UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(MARK
ONE)


[X]           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008


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
            N/A(State or Other
      Jurisdiction of Incorporation or Organization)
            (IRS
      Employment Identification No.)6711 Mississauga Road,
      Suite 404
              Mississauga, Ontario,
      Canada
              (Address of
      Principal Executive Offices)
            L5N 2W3
              (Zip
  Code)




(905)
858-1368


(Registrant’s
telephone number, including area code)





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 whether registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one)





Large
accelerated filer [ ]    Accelerated filer [
]     Non-accelerated filer
[]     Smaller reporting company [X]





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [  ] No [X]







As of
November 13, 2008, 58,277,696 of the registrant’s common shares were
outstanding. The aggregate market value of the shares of the issuer's common
stock held by non-affiliates was approximately $2,240,000 based on the last
reported sale price of $0.08 per share on November 5, 2008 as quoted on the OTC
Bulletin Board.








1


MED-EMERG
INTERNATIONAL INC.





TABLE
OF CONTENTS











PART
      I:  FINANCIAL INFORMATION
            3ITEM
      1.  CONDENSED FINANCIAL STATEMENTS
            3Consolidated
      Balance Sheets as at September 30, 2008 (Unaudited) and December 31,
      2007
            4Consolidated
      Statement of Deficit for the three and nine months ended September 30,
      2008 and September 30, 2007 (Unaudited)
            5Consolidated Statements of Comprehensive Income (Loss) and
      Accumulated Other Comprehensive Loss for the three and nine months
      ended September 30, 2008 and
              September 30, 2007(Unaudited)5Consolidated
      Statement of Operations for the three and nine months ended September 30,
      2008 and September 30, 2007 (Unaudited)6Consolidated
      Statement of Cash Flows for the three and nine months ended September 30,
      2008 and September 30, 2007 (Unaudited)
            7Notes
      to the Unaudited Consolidated Financial Statements for the three and nine
      months ended September 30, 2008 and September 30, 2007
            8ITEM 2:
      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            24ITEM 3:
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            40ITEM 4
      T: CONTROLS AND PROCEDURES
            40PART
      II:  OTHER INFORMATION
            41ITEM 4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            41ITEM 6.
      EXHIBITS
            41SIGNATURES
            42








2











SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
Quarterly Report on Form 10-Q contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product and service
demand and acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks described in
this document and in other reports filed from time to time with the Securities
and Exchange Commission. All such forward-looking statements are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany the forward-looking statements. In addition, Med Emerg
International Inc. disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date
hereof.








PART
I:  FINANCIAL INFORMATION





ITEM 1.  CONDENSED
FINANCIAL STATEMENTS






3




Med-Emerg
International Inc.
 Consolidated
Balance Sheet
  As
at September 30, 2008 and December 31, 2007
 (in
US$)





September
      30
            
            
            December
      312008
            
            
            2007ASSETS
            
            (Unaudited)Current
      assetsCash
      and cash equivalents
            
            $
            2,393,206
            
            
            $
            2,291,005Accounts
      receivable
            
            
            3,251,364
            
            
            
            3,149,967Prepaid
      expenses and other
            
            
            274,538
            
            
            
            525,978Discontinued
      operations (Note 4)
            
            
            101,694
            
            
            
            -6,020,802
            
            
            
            5,966,950Property
      and equipment
            
            
            1,150,713
            
            
            
            1,314,849Goodwill
            
            
            237,596
            
            
            
            237,596Other
      intangible assets
            
            
            17,357
            
            
            
            9,152$
            7,426,468
            
            
            $
            7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
            
            $
            2,575,871
            
            
            $
            2,506,416Deferred
      revenue
            
            
            213,268
            
            
            
            247,189Current
      portion of long-term debt  (Note 13(b))
            
            
            300,003
            
            
            
            445,026Discontinued
      operations (Note 4)
            
            
            174,408
            
            
            
            296,0073,263,550
            
            
            
            3,494,638Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Notes 6 and 8(a))
            
            
            3,014,450
            
            
            
            3,153,6896,278,000
            
            
            
            6,648,327Contingent
      liabilities (Note 9)SHAREHOLDERS'
      EQUITYCapital
      stock
            
            
            16,420,668
            
            
            
            16,420,668Contributed
      surplus
            
            
            3,106,792
            
            
            
            3,106,792Deficit
            
            
            (17,605,992
            )
            
            
            (17,949,550
            )Accumulated
      other comprehensive loss
            
            
            (773,000
            )
            
            
            (697,690
            )1,148,468
            
            
            
            880,220$
            7,426,468
            
            
            $
            7,528,547






The accompanying notes are an
integral part of these consolidated financial statements.






4





Med-Emerg
International Inc.


Consolidated
Statement of Deficit




For
the Three and Nine months Ended September 30, 2008 and 2007
(Unaudited)


(in
US$)








THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Balance,
      beginning of period
            
            $
            (17,674,843
            )
            
            $
            (17,803,420
            )
            
            $
            (17,949,550
            )
            
            $
            (17,236,979
            )Net
      income (loss) attributable to common shareholders
            
            
            68,851
            
            
            
            (237,352
            )
            
            
            343,558
            
            
            
            (803,793
            )Balance,
      end of period
            
            $
            (17,605,992
            )
            
            $
            (18,040,772
            )
            
            $
            (17,605,992
            )
            
            $
            (18,040,772
            )





Med-Emerg
International Inc.


Consolidated
Statements of Comprehensive Income (Loss) and Accumulated Other Comprehensive
Loss


For
the Three and Nine months Ended September 30, 2008 and 2007
(Unaudited)


(in
US$)








THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income (loss) attributable to common shareholders
            
            $
            68,851
            
            
            $
            (237,352
            )
            
            $
            343,558
            
            
            $
            (803,793
            )Other
      comprehensive (loss) incomeChange
      in cumulative translation adjustment
            
            
            (43,649
            )
            
            
            47,957
            
            
            
            (75,310
            )
            
            
            129,763Comprehensive
      income (loss) for the period, attributable to common
      shareholders
            
            $
            25,202
            
            
            $
            (189,395
            )
            
            $
            268,248
            
            
            $
            (674,030
            )Accumulated
      other comprehensive loss, beginning of period
            
            $
            (729,351
            )
            
            $
            (767,746
            )
            
            $
            (697,690
            )
            
            $
            (849,552
            )Other
      comprehensive (loss) income
            
            
            (43,649
            )
            
            
            47,957
            
            
            
            (75,310
            )
            
            
            129,763Accumulated
      other comprehensive loss, end of period
            
            $
            (773,000
            )
            
            $
            (719,789
            )
            
            $
            (773,000
            )
            
            $
            (719,789
            )






The accompanying notes are an
integral part of these consolidated financial
statements.


5


Med-Emerg
International Inc.


Consolidated
Statement of Operations


For
the Three and Nine months Ended September 30, 2008 and 2007
(Unaudited)


(in
US$)








THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Revenue
            
            $
            6,177,030
            
            
            $
            5,513,221
            
            
            $
            17,773,072
            
            
            $
            15,587,493Physician
      fees and other direct costs
            
            
            4,013,419
            
            
            
            3,963,251
            
            
            
            11,856,685
            
            
            
            11,225,5052,163,611
            
            
            
            1,549,970
            
            
            
            5,916,387
            
            
            
            4,361,988ExpensesSalaries and
      benefits
            
            
            1,000,712
            
            
            
            830,938
            
            
            
            2,764,410
            
            
            
            2,419,474General
      and administration
            
            
            590,482
            
            
            
            407,771
            
            
            
            1,425,930
            
            
            
            1,196,366Occupancy costs
      and supplies
            
            
            256,241
            
            
            
            214,934
            
            
            
            726,732
            
            
            
            525,334Travel
      and marketing
            
            
            121,959
            
            
            
            85,506
            
            
            
            355,342
            
            
            
            250,809Interest
      income, net of bank charges
            
            
            (6,654
            )
            
            
            (27,814
            )
            
            
            (27,935
            )
            
            
            (73,520
            )Interest on
      long-term debt
            
            
            24,392
            
            
            
            20,660
            
            
            
            74,238
            
            
            
            89,640Amortization of
      property and equipment
            
            
            118,354
            
            
            
            94,250
            
            
            
            293,061
            
            
            
            223,917Interest
      expense on financial liability carried at amortized cost
            
            
            158
            
            
            
            3,665
            
            
            
            1,950
            
            
            
            12,7002,105,644
            
            
            
            1,629,910
            
            
            
            5,613,728
            
            
            
            4,644,720Income
      (loss) before discontinued operations
            
            
            57,967
            
            
            
            (79,940
            )
            
            
            302,659
            
            
            
            (282,732
            )Discontinued
      operationsNet
      income (loss) from discontinued operations (Note 4)
            
            
            10,884
            
            
            
            (157,412
            )
            
            
            40,899
            
            
            
            (521,061
            )Net
      income (loss) attributable to common shareholders
            
            $
            68,851
            
            
            $
            (237,352
            )
            
            $
            343,558
            
            
            $
            (803,793
            )Net
      income (loss) per common share, basicContinuing
      operations
            
            $
            0.001
            
            
            $
            (0.001
            )
            
            $
            0.005
            
            
            $
            (0.005
            )Discontinued
      operations
            
            $
            0.000
            
            
            $
            (0.003
            )
            
            $
            0.001
            
            
            $
            (0.009
            )$
            0.001
            
            
            $
            (0.004
            )
            
            $
            0.006
            
            
            $
            (0.014
            )Weighted
      average common shares outstanding, basic
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696Income
      (loss) per common share, dilutedContinuing
      operations
            
            $
            0.001
            
            
            $
            (0.001
            )
            
            $
            0.005
            
            
            $
            (0.005
            )Discontinued
      operations
            
            $
            0.000
            
            
            $
            (0.003
            )
            
            $
            0.001
            
            
            $
            (0.009
            )$
            0.001
            
            
            $
            (0.004
            )
            
            $
            0.006
            
            
            $
            (0.014
            )Weighted
      average common shares and share equivalents, diluted
            
            
            67,027,696
            
            
            
            58,277,696
            
            
            
            67,027,696
            
            
            
            58,277,696






The accompanying notes are an
integral part of these consolidated financial statements.




6




Med-Emerg
International Inc.


Consolidated
Statement of Cash Flows


For
the Three and Nine months Ended September 30, 2008 and 2007
(Unaudited)


(in
US$)




THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Cash
      Flows from (used in) Operating ActivitiesNet
      income (loss) before discontinued operations
            
            $
            57,967
            
            
            $
            (79,940
            )
            
            $
            302,659
            
            
            $
            (282,732
            )Adjustments
      for:Amortization of
      property, plant and equipment
            
            
            118,354
            
            
            
            94,250
            
            
            
            293,061
            
            
            
            223,917Interest
      expense on financial liability carried at amortized cost
            
            
            158
            
            
            
            3,665
            
            
            
            1,950
            
            
            
            12,700Accretion of
      interest expense on Series I Shares
            
            
            26,098
            
            
            
            25,935
            
            
            
            80,140
            
            
            
            73,890202,577
            
            
            
            43,910
            
            
            
            677,810
            
            
            
            27,775Increase
      (decrease) in non-cash working capital items
            
            
            219,357
            
            
            
            (229,066
            )
            
            
            122,418
            
            
            
            (824,723
            )Discontinued
      operations (Note 4)
            
            
            (172,576
            )
            
            
            (335,860
            )
            
            
            (171,199
            )
            
            
            (510,153
            )249,358
            
            
            
            (521,016
            )
            
            
            629,029
            
            
            
            (1,307,101
            )Cash Flows used in Investing
      ActivitiesAdditions to
      property and equipment
            
            
            (81,426
            )
            
            
            (125,230
            )
            
            
            (215,647
            )
            
            
            (970,653
            )Additions to
      other intangible assets
            
            
            (2,907
            )
            
            
            (404
            )
            
            
            (8,205
            )
            
            
            (403
            )(84,333
            )
            
            
            (125,634
            )
            
            
            (223,852
            )
            
            
            (971,056
            )Cash
      Flows used in Financing ActivitiesRepayment of
      long-term debt
            
            
            (48,335
            )
            
            
            (104,100
            )
            
            
            (145,023
            )
            
            
            (153,374
            )(48,335
            )
            
            
            (104,100
            )
            
            
            (145,023
            )
            
            
            (153,374
            )Effect
      of foreign currency exchange rate changes on cash and cash
      equivalents
            
            
            (97,428
            )
            
            
            168,044
            
            
            
            (157,953
            )
            
            
            581,429Increase
      (decrease) in cash and cash equivalents
            
            
            19,262
            
            
            
            (582,706
            )
            
            
            102,201
            
            
            
            (1,850,102
            )Cash
      and cash equivalents, beginning of the period
            
            
            2,373,944
            
            
            
            2,760,732
            
            
            
            2,291,005
            
            
            
            4,028,128Cash
      and cash equivalents, end of the period
            
            $
            2,393,206
            
            
            $
            2,178,026
            
            
            $
            2,393,206
            
            
            $
            2,178,026






The accompanying notes are an
integral part of these consolidated financial
statements.


7


MED-EMERG
INTERNATIONAL INC


Notes
to Unaudited Interim Consolidated Financial Statements


For
the Three and Nine Months ended September 30, 2008 and 2007





1.
ORGANIZATION AND DESCRIPTION OF BUSINESS





Med-Emerg
International Inc. (“MedEmerg or the “Company”) provides quality healthcare
solutions to the Canadian healthcare industry.





The
Company is publicly traded and listed on the OTC Bulletin Board. The Company
completed its initial public offering in February 1998.





The
Company’s operations are carried out in three units: Staffing Solutions,
Infusion Services and Pain Management Services.  Prior to 2008 the
Company also provided Healthcare Consulting Services and prior to 2005 was
involved in Government Healthcare Services (including Department of National
Defence “DND”). See Discontinued Operations - Note 4.





For
Staffing Solutions, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals and
federal corrections facilities, on a contractual basis, and physician and nurse
practitioners to select long-term facilities in Ontario. At September 30, 2008,
the Company had more than 40 physician and nurse staffing contracts in
approximately 35 facilities across Ontario.





The
Infusion Services division provides special access RemicadeTM infusion
services to patients suffering from a variety of inflammatory disorders
including Crohn’s disease and rheumatoid arthritis, at clinic locations across
Ontario and Quebec.





The
Pain Management business was launched in November 2004, when the Company
acquired a pain management clinic and commenced offering services to
Toronto-area residents who experience chronic pain.  Since then, ten
additional clinics have opened.





2.
BASIS OF PRESENTATION





The
accompanying consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (GAAP). These
consolidated financial statements consolidate the accounts of MedEmerg its
wholly-owned subsidiaries: Med-Emerg Inc., CPM Health Centres Inc. and CIM
Centres d'interventions de médicales inc.





Significant
intercompany accounts and transactions have been eliminated on
consolidation.





The
consolidated financial statements are expressed in U.S. dollars. Differences
between Canadian and United States accounting principles are described in Note
8.





In the
opinion of management, the unaudited interim consolidated financial statements
follow the same accounting policies and methods of application as the most
recent audited annual financial statements.





Operating
results for the interim periods are not necessarily indicative of the results
that may be expected for the year ending December 31, 2008.





These
unaudited consolidated financial statements are condensed, and do not include
all disclosures required for annual financial statements, which are contained in
the notes to the Company’s audited consolidated financial statements filed as
part of the Company’s Annual Report on Form 10-K for the year ended December 31,
2007 (the “2007 Annual Report”). These unaudited consolidated financial
statements, footnote disclosures and other information should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the 2007 Annual Report.





8


3.
SUMMARY OF SIGNIFICANT CHANGES IN ACCOUNTING POLICIES





(a)
            Deferred
      start-up costs





In the
fourth quarter of 2007 the Company changed the manner in which it accounted for
pre-operating expenses.  In the first three quarters of 2007, the
Company applied EIC 27 with respect to the capitalization and amortization of
costs associated with the pre-operating period of the Company’s pain management
centers.  Given the Company’s continued losses in the pain management
business, it was determined in the fourth quarter of 2007 that it was
appropriate to expense the costs in the period in which they were
incurred.  The comparative results presented for the three and nine month
periods ended September 30, 2007, include expenses of approximately $25,000 and
$111,000 respectively that were previously deferred.  The change in
policy had no impact on the results under U.S. GAAP as the costs were recorded
as expenses in the period incurred.





(b)
            Financial
      instruments - disclosures





On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook.   This Section replaces the disclosure requirements of
the previous Section 3861 “Financial Instruments - Disclosure and
Presentation”and
converges with International Financial Reporting Standard IFRS 7. The new
disclosure standard increases the emphasis on the risks associated with both
recognized and unrecognized financial instruments and how those risks are
managed. The new presentation standard carries forward the former presentation
requirements.





The
Company determined that there was no impact to its financial statement
presentation from the adoption Section 3862 of the CICA Handbook.





(c)
            Financial
      instruments - presentation





On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook.  This Section is consistent with
the previous CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.





The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 3863 of the CICA
Handbook.





(d)
            Going
      concern





On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook.  Section 1400
was amended to include the requirements for assessing and disclosing an entity’s
ability to continue as a going concern from International Financial Reporting
Standard IAS 1.





The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 1400 of the CICA
Handbook.





(e)
            Capital
      disclosure





On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook.  This Section requires disclosure about capital and is
harmonized with recently amended International Financial Reporting Standard IAS
1.  The standard is applicable to all entities, regardless of whether
they have financial instruments.  Entities are required to disclose
information about its objectives, policies and processes for managing capital,
as well as its compliance with any externally imposed capital requirements,
where they may exist.




The Company’s disclosures now conform to this
Section 1535 of the CICA Handbook.





9







(f)
            Future
      accounting policies





(1)
            Goodwill
      and intangible assets





In
February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
replacing Section 3062, Goodwill and Other Intangible Assets. Various changes
have been made to other sections of the CICA Handbook for consistency purposes.
The new Section will be applicable to financial statements relating to fiscal
years beginning on or after October 1, 2008. Accordingly, the Company will adopt
the new standards for its fiscal year beginning January 1, 2009. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition, and of intangible
assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The Company
is currently evaluating the impact of the adoption of this new Section on its
consolidated financial statements. The Company does not expect that the adoption
of this new Section will have a material impact on its consolidated financial
statements.





(2)
            International
      Financial Reporting Standards





In
2006, Canada’s Accounting Standards Board ratified a strategic plan that will
result in Canadian GAAP, as used by publicly accountable enterprises, being
fully converged with International Financial Reporting Standards as issued by
the International Accounting Standards Board (“IFRS-IASB”) over a transitional
period to be complete by 2011.  The Company will be required to report
using the converged standards effective for interim and annual financial
statements relating to fiscal years beginning no later than on or after January
1, 2011, the date which the Company has selected for adoption.





Canadian
GAAP will be fully converged with IFRS-IASB through a combination of two
methods, as current joint-convergence projects of the United States Financial
Accounting Standards Boards and the International Accounting Standards Board are
agreed upon, they will be adopted by Canada’s Accounting Standards Board and may
be introduced in Canada before the publicly accountable enterprises’ transition
date to IFRS-IASB, and standards not subject to joint-convergence project will
be exposed in an omnibus manner for introduction at the time of the publicly
accountable enterprises’ transition date to IFRS-IASB.





The
International Accounting Standards Board currently, and expectedly, has projects
underway that are expected to result in new pronouncements that continue to
evolve IFRS-IASB, and, as a result, IFRS-IASB as at the transition date is
expected to differ from its current form.





The
Company is in the process of assessing the impacts on itself of the Canadian
convergence initiative.  There are several phases that the Company
will have to complete on the path to changing over to IFRS-IASB:


•
            The
      initial impact assessment and scoping phase includes the identification of
      significant differences between existing Canadian GAAP and IFRS-IASB as
      relevant to the Company’s specific
instance;


•
            The
      following key elements phase includes the identification, evaluation and
      selection of accounting policies necessary for the Company to changeover
      to IFRS-IASB.  As well, this phase includes other operational
      elements such as information technology, internal control over financial
      reporting and training; and


•
            The
      subsequent embedding phase will integrate the solutions into the Company’s
      underlying financial system and processes that are necessary for the
      Company to changeover to IFRS-IASB.






10





The
      Company is required to qualitatively disclose its changeover impacts in
      conjunction with its 2008 and 2009 financial reporting.  As
      activities progress, the specificity of the disclosure of pre- and
      post-IFRS-IASB changeover accounting policy differences is expected to
      increase.





In the
fiscal year immediately prior to the fiscal year in which the Company commences
reporting under IFRS-IASB the Company will, effectively, have to maintain two
parallel books of account:  one set of books of account will be
prepared using the contemporary version of Canadian GAAP and would be used for
contemporaneous reporting; one set of books of account will be prepared using
contemporary IFRS-IASB and would be used for presenting results as supplementary
disclosures during the fiscal year prior to, and reporting of comparative
amounts for the first fiscal year subsequent to, when the Company’s changeover
to IFRS-IASB occurs.





Initial impact assessment and
      scoping phase - status: Currently underway, it is anticipated that
      this phase will identify a modest number of topics possibly impacting
      either the Company’s financial results and/or the Company’s effort
      necessary to changeover to IFRS-IASB.  The IASB has activities
      currently underway which may, or will, change IFRS-IASB and such change
      may, or will, impact the Company; the Company will assess any such change
      as a component of its key elements
phase.





Key elements phase - status:The Company expects to address this phase in 2009.  This phase
will consider the impact on operational elements such as information technology
and internal control over financial reporting.





Although
its impact assessment activities are underway and progressing according to plan,
continued progress is necessary before the Company can prudently increase the
specificity of the disclosure of pre- and post-IFRS-IASB changeover accounting
policy differences.





4.
DISCONTINUED OPERATIONS





Family
Medical Clinics Sale





In
2003 the Company sold its Family Medical Clinic operations, comprised of 16
clinics.





Ownership
of two of the family medical clinics sold in 2003 reverted to the Company in
2005.  During 2007 the Company disposed of these assets.





Government
Healthcare Services (including Department of National Defence)





In
March of 2001, the Company was awarded an administrative management services
contract (“the Contract”), the largest of its kind, to provide medical staffing
for military bases of the Department of National Defence (“DND”) across Canada.
The Contract had an initial period of three years ending on March 31, 2004, but
it was amended and extended until March 31, 2005.





In May
2004, Public Works and Government Services Canada (“PWGSC”) re-tendered the
Contract.  Med-Emerg responded to the tender proposal and its bid was
one of three considered by PWGSC (“the New Contract”).  In December
2004 Med-Emerg learned that it was not successful in its bid to win the New
Contract with DND.  Its contractual relationship with the Canadian
government for DND medical staffing services ended on March 31, 2005.








11








Healthcare
Consulting





In
February 2008, the Healthcare Consulting division was restructured and the
Company decided to not pursue further health human resource planning
contracts.  Accordingly the results of the Healthcare Consulting
business have been reclassified as discontinued operations.





The
income from discontinued operations for the nine months ended September 30,
2008, is comprised of a loss from the Family Medical Clinics of $6,234 (2007 -
$182,269), income from the DND Contract of $363 (2007 - income of $3,793), and
income from Healthcare Consulting of $46,770 (2007 - a loss of
$342,585).  For the three months ended September 30, 2008, the income
is comprised of a loss of $nil from the Family Medical Clinics (2007 - $57,060),
a loss of $nil from the DND contract (2007 - $148) and income from Healthcare
Consulting of $10,884 (2007 - a loss of $100,204).




THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Revenue
            
            $
            271,948
            
            
            $
            389,176
            
            
            $
            877,136
            
            
            $
            1,072,808Physician
      fees and other direct costs
            
            
            5,789
            
            
            
            145,132
            
            
            
            (3,682
            )
            
            
            423,750Gross
      margin
            
            
            266,159
            
            
            
            244,044
            
            
            
            880,818
            
            
            
            649,058Operating,
      general and administrativeexpenses
            
            
            236,516
            
            
            
            381,590
            
            
            
            798,919
            
            
            
            1,149,343Amortization
            
            
            7,549
            
            
            
            6,549
            
            
            
            20,112
            
            
            
            18,705Interest
      and other  expenses
            
            
            11,210
            
            
            
            13,317
            
            
            
            20,888
            
            
            
            2,071Income
      (loss) from discontinued operations
            
            $
            10,884
            
            
            $
            (157,412
            )
            
            $
            40,899
            
            
            $
            (521,061
            )




Results
of discontinued operations for 2007 have been adjusted to reflect the impact of
the decision taken in February 2008 to discontinue the Healthcare Consulting
business.  The adjustment had the following impact on the 2007
results:




THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30, 2007
            
            
            September
      30, 2007(as
      previously
            
            
            (as
      adjusted)
            
            
            (as
      previously
            
            
            (as
      adjusted)reported)
            
            
            
            
            
            reported)Revenue
            
            $
            144,993
            
            
            $
            389,176
            
            
            $
            479,461
            
            
            $
            1,072,808Physician
      fees and other direct costs
            
            
            81,652
            
            
            
            145,132
            
            
            
            244,704
            
            
            
            423,750Gross
      margin
            
            
            63,341
            
            
            
            244,044
            
            
            
            234,757
            
            
            
            649,058Operating,
      general and administrative expenses
            
            
            124,963
            
            
            
            381,590
            
            
            
            421,207
            
            
            
            1,149,343Amortization
            
            
            -
            
            
            
            6,549
            
            
            
            -
            
            
            
            18,705Other
      expenses
            
            
            (4,413
            )
            
            
            13,317
            
            
            
            (7,974
            )
            
            
            2,071Loss
      from discontinued operations
            
            $
            (57,209
            )
            
            $
            (157,412
            )
            
            $
            (178,476
            )
            
            $
            (521,061
            )








12


The
following summarizes the Balance Sheet for discontinued operations as
at:


September
      30
            
            
            December
      31,2008
            
            
            2007AssetsCurrentAccounts
      receivable
            
            $
            101,694
            
            
            $
            -LiabilitiesCurrentAccounts
      payable and accrued liabilities
            
            $
            31,162
            
            
            $
            296,007Deferred
      revenue
            
            
            143,246
            
            
            
            -174,408
            
            
            
            296,007Net
      liabilities
            
            $
            (72,714
            )
            
            $
            (296,007
            )




The accounts payable and accrued liabilities pertains to the
Goods and Services Tax (“GST”) which is payable over a period of five years, as
per an agreement between the Company and the Canada Revenue Agency
(“CRA”).  The GST obligation arose on revenues associated with the DND
contract.  An amount of $29,420 (CDN$30,000) is payable monthly and is
reviewable every six months. The CRA has the right to register a Lien under the
Personal Property Security Act with the Province of Ontario to secure its
position.





5.
FUTURE INCOME TAXES





The
Company continues to fully recognize its tax benefits which are offset by a
valuation allowance to the extent that, it is not more likely than not that, the
deferred tax assets will be realized. As at September 30, 2008, the Company had
unrecognized tax benefits of approximately $1,970,000 (2007 - $3,200,000)
associated with non-capital losses carried forward and tax pools of
approximately $5,800,000 (2007 - $9,500,000) expiring in varying amounts from
2008 to 2028.  In addition the Company has property and equipment tax
pools in excess of the net book value totaling approximately $200,000 (2007 -
$353,000) available to reduce taxable income and which are not subject to
expiry.





The
Company files federal and provincial income tax returns in
Canada.  The Company is generally no longer subject to income tax
examinations by provincial and Federal tax authorities for years before
2005.





The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the nine months
ended September 30, 2008 and 2007, there were no such interest or
penalties.





6.
REDEEMABLE, CONVERTIBLE SERIES I SPECIAL SHARES





On July
11, 2006, the Company executed definitive agreements with Calian Technologies
Ltd. (“Calian”) for the private placement of 8,750,000 shares of the Company’s
newly designated Series I Special Shares (the “Series I Shares”) for aggregate
gross proceeds to the Company of CDN$3.5 million ($3.1 million).  The
Series I Shares have a term of five years.





The
Series I Shares are, at the option of the holder, convertible at any time into
the Company’s Common Shares, at an initial conversion rate of one Common Share
for each Series I Share, subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger. Commencing
on the second anniversary of issuance, the Company is entitled to require the
conversion of outstanding Series I Shares at the applicable conversion rate,
provided that the following conditions are satisfied: (i) the volume weighted
average trading price (VWAP) of the Company’s Common Share on the principal
exchange or market (including the OTC Bulletin Board) on which the Common Shares
are traded or quoted is greater than or equal to $0.46 (as may be adjusted in
respect of any stock split) during any 60 consecutive calendar day period, (ii)
the total volume of Common Shares traded over such period exceeds
600,000 shares (as adjusted to reflect any stock splits), and (iii) the Company
delivers written notice of such conversion to the holders of the Series I Shares
within 10 days of the satisfaction of the above conditions. The Company's right
to require such conversion is further subject to there being an effective
registration statement at the time covering the resale of the Common Shares
underlying the Series I Shares.  If not converted into Common Shares
prior to the fifth anniversary of issuance, the Series I Shares are
automatically redeemable at the sole discretion of the Company in either (a)
cash at a rate of $0.45 per share or (b) in Common Shares of the Company based
on the VWAP of the Common Shares of the Company during the sixty (60)
consecutive calendar day period immediately preceding the fifth
anniversary.  In the event of a change in control, the Series I Shares
are also required to be redeemed in cash at a rate of $0.45 per
share.  The mandatory redemption and conversion features of the Series
I Shares result in the classification of separate liability and equity
components of the Series I Shares.





13


The
Series I Shares have been accounted for as a compound financial instrument
consisting of both a financial liability and equity component.  The
proceeds of the Series I Shares were allocated to the two components based on
the present value of the future redemption value of the Series I Shares,
discounted at a reasonable rate of return, considering the terms of the
investment that could be earned by the holder of the Series I
Shares.





On
October 22, 2008, the Company announced that it had entered into a definitive
agreement pursuant to which it will merge with the AIM Health Group Inc. (“AIM”)
in an all-stock transaction.  (See Note 13(a) - Subsequent
Events).  As part of this transaction, Calian, the sole holder of
Series I Special Shares of MedEmerg, will exchange all of such shares for a
convertible debenture of AIM in the principal amount of Cdn$3,896,900
(US$3,661,917).  On completion of the transaction a charge of
US$,647,467 will be made to earnings.





7.
RELATED PARTY TRANSACTIONS





There
were no related party transactions during the period and there are no related
party balances outstanding at September 30, 2008 or December 31,
2007.





8.
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES





These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”) which, in
most respects, conforms to accounting principles generally accepted in the
United States of America (“U.S. GAAP”).  The significant differences
in those principles, as they apply to the Company’s balance sheets, statements
of operations, comprehensive income (loss), accumulated other comprehensive
income (loss), and cash flows, are described below.





Reconciliation
of Net Earnings under Canadian GAAP to US GAAP


THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income (loss) - Canadian GAAP
            
            $
            68,851
            
            
            $
            (237,352
            )
            
            $
            343,558
            
            
            $
            (803,793
            )Impact
      of accretion expense (Note 8(a))
            
            
            26,095
            
            
            
            25,935
            
            
            
            80,139
            
            
            
            73,890Interest
      expense on financial liability carried at amortized cost (Note
      8(e))
            
            
            158
            
            
            
            3,665
            
            
            
            1,950
            
            
            
            12,701Net
      income (loss) - U.S. GAAP
            
            $
            95,104
            
            
            $
            (207,752
            )
            
            $
            425,647
            
            
            $
            (717,202
            )







14


Consolidated
Statement of Earnings - U.S. GAAP


September
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Revenue
            
            $
            6,177,030
            
            
            $
            5,513,221
            
            
            $
            17,773,072
            
            
            $
            15,587,493Physician
      fees and other direct costs
            
            
            4,013,419
            
            
            
            3,963,251
            
            
            
            11,856,685
            
            
            
            11,225,5052,163,611
            
            
            
            1,549,970
            
            
            
            5,916,387
            
            
            
            4,361,988ExpensesSalaries and
      benefits
            
            
            1,000,712
            
            
            
            830,938
            
            
            
            2,764,410
            
            
            
            2,419,474General
      and administration
            
            
            590,482
            
            
            
            407,771
            
            
            
            1,425,930
            
            
            
            1,196,366256,241
            
            
            
            214,934
            
            
            
            726,732
            
            
            
            525,334Occupancy costs
      and suppliesTravel
      and marketing
            
            
            121,959
            
            
            
            85,506
            
            
            
            355,342
            
            
            
            250,809Interest
      (income) expense, net of bank charges
            
            
            (6,654
            )
            
            
            (27,814
            )
            
            
            (27,935
            )
            
            
            (73,520
            )Interest on
      long-term debt
            
            
            4,819
            
            
            
            1,209
            
            
            
            14,133
            
            
            
            34,222Amortization of
      property and equipment
            
            
            118,354
            
            
            
            94,250
            
            
            
            293,061
            
            
            
            223,9172,085,913
            
            
            
            1,606,794
            
            
            
            5,551,673
            
            
            
            4,576,602Income
      (loss) before discontinued operations
            
            
            77,698
            
            
            
            (56,824
            )
            
            
            364,714
            
            
            
            (214,614
            )Net
      income (loss) from discontinued operations
            
            
            17,406
            
            
            
            (150,928
            )
            
            
            60,934
            
            
            
            (502,588
            )Net
      income (loss) attributable to common shareholders - U.S.
    GAAP
            
            $
            95,104
            
            
            $
            (207,752
            )
            
            $
            425,647
            
            
            $
            (717,202
            )Net
      income (loss) per share, basic and diluted - U.S. GAAPContinuing
      operations
            
            $
            0.001
            
            
            $
            (0.001
            )
            
            $
            0.006
            
            
            $
            (0.004
            )Discontinued
      operations
            
            $
            0.000
            
            
            $
            (0.003
            )
            
            $
            0.001
            
            
            $
            (0.009
            )$
            0.001
            
            
            $
            (0.004
            )
            
            $
            0.007
            
            
            $
            (0.013
            )Weighted
      average common shares and share equivalents, basic
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696
            
            
            
            58,277,696Income
      (loss) per common share, dilutedContinuing
      operations
            
            $
            0.001
            
            
            $
            (0.001
            )
            
            $
            0.005
            
            
            $
            (0.004
            )Discontinued
      operations
            
            $
            0.000
            
            
            $
            (0.003
            )
            
            $
            0.001
            
            
            $
            (0.009
            )$
            0.001
            
            
            $
            (0.004
            )
            
            $
            0.006
            
            
            $
            (0.013
            )Weighted
      average common shares and share equivalents, diluted
            
            
            67,027,696
            
            
            
            58,277,696
            
            
            
            67,027,696
            
            
            
            58,277,696








Consolidated
Statement of Accumulated Other Comprehensive Income (loss) - U.S.
GAAP


THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income (loss) - U.S. GAAP
            
            $
            95,104
            
            
            $
            (207,752
            )
            
            $
            425,647
            
            
            $
            (717,202
            )Foreign
      currency translation adjustment
            
            
            (172,613
            )
            
            
            356,131
            
            
            
            (282,008
            )
            
            
            583,455Comprehensive
      loss (income)
            
            $
            (77,508
            )
            
            $
            148,379
            
            
            $
            143,639
            
            
            $
            (133,747
            )








Consolidated
Statement of Accumulated Other Comprehensive Income (loss) - U.S.
GAAP


THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Accumulated
      other comprehensive loss, beginning of period
            
            $
            (427,374
            )
            
            $
            (705,705
            )
            
            $
            (317,979
            )
            
            $
            (933,029
            )Other
      comprehensive (loss) income
            
            
            (172,613
            )
            
            
            356,131
            
            
            
            (282,008
            )
            
            
            583,455Accumulated
      other comprehensive loss, end of period
            
            $
            (599,987
            )
            
            $
            (349,574
            )
            
            $
            (599,987
            )
            
            $
            (349,574
            )









15


Consolidated
Balance Sheets


As
      At September 30, 2008
            
            
            As
      At December 31, 2007As
      reported
            
            
            U.S.
      GAAP
            
            
            As
      reported
            
            
            U.S.
      GAAPCurrent
      assetsCash
            
            $
            2,393,206
            
            
            $
            2,393,206
            
            
            $
            2,291,005
            
            
            $
            2,291,005Accounts
      receivable
            
            
            3,251,364
            
            
            
            3,251,364
            
            
            
            3,149,967
            
            
            
            3,149,967Prepaid
      expenses and other
            
            
            274,538
            
            
            
            274,538
            
            
            
            525,978
            
            
            
            525,978Discontinued
      operations
            
            
            101,694
            
            
            
            101,694
            
            
            
            -
            
            
            
            -6,020,802
            
            
            
            6,020,802
            
            
            
            5,966,950
            
            
            
            5,966,950Property
      and equipment
            
            
            1,150,713
            
            
            
            1,150,713
            
            
            
            1,314,849
            
            
            
            1,314,849Goodwill
            
            
            237,596
            
            
            
            237,596
            
            
            
            237,596
            
            
            
            237,596Other
      intangible assets
            
            
            17,357
            
            
            
            17,357
            
            
            
            9,152
            
            
            
            9,152$
            7,426,468
            
            
            $
            7,426,468
            
            
            $
            7,528,547
            
            
            $
            7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 8(e))
            
            $
            2,575,871
            
            
            $
            2,577,908
            
            
            $
            2,506,416
            
            
            $
            2,507,665Deferred
      revenue
            
            
            213,268
            
            
            
            213,268
            
            
            
            247,189
            
            
            
            247,189Current
      portion of long-term debt
            
            
            300,003
            
            
            
            300,003
            
            
            
            445,026
            
            
            
            445,026Discontinued
      operations
            
            
            174,408
            
            
            
            174,408
            
            
            
            296,007
            
            
            
            296,0073,263,550
            
            
            
            3,265,587
            
            
            
            3,494,638
            
            
            
            3,495,887Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Note 8(a))
            
            
            3,014,450
            
            
            
            -
            
            
            
            3,153,689
            
            
            
            -3,014,450
            
            
            
            -
            
            
            
            3,153,689
            
            
            
            -6,278,000
            
            
            
            3,265,587
            
            
            
            6,648,327
            
            
            
            3,495,887Series
      1 Special Shares (Note 8(a))
            
            
            -
            
            
            
            3,106,475
            
            
            
            -
            
            
            
            3,106,475SHAREHOLDERS'
      EQUITYCapital
      stock (Notes 8 (a, b, c))
            
            
            16,420,668
            
            
            
            16,990,091
            
            
            
            16,420,668
            
            
            
            16,990,091Contributed
      surplus (Note 8 ( c ))
            
            
            3,106,792
            
            
            
            3,143,198
            
            
            
            3,106,792
            
            
            
            3,143,198Deficit
      (Notes 8 (a, b, e))
            
            
            (17,605,992
            )
            
            
            (18,478,895
            )
            
            
            (17,949,550
            )
            
            
            (18,889,125
            )Accumulated
      other comprehensive loss (Note 8 (f))
            
            
            (773,000
            )
            
            
            (599,988
            )
            
            
            (697,690
            )
            
            
            (317,979
            )1,148,468
            
            
            
            1,054,406
            
            
            
            880,220
            
            
            
            926,185$
            7,426,468
            
            
            $
            7,426,468
            
            
            $
            7,528,547
            
            
            $
            7,528,547









16


Consolidated
Statement of Cash Flows





THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      activitiesNet
      income (loss) attributable to common shareholders
            
            $
            95,104
            
            
            $
            (207,752
            )
            
            $
            425,647
            
            
            $
            (717,202
            )Adjustments
      for:Amortization of
      property and equipment
            
            
            118,354
            
            
            
            94,251
            
            
            
            293,061
            
            
            
            223,917213,458
            
            
            
            (113,501
            )
            
            
            718,708
            
            
            
            (493,285
            )Decrease in
      non-cash working capital components
            
            
            219,357
            
            
            
            (229,066
            )
            
            
            122,418
            
            
            
            (824,723
            )Discontinued
      operations non-cash working capital components
            
            
            (183,457
            )
            
            
            (178,449
            )
            
            
            (212,097
            )
            
            
            10,907249,358
            
            
            
            (521,016
            )
            
            
            629,029
            
            
            
            (1,307,101
            )Cash
      Flows used in Investing ActivitiesAdditions to
      property, plant, and equipment
            
            
            (81,426
            )
            
            
            (125,230
            )
            
            
            (215,647
            )
            
            
            (970,653
            )Additions to
      other intangible assets
            
            
            (2,907
            )
            
            
            (404
            )
            
            
            (8,205
            )
            
            
            (403
            )(84,333
            )
            
            
            (125,634
            )
            
            
            (223,852
            )
            
            
            (971,056
            )Cash
      Flows used in Financing ActivitiesRepayment of
      long-term debt
            
            
            (48,335
            )
            
            
            (104,100
            )
            
            
            (145,023
            )
            
            
            (153,374
            )(48,335
            )
            
            
            (104,100
            )
            
            
            (145,023
            )
            
            
            (153,374
            )Effect
      of foreign currency exchange rate changes on cash and cash
      equivalents
            
            
            (97,428
            )
            
            
            168,044
            
            
            
            (157,953
            )
            
            
            581,429Increase
      (decrease) in cash and cash equivalents
            
            
            19,262
            
            
            
            (582,706
            )
            
            
            102,201
            
            
            
            (1,850,102
            )Cash
      and cash equivalents, beginning of the period
            
            
            2,373,944
            
            
            
            2,760,732
            
            
            
            2,291,005
            
            
            
            4,028,128Cash
      and cash equivalents, end of the period
            
            $
            2,393,206
            
            
            $
            2,178,026
            
            
            $
            2,393,206
            
            
            $
            2,178,026




(a)           Redeemable,
convertible Series I Special Shares





The
Series I Shares are accounted for as a compound financial instrument comprising
both a financial liability and equity under Canadian GAAP, because of their
underlying terms and conditions, which include a mandatory redemption feature.
Under U.S. GAAP, EITF Abstract Topic D-98 Classification and Measurement of
Redeemable Securitiesrecommends that shares that are redeemable for cash
based on an occurrence of events outside of the control of the company should be
classified outside of shareholders’ equity. The Series I Shares, which are
redeemable for cash in the event of a change in control, are presented outside
of shareholders’ equity for U.S. GAAP purposes. At this time it is management’s
intention to redeem the Series I Shares through the issuance of common shares,
subject to Calian’s proposed exchange of the Series I Shares for Convertible
Debentures in connection with the proposed merger with AIM.  (See Note
13(a) - Subsequent Events).


.





As a
result of accounting for the Series I Shares as a compound financial instrument
under Canadian GAAP, the liability component is accreted to the face value of
the shares over the five year period to maturity.  As the Series I
Shares are not a liability for U.S. GAAP purposes the accretion expense charged
to net income for the period under Canadian GAAP is reversed for U.S. GAAP
purposes.  Furthermore, since under U.S. GAAP the Series I Shares are
“quasi-equity” the face value is adjusted to the initial U.S. dollar value on
issuance and the foreign currency translation adjustment recorded under Canadian
GAAP relating to the liability component is reversed for U.S. GAAP
purposes.






17





The
reconciliation of Canadian to U.S. GAAP for the Series I Shares is as
follows:


September
      30
            
            
            December
      312008
            
            
            2007Liability
      portion of redeemable, convertible Series 1 Shares - Canadian
      GAAP
            
            $
            3,014,450
            
            
            $
            3,153,689Impact
      of accretion expense
            
            
            (216,919
            )
            
            
            (149,546
            )Equity
      portion of redeemable, convertible Series 1 Shares
            
            
            482,043
            
            
            
            482,043Translation
      adjustment attributable to Series 1 Shares
            
            
            (173,100
            )
            
            
            (379,711
            )Series
      1 Shares - U.S. GAAP
            
            $
            3,106,475
            
            
            $
            3,106,475




As
discussed in note six, there will be a charge to earnings of $555,442 during the
fourth quarter of 2008.





(b)           Share
capital, goodwill and correction of prior period error





Under
Canadian GAAP, the purchase price of an acquisition is determined based on the
share price on the date the transaction is consummated. Under U.S. GAAP, the
purchase price of an acquisition where shares are issued 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 in
1999 under Canadian GAAP was $1.25. The share price used for the YFMC Healthcare
Inc. acquisition under U.S. GAAP was $1.859. The difference was allocated to
goodwill at that time and, subsequently, the goodwill was impaired and
written-off.





(c)           Stock
purchase warrants





Under
U.S. GAAP, detachable stock purchase warrants are given separate recognition
from the primary security issued.  Upon initial recognition, the
carrying amount of the two securities is allocated based on the relative fair
values at the date of issuance.  Under Canadian GAAP, the detachable
stock purchase warrants issued in conjunction with the private stock offering on
January 22, 1996 and subsequently surrendered, have been given no recognition in
the consolidated financial statements. Under U.S. GAAP, based on an ascribed
fair value of $0.364 for each of the 1,000,000 share purchase warrants issued,
share capital would be lower by $36,406 and, given that the share purchase
warrants were cancelled, the carrying amount of contributed surplus would be
increased by $36,406.





(d)           Accounting
for income taxes





On
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The interpretation
requires that the Company recognize the impact of a tax position in the
financial statements if that position is more likely than not to be sustained on
audit, based on the technical merits of the position. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods and disclosure. In accordance with the provisions of FIN 48,
any cumulative effect resulting from the change in accounting principle is to be
recorded as an adjustment to the opening balance of deficit. The adoption of FIN
48 did not result in a material impact on the Company’s financial position or
results of operations.





Under
U.S. GAAP enacted tax rates are used to calculate deferred taxes, whereas
Canadian GAAP uses substantively enacted tax rates.  The future income
tax adjustments included in the reconciliation of net earnings under Canadian
GAAP to U.S. GAAP and the balance sheet effects include the effect of such
rate-differences, if any, as well as the tax effect of the other reconciling
items noted.





18


(e)           Financial
instruments - recognition and measurement





On
January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
and Measurement”. It describes the standards for recognizing and measuring
financial instruments in the balance sheet and the standards for reporting gains
and losses in the financial statements. Financial assets available for sale,
assets and liabilities held for trading and derivative financial instruments,
whether part of a hedging relationship or not, have to be measured at fair
value.  The adoption of this Section was done retroactively without
restatement of the consolidated financial statements of prior periods. As at
January 1, 2007, the impact on the consolidated balance sheet of measuring the
financial assets and liabilities using the effective interest rate method was a
decrease in accounts payable and opening deficit of $16,972, of which $1,950 was
amortized to earnings during the nine months ended September 30, 2008 (2007 -
$12,701).  U.S. GAAP does not require a similar measurement of
financial instruments.





(f)           Comprehensive
loss





Statement
of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for reporting and display of comprehensive
income and its components in the consolidated financial
statements.  Under U.S. GAAP the foreign currency translation
adjustment recorded for the period and included in the cumulative translation
adjustment in shareholders’ equity is included in comprehensive income
(loss).  The foreign currency translation adjustments are not
currently adjusted for income taxes. The company is situated in Canada, and the
foreign currency translation adjustments relate to the translation of the
consolidated financial statements from Canadian dollars into United States
dollars, solely for the convenience of the readers.





19


The
effect of these accounting differences on capital stock, contributed surplus,
deficit and cumulative translation adjustment are as follows:





September
      30
            
            
            December
      312008
            
            
            2007Capital
      stock - Canadian GAAP
            
            $
            16,420,668
            
            
            $
            16,420,668Capital
      stock issued on purchase of YFMC Healthcare Inc. (Note
    8(b))
            
            
            1,087,872
            
            
            
            1,087,872Ascribed
      fair value of share purchase warrants issued (Note 8( c ))
            
            
            (36,406
            )
            
            
            (36,406
            )Equity
      portion of redeemable Series I Shares (Note 8(a))
            
            
            (482,043
            )
            
            
            (482,043
            )Capital
      stock - U.S. GAAP
            
            $
            16,990,091
            
            
            $
            16,990,091Contributed
      surplus - Canadian GAAP
            
            $
            3,106,792
            
            
            $
            3,106,792Share
      purchase warrants (Note 8( c ))
            
            
            36,406
            
            
            
            36,406Contributed
      surplus - U.S. GAAP
            
            $
            3,143,198
            
            
            $
            3,143,198Deficit
      - Canadian GAAP
            
            $
            (17,605,992
            )
            
            $
            (17,949,550
            )Write-off
      of goodwill on purchase of YFMC Healthcare Inc. (Note
8(b))
            
            
            (1,087,872
            )
            
            
            (1,087,872
            )Impact
      of accretion expense (Note 8(a))
            
            
            216,919
            
            
            
            149,545Financial
      instruments - recognition and measurement (Note 8 (e))
            
            
            -
            
            
            
            (16,972
            )Interest
      expense on financial liability carried at amortized cost (Note 8
      (a))
            
            
            (1,950
            )
            
            
            15,724Deficit
      - U.S. GAAP
            
            $
            (18,478,895
            )
            
            $
            (18,889,125
            )Cumulative
      translation adjustment - Canadian GAAP
            
            $
            (773,000
            )
            
            $
            (697,690
            )Translation
      adjustment attributable to Series I  Shares (Note
      8(a))
            
            
            173,099
            
            
            
            379,711Cumulative
      translation adjustment - U.S. GAAP
            
            $
            (599,901
            )
            
            $
            (317,979
            )Shareholders'
      equity - U.S. GAAP
            
            $
            1,054,493
            
            
            $
            926,185




(g)           Recently
Issued Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. In February 2008, the FASB issued FSP 157-2, which extends the
effective date for adoption, related to non-financial assets and non-financial
liabilities, to fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years. Except for non-financial assets and
non-financial liabilities subject to the deferral, the Company adopted SFAS 157
on January 1, 2008, with no impact on its financial statements.  The
Company does not expect the adoption of this standard with respect to
non-financial assets and non-financial liabilities subject to the deferral to
have a material impact on its financial statements.





In
February 2007, the FASB issued FASB No. 159, The Fair Value for Financial Assets
and Financial Liabilities including an Amendment of FASB Statement No. 115(FASB 159).  FASB 159 permits entities to choose to measure
many financial instruments and certain other items at fair value.  The
provisions of SFAS 159 are effective for fiscal years beginning after November
15, 2007.  The adoption of FASB 159 on January 1, 2008 did not
materially effect the Company’s financial position or results of
operations.





In
December 2007, the FASB issued FASB No. 141R,Business Combinations (FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or
other events in which an entity obtains control of one or more businesses and
requires that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could
have an impact on its future consolidated financial statements when effective,
but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions consummated after the effective date
of FASB No. 141R.





20


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes accounting
and reporting standards that require the ownership interests in subsidiaries
held by parties other than the parent be clearly identified, labelled, and
presented in the consolidated statement of financial position within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in a parent’s ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for consistently;
when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value; and
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. The objective of the guidance is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. FAS 160 is effective
for fiscal years beginning on or after December 15, 2008. The Company does
not expect this standard to have a significant impact on its financial
statements upon adoption.





In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008.  The Company does not expect this
standard to have a significant impact on its financial statements upon
adoption.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.




In May
2008, the Financial Accounting Standards Board issued FASB Staff Position (FSP)
APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement),” to require issuers of
convertible debt to account separately for the liability and equity components
of these instruments if they have stated terms permitting cash settlement upon
conversion.  This practice marks a significant change from the current
accounting practice for convertible debt instruments in the scope of the
FSP.  Current practice does not require separation of the liability and
equity components of such instruments.  Separately accounting for these
instruments’ liability and equity components results in the recording of an
initial debt discount.  FSP APB 14-1 is effective for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal
years.  The Company intends to adopt FSP APB 14-1 effective January 1, 2009
and apply its provisions retrospectively to all periods presented in its
financial statements. The Company does not believe that the adoption of FSP APB
14-1 will have a significant effect on its financial statements.





21





9.
CONTINGENT LIABILITIES





(i)
            There
      is uncertainty with respect to the Company’s liability for Goods and
      Services Tax pertaining to certain services that it previously
      provided.  The measurement of this uncertainty is not
      determinable and management is of the view that it is not probable a
      liability will be confirmed.  No amount has been provided in
      these consolidated financial
statements.





(ii)
            There
      is uncertainty with respect to the Company’s liability arising from a
      contractual dispute with a third party.  The potential costs to
      the Company associated with this dispute range from $nil to $1.45
      million.  During the second quarter the Company received
      notification from the third party of a claim of $420,000 relating to a
      portion of the matters in dispute.  The Company has challenged the
      claim and continues to be of the view that it is not probable that the
      Company will be found liable for these costs. No amount has been provided
      in these consolidated financial
statements.





(iii)
            Claims
      have been made against the Company for unspecified damages in regards to a
      claim for wrongful dismissal and breach of contract.  The
      Company is of the view that liability, if any, would be the responsibility
      of a third party contractor and if damages were found, they would not be
      material in light of the current law.  Since management is of
      the opinion that the claim is unlikely to succeed, no provision has been
      made in respect thereof in these consolidated financial
      statements.





(iv)
            The
      Company sub-leased certain premises to third parties when it disposed of
      its clinic operations. In case of payment defaults by the third parties,
      the Company could be held liable for rent on these premises. Rent for
      these premises over the next five years, during the respective lease
      terms, totals approximately
$600,000.





(v)
            The
      Company is party to various claims and legal proceedings arising in
      the normal course of business.  While claims and litigation
      are subject to inherent uncertainties, management currently believes that
      the ultimate outcome of claims and proceedings, individually and in
      the aggregate, will not have a material adverse effect on our consolidated
      financial condition, results of operation or cash
  flows.





Any
liability resulting from the above will be reflected as a charge to income in
the year the liability, if any, is confirmed or can be estimated.





10.
CAPITAL DISCLOSURES


Carrying
            
            
            Contractual
            
            
            0
      to 12
            
            
            12
      to 24
            
            
            24
      to 48Amount
            
            
            Cash
      Flows
            
            
            Months
            
            
            Months
            
            
            MonthsAccounts
      payable and accrued liabilities
            
            $
            2,575,871
            
            
            $
            2,576,333
            
            
            $
            2,576,333
            
            
            $
            -
            
            
            $
            -Deferred
      revenue
            
            
            213,268
            
            
            
            213,268
            
            
            
            213,268
            
            
            
            -
            
            
            
            -Long-term
      debt
            
            
            300,003
            
            
            
            300,003
            
            
            
            300,003
            
            
            
            -
            
            
            
            -Discontinued
      operations, liability
            
            
            174,408
            
            
            
            174,408
            
            
            
            174,408
            
            
            
            -
            
            
            
            -Series
      I Shares
            
            
            3,014,450
            
            
            
            3,106,475
            
            
            
            -
            
            
            
            -
            
            
            
            3,106,475$
            6,278,000
            
            
            $
            6,370,487
            
            
            $
            3,264,012
            
            
            $
            -
            
            
            $
            3,106,475




The
Company’s objectives when managing capital are:


1.
            To
      safeguard the Company’s ability to obtain financing should the need
      arise;


2.
            To
      provide an adequate return to its shareholders;
  and


3.
            To
      maintain financial flexibility in order to enhance the access to capital
      in the event of future
acquisitions.







22


The
Company defines its capital as follows:


1.
            Shareholders’
      equity;


2.
            Series
      I special shares;


3.
            Long-term
      debt including current portion;


4.
            Liability
      portion of discontinued operations;


5.
            Deferred
      revenue including the current portion;
and


6.
            Accounts
      payable and accruals.





The
Company’s financial strategy is designed and formulated to maintain a flexible
capital structure consistent with the objectives stated above and to respond to
changes in economic conditions and the risk characteristics of the underlying
assets. The Company has limited its investments to short and mid-term assets to
ensure their liquidity matches its operational requirements.





The
Company monitors its capital on the basis of its net debt to adjusted capital
ratio.  The ratios at September 30, 2008 and December 31, 2007
were:




September
      30
            
            
            December
      312008
            
            
            2007Total
      debt
            
            $
            6,278,000
            
            
            $
            6,648,327Less:
      cash and cash equivalents
            
            
            2,393,206
            
            
            
            2,291,005Net
      debt
            
            $
            3,884,794
            
            
            $
            4,357,322Total
      equity
            
            $
            1,148,468
            
            
            $
            880,220Net
      debt to adjusted capital ratio
            
            
            3.38
            
            
            
            4.95




The
decrease in the net debt to adjusted capital ratio is the result of the earnings
in the first nine months of 2008.  The change in the ratio is in line
with Management’s expectation.








11.
SEGMENTED INFORMATION





The
Company operates under three business units: Staffing Solutions, Pain Management
Services, and Infusion Services.





23


The
segmented information for the business units are as follows:


THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007RevenueStaffing
      solutions
            
            $
            1,788,456
            
            
            $
            2,698,833
            
            
            $
            5,471,705
            
            
            $
            8,074,449Pain
      management services
            
            
            2,595,248
            
            
            
            1,717,911
            
            
            
            7,765,094
            
            
            
            4,424,337Infusion
      services
            
            
            1,793,326
            
            
            
            1,096,477
            
            
            
            4,536,273
            
            
            
            3,088,7076,177,030
            
            
            
            5,513,221
            
            
            
            17,773,072
            
            
            
            15,587,493Gross
      marginStaffing
      solutions
            
            
            419,784
            
            
            
            472,948
            
            
            
            1,223,754
            
            
            
            1,303,943Pain
      management services
            
            
            725,315
            
            
            
            514,148
            
            
            
            2,108,532
            
            
            
            1,367,511Infusion
      services
            
            
            1,018,512
            
            
            
            562,874
            
            
            
            2,584,101
            
            
            
            1,690,5342,163,611
            
            
            
            1,549,970
            
            
            
            5,916,387
            
            
            
            4,361,988Operating
      expensesStaffing
      solutions
            
            
            348,952
            
            
            
            725,386
            
            
            
            1,034,368
            
            
            
            1,534,866Pain
      management services
            
            
            985,183
            
            
            
            607,986
            
            
            
            2,813,769
            
            
            
            1,961,954Infusion
      services
            
            
            635,260
            
            
            
            205,777
            
            
            
            1,424,277
            
            
            
            895,1631,969,395
            
            
            
            1,539,149
            
            
            
            5,272,414
            
            
            
            4,391,983Divisional
      income (loss)Staffing
      solutions
            
            
            70,832
            
            
            
            (252,438
            )
            
            
            189,386
            
            
            
            (230,923
            )Pain
      management services
            
            
            (259,868
            )
            
            
            (93,838
            )
            
            
            (705,237
            )
            
            
            (594,443
            )Infusion
      services
            
            
            383,252
            
            
            
            357,097
            
            
            
            1,159,824
            
            
            
            795,371194,217
            
            
            
            10,821
            
            
            
            643,973
            
            
            
            (29,995
            )Other
      general expensesInterest
      income, net of bank charges
            
            
            (6,654
            )
            
            
            (27,814
            )
            
            
            (27,935
            )
            
            
            (73,520
            )Interest
      on long-term debt
            
            
            24,392
            
            
            
            20,660
            
            
            
            74,238
            
            
            
            89,640Amortization
      of property and equipment
            
            
            118,354
            
            
            
            94,250
            
            
            
            293,061
            
            
            
            223,917Interest
      expense on financial liability carried at amortized cost
            
            
            158
            
            
            
            3,665
            
            
            
            1,950
            
            
            
            12,700136,250
            
            
            
            90,761
            
            
            
            341,314
            
            
            
            252,737Income
      (loss) from continuing operations
            
            $
            57,967
            
            
            $
            (79,940
            )
            
            $
            302,659
            
            
            $
            (282,732
            )








12.  ECONOMIC
DEPENDENCE





The
Company derived approximately 26% of its revenue for the nine month period ended
September 30, 2008 (2007 - 20%) from services provided under its contract with
Schering-Plough Canada Inc. (“Schering”), and as such is subject to
concentration risk associated with the continuation of its contract with
Schering.





13. SUBSEQUENT EVENTS





(a)
            On
      October 22, 2008, the Company announced that it had entered into a
      definitive agreement pursuant to which it will merge with AIM in an
      all-stock transaction.  The transaction will be completed by way
      of a court-approved Plan of Arrangement (the “Plan”) under the Business Corporations
      Act (Ontario).  Pursuant
      to the Plan, AIM will issue 0.78091 of an AIM common share for each
      MedEmerg common share with the existing MedEmerg shareholders representing
      an approximate 43% non-diluted interest in the combined company upon
      completion. In addition, Calian, the sole holder of Series I Special
      Shares of MedEmerg, will exchange all of such shares for a convertible
      debenture of AIM pursuant to the Plan.  At the completion of the
      transaction, the former shareholders of AIM will control approximately 57%
      of the combined consolidated entity. The Plan requires the approval of 66
      2/3% of the votes cast by the shareholders of MedEmerg at a special
      shareholders’ meeting.  MedEmerg shareholders, who together hold
      approximately 70% of the outstanding MedEmerg common shares, and Calian,
      have entered into voting agreements to vote their shares in favor of the
      Plan. David Kassie, Chairman of Genuity Capital and Sidney Braun,
      President of Romlight International Inc., both shareholders of MedEmerg,
      have agreed to join the board of
AIM.







24


The
Plan is also subject to customary regulatory and court approvals, including the
listing approval of the TSX Venture Exchange.  MedEmerg has set
December 1, 2008 as a tentative record date for the special meeting of
shareholders to approve the Plan, with the special meeting of shareholders
expected to be held in early January, 2009. Closing of the transaction is
expected to occur subsequent to the shareholders meeting. A termination fee of
Cdn$300,000 is payable to AIM by MedEmerg under certain circumstances including
if MedEmerg enters into a superior proposal transaction.  In certain
other circumstances, AIM or MedEmerg may be entitled to expense reimbursement
from the other of up to Cdn$500,000.





(b)
            Effective
      November 1, 2008, an unsecured promissory note in the principal amount of
      $299,995, along with interest in the amount of $42,000, became due.
      Effective November 1, 2008, the note was restructured such that the
      principal amount of $299,995 plus interest of $42,000 was settled through
      an agreement to pay a total of $240,000 in eight (8) quarterly payments of
      $30,000, over two years, commencing November 1, 2008, along with interest
      on the unpaid balance at the rate of 5% per annum.  In certain
      circumstances the Company may defer its quarterly
  payments.




14.  COMPARATIVE
FIGURES




Certain
figures in the 2007 consolidated financial statements have been reclassified to
conform with the basis of presentation in 2008.  The results for
Healthcare Consulting which were reported as part of Continuing Operations in
2007 have been reclassified as Discontinued Operations (Note 4).






25




ITEM 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





THE
FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-Q.
THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER PART II, ITEM 1.A "RISK FACTORS" AND ELSEWHERE IN THIS FORM
10-Q.





Certain
prior year information has been reclassified to conform to the current year’s
presentation including the reclassification of the Company’s Government
Healthcare Services operations to discontinued operations.








BUSINESS
OVERVIEW





MedEmerg
was founded in 1983 and is incorporated under the Business Corporations Act
(Ontario).





The
Company’s operations are comprised of three business units: Staffing Solutions,
Pain Management Services and Infusion Services.  Prior to 2008 the
Company also provided Healthcare Consulting Services.  These
operations were wound-down in the first quarter of 2008.  During the
nine month period ended September 30, 2008, 31% of the Company’s revenue was
generated by the Staffing Solutions unit; 44% by the Pain Management unit; and
25% by the Infusion Services unit. From a Gross Margin perspective, the
contribution was 21%, 35% and 44%, respectively.





The
Company is well positioned to deal with the continuous challenges that confront
the Canadian healthcare system.  Some of these challenges including
the growing shortage of ER doctors, longer waiting times by patients to access
chronic pain specialists, and the growing cost of public medicine, play directly
into the Company’s strengths.





The
Company’s Staffing Solutions business provides physician and nurse practitioner
staffing services to more than 30 healthcare facilities across Ontario,
including rural and urban hospitals as well as tertiary care centers and
corrections facilities.





MedEmerg’s
Pain Management Services business provides chronic pain management in 11 centers
in Ontario and Nova Scotia, Canada.





The
Company’s Infusion Services business provides intravenous infusion services for
pharmaceutical companies in 26 community-based clinics in Ontario and 10
recently opened locations in Quebec, Canada.





The
Company tracks its operations by monitoring certain key performance
indicators.  For Staffing Solutions, the Company monitors the number
of contracts under administration, monthly shifts booked and gross margin per
contract.  For Pain Management the Company tracks the number of
patient referrals, the number of patient visits and average billing per
patient.  For Infusion Services the Company tracks the number of
infusions per month and the utilization of each infusion
center.  Certain key balance sheet ratios such as working capital are
also monitored, to track the cash flow situation.





26


The
Staffing Solutions business is driven by the Company’s ability to recruit and
retain physicians and nurse practitioners.  With the chronic shortage
of healthcare providers, the Company dedicates considerable resources to
attracting new providers to the Company.  Because of the limited
supply of healthcare providers, the inability to attract additional personnel
could limit the Company’s ability to fill open shifts and to continue its
revenue growth.





Growth
of the Company’s Pain Management Services business is dependent on its ability
to recruit additional doctors to provide pain therapies and to develop the trust
of referring physicians, who refer their patients to the Company’s pain
centers.





The
Infusion Services business is reliant upon the Company’s ability to introduce
new drug therapies through its infusion clinics and by expanding the number of
clinic locations. Failure to succeed with either of these initiatives will limit
the Company’s ability to drive its revenue growth.





STAFFING
SOLUTIONS







MedEmerg
is the leading provider of ER doctors to Ontario hospitals. The Company provides
physician-staffing services to more than 30 healthcare facilities across
Ontario, including rural and urban hospitals as well as tertiary care centers
and corrections facilities. The Company believes that on-going physician
shortages and continuing demand for improved levels of care will continue to
drive its Staffing Solutions business.






In
addition to its conventional ER staffing, MedEmerg has developed a unique
integrated staffing solution, which was trialed in 1996 to recruit primary care
practitioners into mental health facilities.  Based on patient
population, the nature of the cases being treated, and the total cost of the
current system, MedEmerg introduced a healthcare model combining Primary Care
Physicians with Primary Care Nurse Practitioners. This was the first time a
nurse practitioner function was introduced into a mental health setting. The
program, now in its eleventh year of operation, has received high satisfaction
ratings from both staff and patients, resulting in one of the Company’s clients
receiving the ACE award from the Ministry of Health for Innovation in Health
Care Delivery Design. In June 2002, the Centre for Addiction and Mental Health
in Toronto, Canada, awarded MedEmerg a similar contract for primary care
services. In 2004, the Company introduced Primary Health Care Nurse
Practitioners to its mix of healthcare providers in community-based
hospitals.




In
September 2006, the Company recruited Dr. Jim Ducharme to lead the clinical
aspect of Staffing Solutions.  Dr. Ducharme is a nationally recognized
emergency medicine specialist and is a past president of the Canadian
Association of Emergency Physicians.  Dr. Ducharme brings a very broad
perspective of the challenges facing emergency departments today and he is an
important asset in the Company’s future growth of the Staffing Solutions
business.  Dr. Ducharme was instrumental in the Company’s development
of a training program designed for Ontario’s family physicians.  In
concert with the College of Family Physicians, MedEmerg developed and hosted
training sessions designed to re-introduce family physicians to the
ER.  The program was well received and it is anticipated that future
training opportunities will arise as a result thereof.  Concurrent
with the addition of Dr. Ducharme, the division was realigned to expand its
business development capabilities in anticipation of increased staffing
opportunities.







PAIN MANAGEMENT
SERVICES




MedEmerg’s
chronic pain management service, operated through its wholly-owned subsidiary,
CPM Health Centres Inc. (“CPM”), was launched in November 2004 with the
acquisition of the Scarborough Pain Clinic. Since then, 10 more clinics have
been opened, most recently in Brampton, Ontario in January, 2008.





27


CPM has
developed a standardized approach to the treatment of chronic pain, using an
integrated multi-disciplinary approach including anesthetists and ER physicians,
amongst others.





In
August of 2005, Dr. Roman Jovey, the then President of the Canadian Pain
Society, joined CPM as its Medical Director.  Over the last 16 years,
Dr. Jovey has developed an international reputation in the field of chronic,
non-cancer pain, using pharmacotherapy.  In addition to maintaining a
private practice, Dr. Jovey also consults with the pharmaceutical industry and
educational institutions on medical educational programs related to
pain.  He is also a medico-legal expert for the Canadian Medical
Protective Association on cases related to opioids, pain and
addiction.  In his capacity as Medical Director, Dr. Jovey oversees
the clinical aspects of CPM and assists in the training of new
physicians.





The
Company has developed and launched a training program specifically designed to
educate emergency room physicians in chronic pain management.





CPM
continues to grow rapidly, with its patient visits increasing from approximately
24,380 patients in the first nine months of 2007 to more than 35,660 in the
first nine months of 2008, an increase of 46%. Plans are underway to further
increase capacity by training more doctors at the Company’s 11 pain management
centers.





INFUSION
SERVICES





In
March 2001, MedEmerg entered into an agreement with Schering-Plough Canada Inc.
(“Schering”) to become a coordinator for the community-based infusion of the
medication known as RemicadeTM.  This contract capitalizes on the Company's
access to medical clinics for the treatment of patients with various
inflammatory disorders, including rheumatoid arthritis and Crohn's disease. The
Company delivered more than 15,000 infusions in 2007, a 49% increase over 2006
(10,100).  During the first nine months of 2008, the number of
infusions increased approximately 30% to 14,475 from 11,132 infusions in the
first nine months of 2007.  MedEmerg expects continued growth for this
service, as infusion services move from institutional to community-based
settings.





As of
September 30, 2008, the Company operated 26 virtual clinics across Ontario and
ten locations in Quebec, compared to 22 located solely in Ontario in September
2007.  On an as-required basis, the Company rents space in
community-based medical clinics.  MedEmerg’s team of infusion
coordinators arrange for patients to arrive at the clinic at a prescribed time
and for a physician and nurse to be available to attend to their
needs.  The RemicadeTM is supplied by a local pharmacy.





RemicadeTM
is currently approved by Health Canada for six indications in Canada: rheumatoid
arthritis, Crohn’s disease, ankylosing spondylitis, ulcerative colitis,
psoriatic arthritis and psoriasis.   Once an indication is
approved by Health Canada, it is more likely that doctors will prescribe the
medicine and that insurance companies will provide reimbursement for the
medicine.  Historically, more than 60% of infusions have related to
Crohn’s disease and rheumatoid arthritis.  The Company expects growth
related to RemicadeTM to level off unless additional indications are approved by
Health Canada or the Company is awarded more clinic locations by
Schering.





The
Company continues to look for additional products to offer through its infusion
clinics and the opportunity to open clinics in new locations.








POST QUARTER
EVENTS





On
October 22, 2008, the Company announced that it had entered into a definitive
agreement pursuant to which it will merge with AIM Health Group Inc. (“AIM”) in
an all-stock transaction.  The transaction will be completed by way of
a court-approved Plan of Arrangement (the “Plan”) under the Business Corporations
Act (Ontario).  Pursuant
to the Plan, AIM will issue 0.78091 of an AIM common share for each MedEmerg
common share with the existing MedEmerg shareholders representing an approximate
43% non-diluted interest in the combined company upon completion. In addition,
Calian Technologies Inc. (“Calian”), the sole holder of Series I Special Shares
of MedEmerg, will exchange all of such shares for a convertible debenture of
Cdn$3,896,900 of AIM pursuant to the Plan.  On completion of the
transaction a charge of US$647,467will be made to earnings. The former
shareholders of AIM will control approximately 57% of the combined consolidated
entity, once the transaction has been finalized. The Plan requires the approval
of 66 2/3% of the votes cast by the shareholders of MedEmerg at a special
shareholders’ meeting.  MedEmerg shareholders, who together hold
approximately 70% of the outstanding MedEmerg common shares, and Calian, have
entered into voting agreements to vote their shares in favor of the Plan. David
Kassie, Chairman of Genuity Capital and Sidney Braun, President of Romlight
International Inc., both shareholders of MedEmerg, have agreed to join the board
of AIM.





28


The
Plan is also subject to customary regulatory and court approvals, including the
listing approval of the TSX Venture Exchange.  MedEmerg has set
December 1, 2008 as the tentative record date for the special meeting of
shareholders to approve the Plan, with the special meeting of shareholders
expected to be held in early January, 2009. Closing of the transaction is
expected to occur subsequent to the shareholder's meeting. A termination fee of
Cdn$300,000 is payable to AIM by MedEmerg under certain circumstances including
if MedEmerg enters into a superior proposal transaction.  In certain
other circumstances, AIM or MedEmerg may be entitled to expense reimbursement
from the other of up to Cdn$500,000.





RESULTS OF
OPERATIONS





Three
months ended September 30, 2008 compared to three months ended September 30,
2007





REVENUE





The
Company's revenue from continuing operations for the three months ended
September 30, 2008 was $6,177,030 compared to $5,513,221 for the three months
ended September 30, 2007.





The
increase in revenue during the 2008 period over the comparable 2007 period of
approximately 12% was attributable to increases in the Pain Management and
Infusion Services divisions, partially offset by a decrease in the Staffing
Solutions division.  Divisional Revenues were:


THREE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007RevenueStaffing
      solutions
            
            
            1,788,456
            
            
            
            2,698,833Pain
      management services
            
            
            2,595,248
            
            
            
            1,717,911Infusion
      services
            
            
            1,793,326
            
            
            
            1,096,4776,177,030
            
            
            
            5,513,221




Staffing
Solutions revenues decreased 34% in the third quarter of 2008 relative to the
same period in 2007.  In the third and fourth quarters of 2007 the
Company failed to resign two significant contracts.  It will take
several months to regain the business lost at that time, and there can be no
assurance that the Company will be successful in these efforts.





Revenue
for Pain Management Services increased 51% in 2008 to $2,595,248, compared to
$1,717,911 in 2007.   The increase results from a 36% increase in
patient visits from approximately 8,885 in 2007 to 12,045 in 2008 and a 9%
increase in the average patient billing





The
Infusion Services revenue increased 64% to $1,793,326 from $1,096,477 in
2007.  The increase results from a 47% increase in patient visits from
approximately 3,800 in the third quarter of 2007 to 5,600 in the third quarter
of 2008 and an increase in the average revenue per infusion of
8.5%.  During the third quarter of 2008 the Company opened 10 new
clinics in Quebec, Canada.  These new clinics accounted for
approximately 44% of the increased infusions.





29


GROSS
MARGIN





Gross
Margin (revenue less physician and other direct costs) increased to $2,163,611
(40%) for the third quarter of 2008 from $1,549,970 for the same period in
2007.





THREE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007Gross
      marginStaffing
      solutions
            
            
            419,784
            
            
            
            472,948Pain
      management services
            
            
            725,315
            
            
            
            514,148Infusion
      services
            
            
            1,018,512
            
            
            
            562,8742,163,611
            
            
            
            1,549,970




The
Gross Margin from the Staffing Solutions business decreased from $472,948 during
the third quarter of 2007 to $419,784 in third quarter of 2008.  The
decrease of 11% is consistent with the 34% decrease in Staffing Revenue,
partially offset by increased gross margin percentages on certain
contracts.  The Company did not renew a significant contract in the
third quarter of 2007 that generated low gross margins.  New business
that has been won, has consistently earned stronger gross margins in the current
quarter.  Gross margin as a percentage of revenue increased from 17.5%
during the third quarter of 2007 to 23.5% in the third quarter of
2008.





Gross
Margin for Pain Management increased 41% from $514,148 in 2007 to $725,315 in
2008.  The increase in Gross Margin corresponds to the 51% increase in
revenues which was partially offset by increased cost of sales associated with
physician and medical supply costs.





The
Gross Margin for Infusion Services increased 81% to 1,018,512 in 2008 compared
to $562,874 in 2007.  The increase corresponds to the 64% increase in
Infusion revenues and an increase in gross margin percentage from 51.3% in 2007
to 56.8% in 2008.  The gross margin percentage increase is related to
a negotiated increase in fee for services.





OPERATING
EXPENSES





Operating
expenses are comprised of both direct and indirect operating
expenses.  Indirect expenses include corporate overheads, which are
allocated to the divisions based on gross margin earned by the
division.









30


On a
divisional basis, after the allocation of corporate overheads, operating
expenses were as follows:


THREE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007Operating
      expensesStaffing
      solutions
            
            
            348,952
            
            
            
            725,386Pain
      management services
            
            
            985,183
            
            
            
            607,986Infusion
      services
            
            
            635,260
            
            
            
            205,7771,969,395
            
            
            
            1,539,149




On an
overall basis, operating expenses increased 28%, or approximately $430,000, to
$1,969,394 for the third quarter of 2008 from $1,539,149 for the quarter ended
September 30, 2007.  The increase was attributable to increased costs
associated with the Infusion Services business in Quebec of approximately
$250,000, costs associated with the growth of the Pain Management business of
approximately $125,000 and the increased overhead costs associated with the
merger transaction, which is scheduled to close later this year [see POST
QUARTER EVENTS], of approximately $160,000 partially offset by reduced Public
Company costs of approximately $48,000 and other expenses of approximately
$55,000.  The increase in costs associated with the Infusion Services
business in Quebec and the Pain Management business is in line with Management’s
expectations.





AMORTIZATION
AND INTEREST





Amortization
increased from $94,250 for the three months ended September 30, 2007 to $118,354
for the third quarter of 2008.  During the second half of 2007 and the
first quarter of 2008, the Company increased its capital spending on leasehold
improvements and equipment associated with its Pain Management
centers.  Consequently amortization costs increased in the third
quarter of 2008 compared to the third quarter of the previous year.





For the
three months ended September 30, 2008, the Company earned interest net of bank
charges of $6,654, compared to $27,814 in the same period in
2007.  The reduction in earned interest is largely the result of the
46% reduction in the bank rate from 4.75% in the third quarter of 2007 to 3.25%
in the third quarter of 2008.





Interest
on long-term debt in the third quarter of 2008 increased from $20,660 in the
third quarter of 2007 to $24,392.





OTHER
EXPENSES





The
Company reported interest expense on the financial liability carried at
amortized cost of $158 for the third quarter of 2008 compared to $3,665 in the
same period in 2007.  This expense arises as a result of the Company
adopting Handbook Section 3855, “Financial Instruments - Recognition and
Measurement”.  The charge to earnings represents the amortization of
an unrealized gain on certain liabilities.  This is a non cash
expense.





INCOME
TAXES





For the
three months ended September 30, 2008 and 2007, there was no provision for
income taxes payable due to the large tax loss carry-forwards available from
previous loss years.  The Company pays income taxes in accordance with
Canadian federal and provincial income tax legislation. The Company does not
expect to pay significant corporate income tax in Canada in the foreseeable
future because we have significant net operating loss carry forwards for
Canadian income tax purposes.





31




DISCONTINUED
OPERATIONS




Family
Medical Clinics


For the
three month period ended September 30, 2008 the Company reported a loss from its
Family Medical Clinics of approximately $nil compared to a loss of $57,460 in
the same period in 2007.  The Company disposed of its Family Medical
Clinics in 2007.





Government
Health Services


During
the three month period ended September 30, 2008, the Company had a loss from
Government Health Services (the “DND Contract”) of $nil compared to income of
$251 in the third quarter of 2007.





Healthcare
Consulting


In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts.  Accordingly
the results of the Healthcare Consulting business have been reclassified as
discontinued operations.  During the three month period ended
September 30, 2008 the Company had income from Healthcare Consulting of $10,884
compared to a loss in the third quarter of 2007 of $100,202.





Nine
months ended September 30, 2008 compared to nine months ended September 30,
2007





REVENUE





The
Company's revenue from continuing operations for the nine months ended September
30, 2008 was $17,773,072 compared to $15,587,493 for the nine months ended
September 30, 2007.





The
increase in revenue during the 2008 period over the comparable 2007 period of
approximately 14% was attributable to an increase in Pain Management Services
and Infusion Services, offset by a decrease in Staffing Solutions
revenues.  Divisional revenues were:





NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007RevenueStaffing
      solutions
            
            
            5,471,705
            
            
            
            8,074,449Pain
      management services
            
            
            7,765,094
            
            
            
            4,424,337Infusion
      services
            
            
            4,536,273
            
            
            
            3,088,70717,773,072
            
            
            
            15,587,493




Staffing
revenues decreased 32% for the nine months ended September 30, 2008 from
2007.  In the third and fourth quarters of 2007 the Company failed to
resign two significant contracts. It will take several months to regain the
business lost at that time, and there can be no assurance that the Company will
be successful in those efforts.  The decrease in revenue resulting
from the failure to resign these two contracts was partially offset by the
strengthening of the Canadian dollar relative to the US dollar.





Revenue
from the Pain Management Services division in the first nine months of 2008
increased 76% to $7,765,094 from $4,424,337.  The increase results
from a 46% increase in patient visits from approximately 24,380 in 2007 to
35,660in 2008, a 5% increase in the average patient billing and the
strengthening of the Canadian dollar relative to the US dollar





The
Infusion Services revenue increased to $4,536,273 from $3,088,707 in
2007.  The 47% increase in the Infusion business was driven by a 30%
increase in infusions from 11,132 in the first nine months of 2007 to 14,475 in
the same period of 2008, by a negotiated increase in the fee for services and by
the strengthening of the Canadian dollar relative to the US dollar





32


GROSS
MARGIN





Gross
margin (revenue less physician and other direct costs) increased to $5,916,387
(36%) for nine month period ended September 30, 2008, from $4,361,988 for the
same period in 2007.





NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007Gross
      marginStaffing
      solutions
            
            
            1,223,754
            
            
            
            1,303,943Pain
      management services
            
            
            2,108,532
            
            
            
            1,367,511Infusion
      services
            
            
            2,584,101
            
            
            
            1,690,5345,916,387
            
            
            
            4,361,988




The
Gross Margin from the Staffing business decreased to $1,223,754 from $1,303,943
in 2007.  The decrease of 6% was much lower than the 32% decrease in
revenue for the Staffing business, because the decrease in revenue was caused by
the loss of certain low Gross Margin business during the second half of 2007.
Gross margin as a percentage of revenue increased from 16.1% during the first
nine months of 2007 to 22.4% in the first nine months of 2008.





Gross
Margin for Pain Management increased 54% from $1,367,511 in 2007 to $2,108,532
in 2008. The increase in Gross Margin corresponds to the 76% increase in
revenues, partially offset by a reduction in the Gross Margin percentage, from
30.9% to 27.2%, caused by increased costs associated with physicians and medical
supplies.





The
Gross Margin for Infusion Services increased 53% to $2,584,101 in 2008 compared
to $1,690,534 in 2007. The increase corresponds to the 47% increase in Infusion
revenues and an increase in gross margin percentage from 54.7% in 2007 to 57.0%
in 2008.  The gross margin percentage increase is related to a
negotiated increase in fee for services.





OPERATING
EXPENSES





Operating
expenses are comprised of both direct and indirect operating
expenses.  Direct expenses include those costs that are directly
related to the operations of the business unit.  Indirect expenses
include corporate overheads, which are allocated to the divisions, based on the
gross margin earned by the division.





On a
divisional basis, after the allocation of corporate overheads, operating
expenses were as follows:





NINE
      MONTHS ENDEDSeptember
      30
            
            
            September
      302008
            
            
            2007Operating
      expensesStaffing
      solutions
            
            
            1,034,368
            
            
            
            1,534,866Pain
      management services
            
            
            2,813,769
            
            
            
            1,961,954Infusion
      services
            
            
            1,424,277
            
            
            
            895,1635,272,414
            
            
            
            4,391,983




On an
overall basis, operating expenses increased $880,431 (20%) to $5,272,414 for the
nine months ended September 30, 2008 from $4,391,983 for the same period in
2007.  The increase was attributable to increased direct operating
costs associated with the Pain Management business of approximately $530,000 and
Infusion Services of approximately $340,000; partially offset by a reduction of
expenses with the Staffing Solutions business of approximately
$155,000.  Additionally indirect costs increased by approximately
$165,000 comprised largely of costs associated with the merger transaction,
which is scheduled to close later this year [see POST QUARTER EVENTS], of
approximately $160,000.








33


AMORTIZATION
AND INTEREST





Amortization
increased from $223,917 for the nine months ended September 30, 2007 to $293,061
for the same period in 2008.  During the second half of 2007 and the
first quarter of 2008, the Company increased its capital spending on leasehold
improvements and equipment associated with its Pain Management
centers.  Consequently amortization costs increased in the first nine
months of 2008 compared to the same period of the previous year.





For the
nine months ended September 30, 2008, the Company earned interest net of bank
charges of $27,935, compared to $73,520 in the same period in
2007.  The reduction in interest earned is attributed to the lower
bank rate in 2008 compared to 2007 and also, cash balances in the first nine
months of 2008 decreased relative to the cash balances in the previous
year.  For the first nine months of 2007 the bank rate averaged 4.6%
compared to 3.5% in the first nine months of 2008.





Interest
on long-term debt for the nine months ended September 30, 2008 decreased from
$89,640 in 2007 to $74,238 as the Company reduced its long-term
debt.





OTHER
EXPENSES





The
Company reported interest expense on the financial liability carried at
amortized cost of $1,950 for the first nine months of 2008 compared to $12,700
in the same period in 2007.  This expense arises as a result of the
Company adopting Handbook Section 3855, “Financial Instruments - Recognition and
Measurement”.  The charge to earnings represents the amortization of
an unrealized gain on certain liabilities.  This is a non cash
expense.





INCOME
TAXES





For the
nine months ended September 30, 2008 and 2007, there was no provision for income
taxes payable due to the large tax loss carry-forwards available from previous
loss years.  The Company pays income taxes in accordance with Canadian
federal and provincial income tax legislation. We do not expect to pay
significant corporate income tax in Canada in the foreseeable future because we
have significant net operating loss carry forwards for Canadian income tax
purposes.







DISCONTINUED
OPERATIONS - GOVERNMENT HEALTHCARE SERVICES




Family
Medical Clinics


For the
nine month period ended September 30, 2008 the Company reported a loss from its
Family Medical Clinics of approximately $6,300 compared to a loss of
approximately $182,300 in the same period in 2007.  The Company
disposed of the Family Medical Clinics in 2007.  The loss in the
current period reflects certain costs incurred in disposing of the
business.





Government
Health Services


During
the nine month period ended September 30, 2008, the Company had expenses from
Government Health Services (the “DND Contract”) of approximately $370 compared
to income of approximately $3,800 for the same period in
2007.  Certain residual costs have been incurred on winding-up the DND
Contract.





Healthcare
Consulting


In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts.  Accordingly
the results of the Healthcare Consulting business have been reclassified as
discontinued operations.  During the nine month period ended September
30, 2008 the Company had income from Healthcare Consulting of $47,770 compared
to a loss in the first nine months of 2007 of $342,585.  Included in
the current period’s income is a one-time restructuring charge of approximately
$60,000 which was incurred and paid in the first quarter of 2008.








34


LIQUIDITY
AND CAPITAL RESOURCES





As at
September 30, 2008, the Company's cash position was $2,393,206 compared to
$2,291,005 at December 31, 2007.





The
increase in the cash position of approximately $100,000 in the first nine months
of 2008 resulted from (a) an increase in cash from operations of approximately
$680,000; (b) an increase in non-cash working capital items of $125,000; (c) a
decrease in cash flow from discontinued operations of approximately $170,000,
comprised of income of $50,000 from discontinued operations, net of amortization
and a $220,000 decrease in working capital from discontinued operations; (d)
$225,000 used by the Company in investing activities with respect to the
purchase of property and equipment and other intangible assets; and (e) the
repayment of long-term debt of approximately $145,000. The weakening of the
Canadian dollar relative to the U.S. dollar resulted in a foreign exchange loss
of approximately $165,000.  The investing activities largely related
to funds used for the acquisition of leasehold improvements at the Company’s
Pain Management centers.





The
Company believes that cash on hand is adequate to finance our working capital,
capital expenditures, and other obligations.





OFF
BALANCE SHEET ARRANGEMENTS





The
Company is not a party to any off-balance sheet arrangements.





ADOPTION
OF ACCOUNTING POLICIES





Recently
Issued Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. In February 2008, the FASB issued FSP 157-2, which extends the
effective date for adoption, for non-financial assets and non-financial
liabilities, to fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years. Except for non-financial assets and
non-financial liabilities subject to the deferral, the Company adopted SFAS 157
on January 1, 2008, with no impact on its financial statements.  The
Company does not expect the adoption of this standard with respect to
non-financial assets and non-financial liabilities subject to the deferral to
have a material impact on its financial statements.





In
February 2007, the FASB issued FASB No. 159, The Fair Value for Financial Assets
and Financial Liabilities including an Amendment of FASB Statement No. 115(FASB 159).  FASB 159 permits entities to choose to measure
many financial instruments and certain other items at fair value.  The
provisions of SFAS 159 are effective for fiscal years beginning after November
15, 2007.  The adoption of FASB 159 on January 1, 2008 did not
materially effect the Company’s financial position or results of
operations.





In
December 2007, the FASB issued FASB No. 141R,Business Combinations (FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or
other events in which an entity obtains control of one or more businesses and
requires that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could
have an impact on its future consolidated financial statements when effective,
but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions consummated after the effective date
of FASB No. 141R.





35


In
December 2007, the FASB issued FAS 160, which is effective for fiscal years
beginning after December 15, 2008. Under FAS 160, non-controlling interests will
be measured at 100% of the fair value of assets
acquired     and liabilities assumed. Under current
standards, the non-controlling interest is measured at book value. For
presentation and disclosure purposes, non-controlling interests will be
classified as a separate component of shareholders' equity. In addition, FAS 160
will change the manner in which increases/decreases in ownership percentages are
accounted for. Changes in ownership percentages will be recorded as equity
transactions and no gain or loss will be recognized as long as the parent
retains control of the subsidiary. When a parent company deconsolidates a
subsidiary but retains a non-controlling interest, the non-controlling interest
is re-measured at fair value on the date control is lost and a gain or loss is
recognized at that time. Under FAS 160,     accumulated
losses attributable to the non-controlling interests are no longer limited to
the original carrying amount, and therefore non-controlling interests could have
a negative carrying balance. The provisions of FAS 160 are to be applied
prospectively with the exception of the presentation and disclosure provisions,
which are to be applied for all prior periods presented in the financial
statements. Early adoption is not permitted.  The Company does not
expect this standard to have a significant impact on its financial statements
upon adoption.




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008. The Company does not expect this standard to have
a significant impact on its financial statements upon adoption.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.




In May
2008, the Financial Accounting Standards Board issued FASB Staff Position (FSP)
APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement),” to require issuers of
convertible debt to account separately for the liability and equity components
of these instruments if they have stated terms permitting cash settlement upon
conversion.  This practice marks a significant change from the current
accounting practice for convertible debt instruments in the scope of the
FSP.  Current practice does not require separation of the liability and
equity components of such instruments.  Separately accounting for these
instruments’ liability and equity components results in the recording of an
initial debt discount.  FSP APB 14-1 is effective for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal
years.  The Company intends to adopt FSP APB 14-1 effective January 1, 2009
and apply its provisions retrospectively to all periods presented in its
financial statements. The Company does not believe that the adoption of FSP APB
14-1 will have a significant effect on its financial statements.




36


On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook.   This Section replaces the disclosure requirements of
the previous Section 3861 “Financial Instruments - Disclosure and
Presentation”and
converges with International Financial Reporting Standard IFRS 7. The new
disclosure standard increases the emphasis on the risks associated with both
recognized and unrecognized financial instruments and how those risks are
managed. The new presentation standard carries forward the former presentation
requirements.  The Company’s disclosures now conform to this Section
3862 of the CICA Handbook.




On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook.  This Section is consistent with
the previous CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.  The Company determined that there was no impact to its financial
statement presentation from the adoption of Section 3863 of the CICA
Handbook.




On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook.  Section 1400
was amended to include the requirements for assessing and disclosing an entity’s
ability to continue as a going concern from International Financial Reporting
Standard IAS 1.  The Company determined that there was no impact to
its financial statement presentation from the adoption of Section 1400 of the
CICA Handbook.





On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook.  This Section requires disclosure about capital and is
harmonized with recently amended International Financial Reporting Standard IAS
1.  The standard is applicable to all entities, regardless of whether
they have financial instruments.  Entities are required to disclose
information about its objectives, policies and processes for managing capital,
as well as its compliance with any externally imposed capital requirements,
where they may exist.  The Company’s disclosures now conform to this
Section 1535 of the CICA Handbook.





ACCOUNTING
POLICY DEVELOPMENTS





In
2006, Canada’s Accounting Standards Board ratified a strategic plan that will
result in Canadian GAAP, as used by publicly accountable enterprises, being
fully converged with International Financial Reporting Standards as issued by
the International Accounting Standards Board (IFRS-IASB) over a transitional
period to be complete by 2011.  MedEmerg will be required using the
converged standards effective for interim and annual statements relating to
fiscal years beginning no later than on or after January 1, 2011, the date that
the Company has selected for adoption.





Canadian
GAAP will be fully converged with IFRS-IASB through a combination of two methods
(i) as current joint-convergence projects of the United States Financial
Accounting Standards Board and the International Accounting Standards Board are
agreed upon, they will be adopted by Canada’s Accounting Standards Board and may
be introduced in Canada before the publicly accountable enterprises transition
date to IFRS-IASB and (ii) standards not subject to a joint-convergence project
will be exposed in an omnibus manner for introduction at the time of the
publicly accountable enterprises transition date to IFRS-IASB.  The
first convergence method may, or will, result in the Company either having the
option to, or being required to, effectively, change over certain accounting
policies to IFRS-IASB prior to 2011.





The
International Accounting Standards Board currently, and expectedly, has projects
underway that are expected to result in new pronouncements that continue to
evolve IFRS-IASB, and, as a result, IFRS-IASB as at the transition date is
expected to differ from its current form.





37


There
are several phases that the Company will have to complete on the path to
changing over to IFRS-IASB:





Implementation
      phase
            
            Description
      and statusInitial
      impact assessment and scoping
            
            Currently
      underway, this phase includes the identification of significant
      differences between existing Canadian GAAP and IFRS-IASB, as relevant to
      the Company’s specific instances.
              
              Based
      upon the current state of IFRS-IASB, this phase is expected to identify a
      modest number of topics possibly impacting either the Company’s financial
      results and/or the Company’s effort necessary to change over to
      IFRS-IASB.  The IASB has activities currently underway which
      may, or will; change IFRS-IASB and such change may, or will impact the
      Company.  The Company will assess any such change as a component
      of its key elements phase.Key
      elements
            
            This
      phase will include identification, evaluation and selection of
      accounting policies necessary for the Company to change over to
      IFRS-IASB:
              
              As
      well, this phase will include other operational elements such
      as information technology, internal control over financial reporting
      andtraining.
              
              Although
      its impact assessment activities are underway and
      progressing according to plan, continued progress is necessary before
      the Company can prudently increase the specificity of the disclosure of
      pre- and post- IFRS-IASB changeover accounting policy
      differences.Embedding
            
            This
      phase will integrate the solutions into the Company’s
      underlying financial system and processes that are necessary for the
      Company to change over to IFRS-IASB





The
Company is required to qualitatively disclose its implementation impacts in
conjunction with its 2008 and 2009 financial reporting.  As activities
progress, disclosure on pre- and post-IFRS-IASB implementation accounting policy
differences is expected to increase.





The
Company will present its results for fiscal 2010 using contemporary Canadian
GAAP.  The Company will also present supplementary disclosure for
fiscal 2010 according to IFRS-IASB.  To accomplish this, in 2010 the
Company will effectively maintain two parallel books of account:  one
using the contemporary version of Canadian GAAP and the other using the
contemporary IFRS-IASB.





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:  (i) the reported amounts of revenues and expenses, (ii) the
disclosure of contingent liabilities, (iii) the carrying value of property and
equipment and the rate of amortization related thereto, and (iv) accounting for
income taxes.  The Company evaluates its estimates on an on-going
basis. The Company states its accounting policies in the notes to the audited
consolidated financial statements and related notes for the year ended December
31, 2007. These estimates are based on information that is currently available
to the Company and on various other assumptions that are believed to be
reasonable under the circumstances.  Actual results could vary from
those estimates under different assumptions or conditions.  The
following critical accounting policies affect the more significant judgments and
estimates used in the preparation of the Company’s consolidated financial
statements:






38





•
            The
      Company maintains accruals for revenues, physician fees and other direct
      costs, salaries, benefits, and other costs.  Management uses its
      judgment in determining accruals of revenues and expenses on Healthcare
      Consulting contracts, which are accounted for using the proportional
      performance basis.  In assessing proportional performance,
      management considers the amount of labor originally forecast plus/minus
      adjustments based on experience to-date on the contract plus any variances
      to the forecast labor hours for the remainder of the
      contract.  Accruals and estimates for Staffing Solutions
      contracts are of a short duration; that is, revenues and expenses are
      generally known before financial statements are
      finalized.  Based on historical experience these accruals have
      proven accurate.  Should changes occur in the future, it may be
      necessary to revise accrual
assumptions.


•
            The
      Company maintains an allowance for doubtful accounts for estimated losses
      resulting from fraudulent claims made by patients, the inability of
      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 the Company’s exposure to fraudulent claims by
      patients.  The adequacy of the bad debt allowance is determined
      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 the Company’s 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 allowances for doubtful accounts.
      As of September 30, 2008, the allowance for doubtful accounts was $37,588
      (December 31, 2007 - $40,946).


•
            The
      Company is subject to various claims and legal actions in the ordinary
      course of its business. These matters include breach of contract or
      similar matters arising from contractual disputes. Hospital and healthcare
      facility clients may also become subject to claims, governmental inquiries
      and investigations and legal actions to which the Company may become a
      party relating to services provided by its professionals. From time to
      time, and depending upon the particular facts and circumstances, the
      Company 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 are described in Note 9 of the financial statements included with
      this quarterly report on Form 10-Q. As mentioned, the Company is unable to
      determine its potential exposure regarding these lawsuits at this
      time.  Similarly, the Company has other contingent liabilities
      that pertain to amounts potentially owing to government
      authorities.  The Company continues to evaluate the probability
      of an adverse outcome and will provide accruals for such contingencies as
      required. The Company is currently not aware of any other such pending or
      threatened litigation or similar contingency that is reasonably likely to
      have a material adverse effect on it. If such claims arise, they will be
      evaluated on the probability of an adverse outcome and accruals will be
      provided, as required, at that
time.


•
            The
      Company is required to estimate the amount of tax payable for the current
      year and the future income tax assets and liabilities recorded in the
      financial statements accounts for future tax consequences of events that
      have been reflected in its financial statements.  Significant
      management judgment is required to assess the timing and probability of
      the ultimate tax impact.  The Company records valuation
      allowances on future tax assets to reflect the expected realizable future
      tax benefits.  Actual income taxes could vary from these
      estimates due to future changes in income tax law, changes in the
      jurisdictions in which the Company operates, the inability to generate
      sufficient future taxable income or unpredicted results from potential
      examinations or determinations of each year’s liability by the taxing
      authorities.  Valuation allowances primarily relate to potential
      future tax assets arising from accounting amortization claimed in excess
      of tax depreciation and tax losses carried forward.  Management
      must assess both positive and negative evidence when determining whether
      it is more likely than not that future tax assets will be recoverable in
      future periods.  Based on this assessment, a valuation allowance
      must be established where management has determined, based on current
      facts and reasonable assumptions, that such future tax assets will not
      likely be realized by the Company.  Realization is based on the
      Company’s ability to generate sufficient future taxable
      income.  The Company intends to maintain a valuation allowance
      against its future tax assets until sufficient positive evidence exists to
      support its reversal.  Changes in material assumptions can occur
      from period to period due to the aging of prior year’s losses, the
      cumulative effect of current period taxable income and other sources of
      positive and negative evidence.  If these changes in material
      assumptions were to provide sufficient positive evidence, the Company
      could record the net benefit of $2.0 million associated with non-capital
      loss carryforwards and tax pools of $6.0 million, or a portion thereof, as
      a recovery of income taxes in the period when realization becomes more
      likely than not and a corresponding increase in net future income tax
      assets.






39





ITEM 3: QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK





There
are no financial instruments that are sensitive to changes in interest rates or
exposed to foreign currency exchange gains/losses.





ITEM 4 T: CONTROLS AND
PROCEDURES





Evaluation of Disclosure
Controls and Procedures: Our management with the participation of our
principal executive officer and principal financial officer has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) pursuant to Rule 13a-15c under the Exchange Act as
of the end of the period covered by this report on Form 10-Q. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of such date, our disclosure controls and procedures are
effective to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable SEC rules and forms.





The
Company’s disclosure controls and procedures are designed to provide assurance
of achieving their objectives, and the Company’s chief executive officer and
chief financial officer have concluded that these controls and procedures are
effective at the “reasonable assurance” level.  The Company believes
that a control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.





Changes in Internal Control
over Financial Reporting: There was no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the period covered by this report on Form
10-Q that has materially affected, or is reasonably likely to materially affect
our internal control over financial reporting.





40


PART
II:  OTHER INFORMATION





ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS





(a)
            The
      Company’s annual general meeting was held on August 11,
    2008.





(b)
            The
      following proposals were adopted by the margins
  indicated:





i.
            To
      elect a Board of Directors to hold office until the next annual meeting of
      shareholders and until their successors are elected and
      qualified.





Number
      of SharesFor
            
            
            WithheldMichael
      Sinclair
            
            
            44,987,149
            
            
            
            333,300Sidney
      Braun
            
            
            44,987,149
            
            
            
            333,300Lewis
      MacKenzie
            
            
            44,987,149
            
            
            
            333,300Koby
      (Jacob) Ofek
            
            
            44,987,149
            
            
            
            333,300Manfred
      Walt
            
            
            44,987,149
            
            
            
            333,300John
      Yarnell
            
            
            44,987,149
            
            
            
            333,300Ramesh
      Zacharias
            
            
            44,987,149
            
            
            
            333,300




ii.  To
ratify the selection of Grant Thornton LLP as the Company’s independent auditor
for fiscal year 2008.




For
            45,305,649Against
            14,800







ITEM 6.
EXHIBITS





Exhibit
31.1   Rule 13a-14(a)/15d-14(a) Certification of the Chief
Executive Officer of the Company.


Exhibit
31.2   Rule 13a-14(a)/15d-14(a) Certification of the Chief
Financial Officer of the Company.


Exhibit
32.1   Section 1350 Certification of Chief Executive
Officer




Exhibit
32.2   Section 1350 Certification of Chief Financial
Officer.






41


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.





MED-EMERG
      INTERNATIONAL INC.(Registrant)Principal
      Executive OfficerBy:
            /s/
      Dr. Ramesh ZachariasRamesh
      ZachariasChief
      Executive OfficerDate:
        November 14, 2008Principal
      Financial and Accounting Officer:By:
            /s/
      William DanisWilliam
      DanisChief
      Financial OfficerDate:
        November 14, 2008








42