SEC Company Response from MED-EMERG INTERNATIONAL INC (CIK 0001030179) — Sep 29, 2005
MED-EMERG INTERNATIONAL INC (CIK 0001030179)
Date: Sept. 29, 2005 · CIK: 0001030179 · Accession: 0001143994-05-000040
AI Filing Summary & Sentiment
Letter
Ms. Keira Ino United States Securities and Exchange Commission Fifth Street, NW Washington, DC 20549
Dear Ms. Ino:
In response to the questions posed in the correspondence from Mr. Jim Rosenberg, Senior Assistant Chief Accountant, in his letter of August 16, 2005, we are pleased to provide additional information, as requested.
For ease of reference our responses are in sequence consistent with Mr. Rosenberg’s questions and where comments have been modified or expanded upon the changes have been underlined.
If you have questions please contact the writer at your earliest convenience at (905) 288-1003 or bdanis@med-emerg.com.
NOTE: CERTAIN INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND MAY NOT BE MADE PUBLIC.
Sincerely
yours,
/s/William
J. Danis
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CORRESP
1
filename1.htm
MDER CORRESP 09-28-2005
6711
MISSISSAUGA ROAD, SUITE 404
MISSISSAUGA,
ONTARIO, CANADA L5N 2W3
PHONE:
(905) 858-1368
FAX:
(905) 858-1399
www.med-emerg.com
September
28, 2005
Ms.
Keira Ino
United
States Securities and Exchange Commission
450
Fifth Street, NW
Washington,
DC 20549
Dear
Ms. Ino:
In
response to the questions posed in the correspondence from Mr. Jim Rosenberg,
Senior Assistant Chief Accountant, in his letter of August 16, 2005, we are
pleased to provide additional information, as requested.
For
ease of reference our responses are in sequence consistent with Mr. Rosenberg’s
questions and where comments have been modified or expanded upon the changes
have been underlined.
If
you have questions please contact the writer at your earliest convenience at
(905) 288-1003 or bdanis@med-emerg.com.
NOTE:
CERTAIN INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND MAY NOT BE MADE
PUBLIC.
Sincerely
yours,
/s/William
J. Danis
Chief
Financial Officer
- 1
-
General
1.
We
hereby acknowledge that:
§
The
Company is responsible for the adequacy and accuracy of the disclosure in
the filings;
§
SEC
staff comments or changes to disclosure in response to SEC staff comments
in the filings reviewed by the SEC do not foreclose the SEC from taking
any action with respect to the filing;
and
§
The
Company may not assert SEC staff comments as a defense in any proceedings
initiated by the SEC or any person under the federal securities laws of
the United States.
- 2
-
Question
2. Item 6- revised table as requested.
US$
YEAR
ENDED DECEMBER 31,
2004
2003
2002
2001
2000
Statement
of Operations Data:
Revenue
48,447,687
54,335,558
37,428,043
15,813,250
15,532,767
Physician
fees and other direct costs
43,693,380
49,217,416
34,382,752
13,223,282
10,011,764
Gross
Profit
4,754,307
5,118,142
3,045,291
2,589,968
5,521,003
Operating
expenses before undernoted items
4,810,341
4,678,665
2,704,529
2,439,373
6,103,860
Depreciation
and amortization
182,399
120,924
102,345
92,575
1,590,006
Other
expenses
1,102,772
1,730,587
827,336
2,078,753
1,291,150
6,095,512
6,530,176
3,634,210
4,610,701
8,985,016
Loss
before income taxes
(1,341,205
)
(1,412,034
)
(588,919
)
(2,020,733
)
(3,464,013
)
Income
taxes (recovery)
-
(2,458
)
-
1,248,016
(978,189
)
Minority
interest
-
(2,095
)
(2,211
)
1,926
(318,223
)
Discontinued
operations
-
(167,169
)
(16,956
)
(3,470,892
)
-
Net
loss - Canadian GAAP
(1,341,205
)
(1,574,650
)
(603,664
)
(6,741,567
)
(2,167,601
)
Net
loss - US GAAP
(1,176,578
)
(1,983,291
)
(619,214
)
(6,964,095
)
(3,689,914
)
Preferred
share dividends
(34,173
)
(135,006
)
(134,983
)
(134,870
)
(131,240
)
Forgiveness
of Preferred share dividends
579,582
-
-
-
Net
loss attributable to common shareholders - Canadian GAAP
(795,796
)
(1,709,656
)
(738,647
)
(6,876,437
)
(2,298,841
)
Net
loss attributable to common shareholders - US GAAP
(631,169
)
(2,118,297
)
(754,197
)
(7,098,965
)
(3,821,154
)
Basic
loss per common share
Continuing
operations
(0.02
)
(0.16
)
(0.08
)
(0.41
)
(0.40
)
Discontinued
operations
(0.00
)
(0.02
)
(0.00
)
(0.42
)
(0.00
)
Balance
Sheet Data:
Working
Capital Surplus (deficit)
1,224,127
(3,169,692
)
(2,329,525
)
(1,931,980
)
(2,471,958
)
Total
Assets
7,322,027
4,044,225
3,641,207
3,421,080
9,268,922
Long-Term
debt
599,991
599,991
590,536
590,536
11,537
Shareholders'
equity (deficit) - Canadian GAAP
559,249
(3,448,142
)
(2,341,861
)
(1,844,350
)
4,142,345
Shareholders'
equity (deficit) - US GAAP
1,647,121
(2,360,270
)
(1,253,989
)
(756,478
)
3,777,466
Year
end US$ exchange rate (equivalent to 1Cdn$)
0.83
0.77
0.63
0.63
0.67
Average
US$ exchange rate (equivalent to 1Cdn$)
0.77
0.71
0.64
0.65
0.66
Range
of high and low rates (equivalent to 1Cdn$)
0.71
to 0.85
0.63
to 0.78
0.62
to 0.67
0.62
to 0.67
0.64
to 0.70
- 3
-
Question 2 - Item 6 - additional information as
requested.
SUPPLEMENTARY
FINANCIAL INFORMATION
QUARTERLY
FINANCIAL DATA (UNAUDITED)
4TH
QUARTER
3rd
QUARTER
2nd
QUARTER
1ST
QUARTER
2004
2003
2004
2003
2004
2003
2004
2003
Revenue
13,619,890
12,421,081
11,704,989
14,297,671
10,569,207
16,348,865
12,553,601
11,267,941
Gross
Profit
1,252,482
1,220,583
1,148,196
1,417,336
1,169,895
1,504,929
1,183,734
975,294
Income(loss)
before undernoted items
520,908
174,425
-35,286
221,059
-620,637
-32,359
78,981
76,352
Gain
(loss) from discontinued operations
3,449
-898,848
0
862,814
7
-71,179
-3,456
-59,956
Net
profit (loss) for the period
-253,018
-147,634
-234,864
114,715
-160,350
-753,635
-147,564
-923,102
Basic
loss per common share
Continuing
operations
0.01
0.09
0.00
-0.08
-0.01
-0.08
-0.02
-0.09
Discontinued
operations
0
-0.09
0.00
0.09
0.00
-0.01
0.00
-0.01
- 4
-
Question
3 - ITEM 7- proposed changes to MD&A in accordance with Rule 303(a) of Reg.
S-K
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY
AND CAPITAL RESOURCES
As at
December 31, 2004, the Company's cash position was $2.3 million compared to $129
thousand at December 31, 2003 and $90 thousand at December 31, 2002. The $4.5
million equity financing (the “Financing”) that was completed in June 2004 was
the prime source of the improved cash position.
Operating
activities consumed $1.7 million of cash in the year of which $1.0 million was
absorbed directly by operations and the remainder was consumed by changes in
working capital. The biggest change in 2004 as compared to 2003 was the one-time
impact of closing costs associated with the Financing. These costs totaled about
$610 thousand. The working capital change is largely attributable to an increase
in accounts receivable relative to the accounts payable. While cyclicality in
accounts receivable and accounts payable are common on a month-to-month basis,
based on invoice dates, the accounts payable did not increase as much as the
accounts receivable because proceeds from the Financing were used to reduce
long, outstanding accounts payable. The decrease in cash flow from operations
compares to cash generated by operating activities of about $965 thousand in
2003 and $998 thousand in 2002. For both 2003 and 2002 the cash was generated by
changes in working capital which amounted to $1.07 million in 2003 and $1.14
million in 2002.
We
expect that the loss of the DND
contract will negatively impact our cash flows in 2005, commencing in the second
quarter. While we adjust our business to
deal with the loss of the
contract we expect that we will use up to $700 thousand of our cash resources to
fund operating activities.
Investing
activities used cash of about $700 thousand in the year ended December 31, 2004,
of which about $500 thousand was used to upgrade computer hardware and software
and to finance the leaseholds and furniture associated with our move to new
premises. About $200 thousand was used in the purchase of the Scarborough Pain
Clinic, and resulted in an increase in goodwill. This compares with cash
generated by investing activities of $120 thousand in 2003, which was comprised
of proceeds from the sale of our clinic operations of $470 thousand and which
was offset by cash used to acquire property, plant and equipment of $135
thousand and $210 thousand used by discontinued operations. In 2002, cash of
about $300 thousand was used in investing activities. Of this about $100
thousand was generated through the sale of an investment, $65 thousand was used
to acquire property, plant and equipment, and $335 thousand was used to invest
in discontinued operations.
Financing
activities generated $4.5 million of cash during the year. This occurred when
the Company issued 39,360,272 common shares as part of an equity financing. This
compares to cash used by financing activities of $640 thousand in 2003 and $605
thousand in 2002. In 2003 the cash was largely used to repay $660 thousand of
debt. In 2002 the decrease in cash arose when the Company raised about $475
thousand of debt, but in turn reduced bank indebtedness by $970 thousand and
incurred $70 thousand to finance discontinued operations and $42 thousand to
finance deferred financing costs.
Question
3 - revised disclosure regarding contractual obligations
CONTRACTUAL
OBLIGATIONS
Total
2005
2006
2007
2008
2009
Thereafter
Obligations
Long-term
debt1
295,960
295,960
295,960
295,960
69,247
-
1,253,087
Operating
lease obligations
288,309
293,276
293,679
135,342
113,352
171,472
1,295,430
Notes payable2
-
809,991
-
-
-
-
809,991
Total
$
584,269
$
1,399,227
$
589,639
$
431,302
$
182,599
$
171,472
$
3,358,508
- 5
-
Notes:
1 -
Includes interest on long-term debt at the prescribed rate established by the
Canada Revenue Agency (CRA), currently set at 7%. These interest costs have been
waived by CRA in recent years.
2 -
Includes interest at the rate of 7%. Interest is payable in cash or by the
issuance of common stock, or any combination thereof.
Question
4 - revised discussion re accounting policies and assumptions
CRITICAL
ACCOUNTING POLICIES AND ASSUMPTIONS
The
preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities during the reporting period. Significant
areas requiring the use of estimates relate to: 1) the reported amounts of
revenues and expenses, 2) the assessment of collection risk associated with
accounts receivable, 3) the disclosure of contingent liabilities. We
evaluate our estimates on an on-going basis. We state our accounting policies in
the notes to the audited consolidated financial statements and related notes for
the year ended December 31, 2004, contained herein. These estimates are based on
information that is currently available to us and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results could
vary from those estimates under different assumptions or conditions. We believe
that the following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
§
We
maintain accruals for revenues, physician fees and other direct costs,
salaries, benefits, and other costs. Major accruals, revenues and
expenses, relate to the accrual of revenue and expenses associated with
staffing contracts. These accruals are of a short duration; that is,
revenues and expenses are generally known before financial statements are
finalized. Based on historical experience our accruals have proven
accurate. Should changes occur in the future, we may be required to revise
our accrual assumptions.
§
We
maintain an allowance for doubtful accounts for estimated losses resulting
from fraudulent claims made by patients, the inability of our corporate
customers to make required payments, or as a result of a dispute in the
invoiced amount. Fraudulent claims arise when patients seek medical care
and provide an invalid health card for payment. The introduction of
electronic medical records services, which pre-screen patients prior to
services being rendered, is rapidly diminishing our exposure to fraudulent
claims by patients. We determine the adequacy of our bad debt allowance by
continually evaluating individual customer receivables, considering the
customer’s financial condition, credit history and current economic and
business conditions. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Historically losses on
uncollectible accounts have not exceeded our allowances. As of December
31, 2004, our allowance for doubtful accounts was $15,800 (2003 -
$46,115).
§
We
are subject to various claims and legal actions in the ordinary course of
our business. These matters include breach of contract or similar matters
arising from contractual disputes. Our hospital and healthcare facility
clients may also become subject to claims, governmental inquiries and
investigations and legal actions to which we may become a party relating
to services provided by our professionals. From time to time, and
depending upon the particular facts and circumstances, we may be subject
to indemnification obligations under our contracts with our hospital and
healthcare facility clients relating to these matters. Material pending
legal proceedings brought against the Company is described in Item 3.
Legal Proceedings above. As mentioned, we are unable to determine our
potential exposure regarding these lawsuits at this time. Similarly, we
have other contingent liabilities that pertain to amounts potentially
owing to government authorities. We continue to evaluate the probab