFORCEMENT In the event of a breach by the Executive of any covenant contained or referred to in this Agreement, the Corporation shall be entitled to an injunction restricting such breach in addition to any other remedies provided by law. Any remedy expressly set forth in this Agreement shall be in addition to and not inclusive of or dependent upon the exercise of any other remedy available to the Corporation at law or otherwise. The Executive hereby agrees that all restrictions in this Agreement are reasonable and valid and all defences to the strict enforcement thereof by the Corporation are hereby waived by him. 23. FULL SATISFACTION The terms set out in this Agreement, provided that such terms are satisfied by the Corporation, are in lieu of (and not in addition to) and in full satisfaction of any and all other claims or entitlements which the Executive has or may have upon the termination of employment in the circumstances contemplated in this Agreement. The compliance by the Corporation with these terms will effect a full and complete release of the Corporation from any and all claims which the Executive may then have for whatever reason or cause in respect of the Executive's employment and the termination of it, other than those obligations specifically set out in this Agreement. In agreeing to the terms set out in this Agreement, the Executive specifically agrees to execute a formal release document to that effect and will deliver upon request appropriate resignations from all offices and positions with the Corporation and any associated or affiliated companies if, as, and when requested by the Board upon the termination of employment within the circumstances contemplated by this Agreement. 24. BINDING EFFECT Neither this agreement nor any portion thereof may be assigned by the Executive. Neither this agreement nor any portion thereof may be assigned by the Corporation without the consent of the Executive. This agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, legal personal representatives, successors and permitted assigns. 25. DISPUTE RESOLUTION The parties hereto acknowledge that in the event of a dispute under this agreement they shall make submissions under and shall be bound by the rules of the Private Court in Ontario and any order whether interlocutory or final is an award which is enforceable under the Arbitration Act, 1991 of Ontario. IN WITNESS WHEREOF this agreement has been executed by the parties hereto. MED-EMERG INTERNATIONAL INC. by SIGNED, SEALED AND DELIVERED ) in the presence of ) ) ---------------------------------- ) Ramesh Zacharias - ---------------------------------- ) x SCHEDULE A CHIEF EXECUTIVE OFFICER PURPOSE OF THE POSITION: - - To act as the principal person charged with the responsibility for implementation of policies and activities determined from time to time by the Board of Directors. - - To provide leadership in all areas of the company's operation and to be the primary source of developing and recommending policy development to the Board. - - To employ his medical skills and experience to support all operational levels of the company. DUTIES AND RESPONSIBILITIES: A. BOARD FUNCTIONS As Chief Policy and Planning Officer of the Corporation, the duties and responsibilities of the Chief Executive Officer extend to any and all activities in which the Corporation may engage. These include, but are not limited to, the following: 1. He will participate jointly with other members in carrying out the Board's directorial functions, including: 1.1 Approval of the objectives, general policies, principles, practices, and the general organization plan of the Corporation. 1.2 Performance of all duties imposed by statutory requirements. 2. He will make recommendations, advise and inform the Board concerning the appointment of all members of the committees of the Board of Directors, subject to approval by the Board. 3. He will serve as a member of the Executive Committee, and as an ex-officio member of all other Board committees. 4. He will make recommendations, advise and inform the Board in respect to any proposed changes in major policies of the Corporation for Board action. 5. In concert with the President, he will make recommendations, advise and inform the Board in relation to the following Board-related functions: 5.1 Election of officers of the Corporation and determination of their duties, authorities and compensation. 5.2 Appointment of trustees and agents for the Corporation. 5.3 Authorization of capital expenditures. 5.4 Authorization for acquisition or disposal of corporate assets. 5.5 Approval of loans, investments and other plans to finance the Corporation's operations. -2- 5.6 Declaration of dividends and establishment of reserves. B. CORPORATE OPERATIONS 1. BUSINESS DEVELOPMENT: 1.1 The Chief Executive Officer will make recommendations, advise and inform the Board in the development of the growth program of the Corporation as it relates to the acquisition of companies, new products and patents, including approval of plans proposed by the President and other executives for the integration and operation of acquired companies. 1.2 The Chief Executive Officer will represent the Corporation in public relations matters. In concert with the President, he will also carry out the following activities with respect to acquisitions and public relations: 1.3 Formulation of acquisition policies and plans, subject to approval of the Board. 1.4 Evaluation of potentials. 1.5 Recommendations to the Board. 1.6 Negotiations and commitments, subject to Board approval. 1.7 Formulation of public relations policies and plans, subject to approval of the Board when required. 2. MARKETING AND SALES: The single most important function of the position is in the expansion of the company's operations through leadership in the marketing of the services offered. The Chief Executive Officer shall, in concert with the President: 2.1 Participate in the preparation of sales and marketing plans. 2.2 Be accountable for delivery of sales results. 3. AUTHORITY Within the limits of sound business practice and the further limitations placed upon him by the Articles of Incorporation, the Bylaws of the Corporation, and the policies laid down by the Board of Directors, the Chief Executive Officer will implement all corporate policy matters. He will have authority to make decisions in accordance with such policy, but such authority shall be restricted to those decisions with a financial impact of $100,000, and then only with the concurrence of the President. He may delegate to members of the Corporation as much of his authority as may be necessary to effect policy formulation and maintain a strong, effective organization without loss of essential control, but he may not delegate his overall responsibility for results, or any other portion of his individual accountability. 4. RELATIONSHIPS The Chief Executive Officer will establish and maintain the following relationships: -3- 4.1 With the Shareholders of the Corporation 4.1.1 He, together with other members of the Board if appropriate, will be accountable to the shareholders for the proper execution of the duties and responsibilities of the Board and the adequate protection of shareholder rights and interests. 4.1.2 In his capacity as Chief Public Relations Executive, the Chairman will ensure that the shareholders are kept adequately informed of the affairs of the Corporation and that sound relationships, understanding and communications are maintained between management and the owners of the Corporation. 4.2 With the Board of Directors 4.2.1 He will counsel collectively and individually with the members of the Board, utilizing their capacities to the fullest extent necessary to secure optimum benefits for the Corporation. 4.2.2 In conjunction with the President, the Chief Executive Officer will keep the Board of Directors informed on the condition of the business and on all the important factors influencing it. 4.2.3 In conjunction with the President, the Chief Executive Officer will review major activities and plans with the Board of Directors to insure that he and the President have the benefit of the Board's thinking, and are acting in conformity with the Board's views on corporate policy. 4.2.4 He will refer promptly to the Board of Directors such matters as may require its decision. 4.3 With the Committees of the Board 4.3.1 As a member of the Executive committee, the Chief Executive Officer will participate jointly with the other members in its proceedings. 4.3.2 He will counsel with the Executive Committee, in the intervals between meetings of the Board, on all matters of interest to the Committee, and will be guided by the decisions of the Committee in the absence of specific directions from the full Board. 4.3.3 He will act as an ex-officio member of all Board committees. 4.4 With the President 4.4.1 The Chief Executive Officer will advise and assist the President as may by required to assure that the orders and resolutions of the Board and directives of the Executive Committee are carried out. -4- 4.4.2 He will review all important operating matters with the President. 4.4.3 In the event of the disability of the President, the Chief Executive Officer will perform the duties of the President. 4.5 With Other Officers and Executives 4.5.1 The Chief Executive Officer will coordinate his efforts with those of other officers and executives toward the goals of the Corporation. 4.5.2 He will stand ready at all times to give advice and counsel to them and call on them for such advice and counsel as he deems advisable. 4.6 With Corporate Committees. 4.6.1 The Chief Executive Officer will act as an ex-officio member of all corporate committees and appoint such members of management to such committees as he deems advisable, except those appointment made by the Board. 4.7 With Persons Outside the Corporation 4.7.1 The Chief Executive Officer will establish and maintain such outside relationships as he deems advisable in the interest of the Corporation. 4.7.2 He will serve as Chief Public Relations Executive of the Corporation in his contacts with industry, other companies, business associations, the community, the government, the press and the general public. 5. STANDARDS FOR MEASURING PERFORMANCE The Chief Executive Officer is accountable for the fulfilment of the responsibilities, duties, and relationships described herein. The primary measurements of satisfactory performance are as follows: 5.1 In conjunction with the President, the soundness and adequacy of the objectives and policies recommended to the Board of Directors; the effectiveness with which the policies of the Board are executed; and the extent to which the approved objectives of the Corporation are realized. 5.2 The extent to which the character and quality of the products and services of the Corporation assure leadership position and further the reputation of the Corporation as a whole. 5.3 The soundness and success of the Corporation's growth program and the expansion of the Corporation's operations through leadership in the marketing of the services offered by the Corporation. 5.4 The extent to which the corporate public relations program achieves public understanding and support for the Corporation and its divisions, and the extent to -5- which the policies and operations of the Corporation are identified with the public interest. 5.5 The cordiality of relations which exist between the Chief Executive Officer and other persons both within and without the Corporation. 5.6 The example of leadership, good management, high morale, personal conduct, and effective teamwork evidenced by the Chief Executive Officer in his contacts with 5.7 The extent to which the Corporation carries out its customer, employee, shareholder, industry, government and public responsibilities. SCHEDULE "B" BENEFITS Standard Employee Benefit Program of the Corporation for its senior executives including long term disability insurance. 1. The Corporation shall pay the Executive's annual professional fees to maintain his status as a member of the Ontario Medical Association and the American College of Emergency Physicians. In addition, the Corporation shall pay the Executive's medical malpractice insurance premiums. 2. The Corporation shall pay the Executive up to Cdn$10,000 annually in monthly instalments as a car allowance. The Corporation shall also pay for gas for such car upon production of appropriate receipts. All other expenses with respect to such car, for example, insurance premiums, repairs, shall be paid by the Executive. 3. The Corporation shall pay the Executive such amounts as are approved by the Executive, the President and the Chairman of the Board in each year disbursed by the Executive for continuing education and related expenses (for example, travel, hotel). Appropriate receipts shall be delivered to the Corporation. 4. The Corporation shall pay the premiums in respect of a Cdn$1,000,000 life insurance policy on the life of the Executive. The Executive may designate the beneficiary. SCHEDULE "C" 1. The Executive may pursue international work in any area (including, without limitation, the health care and emergency services fields), provided that he devotes his full time and attention as Chief Executive Officer of the Corporation as required for the due performance of his position as Chief Executive Officer of the Corporation. His pursuit of international opportunities shall be conducted only on his free time and vacation time and they shall not interfere with his duties as Chief Executive Officer of the Corporation. The Corporation will have a right of first refusal on any international projects, but if it declines to participate, the Executive will be able to pursue these international projects on his own free time and on the basis that they do not interfere with the performance of his duties as Chief Executive Officer of the Corporation. 2. The Executive may sit on boards of other health care and information technology firms unless there is a reasonable basis upon which the Corporation may deny him the right to do so. EX-10.2 3 EX-10.2 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND CARL PAHAPILL. Exhibit 10.2 EMPLOYMENT AGREEMENT MEMORANDUM OF AGREEMENT made as of the 1st day of August, 1999. B E T W E E N: MED-EMERG INTERNATIONAL INC., a corporation incorporated under the BUSINESS CORPORATIONS ACT (Ontario) (hereinafter referred to as the "Corporation") OF THE FIRST PART - and - CARL PAHAPILL of the City of Mississauga (hereinafter referred to as the "Executive") OF THE SECOND PART WHEREAS the Corporation desires to continue to employ the Executive as its President and Chief Operating Officer and whereas the Executive is willing to continue such employment, all on the terms and conditions and for the remuneration as hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the covenants, agreements and payments herein set out and provided for, the parties hereto hereby respectively covenant and agree as follows: 26. EFFECTIVE DATE The employment of the Executive by the Corporation shall continue, with the terms set forth below effective the date hereof (the "Commencement Date"). The agreement made between the Executive and the Corporation dated June 19, 1997 is terminated and is of no further force or effect, and is superseded by this agreement, on and as of the Commencement Date. Notwithstanding the foregoing or any other provision of this agreement, any stock options granted to the Executive prior to the date hereof shall remain in full force and effect. 27. TITLE The Corporation will employ the Executive and the Executive will serve the Corporation as President and Chief Operating Officer. -5- 28. DURATION OF AGREEMENT (a) This agreement shall continue for an initial term of three years from the Commencement Date and shall be subject to successive extensions, each for a period of one year (subject to termination as herein otherwise provided) unless terminated by the Corporation effective the third anniversary of the Commencement Date upon written notice given by the Corporation to the Executive at least 180 days prior to the third anniversary of the Commencement Date, such notice to be effective on the third anniversary of the Commencement Date, or unless terminated by the Corporation on any other anniversary of the Commencement Date following the third anniversary of the Commencement Date upon written notice given by the Corporation to the Executive at least 180 days prior to the anniversary date upon which this agreement is to be terminated, such notice to be effective on such anniversary date. (b) The Executive shall be entitled to terminate his employment by voluntary resignation at any time by providing three months prior written notice to the Corporation. Upon receipt of such notice, the Corporation may in its discretion determine the termination of employment to be effective as of a date prior to the expiration of the three-month period. 29. DUTIES Schedule "A" sets out the purpose of the position of President and Chief Operating Officer, his duties and responsibilities, his requirement to observe and conduct relationships and the standards for measuring his performance. The Executive hereby agrees to serve the Corporation loyally, faithfully, diligently and to the best of his ability and shall use his utmost efforts to promote and advance the business and welfare of the Corporation and its affiliates, as described in Schedule "A". The term "affiliate" as used in this agreement has the meaning given to it by the SECURITIES ACT of Ontario. 30. HOURS OF WORK The Executive shall devote to the affairs of the Corporation substantially the whole of his time, attention and abilities during normal business hours and at such other times as his duties may reasonably require, unless prevented by ill-health. -6- 31. SALARY AND BONUS The Corporation will pay the Executive by way of remuneration for his services under this agreement a salary of US$200,000 per annum commencing on the Commencement Date and US$225,000 commencing on the first anniversary of the Commencement Date. The salary shall be paid bi-weekly. The Executive shall receive a one-time bonus of Cdn$100,000, to be paid as to Cdn$50,000 at the time YFMC Healthcare Inc. becomes a subsidiary of the Corporation and as to the other Cdn$50,000 at the time of the completion of the financing(s) referred to in paragraph 10. 32. EXPENSES The Executive shall be required to undertake such travel as is required by the Corporation and the Corporation shall reimburse the Executive all reasonable travelling, hotel, entertainment and other expenses properly incurred by him in the proper performance of his duties upon production of appropriate receipts. 33. HOLIDAYS The Executive shall be entitled, in addition to statutory holidays, to five weeks' holiday in each 12-month period under this agreement. Unused holiday entitlement may not be carried forward to the next 12-month period unless otherwise agreed with the Corporation. 34. ADDITIONAL BENEFITS Subject as hereinafter provided, during the continuance of this agreement, the Corporation will provide to the Executive the benefits described in Schedule "B" to this agreement. The benefits described in paragraph 1 of Schedule "B" are the benefits currently available to senior employees of the Corporation and its affiliates. Paragraph 1 of Schedule "B" may be amended from time to time at the Corporation's discretion so long as such amended benefits are made available to senior employees of the Corporation and its affiliates and are not a dilution or reduction of the then current benefits provided to the Executive by the Corporation taken as a whole. -7- 35. OPTIONS The Corporation has granted to the Executive options to purchase 400,000 common shares of the Corporation at an exercise price of $1.50 per share. Such options shall be exercisable, as to 200,000 common shares, at the time YFMC Healthcare Inc. becomes a subsidiary of the Corporation, and as to 200,000 common shares, at the time the Corporation completes (the) equity financing (s) in the aggregate amount of not less than US$10,000,000 to be used for the purpose of launching the information technology initiative of the Corporation, provided that the options shall not be exercisable in any event until after April 27, 2000. The options shall have a term of five years. The options shall otherwise be on the terms and conditions set forth in the Corporation's director and employee stock option plan. 36. TERMINATION (a) This agreement may be terminated by the Corporation immediately and without any liability for any damages or compensation for breach of contract, wrongful dismissal or otherwise, if the Executive shall: (i) become mentally incapacitated or, for any 26 weeks in any 12 consecutive months, become physically incapacitated such that he is unable to perform his obligations under this agreement; or (ii) be convicted of any indictable offence for which a sentence of imprisonment can be imposed by law; or (iii) commit any act of dishonesty; or (iv) be guilty of any misconduct relating to the discharge of his duties hereunder; or (v) be guilty of any neglect in the discharge of his duties hereunder or commit any wilful or persistent breach of any of the provisions of this agreement. -8- (b) If this agreement is terminated by the Corporation by notice pursuant to subparagraph 3(a) or by the Executive by notice pursuant to subparagraph 3(b), then the Corporation shall forthwith pay to the Executive his salary (less usual and statutory deductions), at the rate and at the normal times in effect at the time notice of termination is given, through to the termination date. 37. NO OTHER COMMERCIAL INTERESTS The Executive shall not at any time during the continuance of this agreement be or become a director of any Corporation or be engaged, concerned or interested in, directly or indirectly, and whether independently or as any employee of, any other business, trade or occupation, except that the Executive may: (i) become engaged, concerned or interested in any other business, trade or occupation or become a director of another Corporation, with the prior written consent of the Corporation; or (ii) hold or become beneficially interested in not more than 5% of any class of securities in any corporation if such class of securities is listed on a recognized stock exchange or an unlisted securities market unless the Corporation otherwise requires on the grounds that such corporation carries on a business competitive with that of the Corporation or its affiliates. Notwithstanding the foregoing, the Executive may sit on boards of other health care and information technology firms unless there is a reasonable basis upon which the Corporation may deny him the right to do so. 38. HEALTH AND SAFETY The Corporation attaches great importance to the health and safety of its employees and recognizes a duty to prevent, where possible, personal injury by ensuring that the design, construction, operation and maintenance of all equipment and facilities and systems are in accordance with all applicable health and safety requirements. In order to achieve this aim, the Executive must ensure not only that he complies with all requirements of the -9- Corporation, but also that the Corporation has in place appropriate procedures so that appropriate training and instruction is given to all employees in order to prevent injury to themselves and others. 39. CONFIDENTIALITY The Executive shall not at any time, other than in the course of his duties, without the prior consent in writing of the Corporation, divulge or make known to anyone any secrets of any technical, commercial or financial nature or other information of a confidential nature, unless such information is already in the public domain, relating to the business or customers of the Corporation or its affiliates. All papers and documents used by the Executive in the course of his employment are and will remain the property of the Corporation and will be delivered up to the Corporation on termination of this agreement. The provisions of this paragraph shall survive the expiration or earlier termination for any reason whatsoever of this agreement. 40. PATENTS, SECRETS AND IMPROVEMENTS (a) As relating to the business of the Corporation, any discovery, invention, secret process, improvement, formula, plan, idea, know-how or adaptation or improvement thereto or to any existing idea, process or other property of the Corporation including, without limitation, any new, or any adaptation of existing, software or hardware, whether or not patentable or otherwise subject to legal protection, made, discovered, conceived or created by the Executive while in the service of the Corporation, during the term of this agreement, in any way affecting or relating to the business of the Corporation shall forthwith be disclosed to the Corporation and shall belong to and be the absolute property of the Corporation. (b) The Executive shall if and whenever required so to do by the Corporation at the expense of the Corporation, apply to join with the Corporation in applying for patents, copyrights or other legal protection in Canada and in any part of the world for any such discovery, invention, process or improvement as aforesaid and -10- shall at the expense of the Corporation execute all instruments and do all things necessary for vesting the said patent, copyright or other legal protection when obtained and all right, title to and interest in the same in the Corporation absolutely and as sole beneficial owner or in any such other person as the Corporation may specify. 41. CONDUCT By accepting employment and continuing to be employed by the Corporation, the Executive hereby undertakes and covenants with the Corporation as follows: (i) not without the previous consent of the Corporation directly or indirectly to receive (other than as agent for the Corporation) or retain any discount, rebate, fee, gratuity, commission or payment from a third party for any service, matter or thing connected with his duties and services as an employee of the Corporation; (ii) (as long as termination of employment hereunder is not pursuant to clause (a) of paragraph 11, and if termination is pursuant to clause (b) of paragraph 11, the payment referred to in such clause is made) not within 12 months after ceasing to be employed (except with the written consent of the Corporation which shall not be unreasonably withheld) whether on his own behalf or on behalf of any person, firm or corporation directly or indirectly to seek to procure orders from or do business with any person, firm or corporation who on the date of his ceasing to be employed or at any time in the 12 months prior to that date was a client or customer of the Corporation and with whom in the course of his employment with the Corporation had dealings, provided always that nothing in this undertaking shall be deemed to prohibit the Executive from seeking or procuring orders or from doing business not in competition with the Corporation; and -11- (iii) not during the term of employment hereunder, nor for a period of 24 months thereafter, to solicit, entice, procure or endeavour to persuade any other employee of the Corporation to leave the employment of the Corporation. Although the Executive and the Corporation recognize and accept that the above restrictions are reasonable having regard to the nature of the Corporation's business and the Corporation's interest in preserving its goodwill and customer connections, the Corporation will only withhold its consent to (i) or (ii) above where it is evident that the business of the Corporation will be prejudiced by not withholding such consent and to that extent, should any of the foregoing restrictions be found to be unreasonable and unenforceable, they shall be deemed to be modified only to the extent necessary to give effect to the remaining provisions of this paragraph. 42. NOTICES Any notice, direction or other instrument required or permitted to be given to the Executive hereunder shall be in writing and may be given by mailing the same, postage prepaid addressed to the Executive at 1705 Covington Terrace, Mississauga, Ontario L5M 3S4 or by delivering the same. Any notice, direction or other instrument required or permitted to be given to the Corporation hereunder shall be in writing and may be given by mailing the same, postage prepaid, or delivering the same addressed to the Corporation at 2550 Argentia Road, Suite 205, Mississauga, Ontario L5N 5RI, Attention: Chief Executive Officer. Any notice, direction or other instrument aforesaid if delivered shall be deemed to have been. given or made on the date on which it was delivered or if mailed, shall be deemed to have been given or made on the fourth business day following the day on which it was mailed. The Executive or the Corporation may change his or its address for service from time to time by notice given in accordance with the foregoing. -12- 43. LEGAL COSTS The Executive hereby acknowledges receipt of a copy of this Agreement duly signed by the Employer and having been advised by the Corporation to obtain and having been given the opportunity to arrange for independent legal advice with respect to this Agreement, each of the matters herein set forth and the implications thereof. The Corporation shall pay the Executive's legal costs incurred with respect to the Executive's entering into of this agreement up to a maximum of Cdn$5,000. 44. ENTIRE AGREEMENT AND SEVERABILITY This agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, apart from the written agreements between the parties hereto relating to a Cdn$60,000 loan to the Executive from the Corporation. There are not and shall not be any verbal statements, representations, warranties, or agreements between the parties with respect to the subject matter hereof. No waiver of any breach of this agreement shall be effective unless made in writing by the party giving such waiver and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived. The invalidity or unenforceability of any term, covenant or condition contained in this agreement shall not affect the validity or enforceability of any other term, covenant or condition hereof, but shall be deemed to be severable and upon such severance, the remainder of the agreement shall be valid and enforceable. Notwithstanding the foregoing, this agreement may be amended or modified in any respect from time to time by written instrument signed by the parties hereto. 45. GOVERNING LAW This agreement shall in all respects be construed and enforced in accordance with and governed by the laws of the Province of Ontario. Each of the parties hereto hereby irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. -13- 46. RIGHTS OF ENFORCEMENT In the event of a breach by the Executive of any covenant contained or referred to in this Agreement, the Corporation shall be entitled to an injunction restricting such breach in addition to any other remedies provided by law. Any remedy expressly set forth in this Agreement shall be in addition to and not inclusive of or dependent upon the exercise of any other remedy available to the Corporation at law or otherwise. The Executive hereby agrees that all restrictions in this Agreement are reasonable and valid and all defences to the strict enforcement thereof by the Corporation are hereby waived by him. 47. FULL SATISFACTION The terms set out in this Agreement, provided that such terms are satisfied by the Corporation, are in lieu of (and not in addition to) and in full satisfaction of any and all other claims or entitlements which the Executive has or may have upon the termination of employment in the circumstances contemplated in this Agreement. The compliance by the Corporation with these terms will effect a full and complete release of the Corporation from any and all claims which the Executive may then have for whatever reason or cause in respect of the Executive's employment and the termination of it, other than those obligations specifically set out in this Agreement. In agreeing to the terms set out in this Agreement, the Executive specifically agrees to execute a formal release document to that effect and will deliver upon request appropriate resignations from all offices and positions with the Corporation and any associated or affiliated companies if, as, and when requested by the Board upon the termination of employment within the circumstances contemplated by this Agreement. 48. BINDING EFFECT Neither this agreement nor any portion thereof may be assigned by the Executive. Neither this agreement nor any portion thereof may be assigned by the Corporation without the consent of the Executive. This agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, legal personal representatives, successors and permitted assigns. -14- 49. DISPUTE RESOLUTION The parties hereto acknowledge that in the event of a dispute under this agreement they shall make submissions under and shall be bound by the rules of the Private Court in Ontario and any order whether interlocutory or final is an award which is enforceable under the Arbitration Act, 1991 of Ontario. -15- IN WITNESS WHEREOF this agreement has been executed by the parties hereto. MED-EMERG INTERNATIONAL INC. by SIGNED, SEALED AND DELIVERED ) in the presence of ) ) --------------------------------- ) Carl Pahapill - --------------------------------- ) SCHEDULE A PRESIDENT AND CHIEF OPERATING OFFICER II. PURPOSE OF THE POSITION To help develop and apply the policies of the Board of Directors and the Chief Executive Officer. To manage the affairs of the Corporation, control the operations of all line and staff components and have specific responsibility for sales growth, operating results, acquisition activities and the financial condition of the Corporation. III. DUTIES AND RESPONSIBILITIES As chief manager of the Corporation, the President and Chief Operating Officer will, under the overall policy direction as established by the Board of Directors and the Chief Executive Officer, operate the activities of the business and delegate to subordinates such authority and responsibility as he may determine. A. Board Functions a) Creation and issuance of negotiables or transferable instruments and securities. b) Establishment of the controls and regulations deemed necessary to protect properly the rights and interests of shareholders and creditors of the Corporation. c) Revision of corporate By-laws as may be desirable. d) He will present to the Board reports and recommendations from the other officers and committees. In concert with the Chief Executive Officer, he will make recommendations to the Board with regards to the following: e) Appointment of officers of the Corporation and determination of their duties, authorities, and compensation. f) Appointment of trustees and agents for the Corporation. g) Authorization of capital expenditures. h) Authorization for acquisition or disposal of corporate assets. i) Approval of loans, investments, and other plans to finance the Corporation's operations. -2- j) Declaration of dividends and establishment of reserves. B. Operations 1. Control and supervision of the operations and financial affairs of the Corporation through approval of major plans, programs, budgets, and forecasts; review of periodic reports, financial and operating statements, and summary analyses of major operations in relation to authorized programs; and determination of remedial action as required. 2. Be alert to detect and prevent unadvised application of allotted funds. Foster the best use of facilities in the interest of the Corporation. 3. Execute and implement the acquisition program and new product and services initiatives as conceived in concert with the Chief Executive Officer, including related financial measures required. 4. Approve operating and administrative policies. 5. In concert with the Chief Executive Officer, he will also carry out the following activities with respect to acquisitions and public relations: b) Formulation of acquisition policies and plans, subject to approval of the Board. c) Evaluation of potentials. d) Recommendations to the Board. e) Negotiations and commitments, subject to Board approval. f) Formulation of public relations policies and plans, subject to approval of the Board when required. C. Organization 1. Approve and enforce the organization plan of the Corporation and any of its components, and changes therein. -3- 2. Subject to the concurrence of the Chief Executive Officer, approve the addition, elimination, or alteration of management positions. 3. Approve the addition, elimination, or alteration of positions other than in management. 4. Be alert to sponsor improvements in the organization plan of the Corporation and of any of its components. 5. Approve salary and wage structures. D. Personnel 1. Approve personnel policies. 2. Interview, pass upon the qualifications of, and, subject to the concurrence of the Board of Directors, hire personnel for or appoint employees to management positions. 3. Approve promotion, demotion, and release of personnel who are not members of management. Subject to the concurrence of the Board of Directors, approve promotion, demotion, and release of members of management. 4. Approve vacations and personal leaves for the Managers of the Departments. 5. Subject to the concurrence of the Board of Directors, approve and sign agreements with employee groups and their representatives. 6. Be alert to ensure equitable administration of wage and salary policies and structures, employee benefit plans, and personnel rating programs. Protect the interests of employees as individuals. E. Finance 1. The President will assume responsibility for the financial condition of the Corporation and take adequate measures to satisfy its fiscal needs and conserve the assets entrusted to his charge. -4- 2. Insure that each division and department develops and submits operating budgets and forecasts in keeping with policy requirements. 3. In conjunction with the Chief Executive Officer, review, and submit to the Board for approval, the annual consolidated operating budget and forecasts and the proposed capital expenditure program. 4. Establish and adhere to procedures governing the authorization of corporate expenditures. 5. Approve expense accounts for senior officers. F. Public Relations and Advertising The President will be responsible for the implementation of policies developed jointly with the Chief Executive Officer for public relations and advertising including communications to shareholders, employees, industry and the public and will participate directly in these programs with the Chief Executive Officer as they shall mutually agree. G. Marketing and Sales The President shall participate in the preparation of sales and marketing expenditure budgets and be accountable for control of actual results in confirmation with the budget. IV. RELATIONSHIPS The President will observe and conduct the following relationships. Portions of the conduct of such relationships may be delegated to members of the organization, but overall responsibility or accountability for their proper conduct may not be delegated. A. Board of Directors 1. Accountable to the Board of Directors and the Chief Executive Officer for the fulfillment of this function, responsibilities and authority, and relationships, and for their proper interpretations. B. Department Managers 1. Coordinate the activities of the Department managers. Call upon them for advice and assistance whenever advisable. Stand ready at all times to render them advice and support. C. Government, Vendors and the Public 1. Conduct such relationships with representatives of government, with vendors, and with the public as warranted. -5- V. STANDARDS FOR MEASURING PERFORMANCE 1. In conjunction with the Chief Executive Officer, the soundness and adequacy of the objectives and policies recommended to the Board of Directors; the effectiveness with which the policies of the Board are executed; and the extent to which the approved objectives of the Corporation are realized. 2. The extent to which the assets of the Corporation have been conserved and strengthened, the soundness of the financial condition of the Corporation, and the extent to which its fiscal needs have been met. 3. The profit results of the Corporation as a whole and of the individual operating divisions. SCHEDULE "B" BENEFITS 4. Standard Employee Benefit Program of the Corporation for its senior executives including long term disability insurance. 5. The Corporation shall pay the Executive's annual professional fees to maintain his status as a member of the Institute of Chartered Accountants of Ontario and other professional organizations necessary or beneficial to the carrying out of his duties. 6. The Corporation shall pay the Executive up to Cdn$10,000 annually in monthly instalments as a car allowance. The Corporation shall also pay for gas for such car upon production of appropriate receipts. All other expenses with respect to such car, for example, insurance premiums, repairs, shall be paid by the Executive. 7. The Corporation shall pay the Executive such amounts as are approved by the Executive, the Chief Executive Officer and the Chairman of the Board in each year disbursed by the Executive for continuing education and related expenses (for example, travel, hotel). Appropriate receipts shall be delivered to the Corporation. 8. The Corporation shall pay the premiums in respect of a Cdn$500,000 life insurance policy on the life of the Executive. The Executive may designate the beneficiary. EX-21.1 4 EX-21.1 Exhibit 21.1.1 LIST OF SUBSIDIARIES - -------------------- WHOLLY-OWNED - ------------ 927563 Ontario Inc. 927564 Ontario Inc. Med-Emerg Inc. Med Plus Health Centres Ltd. JC Medical Management Inc. Med-Emerg Urgent Care Centres Inc. Med-Emerg Family Health Centres Inc. Med-Emerg Britannia Urgent Care Inc. Med-Emerg Elmvale Clinic Inc. YFMC Heathcare Inc. 1185943 Ontario Inc. YFMC Healthcare (Alberta) Inc. 1024528 Ontario Ltd. 1180668 Ontario Inc. 1292363 Ontario Corp. HealthyConnect.com, Inc. 75%-OWNED - --------- Doctors on Call Ltd. 70%-OWNED - --------- Spirotech Health Services Inc. 51%-OWNED - --------- York Lanes Health Centre Inc. Caremedics (Elmvale) Inc. 45%-OWNED - --------- Medical Urgent Care Inc. EX-23.1 5 EX-23.1 Exhibit 23.1 [SLF LETTERHEAD] ACCOUNTANTS' CONSENT The Board of Directors Med-Emerg International Inc. We consent to the use of our audit report dated March 16, 2000 on the consolidated balance sheets of Med-Emerg International Inc. as at December 31, 1999 and 1998, and the consolidated statements of operations and deficit and cash flows for the years ended December 31, 1999, 1998 and 1997 included herein. /s/ Schwartz Levitsky Feldman, LLP SCHWARTZ LEVITSKY FELDMAN, LLP Toronto, Ontario, Canada March 30, 2000 -----END PRIVACY-ENHANCED MESSAGE-----