**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 MARCH 31,
                2006


*OR*


o
              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 404Mississauga,
                Ontario, Canada
            L5N
                2W3(Address
                of Principal Executive Offices)
            (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 o





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
            o
            Accelerated
                Filer
            o
            Non-Accelerated
                Filer
            x








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











As
      of May
      15, 2006, 58,277,696 shares of the registrant’s common share were
      outstanding.







-
          1
          -





**MED-EMERG
      INTERNATIONAL INC.**





TABLE
      OF CONTENTS








PART
                  I: FINANCIAL INFORMATIONItem
                  1.
              Financial
                  StatementsItem
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition andResults
                  of OperationsItem
                  3.
              Quantitative
                  and Qualitative Disclosures about Market RiskItem
                  4.
              Controls
                  and ProceduresPART
                  II: OTHER INFORMATIONItem
                  1.
              Legal
                  ProceedingsItem
                  1A.
              Risk
                  FactorsItem
                  6.
              ExhibitsSignatures










**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**





Consolidated
      Balance Sheets as at March 31, 2006 (unaudited) and December 31, 2005 (audited)





Consolidated
      Statement of Operations and Deficit for the three months ended March 31, 2006
      and 2005 (unaudited)





Consolidated
      Statement of Cash Flows for the three months ended March 31, 2006 and 2005
      (unaudited)





Notes
      to
      Unaudited Consolidated Financial Statements


-
          2
          -





**Med-Emerg
      International Inc.**


**Consolidated
      Balance Sheet**


**As
      at March 31, 2006 (Unaudited) and December 31, 2005
      (Audited)**


**(in
      US$)**





March
                31
            
            December
                312006
            
            2005**Assets****Current
                assets**Cash
            
            $
            483,239
            
            $
            660,947Accounts
                receivable
            
            
            2,480,913
            
            
            2,104,758Prepaid
                expenses
                and other
            
            
            63,266
            
            
            85,730Discontinued
                operations (note 4 )
            
            
            912,234
            
            
            1,035,9603,939,652
            
            
            3,887,395Long-term
                investment
            
            
            83,195
            
            
            83,195Property,
                plant and equipment
            
            
            400,146
            
            
            409,920Goodwill
            
            
            237,596
            
            
            237,596$
            4,660,589
            
            $
            4,618,106**Liabilities
                and Shareholders' Equity****Current
                liabilities**Accounts
                payable
                and accrued liabilities
            
            $
            2,442,391
            
            $
            2,149,519Notes
                Payable
            
            
            599,991
            
            
            599,991Discontinued
                operations (note 4 )
            
            
            878,413
            
            
            1,194,4273,920,795
            
            
            3,943,937**Long-term
                liabilities**Long-term
                debt
            
            
            514,319
            
            
            592,6924,435,114
            
            
            4,536,629Contingent
                liabilities (note 9)**Shareholders'
                Equity**Capital
                stock (note
                5)
            
            
            16,044,736
            
            
            16,044,736Contributed
                surplus
                (note 6)
            
            
            2,985,693
            
            
            2,907,290Deficit
            
            
            (18,008,822
            )
            
            (18,077,662
            )Cumulative
                translation adjustment
            
            
            (796,132
            )
            
            (792,887
            )225,475
            
            
            81,477$
            4,660,589
            
            $
            4,618,106











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





-
          3
          -





**Med-Emerg
      International Inc.**


**Consolidated
      Statement of Operations and Deficit**


**Three
      months ended March 31, 2006 and 2005 (Unaudited)**


**(in
      US$)**


March
                31
            
            March
                312006
            
            2005**Revenue**
            
            $
            4,558,251
            
            $
            3,079,432**Physician
                fees and other direct costs**
            
            
            3,263,314
            
            
            2,271,5591,294,937
            
            
            807,873**Expenses**Salaries
                and
                benefits
            
            $
            736,923
            
            $
            665,107General
                and administration
            
            
            272,510
            
            
            227,968Occupancy
                costs
                and supplies
            
            
            165,306
            
            
            120,297Travel
                and marketing
            
            
            47,471
            
            
            73,8841,222,210
            
            
            1,087,256**Income
                (loss) before under noted items**
            
            
            72,727
            
            
            (279,383
            )Interest
                income
            
            
            -
            
            
            (5,390
            )Interest
                and
                financing expenses
            
            
            6,813
            
            
            -Amortization
                of
                property, plant, and equipment
            
            
            40,306
            
            
            42,657Stock
                compensation expense
            
            
            78,403
            
            
            251,117125,522
            
            
            288,384**Net
                loss before discontinued operations**
            
            
            (52,795
            )
            
            (567,767
            )**Discontinued
                operations**Income
                from discontinued operations (note 4 )
            
            
            121,635
            
            
            270,864**Net
                income (loss) attributable to common shareholders**
            
            
            68,840
            
            
            (296,903
            )**Deficit,
                beginning of the period**
            
            
            (18,077,662
            )
            
            (17,221,105
            )**Deficit,
                end of the period**
            
            $
            (18,008,822
            )
            $
            (17,518,008
            )**Basic
                earnings (loss) per common share**Continuing
                operations
            
            $
            (0.00
            )
            $
            (0.01
            )Discontinued
                operations
            
            $
            0.00
            
            $
            0.00**Total
                earnings (loss) per common share**
            
            $
            0.00
            
            $
            (0.01
            )**Weighted
                average common shares outstanding**
            
            
            58,277,696
            
            
            58,277,696


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





-
          4
          -


**Med-Emerg
      International Inc.**


**Consolidated
      Statement of Cash Flows**


**Three
      months ended March 31, 2006 and 2005 (Unaudited)**


**(in
      US$)**


March
                31
            
            March
                312006
            
            2005**Cash
                Flows from Operating Activities**Net
                loss before
                discontinued operations
            
            $
            (52,795
            )
            $
            (567,767
            )Adjustments
                for:Amortization
                of property, plant and equipment
            
            
            40,306
            
            
            42,657Stock
                compensation expense
            
            
            78,403
            
            
            251,11765,914
            
            
            (273,993
            )Decrease
                in
                non-cash working capital components
            
            
            (60,819
            )
            
            (355,237
            )Discontinued
                operations (note 4)
            
            
            (149,025
            )
            
            (188,024
            )(143,930
            )
            
            (817,254
            )**Cash
                Flows from Investing Activities**Additions
                to
                property, plant, and equipment
            
            
            (30,533
            )
            
            (19,165
            )Discontinued
                operations (note 4)
            
            
            
            
            
            307(30,533
            )
            
            (18,858
            )Effect
                of foreign currency exchange rate changes
            
            
            (3,245
            )
            
            (5,928
            )**Decrease
                in cash**
            
            
            (177,708
            )
            
            (842,040
            )Cash,
                beginning of the period
            
            
            660,947
            
            
            2,312,156**Cash,
                end of the period**
            
            $
            483,239
            
            $
            1,470,116




The
      accompanying notes are an integral part of these consolidated
      financial


-
          5
          -








**MED-EMERG
      INTERNATIONAL INC**


**Notes
      to Unaudited Consolidated Financial Statements**


**Three
      months ended March 31, 2006 and 2005**





**1.
      ORGANIZATION AND DESCRIPTION OF BUSINESS**





Med-Emerg
      International Inc. (“MEII” or the “Company”) provides quality healthcare
      management services to the Canadian healthcare industry.





The
      Company’s common shares and common share purchase warrants are quoted on the OTC
      Bulletin Board. The Company completed its initial public offering in February
      1998.





The
      Company’s operations are divided into three units: Staffing Solutions, Medical
      Services and Healthcare Consulting. From March 2001 through March 2005, the
      Company’s operations included a Government Healthcare Services unit. The
      operations of this unit were discontinued upon the expiration of the Company’s
      contract with the Canadian Department of National Defence (“DND”) on March 31,
      2005. See Note 4 - Discontinued Operations.





The
      Company’s Staffing Solutions unit 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 March 31, 2006,
      the
      Company had 42 physician and nurse staffing contracts.





The
      Medical Services division is comprised of (a) infusion services, (b) pain
      management services, and (c) two family medical clinics. The infusion business
      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. In November 2004, the Company acquired a pain management clinic and
      commenced offering services to Toronto-area residents who experience chronic
      pain. Subsequently, three additional clinics were opened. In January 2005,
      the
      Company resumed operation of a family medical clinic previously sold in 2003,
      after it failed to achieve certain earnings targets. In November 2005, the
      Company resumed operation of a second clinic, when the buyer defaulted on
      certain payment obligations. The Company is exploring opportunities to enhance
      clinic profitability by utilizing them for infusion and/or pain management
      services.





MEII
      provides Healthcare Consulting services to select Canadian private and public
      institutions on issues related to a variety of healthcare topics.





The
      Company was not awarded the successor contract to its previously held medical
      supply contract with DND. Effective March 31, 2005, the Company stopped
      providing services to DND (see Note 4).








**2.
      BASIS OF PRESENTATION**





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with Canadian generally accepted accounting principles (GAAP). These
      consolidated financial statements consolidate the accounts of MEII and all
      of
      its wholly-owned subsidiaries: 927563 Ontario Inc.; 927564 Ontario Inc.;
      Med-Emerg Inc.; Med-Emerg Health Centres Inc.; YFMC Healthcare Inc.; YFMC
      Healthcare (Alberta) Inc.; Doctors on Call Ltd; CPM Health Centres Inc. and
      OPA
      Locum Direct 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.


-
          6
          -





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 ended December 31, 2006.





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,
      2005 (the “2005 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 2005 Annual Report.








**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**


**(** **a)**   **Use
      of estimates**


The
      preparation of consolidated financial statements in conformity with Canadian
      GAAP 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,
      plant, and equipment and the rate of amortization related thereto. Actual
      results could differ from those estimates. When adjustments become necessary,
      those adjustments are reported in earnings in the period in which they become
      known.





**(b)**  **Long-term
      investments**





Investments
      are accounted for at cost when the conditions for equity accounting are not
      present, and on the equity basis when significant influence exists. Declines
      in
      market values of investments are expensed when such declines are considered
      to
      be other than temporary.




**(c)**  **Property,
      plant, and equipment**





Property,
      plant, and equipment are recorded at cost and are amortized over their estimated
      useful lives at the following rates and methods:





Furniture
                and fixtures
            20%
            Declining
                balanceComputer
                software
            100%
            Declining
                balanceComputer
                hardware
            30%
            Declining
                balanceLeasehold
                improvements
            3-5
                years
            Straight-line





**(d)**  **Goodwill**





Goodwill
      is the excess of the purchase price of assets over the fair value of the
      underlying net identifiable assets. The Company has adopted the Canadian
      Institute of Chartered Accountants (CICA) Handbook Section 3062 “Goodwill and
      Other Intangible Assets”, which states that goodwill and indefinite life
      intangible assets should no longer be amortized, but should be tested for
      impairment at least on an annual basis.





**(e)**  **Impairment
      charges**





At
      least
      annually and when events and circumstances warrant a review, the Company
      evaluates the carrying
      value of its assets for potential impairment. An impairment loss is recognized
      when the estimated net
      realizable value of any asset is less than its carrying value. Any impairment
      in
      assets is charged to earnings in the year.


-
          7
          -


**(f)**  **Revenue
      recognition**





The
      Company has adopted the provisions of CICA Emerging Issues Committee (EIC)
      Abstract 123 "Reporting
      Revenues Gross as Principal Versus Net as an Agent" (EIC 123) and Financial
      Accounting Standards Board (FASB) Emerging Issues Task Force ( EITF)
      Issue 99-19 “R *e* cording
      Revenue Gross as a Principal versus Net as an Agent” (EITF 99-19) .
      Both
      EIC 123 and EITF 99-19 address the reporting of revenue on a gross basis as
      a
      principal versus on a net basis as an agent. The pronouncements generally state
      that revenue should be reported on a gross basis if:





§  The
      enterprise is the primary obligor in the relationship;


§  The
      enterprise has latitude in establishing price;


§  The
      enterprise performs part of the service;


§  The
      enterprise has discretion in supplier selection;


§  The
      enterprise is involved in the determination of service specifications;
      and


§  The
      enterprise has credit risk.





With
      the
      exception of determining how the specific service is delivered, MEII meets
      the
      six tests identified for each of its service offerings. Accordingly, revenue
      is
      reported on a gross basis for all business units.





The
      following is a description of MEII’s revenue recognition policies for each of
      our significant business units.





**(1)
      Staffing Solutions:**





Revenue
      is reported on a gross basis.





MEII
      acts
      as a principal in providing these services. MEII (a) negotiates the price of
      these services with its customers; and (b) contracts with emergency room
      physician and nursing personnel to provide these services to healthcare
      facilities. MEII recruits, schedules and bills the customer for the services
      provided and bears the risk of non-payment.





Contracts
      are both fee-for-service and fixed monthly contracts. Contracts are negotiated
      annually and are cancelable by either party on 60 days notice.





Revenue
      is recognized on an accrual basis, as services are delivered, and when there
      is
      reasonable assurance of collection.








**(2)
      Medical Services:**





Revenue
      is reported on a gross basis.





Under
      contract with Schering Canada Inc., MEII acts as the coordinator for the
      community-based infusion of certain medications for the treatment of patients
      with rheumatoid arthritis, Crohn’s disease and certain other inflammatory
      diseases. MEII recruits, schedules and bills the customer for the services
      provided and encounters credit risk in the event of non-payment.





The
      Company acts as the principal in providing pain management treatments to
      patients in its Toronto-area clinics. MEII recruits, schedules and bills the
      customer for the services provided and encounters credit risk in the event
      of
      non-payment.


-
          8
          -





Revenue
      is recognized on a current basis, as services are delivered, and where there
      is
      reasonable assurance of collection.





**(3)
      Healthcare Consulting:**





Revenue
      is reported on a gross basis.





MEII
      has
      been retained by several provincial governments to advise on a variety of issues
      related to primary care staffing, training and integrated service delivery
      models. MEII also advises several aboriginal communities with regards to
      healthcare service issues.





Revenue
      is recognized over the life of each contract, based on the achievement of
      milestones specified in the contract, and when there is reasonable assurance
      of
      collection.





**(g)**  **Future
      income taxes**





The
      Company accounts for income taxes using the asset and liability method. Future
      tax assets and liabilities are recognized for the future taxes attributable
      to
      the temporary differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax carrying values. Future
      tax assets and liabilities are measured using enacted or substantially enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recovered or settled. A valuation
      allowance against future tax assets is provided to the extent that the
      realization of these future tax assets is not “more likely than
      not”.





**(h)**  **Cash**





Cash
      consists of cash on hand and balances with banks.





**(i)**  **Foreign
      currency translation**





The
      Company maintains its books and records in Canadian dollars. The consolidated
      financial statements are converted to U.S. dollars because the Company is a
      reporting issuer in the United States of America. The translation method used
      is
      the current rate method. Under the current rate method all assets and
      liabilities are translated at the current rate prevailing at the balance sheet
      date, shareholders’ equity (deficit) is translated at historical rates and all
      income and expense items are translated at average rates for the year. Due
      to
      the fact that items in the consolidated financial statements are being
      translated at different rates according to their nature, a translation
      adjustment is created. This translation adjustment has been included in the
      cumulative translation adjustment.





**(j)**  **Stock
      compensation expenses**





The
      Company has adopted CICA Handbook Section 3870 “ Stock-based
      Compensation and Other Stock-based Payments”. This
      section requires that a fair value based method of accounting be applied to
      all
      stock based payments to non-employees and to direct awards of stock to
      employees. The standard requires the recognition of a compensation expense
      for
      grants of stock, stock options, and other equity instruments to employees based
      on the estimated fair value of the instruments at the grant date.





**(k)**  **Loss
      per share attributable to common shareholders**





Basic
      loss per share attributable to common shareholders is computed by dividing
      the
      net loss attributable to common shareholders before discontinued operations
      over
      the weighted average number of common shares outstanding, including contingently
      issuable shares where the contingency has been resolved. Due to the loss for
      all
      periods presented, all potential common shares outstanding are considered
      anti-dilutive and are excluded from the calculation of diluted loss per
      share.


-
          9
          -





**4.
      DISCONTINUED OPERATIONS**





The
      Company’s contract with DND to provide personnel to Canadian armed forces across
      Canada expired on March 31, 2005. This was a significant contract generating
      separate identifiable cash flows, and hence it has been classified as a
      discontinued operation, and accounted for accordingly.





The
      summarized statements of income for the Discontinued Operations for the three
      months ended March 31, 2006 and 2005 are as follows:




**2006**
            
            **2005**Revenue
            
            $
            286,700
            
            $
            10,972,289Physician
                fees and other direct costs
            
            
            -
            
            
            10,299,918Gross
                margin
            
            
            286,700
            
            
            672,371Operating,
                general and administrativeexpenses
            
            
            130,249
            
            
            336,196Amortization
            
            
            -
            
            
            4,435Interest
                and financing
            
            
            34,816
            
            
            60,876Income
                from discontinued operations
            
            $
            121,635
            
            $
            270,864








The
      summarized balance sheets for the Discontinued Operations as at March 31, 2006
      and December 31, 2005 are
      as
      follows:




**March
                31,**
              **2006**
            
            **December
                31,**
              **2005**Current
                assetsCash
            
            $
            2,562
            
            $
            68,003Accounts receivable
            
            
            909,672
            
            
            967,957912,234
            
            
            1,035,960Current
                liabilitiesAccounts payable and
              accrued
                liabilities
            
            $
            878,413
            
            $
            1,194,427Net
                assets (liabilities)
            
            $
            33,821
            
            $
            (158,467
            )





**5.
      CAPITAL STOCK**





On
      June
      15, 2004, the Company issued to certain investors (the “Investors”) 39,360,272
      common shares for $4,500,000 in cash. As a condition of the transaction,
      preferred shares, of which Dr. Zacharias, the Chief Executive Officer of MEII,
      may have been deemed to be a beneficial owner, were converted into 9,348,000
      common shares; and unpaid preferred share dividends, in the amount of $579,582,
      were forgiven.


-
          10
          -




The
      investment resulted from the previously announced letter of intent signed by
      MEII and Global Healthcare Workforce Limited (“GHW”) of London, UK.





In
      addition to the shares purchased from the Company, the Investors purchased
      4,348,000 common shares from the former preferred shareholder for $500,000.
      Closing costs (including legal, travel and due diligence costs) for the equity
      financing amounted to $609,214, and were expensed during the second quarter
      of
      2004.





In
      addition to issuing the common shares, MEII also issued 13,518,750 anti-dilution
      warrants (the “New Warrants”) to the Investors and the former preferred
      shareholder, to purchase common shares of MEII at prices of either $0.50 per
      common share or $1.00 per common share. The exercise of the New Warrants is
      conditional upon the exercise of previously issued options and warrants to
      purchase common shares exercisable at $0.50 per common share and $1.00 per
      common share. The exercise of the New Warrants is intended to allow the
      Investors’ and former Preferred Shareholder to maintain their pro rata equity
      position.





In
      December 2005, the Company reduced from $0.50 to $0.20 the exercise price of
      the
      common share purchase warrants upon which exercise of the New Warrants is
      conditional. Accordingly, the exercise price of 5,031,250 of the New Warrants
      was also reduced from $0.50 to $0.20.





**6.
      CONTRIBUTED SURPLUS**





During
      the first quarter of 2006, the terms of the common share purchase warrants
      were
      amended, extending the expiry of these warrants from February 11, 2006 to August
      11, 2006. As a result of this, stock compensation expense of $69,876 was
      recorded. In addition, an amount of $8,527 has been recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the first quarter of 2005. These amounts have been credited
      to
      contributed surplus.





During
      the first quarter of 2005, the terms of the common share purchase warrants
      were
      amended, extending the expiry of these warrants from February 11, 2005 to
      February 11, 2006. As a result of this, stock compensation expense of $228,347
      was determined and was credited to contributed surplus. In addition, an amount
      of $26,006 has been recorded as stock compensation expense for options granted
      to an employee in 2004 for the portion that vested in the first quarter of
      2005.
      These amounts were credited to contributed surplus.





During
      the second quarter of 2005, an amount of $20,367 was recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the second quarter of 2005. These amounts were credited to
      contributed surplus.





During
      the third quarter of 2005, an amount of $16,921 was recorded as stock
      compensation expense for 100,000 options granted as per section 3870 of the
      CICA
      handbook. In addition, an amount of $8,619 was recorded as stock compensation
      expense for options granted to an employee in 2004 for the portion that vested
      in the third quarter of 2005. These amounts were credited to contributed
      surplus.





During
      the fourth quarter of 2005, an amount of $62,092 was recorded as stock
      compensation expense for re-pricing of warrants and this amount was credited
      to
      contributed surplus. In addition, an amount of $8,529 was recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the fourth quarter of 2005. These amounts were credited to
      contributed surplus.


-
          11
          -





**7.
      RELATED PARTY TRANSACTIONS**





During
      the first quarter of 2006, administrative fees of approximately $31,182
      (Cdn$36,000) were recorded for a related company ($NIL in the first quarter
      of
      2005).





**8.
      CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**





These
      consolidated financial statements have been prepared in accordance with Canadian
      GAAP, which conform in all material respects with accounting principles
      generally accepted in the United States (“U.S. GAAP”) during the periods
      presented, except with respect to the following:





(a)
      Shareholders’ equity (deficit)





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
      under
      Canadian GAAP was $1.25. The share price used for the YFMC Healthcare Inc.
      acquisition under U.S. GAAP was $1.859.





Under
      U.S. GAAP, detachable share 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 share purchase warrants issued
      in conjunction with the private stock offering on January 22, 1996 and
      subsequently surrendered, have been given no recognition in the financial
      statements. Under U.S. GAAP, based on an ascribed fair value of $0.364 for
      each
      of the 1,000,000 share warrants issued, share capital would be lower by $36,406
      and, given that the share purchase warrants were cancelled, the carrying amount
      of contributed surplus would be increased by $36,406.





Under
      U.S. GAAP the effect on shareholders’ equity (deficit) would be adjusted as
      follows:





March
                  31,
                2006
              
              December
                  31,  2005Capital
                  stock (as previously shown)
              
              $
              16,044,736
              
              $
              16,044,736Capital
                  stock issued on purchase of YFMC Healthcare Inc.
              
              
              1,087,872
              
              
              1,087,872Ascribed
                  fair value of share purchase warrants issued
              
              
              (36,406
              )
              
              (36,406
              )Capital
                  stock - U.S. GAAP
              
              
              17,096,202
              
              
              17,096,202Contributed
                  surplus (as previously shown)
              
              
              2,985,693
              
              
              2,907,290Share
                  purchase warrants
              
              
              36,406
              
              
              36,406Paid-in-capital
                  - U.S. GAAP
              
              
              3,022,099
              
              
              2,943,696Deficit
                  (as previously shown)
              
              
              (18,008,822
              )
              
              (18,077,662
              )Cumulative
                  translation adjustment
              
              
              (796,132
              )
              
              (792,887
              )Shareholders’
                  equity - U.S. GAAP
              
              $
              1,313,347
              
              $
              1,169,349





(b)
      Comprehensive loss





Statement
      of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for reporting and display of comprehensive
      loss and its components in the financial statements. Under U.S. GAAP, the
      comprehensive income (loss) for the three months ended March 31, 2006 and 2005
      would be adjusted as follows:


-
          12
          -





**March
                31,**
            
            **March
                31,****2006**
            
            **2005**Net
                income (loss) - U.S. GAAP
            
            $
            68,840
            
            
            ($296,903
            )Foreign
                currency translation adjustment
            
            
            (3,245
            )
            
            (5,928
            )Comprehensive
                income (loss)
            
            $
            65,595
            
            
            ($302,831
            )








**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 provides. The measurement of this
      uncertainty is not determinable and accordingly no provision has been made
      in
      respect thereof in these consolidated financial statements.





(ii)  There
      is
      uncertainty with respect to the Company’s liability arising from a contractual
      dispute with a customer. Based on the advice of counsel, the Company is of
      the
      view that it is unlikely that the Company will be found liable for these costs.
      The costs associated with this contingent liability range from $500 thousand
      to
      $1.5 million.





(iii)  Claims
      have been made against the Company for general damages for breach of contract
      and in tort. Claims for approximately $482,000 have been made against the
      company for wrongful termination of a person working on a third party contract.
      Another claim for unspecified damages has been made against the company for
      wrongful dismissal and breach of contract. The Company’s lawyers are of the view
      that liability, if any, would be the responsibility of the third party
      contractor. The Company’s lawyers are of the opinion that the amount claimed
      grossly exceeds what a court would award in light of the current law. Since
      the
      Company’s lawyers are of the opinion that these claims are 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 seven years, during the respective lease terms, totals $1.2 million.





Any
      liability resulting from the above will be reflected as a charge to income
      in
      the year incurred.





-
          13
          -


**ITEM
      1: 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.**





The
      Company’s operations are comprised of three business units: Staffing Solutions,
      Medical Services and Healthcare Consulting Services. During the first quarter
      of
      2006, 59% of the Company’s revenue was generated by the Staffing Solutions unit;
      32% by the Medical Services unit; and 9% by the Healthcare Consulting unit.
      From
      a Gross Margin perspective, the gross margin generated from the three business
      units was 39%, 42% and 19%, 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, and the growing cost
      of public medicine, play directly into the Company’s strengths.





The
      Company’s Staffing Solutions provide physician-staffing services to more than 40
      healthcare facilities across Ontario, including rural and urban hospitals as
      well as tertiary care centers and corrections facilities.





MEII’s
      Medical Services, which are delivered through wholly owned subsidiaries, include
      chronic pain management and intravenous infusion services for pharmaceutical
      companies in conveniently located community-based clinics and family medical
      clinics





The
      Company’s Healthcare Consulting Services provides custom solutions for
      governments and national and provincial bodies on a variety of matters including
      primary care renewal, project evaluation, and healthcare human resource
      planning.





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
      Medical Services, the Company tracks the number of infusions for Infusion
      Services and the number of patient referrals, average billing per patient and
      the number of patient visits for the pain management practice. For Healthcare
      Consulting Services, the Company tracks the gross margin per contract and our
      win / loss ratio on contract bids. We also measure certain key balance sheet
      ratios such as working capital, to monitor our cash flow situation.





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 Medical Services business is dependent on several factors. The
      Infusion business is reliant upon our ability to introduce new drug therapies
      through our 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. For Pain Management Services, growth is
      dependent on our ability to recruit additional doctors to provide pain
      therapies. With the long wait-times for patients to obtain adequate pain
      management treatment, patient demand is less of a concern for the Company.


-
          14
          -


The
      growth of Healthcare Consulting Services is dependent on market developments
      in
      Canadian healthcare. At this time, it is perceived that growth opportunities
      abound because of on-going demand for health human resource planning, primary
      healthcare reform initiatives and pandemic planning. For the Company to be
      successful it must improve its business development tools to ensure that it
      is
      in front of the right business opportunities.





*STAFFING
      SOLUTIONS*





MEII
      is
      the leading provider of ER doctors to Ontario hospitals. The Company provides
      physician-staffing services to more than 40 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, MEII has developed a unique integrated
      staffing solution, which was trialed with the Whitby Mental Health Centre,
      to
      recruit primary care physicians. Based on patient population, the nature of
      the
      cases being treated, and the total cost of the current system, MEII 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 ninth year
      of
      operation, has received high satisfaction ratings from both staff and patients,
      resulting in the Whitby Mental Health Centre 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 MEII
      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.





*MEDICAL
      SERVICES*





MEII
      provides innovative medical services directly to healthcare consumers.





*Infusion
      Services*





In
      March
      2001, MEII entered into an agreement with Schering Canada Inc. to become a
      coordinator for the community-based infusion of the medication known as
      RemicadeTM.  This contract capitalizes on the Company's access to clinics
      for the treatment of patients with disabling rheumatoid arthritis and Crohn's
      disease. The Company delivered more than 7,500 infusions in 2005 and almost
      2,200 infusions during the first quarter of 2006.





MEII
      expects continued growth for this service, as infusion services move from
      institutional settings into community-based settings.





As
      of
      March 31, 2006, the Company operated 14 virtual clinics across Ontario. On
      an
      as-required basis, the Company rents space in community-based medical clinics.
      MEII’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.





The
      Company continues to look for additional products to offer through its infusion
      clinics.


-
          15
          -





*Pain
      Management Services*





MEII’s
      chronic pain management service, CPM Health Centres Inc. (“CPM”), was launched
      in November 2004 with the acquisition of the Scarborough Pain Clinic. A second
      location, in downtown Toronto, was opened in December 2004, two more locations
      were opened in 2005, in Hamilton and Mississauga and a fifth clinic was recently
      opened in Oakville, a suburb of Toronto, Ontario.





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 President of the Canadian Pain Society, joined
      CPM
      as its Medical Director. Over the last 15 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 intends to increase the number of physicians available to treat those
      suffering from chronic pain and thereby improve service availability to a
      healthcare sector that is plagued by long wait times. The Company has developed
      and launched a training program specifically designed to educate emergency
      room
      physicians in chronic pain management. The second group of these doctors is
      now
      being scheduled to complete the clinical portion of their training in the
      Company’s Toronto-area clinics.





The
      clinic that CPM acquired in November 2004 increased monthly treatments from
      approximately 300 patients in November 2004 to more than 750 patients in March
      2006. Further, CPM as a whole more than quadrupled its volumes by seeing more
      than 1,300 patients in the month of March 2006, compared to the 289 patient
      visits in November of 2004.





Plans
      are
      underway to further increase capacity in 2006 by training more doctors and
      by
      opening additional clinic locations.





*Family
      Medical Clinics*




In
      January 2005, the Company resumed operation of a family medical clinic in
      Wallaceburg, Ontario that it had sold in 2003, after the purchaser failed to
      achieve certain earnings targets. In November 2005, the Company resumed
      operation of a second clinic in Calgary Alberta, when the buyer defaulted on
      certain payment obligations. The Company is exploring ways to enhance the
      performance of the Family Medical Clinics by utilizing them for infusion and/or
      pain management services.




*HEALTHCARE
      CONSULTING*





Over
      the
      years, MEII has developed significant experience in international and domestic
      healthcare consulting. Currently the Company is providing consulting services
      under several contracts, advising on a range of issues related to primary care
      staffing, health human resource planning, and integrated service delivery
      models.





In
      2005,
      the Company developed an innovative health human resource planning tool for
      the
      four Atlantic provinces (New Brunswick, Nova Scotia, Prince Edward Island and
      Newfoundland and Labrador). The tool focused on a needs based model as opposed
      to the traditional supply based design. This project received wide recognition
      in the marketplace and the Company expects that new business opportunities
      will
      arise as a consequence.


-
          16
          -


The
      Company was recently awarded a contract by a national association to provide
      consulting services in connection with planning for an influenza pandemic.
      The
      Company believes that this contract, like the one with the Atlantic provinces,
      has the potential to generate additional consulting opportunities.





In
      2005,
      the Company also completed projects for the Royal College of Physicians and
      Surgeons and the Canadian Nurses Association. Additionally, MEII also started
      five projects associated with the design and development of Family Health Teams
      (FHTs) across Ontario. The Company received five additional contracts in the
      first quarter of 2006.





MEII
      has
      used a ‘virtual’ model to build its healthcare consulting practice. Under the
      guidance of MEII’s Director of Health Services Consulting, the Company responds
      to contract tenders for projects that meet pre-defined criteria.
      Project-specific teams are assembled, based on the needs of the contract. The
      Company calls on the expertise of leading academics and industry leaders to
      work
      on specific projects. On a recent contract, the Company worked with two
      internationally recognized subject-matter experts, a former senior public-health
      officer and surgeon, two professors at leading Canadian universities, a lawyer,
      and a chief health human resource officer for a provincial government. In tandem
      with MEII’s own project manager, the contract was won in a competition against
      bids from several multi-national consulting firms.





**GOVERNMENT
      HEALTHCARE SERVICES - DISCONTINUED OPERATIONS**





In
      March
      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 Canadian 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. MEII responded to the tender proposal and its bid was one of three
      considered by PWGSC (the “New Contract”). In December 2004 MEII 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.





In
      January 2005 the Company filed a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  The Company believes that the
      successful bidder used confidential information obtained through the hiring
      of a
      former MEII employee to win the New Contract, and that the former MEII employee
      retained by the successful bidder breached his legal obligations by disclosing
      financial and other information confidential to MEII.





On
      January 31, 2005, the Company filed a complaint with the Canadian International
      Trade Tribunal (CITT).  The CITT is the
      administrative tribunal in Canada with the jurisdiction to conduct inquiries
      into complaints by potential suppliers concerning procurement by the federal
      government departments and agencies, including DND and PWGSC. In
      its
      submission to the CITT, MEII questioned the manner in which the Government
      of
      Canada’s procurement for the DND medical staffing contract, valued at
      $448,810,965, was conducted, including the evaluation of its proposal submitted
      in response to the Request for Proposal (RFP). Specifically, the Company alleged
      that PWGSC:





·
            Awarded
                the New Contract to a bidder that did not meet the mandatory requirements
                of the bid;


·
            Introduced
                unpublished evaluation criteria to the evaluation process,
                and


·
            Failed
                to properly apply the published evaluation
                criteria.





In
      filing
      the complaint, the Company sought to terminate the New Contract award to the
      winning bidder, to have MEII awarded the New Contract, or in the alternative,
      to
      have a new bid process conducted.  In the further alternative, the Company
      asked that it be compensated for lost profit on the contract and the costs
      associated with the filing of the complaint. On June 15, 2005 the CITT
      ruled that the Company’s complaint against PWGSC was valid, in part, and awarded
      the Company its reasonable costs. On July 15, 2005 the Company filed an
      application for judicial review into the CITT decision. In its decision the
      CITT
      held
      that PWGSC breached the applicable trade agreements in conducting its
      procurement. Despite this, the CITT declined to grant any remedy aside from
      the
      award of reasonable costs. On April 26, 2006, the Federal Court of Appeal (the
      Court) dismissed the Company’s application. The Court’s findings do not affect
      the Company’s action against the winning bidder and former
      employee.


-
          17
          -


During
      the first quarter of 2006, the Company had a profit from discontinued operations
      of $121,635, compared to $270,864 in the first quarter of 2005. The profit
      in
      the quarter arose when the Company entered in to a settlement agreement with
      PWGSC and DND regarding certain disputed amounts. Included in the profit amount
      was approximately $131,000 of expenses related to legal and consulting services
      incurred in protesting the loss of the contract and in trying to collect certain
      amounts owing for services rendered under the contract. The Company received
      approximately $385,000 from the settlement in the second quarter of 2006.





**RESULTS
      OF OPERATIONS**


**REVENUE**





The
      Company's revenue from continuing operations for the three months ended March
      31, 2006 was $4,558,251 compared to $3,079,432 for the three months ended March
      31, 2005.





The
      increase in revenue during the 2006 period over the comparable 2005 period
      of
      approximately 48% was attributable to an increase in all operating divisions.
      Divisional revenues were:





Quarter
                Ended March 31,Division
            
            2006
            
            2005Staffing
                Solutions
            
            $
            2,682,244
            
            $
            1,987,634Medical
                Services
            
            
            1,441,488
            
            
            784,080Consulting
            
            
            434,519
            
            
            307,718Total
            
            $
            4,558,251
            
            $
            3,079,432





Staffing
      revenues increased 35% in the first quarter of 2006 over 2005. This increase
      was
      primarily attributable to an increase in the number of staffing contracts.
      In
      late 2004 and early 2005, the Company undertook a review of its Staffing
      operations. To encourage growth, the Company reduced some of its rates.
      Reception to this initiative was strong and the result was that at the end
      of
      the first quarter of 2006 the Company managed 42 staffing contracts compared
      to
      28 contracts a year earlier.





Revenue
      from the Medical Services division increased 84% to $1,441,488 from $784,080
      in
      2005. The increase was driven by three factors.


1.
            In
                late 2004, the Company launched its Pain Management business. In
                the first
                quarter of 2006, the Pain Management business generated $627,272
                in
                revenue compared to $231,279 in 2005 as the Company grew from one
                to four
                clinics. The Pain Management business, as discussed last year, is
                an
                opportunity for the Company to generate considerable growth. It is
                a field
                of healthcare that is vastly under serviced in Canada. The Company
                has
                recently opened its fifth clinic location and more sites are scheduled
                for
                2006. It is anticipated that strong revenue growth will continue
                in the
                current fiscal year.


2.
            The
                Infusion business increased about $122,000 to $561,122 from $438,725
                in
                2005. The 28% increase in the Infusion business was driven by a 31%
                increase in infusions from 1,655 in the first quarter of 2005 to
                2,175 in
                the same quarter of 2006 offset by a 9% decrease in revenue per infusion.
                The decrease in ‘per infusion’ revenues was the result of a renegotiation
                of the supply arrangement with our major partner, which was effected
                in
                the latter part of 2005.


3.
            During
                2005, the Company re-assumed responsibility for two family medical
                clinics, one in January 2005 and the second in November 2005. These
                clinics generated $253,094 in revenue in the first quarter of 2006
                compared to $114,076 in 2005. In the first quarter of 2005, the Company
                operated one clinic in Wallaceburg, Ontario. During the first quarter
                of
                2006, the Company operated two family medical clinics, the Wallaceburg
                location and a second clinic in Calgary Alberta.


-
          18
          -





Revenue
      from Healthcare Consulting was $434,519 for the first quarter of the year
      compared to $307,718 for the quarter ended March 31, 2005, an increase of 41%.
      For the last two years the Company has increased its focus on its Consulting
      practice. Working with leading academics and industry experts, the Company
      has
      successfully bid on, and won, an increasing number of contracts. Our early
      successes in health human resource planning and primary care renewal have led
      to
      increased opportunities. Further, our experience with primary care led to our
      involvement, in 2005, with the Province of Ontario’s Family Health Team
      initiative. The Company has signed several contracts to assist community-based
      Family Health Teams to develop business plans for funding of their individual
      family health teams.




**GROSS
      MARGIN**





Gross
      Margin (revenue less physician and other direct costs) increased to $1,294,937
      (60%) for the first quarter of 2006, from $807,873 for the same period in
      2005.







Quarter
                  Ended March 31,Division
              
              2006
              
              2005Staffing
                  Solutions
              
              $
              495,805
              
              $
              358,628Medical
                  Services
              
              
              547,253
              
              
              262,945Consulting
              
              
              251,879
              
              
              186,300Total
              
              $
              1,294,937
              
              $
              807,873








The
      Gross
      Margin from the Staffing business increased to $495,805 from $358,628 in 2005.
      The increase of 38% was largely driven by the increase in the number of
      contracts under management and to a lesser extent by the increased strength
      of
      the Canadian dollar relative to the U.S. dollar. There was also an increase
      in
      the gross margin percentage, 18.7% in 2006 versus 17.5% in 2005, because the
      Company was better able to manage the direct costs associated with management
      of
      the contracts.





The
      Gross
      Margin from Medical Services increased 108%, or about $284,000 in the first
      quarter of 2006 compared to the same period in 2005. As discussed above
      concerning revenue, this is attributable to (a) the launch of the Pain
      management business ($136,000); (b) increased Infusion volumes ($67,000) and
      better margin per infusion ($29,000); and (c) the resumption of the family
      medical clinics ($52,000).





The
      Gross
      Margin from Consulting Services increased 35% for the first three months of
      2006
      from $186,300 in 2005 to $251,879 in 2006. The increase is Gross Margin is
      attributable to increased volume of activity in 2006.





**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.





On
      an
      overall basis, operating expenses increased 12.4%, or $137,000, to $1,222,210
      million for the first quarter of 2006 from $1,087,256 for the quarter ended
      March 31, 2005. The increase was attributable to increased costs associated
      with
      the Family Medical Clinics ($75,000), the Consulting business ($65,000) and
      the
      Pain business ($31,000). Net of these increases there was a reduction in
      operating costs of about $34,000. The reduction in costs were largely driven
      by
      a reduction in corporate overheads associated by staffing and other cost
      reductions ($30,000) implemented after the loss of the DND contract as the
      Company focused on growth in its existing business units.




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


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          19
          -





Quarter
                  Ended March 31,Division
              
              2006
              
              2005Staffing
                  Solutions
              
              $
              397,940
              
              $
              443,251Medical
                  Services
              
              
              600,798
              
              
              462,832Consulting
              
              
              223,472
              
              
              181,173Total
              
              $
              1,222,210
              
              $
              1,087,256











**AMORTIZATION
      AND INTEREST**





Amortization
      decreased from $42,657 for the three months ended March 31, 2005 to $40,306
      for
      the same period in 2006. During 2004 and 2005, the Company increased its capital
      spending on computer hardware and software and on office furniture and
      leaseholds. The equipment upgrades were part of a planned upgrade, which
      occurred after the May 2004 equity financing. The leasehold improvements arose
      after the Company moved its head office in June 2004. With capital expenditures
      diminishing in 2006, amortization for the period was reduced.





For
      the
      three months ended March 31, 2006, the Company incurred interest and financing
      charges of $6,813, compared to interest earned of $5,390 for the same period
      in
      2005. When the Company completed its financing in 2004, it went from a net
      borrower to a net investor of cash. In the first quarter of 2005 interest earned
      exceeded interest and other bank charges.





**OTHER
      EXPENSES**





Stock
      compensation expenses were $78,403 for the three month period ended March 31,
      2006 compared to $251,117 for the first quarter of 2005. Stock compensation
      expenses arise when options or warrants, issued to employees or others, vest.
      In
      2005, 1,437,500 share purchase warrants, that were set to expire, were extended
      by one year. In 2006, the same warrants were extended by six months. The
      exercise price of the share purchase warrants was also reduced from $0.50 to
      $0.20 in December 2005.





**INCOME
      TAXES**





The
      Company has loss carry forwards of approximately $10 million to be applied
      against future corporate income taxes. This benefit has not been reflected
      in
      these statements.







**DISCONTINUED
      OPERATIONS (GOVERNMENT HEALTHCARE SERVICES)**




In
      March
      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. MEII responded to the tender proposal and its bid was one of three
      considered by PWGSC (the New Contract). In December 2004 MEII 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.





In
      January 2005 the Company launched a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  The Company believes that the
      successful bidder used confidential information obtained through the hiring
      of a
      former MEII employee to win the New Contract, and that the former MEII employee
      retained by the successful bidder breached his legal obligations by disclosing
      financial and other information confidential to MEII.  On January 31, 2005,
      the Company filed a complaint with the Canadian International Trade Tribunal
      (CITT).


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          20
          -


The
      CITT
      is the
      administrative tribunal in Canada with the jurisdiction to conduct inquiries
      into complaints by potential suppliers concerning procurement by the federal
      government departments and agencies, including DND and PWGSC. In
      its
      submission to the CITT, MEII questioned the manner in which the Government
      of
      Canada’s procurement for the DND medical staffing contract, valued at
      $448,810,965, was conducted, including the evaluation of its proposal submitted
      in response to the Request for Proposal (RFP). Specifically, the Company alleged
      that PWGSC:





·
            Awarded
                the New Contract to a bidder that did not meet the mandatory requirements
                of the bid;


·
            Introduced
                unpublished evaluation criteria to the evaluation process,
                and


·
            Failed
                to properly apply the published evaluation
                criteria.





In
      filing
      the complaint, the Company sought to terminate the New Contract award to the
      winning bidder, to have MEII awarded the New Contract, or in the alternative,
      to
      have a new bid process conducted.  In the further alternative, the Company
      asked that it be compensated for lost profit on the contract and the costs
      associated with the filing of the complaint. On June 15, 2005 the CITT
      ruled that the Company’s complaint against PWGSC was valid, in part, and awarded
      the Company its reasonable costs. On July 15, 2005 the Company filed an
      application for judicial review into the CITT decision. In its decision the
      CITT
      held that PWGSC breached the applicable trade agreements in conducting its
      procurement. Despite this, the CITT declined to grant any remedy aside from
      the
      award of reasonable costs. On April 26, 2006, the Federal Court of Appeal (the
      Court) dismissed the Company’s application. The Court’s findings do not affect
      the Company’s action against the winning bidder and former
      employee.





During
      the first quarter of 2006, the Company had a profit from discontinued operations
      of $121,635, compared to $270,864 in the first quarter of 2005. The profit
      in
      the quarter arose when the Company reached agreement with PWGSC and DND
      regarding certain disputed amounts. Included in this amount was about $130,000
      of expenses related to legal and consulting services incurred while (a)
      protesting the loss of the contract and (b) in trying to collect certain amounts
      owing from the existing Contract. The Company received approximately $385,000
      from the settlement in the second quarter of 2006.





**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      at
      March 31, 2006, the Company's cash position was $483,239 compared to $660,947
      at
      December 31, 2005.





The
      Company’s principal source of liquidity is its cash flow from operations.
      Historically we have incurred operating losses. Losses were stabilized and
      reversed in the latter half of 2005 and this continued through the first quarter
      of 2006. The Company’s working capital position (current assets minus current
      liabilities) improved by about $75,000 in the first quarter. Based on the result
      of recent business initiatives, management anticipates that this positive trend
      will continue for the foreseeable future. **** The
      Company also settled a dispute with a former customer during the quarter. The
      Company received approximately $385,000 in settlement of the dispute in the
      second quarter of 2006.





The
      reduction in the cash position of ($177,708) in the first quarter of 2006
      resulted from (a) an increase of cash from operations of $66,000; (b) and
      changes to non-cash working capital items of ($61,000); (c) a ($149,000) change
      from discontinued operations, comprised of a $121,000 profit from discontinued
      operations and a ($270,000) decrease in working capital from discontinued
      operations; and (c) ($31,000) used by the Company in investing activities with
      respect to the purchase of property, plant and equipment. The investing
      activities largely related to funds used for the acquisition of leasehold
      improvements at the Company’s pain clinics.





The
      Company intends to expand its operations as fast as cash flow from operations,
      permits. As demand for the Company’s services remain strong, it is anticipated
      that cash flow from operations will satisfy our working capital and capital
      expenditure needs and other obligations, except for the payment of the $700,000
      of Notes Payable plus accrued interest. The Notes Payable are due September
      30,
      2006 and are
      payable, along with interest at the rate of 7%, in cash or shares, or any
      combination thereof, at the Company’s option. It is anticipated that the Notes
      Payableand
      interest will be settled through the issuance of additional common
      shares.


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          21
          -


There
      were no financing activities in 2006 or 2005. During 2004, financing activities
      generated $4.5 million of cash. Effective June 15, 2004, the Company issued
      39,360,272 common shares as part of an equity financing (the “Financing”). As a
      condition of the Financing, Preferred Shares, 50% of which were indirectly
      held
      by Dr. Zacharias, the CEO of MEII, were converted into 9,348,000 common shares
      and preferred share dividends, in the amount of $0.58 million, were forgiven.
      The preferred shares were redeemable in 2006, for common shares then valued
      at
      $4.5 million. In addition to issuing the common shares, MEII also issued,
      anti-dilution warrants (the “New Warrants”) to purchase common shares of MEII at
      prices of either $0.50 per common share or $1.00 per common share. The exercise
      of the New Warrants is directly tied to the exercise of existing options and
      warrants at $0.50 per common share and $1.00 per common share that are currently
      outstanding. The exercise of the New Warrants is intended to allow the new
      investors and former preferred shareholder to maintain their pro rata share
      of
      their equity position.





During
      the first quarter of 2005 the terms of the 1,437,500 common share purchase
      warrants issued in February 1998 were amended, extending the expiry of these
      warrants from February 11, 2005 to February 11, 2005. On
      February 10, 2006, the Company further extended the exercise period of the
      warrants from February 11, 2006 to August 11, 2006. MEII
      has
      also amended the terms of the warrants to provide that if the closing price
      of
      common shares of MEII is $.70 or greater for thirty consecutive trading days,
      MEII has the right to redeem the Warrants at $.01 per Warrant upon ten days
      prior notice. On
      December 15, 2005, the
      Company filed a post-effective amendment to its Registration Statement, reducing
      the exercise price from $0.50 to $0.20. As of the filing of this report, the
      amendment has not been declared effective by the SEC. Pursuant to this
      amendment, the conversion price of the New Warrants, was also reduced. The
      New
      Warrants are now convertible in a range of prices from $0.20 per common share
      to
      $1.00 per common share. The exercise of the New Warrants is directly tied to
      the
      exercise of existing options and warrants. If the underlying options and
      warrants are not exercised, the New Warrants may not be exercised.





**OFF
      BALANCE SHEET ARRANGEMENTS**





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







**CRITICAL
      ACCOUNTING POLICIES AND ASSUMPTIONS**





The
      preparation of consolidated financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent liabilities during the reporting period. Significant
      areas requiring the use of estimates relate to: 1) the reported amounts of
      revenues and expenses, 2) the assessment of collection risk associated with
      accounts receivable, 3) the disclosure of contingent liabilities. We evaluate
      our estimates on an on-going basis. We state our accounting policies in the
      notes to the audited consolidated financial statements and related notes for
      the
      year ended December 31, 2005, contained herein. These estimates are based on
      information that is currently available to us and on various other assumptions
      that we believe to be reasonable under the circumstances. Actual results could
      vary from those estimates under different assumptions or conditions. We believe
      that the following critical accounting policies affect the more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements:





§
            We
                maintain accruals for revenues, physician fees and other direct costs,
                salaries, benefits, and other costs. Major accruals, revenues and
                expenses, relate to the accrual of revenue and expenses associated
                with
                staffing contracts. These accruals are of a short duration; that
                is,
                revenues and expenses are generally known before financial statements
                are
                finalized. Based on historical experience our accruals have proven
                accurate. Should changes occur in the future, we may
                be required to revise our accrual
                assumptions.


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          22
          -


§
            We
                maintain an allowance for doubtful accounts for estimated losses
                resulting
                from fraudulent claims made by patients, the inability of our corporate
                customers to make required payments, or as a result of a dispute
                in the
                invoiced amount. Fraudulent claims arise when patients seek medical
                care
                and provide an invalid health card for payment. The introduction
                of
                electronic medical records services, which pre-screen patients prior
                to
                services being rendered, is rapidly diminishing our exposure to fraudulent
                claims by patients. We determine the adequacy of our bad debt allowance
                by
                continually evaluating individual customer receivables, considering
                the
                customer’s financial condition, credit history and current economic and
                business conditions. If the financial condition of our customers
                were to
                deteriorate, resulting in an impairment of their ability to make
                payments,
                additional allowances may be required. Historically losses on
                uncollectible accounts have not exceeded our allowances. As of December
                31, 2005, our allowance for doubtful accounts was $18 thousand (2004
                - $16
                thousand).


§
            We
                are subject to various claims and legal actions in the ordinary course
                of
                our business. These matters include breach of contract or similar
                matters
                arising from contractual disputes. Our hospital and healthcare facility
                clients may also become subject to claims, governmental inquiries
                and
                investigations and legal actions to which we may become a party relating
                to services provided by our professionals. From time to time, and
                depending upon the particular facts and circumstances, we may be
                subject
                to indemnification obligations under our contracts with our hospital
                and
                healthcare facility clients relating to these matters. Material pending
                legal proceedings brought against the Company are described in Item
                3.
                Legal Proceedings above. As mentioned, we are unable to determine
                our
                potential exposure regarding these lawsuits at this time. Similarly,
                we
                have other contingent liabilities that pertain to amounts potentially
                owing to government authorities. We continue to evaluate the probability
                of an adverse outcome and will provide accruals for such contingencies
                as
                required. We are currently not aware of any other such pending or
                threatened litigation or similar contingency that we believe is reasonably
                likely to have a material adverse effect on us. If we become aware
                of such
                claims against us, we will evaluate the probability of an adverse
                outcome
                and provide accruals, as required, at that
                time.





Recently
      Issued Accounting Pronouncements





SFAS
      No.
      149 - Amendment of statement 133 on derivative instruments and hedging
      activities. This statement amends and clarifies financial accounting and
      reporting for derivative instruments embedded in other contracts (collectively
      referred to as derivatives) and for hedging activities under FASB 133 accounting
      for derivative instruments and hedging activities.





SFAS
      No.
      150- Accounting for certain financial instruments with characteristics of both
      liabilities and equity. This statement establishes standards for how an issuer
      classifies and measures certain financial instruments with characteristics
      of
      both liabilities and equity.





SFAS
      No.
      151-Inventory Costs—an amendment of ARB No. 43, Chapter 4 (Issued 11/04). This
      Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
      to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material (spoilage).





SFAS
      No.
      152-Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB
      Statements No. 66 and 67. This Statement amends FASB Statement No. 66,
      Accounting for Sales of Real Estate, to reference the financial accounting
      and
      reporting guidance for real estate time-sharing transactions that is provided
      in
      AICPA Statement of Position.





SFAS
      No.
      153-Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The
      guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged.


-
          23
          -





SFAS
      No.
      123 (revised 2004)-Share-Based Payment. This Statement is a revision of FASB
      Statement No. 123, Accounting for Stock-Based Compensation. This Statement
      supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and
      its
      related implementation guidance.





SFAS
      No.
      132 (revised 2003)- Employers’ Disclosures about Pensions and Other
      Postretirement Benefits—an amendment of FASB Statements No. 87, 88, and 106
      (Issued 12/03). This Statement revises employers’ disclosures about pension
      plans and other postretirement benefit plans. It does not change the measurement
      or recognition of those plans required by FASB Statements No. 87, Employers’
Accounting for Pensions, No. 88, Employers’ Accounting for Settlements and
      Curtailments of Defined Benefit Pension Plans and for Termination Benefits,
      and
      No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions.





The
      Company believes that the above standards would not have a material impact
      on
      its financial position, results of operations or cash flows as it relates to
      the
      reconciliation of Canadian and United States accounting policy
      differences **.**











**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: CONTROLS AND PROCEDURES**





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in its Exchange Act reports is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC's rules and forms, and that such information is accumulated and
      communicated to management, including the Company’s Chief Executive Officer and
      Chief Financial Officer, as appropriate, to allow timely decisions regarding
      required disclosure based closely on the definition of "disclosure controls
      and
      procedures" in Rule 13a-14(c).





As
      of the
      end of the period covered by this report, the Company carried out an evaluation,
      under the supervision and with participation of management, including the
      Company’s Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of the design and operation of its disclosure controls and
      procedures. Based on the foregoing, the Company’s Chief Executive Officer and
      Chief Financial Officer concluded that the Company’s disclosure controls and
      procedures were effective.





During
      the quarter ended March 31, 2006, there have been no changes in the Company’s
      internal controls over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, these controls.








**PART
      II: OTHER INFORMATION**








ITEM
      1A.
      RISK FACTORS





There
      have been no material changes in our risk factors from those disclosed in our
      2005 Annual Report on Form 10-K.





-
          24
          -


**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
                Certification
                    of the Chief Executive Officer pursuant to 18 U.S.C.
                    Section1350,
                    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                    of
                    2002Exhibit
                    32.2
                Certification
                    of the Chief Financial Officer pursuant to 18 U.S.C.
                    Section1350,
                    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                    of
                    2002.





-
          25
          -


**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)





By:
      /s/
      William Danis


William
      Danis


Chief
      Financial Officer


(on
      behalf of the Registrant and as principal financial officer)


Date:  May
      15,
      2006




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