MEDICAL RESORTS INTERNATIONAL INC.
Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
Medical Resorts International Inc.
Consolidated Balance Sheets as at June 30, 1998 and 1997
1998 1997
$ $
ASSETS
Current
Accounts receivable --- 32,015
Prepaids and deposits 168,886 100,701
Current portion of note receivable 72,928 ---
241,814 132,716
Note Receivable (note 3) 133,571 ---
Capital Assets (note 4) 322,484 327,053
Investment In Affiliated Company (note 5) 6,823,037 4,377,087
Excess of Cost Over Net Identifiable Assets
at Acquisition (note 6) 857,540 985,557
8,378,446 5,822,413
======== ========
LIABILITIES
Current
Bank indebtedness (note 7) 101,448 155,767
Accounts payable 96,645 288,929
Accrued liabilities 90,642 200,894
Shareholder advances (note 8) --- 84,826
Note payable --- 100,000
Current portion of long term debt 38,144 10,710
326,879 841,126
Long Term Debt (note 9) 6,788 66,984
Minority Interest 98,518 98,518
432,185 1,006,628
SHAREHOLDERS' EQUITY
Share Capital (note 10) 13,857,350 11,273,282
Deficit (5,911,089) (6,457,497)
7,946,261 4,815,785
8,378,446 5,822,413
======== =========
Nature and Continuance of Operations (note 1)
Contingencies (note 14)
SIGNED ON BEHALF OF THE BOARD
"Robert Talbot" (signed) "Robert Burgener" (signed) Director Director
Medical Resorts International Inc.
Consolidated Statements of Operations and Deficit
For the Years Ended June 30, 1998 and 1997
1998 1997
$ $
Revenue
663,951 207,747
Cost of Sales, Selling
& Administration Expenses 509,798 2,747,207
Income (Loss) Before The Following
154,153 (2,539,460)
Amortization of capital assets (89,455) (50,679)
Amortization and writedown of other assets (128,018) (372,176)
Interest on long term debt (5,774) (8,132)
Gain on disposal of shares of subsidiary (note 3)
215,000 ---
Income (Loss) From Continuing Operations
145,906 (2,970,447)
Gain (loss) from discontinued operations (note 12) 400,502 (480,467)
Net Income (Loss) For The Year 546,408 (3,450,914)
Opening Deficit (6,457,497) 3,006,583
Closing Deficit (5,911,089) (6,457,497)
========= =========
Earnings (Loss) Per Share – Basic and Fully
Diluted (note 13)
From continuing operations 0.005 (0.285)
From discontinued operations 0.013 (0.046)
0.018 (0.331)
========= =========
Medical Resorts International Inc.
Consolidated Statements of Changes in Financial Position
For the Years Ended June 30, 1998 and 1997
1998 1997
$ $
Operating Activities:
Income (loss) from continuing operations 145,906 (2,970,447)
Items not affecting cash:
Amortization of capital assets 89,455 50,679
Amortization and writedown of other assets 128,018 372,176
Gain (loss) from discontinued operations 400,502 (480,467)
Gain on disposal of shares of subsidiary (215,000) ---
Net changes in other non-cash working capital items (438,707) 105,129
Cash provided by (used in) operating activities 110,174 (2,922,930)
Investing Activities
Investment in and advances to affiliated company (2,445,950) (1,377,087)
Disposal of shares of subsidiary 215,000 ---
Purchase of capital assets (84,886) (322,367)
Note receivable, net (206,499) ---
Acquisition of subsidiaries --- (100,999)
Cash (used in) investing activities (2,522,335) (1,800,453)
Financing Activities
Repayment of long term debt, net (32,762) (7,140)
Shareholders advances (84,826) (58,962)
Issue of common shares 2,584,068 4,633,103
Cash provided by financing activities 2,466,480 4,567,001
Increase (Decrease) in Cash
54,319 (156,382)
Opening Cash (Bank indebtedness)
(155,767) 615
Closing Cash (Bank indebtedness) (101,448) (155,767)
========= ==========
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
1.Nature and Continuance of Operations
During the year the Company continued its expansion in the health tourism industry.
The Company's ability to realize on its assets and satisfy its obligations is dependent on the
continued support of the shareholders. Certain shareholders have funded the operations of the
Company and have provided guarantees that they will continue to provide funding as
required.
2. Summary of Significant Accounting Policies
(a) Basis of Consolidation
These financial statements are presented on a consolidated basis and include the accounts of the Company and the following subsidiaries:
Tubco Products Inc. ("Tubco") 100%
Precast Building Systems Ltd. ("Precast") (note 3) 60%
834663 Ontario Limited 100%
Hotel de Health Inc. 62%
Hotel de Health (Anguilla) Ltd. 80%
Hotel de Health (Caribbean) Inc. 80%
Healthshield Limited 100%
Medilink London Limited 70%
3154572 Canada Inc. (Lanternet) 100%
OMI Corporation 100%
i) Acquisition of Healthshield Limited.
Effective November 1, 1996, the Company acquired 100% of the issued and outstanding shares in
Healthshield Limited for the issuance of 858,334 shares. This acquisition has been recorded using
the purchase method. These financial statements reflect the results of winding up this operation in
December, 1997 as explained in note 12.
The following is a summary of the financial highlights relating to the acquisition:
$
Consideration given:
Shares Issued (subsequently cancelled) -
Legal Fees 7,666
7,666
=====
Allocated as follows:
Net Asset Deficiency (162,596)
Excess of cost over net identifiable assets at acquisition (note 6 and 12) 170,262
7,666
======
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
2. Summary of Significant Accounting Policies (cont'd)
(a) Basis of Consolidation (cont'd)
ii) Acquisition of 3154572 Canada Inc. (Operating as Lanternet)
Effective November 1, 1996, the Company acquired 100% of the issued and outstanding
shares in 3154572 Canada Inc. for the issuance of 833,333 shares. This acquisition has been
recorded using the purchase method.
The following is a summary of the financial highlights relating to the acquisition:
$
Consideration given: 83,333
======
Allocated as follows:
Net Asset Deficiency (172,509)
Excess of cost over net identifiable assets at acquisition 255,842
83,333
======
This company was wound up in April, 1998 and these financial statements reflect the results as
explained in note 12.
iii) Acquisition of OMI Corporation
Effective November 15, 1996, the Company acquired 100% of the issued and outstanding
shares in OMI Corporation for $10,000. This acquisition has been recorded using the
purchase method and the financial statements include the results of operations from the date
of acquisition.
The following is a summary of the financial highlights relating to the acquisition:
$
Consideration given: 10,000
======
Allocated as follows:
Net Tangible Assets 10,000
Excess of cost over net identifiable assets at acquisition ---
10,000
======
(b) Capital Assets
Amortization of capital assets is computed using the diminishing balance method with annual
rates of 20% to 30% based on the estimated useful lives of the assets.
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
2. Summary of Significant Accounting Policies (cont'd)
(c) Investment in Affiliated Company
The Company accounts for its investment in the affiliated company, Seafeathers Bay Medical Resort Holding Ltd., using the equity method which records the investment at cost, plus or minus its share of operations since acquisition, less dividends received.
(d) Excess of Cost Over Net Identifiable Assets of Acquisition
The excess of cost over net identifiable assets resulting from acquisitions is being amortized on the straight line basis over the estimated life, not to exceed ten (10) years. On an ongoing basis, this amount is reviewed by management for possible impairment whenever events or circumstances occur that suggest the carrying value of this asset may not be fully recoverable. If the estimated future undiscounted net cash flows are less than the carrying value, then a writedown is recognized to reflect the impairment.
(e) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
(f) Foreign Currency Translation
Monetary assets and liabilities have been translated into Canadian dollars at exchange rates prevailing at the end of the year and transactions are translated at the exchange rate applicable at the date of transaction. Foreign exchange gains and losses are charged to earnings.
(g) Financial Instruments
The Company's financial instruments consist of cash, accounts receivable, note receivable, temporary and long term investments, bank indebtedness, accounts payable, amounts due to related parties and long term debt. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, foreign currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximate their carrying values, unless otherwise noted.
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
3. Note Receivable
This note consists of a non-interest bearing amount receivable from the disposition of 40% of the
outstanding share capital of the subsidiary, Pre-Cast Building Systems Ltd., which has resulted in the
realization of a gain in the amount of $215,000.
The sale agreement indicates principal repayments as follows:
$
1999 72,928
2000 133,571
4. Capital Assets
Accumulated Net Book Value
Cost Amortization 1998 1997
$ $ $ $
Furniture and Fixtures 92,469 34,403 58,066 63,378
Computer Equipment 81,513 40,958 40,555 57,610
Medical Equipment 236,261 46,439 189,822 157,451
Automotive Equipment 67,735 33,694 34,041 48,614
477,978
====== 155,494
====== 322,484
====== 327,053
======
5.Investment in Affiliated Company
1998 1997
Seafeathers Bay Medical Resort Holdings Ltd.: $
$
45% of issued share capital (1997 - 25%) 5,400,000 3,000,000
Non interest bearing advances with no specific terms of repayment 1,423,037 1,377,087
6,823,037
======= 4,377,087
========
The advances are secured by a pledge agreement between the Company and the holder of the other
55% of the issued share capital of Seafeathers Bay Medical Resort Holdings Ltd. The pledge
agreement is for 10% of the issued share capital of Seafeathers Bay Medical Resort Holdings Ltd.
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
6. Excess of Cost Over Net Identifiable Assets at Acquisition
1998 1997
$ $
Excess of cost over net identifiable assets at acquisition 2,660,233 2,660,233
Accumulated amortization and writedowns 1,802,693 1,674,676
857,540
======= 985,557
========
7. Bank Indebtedness
Bank indebtedness consists of bank overdrafts in certain of the company's subsidiaries which are secured by assets of the subsidiaries and third party guarantees.
8. Shareholder Advances
The shareholder advances are non-interest bearing and without specified terms of repayment.
9. Long Term Debt
1998 1997
$ $
Bank loan payable in monthly instalments of $3,443
including interest at 11.5%, due August 1999, unsecured 44,932 ---
Note payable in monthly instalments of $833 plus
interest at prime plus 1.75% --- 50,000
Note payable in monthly instalments of $892 plus
interest at prime plus 3% --- 27,694
44,932 77,694
Due within one year 38,144 10,710
6,788 66,984
======= ======
Repayments of long term debt over the next two years are as follows:
$
199938,144
2000 6,788
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
10. Share Capital
(a) Authorized –
Unlimited number of common shares
Unlimited number of preference shares issued in series
(b) Issued –
# of Common Shares $_________
1998 1997 1998 1997
Opening Balance 13,989,441 5,871,507 11,273,282 6,640,179
Issued 29,786,344 8,113,768 2,358,040 4,628,103
Options Exercised 2,825,350 4,166 226,028 5,000
Cancelled (note 2 (a) i)) (858,334) --- --- _________
Closing Balance 45,742,801
======== 13,989,441
======== 13,857,350
======== 11,273,282
=========
(c) During the year ended June 30, 1998, 29,786,344 shares were issued for proceeds of
$2,553,173, less share issue costs of $195,133. Of these shares 22,070,961 were issued to related
parties for proceeds of $1,832,967. Of the total proceeds generated from the issuance of
share capital, $2,400,000 was utilized to increase the Company's equity in Seafeathers Bay
Medical Resort Holdings Ltd. from 25% to 45% (note 5).
(d) During the year ended June 30, 1998, the Company granted a total of 3,125,350 options
to purchase common shares of the Company to senior officers, directors and employees of the
Company at a price of $0.08 per share. Of these, 2,825,350 were exercised during the year for
proceeds of $226,028. As of June 30, 1998 300,000 of these options remain outstanding and
expire on December 31, 1999.
(e) As at June 30, 1998, the Company had share issue warrants outstanding as follows:
# Outstanding Exercise Price Expiry Date
416,666 $2.40 November 1, 1998
500,000 $1.20 December 16,1998
2,374,878 $1.00 February 25,1999
555,556 $0.60 March 27, 1999
500,000 $0.24 April 26, 2002
(f) During the year ended June 30, 1997, 1,908,333 shares were issued to related parties
for proceeds of $1,741,250 as part of a series of private placement offerings.
(g) During the year ended June 30, 1997, 4,513,767 shares were issued for proceeds of
$2,803,482 (net of share issue costs of $873,949) as private placement offerings and
exercise of warrants.
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
10.Share Capital (cont'd)
(h) During the year ended June 30, 1997, the Company issued 858,333 shares relating to the
acquisition of Healthshield Limited, and 833,333 shares relating to the acquisition of
3154572 Canada Inc. The shares issued relating to the Healthshield acquisition have been
cancelled in the 1998 fiscal year.
(i) During the year ended June 30, 1997, the Company granted a total of 816,666 options to purchase
common shares of the Company to senior officers, directors and employees of the Company at a
price of $1.20 per share. These options remained outstanding at June 30, 1998 and expire
December 16, 1998.
11.Related Party Transactions
During the year ended June 30, 1998, management fees of $100,000 (1997 - $270,000) were paid to a company controlled by a shareholder which provided accounting and secretarial services, office facilities and management expertise. Administrative expenses for the year ended June 30, 1997
include fees of $219,143 which were paid to directors.
12. Discontinued Operations
During the year management decided to discontinue the operation of two of its wholly owned
subsidiaries, Healthshield Limited and 3154572 Canada Inc.
Healthshield Limited's operations were formally discontinued and wound up in December 1997. As a
result of the liquidation of assets and discharge of liabilities, a gain of $267,387 has been recognized.
3154572 Canada Inc., which operated under the trade name of Lanternet, was wound up in April
1998.As a result of the liquidation of assets and discharge of liabilities, a gain of $133,115 has been
recognized.
13. Earnings (Loss) Per Share
Earnings (loss) per share is calculated using the weighted average number of shares
outstanding during the year ended June 30, 1998 of 30,928,592 (1997 - 10,419,681).
If the warrants and share options outstanding at June 30, 1998 had been exercised, the effect on
earnings per share would have been anti-dilutive.
14. Contingencies
A previous shareholder group commenced an action against the Company for payment of certain
promissory notes and received a default judgement in 1992 in the amount of $415,000. Management
is of the view that the promissory notes are the responsibility of a shareholder of the Company and
that this claim is without merit. Since no further action since 1992 has been pursued in this matter by
the claimants, management has not provided for any loss in these financial statements. The amount of
the loss, if any, is not determinable at this time. The Company will continue to defend its position
should the need arise.
Medical Resorts International Inc.
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1998 and 1997
15. Segmented Information
The pre-cast concrete business consists of the sales of royalties through licensing of its
technology. The medical tourism business consists of revenue derived from fees charged
for services provided for medical and medical related services.
Pre-Cast Concrete Medical Tourism
1998 1997 1998 1997
Revenue $82,500
====== $80,653
====== $581,451
======= $ 127,094
========
Operating Income (Loss) $79,453
====== $(15,803)
====== $112,707
======= $(790,342)
========
Identifiable Assets $ 2,192
====== $20,321
====== $481,178
======= $ 440,811
========
Operating losses for the pre-cast concrete and medical tourism segments include amortization on capital assets of $547 (1997 - $685 ) and $88,908 (1997 - $49,994) respectively.
Identifiable assets of $7,037,536 (1997 - $4,377,087) attributed to corporate activities and goodwill on consolidation of $857,540 (1997 - $985,557) are included in consolidated assets. Net expenses attributable to corporate activities of $133,236 (1997 - $1,792,126) and goodwill amortization recorded on consolidation of $128,018 (1997 - $372,176) are included in the determination of consolidated earnings for the year.
16. Income Taxes
The Company and its subsidiaries have accumulated non-capital losses for income tax purposes of approximately $4,272,000 which may be carried forward and used to reduce taxable income in future years and for which no future tax benefit has been recognized in the accounts. These losses expire as follows:
$
1999 133,000
2001 141,000
2002 289,000
2003 1,021,000
2004 2,326,000
2005 362,000
4,272,000
========
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