**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**







(MARK
                ONE)x
            QUARTERLY REPORT PURSUANT
                TO
                SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
              QUARTERLY PERIOD ENDED
                SEPTEMBER 30, 2006*OR*o
            TRANSITION REPORT
                PURSUANT TO
                SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
              TRANSITION PERIOD
                FROM
                __________ TO __________COMMISSION
              FILE NUMBER: 1-13861




**MED-EMERG
      INTERNATIONAL INC.**





(Exact
      Name of Registrant as Specified in Its Charter)




PROVINCE
                OF ONTARIO,
                CANADA
            
            N/A(State
                or Other
                Jurisdiction of Incorporation or Organization)
            
            (IRS
                Employment
                Identification No.)






6711
                Mississauga Road, Suite 404Mississauga,
                Ontario,
                Canada
            
            L5N
                  2W3(Address
                of Principal
                Executive Offices)
            
            (Zip
                Code)




(905)
                858-1368(Registrant’s
                telephone number, including area
                code)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




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





Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filer x





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





As
      of
      November 14, 2006, the registrant had 58,277,696 common shares, no par value
      outstanding.

















**MED-EMERG
      INTERNATIONAL INC.**





TABLE
      OF CONTENTS




PagePART I.
            FINANCIAL
                INFORMATION:Item 1.
            Financial
                StatementsConsolidated
                  Balance Sheets at September 30, 2006 (unaudited) and December 31,
                  2005
            4Consolidated
                  Statements of Operations and Deficit for the three and nine months
                  ended
                  September 30, 2006 and 2005 (unaudited)
            5Consolidated
                  Statements of Cash Flows for the three and nine months ended September
                  30,
                  2006 and 2005 (unaudited)
            6Notes
                to Consolidated Financial Statements (unaudited)
            7Item 2.
            Management's
                  Discussion and Analysis of Financial Condition and Result of
                  Operation
            19Item 3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            32Item 4.
            Controls
                and Procedures
            32PART II.
            OTHER
                INFORMATION
            33Item 1A.
            Risk
                Factors
            33Item 6.
            Exhibits
            33Signatures
            34













**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.


























**Med-Emerg
        International Inc.**  **Consolidated
        Balance Sheet** **As
        at September 30, 2006 and December 31,
        2005**
 **(in
        US$)**




**September**
            
            
            **December****2006**
            
            
            **2005****(unaudited)****Assets****Current
                assets**Cash
            
            $
            4,354,963
            
            $
            660,947Accounts
                receivable, net
            
            
            2,995,467
            
            
            2,104,758Prepaid
                expenses and other
            
            
            92,453
            
            
            85,730Discontinued
                operations (Note 4)
            
            
            487,245
            
            
            1,035,9607,930,128
            
            
            3,887,395Long-term
                investment
            
            
            83,195
            
            
            83,195Property,
                plant and equipment, net
            
            
            452,023
            
            
            409,920Goodwill
            
            
            237,596
            
            $
            237,596$
            8,702,942
            
            $
            4,618,106**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                liabilities**Accounts
                payable and accrued liabilities
            
            $
            2,324,668
            
            $
            2,149,519Notes
                payable (Note 12)
            
            
            599,991
            
            
            599,991Discontinued
                operations (Note 4)
            
            
            917,944
            
            
            1,194,4273,842,603
            
            
            3,943,937**Long-term
                liabilities**Discontinued
                operations (Note 4)
            
            
            373,382
            
            
            592,692Redeemable,
                convertible Series I Shares (Note 5)
            
            
            2,648,533
            
            
            -3,021,915
            
            
            592,6926,864,518
            
            
            4,536,629**SHAREHOLDERS'
                EQUITY**Capital
                stock
            
            
            16,044,736
            
            
            16,044,736Equity
                portion of redeemable, convertible Series I Shares (Note
                5)
            
            
            482,043
            
            
            -Contributed
                surplus (Note 6)
            
            
            3,000,797
            
            
            2,907,290Deficit
            
            
            (16,958,802
            )
            
            (18,077,662
            )Cumulative
                translation adjustment
            
            
            (730,350
            )
            
            (792,887
            )1,838,424
            
            
            81,477$
            8,702,942
            
            $
            4,618,106Contingent
                liabilities (Note 11)The
                accompanying notes are an integral part of these consolidated financial
                statements.








4




**Med-Emerg
      International Inc.**


**Consolidated
      Statement of Operations and
      Deficit**


**Three
      and nine months ended September 30, 2006 and 2005
      (Unaudited)** **(in
        US$)**





**THREE
                MONTHS ENDED**
            
            
            **NINE
                MONTHS ENDED****Sept.
                30**
            ****
            ****
            **Sept.
                30**
            ****
            ****
            **Sept.
                30**
            ****
            ****
            **Sept.
                30****2006**
            ****
            ****
            **2005**
            ****
            ****
            **2006**
            ****
            ****
            **2005****Revenue**
            
            $
            4,337,402
            
            $
            4,109,121
            
            $
            13,808,730
            
            $
            10,199,166**Physician
                fees and other direct costs**
            
            
            3,141,991
            
            
            3,103,642
            
            
            9,844,474
            
            
            7,624,9211,195,411
            
            
            1,005,479
            
            
            3,964,256
            
            
            2,574,245**Expenses**Salaries
                and
                benefits
            
            
            807,651
            
            
            610,671
            
            
            2,363,332
            
            
            1,881,950General
                and administration
            
            
            355,065
            
            
            223,424
            
            
            898,747
            
            
            655,170Occupancy
                costs
                and supplies
            
            
            156,932
            
            
            121,261
            
            
            469,286
            
            
            350,158Travel
                and marketing
            
            
            59,638
            
            
            34,538
            
            
            182,525
            
            
            177,9421,379,286
            
            
            989,894
            
            
            3,913,890
            
            
            3,065,220**Income/(loss)
                before undernoted items**
            
            
            (183,875
            )
            
            15,585
            
            
            50,366
            
            
            (490,975
            )Interest
                income, net of bank charges
            
            
            (30,225
            )
            
            781
            
            
            (30,606
            )
            
            (11,361
            )Interest
                on
                long-term debt
            
            
            27,381
            
            
            -
            
            
            42,318
            
            
            5,027Amortization
                of
                property, plant, and equipment
            
            
            54,214
            
            
            60,897
            
            
            141,148
            
            
            160,859Stock
                compensation expense
            
            
            4,648
            
            
            27,786
            
            
            93,507
            
            
            297,14456,018
            
            
            89,464
            
            
            246,367
            
            
            451,669**Income/(loss)
                before discontinued operations**
            
            
            (239,893
            )
            
            (73,879
            )
            
            (196,001
            )
            
            (942,644
            )**Discontinued
                operations**Income/(loss)
                discontinued operations (note 4 )
            
            
            597,348
            
            
            (63,279
            )
            
            1,314,861
            
            
            124,060**Net
                income/(loss) attributable to common shareholders**
            
            
            357,455
            
            
            (137,158
            )
            
            1,118,860
            
            
            (818,584
            )**Deficit,
                beginning of the period**
            
            
            (17,316,257
            )
            
            (17,902,531
            )
            
            (18,077,662
            )
            
            (17,221,105
            )**Deficit,
                end of the period**
            
            $
            (16,958,802
            )
            $
            (18,039,689
            )
            $
            (16,958,802
            )
            $
            (18,039,689
            )**Income
                (loss) per common share, basic**Continuing
                operations
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.00
            )
            $
            (0.02
            )Discontinued
                operations
            
            $
            0.01
            
            $
            (0.00
            )
            $
            0.02
            
            $
            (0.00
            )**Total
                income (loss) per common share, basic**
            
            $
            0.01
            
            $
            (0.00
            )
            $
            0.02
            
            $
            (0.02
            )**Weighted
                average common shares outstanding**
            
            
            58,277,696
            
            
            58,277,696
            
            
            58,277,696
            
            
            58,277,696**Income
                (loss) per common share, diluted**Continuing
                operations
            
            $
            (0.00
            )
            $
            (0.00
            )
            $
            0.00
            
            $
            (0.02
            )Discontinued
                operations
            
            $
            0.01
            
            $
            (0.00
            )
            $
            0.02
            
            $
            (0.00
            )**Total
                income (loss) per common share, diluted**
            
            $
            0.01
            
            $
            (0.00
            )
            $
            0.02
            
            $
            (0.02
            )**Weighted
                average common shares and share equivalents,
                diluted**
            
            
            58,277,696
            
            
            58,277,696
            
            
            58,277,696
            
            
            58,277,696





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








5




**Med-Emerg
      International Inc.**


**Consolidated
      Statement of Cash Flows**


**Three
      and nine months ended September 30, 2006 and 2005
      (Unaudited)**    **(in
        US$)**





**THREE
                MONTHS ENDED**
            
            
            **NINE
                MONTHS ENDED****September
                  30**
            
            
            **September
                30**
            
            
            **September
                30**
            
            
            **September
                30****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****Cash
                Flows from Operating Activities**Net
                income/(loss) before discontinued operations
            
            $
            (239,893
            )
            $
            (73,879
            )
            $
            (196,001
            )
            $
            (942,644
            )Adjustments
                for:Amortization
                of
                property, plant and equipment
            
            
            54,214
            
            
            60,897
            
            
            141,148
            
            
            160,859Stock
                compensation expense
            
            
            4,648
            
            
            27,786
            
            
            93,507
            
            
            297,144Accretion
                of
                expense on Series I Shares
            
            
            24,022
            
            
            -
            
            
            24,022
            
            
            -(157,009
            )
            
            14,804
            
            
            62,676
            
            
            (484,641
            )Decrease
                in
                non-cash working capital components
            
            
            (339,707
            )
            
            (97,902
            )
            
            (722,283
            )
            
            (473,304
            )Discontinued
                operations (Note 4)
            
            
            1,199,808
            
            
            63,088
            
            
            1,367,784
            
            
            (670,131
            )703,092
            
            
            (20,010
            )
            
            708,177
            
            
            (1,628,076
            )**Cash
                Flows from Investing Activities**Additions
                to
                property, plant, and equipment
            
            
            (87,359
            )
            
            (51,185
            )
            
            (183,251
            )
            
            (152,200
            )Discontinued
                operations (Note 4)
            
            
            -
            
            
            (1,605
            )
            
            -
            
            
            (811
            )(87,359
            )
            
            (52,790
            )
            
            (183,251
            )
            
            (153,011
            )**Cash
                Flows from Financing Activities**Issuance
                of
                redeemable, convertible Series 1 Shares
            
            
            3,106,554
            
            
            -
            
            
            3,106,554
            
            
            -Effect
                of foreign currency exchange rate changes
            
            
            37,312
            
            
            20,211
            
            
            62,537
            
            
            802**Increase
                (decrease) in cash**
            
            
            3,759,598
            
            
            (52,589
            )
            
            3,694,017
            
            
            (1,780,285
            )Cash,
                beginning of the period
            
            
            595,365
            
            
            584,460
            
            
            660,946
            
            
            2,312,156**Cash,
                end of the period**
            
            $
            4,354,963
            
            $
            531,871
            
            $
            4,354,963
            
            $
            531,871





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





6




**MED-EMERG
      INTERNATIONAL INC**


**Notes
      to Unaudited Consolidated Financial Statements**


**Three
      and Nine Months ended September 30, 2006 and 2005**





**1.
      ORGANIZATION AND DESCRIPTION OF BUSINESS**





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





The
      Company’s common shares, no par value (“Common Shares”) are quoted on the OTC
      Bulletin Board. The Company completed its initial public offering in February
      1998.





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





The
      Company’s Staffing Solutions unit provides emergency department physician and
      nurse recruitment, staffing and administrative support services to hospitals
      and
      federal corrections facilities, on a contractual basis, and physician and nurse
      practitioners to select long-term facilities in Ontario. At September 30, 2006,
      the Company provided its services to approximately 35 locations across
      Ontario.





The
      Company’s Medical Services unit is comprised of (a) infusion services, (b) pain
      management services, and (c) two family medical clinics. The infusion business
      provides special access RemicadeTM infusion services to patients suffering from a variety of inflammatory disorders
      including Crohn’s disease and rheumatoid arthritis, at clinic locations across
      Ontario. In November 2004, the Company acquired a pain management clinic and
      commenced offering services to Toronto-area residents who experience chronic
      pain. Subsequently, four additional clinics were opened. In January 2005, the
      Company resumed operation of a family medical clinic previously sold in 2003,
      after it failed to achieve certain earnings targets. In November 2005, the
      Company resumed operation of a second clinic, when the buyer defaulted on
      certain payment obligations.





The
      Company’s Healthcare Consulting unit provides consulting services to select
      Canadian private and public institutions on issues related to a variety of
      healthcare topics.





**2.
      BASIS OF PRESENTATION**





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





Significant
      intercompany accounts and transactions have been eliminated on
      consolidation.





The
      consolidated financial statements are expressed in U.S. dollars. Differences
      between Canadian and United States accounting principles are described in note
      10.





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





Operating
      results for the interim periods are not necessarily indicative of the results
      that may be expected for the year ended December 31, 2006.





7




These
      unaudited consolidated financial statements are condensed, and do not include
      all disclosures required for annual financial statements, which are contained
      in
      the notes to the Company’s audited consolidated financial statements filed as
      part of the Company’s Annual Report on Form 10-K for the year ended December 31,
      2005 (the “2005 Annual Report”). These unaudited consolidated financial
      statements, footnote disclosures and other information should be read in
      conjunction with the consolidated financial statements and the notes thereto
      included in the 2005 Annual Report.





**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





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




The
      preparation of consolidated financial statements in conformity with GAAP
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent liabilities
      during the reporting period. Significant areas requiring the use of estimates
      relate to: (i) the reported amounts of revenues and expenses, (ii) the
      disclosure of contingent liabilities, (iii) the carrying value of property,
      plant, and equipment and the rate of amortization related thereto, and (iv)
      accounting for income taxes. Actual results could differ from those estimates.
      When adjustments become necessary, those adjustments are reported in earnings
      in
      the period in which they become known.





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





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




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





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





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





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





Goodwill
      is the excess of the purchase price of assets over the fair value of the
      underlying net identifiable assets. Goodwill is not amortized but rather is
      tested for impairment at least on an annual basis.





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





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





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





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




8




• The
      enterprise is the primary obligor in the relationship;


•  The
      enterprise has latitude in establishing price;


•  The
      enterprise performs part of the service;


•  The
      enterprise has discretion in supplier selection;


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


•  The
      enterprise has credit risk.





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





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





**(1)
      Staffing Solutions:**





Revenue
      is reported on a gross basis.





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





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





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





**(2)
      Medical Services:**





Revenue
      is reported on a gross basis.





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





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





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





**(3)
      Healthcare Consulting:**





Revenue
      is reported on a gross basis.





9




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





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





The
      profitability on individual contracts is monitored on a regular basis and any
      expected losses on completion are accrued in the period that a loss is
      determined to be likely.





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





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





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





Cash
      consists of cash on hand and balances with banks.





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





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





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





The
      Company uses the fair value based method of accounting for all stock-based
      payments to non-employees and to direct awards of stock to employees. This
      standard requires the recognition of a compensation expense for grants of stock,
      stock options, and other equity instruments to employees based on the estimated
      fair value of the instruments at the grant date.





**(k)**  **Income
      / loss per share attributable to common shareholders**





Basic
      income (loss) per share attributable to common shareholders is computed by
      dividing the net income (loss) attributable to common shareholders before and
      after discontinued operations over the weighted average number of common shares
      outstanding, including contingently issuable shares where the contingency has
      been resolved. Diluted income per share is computed using the number of shares
      that would have been outstanding during the period had all potential common
      shares been issued at the beginning of the period, or when the underlying
      management options, Series I Shares, or warrants were granted or issued.





**4.
      DISCONTINUED OPERATIONS**





The
      Company provided personnel to Canadian armed forces across Canada until March
      31, 2005. With the discontinuance of this business in April 2005, it has been
      classified as a discontinued operation, and accounted for accordingly.****




10




**THREE
                MONTHS ENDED**
            
            
            **NINE
                MONTHS ENDED**September
                30
            
            
            September
                30
            
            
            September
                30
            
            
            September
                302006
            
            
            2005
            
            
            2006
            
            
            2005Revenue
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            11,094,253Gross
                margin
            
            
            -
            
            
            -
            
            
            -
            
            
            654,402Operating,
                general and administrativeExpenses
            
            
            22,965
            
            
            68,208
            
            
            171,855
            
            
            557,908Amortization
            
            
            -
            
            
            2,513
            
            
            -
            
            
            9,345Interest
                and financing
            
            
            376
            
            
            1,019
            
            
            36,277
            
            
            66,409Other
                income (Note 7)
            
            
            (1,229,948
            )
            
            (8,461
            )
            
            (1,522,993
            )
            
            (103,320
            )Income
                from discontinued operations
            
            
            1,206,607
            
            
            (63,279
            )
            
            1,314,861
            
            
            124,060Income
                tax
            
            
            (609,259
            )
            
            -
            
            
            -
            
            
            -Net
                Income (loss) from discontinued operations
            
            $
            597,348
            
            $
            (63,279
            )
            $
            1,314,861
            
            $
            124,060





The
      summarized balance sheets for the Discontinued Operations as at September 30,
      2006 and December
      31, 2005 are as follows:





**September**
            
            
            **December****2006**
            
            
            **2005**Current
                assetsCash
            
            $
            5,409
            
            $
            68,003Accounts
                receivable
            
            
            481,836
            
            
            967,957487,245
            
            
            1,035,960Current
                liabilitiesAccounts
                payable and accrued liabilities
            
            
            917,944
            
            
            1,194,427Long-term
                liability
            
            
            373,382
            
            
            592,692Net
                liability
            
            $
            (804,081
            )
            $
            (751,159
            )




**5.
      CAPITAL STOCK**





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. 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.




11




The
      Series I Shares have been accounted for as a compound financial instrument
      comprising both a financial liability and equity. The proceeds of the Series
      I
      Shares was 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.





The
      components of the Series I Shares were determined as follows:





Orginal
                proceeds
            
            $
            3,106,554Balance
                recorded as capital stock
            
            
            482,043Balance
                recorded as liabiity
            
            
            2,624,511Accretion
                    of
                    expense on Series I Shares
            
            
            24,022Liability
                at the end of the period
            
            $
            2,648,533





**6.
      CONTRIBUTED SURPLUS**





During
      the third quarter of 2006, an amount of $4,648 was recorded as stock
      compensation expense for the extension of 1,437,500 Common Share purchase
      warrants from August 11, 2006 to September 11, 2006. This amount was credited
      to
      contributed surplus. These warrants expired September 11, 2006.





During
      the second quarter of 2006, an amount of $10,456 was recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the second quarter of 2006. This amount was credited to
      contributed surplus.





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




12




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





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





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





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





**7.
      OTHER INCOME**





On
      July
      11, 2006, the Company announced that it received Cdn$2.0 million ($1.8 million)
      from Calian Technologies Ltd. (“Calian”) in settlement of on-going litigation.
      This amount, net of litigation and other costs of Cdn$605,900 ($469,690) have
      been credited to Discontinued Operations (Note 4).





**8.
      SEGMENTED INFORMATION**





The
      segmented information for the business units are as follows:




13




**THREE
                MONTHS ENDED**
            
            
            **NINE
                MONTHS ENDED****September
                30**
            
            
            **September
                30**
            
            
            **September
                30**
            
            
            **September
                30****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**RevenueStaffing
            
            $
            2,512,067
            
            $
            2,785,380
            
            $
            8,199,150
            
            $
            6,733,122Medical
                services
            
            
            1,648,430
            
            
            1,036,645
            
            
            4,780,808
            
            
            2,702,688Healthcare
                consulting
            
            
            176,905
            
            
            287,096
            
            
            828,772
            
            
            763,3564,337,402
            
            
            4,109,121
            
            
            13,808,730
            
            
            10,199,166Divisional
                income (loss)Staffing
            
            
            (17,144
            )
            
            78,688
            
            
            226,121
            
            
            (62,940
            )Medical
                services
            
            
            (68,032
            )
            
            (56,394
            )
            
            (60,766
            )
            
            (388,881
            )Healthcare
                consulting
            
            
            (98,699
            )
            
            (6,709
            )
            
            (114,989
            )
            
            (39,154
            )(183,875
            )
            
            15,585
            
            
            50,366
            
            
            (490,975
            )Interest
                income, net of bank charges
            
            
            (30,225
            )
            
            781
            
            
            (30,606
            )
            
            (11,361
            )Interest
                on long-term debt
            
            
            27,381
            
            
            -
            
            
            42,318
            
            
            5,027Amortization
                    of property, plant and equipment
            
            
            54,214
            
            
            60,897
            
            
            141,148
            
            
            160,859Stock
                compensation expense
            
            
            4,648
            
            
            27,786
            
            
            93,507
            
            
            297,14456,018
            
            
            89,464
            
            
            246,367
            
            
            451,669Income
                  (loss)
                  from continuing operations before income taxes
            
            $
            (239,893
            )
            $
            (73,879
            )
            $
            (196,001
            )
            $
            (942,644
            )




**9.
      RELATED PARTY TRANSACTIONS**





During
      the first nine months of 2006, administrative fees of approximately $31,872
      (Cdn$36,000) were paid to a company, which is partially owned by the Company’s
      Chairman, and is included in general and administration expenses. These
      transactions were recorded at the exchange amount which were representative
      of
      market rates. ($NIL in the first nine months of 2005).





**10.
      CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**





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





(a)  Long-term
      investments





Under
      U.S. GAAP, investments classified as ‘available for sale’ are carried at market
      and unrealized temporary gains and losses are included, net of taxes, in other
      comprehensive income. The U.S. GAAP reconciliation had no impact for the periods
      presented.





(b)  Long-term
      debt




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 Securities* recommends
        that shares that are redeemable for cash based on occurrence of events outside
        of the control of the Company should be classified outside of shareholder's
        equity. The Series I Shares, which are redeemable for cash in the event of
        a change in control, will be 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. The reconciliation of Canadian
        to
        U.S. GAAP appears below.




14




September
            
            
            December30,
                2006
            
            
            31,
                2005Liability
                  portion of redeemable, convertible Series 1 Shares - Canadian
                  GAAP
            
            $
            2,648,533
            
            $
            -Impact
                of accretion expense
            
            
            24,022
            
            
            -Equity
                  portion of redeemable, convertible Series 1 Shares - Canadian
                  GAAP
            
            
            482,043
            
            
            -Redeemable,
                convertible Series 1Shares
                - U.S. GAAP
            
            $
            3,154,598
            
            $
            -





(c)
      Shareholders’ equity





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 a reasonable period surrounding the announcement date of
      the
      acquisition. The share price used for the YFMC Healthcare Inc. acquisition
      in
      November 1999, under Canadian GAAP was $1.25. The share price used for the
      YFMC
      Healthcare Inc. acquisition under U.S. GAAP was $1.859.





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





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




15





**September**
            ****
            ****
            **December**
            ********
            ****
            **30,
                2006**
            ****
            ****
            **31,
                2005**Capital
                stock, Canadian GAAP
            
            $
            16,044,736
            
            $
            16,044,736Capital
                  stock
                  issued on purchase of YFMC Healthcare Inc.
            
            
            1,087,872
            
            
            1,087,872Ascribed
                  fair
                  value of share purchase warrants issued
            
            
            (36,406
            )
            
            (36,406
            )**Capital
                Stock - U. S. GAAP**
            
            
            **17,096,202**
            
            
            **17,096,202**Equity
                  portion of redeemable, convertible Series I Shares, Canadain
                  GAAP
            
            
            482,043
            
            
            -Presented
                  outside shareholders' equity for U.S. GAAP purposes
            
            
            (482,043
            )
            
            -Equity
                  portion of redeemable, convertible Series I Shares, U.S.
                  GAAP
            
            
            -
            
            
            -Contributed
                surplus, Canadian GAAP
            
            
            3,000,797
            
            
            2,907,290Share
                purchase warrants
            
            
            36,406
            
            
            36,406**Paid-in-capital
                - U.S. GAAP**
            
            
            **3,037,203**
            
            
            **2,943,696**Deficit
                - Canadian GAAP
            
            
            (16,958,802
            )
            
            (18,077,662
            )Impact
                of accretion expense
            
            
            24,022
            
            
            -**Deficit
                - U.S. GAAP**
            
            
            **(16,934,780**
            **)**
            
            **(18,077,662**
            **)**Cumulative
                translation adjustment
            
            
            (730,350
            )
            
            (792,887
            )**Shareholders’
                equity - U.S. GAAP**
            
            **$**
            **2,468,275**
            
            **$**
            **1,169,349**





(d)
      Comprehensive loss





Statement
      of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for reporting and display of comprehensive
      loss and its components in the financial statements. Under U.S. GAAP, the
      comprehensive income (loss) for the three and nine months ended September 30,
      2006 and 2005 would be as follows:





**THREE
                MONTHS ENDED**
            
            
            **NINE
                MONTHS ENDED****September
                30**
            
            
            **September
                30**
            
            
            **September
                30**
            
            
            **September
                30**
            ********
            ****
            ****
            **2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Net
                income (loss) - Canadian GAAP
            
            $
            357,455
            
            
            ($137,158
            )
            $
            1,118,860
            
            
            ($818,584
            )Impact
                of accretion expense
            
            
            24,022
            
            
            -
            
            
            24,022
            
            
            -Net
                income (loss) - U.S. GAAP
            
            
            381,477
            
            
            (137,158
            )
            
            1,142,882
            
            
            (818,584
            )Foreign
                currency translation adjustment
            
            
            37,312
            
            
            20,211
            
            
            62,537
            
            
            802Comprehensive
                income (loss)
            
            $
            418,789
            
            
            ($116,947
            )
            $
            1,205,419
            
            
            ($817,782
            )





(e)
      Recent accounting pronouncements





In
      February 2006, the United States Financial Accounting Standards Board (‘‘FASB’’)
      issued Statement of Financial Accounting Standard (‘‘SFAS’’) No. 155,
‘‘Accounting for Certain Hybrid Financial Instruments - an amendment to FASB
      Statements No. 133 and 140’’ (‘‘SFAS 155’’). SFAS 155 simplifies the accounting
      for certain hybrid financial instruments containing embedded derivatives. SFAS
      155 allows fair value measurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation under
      SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’
(‘‘SFAS 133’’). In addition, it amends SFAS No. 140 ‘‘Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities’’ (‘‘SFAS
      140’’), to eliminate the prohibition on a qualifying special-purpose entity from
      holding a derivative financial instrument that pertains to a beneficial interest
      other than another derivative financial instrument. SFAS 155 is effective for
      all financial instruments acquired, issued, or subject to a re-measurement
      event
      occurring after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. The Company will adopt the provisions of SFAS 155 on January
      1, 2007. The implementation of SFAS 155 is not expected to have a material
      impact on the Company’s results of operations and financial
      condition.




16




In
      March 2006, the FASB issued SFAS No. 156 ‘‘Accounting for Servicing of Financial
      Assets - an amendment of FASB Statement No. 140’’ (‘‘SFAS 156’’). SFAS 156
      simplifies the accounting for loan servicing rights and the financial
      instruments used to hedge risks associated with those rights. SFAS 156 requires
      that servicing rights be valued initially at fair value, and subsequently
      accounted for at either fair value, or amortized over the economic life of
      the
      related lease. SFAS 156 is effective for fiscal years beginning after September
      15, 2006. We will adopt the provisions of SFAS 156 on January 1, 2007. The
      implementation of SFAS 156 is not expected to have a material impact on our
      results of operations and financial condition.





In
      June
      2006, FASB ratified the consensus reached by the Emerging Issues Task Force
      in
      Issue No. 06−3, “How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should be Presented in the Income Statement (That is, Gross Versus
      Net Presentation).” Issue No. 06−3 requires disclosure of an entity's accounting
      policy regarding the presentation of taxes assessed by a governmental authority
      that are directly imposed on a revenue producing transaction between a seller
      and a customer, including sales, use, value added and some excise taxes. The
      adoption of Issue No. 06−3, which is effective for interim and annual reporting
      periods beginning after December 15, 2006, is not expected to have an impact
      on
      the Corporation's consolidated financial statements.





In
      July
      2006, FASB issued two related standards that address accounting for income
      taxes: FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income
      Taxes, and FASB Staff Position (FSP) FAS 13-2, Accounting for a Change in the
      Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
      Transaction. Among other things, FIN 48 requires applying a “more likely than
      not” threshold to the recognition and de-recognition of tax positions, while FSP
      FAS 13-2 requires a recalculation of returns on leveraged leases if there is
      a
      change or projected change in the timing of cash flows relating to income taxes
      generated by the leveraged lease. The new guidance will be effective for us
      on
      January 1, 2007. The implementation of FIN 48 and FAS 13-2 are not expected
      to
      have a material impact on our results of operations and financial
      condition.





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.”  SAB 108 was issued to
      provide consistency between how registrants quantify financial statement
      misstatements.





Historically,
      there have been two widely-used methods for quantifying the effects of financial
      statement misstatements.  These methods are referred to as the “roll-over”
and “iron curtain” method.  The roll-over method quantifies the amount by
      which the current year income statement is misstated.  Exclusive reliance
      on an income statement approach can result in the accumulation of errors on
      the
      balance sheet that may not have been material to any individual income
      statement, but which may misstate one or more balance sheet accounts.  The
      iron curtain method quantifies the error as the cumulative amount by which
      the
      current year balance sheet is misstated.   Exclusive reliance on a
      balance sheet approach can result in disregarding the effects of errors in
      the
      current year income statement that results from the correction of an error
      existing in previously issued financial statements.





17




SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the company’s
      financial statements and the related financial statement disclosures.  This
      approach is commonly referred to as the “dual approach” because it requires
      quantification of errors under both the roll-over and iron curtain
      methods.





SAB
      108
      allows registrants to initially apply the dual approach either by (1)
      retroactively adjusting prior financial statements as if the dual approach
      had
      always been used or by (2) recording the cumulative effect of initially applying
      the dual approach as adjustments to the carrying values of assets and
      liabilities as of January 1, 2006 with an offsetting adjustment recorded to
      the
      opening balance of retained earnings.  Use of this “cumulative effect”
transition method requires detailed disclosure of the nature and amount of
      each
      individual error being corrected through the cumulative adjustment and how
      and
      when it arose.





The
      Company has historically applied the dual approach in quantifying financial
      statement misstatements in all prior periods. As such, no adjustment will be
      required.




**11.
      CONTINGENT LIABILITIES**





(i)  There
      is uncertainty with respect to the Company’s liability for Goods and Services
      tax pertaining to certain services that it provides. The measurement of this
      uncertainty is not determinable and accordingly no provision has been made
      in
      respect thereof in these consolidated financial statements.





(ii)  There
      is uncertainty with respect to the Company’s liability arising from a
      contractual dispute with a customer. The Company is of the view that it is
      unlikely that it will be found liable for these costs. The costs associated
      with
      this contingent liability range from $nil to $1.0 million. The Company has
      not
      recorded any liability associated with this contingency.





(iii)  Claims
      have been made against the Company for general damages for breach of contract
      and in tort. Claims for approximately $482,000 have been made against the
      company for wrongful termination of a person working on a third party contract.
      Another claim for unspecified damages has been made against the Company for
      wrongful dismissal and breach of contract. The Company is of the view that
      liability, if any, would be the responsibility of the third party contractor.
      The Company believes that the amount claimed exceeds what a court would award
      in
      light of the current law. Since the Company’s lawyers are of the opinion that
      these claims are not probable to succeed no provision has been made in respect
      thereof in these consolidated financial statements.





(iv)  The
      Company sub-leased certain premises to third parties when it disposed of its
      clinic operations. In case of payment defaults by the third parties, the Company
      could be held liable for rent on these premises. Rent for these premises over
      the next seven years, during the respective lease terms, totals approximately
      $1.2 million.





Any
      liability resulting from the above will be reflected as a charge to income
      when
      it is probable that the liability will be incurred and when a reasonable
      estimate of the liability can be determined for items (i) - (iii).





**12.
      SUBSEQUENT EVENTS**





Effective
      November 1, 2006, two unsecured promissory notes in the aggregate principal
      amount of $599,991, along with interest in the amount of $213,500, become due.
      Effective November 1, 2006, the notes were restructured as follows:





(i) A
      note
      in the principal amount of $299,995 plus interest of $106,750 was settled
      through an agreement to pay a total of $280,000 in eight (8) quarterly payments
      of $35,000, over two years, commencing November 1, 2006.




(ii) A
      note
      in the principal amount of $299,995 was extended to November 1, 2008 and
      interest payable was settled through an agreement to pay a total of $106,750
      in
      eight (8) quarterly payments of approximately $13,350, over two years,
      commencing November 1, 2006.


18




**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 QUARTERLY
      REPORT ON FORM 10-Q.**





The
      Company’s operations are comprised of three business units: Staffing Solutions,
      Medical Services and Healthcare Consulting Services. During the first nine
      months of 2006, 59% of the Company’s revenue was generated by the Staffing
      Solutions unit; 35% by the Medical Services unit; and 6% by the Healthcare
      Consulting unit. From a Gross Margin perspective, the gross margin generated
      from the three business units was 37%, 51% and 12%, 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 emergency department (ED) physicians, longer waiting times by
      patients, and the growing cost of public medicine, play directly into the
      Company’s strengths.





The
      Company’s Staffing Solutions unit provides physician staffing and billing
      services to more than 35 healthcare facilities across Ontario, including rural
      and urban hospitals as well as tertiary care centers and corrections
      facilities.





The
      Company’s Medical Services unit, which operates through wholly owned
      subsidiaries, provides chronic pain management and intravenous infusion services
      for pharmaceutical companies in conveniently located community-based clinics
      and
      family medical clinics





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





The
      Company tracks its operations by monitoring certain key performance indicators.
      For Staffing Solutions, the Company monitors the number of contracts under
      administration, monthly shifts booked and gross margin per contract. For Medical
      Services, the Company tracks the number of infusions for Infusion Services
      and
      the number of patient referrals, average billing per patient and the number
      of
      patient visits for the pain management practice. For Healthcare Consulting
      Services, the Company tracks the gross margin per contract and its win / loss
      ratio on contract bids. It also measure certain key balance sheet metrics such
      as working capital, to monitor its cash flow situation.





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





19




Growth
      of the Company’s Medical Services business is dependent on several factors. The
      Infusion 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. For Pain Management Services,
      growth is dependent on the Company’s ability to recruit additional doctors to
      provide pain therapies.





The
      growth of Healthcare Consulting Services is dependent on market developments
      in
      Canadian healthcare. At this time, management believes that there exist growth
      opportunities because of on-going demand for health human resource planning,
      primary healthcare reform initiatives and pandemic planning.





*STAFFING
      SOLUTIONS*





MEII
      is
      the leading provider of ED doctors to Ontario hospitals. The Company provides
      physician staffing and billing services to more than 35 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 ED staffing, MEII has developed a unique integrated
      staffing solution, which was used extensively to recruit primary care
      physicians. Based on patient population, the nature of the cases being treated,
      and the total cost of the current system, MEII introduced a healthcare model
      combining Primary Care Physicians with Primary Care Nurse Practitioners. This
      was the first time a nurse practitioner function was introduced into a mental
      health setting. The program, now in its ninth year of operation, has received
      high satisfaction ratings from both staff and patients, resulting in the Whitby
      Mental Health Centre receiving the ACE award from the Ministry of Health for
      Innovation in Health Care Delivery Design. In June 2002, the Centre for
      Addiction and Mental Health in Toronto, Canada, awarded MEII a similar contract
      for primary care services. In 2004, the Company introduced Primary Health Care
      Nurse Practitioners to its mix of healthcare providers in community-based
      hospitals. In September 2006, the Company recruited a leading ED physician
      with
      extensive clinical, administrative, teaching and research experience. It is
      anticipated that this will help to raise the profile of the Staffing division.





*MEDICAL
      SERVICES*





MEII
      provides innovative medical services directly to healthcare consumers.





*Infusion
      Services*





In
      March 2001, MEII entered into an agreement with Schering Canada Inc. to become
      a
      coordinator for the community-based infusion of the medication known as
      RemicadeTM.  This contract capitalizes on the Company's access to clinics
      for the treatment of patients with disabling rheumatoid arthritis and Crohn's
      disease, among other diseases. During the first nine months of 2005 the Company
      delivered more than 5,350 infusions and more than 7,400 infusions during the
      first nine months of 2006.





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





As
      of
      September 30, 2006, the Company operated 16 virtual clinics across Ontario.
      On
      an as-required basis, the Company rents space in community-based medical
      clinics. MEII’s team of infusion coordinators arrange for patients to arrive at
      the clinic at a prescribed time and for a physician and nurse to be available
      to
      attend to their needs. The RemicadeTM is supplied by a local pharmacy.





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





20





*Pain
      Management Services*





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





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





In
      August of 2005, Dr. Roman Jovey, the President of the Canadian Pain Society,
      joined CPM as its Medical Director. Over the last 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 intends to increase the number of physicians available to treat those
      suffering from chronic pain and thereby improve service availability to a
      healthcare sector that is plagued by long wait times. The Company has developed
      and launched a training program specifically designed to educate emergency
      room
      physicians in chronic pain management.





The
      clinic that CPM acquired in November 2004 increased monthly treatments from
      approximately 300 patients in November 2004 to more than 700 patients in
      September 2006. Further, CPM as a whole more than tripled its volumes by
      treating more than 1,300 patients in the month of September 2006, compared
      to
      the 289 patient visits in November of 2004, (6,250 patient visits in the third
      quarter of 2006 compared to 2,497 in the third quarter of 2005).





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





*Family
      Medical Clinics*




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




*HEALTHCARE
      CONSULTING*





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





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





21




In
      2005, the Company also completed projects for the Royal College of Physicians
      and Surgeons and the Canadian Nurses Association. Additionally, MEII also
      started five projects associated with the design and development of Family
      Health Teams (FHTs) across Ontario. The Company completed three more FHT
      contracts in the first half of 2006 and is working on five more like contracts,
      at this time.





In
      May
      2006, the Company was awarded a contract by a national association to provide
      consulting services in connection with planning for an influenza pandemic.
      The
      Company believes that this contract, like the one with the Atlantic Provinces,
      has the potential to generate additional consulting opportunities.




MEII
      has used a ‘virtual’ model to build its healthcare consulting practice. Under
      the guidance of MEII’s Director of Health Services Consulting, the Company
      responds to contract tenders for projects that meet pre-defined criteria.
      Project-specific teams are assembled, based on the needs of the contract. The
      Company calls on the expertise of leading academics and industry leaders to
      work
      on specific projects.






**DISCONTINUED
      OPERATIONS- GOVERNMENT HEALTHCARE SERVICES**





In
      March 2001, the Company was awarded an administrative management services
      contract (the “DND Contract”), the largest of its kind, to provide medical
      staffing for military bases of the Department of National Defence (DND) across
      Canada. The DND Contract had an initial period of three years ending on March
      31, 2004, but it was amended and extended until March 31, 2005. In
      December 2004 MEII learned that it was not successful in its bid to win a
      replacement contract with DND and its contractual relationship for DND medical
      staffing services ended on March 31, 2005.





On
      January 31, 2005, the Company filed a complaint with the Canadian International
      Trade Tribunal (CITT) wherein the Company questioned the manner in which the
      Government of Canada’s procurement for the DND medical staffing contract was
      conducted. On April 26, 2006, the Federal Court of Appeal dismissed the
      Company’s application. The Company will not pursue this matter
      further.





In
      January 2005 the Company filed a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  This action was settled on
      July 11, 2006, as described below.





**RESULTS
      OF OPERATIONS**





**Three
      months ended September 30, 2006 compared to three months ended September 30,
      2005**





**REVENUE**





The
      Company's revenue from continuing operations for the three months ended
      September 30, 2006 was $4,337,402 compared to $4,109,121 for the three months
      ended September 30, 2005.





The
      increase in revenue during the 2006 period over the comparable 2005 period
      of
      approximately 6% was attributable to an increase in revenues in the Medical
      Services division, offset by slight decreases in revenue in the Staffing
      Solutions and Healthcare Consulting divisions. Divisional revenues
      were:





**Quarter
                Ended September 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            2,512,067
            
            $
            2,785,380Medical
                Services
            
            
            1,648,430
            
            
            1,036,645Healthcare
                Consulting
            
            
            176,905
            
            
            287,096Total
            
            $
            4,337,402
            
            $
            4,109,121






22




Staffing
      revenues decreased by 10% during the three months ended September 30, 2006
      over
      the corresponding period in 2005. This decrease in the 2006 period relative
      to
      the 2005 period was primarily attributable to the loss of one significant
      contract at the end of June 2006





Revenue
      from the Medical Services division increased by 59% to $1,648,430 from
      $1,036,645 in 2005. The increase was driven primarily by three factors.




1.
            In
                late 2004, the Company launched its Pain Management business. In
                the third
                quarter of 2006, the Pain Management business generated $764,693
                in
                revenue compared to $438,337 in 2005 as the Company grew from four
                to five
                clinics and revenue per clinic increased. As discussed previously,
                the
                Company believes that the Pain Management business represents an
                opportunity to generate considerable growth. It is a field of healthcare
                that is vastly under serviced in Canada. The Company has recently
                opened
                its fifth clinic location and more sites are scheduled for 2006.
                Management believes that strong revenue growth will continue in the
                current fiscal year, though no assurance can be given that such growth
                will in fact be achieved.


2.
            The
                Infusion business increased to $712,982 from $474,173 in 2005. The
                50%
                increase in the Infusion business was driven by a 40% increase in
                infusions from 1,917 in the third quarter of 2005 to 2,691 in the
                same
                quarter of 2006 and higher average revenue per infusion.


3.
            During
                2005, the Company re-assumed responsibility for two family medical
                clinics, one in January 2005 and the second in November 2005. These
                clinics generated $170,755 in revenue in the third quarter of 2006
                compared to $124,135 in 2005. In the third quarter of 2005, the Company
                operated one clinic in Wallaceburg, Ontario. During the third quarter
                of
                2006, the Company operated two family medical clinics, the Wallaceburg
                location and a second clinic in Calgary Alberta.





Revenue
      from Healthcare Consulting was $176,904 for the third quarter of 2006 compared
      to $287,096 for the quarter ended September 30, 2005, a decrease of 38%.
      Consulting revenues are of a non-recurring nature. The division failed in its
      bid to secure certain healthcare consulting contracts during the
      quarter.




**GROSS
      MARGIN**





Gross
      margin (revenue less physician and direct costs such as clinic salaries and
      medical supplies and excluding attributable overheads) increased to $1,195,411
      (19%) for the third quarter of 2006, from $1,005,479 for the same period in
      2005.




**Quarter
                Ended September 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            411,065
            
            $
            496,653Medical
                Services
            
            
            713,836
            
            
            365,733Healthcare
                Consulting
            
            
            70,510
            
            
            143,093Total
            
            $
            1,195,411
            
            $
            1,005,479





The
      Gross Margin from the Staffing business decreased to $411,065 from $496,653
      in
      2005. The decrease of 17% was largely driven by the decrease in the number
      of
      contracts under management and more specifically to the loss of a major contract
      in June 2006. There was also a decrease in the gross margin percentage, 16.4%
      in
      2006 versus 17.9% in 2005.





The
      Gross Margin from Medical Services increased 95%, or $348,103 in the third
      quarter of 2006 compared to the same period in 2005. As discussed above
      concerning revenue, this was mainly attributable to (a) the launch of the Pain
      management business which generated gross margin of $131,448; (b) increased
      Infusion margin of $171,107; and (c) the resumption of the family medical
      clinics of $45,548.




23




The
      Gross Margin from Consulting Services decreased 50% for the third quarter of
      2006 from $143,093 in 2005 to $70,510 in 2006. The reduction was in line with
      the reduction of Consulting Services’ revenues.





**OPERATING
      EXPENSES**





Operating
      expenses are comprised of both divisional and corporate expenses. Corporate
      expenses are allocated to the divisions, based on criteria relevant to the
      expense in question.





On
      an
      overall basis, operating expenses increased 39% ($389,392) to $1,379,286 for
      the
      third quarter of 2006 from $989,894 for the same quarter ended September 30,
      2005. The increase was largely attributable to increased costs associated with
      the Medical Services unit where costs increased by $359,741, driven by increased
      business volumes.





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





****
            **Quarter
                Ended June 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            428,209
            
            $
            417,965Medical
                Services
            
            
            781,868
            
            
            422,127Healthcare
                Consulting
            
            
            169,209
            
            
            149,802Total
            
            $
            1,379,286
            
            $
            989,894





**AMORTIZATION
      AND INTEREST**





Amortization
      decreased from $60,897 for the three months ended September 30, 2005 to $54,214
      for the same period in 2006. During 2004 and 2005, the Company increased its
      capital spending on computer hardware and software and on office furniture
      and
      leaseholds. The equipment upgrades were part of a planned upgrade, which
      occurred after the May 2004 equity financing. The leasehold improvements arose
      after the Company moved its head office in June 2004. With capital expenditures
      diminishing in 2006, amortization for the period was reduced.





For
      the
      three months ended September 30, 2006, the Company earned net interest of
      $30,225, compared to net interest expense of $781 for the same period in 2005.
      When the Company settled its lawsuit with Calian Technologies Ltd. (“Calian”) in
      July 2006, as disclosed in Discontinued Operations below, it went from a net
      borrower to a net investor of cash. In the third quarter of 2005 interest earned
      approximately matched interest and other bank charges. The interest on long-term
      debt for the period was $27,381 compared to $nil for the same period in 2005.
      The increase relates to charges associated with the Series I Shares. The Series
      I Shares have been accounted for as a compound financial instrument comprising
      both a financial liability and equity. The allocation of the proceeds of the
      Series I Shares was allocated to the two components based on the present value
      of the future payments on the Series I Shares, discounted at a risk free rate
      of
      return that could be earned by the holder of the Series I Shares. The liability
      is accreted to its full face value through a charge to interest expense over
      the
      five year term of the Series I Shares.





**OTHER
      EXPENSES**





Stock
      compensation expenses were $4,648 for the three month period ended September
      30,
      2006 compared to $27,786 for the third quarter of 2005. Stock compensation
      expenses arise when options or warrants, issued to employees or others, vest.
      In
      2005 the costs associated with the vesting of certain management options were
      expensed in the period.




24




**INCOME
      TAXES**





The
      Company has loss carry forwards of approximately $10 million to be applied
      against future corporate income taxes. Management assesses on a quarterly basis
      the likelihood of recovering these tax losses. With the improvement in operating
      results and the benefit of the settlement with Calian, management determined
      that it was more likely than not that the benefit of a portion of the
      unrecognized income tax losses should be recorded. This benefit was recorded
      in
      the second quarter. In the third quarter, with the recording of the Calian
      settlement, the Company recorded an income tax expense of $648,230, which
      offsets an income tax recovery booked in the previous quarter.





**DISCONTINUED
      OPERATIONS - GOVERNMENT HEALTHCARE SERVICES**




During
      the three months ended September 30, 2006, the Company had income from
      discontinued operations of $1,245,578, compared to a loss of $63,279 for the
      same period in 2005. On July 11, 2006, the Company settled outstanding
      litigation regarding the loss of the DND contract. Pursuant to the settlement,
      the Company received $CDN2.0 million ($1.8 million) and the litigants exchanged
      full and final releases. Proceeds of the settlement, net of expenses of
      approximately $570,000, were recorded as Income from Discontinued Operations
      by
      the Company.





**Nine
      months ended September 30, 2006 compared to nine months ended September 30,
      2005**





**REVENUE**





The
      Company's revenue from continuing operations for the nine months ended September
      30, 2006 was $13,808,730 compared to $10,199,166 for the nine months ended
      September 30, 2005.





The
      increase in revenue during the 2006 period over the comparable 2005 period
      of
      approximately 35% was attributable to an increase in all operating divisions.
      Divisional revenues were:





**Nine
                Months Ended Sep 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            8,199,150
            
            $
            6,733,122Medical
                Services
            
            
            4,780,808
            
            
            2,702,688Healthcare
                Consulting
            
            
            828,772
            
            
            763,356Total
            
            $
            13,808,730
            
            $
            10,199,166





Staffing
      revenues increased 22% for the nine months ended September 30, 2006 over 2005.
      This increase was primarily attributable to the addition of two significant
      contracts which were signed in the second half of 2005. Additionally, the
      Company generated increased revenue per contract compared to 2005.





Revenue
      from the Medical Services division in the first nine months of 2006 increased
      77% to $4,780,808 from $2,702,688 in 2005. The increase was driven by three
      factors.


1.
            In
                late 2004, the Company launched its Pain Management business. For
                the
                first nine months of 2006 the Pain Management business generated
                $2,211,734 in revenue compared to $1,023,645 in 2005 as the Company
                grew
                from four to five clinics. As discussed previously, the Company believes
                that the Pain Management business represents an opportunity to generate
                considerable growth. It is a field of healthcare that is vastly under
                serviced in Canada. The Company has recently opened its fifth clinic
                location and more sites are scheduled for 2006. It is anticipated
                that
                strong revenue growth will continue in the current fiscal year.






25




2.
            The
                Infusion business increased to $1,967,705 from $1,310,592 in 2005.
                The 50%
                increase in the Infusion business was driven by a 38% increase in
                infusions from 5,358 in the first nine months of 2005 to 7,410 in
                the same
                period of 2006 enhanced by a 9% increase in revenue per infusion.


3.
            During
                2005, the Company re-assumed responsibility for two family medical
                clinics, one in January 2005 and the second in November 2005. These
                clinics generated $601,369 in revenue in the first nine months of
                2006
                compared to $368,451 in 2005. In the nine months of 2005, the Company
                operated one clinic in Wallaceburg, Ontario. During the first nine
                months
                of 2006, the Company operated two family medical clinics, the Wallaceburg
                location and a second clinic in Calgary Alberta.





Revenue
      from Healthcare Consulting was $828,772 for the first nine months of the year
      compared to $763,356 for the nine months ended September 30, 2005, an increase
      of 8.5%. For the last two years the Company has increased its focus on its
      Consulting practice. Working with leading academics and industry experts, the
      Company has successfully bid on, and won, an increasing number of contracts.
      The
      Company’s early successes in health human resource planning and primary care
      renewal have led to increased opportunities. Further, its experience with
      primary care led to our involvement, in 2005, with the Province of Ontario’s
      Family Health Team initiative. Over the last nine months the Company has signed
      several contracts to assist community-based Family Health Teams to develop
      business plans for funding of their individual family health teams.





**GROSS
      MARGIN**





Gross
      margin (revenue less physician and direct costs such as clinic salaries and
      medical supplies and excluding attributable overheads)) increased to $3,964,256
      (54%) for nine month period ended September 30, 2006, from $2,574,245 for the
      same period in 2005.




**Nine
                Months Ended Sep 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            1,467,105
            
            $
            1,225,705Medical
                Services
            
            
            2,024,512
            
            
            937,825Healthcare
                Consulting
            
            
            472,639
            
            
            410,715Total
            
            $
            3,964,256
            
            $
            2,574,245





The
      Gross Margin from the Staffing business increased to $1,467,105 from $1,225,705
      in 2005. The increase of 20% was in line with the increase in revenue.





The
      Gross Margin from Medical Services increased 116%, or $1,086,687 for the nine
      months of 2006 compared to the same period in 2005. As discussed above
      concerning revenue, this is attributable to (a) the launch of the Pain
      management business ($481,258); (b) increased Infusion volumes ($223,276) and
      better margin per infusion ($236,051); and (c) the resumption of the family
      medical clinics ($146,102).





The
      Gross Margin from Consulting Services increased 15% for the first nine months
      of
      2006 from $410,715 in 2005 to $472,639 in 2006, which is in line with increased
      Consulting Services revenues for the period.







26


**OPERATING
        EXPENSES**


Operating
      expenses are comprised of both divisional and corporate expenses. Corporate
      expenses are allocated to the divisions, based on criteria relevant to the
      expense in question.





On
      an
      overall basis, operating expenses increased 28% ($848,670) to $3,913,890 for
      the
      first nine months of 2006 from $3,065,220 for the same period in 2005. The
      increase in expenses is related to the increase volumes in each of the business
      units. Specifically, the increases are largely attributable to increased costs
      associated with the Medical Services ($758,572) and Healthcare Consulting
      ($137,759)





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





**Nine
                Months Ended Sep 30,****Division**
            ****
            ****
            **2006**
            ****
            ****
            **2005**Staffing
                Solutions
            
            $
            1,240,984
            
            $
            1,288,645Medical
                Services
            
            
            2,085,278
            
            
            1,326,706Healthcare
                Consulting
            
            
            587,628
            
            
            449,869Total
            
            $
            3,913,890
            
            $
            3,065,220





**AMORTIZATION
      AND INTEREST**





Amortization
      decreased from $160,859 for the nine months ended September 30, 2005 to $141,148
      for the same period in 2006. During 2004 and 2005, the Company increased its
      capital spending on computer hardware and software and on office furniture
      and
      leaseholds. The equipment upgrades were part of a planned upgrade, which
      occurred after the May 2004 equity financing. The leasehold improvements arose
      after the Company moved its head office in June 2004. With capital expenditures
      diminishing in 2006, amortization for the period was reduced.





For
      the
      nine months ended September 30, 2006, the Company earned interest of $30,606,
      compared to interest earned of $11,361 for the same period in 2005. When the
      Company completed the Calian deal in July 2006, our cash position increased
      substantially. The interest on long-term debt for the period was $42,318
      compared to $5,027 for the same period in 2005. The increase relates to charges
      associated with the Series I Shares. The Series I Shares have been accounted
      for
      as a compound financial instrument comprising both a financial liability and
      equity. The allocation of the proceeds of the Series I Shares was allocated
      to
      the two components based on the present value of the future payments on the
      Series I Shares, discounted at a risk free rate of return that could be earned
      by the holder of the Series I Shares. The liability is accreted to its full
      face
      value through a charge to interest expense over the five year term of the Series
      I Shares.





**STOCK
      COMPENSATION EXPENSE**





Stock
      compensation expenses were $93,507 for the nine month period ended September
      30,
      2006 compared to $297,144 for the same period in 2005. Stock compensation
      expenses arise when options or warrants, issued to employees or others, vest.
      In
      2005, 1,437,500 share purchase warrants, that were set to expire, were extended
      by one year. In 2006, the same warrants were extended by nine months. The
      exercise price of the share purchase warrants was also reduced from $0.50 to
      $0.20 in December 2005.





**INCOME
      TAXES**





The
      Company has loss carry forwards of approximately $10 million to be applied
      against future corporate income taxes. Management assesses on a quarterly basis
      the likelihood of recovering these tax losses. With the improvement in operating
      results and the benefit of the settlement with Calian, management determined
      that it was more likely than not that the benefit of the unrecognized income
      tax
      losses should be recorded. Accordingly, $655,932 was recorded in June 2006
      as a
      future income tax recoverable. This amount was eliminated in the current quarter
      when the Calian recovery was recorded as other income in Discontinued Operations
      below, and the corresponding income tax expense was recorded.




27




**DISCONTINUED
      OPERATIONS - GOVERNMENT HEALTHCARE SERVICES**




During
      the nine months September 30, 2006, the Company had a profit from discontinued
      operations of $1,314,861 compared to $124,060 for the same period in 2005.
      On
      July 11, 2006, the Company settled outstanding litigation regarding the loss
      of
      the DND contract. Pursuant to the settlement, the Company received $CDN2.0
      million ($1.8 million) and the litigants exchanged full and final releases.
      Proceeds of the settlement, net of expenses of approximately $570,000, were
      recorded as other income from Discontinued Operations by the Company. The
      Company also recorded income in the first quarter of the year when it settled
      certain disputed amounts with Public Works and Government Services Canada.
      This
      settlement resulted in the Company reporting about $85,000 net of legal and
      other expenses, incurred in collecting the disputed amounts.





**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      at
      September 30, 2006, the Company's cash position was $4,354,963 compared to
      $660,947 at December 31, 2005.





The
      Company’s principal source of liquidity is its cash flow from operations and the
      settlement of the Calian transaction. On July 11, 2006, the Company settled
      its
      outstanding litigation regarding the loss of the DND Contract. Pursuant to
      the
      settlement, Calian paid $CDN2.0 million (approximately $1.8 million at the
      time
      of payment) to the Company and the parties exchanged full and final releases.
      Concurrently, the Company and Calian executed definitive agreements for the
      private placement by the Company to Calian of 8,750,000 shares of the Company’s
      newly designated Series I Shares for aggregate gross proceeds to the Company
      of
      CDN$3.5 million (approximately $3.1 million at the time of agreement). At the
      closing, the Company received CDN$1.75 million (approximately $1.57 million
      at
      the time of payment). The remainder of the consideration consisting of CDN$
      1.75
      million ($1.57 million) was received during the third quarter.





The
      Company’s working capital position (current assets minus current liabilities)
      improved to $4,087,525 as of September 30, 2006, compared to a deficit position
      at December 31, 2005, of ($56,542). This was largely caused by the Calian
      transaction, wherein $3.1 million was generated through the issuance of Series
      I
      Shares and $1.2 million was generated through the settlement of litigation.
      Based on the result of recent business initiatives, management believes that
      its
      working capital will adequately fund its on-going operations for the foreseeable
      future although there can be no assurance that this will be the
      case. ****





The
      increase in the cash position of $3,694,017 in the first nine months of 2006
      resulted from (a) an increase of cash from operations of $62,676; (b) changes
      to
      non-cash working capital items of ($722,283); (c) an increase of $1,367,784
      from
      discontinued operations, comprised of a $1,314,861 profit from discontinued
      operations and a $52,923 increase in working capital from discontinued
      operations; (d) ($183,251) used by the Company in investing activities with
      respect to the purchase of property, plant and equipment; and (e) a foreign
      currency exchange gain of $62,536. The investing activities largely related
      to
      funds used for the acquisition of leasehold improvements at the Company’s pain
      clinics.





The
      Company intends to expand its operations as rapidly as cash flow from operations
      permit. As demand for the Company’s services remain strong, management believes
      that cash flow from operations will satisfy its working capital and capital
      expenditure needs and other obligations as they arise. Notes Payable plus
      accrued interest of approximately $813,000 were due on November 1, 2006. The
      principal, along with interest at the rate of 7%, are payable in cash or shares,
      or any combination thereof, at the Company’s option. On November 1, 2006, the
      two Notes Payable were renegotiated. The first note which was comprised of
      principal and interest of $299,995 and $106,750, respectively, was settled
      through an agreement to pay a total of $280,000 in eight (8) consecutive
      quarterly installments of $35,000, over two years, commencing November 1, 2006.
      The second note which was also comprised of principal and interest of $299,995
      and $106,750, respectively was extended to November 1, 2008 and interest payable
      was settled through an agreement to pay a total of $106,750 in eight (8)
      consecutive quarterly installments of approximately $13,350, over two years,
      commencing November 1, 2006.




28




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





During
      the first quarter of 2005 the terms of the 1,437,500 common share purchase
      warrants issued in February 1998 were amended, extending the expiry of these
      warrants from February 11, 2005 to February 11, 2006. On
      February 10, 2006, the Company further extended the exercise period of the
      warrants to August 11, 2006, and on August 10, 2006, the Company further
      extended the exercise period of the warrants to September 11, 2006. MEII
      has also amended the terms of the warrants to (i) provide that if the closing
      price of common shares of MEII is $.70 or greater for thirty consecutive trading
      days, MEII has the right to redeem the Warrants at $.01 per Warrant upon ten
      days prior notice and (ii) to reduce the per share exercise price thereof to
      $0.20. On September 11, 2006, the warrants expired.





**OFF
      BALANCE SHEET ARRANGEMENTS**





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





**CRITICAL
      ACCOUNTING POLICIES AND ASSUMPTIONS**





The
      preparation of consolidated financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent liabilities during the reporting period. Significant
      areas requiring the use of estimates relate to: 1) the reported amounts of
      revenues and expenses, 2) the assessment of collection risk associated with
      accounts receivable, 3) the disclosure of contingent liabilities, and 4)
      accounting for income taxes. The Company evaluates its estimates on an on-going
      basis. A description of the Company’s accounting policies is included in the
      notes to the audited consolidated financial statements and related notes for
      the
      year ended December 31, 2005, contained herein. These estimates are based on
      information that is currently available to the Company and on various other
      assumptions that it believes to be reasonable under the circumstances. Actual
      results could vary from those estimates under different assumptions or
      conditions. The Company believes that the following critical accounting policies
      affect the more significant judgments and estimates used in the preparation
      of
      the consolidated financial statements:





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






29




•
            The
                Company maintains an allowance for doubtful accounts for estimated
                losses
                resulting from fraudulent claims made by patients, the inability
                of our
                corporate customers to make required payments, or as a result of
                a dispute
                in the invoiced amount. Fraudulent claims arise when patients seek
                medical
                care and provide an invalid health card for payment. The introduction
                of
                electronic medical records services, which pre-screen patients prior
                to
                services being rendered, is rapidly diminishing the Company’s exposure to
                fraudulent claims by patients. The Company determines the adequacy
                of its
                bad debt allowance by continually evaluating individual customer
                receivables, considering the customer’s financial condition, credit
                history and current economic and business conditions. If the financial
                condition of 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
                the Company’s allowances. As of December 31, 2005, the allowance for
                doubtful accounts was negligible.


•
            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. The Company’s 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 its contracts with its hospital and healthcare
                facility
                clients relating to these matters. 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 it believes is reasonably likely to have a material
                adverse effect on it. If the Company becomes aware of such claims
                against
                it, it will evaluate the probability of an adverse outcome and provide
                accruals, 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 $10
                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.






30




Recently
      Issued Accounting Pronouncements





In
      February 2006, the United States Financial Accounting Standards Board (‘‘FASB’’)
      issued Statement of Financial Accounting Standard (‘‘SFAS’’) No. 155,
‘‘Accounting for Certain Hybrid Financial Instruments - an amendment to FASB
      Statements No. 133 and 140’’ (‘‘SFAS 155’’). SFAS 155 simplifies the accounting
      for certain hybrid financial instruments containing embedded derivatives. SFAS
      155 allows fair value measurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation under
      SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities’’
(‘‘SFAS 133’’). In addition, it amends SFAS No. 140 ‘‘Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities’’ (‘‘SFAS
      140’’), to eliminate the prohibition on a qualifying special-purpose entity from
      holding a derivative financial instrument that pertains to a beneficial interest
      other than another derivative financial instrument. SFAS 155 is effective for
      all financial instruments acquired, issued, or subject to a re-measurement
      event
      occurring after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. The Company will adopt the provisions of SFAS 155 on January
      1, 2007. The implementation of SFAS 155 is not expected to have a material
      impact on the Company’s results of operations and financial
      condition.





In
      March 2006, the FASB issued SFAS No. 156 ‘‘Accounting for Servicing of Financial
      Assets - an amendment of FASB Statement No. 140’’ (‘‘SFAS 156’’). SFAS 156
      simplifies the accounting for loan servicing rights and the financial
      instruments used to hedge risks associated with those rights. SFAS 156 requires
      that servicing rights be valued initially at fair value, and subsequently
      accounted for at either fair value, or amortized over the economic life of
      the
      related lease. SFAS 156 is effective for fiscal years beginning after September
      15, 2006. We will adopt the provisions of SFAS 156 on January 1, 2007. The
      implementation of SFAS 156 is not expected to have a material impact on our
      results of operations and financial condition.





In
      June
      2006, FASB ratified the consensus reached by the Emerging Issues Task Force
      in
      Issue No. 06−3, “How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should be Presented in the Income Statement (That is, Gross Versus
      Net Presentation).” Issue No. 06−3 requires disclosure of an entity's accounting
      policy regarding the presentation of taxes assessed by a governmental authority
      that are directly imposed on a revenue producing transaction between a seller
      and a customer, including sales, use, value added and some excise taxes. The
      adoption of Issue No. 06−3, which is effective for interim and annual reporting
      periods beginning after December 15, 2006, is not expected to have an impact
      on
      the Corporation's consolidated financial statements.





In
      July
      2006, FASB issued two related standards that address accounting for income
      taxes: FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income
      Taxes, and FASB Staff Position (FSP) FAS 13-2, Accounting for a Change in the
      Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
      Transaction. Among other things, FIN 48 requires applying a “more likely than
      not” threshold to the recognition and de-recognition of tax positions, while FSP
      FAS 13-2 requires a recalculation of returns on leveraged leases if there is
      a
      change or projected change in the timing of cash flows relating to income taxes
      generated by the leveraged lease. The new guidance will be effective for us
      on
      January 1, 2007. The implementation of FIN 48 and FAS 13-2 are not expected
      to
      have a material impact on our results of operations and financial
      condition.





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.”  SAB 108 was issued to
      provide consistency between how registrants quantify financial statement
      misstatements.





31




Historically,
      there have been two widely-used methods for quantifying the effects of financial
      statement misstatements.  These methods are referred to as the “roll-over”
and “iron curtain” method.  The roll-over method quantifies the amount by
      which the current year income statement is misstated.  Exclusive reliance
      on an income statement approach can result in the accumulation of errors on
      the
      balance sheet that may not have been material to any individual income
      statement, but which may misstate one or more balance sheet accounts.  The
      iron curtain method quantifies the error as the cumulative amount by which
      the
      current year balance sheet is misstated.   Exclusive reliance on a
      balance sheet approach can result in disregarding the effects of errors in
      the
      current year income statement that results from the correction of an error
      existing in previously issued financial statements.





SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the company’s
      financial statements and the related financial statement disclosures.  This
      approach is commonly referred to as the “dual approach” because it requires
      quantification of errors under both the roll-over and iron curtain
      methods.





SAB
      108
      allows registrants to initially apply the dual approach either by (1)
      retroactively adjusting prior financial statements as if the dual approach
      had
      always been used or by (2) recording the cumulative effect of initially applying
      the dual approach as adjustments to the carrying values of assets and
      liabilities as of January 1, 2006 with an offsetting adjustment recorded to
      the
      opening balance of retained earnings.    Use of this “cumulative
      effect” transition method requires detailed disclosure of the nature and amount
      of each individual error being corrected through the cumulative adjustment
      and
      how and when it arose.





The
      Company has historically applied the dual approach in quantifying financial
      statement misstatements in all prior periods. As such, no cumulative adjustment
      will be required.





**ITEM
      3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





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





**ITEM
      4: CONTROLS AND PROCEDURES**





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





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





During
      the quarter ended September 30, 2006, there have been no changes in the
      Company’s internal controls over financial reporting that have materially
      affected, or are reasonably likely to materially affect, these controls.





32





**PART
      II: OTHER INFORMATION**




ITEM
      1A. RISK FACTORS The Risk Factors included in the Company's Annual Report on
      Form 10-K for the fiscal year ended December 31, 2005 have not materially
      changed other than as set forth below.





**The
      agreements with Calian pursuant to which it purchased 8,750,000 of our newly
      designated Series I Shares grant to Calian rights that could enable Calian
      to
      control or influence our actions in a manner that conflicts with the Company’s
      interests and the interests of other stockholders.**





Calian
      currently holds 8,750,000 shares of our Series I Shares which are currently
      convertible into an equal number of common shares. Under the agreements with
      Calian so long as Calian continues to hold 4,375,000 Series I Shares certain
      specified business actions cannot be taken with out its reasonable consent.
      In
      addition, so long as Calian continues to hold 6,562,500 Series I Shares it
      is
      entitled to appoint one member to the Company’s Board of Directors or, in lieu
      thereof, an observer. While the Company’s Board of Directors is entitled to
      exclude Calian’s board designee or observer from participating in board meetings
      under specified conditions, with regard to Calian’s status as a competitor of
      the Company, Calian’s ability to designate a board member or appoint an
      observer, together with its rights to veto certain Company actions may accord
      it
      considerable influence over matters affecting the Company. In addition as a
      major stockholder, Calian currently is able to exercise influence over matters
      requiring the approval of our stockholders, including the election of directors
      and the sale of our Company. Such a concentration of ownership may also have
      the
      effect of delaying or preventing a change in control of our Company, including
      transactions in which our stockholders might otherwise receive a premium for
      their shares over then current market prices. Any of these facts could decrease
      the market price of our Common Shares.





**ITEM
      3. LEGAL PROCEEDINGS**





On
      July
      11, 2006, the Company settled outstanding litigation with Calian Technologies
      Ltd. Pursuant to the settlement, Calian paid $CDN2.0 million ($1.8 million)
      to
      the Company and the parties exchanged full and final releases.





**ITEM
      6. EXHIBITS**


4.1
              Schedule
                  A - Amendment to Articles- Series I Special Shares. *10.1
              Subscription
                  Agreement dated as of July 11, 2006 by and between the Company
                  and Calian.
                  *10.2
              Investor
                  Rights Agreement dated as of July 11, 2006 by and between the Company
                  and
                  Calian.Exhibit
                  31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
                  of the
                  Company.Exhibit
                  31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
                  of the
                  Company.Exhibit
                  32.1
              Certification
                  of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002Exhibit
                  32.2
              Certification
                  of the Chief Financial Officer pursuant to 18 U.S.C. Section1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 *
      Filed
      as an Exhibit to the Company’s Current Report on Form 8-K that was filed on July
      14, 2006.







33


**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)Authorized
                Officer:By:
            /s/
                Dr. Ramesh ZachariasRamesh
                ZachariasChief
                Executive OfficerDate: November
              14, 2006Principal
                Financial and Accounting Officer:By:
            /s/
                William DanisWilliam
                DanisChief
                Financial OfficerDate:November
                14, 2006





34