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 JUNE 30, 2008


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 non­accelerated 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 o     Smaller
reporting company x


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


As of
August 13, 2008, 58,277,696 of the registrant’s common shares were outstanding.
The aggregate market value of the shares of the issuer's common stock held by
non-affiliates was approximately $1,960,000 based on the last reported sale
price of $0.07 per share on August 13, 2008 as quoted on the OTC Bulletin
Board.


1
  MED-EMERG
INTERNATIONAL INC.
 
 TABLE
OF CONTENTS
 
 
 PART
      I:  FINANCIAL
      INFORMATION
                  3ITEM
      1.  CONDENSED FINANCIAL STATEMENTS
                  3Consolidated
      Balance Sheets as at June 30, 2008 (Unaudited) and December 31,
      2007
                  4Consolidated Statementof Deficit for the three and six
      months ended June 30, 2008 and June 30, 2007 (Unaudited)
                  5Consolidated Statements of
      Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss for
      the three and six months ended June 30, 2008 and June 30,   2007
      (Unaudited)
                  5Consolidated Statement
      of Operations for the three and six months ended June 30, 2008 andJune 30,
      2007 (Unaudited)
                  6Consolidated Statement
      of Cash Flows for the three and six months ended June 30, 2008 and June
      30,2007
      (Unaudited)
                  7Notes to the Unaudited
      Consolidated Financial Statements for the three and six months ended June
      30,2008
      and June 30,
      2007
                  8ITEM 2:
      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  22ITEM 3:
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                  34ITEM 4:
      CONTROLS AND PROCEDURES
                  34PART
      II:  OTHER INFORMATION
                  35ITEM 6.
      EXHIBITS
                  35SIGNATURES
                  36
 
 2
 
  SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product and service
demand and acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks described in
this document and in other reports filed from time to time with the Securities
and Exchange Commission. All such forward-looking statements are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany the forward-looking statements. In addition, Med Emerg
International Inc. disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date
hereof.
 
 
 PART
I:  FINANCIAL INFORMATION
 
 ITEM 1.  CONDENSED
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 3
 
 Med-Emerg
International Inc.
 Consolidated
Balance Sheets
 As
at June 30, 2008 and December 31, 2007
 (in
US$)
 
 June
      30
                  
                  
                  December
      312008
                  
                  
                  2007ASSETS
                  
                  (Unaudited)Current
      assetsCash
      and cash equivalents
                  
                  $
                  2,373,944
                  
                  
                  $
                  2,291,005Accounts
      receivable
                  
                  
                  3,314,217
                  
                  
                  
                  3,149,967Prepaid
      expenses and other
                  
                  
                  549,721
                  
                  
                  
                  525,978Discontinued
      operations (Note 4)
                  
                  
                  8,774
                  
                  
                  
                  -6,246,656
                  
                  
                  
                  5,966,950Property
      and equipment
                  
                  
                  1,237,926
                  
                  
                  
                  1,314,849Goodwill
                  
                  
                  237,596
                  
                  
                  
                  237,596Other
      intangible assets
                  
                  
                  14,444
                  
                  
                  
                  9,152$
                  7,736,622
                  
                  
                  $
                  7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                  
                  $
                  2,604,815
                  
                  
                  $
                  2,506,416Deferred
      revenue
                  
                  
                  266,124
                  
                  
                  
                  247,189Current
      portion of long-term debt
                  
                  
                  348,338
                  
                  
                  
                  445,026Discontinued
      operations (Note 4)
                  
                  
                  274,853
                  
                  
                  
                  296,0073,494,130
                  
                  
                  
                  3,494,638Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Notes 6 and
    8(a))
                  
                  
                  3,119,225
                  
                  
                  
                  3,153,6896,613,355
                  
                  
                  
                  6,648,327Contingent
      liabilities (Note 9)SHAREHOLDERS'
      EQUITYCapital
      stock
                  
                  
                  16,420,668
                  
                  
                  
                  16,420,668Contributed
      surplus
                  
                  
                  3,106,792
                  
                  
                  
                  3,106,792Deficit
                  
                  
                  (17,674,842
                  )
                  
                  
                  (17,949,550
                  )Accumulated
      other comprehensive loss
                  
                  
                  (
      729,351
                  )
                  
                  
                  (697,690
                  )1,123,267
                  
                  
                  
                  880,220$
                  7,736,622
                  
                  
                  $
                  7,528,547
 The
accompanying notes are an integral part of these consolidated financial
statements.
   4
 Med-Emerg
International Inc.
 Consolidated
Statement of Deficit
 For
the Three and Six months Ended June 30, 2008 and 2007
(Unaudited)
 (in
US$)
 
 THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Balance,
      beginning of period
                  
                  $
                  (17,955,901
                  )
                  
                  $
                  (17,567,687
                  )
                  
                  $
                  (17,949,550
                  )
                  
                  $
                  (17,236,979
                  )Net
      income (loss) attributable to common shareholders
                  
                  
                  281,059
                  
                  
                  
                  (235,733
                  )
                  
                  
                  274,708
                  
                  
                  
                  (566,441
                  )Balance,
      end of period
                  
                  $
                  (17,674,842
                  )
                  
                  $
                  (17,803,420
                  )
                  
                  $
                  (17,674,842
                  )
                  
                  $
                  (17,803,420
                  )
 Med-Emerg
International Inc.
 Consolidated
Statements of Comprehensive Income (Loss) and Accumulated Other Comprehensive
Loss
 For
the Three and Six months Ended June 30, 2008 and 2007
(Unaudited)
 (in
US$)
 
 THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      income (loss) attributable to common shareholders
                  
                  $
                  281,059
                  
                  
                  $
                  (235,733
                  )
                  
                  $
                  274,708
                  
                  
                  $
                  (566,441
                  )Other
      comprehensive income (loss)Change
      in cumulative translation adjustment
                  
                  
                  4,788
                  
                  
                  
                  74,781
                  
                  
                  
                  (31,661
                  )
                  
                  
                  81,806Comprehensive
      income (loss) for the period, attributable to common
      shareholders
                  
                  $
                  285,847
                  
                  
                  $
                  (160,952
                  )
                  
                  $
                  243,047
                  
                  
                  $
                  (484,635
                  )Accumulated
      other comprehensive loss, beginning of period
                  
                  $
                  (734,139
                  )
                  
                  $
                  (842,527
                  )
                  
                  $
                  (697,690
                  )
                  
                  $
                  (
      849,552
                  )Other
      comprehensive income (loss)
                  
                  
                  4,788
                  
                  
                  
                  74,781
                  
                  
                  
                  (31,661
                  )
                  
                  
                  81,806Accumulated
      other comprehensive loss, end of period
                  
                  $
                  (729,351
                  )
                  
                  $
                  (767,746
                  )
                  
                  $
                  (729,351
                  )
                  
                  $
                  (767,746
                  )
 The
accompanying notes are an integral part of these consolidated financial
statements.
  5
 Med-Emerg
International Inc.
 Consolidated
Statement of Operations
 For
the Three and Six months Ended June 30, 2008 and 2007
(Unaudited)
 (in
US$)
 
 THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  6,131,286
                  
                  
                  $
                  5,251,798
                  
                  
                  $
                  11,596,042
                  
                  
                  $
                  10,074,272Physician
      fees and other direct costs
                  
                  
                  4,131,506
                  
                  
                  
                  3,659,440
                  
                  
                  
                  7,843,266
                  
                  
                  
                  7,262,2541,999,780
                  
                  
                  
                  1,592,358
                  
                  
                  
                  3,752,776
                  
                  
                  
                  2,812,018ExpensesSalaries and
      benefits
                  
                  
                  895,322
                  
                  
                  
                  819,255
                  
                  
                  
                  1,763,698
                  
                  
                  
                  1,588,536General
      and administration
                  
                  
                  425,704
                  
                  
                  
                  377,253
                  
                  
                  
                  835,447
                  
                  
                  
                  788,594Occupancy costs
      and supplies
                  
                  
                  239,146
                  
                  
                  
                  175,363
                  
                  
                  
                  470,490
                  
                  
                  
                  310,400Travel
      and marketing
                  
                  
                  168,777
                  
                  
                  
                  112,177
                  
                  
                  
                  233,383
                  
                  
                  
                  165,303Interest
      income, net of bank charges
                  
                  
                  (
      9,464
                  )
                  
                  
                  (32,930
                  )
                  
                  
                  (21,280
                  )
                  
                  
                  (45,705
                  )Interest on
      long-term debt
                  
                  
                  25,277
                  
                  
                  
                  39,883
                  
                  
                  
                  49,846
                  
                  
                  
                  68,980Amortization of
      property and equipment
                  
                  
                  90,726
                  
                  
                  
                  81,785
                  
                  
                  
                  174,707
                  
                  
                  
                  129,667Interest
      expense on financial liability carried at amortized
    cost
                  
                  
                  357
                  
                  
                  
                  4,279
                  
                  
                  
                  1,792
                  
                  
                  
                  9,0361,835,845
                  
                  
                  
                  1,577,065
                  
                  
                  
                  3,508,083
                  
                  
                  
                  3,014,811Income
      (loss) before discontinued operations
                  
                  
                  163,935
                  
                  
                  
                  15,293
                  
                  
                  
                  244,693
                  
                  
                  
                  (202,793
                  )Discontinued
      operationsNet
      income (loss) from discontinued operations (Note 4)
                  
                  
                  117,124
                  
                  
                  
                  (251,026
                  )
                  
                  
                  30,015
                  
                  
                  
                  (363,648
                  )Net
      income (loss) attributable to common shareholders
                  
                  $
                  281,059
                  
                  
                  $
                  (235,733
                  )
                  
                  $
                  274,708
                  
                  
                  $
                  (566,441
                  )Net
      income (loss) per common share, basicContinuing
      operations
                  
                  $
                  0.003
                  
                  
                  $
                  0.000
                  
                  
                  $
                  0.004
                  
                  
                  $
                  (0.003
                  )Discontinued
      operations
                  
                  $
                  0.002
                  
                  
                  $
                  (0.004
                  )
                  
                  $
                  0.001
                  
                  
                  $
                  (0.006
                  )$
                  0.005
                  
                  
                  $
                  (0.004
                  )
                  
                  $
                  0.005
                  
                  
                  $
                  (0.010
                  )Weighted
      average common shares outstanding
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696Net
      income (loss) per common share, dilutedContinuing
      operations
                  
                  $
                  0.002
                  
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.004
                  
                  
                  $
                  (0.00
                  )Discontinued
      operations
                  
                  $
                  0.002
                  
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.000
                  
                  
                  $
                  (0.00
                  )$
                  0.004
                  
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.004
                  
                  
                  $
                  (0.00
                  )Weighted
      average common shares and share equivalents, diluted
                  
                  
                  67,027,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  67,027,696
                  
                  
                  
                  58,277,696
 The
accompanying notes are an integral part of these consolidated financial
statements.
  6
 
 Med-Emerg
International Inc.
 Consolidated
Statement of Cash Flows
 For
the Three and Six months Ended June 30, 2008 and 2007
(Unaudited)
 (in
US$)
 
 THREE
      MONTHS ENDED
                    
                    
                    SIX
      MONTHS ENDEDJune
      30
                    
                    
                    June
      30
                    
                    
                    June
      30
                    
                    
                    June
      302008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Cash
      Flows from (used in) Operating ActivitiesNet
      income (loss) before discontinued operations
                    
                    $
                    163,935
                    
                    
                    $
                    15,293
                    
                    
                    $
                    244,693
                    
                    
                    $
                    (202,793
                    )Adjustments
      for:Amortization of
      property and equipment
                    
                    
                    90,725
                    
                    
                    
                    81,785
                    
                    
                    
                    174,707
                    
                    
                    
                    129,667Interest
      expense on financial liability carried at amortized
    cost
                    
                    
                    357
                    
                    
                    
                    4,279
                    
                    
                    
                    1,792
                    
                    
                    
                    9,036Accretion of
      expense on Series I Shares
                    
                    
                    26,942
                    
                    
                    
                    23,853
                    
                    
                    
                    54,042
                    
                    
                    
                    47,956281,959
                    
                    
                    
                    125,210
                    
                    
                    
                    475,234
                    
                    
                    
                    (16,134
                    )Decrease in
      non-cash working capital items
                    
                    
                    (45,329
                    )
                    
                    
                    (104,757
                    )
                    
                    
                    (97,560
                    )
                    
                    
                    (485,499
                    )Discontinued
      operations
                    
                    
                    41,422
                    
                    
                    
                    (214,735
                    )
                    
                    
                    8
      ,059
                    
                    
                    
                    (265,701
                    )278,052
                    
                    
                    
                    (194,282
                    )
                    
                    
                    385,733
                    
                    
                    
                    (767,334
                    )Cash
      Flows from (used in) Investing ActivitiesAdditions to
      property and equipment
                    
                    
                    (95,360
                    )
                    
                    
                    (374,250
                    )
                    
                    
                    (133,898
                    )
                    
                    
                    (760,796
                    )Additions to
      other intangible assets
                    
                    
                    (4,115
                    )
                    
                    
                    -
                    
                    
                    
                    (5,293
                    )
                    
                    
                    -(99,475
                    )
                    
                    
                    (374,250
                    )
                    
                    
                    (139,191
                    )
                    
                    
                    (760,796
                    )Cash
      Flows from (used in) Financing ActivitiesRepayment
      of long-term debt
                    
                    
                    (48,344
                    )
                    
                    
                    (114,900
                    )
                    
                    
                    (96,687
                    )
                    
                    
                    (75,784
                    )(48,344
                    )
                    
                    
                    (114,900
                    )
                    
                    
                    (96,687
                    )
                    
                    
                    (75,784
                    )Effect of foreign currency exchange rate changes on cash and cash
      equivalents
                    
                    
                    13,064
                    
                    
                    
                    251,008
                    
                    
                    
                    (66,916
                    )
                    
                    
                    336,519Increase
      (decrease) in cash and cash equivalents
                    
                    
                    143,297
                    
                    
                    
                    (432,424
                    )
                    
                    
                    82,939
                    
                    
                    
                    (1,267,395
                    )Cash and cash equivalents, beginning of
      the period
                    
                    
                    2
      ,230,647
                    
                    
                    
                    3,193,157
                    
                    
                    
                    2,291,005
                    
                    
                    
                    4,028,128Cash
      and cash equivalents, end of the period
                    
                    $
                    2,373,944
                    
                    
                    $
                    2,760,733
                    
                    
                    $
                    2,373,944
                    
                    
                    $
                    2,760,733
 The
accompanying notes are an integral part of these consolidated financial
statements.
 7
  MED-EMERG
INTERNATIONAL INC
 Notes
to Unaudited Interim Consolidated Financial Statements
 For
the Three and Six Months ended June 30, 2008 and 2007
 
 1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
 
 Med-Emerg
International Inc. (“MedEmerg or the “Company”) provides quality healthcare
solutions to the Canadian healthcare industry.
 
 The
Company is publicly traded and listed on the OTC Bulletin Board. The Company
completed its initial public offering in February 1998.
 
 The
Company’s operations are carried out in three units: Staffing Solutions,
Infusion Services and Pain Management Services.  Prior to 2008 the
Company was also provided Healthcare Consulting Services and prior to 2005 was
involved in the Government Healthcare Services (including Department of National
Defence “DND”). See Discontinued Operations - Note 4.
 
 For
Staffing Solutions, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals and
federal corrections facilities, on a contractual basis, and physician and nurse
practitioners to select long-term facilities in Ontario. At June 30, 2008, the
Company had more than 40 physician and nurse staffing contracts in approximately
35 facilities across Ontario.
 
 The
Infusion Services division provides special access Remicadeä infusion services to
patients suffering from a variety of inflammatory disorders including Crohn’s
disease and rheumatoid arthritis, at clinic locations across
Ontario.  In July, 2008, the Infusion Services business expanded its
operations into Quebec.
 
 The
Pain Management business was launched in November 2004, when the Company
acquired a pain management clinic and commenced offering services to
Toronto-area residents who experience chronic pain.  Since then, ten
additional clinics have opened.
 
 2.
BASIS OF PRESENTATION
 
 The
accompanying consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (GAAP). These
consolidated financial statements consolidate the accounts of MedEmerg its
wholly-owned subsidiaries: Med-Emerg Inc., CPM Health Centres Inc. and CIM
Centres d'interventions de médicales inc.
 
 Significant
intercompany accounts and transactions have been eliminated on
consolidation.
 
 The
consolidated financial statements are expressed in U.S. dollars. Differences
between Canadian and United States accounting principles are described in Note
8.
 
 In the
opinion of management, the unaudited interim consolidated financial statements
follow the same accounting policies and methods of application as the most
recent audited annual financial statements.
 
 Operating
results for the interim periods are not necessarily indicative of the results
that may be expected for the year ending December 31, 2008.
 
 These
unaudited consolidated financial statements are condensed, and do not include
all disclosures required for annual financial statements, which are contained in
the notes to the Company’s audited consolidated financial statements filed as
part of the Company’s Annual Report on Form 10-K for the year ended December 31,
2007 (the “2007 Annual Report”). These unaudited consolidated financial
statements, footnote disclosures and other information should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the 2007 Annual Report.
  8
 
 3.
SUMMARY OF SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
 
 (a)
                Deferred
      start-up costs
 
 In the
fourth quarter of 2007 the Company changed the manner in which it accounted for
pre-operating expenses.  In the first three quarters of 2007, the
Company applied EIC 27 with respect to the capitalization and amortization of
costs associated with the pre-operating period of the Company’s pain management
centers.  Given the Company’s continued losses in the pain management
business, it was determined in the fourth quarter of 2007 that it was
appropriate to expense the costs in the period in which they were
incurred.  The comparative results presented for the three and six month
periods ended June 30, 2007, include expenses of approximately $43,500 and
$86,000 respectively that were previously deferred.  The change in
policy had no impact on the results under U.S. GAAP as the costs were recorded
as expenses in the period incurred.
 
 (b)
                Financial
      instruments - disclosures
 
 On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook.   This Section replaces the disclosure requirements of
the previous Section 3861 “Financial Instruments - Disclosure and
Presentation”and
converges with International Financial Reporting Standard IFRS 7. The new
disclosure standard increases the emphasis on the risks associated with both
recognized and unrecognized financial instruments and how those risks are
managed. The new presentation standard carries forward the former presentation
requirements.
 
 The
Company determined that there was no impact to its financial statement
presentation from the adoption Section 3862 of the CICA Handbook.
 
 (c)
                Financial
      instruments - presentation
 
 On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook.  This Section is consistent with
the previous CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.
 
 The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 3863 of the CICA
Handbook.
 
 (d)
                Going
      concern
 
 On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook.  Section 1400
was amended to include the requirements for assessing and disclosing an entity’s
ability to continue as a going concern from International Financial Reporting
Standard IAS 1.
 
 The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 1400 of the CICA
Handbook.
 
 (e)
                Capital
      disclosure
 
 On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook.  This Section requires disclosure about capital and is
harmonized with recently amended International Financial Reporting Standard IAS
1.  The standard is applicable to all entities, regardless of whether
they have financial instruments.  Entities are required to disclose
information about its objectives, policies and processes for managing capital,
as well as its compliance with any externally imposed capital requirements,
where they may exist.
  The
Company’s disclosures now conform to this Section 1535 of the CICA
Handbook.
 
 9
  
 (f)
                Future
      accounting policies
 
 (1)
                Goodwill
      and intangible assets
 
 In
February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
replacing Section 3062, Goodwill and Other Intangible Assets. Various changes
have been made to other sections of the CICA Handbook for consistency purposes.
The new Section will be applicable to financial statements relating to fiscal
years beginning on or after October 1, 2008. Accordingly, the Company will adopt
the new standards for its fiscal year beginning January 1, 2009. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition, and of intangible
assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The Company
is currently evaluating the impact of the adoption of this new Section on its
consolidated financial statements. The Company does not expect that the adoption
of this new Section will have a material impact on its consolidated financial
statements.
 
 (2)
                International
      Financial Reporting Standards
 
 In
2006, the Canadian Accounting Standards Board (“AcSB”`) adopted its Strategic
Plan, which includes the decision to move financial reporting for Canadian
publicly accountable companies to the International Financial Reporting
Standards (“IFRSs”), as issued by the International Accounting Standards Board
(“IASB”). Under the AcSB’s plan, this new framework will be effective for fiscal
years beginning on or after January 1, 2011.  Information regarding
the Company’s plan for convergence and the anticipated effects on its financial
statements is to be disclosed prior to the adoption, with the first disclosure
expected to be made in the consolidated financial statements for the year ending
December 31, 2008.
 
 4.
DISCONTINUED OPERATIONS
 
 Family
Medical Clinics Sale
 
 In 2003
the Company sold its Family Medical Clinic operations, comprised of 16
clinics.
 
 Ownership
of two of the family medical clinics sold in 2003 reverted to the Company in
2005.  During 2007 the Company disposed of these assets.
 
 Government
Healthcare Services (including Department of National Defence)
 
 In
March of 2001, the Company was awarded an administrative management services
contract (“the Contract”), the largest of its kind, to provide medical staffing
for military bases of the Department of National Defence (“DND”) across Canada.
The Contract had an initial period of three years ending on March 31, 2004, but
it was amended and extended until March 31, 2005.
 
 In May
2004, Public Works and Government Services Canada (“PWGSC”) re-tendered the
Contract.  Med-Emerg responded to the tender proposal and its bid was
one of three considered by PWGSC (“the New Contract”).  In December
2004 Med-Emerg learned that it was not successful in its bid to win the New
Contract with DND.  Its contractual relationship with the Canadian
government for DND medical staffing services ended on March 31, 2005.
 
 10
  Healthcare
Consulting
 
 In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts.  Accordingly
the results of the Healthcare Consulting business have been reclassified as
discontinued operations.
 
 The
income from discontinued operations for the six months ended June 30, 2008, is
comprised of a loss from the Family Medical Clinics of $6,300 (2007 - $125,208),
from the DND Contract of $368 (2007 - income of $3,941), and income from
Healthcare Consulting of $36,683 (2007 - a loss of $242,381).
  THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  349,235
                  
                  
                  $
                  274,817
                  
                  
                  $
                  605,188
                  
                  
                  $
                  683,632Physician
      fees and other direct costs
                  
                  
                  (38,274
                  )
                  
                  
                  122,514
                  
                  
                  
                  (9,471
                  )
                  
                  
                  278,618Gross
      margin
                  
                  
                  387,509
                  
                  
                  
                  152,303
                  
                  
                  
                  614,659
                  
                  
                  
                  405,014Operating,
      general and administrativeexpenses
                  
                  
                  258,969
                  
                  
                  
                  409,639
                  
                  
                  
                  562,403
                  
                  
                  
                  767,752Amortization
                  
                  
                  6,720
                  
                  
                  
                  6,338
                  
                  
                  
                  12,563
                  
                  
                  
                  12,156Interest and
      other  expenses
                  
                  
                  4,696
                  
                  
                  
                  (12,648
                  )
                  
                  
                  9,678
                  
                  
                  
                  (11,246
                  )Income (loss)
      from discontinued operations
                  
                  $
                  117,124
                  
                  
                  $
                  (251,026
                  )
                  
                  $
                  30,015
                  
                  
                  $
                  (363,648
                  )
  Results
of discontinued operations for 2007 have been adjusted to reflect the impact of
the decision taken in February 2008 to discontinue the Healthcare Consulting
business.  The adjustment had the following impact on the 2007
results:
  THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30, 2007
                  
                  
                  June
      30, 2007(as
      previously
                  
                  
                  (as
      adjusted)
                  
                  
                  (as
      previously
                  
                  
                  (as
      adjusted)reported)
                  
                  
                  
                  
                  
                  reported)Revenue
                  
                  $
                  174,330
                  
                  
                  $
                  274,817
                  
                  
                  $
                  334,468
                  
                  
                  $
                  683,632Physician
      fees and other direct costs
                  
                  
                  86,215
                  
                  
                  
                  122,514
                  
                  
                  
                  163,052
                  
                  
                  
                  278,618Gross
      margin
                  
                  
                  88,115
                  
                  
                  
                  152,303
                  
                  
                  
                  171,416
                  
                  
                  
                  405,014Operating,
      general and administrative expenses
                  
                  
                  157,447
                  
                  
                  
                  409,639
                  
                  
                  
                  296,244
                  
                  
                  
                  767,752Amortization
                  
                  
                  -
                  
                  
                  
                  6,338
                  
                  
                  
                  -
                  
                  
                  
                  12,156Other
      expenses
                  
                  
                  (4,963
                  )
                  
                  
                  (12,648
                  )
                  
                  
                  (3,561
                  )
                  
                  
                  (11,246
                  )Loss from
      discontinued operations
                  
                  $
                  (64,369
                  )
                  
                  $
                  (251,026
                  )
                  
                  $
                  (121,267
                  )
                  
                  $
                  (363,648
                  )
 
  11
 
 
 The
following summarizes the Balance Sheet for discontinued operations as
at:
  June
      30 2008
                  
                  
                  December
      31, 2007AssetsCurrentAccounts
      receivable
                  
                  $
                  8,774
                  
                  
                  $
                  -LiabilitiesCurrentAccounts
      payable and accrued liabilities
                  
                  $
                  114,780
                  
                  
                  $
                  296,007Deferred
      revenue
                  
                  
                  160,073
                  
                  
                  
                  -274,853
                  
                  
                  
                  296,007Net
      liabilities
                  
                  $
                  (266,079
                  )
                  
                  $
                  (
      296,007
                  )
 
 The accounts payable and accrued liabilities pertains to the
Goods and Services Tax (“GST”) which is payable over a period of five years, as
per an agreement between the Company and the Canada Revenue Agency
(“CRA”).  The GST obligation arose on revenues associated with the DND
contract.  An amount of $29,420 (CDN$30,000) is payable monthly and is
reviewable every six months. The CRA has the right to register a Lien under the
Personal Property Security Act with the Province of Ontario to secure its
position.
 
 5.
FUTURE INCOME TAXES
 
 The
Company continues to fully recognize its tax benefits which are offset by a
valuation allowance to the extent that, it is not more likely than not that, the
deferred tax assets will be realized. As at June 30, 2008, the Company had
unrecognized tax benefits of approximately $1,970,000 (2007 - $3,100,000)
associated with non-capital losses carried forward and tax pools of
approximately $5,900,000 (2007 - $9,200,000) expiring in varying amounts from
2008 to 2027.  In addition the Company has property and equipment tax
pools in excess of the net book value totaling approximately $200,000 (2007 -
$353,000) available to reduce taxable income and which are not subject to
expiry.
 
 The
Company files federal and provincial income tax returns in
Canada.  The Company is generally no longer subject to income tax
examinations by provincial and Federal tax authorities for years before
2005.
 
 The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the six months
ended June 30, 2008 and 2007, there were no such interest or
penalties.
 
 6.
REDEEMABLE, CONVERTIBLE SERIES I SPECIAL SHARES
 
 On July
11, 2006, the Company executed definitive agreements with Calian Technologies
Ltd. for the private placement of 8,750,000 shares of the Company’s newly
designated Series I Special Shares (the “Series I Shares”) for aggregate gross
proceeds to the Company of CDN$3.5 million ($3.1 million).  On July
12, 2006, the Company received CDN$1.75 million ($1.57 million). The remainder
of the funds consisting of CDN$ 1.75 million ($1.57 million) were received by
the Company as follows: (i) the amount of CDN$0.875 million ($0.785 million) was
received on August 30, 2006, upon the filing by the Company of a registration
statement covering the resale of the Common Shares underlying the Series I
Shares and the (ii) remainder of the consideration was received on September 21,
2006, when the registration statement was declared effective by the Securities
and Exchange Commission.  The Series I Shares have a term of five
years.
 
 12
  The
Series I Shares are, at the option of the holder, convertible at any time into
the Company’s Common Shares, at an initial conversion rate of one Common Share
for each Series I Share, subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger. Commencing
on the second anniversary of issuance, the Company is entitled to require the
conversion of outstanding Series I Shares at the applicable conversion rate,
provided that the following conditions are satisfied: (i) the volume weighted
average trading price (VWAP) of the Company’s Common Share on the principal
exchange or market (including the OTC Bulletin Board) on which the Common Shares
are traded or quoted is greater than or equal to $0.46 (as may be adjusted in
respect of any stock split) during any 60 consecutive calendar day period, (ii)
the total volume of Common Shares traded over such period exceeds
600,000 shares (as adjusted to reflect any stock splits), and (iii) the Company
delivers written notice of such conversion to the holders of the Series I Shares
within 10 days of the satisfaction of the above conditions. The Company's right
to require such conversion is further subject to there being an effective
registration statement at the time covering the resale of the Common Shares
underlying the Series I Shares.  If not converted into Common Shares
prior to the fifth anniversary of issuance, the Series I Shares are
automatically redeemable at the sole discretion of the Company in either (a)
cash at a rate of $0.45 per share or (b) in Common Shares of the Company based
on the VWAP of the Common Shares of the Company during the sixty (60)
consecutive calendar day period immediately preceding the fifth
anniversary.  In the event of a change in control, the Series I Shares
are also required to be redeemed in cash at a rate of $0.45 per
share.  The mandatory redemption and conversion features of the Series
I Shares result in the classification of separate liability and equity
components of the Series I Shares.
 
 The
Series I Shares have been accounted for as a compound financial instrument
consisting of both a financial liability and equity component.  The
proceeds of the Series I Shares were allocated to the two components based on
the present value of the future redemption value of the Series I Shares,
discounted at a reasonable rate of return, considering the terms of the
investment that could be earned by the holder of the Series I
Shares.
 
 7.
RELATED PARTY TRANSACTIONS
 
 There
were no related party transactions during the period and there are no related
party balances outstanding at June 30, 2008 or December 31,
2007.   Transactions, when incurred, are recorded at their
exchange amount which is the amount agreed to by the related
parties.
 
 8.
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
 
 Those
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”) which, in
most respects, conforms to accounting principles generally accepted in the
United States of America (“U.S. GAAP”).  The significant differences
in those principles, as they apply to the Company’s balance sheets, statements
of operations, comprehensive income (loss), accumulated other comprehensive
income (loss), and cash flows, are described below.
 
 Reconciliation
of Net Earnings under Canadian GAAP to US GAAP
  THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net income
      (loss) - Canadian GAAP
                  
                  $
                  281,059
                  
                  
                  $
                  (235,733
                  )
                  
                  $
                  274,708
                  
                  
                  $
                  (566,441
                  )Impact of
      accretion expense (Note 8(a))
                  
                  
                  26,942
                  
                  
                  
                  23,853
                  
                  
                  
                  54,042
                  
                  
                  
                  47,956Interest
      expense on financial liability carried at amortized cost (Note
      8(e))
                  
                  
                  357
                  
                  
                  
                  4,279
                  
                  
                  
                  1,792
                  
                  
                  
                  9,036Net income
      (loss) - U.S. GAAP
                  
                  $
                  308,358
                  
                  
                  $
                  (207,601
                  )
                  
                  $
                  330,542
                  
                  
                  $
                  (509,449
                  )
  13
 Consolidated
      Statement of Earnings - U.S. GAAP
                  
                  THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  6,131,286
                  
                  
                  $
                  5,251,798
                  
                  
                  $
                  11,596,042
                  
                  
                  $
                  10,074,272Physician
      fees and other direct costs
                  
                  
                  4,131,506
                  
                  
                  
                  3,659,440
                  
                  
                  
                  7,843,266
                  
                  
                  
                  7,262,2541,999,780
                  
                  
                  
                  1,592,358
                  
                  
                  
                  3,752,776
                  
                  
                  
                  2,812,018ExpensesSalaries and
      benefits
                  
                  
                  895,322
                  
                  
                  
                  819,255
                  
                  
                  
                  1,763,698
                  
                  
                  
                  1,588,536General
      and administration
                  
                  
                  425,704
                  
                  
                  
                  377,254
                  
                  
                  
                  835,447
                  
                  
                  
                  788,594Occupancy costs
      and supplies
                  
                  
                  239,146
                  
                  
                  
                  175,363
                  
                  
                  
                  470,490
                  
                  
                  
                  310,400Travel
      and marketing
                  
                  
                  168,777
                  
                  
                  
                  112,177
                  
                  
                  
                  233,383
                  
                  
                  
                  165,303Interest
      (income) expense, net of bank charges
                  
                  
                  (
      9,464
                  )
                  
                  
                  (32,930
                  )
                  
                  
                  (21,280
                  )
                  
                  
                  (45,705
                  )Interest on
      long-term debt
                  
                  
                  (1,665
                  )
                  
                  
                  16,029
                  
                  
                  
                  (4,196
                  )
                  
                  
                  21,024Amortization of
      property and equipment
                  
                  
                  90,726
                  
                  
                  
                  81,785
                  
                  
                  
                  174,707
                  
                  
                  
                  129,6671,808,547
                  
                  
                  
                  1,548,933
                  
                  
                  
                  3,452,249
                  
                  
                  
                  2,957,819Income
      (loss) before discontinued operations
                  
                  
                  191,234
                  
                  
                  
                  43,425
                  
                  
                  
                  300,527
                  
                  
                  
                  (145,801
                  )Net
      income (loss) from discontinued operations
                  
                  
                  117,124
                  
                  
                  
                  (251,026
                  )
                  
                  
                  30,015
                  
                  
                  
                  (363,648
                  )Net
      income (loss) attributable to common shareholders - U.S.
      GAAP
                  
                  $
                  308,358
                  
                  
                  $
                  (207,601
                  )
                  
                  $
                  330,542
                  
                  
                  $
                  (509,449
                  )Net
      income (loss) per share, basic and diluted - U.S.
    GAAPContinuing
      operations
                  
                  $
                  0.003
                  
                  
                  $
                  0.001
                  
                  
                  $
                  0.005
                  
                  
                  $
                  (0.003
                  )Discontinued
      operations
                  
                  $
                  0.002
                  
                  
                  $
                  (0.004
                  )
                  
                  $
                  0.001
                  
                  
                  $
                  (0.006
                  )Weighted
      average common shares and share equivalents, basic
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  58,277,696Net
      income (loss) per common share, dilutedContinuing
      operations
                  
                  $
                  0.003
                  
                  
                  $
                  0.001
                  
                  
                  $
                  0.004
                  
                  
                  $
                  (0.003
                  )Discontinued
      operations
                  
                  $
                  0.002
                  
                  
                  $
                  (0.004
                  )
                  
                  $
                  0.000
                  
                  
                  $
                  (0.006
                  )Weighted
      average common shares and share equivalents, diluted
                  
                  
                  67,027,696
                  
                  
                  
                  58,277,696
                  
                  
                  
                  67,027,696
                  
                  
                  
                  58,277,696
 THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30 2008
                  
                  
                  June
      30 2007
                  
                  
                  June
      30 2008
                  
                  
                  June
      30 2007Net
      income (loss) - U.S. GAAP
                  
                  
                  308,358
                  
                  
                  
                  (207,601
                  )
                  
                  
                  3
      30,542
                  
                  
                  
                  (509,449
                  )Foreign
      currency translation adjustment
                  
                  
                  27,858
                  
                  
                  
                  220,299
                  
                  
                  
                  (109,395
                  )
                  
                  
                  328,254Comprehensive
      loss
                  
                  $
                  336,217
                  
                  
                  $
                  12,698
                  
                  
                  $
                  221,147 $
                  
                  
                  
                  (181,195
                  )
 
 THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Accumulated
      other comprehensive loss, beginning of period
                  
                  $
                  (455,232
                  )
                  
                  $
                  (785,863
                  )
                  
                  $
                  (317,979
                  )
                  
                  $
                  (792,888
                  )Other
      comprehensive (loss) income
                  
                  
                  27,858
                  
                  
                  
                  220,299
                  
                  
                  
                  (109,395
                  )
                  
                  
                  328,254Accumulated
      other comprehensive loss, end of period
                  
                  $
                  (427,374
                  )
                  
                  $
                  (565,564
                  )
                  
                  $
                  (427,374
                  )
                  
                  $
                  (464,634
                  )
  14
  Consolidated
Balance Sheets
 As At June
      30, 2008
                  
                  
                  As At December
      31, 2007As
      reported
                  
                  
                  U.S.
      GAAP
                  
                  
                  As
      reported
                  
                  
                  U.S.
      GAAPCurrent
      assetsCash
                  
                  $
                  2,373,944
                  
                  
                  $
                  2,373,944
                  
                  
                  $
                  2,291,005
                  
                  
                  $
                  2,291,005Accounts
      receivable
                  
                  
                  3,314,217
                  
                  
                  
                  3,314,217
                  
                  
                  
                  3,149,967
                  
                  
                  
                  3,149,967Prepaid
      expenses and other
                  
                  
                  549,721
                  
                  
                  
                  549,721
                  
                  
                  
                  525,978
                  
                  
                  
                  525,978Discontinued
      operations
                  
                  
                  8,774
                  
                  
                  
                  8,774
                  
                  
                  
                  -
                  
                  
                  
                  -6,246,656
                  
                  
                  
                  6,246,656
                  
                  
                  
                  5,966,950
                  
                  
                  
                  5,966,950Property
      and equipment
                  
                  
                  1,237,926
                  
                  
                  
                  1,237,926
                  
                  
                  
                  1,314,849
                  
                  
                  
                  1,314,849Goodwill
                  
                  
                  237,596
                  
                  
                  
                  237,596
                  
                  
                  
                  237,596
                  
                  
                  
                  237,596Other
      intangible assets
                  
                  
                  14,444
                  
                  
                  
                  14,444
                  
                  
                  
                  9,152
                  
                  
                  
                  9,152$
                  7,736,622
                  
                  
                  $
                  7,736,622
                  
                  
                  $
                  7,528,547
                  
                  
                  $
                  7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 8(e))
                  
                  $
                  2,604,815
                  
                  
                  $
                  2,606,608
                  
                  
                  $
                  2,506,416
                  
                  
                  $
                  2,507,665Deferred
      revenue
                  
                  
                  266,124
                  
                  
                  
                  266,124
                  
                  
                  
                  247,189
                  
                  
                  
                  247,189Current
      portion of long-term debt
                  
                  
                  348,338
                  
                  
                  
                  348,338
                  
                  
                  
                  445,026
                  
                  
                  
                  445,026Discontinued
      operations
                  
                  
                  274,853
                  
                  
                  
                  274,853
                  
                  
                  
                  296,007
                  
                  
                  
                  296,0073,494,130
                  
                  
                  
                  3,495,923
                  
                  
                  
                  3,494,638
                  
                  
                  
                  3,495,887Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Note 8(a))
                  
                  
                  3,119,225
                  
                  
                  
                  -
                  
                  
                  
                  3,153,689
                  
                  
                  
                  -3,119,225
                  
                  
                  
                  -
                  
                  
                  
                  3,153,689
                  
                  
                  
                  -6,613,355
                  
                  
                  
                  3,495,923
                  
                  
                  
                  6,648,327
                  
                  
                  
                  3,495,887Series
      1 Special Shares (Note 8(a))
                  
                  
                  -
                  
                  
                  
                  3,106,475
                  
                  
                  
                  -
                  
                  
                  
                  3,106,475SHAREHOLDERS'
      EQUITYCapital
      stock (Notes 8 (a, b, c))
                  
                  
                  16,420,668
                  
                  
                  
                  16,990,091
                  
                  
                  
                  16,420,668
                  
                  
                  
                  16,990,091Contributed
      surplus (Note 8 ( c ))
                  
                  
                  3,106,792
                  
                  
                  
                  3,143,198
                  
                  
                  
                  3,106,792
                  
                  
                  
                  3,143,198Deficit
      (Notes 8 (a, b, e))
                  
                  
                  (17,674,842
                  )
                  
                  
                  (18,571,690
                  )
                  
                  
                  (17,949,550
                  )
                  
                  
                  (18,889,125
                  )Accumulated
      other comprehensive loss (Note 8 (f))
                  
                  
                  (729,351
                  )
                  
                  
                  (427,375
                  )
                  
                  
                  (697,690
                  )
                  
                  
                  (317,979
                  )1,123,267
                  
                  
                  
                  1,134,224
                  
                  
                  
                  880,220
                  
                  
                  
                  926,185$
                  7,736,622
                  
                  
                  $
                  7,736,622
                  
                  
                  $
                  7,528,547
                  
                  
                  $
                  7,528,547
 
 Consolidated
      Statement of Cash Flows
                  
                  THREE
      MONTHS ENDED
                  
                  
                  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      30
                  
                  
                  June
      30
                  
                  
                  June
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Operating
      activitiesNet
      income (loss) before discontinued operations
                  
                  $
                  191,234
                  
                  
                  $
                  43,425
                  
                  
                  $
                  300,527
                  
                  
                  $
                  (145,801
                  )Adjustments
      for:Amortization of
      property and equipment
                  
                  
                  90,726
                  
                  
                  
                  81,785
                  
                  
                  
                  174,707
                  
                  
                  
                  129,667281,960
                  
                  
                  
                  125,210
                  
                  
                  
                  475,234
                  
                  
                  
                  (16,134
                  )Decrease in
      non-cash working capital components
                  
                  
                  (45,330
                  )
                  
                  
                  (104,757
                  )
                  
                  
                  (97,560
                  )
                  
                  
                  (485,499
                  )Discontinued
      operations
                  
                  
                  41,422
                  
                  
                  
                  (214,735
                  )
                  
                  
                  8,059
                  
                  
                  
                  (265,701
                  )278,052
                  
                  
                  
                  (194,282
                  )
                  
                  
                  385,733
                  
                  
                  
                  (767,334
                  )Cash
      Flows used in Investing ActivitiesAdditions to
      property and equipment
                  
                  
                  (95,360
                  )
                  
                  
                  (374,250
                  )
                  
                  
                  (133,898
                  )
                  
                  
                  (760,796
                  )Additions to
      other intangible assets
                  
                  
                  (4,115
                  )
                  
                  
                  -
                  
                  
                  
                  (5,293
                  )
                  
                  
                  -(99,475
                  )
                  
                  
                  (374,250
                  )
                  
                  
                  (139,191
                  )
                  
                  
                  (760,796
                  )Cash
      Flows used in Financing ActivitiesRepayment of
      long-term debt
                  
                  
                  (48,344
                  )
                  
                  
                  (114,900
                  )
                  
                  
                  (96,687
                  )
                  
                  
                  (75,784
                  )(48,344
                  )
                  
                  
                  (114,900
                  )
                  
                  
                  (96,687
                  )
                  
                  
                  (75,784
                  )Effect
      of foreign currency exchange rate changes on cash and cash
      equivalents
                  
                  
                  13,064
                  
                  
                  
                  251,008
                  
                  
                  
                  (66,916
                  )
                  
                  
                  336,519Increase
      (decrease) in cash and cash equivalents
                  
                  
                  1
      43,297
                  
                  
                  
                  (432,424
                  )
                  
                  
                  82,939
                  
                  
                  
                  (1,267,395
                  )Cash
      and cash equivalents, beginning of the period
                  
                  
                  2
      ,230,647
                  
                  
                  
                  3,193,157
                  
                  
                  
                  2,291,005
                  
                  
                  
                  4,028,128Cash
      and cash equivalents, end of the period
                  
                  $
                  2,373,944
                  
                  
                  $
                  2,760,733
                  
                  
                  $
                  2,373,944
                  
                  
                  $
                  2,760,733
    
 15
 
 (a)           Redeemable,
convertible Series I Special Shares
 
 The
Series I Shares are accounted for as a compound financial instrument comprising
both a financial liability and equity under Canadian GAAP, because of their
underlying terms and conditions, which include a mandatory redemption feature.
Under U.S. GAAP, EITF Abstract Topic D-98 Classification and Measurement of
Redeemable Securitiesrecommends that shares that are redeemable for cash
based on an occurrence of events outside of the control of the company should be
classified outside of shareholders’ equity. The Series I Shares, which are
redeemable for cash in the event of a change in control, are presented outside
of shareholders’ equity for U.S. GAAP purposes. At this time it is management’s
intention to redeem the Series I Shares through the issuance of common
shares.
 
 As a
result of accounting for the Series I Shares as a compound financial instrument
under Canadian GAAP, the liability component is accreted to the face value of
the shares over the five year period to maturity.  As the Series I
Shares are not a liability for U.S. GAAP purposes the accretion expense charged
to net income for the period under Canadian GAAP is reversed for U.S. GAAP
purposes.  Furthermore, since under U.S. GAAP the Series I Shares are
“quasi-equity” the face value is adjusted to the initial U.S. dollar value on
issuance and the foreign currency translation adjustment recorded under Canadian
GAAP relating to the liability component is reversed for U.S. GAAP
purposes.
 
 The
reconciliation of Canadian to U.S. GAAP for the Series I Shares is as
follows:
  June
      30
                  
                  
                  December
      312008
                  
                  
                  2007Liability
      portion of redeemable, convertible Series I Shares - Canadian
      GAAP
                  
                  $
                  3,119,225
                  
                  
                  $
                  3,153,689Impact
      of accretion expense
                  
                  
                  (192,816
                  )
                  
                  
                  (149,546
                  )Equity
      portion of redeemable, convertible Series I Shares
                  
                  
                  4
      82,043
                  
                  
                  
                  482,043Translation
      adjustment attributable to Series I Shares
                  
                  
                  (301,976
                  )
                  
                  
                  (379,711
                  )Series
      I Shares - U.S. GAAP
                  
                  $
                  3,106,475
                  
                  
                  $
                  3,106,475
  (b)           Share
capital, goodwill and correction of prior period error
 
 Under
Canadian GAAP, the purchase price of an acquisition is determined based on the
share price on the date the transaction is consummated. Under U.S. GAAP, the
purchase price of an acquisition where shares are issued is determined based on
the share price for the period surrounding the announcement date of the
acquisition. The share price used for the YFMC Healthcare Inc. acquisition in
1999 under Canadian GAAP was $1.25. The share price used for the YFMC Healthcare
Inc. acquisition under U.S. GAAP was $1.859. The difference was allocated to
goodwill at that time and, subsequently, the goodwill was impaired and
written-off.
 
 (c)           Stock
purchase warrants
 
 Under
U.S. GAAP, detachable stock purchase warrants are given separate recognition
from the primary security issued.  Upon initial recognition, the
carrying amount of the two securities is allocated based on the relative fair
values at the date of issuance.  Under Canadian GAAP, the detachable
stock purchase warrants issued in conjunction with the private stock offering on
January 22, 1996 and subsequently surrendered, have been given no recognition in
the consolidated financial statements. Under U.S. GAAP, based on an ascribed
fair value of $0.364 for each of the 1,000,000 share purchase warrants issued,
share capital would be lower by $36,406 and, given that the share purchase
warrants were cancelled, the carrying amount of contributed surplus would be
increased by $36,406.
 
 16
  (d)             Accounting
for income taxes
 
 On
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The interpretation
requires that the Company recognize the impact of a tax position in the
financial statements if that position is more likely than not to be sustained on
audit, based on the technical merits of the position. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods and disclosure. In accordance with the provisions of FIN 48,
any cumulative effect resulting from the change in accounting principle is to be
recorded as an adjustment to the opening balance of deficit. The adoption of FIN
48 did not result in a material impact on the Company’s financial position or
results of operations.
 
 Under
U.S. GAAP enacted tax rates are used to calculate deferred taxes, whereas
Canadian GAAP uses substantively enacted tax rates.  The future income
tax adjustments included in the reconciliation of net earnings under Canadian
GAAP to U.S. GAAP and the balance sheet effects include the effect of such
rate-differences, if any, as well as the tax effect of the other reconciling
items noted.
 
 (e)             Financial
instruments - recognition and measurement
 
 On
January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
and Measurement”. It describes the standards for recognizing and measuring
financial instruments in the balance sheet and the standards for reporting gains
and losses in the financial statements. Financial assets available for sale,
assets and liabilities held for trading and derivative financial instruments,
whether part of a hedging relationship or not, have to be measured at fair
value.  The adoption of this Section was done retroactively without
restatement of the consolidated financial statements of prior periods. As at
January 1, 2007, the impact on the consolidated balance sheet of measuring the
financial assets and liabilities using the effective interest rate method was a
decrease in accounts payable and opening deficit of $16,972, of which $1,792 was
amortized to earnings during the six months ended June 30, 2008 (2007 -
$9,036).  U.S. GAAP does not require a similar measurement of
financial instruments.
 
 (f)           Comprehensive
loss
 
 Statement
of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for reporting and display of comprehensive
income and its components in the consolidated financial
statements.  Under U.S. GAAP the foreign currency translation
adjustment recorded for the period and included in the cumulative translation
adjustment in shareholders’ equity is included in comprehensive income
(loss).  The foreign currency translation adjustments are not
currently adjusted for income taxes. The company is situated in Canada, and the
foreign currency translation adjustments relate to the translation of the
consolidated financial statements from Canadian dollars into United States
dollars, solely for the convenience of the readers.
 
 17
  The
effect of these accounting differences on capital stock, contributed surplus,
deficit and cumulative translation adjustment are as follows:
  June
      30
                  
                  
                  December
      312008
                  
                  
                  2007Capital
      stock - Canadian GAAP
                  
                  $
                  16,420,668
                  
                  
                  $
                  16,420,668Capital
      stock issued on purchase of YFMC Healthcare Inc. (Note
      8(b))
                  
                  
                  1,087,872
                  
                  
                  
                  1,087,872Ascribed
      fair value of share purchase warrants issued (Note 8( c
      ))
                  
                  
                  (36,406
                  )
                  
                  
                  (36,406
                  )Equity
      portion of redeemable Series I Shares (Note 8(a))
                  
                  
                  (482,043
                  )
                  
                  
                  (482,043
                  )Capital
      stock - U.S. GAAP
                  
                  $
                  16,990,091
                  
                  
                  $
                  16,990,091Contributed
      surplus - Canadian GAAP
                  
                  $
                  3,106,792
                  
                  
                  $
                  3,106,792Share
      purchase warrants (Note 8( c ))
                  
                  
                  36,406
                  
                  
                  
                  36,406Contributed
      surplus - U.S. GAAP
                  
                  $
                  3,143,198
                  
                  
                  $
                  3,143,198Deficit
      - Canadian GAAP
                  
                  $
                  (17,674,842
                  )
                  
                  $
                  (17,949,550
                  )Write-off
      of goodwill on purchase of YFMC Healthcare Inc. (Note
      8(b))
                  
                  
                  (1,087,872
                  )
                  
                  
                  (1,087,872
                  )Impact
      of accretion expense (Note 8(a))
                  
                  
                  1
      92,816
                  
                  
                  
                  149,545Financial
      instruments - recognition and measurement (Note 8
    (e))
                  
                  
                  -
                  
                  
                  
                  (16,972
                  )Interest
      expense on financial liability carried at amortized cost (Note 8
      (a))
                  
                  
                  (1,792
                  )
                  
                  
                  15,724Deficit
      - U.S. GAAP
                  
                  $
                  (18,571,690
                  )
                  
                  $
                  (18,889,125
                  )Cumulative
      translation adjustment - Canadian GAAP
                  
                  $
                  (729,351
                  )
                  
                  $
                  (697,690
                  )Translation
      adjustment attributable to Series I Shares (Note
    8(a))
                  
                  
                  3
      01,976
                  
                  
                  
                  379,711Cumulative
      translation adjustment - U.S. GAAP
                  
                  $
                  (427,375
                  )
                  
                  $
                  (317,979
                  )Shareholders'
      equity - U.S. GAAP
                  
                  $
                  1,134,224
                  
                  
                  $
                  926,185
 
 Recently
Issued Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. In February 2008, the FASB issued FSP 157-2, which extends the
effective date for adoption, related to non-financial assets, to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
The Company does not expect the adoption of this standard will have a material
impact on its financial statements
 
 In
December 2007, the FASB issued FASB No. 141R,Business Combinations (FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or
other events in which an entity obtains control of one or more businesses and
requires that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could
have an impact on its future consolidated financial statements when effective,
but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions consummated after the effective date
of FASB No. 141R.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes accounting
and reporting standards that require the ownership interests in subsidiaries
held by parties other than the parent be clearly identified, labelled, and
presented in the consolidated statement of financial position within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in a parent’s ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for consistently;
when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value; and
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. The objective of the guidance is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. FAS 160 is effective
for fiscal years beginning on or after December 15, 2008. The Company does
not expect this standard to have a significant impact on its financial
statements upon adoption.
 
 18
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008.  The Company does not expect this
standard to have a significant impact on its financial statements upon
adoption.
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
  In May
2008, the final version of FASB Staff Position No. APB 14-1, "Accounting for
Convertible Debt Instruments That May be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP No. APB 14-1"), was
issued.  The new accounting rules will be effective for financial
statements issued for fiscal years beginning after December 15, 2008 and for
interim periods within those fiscal years. Early adoption is not
permitted.  The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
 
 9.
CONTINGENT LIABILITIES
 
 (i)
                There
      is uncertainty with respect to the Company’s liability for Goods and
      Services Tax pertaining to certain services that it previously
      provided.  The measurement of this uncertainty is not
      determinable and management is of the view that it is not probable a
      liability will be confirmed.  No amount has been provided in
      these consolidated financial
statements.
 
 (ii)
                There
      is uncertainty with respect to the Company’s liability arising from a
      contractual dispute with a third party.  The potential costs to
      the Company associated with this dispute range from $nil to $1.5
      million.  During the second quarter the Company received an
      assessment of approximately $420,000 relating to a portion of the matters
      in dispute.  The Company has appealed the assessment and continues to
      be of the view that it is not probable that the Company will be found
      liable for these costs. No amount has been provided in these consolidated
      financial statements.
 
 (iii)
                Claims
      have been made against the Company for unspecified damages in regards to a
      claim for wrongful dismissal and breach of contract.  The
      Company is of the view that liability, if any, would be the responsibility
      of a third party contractor and if damages were found, they would not be
      material in light of the current law.  Since management is of
      the opinion that the claim is unlikely to succeed, no provision has been
      made in respect thereof in these consolidated financial
      statements.  No amount has been provided in these consolidated
      financial statements.
  19
 
 (iv)
                The
      Company sub-leased certain premises to third parties when it disposed of
      its clinic operations. In case of payment defaults by the third parties,
      the Company could be held liable for rent on these premises. Rent for
      these premises over the next five years, during the respective lease
      terms, totals $700,000.
 
 (v)
                The
      Company is party to various claims and legal proceedings arising in
      the normal course of business.  While claims and litigation
      are subject to inherent uncertainties, management currently believes that
      the ultimate outcome of claims and proceedings, individually and in
      the aggregate, will not have a material adverse effect on our consolidated
      financial condition, results of operation or cash
  flows.
 
 Any
liability resulting from the above will be reflected as a charge to income in
the year the liability, if any, is confirmed.
 
 10.
CAPITAL DISCLOSURES
  Carrying
      Amount
                  
                  
                  Contractual
      Cash Flows
                  
                  
                  0
      to 12 Months
                  
                  
                  12
      to 24 Months
                  
                  
                  24
      to 48 MonthsAccounts
      payable and accrued liabilities
                  
                  $
                  2,604,815
                  
                  
                  $
                  2,605,277
                  
                  
                  $
                  2,605,277
                  
                  
                  $
                  -
                  
                  
                  $
                  -Deferred
      revenue
                  
                  
                  2
      66,124
                  
                  
                  
                  266,124
                  
                  
                  
                  266,124
                  
                  
                  
                  -
                  
                  
                  
                  -Long-term
      debt
                  
                  
                  348,338
                  
                  
                  
                  348,338
                  
                  
                  
                  348,338
                  
                  
                  
                  -
                  
                  
                  
                  -Discontinued
      operations
                  
                  
                  2
      74,853
                  
                  
                  
                  274,853
                  
                  
                  
                  274,853
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      I Shares
                  
                  
                  3,119,225
                  
                  
                  
                  3,106,475
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,106,475$
                  6,613,355
                  
                  
                  $
                  6,601,067
                  
                  
                  $
                  3,494,592
                  
                  
                  $
                  -
                  
                  
                  $
                  3,106,475
 
 The
Company’s objectives when managing capital are:
 1.
                To
      safeguard the Company’s ability to obtain financing should the need
      arise;
 2.
                To
      provide an adequate return to its shareholders;
  and
 3.
                To
      maintain financial flexibility in order to enhance the access to capital
      in the event of future
acquisitions.
 
 The
Company defines its capital as follows:
 1.
                Shareholders’
      equity;
 2.
                Series
      I special shares;
 3.
                Long-term
      debt including current portion;
 4.
                Discontinued
      operations;
 5.
                Deferred
      revenue including the current
portion;
 6.
                Cash
      and temporary investments.
 
 The
Company’s financial strategy is designed and formulated to maintain a flexible
capital structure consistent with the objectives stated above and to respond to
changes in economic conditions and the risk characteristics of the underlying
assets. The Company has limited its investments to short and mid-term assets to
ensure their liquidity matches its operational requirements.
 
 The
Company monitors its capital on the basis of its net debt to adjusted capital
ratio.  The ratios at June 30, 2008 and December 31, 2007
were:
 
 June
      30 2008
                      
                      
                      December
      31 2007Total
      debt
                      
                      $
                      3,494,130
                      
                      
                      $
                      3,494,638Less:
      cash and cash equivalents
                      
                      
                      2,373,944
                      
                      
                      
                      2,291,005Net
      debt
                      
                      $
                      1,120,186
                      
                      
                      $
                      1,203,633Total
      equity
                      
                      $
                      1,123,267
                      
                      
                      $
                      880,220Add:
      Series I Shares
                      
                      
                      3,119,225
                      
                      
                      
                      3,153,689Adjusted
      capital
                      
                      $
                      4,242,492
                      
                      
                      $
                      4,033,909Net
      debt to adjusted capital ratio
                      
                      
                      0.26
                      
                      
                      
                      0.30
  The
decrease in the net debt to adjusted capital ratio is the result of the earnings
in the first six months of 2008.  The change in the ratio is in line
with Management’s expectation.
 20
 
 11.
SEGMENTED INFORMATION
 
 The
Company operates under three business units: Staffing Solutions, Medical
Services, and Healthcare Consulting Services.
 
 The
segmented information for the business units are as follows:
 THREE
      MONTHS ENDED
                    
                    
                    SIX
      MONTHS ENDEDJune
      30
                    
                    
                    June
      30
                    
                    
                    June
      30
                    
                    
                    June
      302008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007RevenueStaffing
      solutions
                    
                    $
                    1,904,137
                    
                    
                    $
                    2,638,345
                    
                    
                    $
                    3,683,249
                    
                    
                    $
                    5,375,616Pain
      management services
                    
                    
                    2,809,448
                    
                    
                    
                    1,525,884
                    
                    
                    
                    5,169,845
                    
                    
                    
                    2,706,426Infusion
      services
                    
                    
                    1,417,701
                    
                    
                    
                    1,087,569
                    
                    
                    
                    2,742,948
                    
                    
                    
                    1,992,2306,131,286
                    
                    
                    
                    5,251,798
                    
                    
                    
                    11,596,042
                    
                    
                    
                    10,074,272Gross
      marginStaffing
      solutions
                    
                    
                    464,401
                    
                    
                    
                    428,004
                    
                    
                    
                    803,970
                    
                    
                    
                    830,995Pain
      management services
                    
                    
                    716,140
                    
                    
                    
                    524,767
                    
                    
                    
                    1,383,217
                    
                    
                    
                    853,363Infusion
      services
                    
                    
                    819,239
                    
                    
                    
                    639,587
                    
                    
                    
                    1,565,589
                    
                    
                    
                    1,127,6601,999,780
                    
                    
                    
                    1,592,358
                    
                    
                    
                    3,752,776
                    
                    
                    
                    2,812,018Operating
      expensesStaffing
      solutions
                    
                    
                    355,251
                    
                    
                    
                    379,824
                    
                    
                    
                    685,416
                    
                    
                    
                    809,480Pain
      management services
                    
                    
                    960,773
                    
                    
                    
                    748,199
                    
                    
                    
                    1,828,586
                    
                    
                    
                    1,353,967Infusion
      services
                    
                    
                    412,925
                    
                    
                    
                    356,025
                    
                    
                    
                    789,016
                    
                    
                    
                    689,3851,728,949
                    
                    
                    
                    1,484,048
                    
                    
                    
                    3,303,018
                    
                    
                    
                    2,852,833Divisional
      income (loss)Staffing
      solutions
                    
                    
                    109,150
                    
                    
                    
                    48,180
                    
                    
                    
                    118,554
                    
                    
                    
                    21,515Pain
      management services
                    
                    
                    (244,633
                    )
                    
                    
                    (223,432
                    )
                    
                    
                    (445,369
                    )
                    
                    
                    (500,605
                    )Infusion
      services
                    
                    
                    406,314
                    
                    
                    
                    283,562
                    
                    
                    
                    776,573
                    
                    
                    
                    438,275270,831
                    
                    
                    
                    108,310
                    
                    
                    
                    449,758
                    
                    
                    
                    (40,816
                    )Other
      general expensesInterest
      income, net of bank charges
                    
                    
                    (9,464
                    )
                    
                    
                    (32,930
                    )
                    
                    
                    (21,280
                    )
                    
                    
                    (45,705
                    )Interest on
      long-term debt
                    
                    
                    25,277
                    
                    
                    
                    39,883
                    
                    
                    
                    49,846
                    
                    
                    
                    68,980Amortization of
      property and equipment
                    
                    
                    90,726
                    
                    
                    
                    81,785
                    
                    
                    
                    174,707
                    
                    
                    
                    129,667Interest
      expense on financial
      liability carried at amortized cost
                    
                    
                    357
                    
                    
                    
                    4,279
                    
                    
                    
                    1,792
                    
                    
                    
                    9,036106,896
                    
                    
                    
                    93,017
                    
                    
                    
                    205,065
                    
                    
                    
                    161,978Income
      (loss) from continuing operations
                    
                    $
                    163,935
                    
                    
                    $
                    15,293
                    
                    
                    $
                    244,693
                    
                    
                    $
                    (202,793
                    )
 12.  ECONOMIC
DEPENDENCE
 
 The
Company derived approximately 24% of its revenue for the six month period ended
June 30, 2008 (2007 - 20%) from services provided under its contract with
Schering-Plough Canada Inc. (“Schering”), and as such is subject to
concentration risk associated with the continuation of its contract with
Schering.
 13.
COMPARATIVE FIGURES
  
 Certain
figures in the 2007 consolidated financial statements have been reclassified to
conform with the basis of presentation in 2008.  The results for
Healthcare Consulting which were reported as part of Continuing Operations in
2007 have been reclassified as Discontinued Operations (Note
4).
  21
  ITEM 2: MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 THE
FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-Q.
THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER PART II, ITEM 1.A "RISK FACTORS" AND ELSEWHERE IN THIS FORM
10-Q.
 
 Certain
prior year information has been reclassified to conform to the current year’s
presentation including the reclassification of the Company’s Government
Healthcare Services operations to discontinued operations.
 
 
 BUSINESS
OVERVIEW
 
 MedEmerg
was founded in 1983 and is incorporated under the Business Corporations Act
(Ontario).
 
 The
Company’s operations are comprised of three business units: Staffing Solutions,
Pain Management Services and Infusion Services.  Prior to 2008 the
Company also provided Healthcare Consulting Services.  These
operations were wound-down in the first quarter of 2008.  During the
six month period ended June 30, 2008, 32% of the Company’s revenue was generated
by the Staffing Solutions unit; 45% by the Pain Management unit; and 23% by the
Infusion Services unit. From a Gross Margin perspective, the contribution was
21%, 37% and 42%, respectively.
 
 The
Company is well positioned to deal with the continuous challenges that confront
the Canadian healthcare system.  Some of these challenges including
the growing shortage of ER doctors, longer waiting times by patients to access
chronic pain specialists, and the growing cost of public medicine, play directly
into the Company’s strengths.
 
 The
Company’s Staffing Solutions provide physician and nurse practitioner staffing
services to more than 30 healthcare facilities across Ontario, including rural
and urban hospitals as well as tertiary care centers and corrections
facilities.
 
 MedEmerg’s
Pain Management Services business provides chronic pain management in 11 centers
in Ontario and Nova Scotia, Canada.
 
 The
Company’s Infusion Services business provides intravenous infusion services for
pharmaceutical companies in 25 community-based clinics in Ontario,
Canada.  In July, 2008, the Infusion Services business expanded its
operations into Quebec, Canada.
 
 The
Company tracks its operations by monitoring certain key performance
indicators.  For Staffing Solutions, the Company monitors the number
of contracts under administration, monthly shifts booked and gross margin per
contract.  For Pain Management the Company tracks the number of
patient referrals, the number of patient visits and average billing per
patient.  For Infusion Services the Company tracks the number of
infusions per month and the utilization of each infusion
center.  Certain key balance sheet ratios such as working capital are
also monitored, to track the cash flow situation.
 
 22
  The
Staffing Solutions business is driven by the Company’s ability to recruit and
retain physicians and nurse practitioners.  With the chronic shortage
of healthcare providers, the Company dedicates considerable resources to
attracting new providers to the Company.  Because of the limited
supply of healthcare providers, the inability to attract additional personnel
could limit the Company’s ability to fill open shifts and to continue its
revenue growth.
 
 Growth
of the Company’s Pain Management Services business is dependent on its ability
to recruit additional doctors to provide pain therapies and to develop the trust
of referring physicians, who refer their patients to the Company’s pain
centers.
 
 The
Infusion Services business is reliant upon the Company’s ability to introduce
new drug therapies through its infusion clinics and by expanding the number of
clinic locations. Failure to succeed with either of these initiatives will limit
the Company’s ability to drive its revenue growth.
 
 STAFFING
SOLUTIONS
 
 MedEmerg
is the leading provider of ER doctors to Ontario hospitals. The Company provides
physician-staffing services to more than 30 healthcare facilities across
Ontario, including rural and urban hospitals as well as tertiary care centers
and corrections facilities. The Company believes that on-going physician
shortages and continuing demand for improved levels of care will continue to
drive its Staffing Solutions business.
 In
addition to its conventional ER staffing, MedEmerg has developed a unique
integrated staffing solution, which was trialed in 1996 to recruit primary care
practitioners into mental health facilities.  Based on patient
population, the nature of the cases being treated, and the total cost of the
current system, MedEmerg introduced a healthcare model combining Primary Care
Physicians with Primary Care Nurse Practitioners. This was the first time a
nurse practitioner function was introduced into a mental health setting. The
program, now in its eleventh year of operation, has received high satisfaction
ratings from both staff and patients, resulting in one of the Company’s clients
receiving the ACE award from the Ministry of Health for Innovation in Health
Care Delivery Design. In June 2002, the Centre for Addiction and Mental Health
in Toronto, Canada, awarded MedEmerg a similar contract for primary care
services. In 2004, the Company introduced Primary Health Care Nurse
Practitioners to its mix of healthcare providers in community-based
hospitals.
 In
September 2006, the Company recruited Dr. Jim Ducharme to lead the clinical
aspect of Staffing Solutions.  Dr. Ducharme is a nationally recognized
emergency medicine specialist and is a past president of the Canadian
Association of Emergency Physicians.  Dr. Ducharme brings a very broad
perspective of the challenges facing emergency departments today and he is an
important asset in the Company’s future growth of the Staffing Solutions
business.  Dr Ducharme was instrumental in the Company’s development
of a training program designed for Ontario’s family physicians.  In
concert with the College of Family Physicians, MedEmerg developed and hosted
training sessions designed to re-introduce family physicians to the
ER.  The program was well received and it is anticipated that future
training opportunities will arise in 2008.  Concurrent with the
addition of Dr. Ducharme, the division was realigned to expand its business
development capabilities in anticipation of increased staffing
opportunities.
 
 PAIN MANAGEMENT
SERVICES
  MedEmerg’s
chronic pain management service, operated through its wholly-owned subsidiary,
CPM Health Centres Inc. (“CPM”), was launched in November 2004 with the
acquisition of the Scarborough Pain Clinic. Since then, 10 more clinics have
been opened, most recently in Brampton, Ontario in January, 2008.
 
 23
  CPM has
developed a standardized approach to the treatment of chronic pain, using an
integrated multi-disciplinary approach including anesthetists and ER physicians,
amongst others.
 
 In
August of 2005, Dr. Roman Jovey, the then President of the Canadian Pain
Society, joined CPM as its Medical Director.  Over the last 16 years,
Dr. Jovey has developed an international reputation in the field of chronic,
non-cancer pain, using pharmacotherapy.  In addition to maintaining a
private practice, Dr. Jovey also consults with the pharmaceutical industry and
educational institutions on medical educational programs related to
pain.  He is also a medico-legal expert for the Canadian Medical
Protective Association on cases related to opioids, pain and
addiction.  In his capacity as Medical Director, Dr. Jovey oversees
the clinical aspects of CPM and assists in the training of new
physicians.
 
 The
Company has developed and launched a training program specifically designed to
educate emergency room physicians in chronic pain management.
 
 CPM
continues to grow rapidly, with its patient visits increasing from approximately
15,500 patients in the first six months of 2007 to more than 23,600 in the first
half of 2008, an increase of 52%. Plans are underway to further increase
capacity by training more doctors at the Company’s 11 pain management
centers.
 
 INFUSION
SERVICES
 
 In
March 2001, MedEmerg entered into an agreement with Schering-Plough Canada Inc.
(“Schering”) to become a coordinator for the community-based infusion of the
medication known as RemicadeTM.  This contract capitalizes on the Company's
access to medical clinics for the treatment of patients with various
inflammatory disorders, including rheumatoid arthritis and Crohn's disease. The
Company delivered more than 15,000 infusions in 2007, a 49% increase over 2007
(10,100).  During the first half of 2008, the number of infusions
increased approximately 22% to 8,871 from 7,293 infusions in the first half of
2007.
 MedEmerg
expects continued growth for this service, as infusion services move from
institutional to community-based settings.
 
 As of
June 30, 2008, the Company operated 25 virtual clinics across Ontario compared
to 22 clinics in June 2007.  On an as-required basis, the Company
rents space in community-based medical clinics.  MedEmerg’s team of
infusion coordinators arrange for patients to arrive at the clinic at a
prescribed time and for a physician and nurse to be available to attend to their
needs.  The RemicadeTM is supplied by a local pharmacy.
 
 RemicadeTM
is currently approved by Health Canada for six indications in Canada: rheumatoid
arthritis, Crohn’s disease, ankylosing spondylitis, ulcerative colitis,
psoriatic arthritis and psoriasis.   Once an indication is
approved by Health Canada, it is more likely that doctors will prescribe the
medicine and that insurance companies will provide reimbursement for the
medicine.  Historically, more than 60% of infusions have related to
Crohn’s disease and rheumatoid arthritis.  The Company expects growth
related to RemicadeTM to level off unless additional indications are approved by
Health Canada or the Company is awarded more clinic locations by
Schering.
 
 The
Company continues to look for additional products to offer through its infusion
clinics and the opportunity to open clinics in new locations. In July, 2008,
Schering expanded the Company’s contract to include Quebec-based infusion
centers and awarded the Company ten additional infusion sites.
 
 24
 
 RESULTS OF
OPERATIONS
 
 Three
months ended June 30, 2008 compared to three months ended June 30,
2007
 
 REVENUE
 
 The
Company's revenue from continuing operations for the three months ended June 30,
2008 was $6,131,286 compared to $5,251,798 for the three months ended June 30,
2007.
 
 The
increase in Revenue during the 2008 period over the comparable 2007 period of
approximately 17% was attributable to increases in the Pain Management and
Infusion Services divisions, partially offset by a decrease in the Staffing
solutions division.  Divisional Revenues were:
  THREE
      MONTHS ENDEDJune
      30
                  
                  
                  June
      302008
                  
                  
                  2007RevenueStaffing
      solutions
                  
                  $
                  1,904,137
                  
                  
                  $
                  2,638,345Pain
      management services
                  
                  
                  2,809,448
                  
                  
                  
                  1,525,884Infusion
      services
                  
                  
                  1,417,701
                  
                  
                  
                  1,087,5696,131,286
                  
                  
                  
                  5,251,798
 
  Staffing
Solutions Revenues decreased 28% in the second quarter of 2008 relative to the
same period in 2007.  In the third and fourth quarters of 2007 the
Company failed to resign two significant contracts.  It will take
several months to regain the business lost at that time, and there can be no
assurance that the Company will be successful in these
efforts.    The decrease in revenue resulting from the
failure to resign these two contracts was partially offset by the strengthening
of the Canadian dollar relative to the US dollar.
 
 Revenue
for Pain Management Services increased 84% in 2008 to $2,809,448, compared to
$1,525,884 in 2007.   The increase relates to a 54% increase in
patient visits from approximately 8,310 in 2007 to 12,760 in 2008, an 11%
increase in the average patient billing and a strengthening of the Canadian
dollar relative to the US dollar of 13%.
 
 The
Infusion Services business increased 30% to $1,417,701 from $1,087,569 in
2007.  The increase relates to a 20% increase in patient visits from
approximately 3,800 in the second quarter of 2007 to 4,544 in the second quarter
of 2008, and further aided by a strengthening of the Canadian dollar relative to
the US dollar.
 
 GROSS
MARGIN
 
 Gross
Margin (revenue less physician and other direct costs) increased to $1,999,780
(25%) for the second quarter of 2008 from $1,592,358 for the same period in
2007.
 
 25
 THREE
      MONTHS ENDEDJune
      30
                    
                    
                    June
      302008
                    
                    
                    2007Gross
      MarginStaffing
      solutions
                    
                    $
                    464,401
                    
                    
                    $
                    428,004Pain
      management services
                    
                    
                    716,140
                    
                    
                    
                    524,767Infusion
      services
                    
                    
                    819,239
                    
                    
                    
                    639,5871,999,780
                    
                    
                    
                    1,592,358
 The
Gross Margin from the Staffing Solutions business increased from $428,004 during
the second quarter of 2007 to $464,401 in second quarter of 2008.  The
increase of 8% was earned despite a reduction of Staffing
Revenue.  The Company did not renew a significant contract in the
third quarter of 2007 that generated low gross margins.  New business
that has been won, has consistently earned stronger gross margins in the current
quarter.  Gross margin as a percentage of revenue increased from 16.2%
during the second quarter of 2007 to 24.4% in the second quarter of
2008.
 
 Gross
Margin for Pain Management increased 35% from $524,767 in 2007 to $716,140 in
2008.  The increase in Gross Margin corresponds to the 84% increase in
revenues which was partially offset by increased cost of sales associated with
physician and medical supply costs.
 
 The
Gross Margin for Infusion Services increased 28% to 819,239 in 2008 compared to
$639,587 in 2007.  The increase corresponds to the 30% increase in
Infusion revenues.
 
 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 a
divisional basis, after the allocation of corporate overheads, operating
expenses were as follows:
  THREE
      MONTHS
      ENDEDJune
      30 2008
                  
                  
                  June
      30 2007Operating
      expensesStaffing
      solutions
                  
                  
                  355,251
                  
                  
                  
                  379,824Pain
      management services
                  
                  
                  960,773
                  
                  
                  
                  748,199Infusion
      services
                  
                  
                  412,925
                  
                  
                  
                  356,0251,728,949
                  
                  
                  
                  1,484,048
 
  On an
overall basis, operating expenses increased 17%, or approximately $245,000, to
$1,728,949 for the second quarter of 2008 from $1,484,048 for the quarter ended
June 30, 2007.  The increase was attributable to increased costs
associated with the Pain Management business and the Infusion Services business
of approximately $215,000; and approximately $55,000,
respectively.  These increases were partially offset by a reduction of
expenses with the Staffing Solutions business of approximately
$25,000.  The increase in costs associated with the Pain Management of
28% relates to a corresponding increase in gross margins.
 
 AMORTIZATION
AND INTEREST
 
 Amortization
increased from $81,785 for the three months ended June 30, 2007 to $90,726 for
the second quarter of 2008.  During second half of 2007 and the first
quarter of 2008, the Company increased its capital spending on leasehold
improvements and equipment associated with its Pain Management
centers.  Consequently amortization costs increased in the second
quarter of 2008 compared to the second quarter of the previous
year.
 
 26
  For the
three months ended June 30, 2008, the Company earned interest net of bank
charges of $9,464, compared to $32,930 in the same period in
2007.  Cash balances in the second quarter of 2008 decreased relative
to the cash balances in the previous year resulting in the reduction of interest
income.
 
 Interest
on long-term debt in the second quarter of 2008 decreased from $39,883 in the
second quarter of 2007 to $25,277 as the Company reduced its long-term
debt.
 
 OTHER
EXPENSES
 
 The
Company reported interest expense on the financial liability carried at
amortized cost of $357 for the second quarter of 2008 compared to $4,279 in the
same period in 2007.  This expense arises as a result of the Company
adopting Handbook Section 3855, “Financial Instruments - Recognition and
Measurement”.  The charge to earnings represents the amortization of
an unrealized gain on certain liabilities.  This is a non cash
expense.
 
 INCOME
TAXES
 
 For the
three months ended June 30, 2008 and 2007, there was no provision for income
taxes payable due to the large tax loss carry-forwards available from previous
loss years.  The Company pays income taxes in accordance with Canadian
federal and provincial income tax legislation. We do not expect to pay
significant corporate income tax in Canada in the foreseeable future because we
have significant net operating loss carry forwards for Canadian income tax
purposes.
 
 DISCONTINUED
OPERATIONS
 Family
Medical Clinics
 For the
three month period ended June 30, 2008 the Company reported a loss from its
Family Medical Clinics of approximately $5,300 compared to a loss of $73,697 in
the same period in 2007.  The Company disposed of its Family Medical
Clinics in 2007.  The loss in the current period reflects certain
costs incurred in disposing of the business.
 
 Government
Health Services
 During
the three month period ended June 30, 2008, the Company had a loss from
Government Health Services (the “DND Contract”) of $nil compared to income of
$9,328 in the second quarter of 2007.  The income earned in the second
quarter of 2007 relates to interest earned on settlements negotiated with the
Government.
 
 Healthcare
Consulting
 In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts.  Accordingly
the results of the Healthcare Consulting business have been reclassified as
discontinued operations.  During the three month period ended June 30,
2008 the Company had income from Healthcare Consulting of $122,424 compared to a
loss in the second quarter of 2007 of $186,657.
 
 Six
months ended June 30, 2008 compared to six months ended June 30,
2007
 
 REVENUE
 
 The
Company's revenue from continuing operations for the six months ended June 30,
2008 was $11,596,042 compared to $10,074,272 for the six months ended June 30,
2007.
 
 27
  The
increase in revenue during the 2008 period over the comparable 2007 period of
approximately 15% was attributable to an increase in Pain Management Services
and Infusion Services, offset by a decrease in Staffing Solutions
revenues.  Divisional revenues were:
  THREE
      MONTHS ENDEDJune
      30
                    
                    
                    June
      302008
                    
                    
                    2007RevenueStaffing
      solutions
                    
                    $
                    3,683,249
                    
                    
                    $
                    5,375,616Pain
      management services
                    
                    
                    5,169,845
                    
                    
                    
                    2,706,426Infusion
      services
                    
                    
                    2,742,948
                    
                    
                    
                    1,992,23011,596,042
                    
                    
                    
                    10,074,272
  Staffing
revenues decreased 31% for the six months ended June 30, 2008 from
2007.  In the third and fourth quarters of 2007 the Company failed to
resign two significant contracts. It will take several months to regain the
business lost at that time, and there can be no assurance that the Company will
be successful in those efforts.  The decrease in revenue resulting
from the failure to resign these two contracts was partially offset by the
strengthening of the Canadian dollar relative to the US dollar.
 
 Revenue
from the Pain Management Services division in the first six months of 2008
increased 91% to $5,169,845 from $2,706,426.  The increase relates to
a 52% increase in patient visits from approximately 15,500 in 2007 to more than
23,600 in 2008, a 12% increase in the average patient billing and a
strengthening of the Canadian dollar relative to the US dollar of
13%.
 
 The
Infusion business increased to $2,742,948 from $1,992,230 in
2007.  The 38% increase in the Infusion business was driven by a 21%
increase in infusions from 7,293 in the first six months of 2007 to 8,871 in the
same period of 2008 and by the strengthening of the Canadian dollar relative to
the US dollar by 13%.
 
 GROSS
MARGIN
 
 Gross
margin (revenue less physician and other direct costs) increased to $3,752,776
(33%) for six month period ended June 30, 2008, from $2,815,760 for the same
period in 2007.
 SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      302008
                  
                  
                  2007Gross
      marginStaffing
      solutions
                  
                  
                  803,970
                  
                  
                  
                  830,995Pain
      management services
                  
                  
                  1,383,217
                  
                  
                  
                  853,363Infusion
      services
                  
                  
                  1,565,589
                  
                  
                  
                  1,127,6603,752,776
                  
                  
                  
                  2,812,018
 
  The
Gross Margin from the Staffing business decreased to $803,970,from $830,995 in
2007.  The decrease of 3% was much lower than the decrease in revenue
for the Staffing business, because the decrease in revenue was caused by the
loss of certain low Gross Margin business during the second half of 2007. Gross
margin as a percentage of revenue increased from 15.1% during the first half of
2007 to 21.8% in the first half of 2008.
 
 Gross
Margin for Pain Management increased 62% from $853,363 in 2007 to $1,383,217 in
2008. The increase in Gross Margin corresponds to the 91% increase in revenues,
partially offset by a reduction in the Gross Margin percentage, from 33.1% to
26.9%, caused by increased costs associated with physicians and medical
supplies.
 
 28
  The
Gross Margin for Infusion Services increased 39% to $1,565,589 in 2008 compared
to $1,127,660 in 2007. The increase corresponds to the 38% increase in Infusion
revenues.
 
 OPERATING
EXPENSES
 
 Operating
expenses are comprised of both direct and indirect operating
expenses.  Direct expenses include those costs that are directly
related to the operations of the business unit.  Indirect expenses
include corporate overheads, which are allocated to the divisions, based on the
gross margin earned by the division.
 
 On a
divisional basis, after the allocation of corporate overheads, operating
expenses were as follows:
  SIX
      MONTHS ENDEDJune
      30
                  
                  
                  June
      302008
                  
                  
                  2007Operating
      expensesStaffing
      solutions
                  
                  
                  685,416
                  
                  
                  
                  809,480Pain
      management services
                  
                  
                  1,828,586
                  
                  
                  
                  1,353,967Infusion
      services
                  
                  
                  789,016
                  
                  
                  
                  689,3853,303,018
                  
                  
                  
                  2,852,833
 
 On an
overall basis, operating expenses increased 16% to $3,303,018 for the six months
ended June 30, 2008 from $2,852,833 for the same period in 2007.  The
increase was attributable to increased costs associated with the Pain Management
business of approximately $475,000; and Infusion Services of approximately
$100,000; partially offset by a reduction of expenses with the Staffing
Solutions business of approximately $125,000.  The increase in costs
associated with the Pain Management of 44% relates to the 62% increase in gross
margins.
 
 AMORTIZATION
AND INTEREST
 
 Amortization
increased from $129,667 for the six months ended June 30, 2007 to $174,707 for
the same period in 2008.  During the second half of 2007 and the first
quarter of 2008, the Company increased its capital spending on leasehold
improvements and equipment associated with its Pain Management
centers.  Consequently amortization costs increased in the first half
of 2008 compared to the same period of the previous year.
 
 For the
six months ended June 30, 2008, the Company earned interest net of bank charges
of $21,280, compared to $45,705 in the same period in 2007.  Cash
balances in the first half of 2008 decreased relative to the cash balances in
the previous year resulting in less interest being earned.
 
 Interest
on long-term debt for the six months ended June 30, 2008 decreased from $68,980
in 2007 to $49,846 as the Company reduced its long-term debt.
 
 OTHER
EXPENSES
 
 The
Company reported interest expense on the financial liability carried at
amortized cost of $1,792 for the first half of 2008 compared to $9,036 in the
same period in 2007.  This expense arises as a result of the Company
adopting Handbook Section 3855, “Financial Instruments - Recognition and
Measurement”.  The charge to earnings represents the amortization of
an unrealized gain on certain liabilities.  This is a non cash
expense.
  29
  INCOME
TAXES
 
 For the
six months ended June 30, 2008 and 2007, there was no provision for income taxes
payable due to the large tax loss carry-forwards available from previous loss
years.  The Company pays income taxes in accordance with Canadian
federal and provincial income tax legislation. We do not expect to pay
significant corporate income tax in Canada in the foreseeable future because we
have significant net operating loss carry forwards for Canadian income tax
purposes.
 
 DISCONTINUED
OPERATIONS - GOVERNMENT HEALTHCARE SERVICES
  Family
Medical Clinics
 For the
six month period ended June 30, 2008 the Company reported a loss from its Family
Medical Clinics of approximately $6,300 compared to a loss of approximately
$125,200 in the same period in 2007.  The Company disposed of the
Family Medical Clinics in 2007.  The loss in the current period
reflects certain costs incurred in disposing of the business.
 
 Government
Health Services
 During
the six month period ended June 30, 2008, the Company had expenses from
Government Health Services (the “DND Contract”) of approximately $370 compared
to income of approximately $3,900 for the same period in
2007.  Certain residual costs have been incurred on winding-up the DND
Contract.
 
 Healthcare
Consulting
 In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts.  Accordingly
the results of the Healthcare Consulting business have been reclassified as
discontinued operations.  During the six month period ended June 30,
2008 the Company had income from Healthcare Consulting of $36,683 compared to a
loss in the first six months of 2007 of $242,381.  Included in the
current period’s income is a one-time restructuring charge of approximately
$60,000 which was incurred and paid in the quarter.
 
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As at
June 30, 2008, the Company's cash position was $2,373,944 compared to $2,291,005
at December 31, 2007.
 
 The
increase in the cash position of $82,939 in the first half of 2008 resulted from
(a) an increase in cash from operations of approximately $475,000; (b) decreases
in non-cash working capital items of $100,000; (c) funds generated by
discontinued operations of $10,000, comprised of income of $40,000 from
discontinued operations, net of amortization and a $30,000 decrease in working
capital from discontinued operations; (d) $140,000 used by the Company in
investing activities with respect to the purchase of property and equipment and
other intangible assets; and (e) the repayment of long-term debt of
approximately $100,000. The weakening of the Canadian dollar relative to the
U.S. dollar resulted in a foreign exchange loss of approximately
$65,000.  The investing activities largely related to funds used for
the acquisition of leasehold improvements at the Company’s Pain Management
centers.
 
 The
Company believes that cash on hand is adequate to finance our working capital,
capital expenditure, and other obligations.
 
 30
  OFF
BALANCE SHEET ARRANGEMENTS
 
 The
Company is not a party to any off-balance sheet arrangements.
 
 ADOPTION
OF ACCOUNTING POLICIES
 
 Recently
Issued Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. In February 2008, the FASB issued FSP 157-2, which extends the
effective date for adoption, for non-financial assets, to fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years. The
Company does not expect the adoption of this standard will have a material
impact on its financial statements
 
 In
December 2007, the FASB issued FASB No. 141R,Business Combinations (FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or
other events in which an entity obtains control of one or more businesses and
requires that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could
have an impact on its future consolidated financial statements when effective,
but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions consummated after the effective date
of FASB No. 141R.
 
 In
December 2007, the FASB issued FAS 160, which is effective for fiscal years
beginning after December 15, 2008. Under FAS 160, non-controlling interests will
be measured at 100% of the fair value of assets
acquired     and liabilities assumed. Under current
standards, the non-controlling interest is measured at book value. For
presentation and disclosure purposes, non-controlling interests will be
classified as a separate component of shareholders' equity. In addition, FAS 160
will change the manner in which increases/decreases in ownership percentages are
accounted for. Changes in ownership percentages will be recorded as equity
transactions and no gain or loss will be recognized as long as the parent
retains control of the subsidiary. When a parent company deconsolidates a
subsidiary but retains a non-controlling interest, the non-controlling interest
is re-measured at fair value on the date control is lost and a gain or loss is
recognized at that time. Under FAS 160,     accumulated
losses attributable to the non-controlling interests are no longer limited to
the original carrying amount, and therefore non-controlling interests could have
a negative carrying balance. The provisions of FAS 160 are to be applied
prospectively with the exception of the presentation and disclosure provisions,
which are to be applied for all prior periods presented in the financial
statements. Early adoption is not permitted.  The Company does not
expect this standard to have a significant impact on its financial statements
upon adoption.
 
 In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008. The Company does not expect this standard to have
a significant impact on its financial statements upon adoption.
  31
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
  In May
2008, the final version of FASB Staff Position No. APB 14-1, "Accounting for
Convertible Debt Instruments That May be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP No. APB 14-1"), was
issued.  The new accounting rules will be effective for financial
statements issued for fiscal years beginning after December 15, 2008 and for
interim periods within those fiscal years. Early adoption is not
permitted.  The Company is currently evaluating the impact of FAS 162,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
  On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook.   This Section replaces the disclosure requirements of
the previous Section 3861 “Financial Instruments - Disclosure and
Presentation”and
converges with International Financial Reporting Standard IFRS 7. The new
disclosure standard increases the emphasis on the risks associated with both
recognized and unrecognized financial instruments and how those risks are
managed. The new presentation standard carries forward the former presentation
requirements.  The Company’s disclosures now conform to this Section
3862 of the CICA Handbook.
  On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook.  This Section is consistent with
the previous CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.  The Company determined that there was no impact to its financial
statement presentation from the adoption of Section 3863 of the CICA
Handbook.
 
 On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook.  Section 1400
was amended to include the requirements for assessing and disclosing an entity’s
ability to continue as a going concern from International Financial Reporting
Standard IAS 1.  The Company determined that there was no impact to
its financial statement presentation from the adoption of Section 1400 of the
CICA Handbook.
 
 On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook.  This Section requires disclosure about capital and is
harmonized with recently amended International Financial Reporting Standard IAS
1.  The standard is applicable to all entities, regardless of whether
they have financial instruments.  Entities are required to disclose
information about its objectives, policies and processes for managing capital,
as well as its compliance with any externally imposed capital requirements,
where they may exist.  The Company’s disclosures now conform to this
Section 1535 of the CICA Handbook.
 
 CRITICAL
ACCOUNTING POLICIES AND ASSUMPTIONS
 
 The
preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities during the reporting
period.  Significant areas requiring the use of estimates relate
to:  (i) the reported amounts of revenues and expenses, (ii) the
disclosure of contingent liabilities, (iii) the carrying value of property and
equipment and the rate of amortization related thereto, and (iv) accounting for
income taxes.  The Company evaluates its estimates on an on-going
basis. The Company states its accounting policies in the notes to the audited
consolidated financial statements and related notes for the year ended December
31, 2007. These estimates are based on information that is currently available
to the Company and on various other assumptions that are believed to be
reasonable under the circumstances.  Actual results could vary from
those estimates under different assumptions or conditions.  The
following critical accounting policies affect the more significant judgments and
estimates used in the preparation of the Company’s consolidated financial
statements:
  32
 
 •
                The
      Company maintains accruals for revenues, physician fees and other direct
      costs, salaries, benefits, and other costs.  Management uses its
      judgment in determining accruals of revenues and expenses on Healthcare
      Consulting contracts, which are accounted for using the proportional
      performance basis.  In assessing proportional performance,
      management considers the amount of labor originally forecast plus/minus
      adjustments based on experience to-date on the contract plus any variances
      to the forecast labor hours for the remainder of the
      contract.  Accruals and estimates for Staffing Solutions
      contracts are of a short duration; that is, revenues and expenses are
      generally known before financial statements are
      finalized.  Based on historical experience these accruals have
      proven accurate.  Should changes occur in the future, it may be
      necessary to revise accrual
assumptions.
 •
                The
      Company maintains an allowance for doubtful accounts for estimated losses
      resulting from fraudulent claims made by patients, the inability of
      corporate customers to make required payments, or as a result of a dispute
      in the invoiced amount.  Fraudulent claims arise when patients
      seek medical care and provide an invalid health card for
      payment.  The introduction of electronic medical records
      services, which pre-screen patients prior to services being rendered, is
      rapidly diminishing the Company’s exposure to fraudulent claims by
      patients.  The adequacy of the bad debt allowance is determined
      by continually evaluating individual customer receivables, considering the
      customer’s financial condition, credit history and current economic and
      business conditions. If the financial condition of the Company’s customers
      were to deteriorate, resulting in an impairment of their ability to make
      payments, additional allowances may be required. Historically losses on
      uncollectible accounts have not exceeded allowances for doubtful accounts.
      As of December 31, 2007, the allowance for doubtful accounts was $40,946
      (2006 - $23,203).
 •
                The
      Company is subject to various claims and legal actions in the ordinary
      course of its business. These matters include breach of contract or
      similar matters arising from contractual disputes. Hospital and healthcare
      facility clients may also become subject to claims, governmental inquiries
      and investigations and legal actions to which the Company may become a
      party relating to services provided by its professionals. From time to
      time, and depending upon the particular facts and circumstances, the
      Company may be subject to indemnification obligations under our contracts
      with our hospital and healthcare facility clients relating to these
      matters.  Material pending legal proceedings brought against the
      Company are described in Note 9 of the financial statements included with
      this quarterly report on Form 10-Q. As mentioned, the Company is unable to
      determine its potential exposure regarding these lawsuits at this
      time.  Similarly, the Company has other contingent liabilities
      that pertain to amounts potentially owing to government
      authorities.  The Company continues to evaluate the probability
      of an adverse outcome and will provide accruals for such contingencies as
      required. The Company is currently not aware of any other such pending or
      threatened litigation or similar contingency that is reasonably likely to
      have a material adverse effect on it. If such claims arise, they will be
      evaluated on the probability of an adverse outcome and accruals will be
      provided, as required, at that
time.
 •
                The
      Company is required to estimate the amount of tax payable for the current
      year and the future income tax assets and liabilities recorded in the
      financial statements accounts for future tax consequences of events that
      have been reflected in its financial statements.  Significant
      management judgment is required to assess the timing and probability of
      the ultimate tax impact.  The Company records valuation
      allowances on future tax assets to reflect the expected realizable future
      tax benefits.  Actual income taxes could vary from these
      estimates due to future changes in income tax law, changes in the
      jurisdictions in which the Company operates, the inability to generate
      sufficient future taxable income or unpredicted results from potential
      examinations or determinations of each year’s liability by the taxing
      authorities.  Valuation allowances primarily relate to potential
      future tax assets arising from accounting amortization claimed in excess
      of tax depreciation and tax losses carried forward.  Management
      must assess both positive and negative evidence when determining whether
      it is more likely than not that future tax assets will be recoverable in
      future periods.  Based on this assessment, a valuation allowance
      must be established where management has determined, based on current
      facts and reasonable assumptions, that such future tax assets will not
      likely be realized by the Company.  Realization is based on the
      Company’s ability to generate sufficient future taxable
      income.  The Company intends to maintain a valuation allowance
      against its future tax assets until sufficient positive evidence exists to
      support its reversal.  Changes in material assumptions can occur
      from period to period due to the aging of prior year’s losses, the
      cumulative effect of current period taxable income and other sources of
      positive and negative evidence.  If these changes in material
      assumptions were to provide sufficient positive evidence, the Company
      could record the net benefit of $2.0 million associated with non-capital
      loss carryforwards and tax pools of $6.0 million, or a portion thereof, as
      a recovery of income taxes in the period when realization becomes more
      likely than not and a corresponding increase in net future income tax
      assets.
  33
  •
                The
      Company is required to make certain assumptions in determining the value
      of stock based compensation. Management has applied the Black Scholes
      model for determining the value of stock based
      compensation.  Inherent in the application of the Black Scholes
      model are certain assumptions with respect to the future payment of
      dividends, the risk free rate of return and volatility of the
      stock.  Based on these assumptions a charge to income is
      incurred when these instruments vest.  Actual experience could
      vary materially from the assumptions made by
  management.
 
 ITEM 3: QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 There
are no financial instruments that are sensitive to changes in interest rates or
exposed to foreign currency exchange gains/losses.
 
 ITEM 4 T: CONTROLS AND
PROCEDURES
 
 Evaluation of Disclosure
Controls and Procedures: Our management with the participation of our
principal executive officer and principal financial officer has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) pursuant to Rule 13a-15c under the Exchange Act as
of the end of the period covered by this report on Form 10-Q. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of such date, our disclosure controls and procedures are
effective to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable SEC rules and forms.
 
 The
Company’s disclosure controls and procedures are designed to provide assurance
of achieving their objectives, and the Company’s chief executive officer and
chief financial officer have concluded that these controls and procedures are
effective at the “reasonable assurance” level.  The Company believes
that a control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.
 
 Changes in Internal Control
over Financial Reporting: There was no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the period covered by this report on Form
10-Q that has materially affected, or is reasonably likely to materially affect
our internal control over financial reporting.
 
 34
 
 PART
II:  OTHER INFORMATION
 
 ITEM 6.
EXHIBITS
  
 Exhibit
      31.1
                Rule
      13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of the
      Company.Exhibit
      31.2
                Rule
      13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of the
      Company.Exhibit
      32.1
                Section 1350
      Certification of Chief Executive OfficerExhibit
      32.2
                Section 1350 Certificationof Chief Financial Officer.
 
 35
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 
 MED-EMERG
      INTERNATIONAL INC.(Registrant)Principal
      Executive OfficerBy:
                /s/
      Dr. Ramesh ZachariasRamesh
      ZachariasChief
      Executive OfficerDate:
        August 14, 2008Principal
      Financial and Accounting Officer:By:
                /s/
      William DanisWilliam
      DanisChief
      Financial OfficerDate:
        August 14, 2008
   36