UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K








(MARK
      ONE)x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





COMMISSION
FILE NUMBER: 1-13861





MED-EMERG
INTERNATIONAL INC.





(Exact
Name of Registrant as Specified in Its Charter)








PROVINCE
      OF ONTARIO, CANADA
              (State
      or Other Jurisdiction of Incorporation or Organization)
            NOT
      APPLICABLE
              (IRS
      Employer Identification No.)








6711
Mississauga Road, Suite 404 Mississauga, Ontario, Canada L5N 2W3


(Address
of Principal Executive Offices)




(905)
858-1368


(Registrant’s
telephone number, including area code)





Securities
registered or to be registered pursuant to Section 12(b) of the Act:
None.





Securities
registered or to be registered pursuant to Section 12(g) of the
Act.


(Title
of Class)


COMMON
SHARES, NO PAR
VALUE





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o  No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Act of 1933.
Yes o 
No x





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x





Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filed or a smaller reporting company. See the
definitions of “accelerated filer,” “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act). Yes oNo x




As of
March 28, 2008, 58,277,696 of the registrant’s common shares were outstanding.
The aggregate market value of the shares of the issuer's common stock held by
non-affiliates was approximately $3.8 million based on the last reported sale
price of $0.15 per share on March 27, 2008 as quoted on the OTC Bulletin
Board.
























MED-EMERG
INTERNATIONAL INC.




PART I
              
              
              4ITEM 1:
      BUSINESS
              
              
              4ITEM 1A: RISK
      FACTORS
              
              
              10ITEM 2:
      PROPERTIES
              
              
              15ITEM 3: LEGAL
      PROCEEDINGS
              
              
              15ITEM 4:
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              
              16PART II
              
              
              17ITEM 5: MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED
      STOCKHOLDER MATTERS
              
              
              17ITEM 6:
      SELECTED FINANCIAL DATA
              
              
              18ITEM 7:
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OFOPERATIONS.
              
              
              20ITEM 7A:
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              
              
              29ITEM 8:
      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
              
              
              29ITEM 9: CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIALDISCLOSURE
              
              
              29ITEM 9A(T):
      CONTROLS AND PROCEDURES
              
              
              29ITEM 9B: OTHER
      INFORMATION
              
              
              29PART III
              
              
              30ITEM 10:
      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
              
              
              30Notes:
              
              
              44ITEM 11:
      EXECUTIVE COMPENSATION
              
              
              34ITEM 12:
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT
              
              
              37ITEM 13:
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
              
              
              39ITEM 14:
      PRINCIPAL ACCOUNTANT FEES AND SERVICES
              
              
              39PART IV
              
              
              40Item 15.
      Exhibits and Financial Statement Schedules
              
              
              40REPORT OF INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM
              
              
              F-1








2





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
Annual Report on Form 10-K 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.





3





PART
I





ITEM 1:
BUSINESS





BACKGROUND





Med-Emerg
International Inc (“MedEmerg” or the “Company”) is an established healthcare
solutions provider.  Founded to supply contract staffing of emergency
room (“ER”) physicians and nurses, the Company has expanded to offer pain
management services, infusion services and healthcare consulting to a variety of
governments, communities and facilities across Canada.





The
Company’s operations are comprised of four business units: Staffing Solutions,
Pain Management Services, Infusion Services and Healthcare Consulting
Services.  In 2007 46% of the Company’s revenue was generated by the
Staffing Solutions unit; 30% by the Pain Management Services unit; 20% by the
Infusion Services unit; and 4% by the Healthcare Consulting
unit.  From a Gross Margin perspective, the contribution was 26%, 29%,
37% and 8%, respectively.





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





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





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





The
Company’s Infusion Services business provides intravenous infusion services for
pharmaceutical companies in 25 community-based clinics in Ontario,
Canada.





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





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





STAFFING
SOLUTIONS





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




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







4







In
September 2006 the Company recruited Dr. Jim Ducharme to lead the clinical
aspect of Staffing Solutions.  Dr. Ducharme is a nationally recognized
emergency medicine specialist and is the past president of the Canadian
Association of Emergency Physicians.  Dr. Ducharme brings a very broad
perspective of the challenges facing emergency departments today and he is an
important asset in the Company’s future growth of the Staffing Solutions
business.  Dr. Ducharme was instrumental in the Company’s development
of a training program designed for Ontario’s family physicians.  In
concert with the College of Family Physicians, MedEmerg developed and hosted
training sessions designed to re-introduce family physicians to the
ER.  The program was well received and it is anticipated that future
training sessions will ensue in 2008.  Concurrent with the addition of
Dr. Ducharme, the division was realigned to expand its business development
capabilities in anticipation of increased staffing opportunities.




Physicians
choose to work with MedEmerg for a variety of reasons.  The Company
can offer a variety of clinical experiences ranging from rural ER facilities to
some of the country’s busiest emergency departments.  Doctors can take
a lead role or work in a team environment with more seasoned
practitioners.  Flexible scheduling also appeals to many ER
physicians.  While maintaining a regular position with one hospital, a
physician can elect to work extra shifts through MedEmerg.  Also, some
physicians take advantage of out-of-town assignments by booking vacations close
to hospitals in resort communities.




MedEmerg
is responsible for the recruiting, credentialing and scheduling of its
healthcare professionals.  Historically physicians and nurses have
been recruited by word-of-mouth, at trade shows and through trade
publications.  Before arriving at a facility the practitioner is
screened to ensure that he or she has the necessary professional credentials, is
licensed in the jurisdiction of the facility in question, and carries all of the
relevant medical malpractice insurance in addition to any requirements or
skills, unique to the specific facility.  Client scheduling
requirements are obtained six to ten weeks in advance of shift
dates.  Once the shift requirements are obtained, MedEmerg personnel
query the Company’s proprietary data base of healthcare providers and contact
those with the appropriate skills, credentials and availability to determine
their interest in taking on a specific shift.




Doctors’
billings account for more than 90% of MedEmerg’s Staffing Solutions
revenue.  MedEmerg pays its doctors based on rates prescribed by
provincial health insurance programs.  With most of MedEmerg’s
revenues generated in the Province of Ontario, the Ontario Hospital Insurance
Program (OHIP) rates are the basis of payment for most doctor
payments.




PAIN MANAGEMENT
SERVICES




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





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





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





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





CPM
more than doubled its patient visits from approximately 16,300 patients in 2006
to more than 34,700 in 2007. Plans are underway to further increase capacity in
2008 by training more doctors and thereby increasing capacity at the Company’s
11 pain management centers.








5





INFUSION
SERVICES





In
March 2001, MedEmerg entered into an agreement with Schering-Plough Canada Inc.
(“Schering”) to become a coordinator for the community-based infusion of the
medication known as RemicadeTM.  This contract capitalizes on the Company's
access to medical clinics for the treatment of patients with various
inflammatory disorders, including rheumatoid arthritis and Crohn's disease. The
Company delivered more than 15,000 infusions in 2007, a 49% increase over 2006
(10,100).





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





As of
December 31, 2007, the Company operated 25 virtual clinics across Ontario
compared to 16 clinics in 2006.  On an as-required basis, the Company
rents space in community-based medical clinics.  MedEmerg’s team of
infusion coordinators arrange for patients to arrive at the clinic at a
prescribed time and for a physician and nurse to be available to attend to their
needs.  The RemicadeTM is supplied by a local pharmacy.





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





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





HEALTHCARE
CONSULTING




Over
the years MedEmerg has developed significant experience in international and
domestic healthcare consulting.





In 2007
the Company provided services to the Ontario Hospital Association in regards to
the integration of physician assistants into emergency departments; the
Department of Health of Nova Scotia for pandemic planning and simulation
modeling for health human resources strategies in Nova Scotia; and the
Saskatchewan Association of Health Organizations regarding the supply of health
professionals in Saskatchewan.





In
February 2008, the division was restructured.  Future projects will be
limited to those that relate to the Company’s Staffing Solutions
business.  Projects like the Ontario Hospital Association’s
physician’s assistant initiative will become the mainstay of consulting
activities, going forward.





DISCONTINUED
OPERATIONS




In
March 2001, the Company was awarded an administrative management services
contract (the “DND Contract”), the largest of its kind at the time, 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 MedEmerg 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.





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 under Discontinued Operations in ITEM 7 and in Note
4 to the Consolidated Financial Statements.




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.  During 2007 the Company
disposed of its family medical clinics in Calgary and Wallaceburg effective July
31, 2007 and December 31, 2007, respectively.  For 2007 these
operations have been reported as discontinued operations.







6





OVERVIEW
OF THE CANADIAN HEALTHCARE INDUSTRY





STAFFING
SOLUTIONS





The
Canadian healthcare industry, like those in most industrialized nations, suffers
from a chronic shortage of healthcare professionals.  This situation
is most acute in rural areas.  Fewer than 10% of Canada's doctors work
in rural areas, even though that's where 21% of Canadians live. Further, just 2%
of specialists work in rural Canada, including only 2% of emergency medicine
specialists.1





From
1994 to 2000, the net inflow of physicians into practice dropped to 313
physicians per year, compared to 1,040 per year from 1990 to 1993. This resulted
in 5,093 fewer physicians entering practice from 1994 to 2000 than would have
entered if this net inflow rate had not dropped from the 1990 to 1993 level. The
causes for this decline in physician inflow are listed below in order of
impact:




1.
              An
      increase in the length of time spent in postgraduate training, from 1993
      onwards.  This factor accounted for one-quarter of the total
      decline in net physician inflow.
 2.
              A
      decreased intake of international medical graduates. The decreased intake
      accounted for 22% of the total decline in net physician
      inflow.
 3.
              The
      net inflow rate would have dropped by 21%, even without any policy
      changes.  This reduction was due to a dynamic effect created in
      1987, when the rotating internship experienced a surge in enrolment. This
      created a temporary increase in the inflow rate between 1987 and 1992,
      which would have naturally subsided by
1993.
 4.
              An
      increase in retirements, accounted for 17% of the decline in net physician
      inflow.
 5.
              Medical
      school enrolment decreases had only a modest impact on the decline in
      physicians. There was a 5% drop in output from Canadian medical schools
      beginning with the class of 1991 and a further 10% reduction beginning
      with the class of 1997.
 6.
              Loss
      of physicians to the United States and other countries had little impact.
      In any given year during the decade, there was a net loss of Canadian
      physicians due to migration. However, this annual loss was only slightly
      greater from 1994 to 2000 than it was from 1990 to 1993. Hence, this
      phenomenon accounted for only 3% of the decline in net physician
      inflow.2


Exacerbating
the declining supply of physicians is the changing demographics of the physician
population.  Between 1981 and 2000, the proportion of women entering
medicine rose from 13% to 29% and at the same time, the physician population
aged.  Overall, female physicians and older physicians work fewer
hours than their younger, male counterparts. With the physician population aging
and more women entering the profession, the available hours per physician is
declining. At the same time, the Canadian population is aging and the elderly
typically use more medical services. 3





Because
of these demographic shifts, it is estimated by the Canadian Medical
Association, that four million Canadians, or about 12% of the population, do not
have a family physician4.  Consequently,
emergency rooms are crowded with patients who would otherwise be seen by a
general practitioner.  The increased burden on emergency rooms
increases the staffing requirements of these units.





PAIN MANAGEMENT
SERVICES





In
2001, the European Federation of the International Association for the Study of
Pain Chaptersdeclared that while
acute pain may reasonably be considered a symptom, chronic and recurrent pain is
a disease in its own right.





In a
study conducted on behalf of the Canadian Pain Society, more than 20% of
Canadians were found to suffer from chronic pain (unexplained pain lasting more
than 6 months). In those 55 years of age or older, the incidence increased to
almost 40% of the population.5  This equates
to more than 6,000,000 Canadians who could potentially access medical services
for the treatment of pain.








1 Geographic Distribution of
Physicians in Canada: Beyond How Many and Where, January 11, 2006,
published by the Canadian Institute of Health Information.


2 From
Perceived Surplus to Perceived Shortage: What Happened to Canada’s Physician
Workforce in the 1990s? Benjamin TB Chan, MD, MPH, MPA, June 2002, published by
the Canadian Institute for Health Information.


3
Ibid


4 Canadian Healthcare in Crisis,CBS News, (AP), March 20, 2005.


5 Moulin,
D., Canadian National Pain Study, 2002, Pain Research and
Management.





7





While
the population affected by chronic pain is substantial, the treatment of chronic
pain is still in its formative stages.  In a 2003 study by
Morley-Foster et al for
Pain Research Management,68% of Canadian physicians surveyed thought that moderate to severe
chronic pain was not well managed in Canada and 60% thought pain management
could be enhanced by improved physician education.  Misinformation
abounds in the medical community as well.  The same study found that
17% of general practitioners and 10% of palliative care physicians wrongly
thought that regulations limited the prescribing of opioids for pain
management.6





There
are few standards in regards to the treatment or delivery of chronic pain care
in Canada.  In a study of 180 patients with peripheral neuropathy, 43%
used complementary alternative medicines, including megavitamins, magnets,
acupuncture and herbal remedies.7





At the
same time, the societal cost of chronic pain is enormous.  Industry
estimates that the annual cost of chronic pain to the US economy, due to reduced
performance at work, is $61.2 billion;8 an amount equal to that
of cardio vascular disease.  Using the traditional 10 to 1 ratio for
comparing the US market to the Canadian market, this suggests that the cost to
the Canadian economy is about $6 billion.





Facilities
for the treatment of chronic pain in Ontario are backlogged.  The
average wait time for a patient to access a multi-disciplinary pain clinic is 26
months9.  The further
one travels from the metropolitan centers, the longer the wait times
are.




INFUSION
SERVICES





Outpatient
infusion therapy was first introduced in the 1980s and 1990s as part of an
effort to stem rising healthcare costs by delivering services in more
cost-effective ways.  Outpatient infusion therapy was also made more
practicable by improved intravenous technology. Over the years, outpatient
infusion clinics have proven to be a safe and reliable alternative to
hospital-based infusions with the added benefit that patients enjoy being in a
non-hospital environment, close to where they live.  For a variety of
reasons, community-based infusion clinics did not arrive in Canada until the
1990s.





Community-based
infusion clinics are usually based in medical or rehab clinics.  They
can be used to deliver a variety of therapies including chemotherapy, pain
management, antimicrobial and biologic therapies, to name a few.





While
public and privately funded infusion clinics thrive in the United States, Canada
has been relatively slow to embrace the change.  With continuing
pressures on healthcare spending, the Company anticipates that over time Canada
will increasingly turn to community-based infusion clinics to help manage
healthcare spending.








HEALTHCARE
CONSULTING





The
demographic challenges described above under STAFFING SOLUTIONS, directly affect
the Healthcare Consulting business.





Healthcare
spending in Canada in 2005 is forecast to increase to Cdn$142 billion, a 7.7%
increase over 2004, and a record 10.4% of GDP.10   The
Ontario director of the Canadian Taxpayers Federation is quoted as saying that,
based on current growth patterns; Ontario will be spending 85% of its budget on
healthcare by 203511.  Such a
situation is unworkable.





In the
alternative, federal and provincial governments and medical associations are all
studying ways to deliver more with less.  As long as this crisis
environment continues, the opportunity for healthcare consulting is expected to
remain strong.





6
Morley-Foster et al,
Pain Research Management,2003.


7 Brunelli B. et al. Journal
of  Neurological  Sciences. 2004
;218(1-2):59-66


8 Stewart
et al, The Journal of the American Medical Association, 2003;
290:2443-54.


9 Peng,
unpublished data, 2005.


10 National Health Expenditure Trends,
1975-2005, published December 6, 2005, by the Canadian Institute for
Health Information


11 Canadian Healthcare in Crisis,CBS News, (AP), March 20, 2005.





8





FACTORS
AFFECTING MEDEMERG’S BUSINESS





REGULATION OF HEALTHCARE IN
CANADA





The
provision of medical services in Canada is, for the most part, under provincial
jurisdiction. Currently provincial governments are responsible for paying
physicians for the provision of insured services to residents of their province.
Any changes in reimbursement regulations, policies, practices, interpretations
or statutes that place material limitations on reimbursement amounts or
practices could adversely affect the operations of the Company, absent, or prior
to, satisfactory renegotiations of contracts with clients and arrangements with
contracted physicians.







Under a
combination of statutory provisions, both federal and provincial, physicians are
prohibited from billing their patients for fees in excess of those payable for
services listed in the Provincial Schedule of Benefits. The Canada Health Act
allows for cash contributions by the federal government in respect of insured
health services provided under provincial healthcare insurance plans. In order
for a province to qualify for a full cash contribution, there is a requirement
that the provincial healthcare insurance plan satisfy the criteria set out in
the Canada Health Act. In addition, the provincial plan must ensure that no
payments are permitted in respect of insured health services that have been
subject to extra billing.





Continuing
budgetary constraints at both the federal and provincial level and the rapidly
escalating costs of healthcare and reimbursement programs have led, and may
continue to lead, to significant reductions in government and other third party
reimbursements for certain medical charges. The Company's independent contracted
physicians as well as the Company are subject to periodic audits by government
reimbursement programs to determine the adequacy of coding procedures and
reasonableness of charges.





Business
corporations are legally prohibited from providing, or holding themselves out as
providers of, medical care in many provinces. While the Company will seek to
structure its operations to comply with the provincial laws relating to the
corporate practice, given varying and uncertain interpretations of such laws,
the Company could be found in non-compliance with restrictions on the corporate
practice of medicine in all provinces. A determination that the Company is in
violation of applicable restrictions on the practice of medicine in any province
in which it operates or could operate could have a material adverse effect on
the Company if the Company were unable to restructure its operations to comply
with the requirements of such province.




COMPETITION





The
Company competes with a variety of healthcare service
providers.  These include the following by MedEmerg business
unit:


•
            Staffing
      Solutions: Third party staffing agencies (nursing); small groups of
      physicians that provide competitive services to local hospitals
      (physicians); and HealthForceOntario (physicians) a government of Ontario
      funded program designed to assist hospitals in recruiting physicians to
      provide emergency department coverage to hospitals facing challenges in
      covering shifts


•
            Pain
      Management Services:  Public hospitals; pain management clinics
      staffed by both medical and non-medical
  practitioners


•
            Infusion
      Services: Public hospitals, homecare
agencies


•
            Healthcare
      Consulting: Independent consulting
companies.





EMPLOYEES





As of
December 31, 2007, the Company had 160 active full-time, part-time and casual
employees, 19 were employed in executive and administration, 8 were involved in
staffing solutions, 54 were active in pain management, 75 in infusions services,
and four were in the consulting division.  The Company believes its
relations with its employees are good. The Company’s employees do not belong to
a union and there is no collective bargaining agreement covering the
employees.  The Company also has approximately 130 contractors engaged
on a part-time basis, all of whom provide services to clients of the
Company.








9





ITEM
1A: RISK FACTORS





MedEmerg’s
business and strategy are subject to many risks discussed below. If any of these
risks occurs, its business, financial condition or operating results could be
adversely affected.





Risks
Related to the Company





The
Company has incurred operating losses.





The
Company incurred a net loss under Canadian generally accepted accounting
principles (“CAN GAAP”) attributable to common shareholders of $712,571 (on
revenues of $21,668,567), during the year ended December 31, 2007 as compared to
net income of $823,711 (on revenues of $17,716,778) during the year ended
December 31, 2006, and a net loss of $856,557 (on revenues of $13,785,449)
during the year ended December 31, 2005. As of December 31, 2007, the Company
had an accumulated shareholders’ equity balance of $880,220. There can be no
assurance that the Company will operate profitably in the future.





The
Company’s resources may not be sufficient to manage its expected
growth.





Growth
of the Company’s business may place a strain on its administrative, financial
and operational resources. The Company’s ability to manage staff and growth
effectively will require it to continue to improve its operational, financial
and management controls, reporting systems and procedures, install new
management information and control systems and train, motivate and manage its
employees. There can be no assurance that the Company will install such
management information and control systems in an efficient and timely manner or
that the new systems will be adequate to support its future operations. If the
Company is unable to manage growth effectively, maintain and service its
products or if new employees are unable to achieve performance levels, the
Company’s business, operating results and financial condition could be
materially adversely affected.





The
Company depends on a contract with Schering-Plough Canada Inc.





The
Company derives a significant portion of its revenues from a contract with
Schering-Plough Canada Inc. (“Schering”).  The Company has worked with
Schering since 2001, providing community-based intravenous infusion of RemicadeTM
to patients suffering from a variety of inflammatory diseases.  The
contract, which was most recently renewed on July 1, 2005, is a three year
contract, which expires on June 30, 2008.  The Company and Schering
have commenced negotiations for a new contract.  Under the terms of
the agreement, the Company provides a number of services to ensure that
community-based infusion clinics are established in desired locations and that
patients can conveniently receive their infusions from trained healthcare
professionals.  The Company currently provides more than 1,500
infusions per month to RemicadeTM patients.  There is no guarantee that
Schering will renew this contract in July 2008.  The loss of the
contract would have a material adverse effect on the Company’s
business.





Provincial
laws regarding the corporate practice of medicine may adversely affect the
Company’s business.





Business
corporations are legally prohibited in many Canadian provinces from providing or
holding themselves out as providers of medical care. While the Company has
structured its operations to comply with the corporate practice of medicine and
the laws of the provinces in which it operates and will seek to structure its
operations in the future to comply with the laws of any province in which its
plans to operate, there can be no assurance that, given varying and uncertain
interpretations of such laws, the Company would be found to be in compliance
with restrictions on the corporate practice of medicine in such province. If it
is determined that the Company is in violation of applicable restrictions on the
practice of medicine in any province in which it operates there could be a
material adverse effect on the Company’s business if it were unable to
restructure its operations to comply with the requirements of such province.
Such regulations may limit the jurisdictions in which the Company can operate,
thereby inhibiting its future expansion into potential markets in other
jurisdictions.





The
Company could be liable for back payroll taxes and penalties if its independent
contractors are reclassified as employees.





The
Company has engaged approximately 130 contractors on a part-time basis, all of
whom provide services to clients of the Company. The Company classifies all of
its contractors as “independent contractors” for all purposes, including
employment tax and employee benefit purposes, and therefore the Company does not
pay or withhold any Federal or provincial employment tax with respect to or on
behalf of its contractors. The Company believes that its contractors are not
employees under existing interpretations of Federal and provincial laws.
However, there can be no assurance that Federal or provincial authorities or the
Company’s contractors will not challenge this position, or that other laws or
regulations, including tax laws, or interpretations thereof, will not change.
If, as a result of any of the foregoing, the Company were required to pay
withholding taxes and pay for and administer added employee benefits to these
contractors, the Company’s operating costs would increase. Additionally, if the
Company is required to pay back-up withholding with respect to amounts
previously paid to such contractors, it may also be required to pay penalties or
be subject to other liabilities as a result of incorrect classification of such
contractors. Any of the foregoing circumstances could have a material adverse
impact on the Company’s financial condition and results of operations, and/or to
restate financial information from prior periods.





10





The
Company is exposed to professional liability.





Due to
the nature of its business, the Company and the physicians and nurses who
provide services on its behalf may be the subject of medical malpractice claims,
with the attendant risk of substantial damage awards. The sources of potential
liability in this regard include the alleged negligence of those physicians and
nurses, which are under contract at hospitals and clinics. The Company currently
maintains the following insurance policies related to professional liabilities:
(i) Cdn$5,000,000 limit per occurrence, with no annual aggregate limit, with
respect to general commercial liability; and (ii) Cdn$5,000,000 limit per
occurrence with no annual aggregate limit with respect to errors and omissions
caused by a negligent act, error or omission by the Company, or any person for
whom it is legally liable, arising out of the conduct of its business. (iii)
Cdn$5,000,000 limit per occurrence, with no annual aggregate limit, for medical
malpractice caused by a negligent act, error or omission by the Company, or any
person for whom it is legally liable. In addition, physicians staffed by the
Company maintain their own malpractice insurance. To the extent such physicians
may be regarded as agents of the Company in the practice of medicine, there can
be no assurance that a patient or client would not sue the Company for any
negligence of such physicians. In addition, in the event that the Company
becomes liable, there can be no assurance that its current insurance policy will
be adequate to cover any such liabilities.





The
Company’s business is subject to government regulation.





The
provision of medical services in Canada is for the most part under provincial
jurisdiction. Currently provincial governments are responsible for paying
physicians for the provision of insured services to residents of their province.
Any changes in reimbursement regulations, policies, practices, interpretations
or statutes that place material limitations on reimbursement amounts or
practices could adversely affect the operations of the Company, absent, or prior
to, satisfactory renegotiations of contracts with clients and arrangements with
contracted physicians.





Under a
combination of statutory provisions, both Federal and provincial, physicians are
prohibited from billing their patients for fees in excess of those payable for
services listed in the provincial Schedule of Benefits. The Canada Health Act
allows for cash contributions by the Federal government in respect of insured
health services provided under provincial healthcare insurance plans. In order
for a province to qualify for a full cash contribution, there is a requirement
that the provincial healthcare insurance plan satisfy the criteria set out in
the Canada Health Act. In addition, the provincial plan must ensure that no
payments are permitted in respect of insured health services that have been
subject to extra billing.





Continuing
budgetary constraints at both the Federal and provincial level and the rapidly
escalating costs of healthcare and reimbursement programs have led, and may
continue to lead to significant reductions in government and other third party
reimbursements for certain medical charges. The Company’s independent contracted
physicians as well as the Company are subject to periodic audits by government
reimbursement programs to determine the adequacy of coding procedures and
reasonableness of charges.





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





Calian
Technologies Ltd. (“Calian”) currently holds 8,750,000 shares of the Company’s
Series I Shares which are currently convertible into an equal number of Common
Shares. As a result thereof, Calian is currently deemed to be the beneficial
owner of 13% of the Company’s 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 without 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 Board of Directors or, in lieu thereof, an observer.
While the 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, Calian’s ability to designate a board
member or appoint an observer, together with its rights to veto certain
corporate actions may accord it considerable influence over matters affecting
the Company. In addition, as a major stockholder, Calian currently is able to
exercise significant influence over matters requiring the approval of the
Company’s stockholders, including the election of directors and the sale of the
Company. Such a concentration of ownership may also have the effect of delaying
or preventing a change in control of the company, including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices. Any of these facts could decrease the market price of the
Company’s Common Shares.





11





The
Company is dependent on its key employees.





The
Company’s success is largely dependent upon the efforts and abilities of Dr.
Ramesh Zacharias, its Chief Executive Officer; William Danis, its Chief
Financial Officer; Dr. Donald Ross, its Vice President of Business Development,
Dr. James Ducharme its Vice President of Medical Services and Dr. Roman Jovey
its Program Medical Director for CPM Health Centres Inc. If the Company lost the
services of any of Dr. Zacharias, Mr. Danis, Dr. Ross, Dr. Ducharme or Dr.
Jovey, its business could be materially adversely affected. The Company has not
procured key-man life insurance for any of its employees.





The
Company’s officers and directors beneficially own the majority of the
outstanding common shares and are able to control the Company.





The
Company’s officers and directors own or have rights to acquire an aggregate of
approximately 49.3% of the voting power of its capital stock. As a result, they
are in a position to exercise significant influence over the Company and the
election of directors and otherwise essentially control the outcome of all
matters requiring stockholder approval.





The
Company is dependent on the proper functioning of its information
systems.





The
Company is dependent on the proper functioning of its information systems in
operating its business. Critical information systems used in daily operations
identify and match staffing resources and client assignments and perform billing
and accounts receivable functions. Additionally, the Company relies on its
information systems in managing its accounting and financial reporting. Its
information systems are protected through physical and software safeguards and
it has backup remote processing capabilities. However, they are still vulnerable
to fire, storm, flood, power loss, telecommunications failures, physical or
software break-ins and similar events. In the event that critical information
systems fail or are otherwise unavailable, these functions would have to be
accomplished manually, which could temporarily impact the Company’s ability to
identify business billing opportunities quickly, to maintain and clinical
records reliably, to bill for services efficiently and to maintain its
accounting and financial reporting efficiently.





The
Company may experience additional losses through the financing of accounts
receivables.





One of
the services provided by the Company’s staffing solutions business is the
collection of fees for services performed by its employees and sub-contractors.
In the event that the Company does not collect these fees by the time payment is
due to the physicians and nurses, it may nevertheless be obligated to pay the
physicians and nurses for the duties they have fulfilled. In practice, the
Company uses its working capital to finance the accounts receivable and pay the
physicians and nurses. Historically, bad debts are less than 0.5% of gross
billings since substantially all of the physician services billed to OHIP are
for Ontario residents who are automatically covered by OHIP for the medical
services performed. However, there can be no assurance that accounts receivables
will ultimately be collected from OHIP and the hospitals. Accordingly, there can
be no assurance the Company will not experience significant losses due to unpaid
accounts receivables which it has financed.





The
Company may need additional financing to achieve its growth
strategy.





Additional
financing may be required to continue to pursue the Company’s growth strategy.
If the Company does not obtain additional financing when required, it may be
required to modify, delay or abandon some or all of its expansion plans, which
may have a material adverse effect on its business.





The
Company is subject to litigation, which could result in substantial judgment or
settlement costs.





Claims
have been made against the Company for general damages and for breach of
contract and in tort. It is possible that further claims will be made against
the Company. The defense of these lawsuits may result in substantial costs and
may divert management’s attention and resources, which may seriously harm the
Company’s business. In addition, an adverse determination or a substantial
settlement could have a material adverse effect on the Company’s business,
financial condition, results of operations, cash flow or future
prospects.








12





The
Company is exposed to increased costs and risks associated with complying with
increasing and new regulation of corporate governance and disclosure
standards.





The
Company is spending an increased amount of management time and external
resources to comply with changing laws, regulations and standards relating to
corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002 and new SEC regulations. In particular, Section 404 of the Sarbanes-Oxley
Act of 2002 requires management’s annual review and evaluation of the Company’s
internal control systems, and attestations of the effectiveness of these systems
by its independent auditors. The Company recently completed its planning,
documentation and testing of its internal control systems and procedures in
order to comply with the requirements of Section 404 by the end of 2008. This
process required the Company to hire outside advisory services and resulted and
will continue to result in additional accounting and legal expenses. In
addition, the evaluation and attestation processes required by Section 404 are
evolving.  The Company may encounter problems or delays in the
implementation of improvements and the receipt of a positive attestation by its
independent auditors. If the Company is not able to timely comply with the
requirements set forth in Section 404, it might be subject to sanctions or
investigation by regulatory authorities. Any such action could adversely affect
the Company’s business and financial results.





Moreover,
because the new and changed laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of specificity, their
application in practice may evolve over time as new guidance is provided by
regulatory and governing bodies. This evolution may result in continuing
uncertainty regarding compliance matters and additional costs necessitated by
ongoing revisions to the Company’s disclosure and governance
practices.





Competition in the healthcare industry may
adversely affect the Company’s revenues and market position.





The
healthcare industry is highly competitive. The Company competes based on scope,
quality and cost of services provided. Many of its existing and potential
competitors have substantially greater financial resources available to them.
While management believes that it competes on the basis of the quality of its
services, the larger resources of its competitors may give them certain cost
advantages over it (e.g. in the areas of malpractice insurance, cost, savings
from internal billing and collection and a broader scope of services). The
Company also competes with various local physician groups which provide
hospitals with emergency staffing alternatives.





Risk
related to investment in a Canadian corporation.





MedEmerg
is incorporated under the Business Corporations Act, Ontario (“OBCA”) and its
directors, controlling persons and officers as well as experts named herein, are
residents of Canada, Israel or the United Kingdom. Moreover, substantial
portions of the Company’s assets and the assets of such persons are located in
Canada, Israel or the UK. As a result, it may be difficult to effect service of
process within the United States upon the Company or such persons or to enforce,
in United States federal or state courts, judgments against them obtained in
such courts and predicated on the civil liability provisions of the United
States federal or state securities laws.





Risks
Related to the Market





There
is a limited public market for the Company’s securities and there can be no
assurance that a public trading market will continue.





The
Company’s common shares are quoted on the OTC Bulletin Board. Currently, there
is no public trading market in Canada for the Company’s securities. There are no
assurances that a public trading market for the Company’s securities in the
United States will be obtained. In any event, because certain restrictions may
be placed upon the sale of such securities unless such securities qualify for an
exemption from the “penny stock” rules (such as being listed on NASDAQ) some
brokerage firms will not effect transactions in the Company’s common shares and
it is unlikely that any bank or financial institution will accept such
securities as collateral, which could have a material adverse effect in
developing or sustaining a market for such securities.





Currency fluctuations may adversely
affect the Company’s operating results.





Revenue
denominated in Canadian dollars accounted for 100% of the Company’s revenue for
each of the years ended December 31, 2007, 2006 and 2005.
Accordingly, the relationship of the Canadian dollar to the value of the United
States dollar may materially affect the Company’s operating results. In the
event that the Canadian dollar was materially devalued against the United States
dollar, the Company’s operating results would be materially, adversely
affected.








13





The
Company may fail to meet the expectations of its investors and analysts, which
may cause the market price of its common shares to fluctuate or
decline.





Analysts
frequently issue reports based on the results of a single quarter. The Company’s
revenues and earnings have fluctuated significantly in the past, and management
expects that they will continue to do so in the future. Relatively poor results
in one quarter could significantly and adversely influence such reports, which
may in turn lead to depreciation of the market price of the Company’s common
shares, which in turn may result in the loss of some or all of its shareholders’
investment. Factors that influence the fluctuating nature of the Company’s
quarterly results include, without limitation:




•
            the
      demand for the Company’s services;•
            any
      change in its ability to attract and retain medical professionals,
      consultants and customers;•
            the
      timing and significance of new services and products introduced by it and
      its competitors;•
            the
      level of services provided and prices charged by it and by its
      competition;•
            unexpected
      changes in operating expenses, such as a determination by the Canadian
      fiscal authorities that it must pay payroll taxes for its Canadian
      contract service providers and penalties for not having done so in the
      past; and•
            general
      economic factors.





These
factors, many of which are beyond the Company’s control, substantially curtail
an investor’s ability to predict the Company’s future performance based on its
past performance, as do many of the other risks discussed in this Annual Report.
In addition, many companies that generate increasing revenues and earnings
nevertheless experience devaluation of the market price of their publicly traded
equities.  There can be no assurance that even positive results of
operations will not negatively affect the market price of the Company’s common
shares.





Substantial
resales of the Company’s common shares could depress its share
price.





The
market price of the Company’s common shares could decline, perhaps
significantly, as a result of resales of a large number of common shares in the
public market or even the perception that such resales could occur. In addition,
the Company has a substantial number of options, warrants and other securities
convertible into common shares outstanding that may be exercised in the future.
These factors could also make it more difficult for the Company to raise funds
through future offerings of its equity securities.





The
Company has not paid, and does not intend to pay, cash dividends in the
foreseeable future.





The
Company has not paid and has no current intention to pay any cash dividends on
its common shares. It intends to retain future earnings, if any, for
reinvestment in the development and expansion of its business. Dividend payments
in the future may also be limited by other loan agreements or covenants
contained in other securities which the Company may issue. Any future
determination to pay cash dividends will be at the discretion of the Company’s
board of directors and depend on its financial condition, results of operations,
capital and legal requirements and such other factors as the board of directors
deems relevant.





The
Company’s board of directors may issue preferred stock and common stock, which
could adversely affect the value of the Company’s securities.





The
Company’s certificate of incorporation authorizes the issuance of an unlimited
number of common shares and ‘blank check” preferred shares with such
designations, rights and preferences as may be determined from time to time by
the board. Accordingly, the Company’s board is empowered to issue an unlimited
number of common shares for any purpose without seeking shareholder approval or
issue preferred shares with dividend, liquidation, conversion, voting or other
rights which could decrease the amount of earnings and assets available for
distribution to holders of common shares and adversely affect the relative
voting power or other rights of the holders of the Company’s common shares. The
issuance of the Company’s preferred shares or common shares may be used under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the company. The Company has no present intention to issue
any of its preferred shares. However, there can be no assurance that it will not
issue preferred shares or common shares in the future.








14





The
Company’s common shares are subject to penny stock regulations.





Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain penny stock rules adopted by the United States Securities and Exchange
Commission. The Company’s common shares are penny stocks within the meaning of
these rules. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system provided that current prices and volume
information with respect to transactions in such securities are provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customers account In addition, the penny stock rules generally require that
prior to a transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchasers written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules.





ITEM
2:  PROPERTIES





The
Company does not own any real property.  The Company’s principal
leases, as of December 31, 2007, are listed below:





MonthlySquare
                RentLocation
                Function
                Feet
                (Cdn$)
                
                Lease
      ExpirationMississauga,
      Ontario
                Head office and clinical
      services
                10,682
                29,150
                
                December 31,
      2008London,
    Ontario
                Administrative
      services
                1,550
                3,098
                
                April 30,
    2009Scarborough,
      Ontario
                Clinical
      services
                2,080
                5,385
                
                February 28,
      2010Wallaceburg,
      Ontario
                Clinical
      services
                5,900
                5,900
                
                May 1,
  2012Hamilton,
      Ontario
                Clinical
      services
                2,234
                3,884
                
                April 30,
    2011Oakville,
      Ontario
                Clinical
      services
                1,701
                4,024
                
                February 28,
      2011Oshawa,
    Ontario
                Clinical
      services
                2,300
                5,750
                
                November 30,
      2011Ottawa,
    Ontario
                Clinical
      services
                2,600
                4,550
                
                October 31,
      2011London,
    Ontario
                Clinical
      services
                2,283
                3,805
                
                September 30,
      2011Brampton,
      Ontario
                Clinical
      services
                1,941
                4,164
                
                December 31,
      2011St. Catharines,
      Ontario
                Clinical
      services
                1,893
                3,827
                
                August 31,
    2012Toronto,
      Ontario
                Clinical
      services
                1,737
                4,672
                
                December 31,
      2011Dartmouth,
    NS
                Clinical
      services
                2,500
                3,983
                
                June 30,
    2012Kingston,
      Ontario
                Clinical
      services
                420
                490
                
                August 31,
    2008


ITEM
3:  LEGAL PROCEEDINGS





(i)           On
September 22, 2003, a lawsuit (Hans Asche v. Med-Emerg International Inc. and
Her Majesty in Right of Canada (Minister of National Defence), et al) was filed
with the Supreme Court of Nova Scotia, naming MedEmerg as a
defendant.  The plaintiff claims unspecified damages for wrongful
dismissal and breach of contract.  In June 2003, DND instructed
MedEmerg to remove the plaintiff from its premises.  MedEmerg sought
instructions from Public Works and Government Services Canada (“PWGSC”), as per
the requirements of the contract.  A response was not received until
September 29, 2003.  The Company has filed a cross-claim against the
Attorney General for Canada, for damages incurred.





Except
as described in the preceding paragraph, the Company is not currently involved
in legal proceedings that could reasonably be expected to have a material
adverse effect on its business, prospects, financial condition or results of
operations. From time to time, the Company may be a party to litigation or other
legal proceedings that it would consider to be a part of the ordinary course of
its business.








15





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





The
Company held its Annual General Meeting on August 7, 2007.  At that
time the security holders ratified the appointment of Grant Thornton LLP, as
auditor of the Company and the appointment of the Board of
Directors.   At the Annual General Meeting, Ramesh Zacharias,
Michael Sinclair, Manfred Walt, Jacob (Koby) Ofek, Major General Lewis
MacKenzie, John Yarnell and Sidney Braun were each elected to the Board of
Directors.  The voting for such directors was as follows:





Name
            Votes
      For
            Votes
      Withheld
            Abstentions
      and Broker
              Non-VotesRamesh
      Zacharias
            24,397,969
            233,300
            NilMichael
      Sinclair
            24,397,969
            233,300
            NilManfred
      Walt
            24,397,969
            233,300
            NilJacob
      (Koby) Ofek
            24,397,969
            233,300
            NilMajor
      General Lewis MacKenzie
            24,397,969
            233,300
            NilJohn
      Yarnell
            24,397,969
            233,300
            NilSidney
      Braun
            24,397,969
            233,300
            Nil





Voting
with respect to the ratification of the appointment of Grant Thornton LLP was as
follows:  24,667,969 votes for; 132,800 votes withheld; and no
abstentions and broker non-votes.





16





PART
II





ITEM
5:  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS





The
common shares are traded under the symbol “MDER” on the OTC Bulletin
Board.  The volume of shares traded has been limited. There can be no
assurance that an established trading market will develop, that the current
market will be maintained or that a liquid market for the Company’s common
shares will be available in the future. Investors should not rely on historical
stock price performance as an indication of future price
performance.





The
following table sets forth the quarterly high and low bid prices for the
Company’s common shares over the last two completed fiscal years, as reported on
the OTC Bulletin Board. The prices represent quotations by dealers without
adjustments for retail mark-ups, mark-downs or commission and may not represent
actual transactions. The closing price of the Company’s common shares on March
27, 2008 was $0.15 per share.




COMMON
    SHARESHIGH
              
              
              LOWFourth Quarter,
      2007
              
              $
              .16
              
              
              $
              .10Third Quarter,
      2007
              
              $
              .17
              
              
              $
              .10Second Quarter,
      2007
              
              $
              .17
              
              
              $
              .10First Quarter,
      2007
              
              $
              .13
              
              
              $
              .10Fourth Quarter,
      2006
              
              $
              .15
              
              
              $
              .10Third Quarter,
      2006
              
              $
              .29
              
              
              $
              .10Second Quarter,
      2006
              
              $
              .30
              
              
              $
              .20First Quarter,
      2006
              
              $
              .60
              
              
              $
              .35





The
number of record holders of the Company’s common shares on March 28, 2008 was
approximately 100. The Company believes that a significant number of its common
shares are held in either nominee name or street name brokerage accounts and,
consequently, it is unable to determine the number of beneficial owners of its
common shares.





Dividend
Policy





The
Company has never paid or declared cash or stock dividends on its common
shares.  The payment of cash dividends, if any, will be at the
discretion of the Board of Directors and will depend upon the Company’s
earnings, capital requirements, financial condition and other factors the Board
of Directors may deem relevant.  It is currently the policy of the
Board of Directors to retain any future earnings for use in the Company’s
business. The Company is not under any contractual restrictions as to its
present or future ability to pay dividends, except that it may not pay dividends
with the proceeds of the Calian transaction.








17





ITEM
6:  SELECTED FINANCIAL DATA





The
following selected consolidated financial data of the Company is qualified by
reference to and should be read in conjunction with the consolidated financial
statements, related notes thereto, other financial data, and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere herein.




US$YEAR ENDED DECEMBER
      31,2007
              
              
              2006(1)
              
              
              2005(1)(2)
              
              
              2004(1)(2)
              
              
              2003(1)(2)Statement of Operations
      Data:Revenue
              
              
              21,668,567
              
              
              
              17,716,778
              
              
              
              13,785,449
              
              
              
              9,496,569
              
              
              
              14,254,652Physician fees and other direct
      costs
              
              
              15,189,341
              
              
              
              12,774,491
              
              
              
              10,292,966
              
              
              
              7,271,148
              
              
              
              11,494,170Gross
margin
              
              
              6,479,226
              
              
              
              4,942,287
              
              
              
              3,492,483
              
              
              
              2,225,421
              
              
              
              2,760,482Operating expenses before
      undernoted items
              
              
              6,858,382
              
              
              
              4,783,691
              
              
              
              3,785,778
              
              
              
              3,601,423
              
              
              
              2,884,206Depreciation and
      amortization
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413
              
              
              
              134,238
              
              
              
              52,851Other (income)
      expenses
              
              
              54,231
              
              
              
              (45,696
              )
              
              
              432,747
              
              
              
              865,939
              
              
              
              1,274,217Loss before income
      taxes
              
              
              (810,531
              )
              
              
              (27,429
              )
              
              
              (969,455
              )
              
              
              (2,318,552
              )
              
              
              (1,450,792
              )Income taxes
      (recovery)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,458
              )Minority
      interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,094
              )Income (loss) on discontinued
      operations
              
              
              97,960
              
              
              
              851,140
              
              
              
              112,898
              
              
              
              977,348
              
              
              
              (128,410
              )Net income (loss) - Canadian
      GAAP
              
              
              (712,571
              )
              
              
              823,711
              
              
              
              (856,557
              )
              
              
              (1,341,205
              )
              
              
              (1,574,650
              )Net income (loss) - US
      GAAP
              
              
              (595,506
              )
              
              
              871,835
              
              
              
              (856,557
              )
              
              
              (1,341,205
              )
              
              
              (1,574,650
              )Preferred share
      dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (34,173
              )
              
              
              (135,006
              )Forgiveness of preferred share
      dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              579,582
              
              
              
              -Net income (loss) attributable to
      common shareholders - Canadian GAAP
              
              
              (712,571
              )
              
              
              823,711
              
              
              
              (856,557
              )
              
              
              (795,796
              )
              
              
              (1,709,656
              )Net income (loss) attributable to
      common shareholders - US GAAP
              
              
              (595,506
              )
              
              
              871,835
              
              
              
              (856,557
              )
              
              
              (631,169
              )
              
              
              (2,267,543
              )Net income (loss) per common share
      (basic and diluted) (3)Continuing
      operations
              
              $
              (0.014
              )
              
              $
              -
              
              
              $
              (0.017
              )
              
              $
              (0.050
              )
              
              $
              (0.170
              )Discontinued
      operations
              
              $
              0.001
              
              
              $
              0.014
              
              
              $
              0.002
              
              
              $
              0.030
              
              
              $
              (0.010
              )Balance Sheet
      Data:Working Capital Surplus
      (deficiency)
              
              
              2,473,312
              
              
              
              3,912,219
              
              
              
              (56,542
              )
              
              
              1,224,127
              
              
              
              (3,169,692
              )Total
Assets
              
              
              7,528,547
              
              
              
              7,900,792
              
              
              
              4,618,106
              
              
              
              7,322,027
              
              
              
              4,044,225Long-term
    debt
              
              
              3,153,689
              
              
              
              3,323,401
              
              
              
              599,991
              
              
              
              599,991
              
              
              
              599,991Shareholders' equity (deficiency)
      - Canadian GAAP
              
              
              880,220
              
              
              
              1,423,957
              
              
              
              81,477
              
              
              
              559,249
              
              
              
              (3,448,142
              )Shareholders' equity (deficiency)
      - US GAAP
              
              
              926,185
              
              
              
              906,641
              
              
              
              81,477
              
              
              
              559,849
              
              
              
              (3,448,142
              )Year end US$ exchange rate
      (equivalent to 1Cdn$)
              
              $
              1.01
              
              
              $
              0.86
              
              
              $
              0.86
              
              
              $
              0.83
              
              
              $
              0.77Average US$ exchange rate
      (equivalent 1Cdn$)
              
              $
              0.93
              
              
              $
              0.88
              
              
              $
              0.83
              
              
              $
              0.77
              
              
              $
              0.71Range of high and low rates
      (equivalent to 1Cdn$)
              
              0.84 to
1.09
              
              
              0.85 to
0.91
              
              
              0.79 to
0.87
              
              
              0.71 to
0.85
              
              
              0.63 to
0.78




(1) In Q1 2005, the
Company reclassified its results from Government Healthcare Services (related to
the DND contract) to discontinued operations. Accordingly, the results of
operations have been reclassified to the discontinued line item on the income
statement for the respective periods ended December 31, 2004 and
2003.


(2)
Shareholders' equity (deficiency) under U.S. GAAP has been restated for the
correction of an error which has the effect of decreasing shareholders' equity
under U.S. GAAP by $1,087,272 from that previously reported for each of the
years 2003 to 2005.  See Note 17(b) of the accompanying consolidated
financial statements.


(3)
Basic loss per common share reflects net loss available to common shareholders
divided by the weighted average number of common shares
outstanding.





SUPPLEMENTARY
FINANCIAL INFORMATION





QUARTERLY
FINANCIAL DATA (UNAUDITED




4th QUARTER
              
              
              3rd QUARTER
              
              
              2nd QUARTER
              
              
              1st QUARTER2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Revenue
              
              
              5,487,727
              
              
              
              4,545,611
              
              
              
              5,757,405
              
              
              
              4,130,465
              
              
              
              5,352,285
              
              
              
              4,757,232
              
              
              
              5,071,150
              
              
              
              4,283,470Gross Profit
              
              
              1,702,936
              
              
              
              1,292,487
              
              
              
              1,730,673
              
              
              
              1,075,632
              
              
              
              1,656,547
              
              
              
              1,399,419
              
              
              
              1,389,071
              
              
              
              1,174,749Income (loss) before undernoted
      items - Cdn GAAP (1)
              
              
              (39,082
              )
              
              
              (25,329
              )
              
              
              (61,351
              )
              
              
              (131,744
              )
              
              
              (86,110
              )
              
              
              209,897
              
              
              
              (192,613
              )
              
              
              105,774Income (loss) before undernoted
      items- U.S.
      GAAP(1)
              
              
              (39,082
              )
              
              
              (25,329
              )
              
              
              (61,351
              )
              
              
              (131,744
              )
              
              
              (86,110
              )
              
              
              209,897
              
              
              
              (192,613
              )
              
              
              105,774Net income (loss) before
      discontinued operations - Cdn GAAP (1)
              
              
              (188,939
              )
              
              
              35,012
              
              
              
              (177,670
              )
              
              
              (187,869
              )
              
              
              (171,092
              )
              
              
              145,177
              
              
              
              (272,832
              )
              
              
              (19,749
              )Net income (loss) before
      discontinued
      operations - U.S. GAAP (1)
              
              
              (158,465
              )
              
              
              59,114
              
              
              
              (148,071
              )
              
              
              (163,847
              )
              
              
              (142,959
              )
              
              
              145,177
              
              
              
              (243,973
              )
              
              
              (19,749
              )Gain (loss) from discontinued
      operations - Cdn GAAP
              
              
              276,436
              
              
              
              (330,161
              )
              
              
              (57,209
              )
              
              
              545,324
              
              
              
              (64,368
              )
              
              
              547,388
              
              
              
              (56,899
              )
              
              
              88,589Gain (loss) from
      discontinued
      operations - U.S. GAAP
              
              
              276,436
              
              
              
              (330,161
              )
              
              
              (57,209
              )
              
              
              545,324
              
              
              
              (64,368
              )
              
              
              547,388
              
              
              
              (56,899
              )
              
              
              88,589Net income (loss) for the period -
      Cdn GAAP (1)
              
              
              87,498
              
              
              
              (295,148
              )
              
              
              (234,880
              )
              
              
              357,455
              
              
              
              (235,460
              )
              
              
              692,565
              
              
              
              (329,730
              )
              
              
              68,839Net income (loss) for the period -
      U.S. GAAP
      (1)
              
              
              117,971
              
              
              
              (271,046
              )
              
              
              (205,280
              )
              
              
              381,477
              
              
              
              (207,327
              )
              
              
              692,565
              
              
              
              (300,872
              )
              
              
              68,840Net income (loss) per common share
      (basic and diluted)
                - Cdn GAAP
    (1)Continuing
      operations
              
              
              (0.003
              )
              
              
              0.001
              
              
              
              (0.003
              )
              
              
              (0.003
              )
              
              
              (0.003
              )
              
              
              0.002
              
              
              
              (0.005
              )
              
              
              (0.000
              )Discontinued
    operations
              
              
              0.005
              
              
              
              (0.006
              )
              
              
              (0.001
              )
              
              
              0.009
              
              
              
              (0.002
              )
              
              
              0.009
              
              
              
              (0.001
              )
              
              
              0.002Net income (loss) per common share
      (basic and diluted)
                - U.S. GAAP
    (1)Continuing
      operations
              
              
              (0.003
              )
              
              
              0.001
              
              
              
              (0.003
              )
              
              
              (0.003
              )
              
              
              (0.002
              )
              
              
              0.002
              
              
              
              (0.004
              )
              
              
              (0.000
              )Discontinued
      operations
              
              
              0.005
              
              
              
              (0.006
              )
              
              
              (0.001
              )
              
              
              0.009
              
              
              
              (0.001
              )
              
              
              0.009
              
              
              
              (0.001
              )
              
              
              0.002











18








(1) The
quarterly results under Canadian GAAP for 2007 have been amended to account for
a change in accounting policy.  In the first three quarters of 2007, the
Company applied EIC 27 with respect to the capitalization and amortization of
costs associated with the pre-operating period of the Company’s pain management
centers.  Given the Company’s continued losses in the pain management
business, it has been determined that it is appropriate to expense the costs in
the period in which they are incurred.  During the first three quarters of
the year, the Company incurred approximately $122,000 of such pre-operating
costs and charged approximately $8,300 to expenses.  The change in
policy had no impact on the results under U.S. GAAP as the costs were recorded
as expenses in the period incurred.





The
following summarizes the impact of this change on the previously reported
quarterly information under Canadian GAAP.





3rd QUARTER
      2007
              
              
              2nd QUARTER
      2007
              
              
              1st QUARTER
      2007As Reported
              
              
              As Amended
              
              
              As Reported
              
              
              As Amended
              
              
              As Reported
              
              
              As AmendedRevenue
              
              
              5,757,405
              
              
              
              5,757,405
              
              
              
              5,352,285
              
              
              
              5,352,285
              
              
              
              5,071,150
              
              
              
              5,071,150Gross
Profit
              
              
              1,730,673
              
              
              
              1,730,673
              
              
              
              1,656,547
              
              
              
              1,656,547
              
              
              
              1,389,071
              
              
              
              1,389,071Income (loss) before undernoted
      items
              
              
              (32,501
              )
              
              
              (61,351
              )
              
              
              (42,627
              )
              
              
              (86,110
              )
              
              
              (150,106
              )
              
              
              (192,613
              )Net income (loss) before
      discontinued operations
              
              
              (155,072
              )
              
              
              (177,670
              )
              
              
              (128,855
              )
              
              
              (171,092
              )
              
              
              (230,325
              )
              
              
              (272,832
              )Gain (loss) from discontinued
      operations
              
              
              (57,209
              )
              
              
              (57,209
              )
              
              
              (64,368
              )
              
              
              (64,368
              )
              
              
              (56,899
              )
              
              
              (56,899
              )Net income (loss) for the
      period
              
              
              (212,282
              )
              
              
              (234,880
              )
              
              
              (193,223
              )
              
              
              (235,460
              )
              
              
              (287,223
              )
              
              
              (329,730
              )Net income (loss) per common
      share (basic and
      diluted)Continuing
      operations
              
              
              (0.003
              )
              
              
              (0.003
              )
              
              
              (0.002
              )
              
              
              (0.003
              )
              
              
              (0.004
              )
              
              
              (0.005
              )Discontinued
      operations
              
              
              (0.001
              )
              
              
              (0.001
              )
              
              
              (0.001
              )
              
              
              (0.001
              )
              
              
              (0.001
              )
              
              
              (0.001
              )











19




ITEM
7: 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-K.
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 "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K.





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





BUSINESS
OVERVIEW





The
Company’s operations are comprised of four business units: Staffing Solutions,
Pain Management Services, Infusion Services and Healthcare Consulting
Services.  In 2007, 46% of the Company’s revenue was generated by the
Staffing Solutions unit; 30% by the Pain Management Services unit; 20% by the
Infusion Services unit; and 4% by the Healthcare Consulting
unit.  From a Gross Margin perspective, the contribution was 26%, 29%,
37% and 8%, respectively.





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





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





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





The
Company’s Infusion Services business provides intravenous infusion services for
pharmaceutical companies in 25 community-based clinics in Ontario,
Canada.





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





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





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





20





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





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





The
growth of Healthcare Consulting Services is dependent on market developments in
Canadian healthcare.  For the Company to be successful it must improve
its business development tools to ensure that it is in front of the right
business opportunities at the right time.





Refer
to ITEM 1: FACTORS AFFECTING MEDEMERG’S BUSINESS.





STAFFING
SOLUTIONS





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






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




In
September 2006, the Company recruited Dr. Jim Ducharme to lead the clinical
aspect of Staffing Solutions.  Dr. Ducharme is a nationally recognized
emergency medicine specialist and is a past president of the Canadian
Association of Emergency Physicians.  Dr. Ducharme brings a very broad
perspective of the challenges facing emergency departments today and he is an
important asset in the Company’s future growth of the Staffing Solutions
business.  Dr Ducharme was instrumental in the Company’s development
of a training program designed for Ontario’s family physicians.  In
concert with the College of Family Physicians, MedEmerg developed and hosted
training sessions designed to re-introduce family physicians to the
ER.  The program was well received and it is anticipated that future
training opportunities will arise in 2008.  Concurrent with the
addition of Dr. Ducharme, the division was realigned to expand its business
development capabilities in anticipation of increased staffing
opportunities.





PAIN MANAGEMENT
SERVICES




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





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





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





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





CPM
more than doubled its patient visits from approximately 16,300 patients in 2006
to more than 34,700 in 2007. Plans are underway to further increase capacity in
2008 by training more doctors and thereby increasing capacity at the Company’s
11 pain management centers.








21





INFUSION
SERVICES





In
March 2001, MedEmerg entered into an agreement with Schering-Plough Canada Inc.
(“Schering”) to become a coordinator for the community-based infusion of the
medication known as RemicadeTM.  This contract capitalizes on the Company's
access to medical clinics for the treatment of patients with various
inflammatory disorders, including rheumatoid arthritis and Crohn's disease. The
Company delivered more than 15,000 infusions in 2007, a 49% increase over 2006
(10,100).





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





As of
December 31, 2007, the Company operated 25 virtual clinics across Ontario
compared to 16 clinics in 2006.  On an as-required basis, the Company
rents space in community-based medical clinics.  MedEmerg’s team of
infusion coordinators arrange for patients to arrive at the clinic at a
prescribed time and for a physician and nurse to be available to attend to their
needs.  The RemicadeTM is supplied by a local pharmacy.





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





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





HEALTHCARE
CONSULTING




Over
the years, MedEmerg has developed significant experience in international and
domestic healthcare consulting.





In 2007
the Company provided services to the Ontario Hospital Association in regards to
the integration of physician assistants into emergency departments; the
Department of Health of Nova Scotia for pandemic planning and simulation
modeling for health human resources strategies in Nova Scotia; and the
Saskatchewan Association of Health Organizations regarding the supply of health
professionals in Saskatchewan.





In
February 2008, the division was restructured.  Future projects will be
limited to those that relate to the Company’s Staffing Solutions
business.  Projects like the Ontario Hospital Association’s
physician’s assistant initiative will become the mainstay of consulting
activities, going forward.





RESULTS
OF OPERATIONS





REVENUE




The
Company's Revenue from continuing operations for the year ended December 31,
2007 was $21,668,567 compared to $17,716,778 for the year ended December 31,
2006 and $13,785,449 for the year ended December 31, 2005.





Divisional
Revenues were:





Year Ended December
      31,Division
              
              2007
              
              
              2006
              
              
              2005Staffing
      Solutions
              
              
              10,048,614
              
              
              
              10,708,540
              
              
              
              9,284,794Pain Management
      Services
              
              
              6,568,252
              
              
              
              3,197,781
              
              
              
              1,563,729Infusion
      Services
              
              
              4,308,794
              
              
              
              2,700,102
              
              
              
              1,805,234Healthcare
      Consulting
              
              
              742,907
              
              
              
              1,110,355
              
              
              
              1,131,692Total
              
              
              21,668,567
              
              
              
              17,716,778
              
              
              
              13,785,449





22





Revenue
for the Staffing Solutions business decreased by 6% in 2007 compared to
2006.  The Company failed to resign agreements with two clients that
had worked with the Company for several years.  In 2006, Revenues
increased 15% over 2005.  This was the result of increased Revenues in
the first half of the year, compared to the first half of 2005.  As
disclosed previously, the Company lost a significant contract in June 2006 and
consequently revenues in the second half of the year were lower than the same
period in 2005.





Revenue
for Pain Management Services increased 105% in 2007 to $6,568,252, compared to
$3,197,781 in 2006.   The increase relates to the 112% increase
in patient visits from approximately 16,300 in 2006 to more than 34,700 in
2007.  The average patient billing declined approximately 3.5%, which
was in line with Management’s expectations.  In 2006, Revenue for Pain
Management Services increased 105% compared to 2005 as the business grew from
four clinics to five and patient volumes increased in line with Revenue
growth.





The
Infusion Services business increased 60% to $4,308,794 from $2,700,102 in
2006.  The increase relates to a 50% increase in patient visits and a
10% increase in Revenues per patient.  In 2006, Revenues increased 50%
to $2,700,102 from $1,805,234 in 2005.  The increase in the Infusion
Services Revenue was driven by a 39% increase in infusions from 7,311 in 2005 to
10,140 in 2006 and an 8% increase in Revenues per infusion.





Revenue
for the year ended December 31, 2007 from Healthcare Consulting was $742,907
compared to $1,110,355 in 2006.  During the year the Company failed to
win certain contracts on which it bid causing business volumes to
diminish.  Compared to 2005, the Revenue of $1,110,355 in 2006 was
essentially unchanged from Revenues of $1,131,692 during the year ended December
31, 2005.





GROSS
MARGIN




Gross
Margin (revenue less physician and other direct costs) increased to $6,479,226
or 31% from $4,942,287 for the year ended December 31, 2006 and from $3,492,483
for the year ended December 31, 2005.




Year Ended December
      31,Division
              
              2007
              
              
              2006
              
              
              2005Staffing
      Solutions
              
              
              1,661,579
              
              
              
              1,818,638
              
              
              
              1,735,457Pain Management
      Services
              
              
              1,862,311
              
              
              
              999,063
              
              
              
              352,284Infusion
      Services
              
              
              2,404,608
              
              
              
              1,433,150
              
              
              
              823,174Healthcare
      Consulting
              
              
              550,728
              
              
              
              691,436
              
              
              
              581,568Total
              
              
              6,479,226
              
              
              
              4,942,287
              
              
              
              3,492,483





Gross
Margin for the Staffing Solutions business decreased 9% in 2007 from $1,818,638
in 2006 to $1,661,579 in 2007.  The decrease corresponds to the 6%
decrease in revenue coupled with a 3% decrease in the Gross Margin
percentage.  The Gross Margin percentage decreased because of costs
incurred on one of the Staffing contracts.  The Company is taking
steps, including a rate increase, to remedy this situation.  In 2006,
the Gross Margin increased by 5% over 2005, from $1,735,457 to
$1,818,638.  This was the result of increased activity in the first
half of 2006, compared to the first half of 2005.





Gross
Margin for Pain Management Services increased 86% from $999,063 in 2006 to
$1,862,311 in 2007.  The increase in Gross Margin corresponds to the
105% increase in revenues, offset by lower Gross Margin percentage in the
centers that opened in 2007.  During the start-up phase, direct costs,
which generally correlate directly to revenues, increase as a percentage of
revenue because of lower operating efficiencies in the start-up
phase.  In 2006, the Gross Margin increased 183% from $352,284 in
2005.  The increase corresponds to the 105% increase in revenues,
bolstered by a 35% increase in Gross Margin percentage.  Only one pain
center opened in 2006, accordingly the division increased Gross Margin
percentage from 23% in 2005 to 31% in 2006.





The
Gross Margin for Infusion Services increased 68% to $2,404,608 in 2007 compared
to $1,433,150 in 2006.  The increase corresponds to the 60% increase
in Infusion revenues, enhanced by 5% increase in Gross Margin percentage from
53.1% to 55.8%.  Similar to Pain Management Services, as volumes grow,
efficiencies are derived from operations.  In 2006, Gross Margin
increased 74% to $1,433,150 from $823,174 in 2005.  As discussed above
concerning Revenue, this is attributable to the 50% increase in Revenues coupled
with a 16% increase in Gross Margin percentage. Again, the increase in Gross
Margin percentage results from improved operating efficiencies as the business
grows.





The
Gross Margin for Healthcare Consulting decreased from $691,436 in 2006 to
$550,728 in 2007.  At the same time Gross Margin percentage increased
from 62% in 2006 to 74% in 2007.  Gross Margin percentage increased
because the Company used more internal resources to complete its consulting
projects.  While Gross Margin increased as a result, this also
increased operating costs for the division.  In 2006, the Gross Margin
increased from $581,568 in 2005 to $691,436, even though Revenues decreased
$20,000 over the same period.  Gross Margin increased because, again,
the Company used more internal resources to complete its consulting
projects.











23





OPERATING
EXPENSES




Operating
Expenses are comprised of both divisional and centralized
expenses.  Centralized expenses are allocated to the divisions, based
on criteria relevant to the expense in question. In 2007 Operating Expenses
increased 43% ($2,074,691) to $6,858,382, from $4,783,691 in 2006 and from
$3,785,777 in 2005.





On a
divisional basis, after the allocation of corporate overheads, Operating
Expenses were as follows:





YearEnded December
      31,Division
              
              2007
              
              
              2006
              
              
              2005Staffing
      Solutions
              
              
              1,530,742
              
              
              
              1,507,663
              
              
              
              1,708,794Pain Management
      Services
              
              
              3,007,510
              
              
              
              1,490,747
              
              
              
              699,497Infusion
      Services
              
              
              1,309,708
              
              
              
              946,436
              
              
              
              775,844Healthcare
      Consulting
              
              
              1,010,422
              
              
              
              838,845
              
              
              
              601,642Total
              
              
              6,858,382
              
              
              
              4,783,691
              
              
              
              3,785,777


The
Operating Expenses for Staffing Solutions increased 1.5% from $1,507,663 in 2006
to $1,530,742 in 2007.  This is largely attributable to increased
General and Administrative costs which increased by approximately
$28,000.  This increase was related to increased Staff Training
costs.  In 2006 the Operating Expenses decreased to $1,507,663 from
$1,708,794 in 2005.  The decrease in 2006 relates to a reduction in
the allocation of centralized expenses.  As the other operating units
grew and the Staffing Solutions business contracted, the Staffing Solutions
business absorbed a correspondingly reduced allocation of centralized
expenses.





The
Operating Expenses for Pain Management Services increased 102% to $3,007,510
from $1,490,747 in 2006.  The increase in expenses corresponds with
the increased business volumes in the Pain Management business combined with the
increased allocation of centralized expenses and the impact of the strengthening
Canadian dollar versus the United States dollar.  In 2006 the
Operating Expenses for Pain Management Services increased to $1,490,747 from
$699,497 in 2005.  The increase of 113% again related to the increased
business volumes, combined with the impact of the strengthening Canadian dollar
and the increased allocation of centralized expenses to the Pain Management
Services business.





The
Operating Expenses associated with the Infusion Services business increased 38%
from $946,436 in 2006 to $1,309,708 in 2007.  The increase is related
to the increased salary costs as the division increased its ability to cope with
current and future growth.  The impact of the strengthening Canadian
dollar was largely offset by a reduced allocation of centralized expenses as the
Pain Management Services business absorbed an increased share of centralized
expenses.  In 2006 the Operating Expenses for the Infusion Services
business increased 22% from $775,844 to $946,436.  Operating Expenses
increased at approximately 30% of the rate of Revenues, as the division enjoyed
the benefits of increased operating efficiencies.





Operating
Expenses from Healthcare Consulting increased 20% despite a reduction in
Revenues and Gross Margins.  As described above, the business unit
staffed an increased proportion of its activities with internal versus external
consultants.  Consequently Operating Expenses increased along with
increased Gross Margins.  In 2006, Operating Expenses similarly
increased; however, in this instance by 39%.  Again the cause of the
increase was an increased proportion of consulting activity being completed by
internal versus external consultants.





AMORTIZATION
AND INTEREST





Amortization
expenses increased 63% in 2007 to $377,144 from $231,721 in 2006.  The
increased amortization largely relates to the amortization of property, plant
and equipment assets associated with the Pain Management Services
business.  Additions to property, plant and equipment increased in
2007 to $942,328 from $419,344 in 2006.





Amortization
expenses decreased from $243,413 in 2005 to $231,721 in
2006.  Additions to property, plant and equipment increased
substantially in the year from $183,089 in 2005 to $419,344 in
2006.  Many of the capital expenditures in 2006 were related to assets
that are amortized over five or more years.  In 2005 and 2004 most of
the capital expenditures were related to assets which are amortized over one to
three years.  Consequently, even though capital expenditures increased
significantly, amortization expenses decreased in the year.





In 2007
the Company earned interest income, net of bank charges of $84,822 compared to
$60,711 in 2006.  Despite seeing its cash balance decrease by
$1,737,123 during 2007, the Company’s average cash balance was higher than in
2006.  In 2006 the Company earned interest net of bank charges of
$60,711 compared to bank charges net of interest income of $19,868 in
2005.  The Company completed an equity financing and favorably settled
an outstanding lawsuit in 2006, giving rise to an increase in cash of $3,367,181
during 2006.








24





Interest
on long-term debt increased from $68,011 in 2006 to $123,330 in
2007.  The increase is associated with the $53,000 increase in
non-cash interest charges attributed to the Series I Shares.





Interest
on long-term debt in 2006 increased from $41,999 in 2005 to
$68,011.  The increase is associated with the interest charges
attributed to the Series I Shares.  This is a non-cash
expense.





OTHER
INCOME AND EXPENSES





The
Company recorded a charge for Interest expense on the financial liability
carried at amortized cost of $15,723 (2006 and 2005 - $nil).  This
charge arises as a result of the Company adopting Handbook Section 3855,
“Financial Instruments - Recognition and Measurement”.  This is a non
cash expense.





Stock-based
compensation expenses were $nil for 2007, $93,391 in 2006 and $370,881 in 2005.
Stock-based compensation expenses arise when options or warrants, issued to
employees or others, vest.  In 2006 the Company extended the expiry
date of 1,437,500 stock purchase warrants from February 2006 to September
2006.  Also during 2006, 37,500 stock options vested.  In
2005, 225,000 stock options vested and the expiry date of the 1,437,500 stock
purchase warrants, were extended by one year.  The exercise price of
the stock purchase warrants was also reduced from $0.50 to $0.20.





In
2007, the Company reported Other Income of $nil, $146,387 in 2006 and $nil in
2005.  In 2006, the Company earned Other Income of $146,387 on the
partial settlement of Notes Payable.  Notes Payable of $299,995 plus
accrued interest totaling $426,387 were settled through an agreement to pay
$280,000 in equal quarterly installments over two years.





INCOME
TAXES




For the
years ended December 31, 2007, 2006 and  2005, respectively, there was
no provision for income taxes payable due to the large tax loss carry-forwards
available from previous loss years.  The Company pays income taxes in
accordance with Canadian federal and provincial income tax legislation. The
Company does not expect to pay significant corporate income tax in Canada in the
foreseeable future because of existing significant net operating loss carry
forwards for Canadian income tax purposes.





DISCONTINUED
OPERATIONS




Government
Health Services


During
2007 the Company recorded a profit from Government Health Services (the “DND
Contract”) of approximately $275,000.  This arose on the final
settlement with Public Works and Government Services Canada, of a matter which
had previously been fully provided for in the accounts of the
Company.





During
2006, the Company had a profit from the DND Contract of $1,229,257 compared to
$144,033 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 CDN$2.0 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.




Family
Medical Clinics




During
200, the Company reported a loss from its Family Medical Clinics of $178,643
compared to a loss of $378,117 in 2006.  Effective August 1, 2007 the
Company disposed of its clinic in Calgary, Alberta and December 31, 2007 was the
last day of operations for the Company’s clinic in Wallaceburg,
Ontario.




For the
year ended December 31, 2006, the Company reported a loss from its Family
Medical Clinics of $378,116 compared to a loss of $31,105 in the year ended
2005.  Included in the loss are operating losses of $253,943 and
amounts totaling $124,173 regarding the write-off of amounts due from AIM Health
Group (“AIM”).  The operating losses increased in 2006 because of
losses incurred at a clinic in Calgary, Alberta.  The operations of
the Alberta clinic were re-assumed in late 2005, when the buyer of the clinic
defaulted on certain of its obligations.  The loss on amounts due from
AIM is comprised of $83,195 in regards to the redemption of Preferred Shares and
$40,978 regarding the write-off of sundry amounts due from AIM.  The
Preferred Shares and other amounts receivable arose from the sale of family
practice clinics in 2003.










25





LIQUIDITY
AND CAPITAL RESOURCES





As at
December 31, 2007, the Company's cash position was $2,291,005 compared to
$4,028,128 as at December 31, 2006 and $660,947 as at December 21,
2005.





The
reduction in the cash position of ($1,737,123) in 2007 resulted from (a) a use
of cash from operations of ($315,000); (b) changes to non-cash working capital
items of ($325,000); (c) a ($385,000) charge from discontinued operations,
comprised of income of $95,000 from discontinued operations and a ($480,000)
decrease in working capital from discontinued operations; (d) ($950,000) used by
the Company in investing activities with respect to the purchase of property,
plant and equipment ($940,000) and other intangible costs ($10,000) and (e) the
repayment of long-term debt of ($195,000). The strengthening of the Canadian
dollar relative to the US dollar resulted in a positive foreign exchange impact
of $435,000. The investing activities largely related to funds used for the
acquisition of leasehold improvements at the Company’s Pain Management
centers.





The
Company believes that cash on hand is adequate to finance its working capital,
capital expenditure, and other obligations for the foreseeable
future.





In
2006, the Company’s principal source of liquidity was 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).





Historically
the Company has incurred operating losses.  Losses were stabilized and
reversed in the latter half of 2005. With the Calian settlement, the Company
elected to expand its growth plans, notably with respect to its Pain Management
business.  During the fourth quarter of 2006, the Company increased
spending in the Pain division by approximately $80,000 with the new expenditures
focused on increasing the operational capacity of the
division.  Similarly capital expenditures associated with the Pain
division increased.  The Company announced the opening of three new
clinics in January 2007, much of which was financed in 2006.





The
reduction in the cash position of ($1,651,209) in 2005 over 2004 resulted from
(a) a ($530,085) loss from operations, comprised of ($355,162) of operating
losses from continuing operations, less non-cash items, of ($174,923); (b) a
($946,239) loss from discontinued operations, comprised of a $112,898 profit
from discontinued operations and a ($1,059,137) decrease in working capital from
discontinued operations; and (c) approximately ($182,789) used by the Company in
investing activities with respect to the purchase of property, plant and
equipment. These monies were largely used to fund the acquisition of leasehold
improvements at the Company’s pain clinics.





OFF
BALANCE SHEET ARRANGEMENTS





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





CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS





The
Company is committed to contractual obligations totaling $4.4
million.  The Company has not engaged in off-balance sheet financing,
commodity contract trading or significant related party transactions.
Contractual obligations are as follows:





2008
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                Thereafter
                
                
                Obligations3Long-term
      debt1
                
                $
                319,688
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                319,688Operating
      lease obligations
                
                
                1,220,909
                
                
                
                843,874
                
                
                
                774,615
                
                
                
                619,880
                
                
                
                106,684
                
                
                
                -
                
                
                
                3,565,962Notes
      payable2
                
                
                487,025
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                487,025-$
                2,027,622
                
                
                $
                843,874
                
                
                $
                774,615
                
                
                $
                619,880
                
                
                $
                106,684
                
                
                $
                0
                
                
                $
                4,372,675




Notes:


1 -
These amounts include interest on long-term debt at the prescribed rate
established by the Canada Revenue Agency (CRA), currently set at
8%.  These interest costs have been waived by CRA in recent
years.


2 -
Includes interest at the rate of 7%.  Interest is payable in cash or
by the issuance of common stock, or any combination thereof.


3 - No
provision is included in these amounts for the contingent lease obligations of
approximately $810,000 referenced in Note 15 (iv) of the accompanying financial
statements.








26





CRITICAL
ACCOUNTING POLICIES AND ASSUMPTIONS





The
preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities during the reporting
period.  Significant areas requiring the use of estimates relate
to:  (i) the reported amounts of revenues and expenses, (ii) the
disclosure of contingent liabilities, (iii) the carrying value of property,
plant, and equipment and the rate of amortization related thereto, and (iv)
accounting for income taxes.  Estimates are evaluated on an on-going
basis. The Company states its accounting policies in the notes to the audited
consolidated financial statements and related notes for the year ended December
31, 2007, contained herein. These estimates are based on information that is
currently available and on various other assumptions that are believed to be
reasonable under the circumstances.  Actual results could vary from
those estimates under different assumptions or conditions.  The
Company believes that the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of its consolidated
financial statements:





•
            Accruals
      are maintained 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 accruals have proven accurate.  Should changes
      occur in the future, it may be necessary to revise accrual
      assumptions.


•
            An
      allowance for doubtful accounts is maintained for estimated losses
      resulting from fraudulent claims made by patients, the inability of
      corporate customers to make required payments, or as a result of a dispute
      in the invoiced amount.  Fraudulent claims arise when patients
      seek medical care and provide an invalid health card for
      payment.  The introduction of electronic medical records
      services, which pre-screen patients prior to services being rendered, is
      rapidly diminishing the Company’s exposure to fraudulent claims by
      patients.  The 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 its
      customers were to deteriorate, resulting in an impairment of their ability
      to make payments, additional allowances may be required. Historically
      losses on uncollectible accounts have not exceeded allowances. As of
      December 31, 2007, the allowance for doubtful accounts was $40,946 (2006 -
      $23,203).


•
            The
      Company is subject to various claims and legal actions in the ordinary
      course of business. These matters include breach of contract or similar
      matters arising from contractual disputes. The 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 healthcare 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 hospital and healthcare facility clients relating to these
      matters.  Material pending legal proceedings brought against the
      Company are described in Item 3, Legal Proceedings, above. The Company is
      unable to determine its potential exposure regarding these lawsuits at
      this time.  Similarly, other contingent liabilities pertaining
      to amounts potentially owing to government authorities
      exist.  The Company continues to evaluate the probability of an
      adverse outcome and will provide accruals for such contingencies as
      required. The Company is not aware of any other such pending or threatened
      litigation or similar contingency that is reasonably likely to have a
      material adverse effect on it. If 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 $2 million associated with non-capital
      loss carryforwards and tax pools of $5.8 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.


•
            The
      Company is required to make certain assumptions in determining the value
      of stock-based compensation. Management has applied the Black Scholes
      model for determining the value of stock-based
      compensation.  Inherent in the application of the Black Scholes
      model are certain assumptions with respect to the future payment of
      dividends, the risk free rate of return and volatility of the
      stock.  Based on these assumptions a charge to income is
      incurred when these instruments vest.  Actual experience could
      vary materially from the assumptions made by
  management.








27





ADOPTION
OF ACCOUNTING POLICIES





Effective
January 1, 2007, the Company has adopted the Canadian Institute of Chartered
Accountants (“CICA”) Handbook; Section 3855 “Financial Instruments - Recognition
and Measurement”; Section 3865 “Hedges”; and Section 1530 “Comprehensive
Income”. These accounting standards introduce new requirements for the
recognition and measurement of financial instruments, the application of hedge
accounting and the reporting of comprehensive income that are designed to
harmonize Canadian accounting standards with US and International Financial
Reporting Standards.





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





Effective
January 1, 2007 the Company adopted the CICA Handbook Section 1506 - “Accounting
Changes”, which prescribes the criteria for changing accounting policies,
together with the accounting treatment and disclosure of changes in accounting
policies, changes in accounting estimates and corrections of
errors.





For
details of the specific accounting changes and related impacts, refer to Notes 3
and 17 in the audited consolidated financial statements.





Recently
Issued Accounting Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This standard provides companies
with an option to report selected financial assets and liabilities at fair
value. The Standard’s objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. This standard also establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. This Statement is effective as of the beginning of an entity’s
first fiscal year beginning after November 15, 2007. The Company is currently
evaluating the potential impact of this statement on its consolidated financial
statements.





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. The Company is currently evaluating the potential impact of this
statement on its consolidated financial statements.





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





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








28





ITEM
7A: 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
8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
information required by this item is submitted in a separate section of this
report beginning on page F-1.




ITEM 9:  CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE


None.





ITEM
9A(T):  CONTROLS AND PROCEDURES





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





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





Management’s
Annual Report on Internal Control over Financial Reporting





The
Company’s management is responsible for establishing and maintaining internal
control over financial reporting.  A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.





There
are inherent limitations in the effectiveness of any system of internal control,
including the possibility of human error and the circumvention or overriding of
controls.  Accordingly, even effective internal controls can provide
only reasonable assurances with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of internal control
may vary over time.





The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December, 31, 2007.  In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control - Integrated
Framework.Based on its assessment using the COSO criteria,
management concluded that, as of December 31, 2007, the Company’s internal
control over financial reporting is effective.





This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting.  The Company’s internal control over financial
reporting was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management’s report in this annual report.





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





ITEM
9B:  OTHER INFORMATION





None.








29





PART
III





ITEM
10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





The
following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.





Name
              Age
              PositionMichael
      Sinclair
              65
              Chairman of the
      BoardManfred
Walt
              55
              DirectorJacob (Koby)
      Ofek
              50
              DirectorMajorGeneral Lewis
      MacKenzie
              70
              DirectorJohn
Yarnell
              79
              DirectorSidney
Braun
              48
              DirectorRamesh
      Zacharias
              55
              Chief Executive Officer and
      DirectorDonald Ross
              56
              Vice President - Business
      DevelopmentWilliam J.
      Danis
              52
              Chief Financial Officer and Corporate Secretary





Name
            Position
            Principal Occupation and Positions
      HeldMichael
      Sinclair(1)
            Chairman
            Since
      1990 Dr. Sinclair has been the Chairman of Sinclair Montrose Trust, a UK
      based investment company.  Dr. Sinclair has been involved in
      several healthcare staffing companies in North America and the United
      Kingdom.  Dr. Sinclair was Chairman and the largest individual
      Shareholder of Lifetime Company, a NYSE listed company.  Through
      his vision and leadership, Lifetime grew to the largest home healthcare
      provider in the US with about US $1.2 billion in revenues and over 70,000
      nurses affiliated through its nationwide branches.  It was sold
      for more than US $600 million.Manfred
      Walt(1)(2)(4)
            Director
            Since
      May 2002, Mr. Walt has been principally employed as President and Chief
      Executive Officer of Walt & Co. Inc., a private investment and
      management company and provides consulting services to various Paul
      Reichmann family entities and third parties. Mr. Walt is a director and
      consultant to Spectrum Seniors Housing Development Corp, the largest
      developer of assisted living facilities in Canada.  Mr. Walt is
      also a director of Killam Properties Inc. an publicly traded Atlantic
      Canada based apartment company. Mr. Walt was previously associated for 18
      years in various capacities with Brookfield Asset Management
      Inc.Jacob
      (Koby) Ofek(1)
            Director
            Mr.
      Ofek is a 20-year veteran of the recruitment and staffing industry and an
      owner and manager of such businesses since 1986.  Mr. Ofek is
      the Chairman of Oz Atid International Ltd.  Through the years he
      has recruited many thousands of workers, mainly from Eastern
      Europe.  Mr. Ofek has served as a director of the Company since
      May 2004.





30








Lewis
      MacKenzie(1)(2)(3)
            Director
            During
      his thirty-six years of military service in the infantry he served nine
      years in Germany with NATO forces and managed nine peacekeeping tours of
      duty in six different mission areas: the Gaza strip, Cyprus, Vietnam,
      Cairo, Central America and Sarajevo.  He retired from the forces
      in 1993 and in that same year received the prestigious Vimy Award for his
      outstanding contribution to the preservation of democratic
      values.  Since his retirement from the military, Lewis MacKenzie
      has regularly appeared on many of the international TV and radio networks
      as a commentator.  Following the attacks of September 11, 2001,
      General MacKenzie was appointed one of two advisors to the Government of
      Ontario on counter-terrorism and emergency measures.  He is a
      graduate of the Xavier Junior College of Sydney, Cape Breton and The
      University of Manitoba.  General MacKenzie has served as a
      director of the Company since December 2002.John
      Yarnell(1)(2)(3)
            Director
            John
      Yarnell is the President of Yarnell Companies Inc.  Yarnell
      Companies Inc. is an investment and management services company formed in
      1978 to invest and manage venture capital initiatives.  Mr.
      Yarnell is the founder and retired Chairman of the Quorum Group of
      companies and a former director and chairman of Poco Petroleum Ltd., Guard
      Inc., and Aluma Systems Inc.  He is a graduate of The University
      of Manitoba and Harvard Business School.  Mr. Yarnell has served
      as a director of the Company since December 2002.Sidney
      Braun
            Director
            Sidney
      Braun is the President of ROMlight International Inc.  He was
      the President and COO of the Company from May 31, 2004, until his
      resignation on August 31, 2006.  For the three years prior to
      joining the Company, Mr. Braun was an exclusive subcontractor to
      Poalim/IBI, the largest investment bank in Israel, covering the European
      financial markets.  For the approximately two years prior to
      that, Mr. Braun was a representative for Raphael Zorn Helmsley, a UK
      investment bank.  Mr. Braun assisted in taking Israeli based
      companies public on the AIM in London, England.  Mr. Braun has
      served as a director of the Company since May 2004.Ramesh
      Zacharias
            Chief
      Executive Officer and Director
            Dr.
      Ramesh Zacharias is the founder of Med-Emerg International Inc. He is a
      surgeon and leading expert in the design and delivery of emergency care.
      He has provided consulting services regarding the delivery of emergency
      care in Canada, the Caribbean, Saipan and Malaysia and provided management
      consulting services regarding the operation of medical clinics in Canada,
      the United States and Russia. Dr. Zacharias provides medical leadership to
      Med-Emerg International Inc.  Dr. Zacharias assumed the duties
      of President and COO on August 31, 2006, upon Mr. Braun’s resignation. Dr.
      Zacharias has served as a director of the Company since September
      1983.Donald
      Ross
            Vice
      President Business Development
            Dr.
      Ross has been Vice-President of Med-Emerg International Inc. since
      November 2000 and is responsible for business development for the Company.
      He is an experienced healthcare executive, responsible for hands-on
      day-to-day operations.  In addition to his professional
      experience, Don holds a Masters degree in Clinical Epidemiology, is a
      Doctor of Dental Medicine, and has an honors Bachelors degree in
      neurophysiology from the University of British Columbia. Prior to working
      with the Company, Don was the Executive Vice President (Health Care) of
      Aetna Canada for five years and has extensive experience in managing
      clinical business units in the public and private
  sectors.





31








William
      J. Danis
            Chief
      Financial Officer and Corporate Secretary
            Mr.
      Danis has served as the Company’s Chief Financial Officer and Treasurer
      since May 2003. He is an experienced financial professional, bringing 25
      years of operational and investment experience to his role at
      MedEmerg.  Prior to joining the company he was a founding
      partner of Greybrook Corporation, a private equity investment
      company.  Previously he held senior investment roles with
      Working Ventures Canadian Fund Inc. and Royal Trust Enterprise Capital. He
      left public accounting in 1985 to accept the position of Managing Director
      of an offshore subsidiary of Brookfield Asset Management Inc.
      (TSX:BAM.A).





Notes:


(1)        Member
of the Compensation Committee.


(2)        Member
of the Audit Committee.


(3)        Member
of the Governance and Nomination Committee


(4)
            Mr.
      Walt was a director of Oxford Automotive Inc., a private company which in
      January 2002, commenced a pre-packaged Chapter 11 filing in conjunction
      with a financial recapitalization as a result of the severe downturn in
      production volumes in the North American auto parts industry.  Oxford
      Automotive Inc. emerged from Chapter 11 in June 2002 and Mr. Walt retired
      from its board in November 2003.








32





Board
Meetings Structure


The
Board met eight times during the year ended December 31, 2007. No director who
served during the 2007 fiscal year attended fewer than 85% of the meetings of
the Board and of the committees of the Board of which he was a
member.





The
Board does not have a formal policy with respect to Board members attendance at
annual stockholder meetings, though it encourages directors to attend such
meetings.





The
Company has not, to date, implemented a policy or procedure by which its
stockholders can communicate directly with its directors. Due to the small size
of the Company and its resources, the Company believes that this is
appropriate.





Board
Committees





The
Board has a Compensation Committee, Corporate Governance and Nomination
Committee and an Audit Committee.





The
Compensation Committee is primarily responsible for reviewing the compensation
arrangements for the Company’s executive officers, including the Chief Executive
Officer, and for administering the Company’s stock option plans. Members of the
Compensation Committee are Dr. Sinclair and Messrs. Walt, Ofek, MacKenzie and
Yarnell. The Compensation Committee met once in 2007.





The
Corporate Governance and Nomination Committee is jointly tasked with developing
and reviewing the Company’s approach to corporate governance issues, including
the public disclosure of the Company’s corporate governance practices and to
monitoring the Board’s succession plan for the Board of Directors, the CEO and
other senior management.  The Committee is comprised of Messrs.
MacKenzie and Yarnell. The Corporate Governance and Nomination Committee met
three times in 2007.





The
Audit Committee is primarily responsible for overseeing the services performed
by the Company’s independent auditors and internal audit department evaluating
the Company’s accounting policies and its system of internal controls and
reviewing significant financial transactions. The Audit Committee is comprised
of three members: Messrs. Walt, MacKenzie and Yarnell. The Company believes that
each member of the Audit Committee meets the independence criteria set out in
Rule 4200(a)(15) of the Marketplace Rules of the National Association of
Securities Dealers and the rules of the and other requirements of the SEC. The
Board of Directors has determined that Mr. Yarnell qualifies as an "audit
committee financial expert" as defined in the rules of the SEC.  The
Audit Committee met four times in 2007.





The
Company has adopted a Code of Ethics applicable to all employees, including the
principal executive officer, principal financial officer and principal
accounting officer. A copy of this code was attached to the Company’s Annual
Report in Form 10-K for the year ended December 31, 2006.





Section 16(a) Beneficial
Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 as amended requires the Company’s
officers and directors and persons who own more than 10% of a registered class
of the Company’s equity securities, to file reports of securities ownership and
changes in such ownership with the Securities and Exchange Commission (‘SEC”).
Officers, directors and greater than 10% shareholders are also required by rules
promulgated by the SEC to furnish the Company with copies of all section 16(a)
forms they file.





Based
solely upon a review of the copies of such forms furnished to the Company or
written representations that no Forms 5 were required, the Company believes that
all section 16(a) filing requirements were met during fiscal year
2007.








33





ITEM
11:  EXECUTIVE COMPENSATION




Summary
Compensation Table


The
following table sets forth information for the fiscal year ended December 31,
2007 concerning compensation of (1) all individuals serving as principal
executive officer during the fiscal year ended December 31, 2007, (2) all
individuals serving as principal financial officer during the fiscal year ended
December 31, 2007, and (3) the two other employees who were serving as executive
officers as of December 31, 2007 and whose total compensation exceeded $100,000
(collectively, the "Named Executive Officers"):





Stock
              All OtherSalary (1)
              Bonus
              Awards (2)
              Compensation
      (3)
              TotalName and Principal
      Position
              Year
              $
              $
              $
              $
              $Ramesh
      ZachariasChief Executive
      Officer
              2007
              350,000
              -
              
              -
              -
              350,000Donald RossVice President, Business
      Development
              2007
              162,000
              -
              
              -
              -
              162,000William
    DanisChief Financial Officer and
      Treasurer
              2007
              176,000
              -
              
              -
              -
              176,000





1.
            All
      amounts are in Canadian dollars.


2.
            The
      Company granted performance based share options in 2004, 20% of which
      vested in 2007.  The criteria underlying these performance
      options were not satisfied and no options were earned in the
      year.


3.
            The
      Company co-pays for certain healthcare related benefits, which in
      aggregate were less than $5,000 for each of the Named Executive
      Officers.




Employment
Agreements





Ramesh
Zacharias


On
February 6, 2006, the Company entered into a thirty-six (36) month employment
agreement (the “Zacharias
Agreement”) with Ramesh Zacharias providing for his continued service as
its Chief Executive Officer and a member of the Board of Directors, which
agreement is subject to automatic extension for successive two year terms, in
certain circumstances. The Zacharias Agreement was effective as of May 31, 2004
and replaced Dr. Zacharias's prior employment agreement. Under the Zacharias
Agreement, Dr. Zacharias is entitled to an annual base salary of Cdn$350,000,
subject to increases in the sole discretion of the Compensation Committee. The
Zacharias Agreement provided for the grant to Dr. Zacharias of 1,000,000
performance-based share options vesting 20% annually over five
years.  The foregoing equity awards, together with stock options
previously granted to Dr. Zacharias, currently represent approximately 1.4% of
the Company's equity.




The
Zacharias Agreement provides Dr. Zacharias with termination benefits payments
equal to the greater of twelve (12) month’s salary or the amount of salary
payable until the termination of the Zacharias Agreement.   Dr.
Zacharias is subject to certain covenants under the Zacharias Agreement,
including a non-competition covenant covering the term of his employment and an
additional period of eighteen (18) months thereafter.





Donald
Ross


On May
31, 2004, the Company entered into a thirty-six (36) month employment agreement
(the “Ross Agreement”)
with Donald Ross providing for his continued service as its Senior Vice
President, Business Development. The Ross Agreement has been extended effective
as of May 31, 2007 for a two-year term. Under the terms of the Ross Agreement,
as extended, Dr. Ross is entitled to an annual base salary of Cdn$170,000,
subject to increases in the sole discretion of the Compensation Committee. The
Ross Agreement provided for the grant to Dr. Ross of 150,000 performance-based
share options vesting 20% annually over five years.  The foregoing
equity awards, together with stock options previously granted to Dr. Ross,
currently represent less than 0.4% of the Company's equity.




The
Ross Agreement provides Dr. Ross with termination benefits payments equal to the
greater of nine (9) month’s salary or the amount of salary payable until the
termination of the Ross Agreement.   Dr. Ross is subject to
certain covenants under the Ross Agreement, including a non-competition covenant
covering the term of his employment and an additional period of nine (9) months
thereafter.





William
Danis


On
October 27, 2005, the Company entered into a thirty-six (36) month employment
agreement (the “Danis
Agreement”) with William Danis providing for his continued service as its
Chief Financial Officer and Treasurer, which agreement is subject to automatic
extension for successive two year terms, in certain circumstances. The Danis
Agreement was effective as of May 31, 2004.  Under the Danis
Agreement, Mr. Danis is entitled to an annual base salary of Cdn$176,000,
subject to increases in the sole discretion of the Compensation Committee. The
Danis Agreement provided for the grant to Mr. Danis of 150,000 performance-based
share options vesting 20% annually over five years.  The foregoing
equity awards, together with stock options previously granted to Mr. Danis,
currently represent less than 0.4% of the Company's equity.




The
Danis Agreement provides Mr. Danis with termination benefits payments equal to
the greater of six (6) month’s salary or the amount of salary payable until the
termination of the Danis Agreement.  Mr. Danis is subject to certain
covenants under the Danis Agreement, including a non-competition covenant
covering the term of his employment and an additional period of six (6) months
thereafter.





34





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END - DECEMBER 31, 2007





Option
    Awards
              
              
              Stock
  AwardsMarketNumberof
              Value ofNumber of
              Number of
              
              
              
              Shares or
              Shares
orSecurities
              Securities
              
              
              
              Units of
              Units ofUnderlying
              Underlying
              Option
              
              
              Stock that
              Stock
  thatUnexercised
              Unexercised
              Exercise
              
              
              have not
              Have NotOptions
              Options (5)
              Price
              Option
              
              Vested
              VestedExpirationName
              #
    Exercisable
              #
    Unexercisable
              $
              Date
              
              #
              $Ramesh
      Zacharias
              200,000
              0
              0.50
              15/05/2008
              
              -
              -0
              400,000(1)
              0.115
              31/08/2009
              
              -
              -Sidney
Braun
              250,000
              0
              0.115
              30/06/2009
              
              -
              -0
              400,000(2)
              0.115
              31/08/2009
              
              -
              -Donald Ross
              100,000
              0
              0.50
              15/05/2008
              
              -
              -0
              60,000(3)
              0.115
              31/08/2009
              
              -
              -William
    Danis
              100,000
              0
              0.50
              28/01/2009
              
              -
              -0
              60,000(4)
              0.115
              31/08/2009
              
              -
              -





(1)
            1,000,000
      options were awarded on August 31, 2004.  The options vest 20%
      annually subject to specific earnings performance criteria, see note (5)
      below. The earnings criteria were not satisfied in 2005, 2006 or
      2007.


(2)
            1,000,000
      options were awarded on August 31, 2004.  The options vest 20%
      annually subject to specific earnings performance criteria, see note (5)
      below. The earnings criteria were not satisfied in 2005, 2006 or
      2007.


(3)
            150,000
      options were awarded on August 31, 2004.  The options vest 20%
      annually subject to specific earnings performance criteria, see note (5)
      below. The earnings criteria were not satisfied in 2005, 2006 or
      2007.


(4)
            150,000
      options were awarded on August 31, 2004.  The options vest 20%
      annually subject to specific earnings performance criteria, see note (5)
      below. The earnings criteria were not satisfied in 2005, 2006 or
      2007.


(5)
            The
      unexercisable options are subject to certain performance
      criteria.  For the options to be exercisable the following
      criteria shall first be met:


•
            for
      each of the 12 month periods ending June 30, 2008 and 2009, the earnings
      per share (“EPS”) shall have increased at least 20% from the EPS in the
      preceding twelve month period; and


•
            provided
      that the increase in EPS shall also be at least 20% higher than the
      highest EPS previously obtained for any 12 month period;
    and


•
            there
      shall have been at least a US$2,000,000 increase in earnings before
      interest, depreciation and taxes per 12 month period, commencing July 1,
      2004.




Potential
Payments upon Termination or Change-in-Control


Except
as described under the Employment Agreements, above, there are no payments or
other obligations in the event of termination or change-in-control.








35





Director
Compensation:




The
following table sets forth information concerning the compensation of the
directors for the fiscal year ended December 31, 2007:




FeesEarned orPaid in
              OptionCash
              Awards
              TotalName (1)
              $ (2)
              $
              $Michael Sinclair
              37,500
              nil
              37,500Jacob (Koby)
      Ofek
              37,500
              nil
              37,500John Yarnell
      (3)
              37,500
              nil
              37,500Manfred Walt
      (4)
              37,500
              nil
              37,500Lewis
    MacKenzie
              37,500
              nil
              37,500Sidney
Braun
              37,500
              nil
              37,500




1.
            Ramesh
      Zacharias is not included in the table because he is also a Named
      Executive Officer in the Summary Compensation Table above. He receives no
      additional compensation for his service as one of the
      directors.


2.
            All
      amounts are in Canadian dollars.


3.
            The
      Company pays Yarnell Companies Inc. for the services provided by Mr.
      Yarnell as a director.


4.
            The
      Company pays Walt & Co. Inc. for the services provided by Mr. Walt as
      a director.





Compensation
Committee Interlocks and Insider Participation:





The
current members of the Compensation Committee are Messrs. Walt, Sinclair, Ofek,
MacKenzie and Yarnell, none of whom are employees and each of Messrs. Walt,
Ofek, MacKenzie, and Yarnell are considered independent directors. No executive
officer of the Company (i) served as a member of the of the compensation
committee (or other board committee performing similar functions or in the
absence of any such committee, the board of directors) of another entity, one of
whose executive officers served on the Company’s Compensation Committee, (ii)
served as a director of another entity one of whose executive officers served on
the Company’s Compensation Committee or (iii) served as a member of the
compensation committee (or other board committee performing similar functions or
in the absence of any such committee, the board of directors) of another entity,
one of whose executive officers served as a director of the
company.








36





ITEM
12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT





The
following table sets forth, as of March 29, 2008 certain information with
respect to stock ownership of (i) each Named Executive Officer and director of
the Company; (ii) each person known by the Company to be a beneficial owner of
5% or more of its outstanding common shares; (iii) all directors and executive
officers of the Company as a group.




Common
              PercentageName of beneficial
      owner
              Shares(1)(2)
              of ClassRamesh Zacharias, CEO and
      Director(4)
              2,846,272
              4.87%Sidney Braun, Director
      (5)
              1,575,956
              2.33%William Danis, CFO and Corporate
      Secretary (6)
              100,000
              0.15%Donald Ross, Vice President,
      Business Development (6)
              100,000
              0.15%Michael Sinclair, Chairman
      (7)
              6,631,209
              9.84%Walt & Co. Inc.
      (8)
              4,616,418
              6.86%Jacob (Koby) Ofek, Director
      (9)
              16,737,023
              24.63%John Yarnell, Director
      (10)
              150,000
              0.22%Lewis MacKenzie, Director
      (10)
              150,000
              0.22%BXR1 Holdings Inc.
      (11)
              6,954,628
              10.34%David Kassie
      (12)
              4,636,418
              6.89%H. T.
    Ardinger
              4,101,500
              7.03%Calian Technologies
      Inc
              8,750,000
              11.55%All Officers and Directors as a
      group (13)
              32,906,878
              49.27%





(1)
            Unless
      otherwise indicated, the address of each person listed is c/o Med-Emerg
      International Inc., 6711 Mississauga Road, Suite 404, Mississauga,
      Ontario, Canada L5N 2W3. The address of H.T. Ardinger is 9040 Governors
      Row, Dallas, Texas, 75356.





(2)
            Pursuant
      to the rules and regulations of the Securities and Exchange Commission,
      shares of Common Stock that an individual or group has a right to acquire
      within 60 days pursuant to the exercise of options or warrants are deemed
      to be outstanding for the purposes of computing the percentage ownership
      of such individual or group, but are not deemed to be outstanding for the
      purposes of computing the percentage ownership of any other person shown
      in the table. Except as indicated by footnote, and subject to community
      property laws where applicable, to the knowledge of the Company, each
      person listed is believed to have sole voting and investment power with
      respect to all shares of Common Stock beneficially owned by such
      person.





(3)
            In
      connection with a private placement of the Company’s securities and
      related transactions that were completed in June 2004, the Company issued,
      to the investors and to its Chief Executive Officer, in his capacity then
      as a holder of preferred shares that were converted in connection with the
      private placement, warrants to purchase up to 13,518,750 of its Common
      Shares.  The warrants were comprised of 11,587,500 series A
      warrants (the “A Warrants”), issued to the investors and 1,931,250 series
      B warrants (the “B Warrants”) issued to the Company’s Chief Executive
      Officer. The Class A and Class B warrants were issued to enable the
      holders thereof to maintain their then pro-rata equity positions in the
      Company. The exercise of the A Warrants and B Warrants is conditional upon
      the exercise of options and warrants that were outstanding at such time
      (the “Pre-existing Options and Warrants”). For each Common Share issued
      upon exercise of a Pre-Existing Option and Warrant, the holder of an A
      Warrant is entitled to exercise its A Warrant for three (3) Common Shares,
      at a per share exercise price equal to that of the Pre-existing Option and
      Warrant that was exercised. For each Common Share issued upon exercise of
      a Pre-Existing Option and Warrant, the holder of a B Warrant is entitled
      to exercise its B Warrant for one-half (1/2) Common Shares, at a per share
      exercise price equal to that of the Pre-existing Option and Warrant that
      was exercised.  All of the then Pre-existing Options and
      Warrants were priced at either $0.50 or $1.00 per share. The exercise
      period of the A Warrants and B Warrants corresponds to the exercise period
      of the Pre-existing Option and Warrant to which such A and B Warrants
      relate.





37








(4)
            Includes
      (i) 200,000 common shares issuable upon exercise of stock options, (ii)
      5,000,000 common shares held of record by 1245841 Ontario Inc., an Ontario
      corporation (“1245841 Ontario Inc.”), and (iii) 442,500 common shares
      issuable upon exercise of B Warrants issued in June 2004 to 1245841
      Ontario Inc. As an officer, director and 50% owner of 1245841 Ontario
      Inc., Mr. Zacharias may be deemed to be a beneficial owner of the common
      shares and B Warrants held of record by that company. Mr. Zacharias shares
      voting and investment power over the common shares and B Warrants held of
      record by 1245841 Ontario Inc. with his wife, Victoria Zacharias. Mr.
      Zacharias disclaims beneficial ownership of the common shares and B
      Warrants held of record by 1245841 Ontario
Inc.





(5)
            Includes
      (i) 250,000 common shares issuable upon exercise of stock options; and
      (ii) 75,956 common shares issuable upon exercise of A
      Warrants.





(6)
            Represents
      common shares issuable upon exercise of stock
  options.





(7)
            Includes
      (i) 379,860 common shares issuable upon exercise of A Warrants issued in
      June 2004 to Sinclair Montrose Trust Ltd. (the “Trust”).  As
      Chairman of the Trust, Mr. Sinclair may be deemed to be a beneficial owner
      of the common shares and A Warrants held of record or beneficially owned
      by the Trust.





(8)
            Represents
      (i) 4,350,827 common shares held by Walt & Co Inc. (“Walt & Co.”)
      and (ii) 265,591 common shares issuable upon exercise of A Warrants issued
      in June 2004 to Walt & Co.  As President and Chief Executive
      Officer of Walt & Co., Mr. Walt may be deemed to be a beneficial owner
      of the common shares and A Warrants held of record by that
      company.





(9)
            Includes
      (i) 958,758 common shares issuable upon exercise of A Warrants issued in
      June 2004.





(10)
            Represents
      common shares issuable upon exercise of stock
  options.





(11)
            Includes
      398,387 common shares issuable upon exercise of A Warrants issued in June
      2004.





(12)
            Includes
      265,591 common shares issuable upon exercise of A Warrants issued in June
      2004.





(13)
            See
      footnotes (3) through (9) above.








38





Equity Compensation Plan
Information





The
following table sets forth certain information regarding the Company’s equity
compensation plans.








Plan
      category
            Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Equity
      compensation plans approved by security holders Plan A
            1,335,000
            0.406
            10,316,539Equity
      compensation plans not approved by security holders Plan B
            920,000(1)
            0.115
            0Totals
            2,255,000
            0.287
            9,030,539





(1)
These options were issued to members of the management team: Dr. Zacharias
(400,000), Mr. Braun (400,000), Dr. Ross (60,000) and Mr. Danis
(60,000).  All of these options are subject to certain earnings
hurdles, as determined by the Compensation Committee; they vest 20% per annum
over five years and are exercisable until 2009.





ITEM
13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





There
were no transactions between the Company and any of its officers, directors or
5% or greater shareholders required to be reported hereunder, except for
payments to a company controlled by a director, totaling $nil (2006 - $31,743)
for administrative fees.  The Company believes all previous
transactions between the Company and its officers, directors or 5% stockholders,
and their affiliates were made on terms no less favorable to the Company than
those available from unaffiliated parties. The Company presents all proposed
transactions with affiliated parties to the Board of Directors for its
consideration and approval. Any such transaction is approved by a majority of
the disinterested directors.





ITEM
14:  PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table sets forth the fees paid to the Company’s independent auditor,
Schwartz Levitsky Feldman LLP during fiscal years 2006 and to Grant Thornton LLP
in the fiscal years 2006 and 2007.





AUDIT
AND NON-AUDIT FEES (Cdn$):





2007
              
              
              2006Audit fees (1)
              
              $
              129,500
              
              
              $
              82,949Audit related fees
      (2)
              
              
              27,600
              
              
              
              3,527Tax fees
(3)
              
              NIL
              
              
              NILAll other fees
      (4)
              
              NIL
              
              
              NILTotal
              
              $
              157,100
              
              
              $
              86,476




(1)
            Audit
      fees relate to professional services rendered in connection with the audit
      of the Company’s annual consolidated financial statements, quarterly
      review of consolidated financial statements included in the Company’s
      Forms 10-Q and audit services provided in connection with other statutory
      and regulatory filings.


(2)
            Audit
      related fees include professional services related to the audit of the
      Company’s consolidated financial statements and consultation on accounting
      standards or transactions .


(3)
            Tax
      fees were NIL in 2007 and for 2006.


(4)
            Other
      fees were NIL in 2007 and for 2006.





Policy on Audit Committees
Pre-approval of Audit and Non-Audit Services Performed by the Independent
Auditors.





The
Audit Committee has pre-approved the audit engagement in accordance with
Regulation S-X Rule 201(c)(7)(i) of the Sarbanes Oxley Act.








39





PART
IV





Item
15.   Exhibits and Financial Statement Schedules


(a)  
The following documents are filed as part of this report:




1.     
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY. Consolidated Financial
Statements of Company filed with this Report are listed on the accompanying
Index to Financial Statements.




2.     
FINANCIAL STATEMENT SCHEDULES. Financial Statement Schedules of the Company have
been omitted because they are not required or are not applicable, or the
required information is shown in the financial statements or notes
thereto.




3.     
EXHIBITS.




3.1
            Certificate
      of Incorporation and Amendments thereto of the Company.
  (1)3.2
            By-laws
      of the Company. (1)4.1
            Form
      of Warrant Agreement. (1)4.2
            Specimen
      Common Stock Certificate. (1)4.3
            Specimen
      Warrant Certificate. (1)10.1
            1997
      Stock Option Plan. (1)+14.1
            Code
      of Ethics.*21
            Subsidiaries
      of the Company*23.1
            Consent
      Letter - GRANT THORNTON LLP*23.2
            Consent
      Letter - SCHWARTZ
      LEVITSKY FELDMAN LLP*31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act.
      *31.2
            Certification
      of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley
      Act. *32.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley act of
  2002.*32.2
            Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley act of
      2002.*+
            Management
      agreement*
            Filed
      herewith.(1)
            Incorporated
      herein by reference from the Registrant’s Registration Statement on Form
      F-1 (No. 333-21899) filed with the U.S. Securities and Exchange Commission
      and declared effective on February 4,
1998.








40











SIGNATURES








Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





MED-EMERG INTERNATIONAL
      INC./s/ Ramesh
      ZachariasRamesh
      ZachariasDirector, Chief
      Executive
      OfficerDATE: March 28,
      2008





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





/s/ Michael
      Sinclair
              
              /s/ Jacob (Koby)
      OfekMichael
      Sinclair
              
              Jacob (Koby)
      OfekChairman of the
      Board
              
              DirectorDATE: March 28,
      2008
              
              DATE: March 28,
      2008/s/ Ramesh
      Zacharias
              
              /s/ Lewis
      MacKenzieRamesh Zacharias
              
              Lewis
    MacKenzieDirector, Chief Executive
      Officer
              
              DirectorDATE: March 28,
      2008
              
              DATE: March 28,
      2008/s/ John
      Yarnell
              
              /s/ Manfred
      WaltJohn
Yarnell
              
              Manfred
  WaltDirector
              
              DirectorDATE: March 28,
      2008
              
              DATE: March 28,
      2008/s/ Sidney Braun
              
              /s/ William J
      DanisSidney
Braun
              
              William J
    DanisDirector
              
              Chief Financial
      OfficerDATE: March 28,
      2008
              
              DATE: March 28,
      2008








41







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of


Med-Emerg
International Inc.





We have
audited the balance sheets of Med-Emerg International Inc. (an Ontario
corporation) and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations, deficit, comprehensive income (loss) and
accumulated other comprehensive loss and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The consolidated financial statements of Med-Emerg International
Inc. as of and for the year ended December 31, 2005 were audited by other
auditors.  Those auditors expressed an unqualified opinion on those
consolidated financial statements in their report dated March 8, 2006, except
for note 4 which is as of April 16, 2007 and note 18 which is as of March 26,
2008.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Med-Emerg International Inc.
as of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the year then ended in accordance with Canadian generally accepted
accounting principles.





Canadian
generally accepted accounting principles vary in certain respects from generally
accepted accounting principles in the United States of
America.  Information relating to the nature of such differences is
presented in Note 17 to the consolidated financial statements.








Mississauga,
      Canada
            /s/
      GRANT THORNTON LLPMarch
      24, 2008
            Chartered
      AccountantsLicensed
      Public Accountants








F-1






REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of


Med-Emerg
International Inc.





We have
audited the consolidated balance sheets of Med-Emerg International Inc. as at
December 31, 2005 and 2004 and the related consolidated statements of operations
and deficit and cash flows for each of the years ended December 31, 2005, 2004
and 2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.





We
conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.





In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2005 and 2004
and the results of its operations and its cash flows for each of the years ended
December 31, 2005, 2004 and 2003 in accordance with Canadian generally accepted
accounting principles which differ in certain respects from generally accepted
accounting principles in the United States (refer to note 17).








Toronto,
      Ontario, Canada
            /s/
      SCHWARTZ LEVITSKY FELDMAN LLPMarch
      8, 2006 (except for note 4 which isas
      of April 16, 2007 and note 18 which is
            Chartered
      Accountantsas
      of March 26, 2008)
            Licensed
      Public Accountants







F-2








Med-Emerg International Inc.


Consolidated Balance
Sheets


As at December 31, 2007 and December 31,
2006


(in US$)


December 31
              
              
              December312007
              
              
              2006ASSETSCurrent
    assetsCash and cash
      equivalents
              
              $
              2,291,005
              
              
              $
              4,028,128Accounts
      receivable (Note 5)
              
              
              3,149,967
              
              
              
              2,497,610Prepaid
      expenses and other
              
              
              525,978
              
              
              
              76,045Discontinued
      operations (Note 4)
              
              
              -
              
              
              
              463,8705,966,950
              
              
              
              7,065,653Property, plant and equipment
      (Note 6)
              
              
              1,314,849
              
              
              
              597,543Goodwill (Note
      7)
              
              
              237,596
              
              
              
              237,596Other intangible assets (Note
      7)
              
              
              9,152
              
              
              
              -$
              7,528,547
              
              
              $
              7,900,792LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent liabilitiesAccounts
      payable and accrued liabilities
              
              $
              2,506,416
              
              
              $
              2,084,030Deferred
      revenue
              
              
              247,189
              
              
              
              -Current portion
      of long-term debt (Note 8)
              
              
              445,026
              
              
              
              189,031Discontinued
      operations (Note 4)
              
              
              296,007
              
              
              
              880,3733,494,638
              
              
              
              3,153,434Long-term
    liabilitiesLong-term debt
      (Note 8)
              
              
              -
              
              
              
              453,369Discontinued
      operations (Note 4)
              
              
              -
              
              
              
              280,873Redeemable,
      convertible Series I Special shares (Note 9(a))
              
              
              3,153,689
              
              
              
              2,589,1593,153,689
              
              
              
              3,323,4016,648,327
              
              
              
              6,476,835Commitments (Note
      14)Contingent liabilities (Note
      15)SHAREHOLDERS'
      EQUITYCapital stock
      (Note 9)
              
              
              16,420,668
              
              
              
              16,420,668Contributed
      surplus (Note 10)
              
              
              3,106,792
              
              
              
              3,106,792Deficit
              
              
              (17,949,550
              )
              
              
              (17,253,951
              )Accumulated
      other comprehensive income
              
              
              (697,690
              )
              
              
              (849,552
              )880,220
              
              
              
              1,423,957$
              7,528,547
              
              
              $
              7,900,792
 
 The accompanying notes are an integral
part of these consolidated financial statements.
    
 F-3
 
 
 Med-Emerg International Inc.
 Consolidated Statement of
Deficit
 For the Years Ended December 31, 2007,2006 and
2005
 (in US$)
 
 December 31
              
              
              December 31
              
              
              December 312007
              
              
              2006
              
              
              2005Balance, beginning of year, as
      previously reported
              
              $
              (17,253,951
              )
              
              $
              (18,077,662
              )
              
              $
              (17,221,105
              )Financial instruments -
      recognition and measurement (Note 3(l))
              
              
              16,972
              
              
              
              -
              
              
              
              -Balance, beginning of
      year
              
              
              (17,236,979
              )
              
              
              (18,077,662
              )
              
              
              (17,221,105
              )Net income (loss) attributable to
      common shareholders
              
              
              (712,571
              )
              
              
              823,711
              
              
              
              (856,557
              )Balance, end of
      year
              
              $
              (17,949,550
              )
              
              $
              (17,253,951
              )
              
              $
              (18,077,662
              )
 
 Med-Emerg International
    Inc.Consolidated Statements of
      Comprehensive Income (Loss) and Accumulated Other Comprehensive
      LossFor the Years Ended December 31,
      2007, 2006 and 2005(in
  US$)
 
 
 December 31
              
              
              December 31
              
              
              December 312007
              
              
              2006
              
              
              2005Net income (loss) attributable to common
      shareholders
              
              $
              (712,571
              )
              
              $
              823,711
              
              
              $
              (856,557
              )Other comprehensive income
      (loss)Change in cumulative translation
      adjustment
              
              
              151,862
              
              
              
              (56,665
              )
              
              
              7,904Comprehensive income (loss) for
      the year, attributableto common shareholders
              
              $
              (560,709
              )
              
              $
              767,046
              
              
              $
              (848,653
              )Accumulated other comprehensive
      loss, beginning of year
              
              $
              (849,552
              )
              
              $
              (792,887
              )
              
              $
              (800,791
              )Other comprehensive income
      (loss)
              
              
              151,862
              
              
              
              (56,665
              )
              
              
              7,904Accumulated other
      comprehensive loss,
      end of year
              
              $
              (697,690
              )
              
              $
              (849,552
              )
              
              $
              (792,887
              )
  The accompanying notes are an integral
part of these consolidated financial statements.
 
 
 F-4
 
  Med-Emerg International
      Inc.Consolidated Statement of
      OperationsFor the Years Ended December31, 2007, 2006 and
      2005(in
  US$)
  December 31
              
              
              December 31
              
              
              December 312007
              
              
              2006
              
              
              2005Revenue
              
              $
              21,668,567
              
              
              $
              17,716,778
              
              
              $
              13,785,449Physician fees and other direct
      costs
              
              
              15,189,341
              
              
              
              12,774,491
              
              
              
              10,292,9666,479,226
              
              
              
              4,942,287
              
              
              
              3,492,483ExpensesSalaries and
      benefits
              
              
              3,881,514
              
              
              
              2,795,130
              
              
              
              2,229,625General and
      administration
              
              
              1,817,157
              
              
              
              1,267,709
              
              
              
              909,397Occupancy costs
      and supplies
              
              
              778,438
              
              
              
              459,608
              
              
              
              407,134Travel and
      marketing
              
              
              381,273
              
              
              
              261,244
              
              
              
              239,6216,858,382
              
              
              
              4,783,691
              
              
              
              3,785,777Income/(loss) before undernoted
      items
              
              
              (379,156
              )
              
              
              158,596
              
              
              
              (293,294
              )Interest
      (income) expense, net of bank charges
              
              
              (84,822
              )
              
              
              (60,711
              )
              
              
              19,868Interest on
      long-term debt
              
              
              123,330
              
              
              
              68,011
              
              
              
              41,999Amortization of
      property, plant, and
      equipment
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413Interest
      expense on financial liability carried at amortized
    co
              
              
              15,723
              
              
              
              -
              
              
              
              -Gain on
      renegotiation of notes payable (Note 8)
              
              
              -
              
              
              
              (146,387
              )
              
              
              -Stock-based
      compensation expense
              
              
              -
              
              
              
              93,391
              
              
              
              370,881431,375
              
              
              
              186,025
              
              
              
              676,161Loss before discontinued
      operations
              
              
              (810,531
              )
              
              
              (27,429
              )
              
              
              (969,455
              )Discontinued
      operationsNet income from
      discontinued operations (Note 4)
              
              
              97,960
              
              
              
              851,140
              
              
              
              112,898Net income (loss) attributable to
      common shareholders
              
              $
              (712,571
              )
              
              $
              823,711
              
              
              $
              (856,557
              )Net income (loss) per common
      share, basic and fully dilutedContinuing
      operations
              
              $
              (0.014
              )
              
              $
              (0.000
              )
              
              $
              (0.017
              )Discontinued
      operations
              
              $
              0.001
              
              
              $
              0.014
              
              
              $
              0.002$
              (0.013
              )
              
              $
              0.014
              
              
              $
              (0.015
              )Weighted average common shares and share
      equivalents,diluted
              
              
              58,277,696
              
              
              
              58,277,696
              
              
              
              58,277,696
  The accompanying notes are an integral
part of these consolidated financial statements.
 
 
 
 F-5
  Med-Emerg International
      Inc.Consolidated Statement of Cash
      FlowsFor the Years Ended December 31, 2007, 2006 and
      2005(in
  US$)
 
 
 December 31
              
              
              December 31
              
              
              December 312007
              
              
              2006
              
              
              2005Cash Flows from (used in)
      Operating ActivitiesNet
      income/(loss) before discontinued operations
              
              $
              (810,531
              )
              
              $
              (27,429
              )
              
              $
              (969,455
              )Adjustments
for:Amortization of
      property, plant and equipment
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413Non-cash gain
      on renegotiation of notes payable
              
              
              -
              
              
              
              (146,387
              )
              
              
              -Interest
      expense on financial liability carried at
              
              
              15,723
              
              
              
              -
              
              
              
              -Stock-based
      compensation expense
              
              
              -
              
              
              
              93,391
              
              
              
              370,880Accretion of
      expense on Series I Shares
              
              
              101,342
              
              
              
              48,124
              
              
              
              -(316,322
              )
              
              
              199,420
              
              
              
              (355,162
              )Decrease in
      non-cash working capital components (Note 13)
              
              
              (324,348
              )
              
              
              (259,859
              )
              
              
              (174,923
              )Discontinued
      operations (Note 4)
              
              
              (385,530
              )
              
              
              797,075
              
              
              
              (946,239
              )(1,026,200
              )
              
              
              736,636
              
              
              
              (1,476,324
              )Cash Flows from (used in)
      Investing ActivitiesAdditions to
      property, plant, and equipment
              
              
              (942,328
              )
              
              
              (419,344
              )
              
              
              (183,089
              )Additions to
      other intangible assets
              
              
              (8,446
              )
              
              
              -
              
              
              
              -Discontinued
      operations (Note 4)
              
              
              -
              
              
              
              -
              
              
              
              300(950,774
              )
              
              
              (419,344
              )
              
              
              (182,789
              )Cash Flows from (used in)
      Financing ActivitiesIssuance of
      redeemable, convertible Series 1 Shares
              
              
              -
              
              
              
              3,106,554
              
              
              
              -Repayment of
      long-term debt
              
              
              (193,375
              )
              
              
              -
              
              
              
              -(193,375
              )
              
              
              3,106,554
              
              
              
              -Effect offoreign currency exchange rate
      changes oncash and cash
      equivalents
              
              
              433,226
              
              
              
              (56,665
              )
              
              
              7,904Increase (decrease) in cash and
      cash equivalents
              
              
              (1,737,123
              )
              
              
              3,367,181
              
              
              
              (1,651,209
              )Cash and cash equivalents,
      beginning of the year
              
              
              4,028,128
              
              
              
              660,947
              
              
              
              2,312,156Cash and cash equivalents, end of
      the year
              
              $
              2,291,005
              
              
              $
              4,028,128
              
              
              $
              660,947
 
 The accompanying notes are an integral
part of these consolidated financial statements.








F-6





MED-EMERG
INTERNATIONAL INC.


Notes
to the Consolidated Financial Statements


December
31, 2007, 2006 and 2005





1.        ORGANIZATION
AND DESCRIPTION OF BUSINESS





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





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





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





For
Staffing Solutions, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals and
federal corrections facilities, on a contractual basis, and physician and nurse
practitioners to select long-term facilities in Ontario. At December 31, 2007,
the Company had about 40 physician and nurse staffing contracts in approximately
30 facilities across Ontario.





Pain
Management Services operate eleven pain management centers in Ontario and Nova
Scotia through its wholly-owned subsidiary, CPM Health Centres
Inc.  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.





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





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





The
Company sold all of its medical clinics during the 2003 fiscal year (see Note
4).  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.  During November 2006 the Company established a plan to
dispose of the remaining family medical clinics and the results of this
operation are now included as Discontinued Operations - Note 4.








2.        BASIS
OF PRESENTATION





The
accompanying audited consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP). These
consolidated financial statements consolidate the accounts of MedEmerg and all
of its wholly-owned subsidiaries: Med-Emerg Inc., Med-Emerg Elmvale Clinic Inc.,
and CPM Health Centres Inc.





Significant
intercompany accounts and transactions have been eliminated on
consolidation.





The
consolidated financial statements are expressed in U.S. dollars for the benefit
of U.S. readers. Differences between Canadian and United States GAAP are
described in note 17.








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, (iv) stock-based compensation; (v) accounting for income taxes; and
(vi) the annual test for impairment in goodwill.  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.








F-7





(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.  A
loss in value of an investment is expensed when such decline is 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 undernoted rates and methods:




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




(d)           Goodwill
and other intangible assets





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





Other
intangible assets include trademarks and other intellectual property that is
identifiable, measurable and determined to have future economic benefit to the
Company.  Other intangible assets are measured at
cost.  These assets are not amortized but rather are tested for
impairment on an annual basis.





(e)           Impairment
of long-lived assets





The
Company monitors events and changes in circumstances which may require an
assessment of the recoverability of its long-lived assets.  If
required, the Company would assess recoverability using estimated undiscounted
future operating cash flows.  If the carrying amount of an asset is
not recoverable, an impairment loss is recognized in operations, measured by
comparing the carrying amount of the asset to its fair value.





(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 “Recording Revenue Gross as a
Principal versus Net as an Agent” (EITF 99-19).  Both EIC 123 and EITF
99-19 address the reporting of revenue on a gross basis as a principal versus on
a net basis as an agent.  The pronouncements generally state that
revenue should be reported on a gross basis if:





•           The
enterprise is the primary obligor in the relationship;


•           The
enterprise has latitude in establishing price;


•           The
enterprise performs part of the service;


•           The
enterprise has discretion in supplier selection;


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


•           The
enterprise has credit risk.





MedEmerg
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 MedEmerg’s revenue recognition policies for each
of its significant business units.





(1)
Staffing Solutions:





Revenue
is reported on a gross basis.





MedEmerg
acts as a principal in providing these services. MedEmerg (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.  MedEmerg 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 as services are delivered, and when there is reasonable assurance
of collection.








F-8





(2)
Pain Management Services:





Revenue
is reported on a gross basis.





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





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





(3)
Infusion Services:





Revenue
is reported on a gross basis.





Under
contract with Schering, MedEmerg 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.  MedEmerg recruits, schedules and bills the customer for the
services provided and encounters credit risk in the event of
non-payment.





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





(4)
Healthcare Consulting:





Revenue
is reported on a gross basis.





MedEmerg
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. MedEmerg also advises several aboriginal communities with
regards to healthcare service issues.





Revenue
is recognized over the life of each contract based on proportional performance
as indicated by the achievement of milestones specified in the contract, and
when there is reasonable assurance of collection.  Deferred revenues
will arise when billings exceed amounts earned under the contract.





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)           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
and cash equivalents





Cash
and cash equivalents consists of cash on hand and short-term, liquid investments
with maturities less than three months.





(i)           Foreign
currency translation





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





F-9





(j)           Stock-based
compensation expense





The
Company uses the fair value based method of accounting for all stock-based
payments to employees and non-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 for the period, 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.  Diluted loss per share is not calculated when the
effect is anti-dilutive.





(l)       Changes
in Accounting Policies





(1)
Financial instruments - recognition and measurement





On
January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
and Measurement”. It describes the standards for recognizing and measuring
financial instruments in the balance sheet and the standards for reporting gains
and losses in the financial statements. Financial assets available for sale,
assets and liabilities held for trading and derivative financial instruments,
whether part of a hedging relationship or not, have to be measured at fair
value.





The
Company has made the following classifications:






            Cash
      and cash equivalents are classified as financial assets held for trading
      and are measured at fair value. Gains and losses related to periodic
      revaluation are recorded in net income.
            Accounts
      receivable are classified as loans and receivables and are initially
      measured at fair value and subsequently measured at amortized cost using
      the effective interest rate method.



            Accounts
      payable and accrued liabilities and long-term debt are classified as other
      liabilities and are initially measured at fair value and subsequently
      measured at amortized cost using the effective interest rate
      method.
            The
      liability portion of the Series I Special Shares are classified as other
      liabilities and are recorded at amortized cost using the effective
      interest rate method.





The
adoption of this Section was done retroactively without restatement of the
consolidated financial statements of prior periods. As at January 1, 2007, the
impact on the consolidated balance sheet of measuring the financial assets and
liabilities using the effective interest rate method was a decrease in accounts
payable and opening deficit of $16,972.





(2) Comprehensive
income





On
January 1, 2007, the Company adopted Section 1530 of the CICA Handbook,
“Comprehensive Income”, which describes reporting and disclosure recommendations
with respect to comprehensive income and its components. Comprehensive income is
the change in shareholders’ equity, which results from transactions and events
from sources other than the Company’s shareholders.





The
Company determined that the only impact of the adoption of Section 1530 of the
CICA Handbook was the inclusion of the Consolidated Statements of Comprehensive
Income (Loss) and Accumulated Other Comprehensive Loss in its financial
statements.





(3) Equity





On
January 1, 2007, the Company adopted Section 3251 of the CICA Handbook,
“Equity”, replacing Section 3250, “Surplus”. Section 3251 describes standards
for the presentation of equity and changes in equity for reporting period as a
result of the application of Section 1530, “Comprehensive Income”.





The
Company determined that there was no impact to its financial statements from the
adoption of Section 3251 of the CICA Handbook.








F-10





(4) Hedges





On
January 1, 2007, the Company adopted Section 3865 of the CICA Handbook,
“Hedges”. The recommendations of this Section expand the guidelines required by
Accounting Guideline 13 (AcG-13), “Hedging Relationships”. Section 3865
describes when and how hedge accounting can be applied as well as the disclosure
requirements. Hedge accounting enables the recording of gains, losses, revenues
and expenses from the derivative financial instruments in the same period as for
those related to the hedged item.





The
Company determined that there were no hedging derivatives as at January 1, 2007
and accordingly there was no impact to its financial statements from the
adoption of Section 3865 of the CICA Handbook.





(5) Accounting
changes





On
January 1, 2007, the Company adopted Section 1506 of the CICA Handbook -
“Accounting Changes”,.  The recommendations of this Section prescribe
the criteria for changing accounting policies, together with the accounting
treatment and disclosure of changes in accounting policies, changes in
accounting estimates and corrections of errors.





The
Company determined that the only impact of the adoption of Section 1506 were the
additional disclosures provided herein.





(m)    Recent
Pronouncements in Accounting Standards





(1)
Going concern





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





This
Section is applicable to interim and annual financial statements relating to
fiscal years beginning on or after January 1, 2008, with earlier adoption
encouraged. The Company will adopt this Section in fiscal 2008 but this will not
have an impact on the financial statement disclosures as the Company is
currently complying with this requirement.





(2)
Capital disclosure





CICA
Handbook Section 1535, “Capital Disclosures”, requires disclosure about capital
and is harmonized with recently amended International Financial Reporting
Standard IAS 1.  The standard is applicable to all entities,
regardless of whether they have financial instruments.





Entities
are required to disclose information about its objectives, policies and
processes for managing capital, as well as its compliance with any externally
imposed capital requirements, where they may exist.





This
Section is applicable to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007, with earlier adoption
encouraged. The Company will adopt this Section in fiscal 2008.





(3)
Inventories





CICA
Handbook Section 3031, “Inventories”, replaces CICA Handbook Section 3030,
“Inventories”, and provides the Canadian equivalent to International Financial
Reporting Standard IAS 2.





This
Section provides guidance on the determination of cost, including allocation of
overheads and other costs to inventory. Further, under this Section, when the
circumstances that previously caused inventories to be written down below cost
no longer exist or when there is clear evidence of an increase in net realizable
value because of changed economic circumstances, the amount of the write-down is
reversed . This Section also includes expanded disclosure
requirements.





This
Section applies to interim and annual financial statements for fiscal years
beginning on or after January 1, 2008. The Company will adopt this Section in
fiscal 2008.





The
impact that this Section will have on the Company’s financial position and
results of operations is not known.








F-11





(4)
Goodwill and other intangible assets





CICA
Handbook Section 3064, “Goodwill and Intangible Assets”, replaces CICA Handbook
Section 3062, “Goodwill and Other Intangible Assets”.





This
Section establishes standards for the recognition, measurement, presentation and
disclosure of goodwill and intangible assets. Certain items are specifically
excluded from the scope of the Section including the initial recognition,
measurement and disclosure of goodwill and intangible assets acquired in a
business combination, the establishment of a new cost basis for intangible
assets as part of a comprehensive revaluation, intangible assets held by an
entity for sale in the ordinary course of business, non-current intangible
assets classified as held for sale or included in a disposal group that is
classified as held for sale, etc.





Rights
under licensing agreements for items such as patents and copyrights are within
the scope of this Section. This Section also applies to, among other things,
expenditure on advertising, training, start-up and research and development
activities.





This
Section applies to annual and interim financial statements relating to fiscal
years beginning on or after October 1, 2008. Earlier adoption is encouraged. The
Company will adopt this Section in fiscal 2008 but this will not have an impact
on the financial statements as the Company is currently complying with this
requirement.





(5)
Financial instruments - disclosures





CICA
Handbook Section 3862, “Financial Instruments - Disclosures” replaces the
disclosure requirements of previous Section 3861 “Financial Instruments -
Disclosure and Presentation”and converges with International Financial Reporting Standard IFRS 7.
This Section applies to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. The Company will adopt this
Section in fiscal 2008.





(6)
Financial instruments - presentation





CICA
Handbook Section 3863, “Financial Instruments - Presentation” is consistent with
previous CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.This Section applies to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. The Company will adopt this
Section in fiscal 2008.








4.        DISCONTINUED
OPERATIONS





Government
Healthcare Services (including Department of National Defence)





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





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





In May
2007 the Company signed a Settlement and Release Agreement with respect to
amounts owing between the Company and PWGSC.  Except for the GST
obligation referenced below, no further amounts are owed to or by the Company,
with respect to the DND Contract.





In
January 2005 the Company launched a lawsuit against the winning bidder of the
New Contract and a former employee of the Company. In July 2006, the Company
settled outstanding litigation regarding the loss of the DND
contract.  Pursuant to the settlement, the Company received $1.8
million (CDN$2.0 million) and the litigants exchanged full and final releases.
Proceeds of the settlement, net of expenses of approximately $570,000
(CDN$630,000), were recorded as income from Discontinued Operations by the
Company in 2006.








F-12







Family
Medical Clinics Sale







On
September 5, 2003 the Company entered into a transaction with AIM Health Group
Ltd. (“AIM”) to dispose of MedEmerg’s Ontario-based clinic
operations.





On
December 31, 2003, MedEmerg sold certain assets of the following four medical
clinics located in the province of Alberta: Martindale Medical Centre, McKnight
Village Medical Clinic, Jasper Avenue Medical Clinic, and West Edmonton Mall
Medical Centre.





Ownership
of two of the family medical clinics sold in 2003 reverted to the Company in
2005.  During the fourth quarter of 2006 the decision was taken to
dispose of these assets.  Effective August 1, 2007, one of these
clinics was sold.   The second clinic was sold effective December
31, 2007.







For the
year ended December 31, 2007 the Company reported a loss from its Family Medical
Clinics of $178,643 compared to a loss of $378,116 for the year ended 2006 and a
loss of $31,105 in the year ended 2005.  Included in the 2006 loss are
operating losses of $253,943 and amounts totaling $124,173 regarding the
write-off of amounts due from AIM.  The operating losses decreased in
2007 because the Company sold the clinic in Calgary, Alberta, effective August
1, 2007.  The Calgary clinic had been the source of most of the
operating losses.




Year Ended December
      312007
              
              
              2006
              
              
              2005Revenue
              
              $
              896,828
              
              
              $
              1,061,924
              
              
              $
              12,130,365Physician fees and other direct
      costs
              
              
              317,279
              
              
              
              404,525
              
              
              
              10,934,944Gross
margin
              
              
              579,549
              
              
              
              657,399
              
              
              
              1,195,421Operating, general and
      administrativeexpenses
              
              
              489,793
              
              
              
              1,035,516
              
              
              
              1,082,523Interest and other
      income
              
              
              (8,204
              )
              
              
              (1,229,257
              )
              
              
              -Income from discontinued
      operations
              
              $
              97,960
              
              
              $
              851,140
              
              
              $
              112,898





Results
of discontinued operations for 2005 have been adjusted to reflect the impact of
the decision taken in November 2006 to discontinue the Family Medical
Business.  The adjustment had the following impact on the 2005
results:




Twelve Months to Dec 31,
      2005(as
    previouslyreported)
              
              
              (as
    adjusted)Revenue
              
              
              11,523,166
              
              
              
              12,130,364Physician fees and other direct
      costs
              
              
              10,549,299
              
              
              
              10,934,944Gross
margin
              
              
              973,867
              
              
              
              1,195,420Operating, general and
      administrative
      expenses
              
              
              724,233
              
              
              
              976,893Amortization
              
              
              38,296
              
              
              
              38,296Other
    expenses
              
              
              67,333
              
              
              
              67,333Income from discontinued
      operations
              
              
              144,005
              
              
              
              112,898








F-13





The
summarized balance sheets for the Discontinued Operations are as
follows:





December
31,
              
              
              December
31,2007
              
              
              2006AssetsCurrentCash
              
              
              -
              
              
              
              1,755Accounts
      receivable
              
              
              -
              
              
              
              462,115-
              
              
              
              463,870LiabilitiesCurrent
              
              
              -
              
              
              
              -Accounts
      payable and accrued liabilities
              
              
              296,007
              
              
              
              880,373Long-term
    debt
              
              
              -
              
              
              
              280,873296,007
              
              
              
              1,161,246Net
    liabilities
              
              
              296,007
              
              
              
              697,376





The
accounts payable and accrued liabilities pertains to the Goods and Services Tax
(“GST”) which is payable over a period of five years, as per an agreement
between the Company and the Canada Revenue Agency (“CRA”).  The GST
obligation arose on revenues associated with the DND contract.  An
amount of $30,264 (CDN$30,000) is payable monthly and is reviewable every six
months. As at December 31, 2006, the long-term portion of this obligation was
recorded as long-term debt. The CRA has the right to register a Lien under the
Personal Property Security Act with the Province of Ontario to secure its
position.





5.
            ACCOUNTS
      RECEIVABLE





2007
              
              
              2006Trade
      receivable
              
              $
              3,190,913
              
              
              $
              2,520,813Allowance for doubtful accounts
              
              
              (40,946
              )
              
              
              (23,203
              )$
              3,149,967
              
              
              $
              2,497,610





6.        PROPERTY,
PLANT AND EQUIPMENT





2007
                
                
                2006Accumulated
                
                
                
                
                
                
                
                
                AccumulatedCost
                
                
                amortization
                
                
                Net
                
                
                Cost
                
                
                amortization
                
                
                NetFurniture and
      fixtures
                
                $
                794,127
                
                
                $
                374,647
                
                
                $
                419,480
                
                
                $
                447,009
                
                
                $
                229,436
                
                
                $
                217,573Computer software
                
                
                726,062
                
                
                
                626,949
                
                
                
                99,113
                
                
                
                539,434
                
                
                
                486,866
                
                
                
                52,568Web
    development
                
                
                61,479
                
                
                
                -
                
                
                
                61,479
                
                
                
                -
                
                
                
                -
                
                
                
                -Computer
      hardware
                
                
                811,983
                
                
                
                696,814
                
                
                
                115,169
                
                
                
                648,616
                
                
                
                550,721
                
                
                
                97,895Leasehold
      improvements
                
                
                1,037,745
                
                
                
                418,137
                
                
                
                619,608
                
                
                
                432,154
                
                
                
                202,647
                
                
                
                229,507$
                3,431,396
                
                
                $
                2,116,547
                
                
                $
                1,314,849
                
                
                $
                2,067,213
                
                
                $
                1,469,670
                
                
                $
                597,543





7.        GOODWILL
AND OTHER INTANGIBLE ASSETS





Goodwill
amounting to $237,596 arose from the acquisition of the business of the
Scarborough Pain Clinicin November 2004. The
net purchase price was set at $204,026 plus $39,938 being the fair value of the
100,000 options granted to Dr. Lorne Greenspan, the former owner and operator of
the clinic, using the Black Scholes option pricing model. The fair value of the
property, plant and equipment acquired was estimated to be $6,368, and the
balance of $237,596 was recorded as goodwill. The net cash outflow for goodwill
was $197,658 ($237,596 less non cash expense of $39,938). The Company has
determined that there was no impairment in the value of the goodwill as at
December 31, 2007.





Other
intangible assets are comprised of trademarks acquired or renewed by the Company
in 2007.  The Company has determined that there was no impairment in
the value of the intangible assets as at December 31, 2007.











F-14





8.       LONG-TERM
DEBT





Long-term
debt is comprised of the following:




2007
              
              
              2006Notes
    payable
              
              $
              445,026
              
              
              $
              642,400Less: current
      portion
              
              
              445,026
              
              
              
              189,031$
              -
              
              
              $
              453,369





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





(i)           A
note in the principal amount of $299,995 and accrued interest thereon 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, without
interest.  This settlement resulted in recognition of a gain of
$146,387 which is recorded in earnings for 2006.  Of the total
obligation at December 31, 2007, all $105,000 is due within 12 months and is
classified in the current liabilities section of the balance sheet.





(ii)           A
note in the principal amount of $299,995 was extended to November 1,
2008.  Accrued interest payable at November 1, 2006 of $106,750 was
settled through an agreement to pay this amount in eight (8) quarterly payments
of approximately $13,350, over two years, commencing November 1,
2006.  The note continues to bear interest at 7% per annum. MedEmerg
may pay the principal amount and accrued interest at any time until maturity by
way of cash or common stock or a combination of cash and common stock at the
discretion of the Company. Of the total obligation of $340,026 at December 31,
2007, all of this obligation is due within twelve months and is classified in
the current liabilities section of the balance sheet.





9.
            CAPITAL
      STOCK





Authorized


Unlimited
number of the following classes of shares and warrants:


Preferred
shares, voting, non-redeemable, non-retractable, having a cumulative dividend of
US$0.27 per share payable by cash or shares at the option of the company,
convertible to common shares


Class
"A", redeemable, retractable, non-cumulative preferred shares;


Class
"B", redeemable, retractable, non-cumulative preferred shares;


Special
shares, issuable in series, with rights, privileges and restrictions to be fixed
by the directors;


Common
shares


Common
shares purchase warrants


Class A
and B Warrants





F-15





2007
              
              
              200658,277,696 Common shares ( 2006
      and 2005 - 58,277,696shares)
              
              $
              15,938,625
              
              
              $
              15,938,6252,655,000 Class A Warrants (2006 -
      2,955,000)
              
              
              -
              
              
              
              -442,500 Class B Warrants (2006 -
      492,500)
              
              
              -
              
              
              
              -Equity component of 8,750,000
      Series I Special Shares (a)
              
              
              482,043
              
              
              
              482,043$
              16,420,668
              
              
              $
              16,420,668
 
 Common
    SharesNumber
              
              
              AmountBalance December 31, 2007, 2006
      and 2005
              
              
              58,277,696
              
              
              $
              15,938,625
 
 Series I Special
      SharesNumber
              
              
              AmountBalance December 31,
      2005
              
              
              -
              
              
              $
              -Issued during the
      year
              
              
              8,750,000
              
              
              
              3,106,554Balance recorded as
      (equity)
              
              
              
              
              
              
              (482,043
              )Balance recordedas
    liability
              
              
              
              
              
              
              2,624,511Accretion of expense on Series I
      Special Shares
              
              
              
              
              
              
              48,124Effect of foreign currency
      translation
              
              
              
              
              
              
              (83,476
              )Balance December 31,
      2006
              
              
              8,750,000
              
              
              
              2,589,159Accretion of expense on Series I
      Special Shares
              
              
              
              
              
              
              101,342Effect of foreign currency
      translation
              
              
              
              
              
              
              463,188Balance December 31,
      2007
              
              
              -
              
              
              $
              3,153,689
 
 Share Purchase Warrants ( c
      )Number
              
              
              AmountBalance December 31,
      2005
              
              
              1,437,500
              
              
              $
              106,111Expired during the year,
      reclassified to contributed surplus
              
              
              (1,437,500
              
              
              
              (106,111
              )Balance December 31,
      2006
              
              
              -
              
              
              $
              -
  Class A Warrants
      (d)Number
              
              
              AmountBalance December 31,
      2005
              
              
              11,587,500
              
              
              $
              -Expired during the
      year
              
              
              8,632,500
              
              
              
              -Balance December 31,
      2006
              
              
              2,955,000
              
              
              
              -Expired during the
      year
              
              
              300,000
              
              
              
              -Balance December 31, 2007
              
              
              2,655,000
              
              
              $
              -
  Class B Warrants
      (d)Number
              
              
              AmountBalance December 31,
      2005
              
              
              1,931,250
              
              
              $
              -Expired during the
      year
              
              
              1,438,750
              
              
              
              -Balance December 31,
      2006
              
              
              492,500
              
              
              
              -Expired during the
      year
              
              
              50,000
              
              
              
              -Balance December 31,
      2007
              
              
              442,500
              
              
              $
              -











F-16





(a)
Share Capital


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).  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.





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




(b)   Stock
Option Plan


The
Company maintains two stock option plans for the benefit of directors, officers
and employees.  Plan A was approved by the security holders and Plan B
was approved by the Board of Directors. Pursuant to an amendment of Plan A, the
maximum number of options that may be granted shall not exceed
11,655,539.  Options under Plan A expire no later than five years from
the date of grant.





As at
December 31, 2007 total options outstanding of 2,255,000 are comprised of
1,335,000 granted under Plan A and 920,000 granted under Plan B.  No
stock options were issued during the years ended December 31, 2007 and
2006.  The following options were granted in 2005:





Black Scholes
      AssumptionsRisk
      free
                Expected
                Expected
                ExpectedGrant
      Date
                Quantity
                Option
      Price
                Expiry
                Fair
      Value
                rate
                life
                volatility
                dividends
                NotesAug-05
                100,000
                $0.30
                Aug-10
                $16,921
                3.55%
                5
      yrs
                88%
                NIL
                (1)




Note
(1): These options were granted where exercise price exceeds market price on
grant date





The
100,000 options issued in 2005 were issued under Plan A.  They vested
immediately and are exercisable until August 2010.













F-17





The
following summarizes options outstanding as at December 31, 2007, 2006 and 2005
and activity for the years then ended:





Option
price
              
              
              Number of
    SharesExpiry date
              
              per share
              
              
              2007
              
              
              2006
              
              
              2005Apr-06
              
              $
              0.50
              
              
              
              
              
              
              
              
              
              1,440,000Jun-07
              
              $
              1.00
              
              
              
              
              
              
              100,000
              
              
              
              100,000May-08
              
              $
              0.50
              
              
              
              785,000
              
              
              
              785,000
              
              
              
              785,000Jan-09
              
              $
              0.50
              
              
              
              100,000
              
              
              
              100,000
              
              
              
              100,000Jun-09
              
              $
              0.115
              
              
              
              1,170,000
              
              
              
              1,630,000
              
              
              
              2,090,000Nov-09
              
              $
              1.00
              
              
              
              100,000
              
              
              
              100,000
              
              
              
              100,000Aug-10
              
              $
              0.30
              
              
              
              100,000
              
              
              
              100,000
              
              
              
              100,0002,255,000
              
              
              
              2,815,000
              
              
              
              4,715,000Weighted average exercise
      price
              
              
              $
              0.29
              
              
              $
              0.28
              
              
              $
              0.34


Number of
      Shares2007
              
              
              2006
              
              
              2005Outstanding, beginning of
      year
              
              
              2,815,000
              
              
              
              4,715,000
              
              
              
              5,075,000Granted
              
              
              
              
              
              
              
              
              
              
              100,000Expired
              
              
              560,000
              
              
              
              (1,440,000
              )
              
              
              -Exercised
              
              
              
              
              
              
              -
              
              
              
              -Forfeited
              
              
              
              
              
              
              (460,000
              )
              
              
              (460,000
              )Cancelled
              
              
              
              
              
              
              -
              
              
              
              -Outstanding, end of
      year
              
              
              3,375,000
              
              
              
              2,815,000
              
              
              
              4,715,000Exercisable, end of
      year
              
              
              1,335,000
              
              
              
              1,435,000
              
              
              
              2,812,500





The
following is a continuity table of the shares options, reflecting the number of
share options issued, the number of options exercisable at the end of the year,
the range of exercise prices and the weighted average option price.




Number of
      Shares
              
              
              Options
      Exercisable
              
              
              Option Prices
              
              
              Avg. PriceOutstanding December 31,
      2005
              
              
              4,715,000
              
              
              
              2,812,500
              
              
              $
              0.115
              
              
              $
              1.00
              
              
              $
              0.34Cancelled
              
              
              (1,900,000
              )
              
              
              0
              
              
              
              0.115
              
              
              
              0.50
              
              
              
              0.41Outstanding December 31,
      2006
              
              
              2,815,000
              
              
              
              1,435,000
              
              
              $
              0.115
              
              
              $
              1.00
              
              
              $
              0.28Cancelled
              
              
              (560,000
              )
              
              
              -
              
              
              $
              0.115
              
              
              $
              1.00
              
              
              $
              0.273Outstanding December 31,
      2007
              
              
              2,255,000
              
              
              
              1,335,000
              
              
              $
              0.115
              
              
              $
              1.00
              
              
              $
              0.29





The
following table describes the weighted average life of the outstanding options
as of December 31, 2007:





RemainingWeightedAverageExercise
              Options
              Contractual
              OptionsPrice
              Outstanding
              Life
(Years)
              Exercisable0.115
              1,170,000
              1.5
              250,0000.300
              100,000
              2.7
              100,0000.500
              885,000
              0.5
              885,0001.000
              100,000
              1.9
              100,0002,255,000
              
              1,335,000








F-18





(c)
Common stock purchase warrants





During
the third quarter of 2006, the terms of the 1,437,500 Common Share purchase
warrants were amended, extending the expiry of these warrants from August 11,
2006 to September 11, 2006.  The incremental fair value determined by
Black Scholes was $4,648 and the fair value assumptions were a risk-free rate of
2.6% an expected life of 30 days, expected volatility of 98% and expected
dividends of NIL. This amount was charged to income as stock-based compensation
expense and credited to contributed surplus. These warrants expired September
11, 2006.





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. The incremental fair value determined by Black Scholes was $69,876 and
the fair value assumptions were a risk-free rate of 2.5% an expected life of one
year, expected volatility of 119% and expected dividends of NIL.  This
amount was charged to income as stock-based compensation expense and credited to
contributed surplus.





(d)
Class A and Class B Warrants





The
Class A and Class B Warrants (the “Warrants”) were issued to investors and a
former preferred shareholder (collectively the “Investors”) as a condition of a
financing in 2004.  The Warrants were designed to provide
anti-dilution protection to the Investors, and were exercisable at prices of
either $0.50 per common share or $1.00 per common share. The exercise of the
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. Currently there are 885,000 of the original 13,025,000 Warrants
remain outstanding, all at $0.50 per common share.  They may be
exercised at various times and in various amounts to the end of January
2009.





10.
            CONTRIBUTED
      SURPLUS





Cumulative
totals of amounts credited to contributed surplus at December 31, 2007 and 2006
are as follows:





2007
              
              
              2006Stock-based
      compensation expense
              
              $
              2,872,676
              
              
              $
              2,872,676Fair
      value of options in connection with acquisition of Scarborough pain
      clinic
              
              
              39,938
              
              
              
              39,938Share
      repurchase - difference between cost per share and assigned
      value
              
              
              46,292
              
              
              
              46,292Fair
      value of warrants and stock options issued in connection with the
      acquisition of YFMC Healthcare Inc.
              
              
              41,775
              
              
              
              41,775Write-off
      of value attributed to share purchase warrants issued in
    1998
              
              
              106,111
              
              
              
              106,111$
              3,106,792
              
              
              $
              3,106,792


11.       FUTURE
INCOME TAXES





The
Company continues to fully recognize its tax benefits which are offset by a
valuation allowance to the extent that, it is not more likely than not that, the
deferred tax assets will be realized. As at December 31, 2007, the Company had
unrecognized tax benefits of approximately $2,000,000 (2006 - $2,528,000)
associated with non-capital losses carried forward and tax pools of
approximately $5,800,000 (2006 - $7,531,000) expiring in varying amounts from
2008 to 2027.  In addition the Company has property, plant and
equipment tax pools in excess of the net book value totaling approximately
$212,000 (2006 - $353,000) available to reduce taxable income and which are not
subject to expiry.





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





The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the years ended
December 31, 2007, 2006 and 2005, there was no such interest or
penalty.








F-19





The
income tax expense included in the statements of operations differs from the
combined Federal and provincial statutory income tax rate as
follows:





2007
              
              
              2006
              
              
              2005Net loss before discontinued
      operations
              
              
              (810,531
              )
              
              $
              (27,429
              )
              
              $
              (969,455
              )Statutory income tax
      rate
              
              
              36.1
              
              
              
              36.1
              
              
              
              36.1Income tax recovery based on statutory
      income tax rate
              
              $
              (293,000
              )
              
              $
              (10,000
              )
              
              $
              (350,000
              )Tax effect of non-deductible items
      and foreign currency translation
              
              
              754,000
              
              
              
              481,000
              
              
              
              150,000Tax effect of income from
      discontinued operations, offset by lossesutilized and not previously
      recorded
              
              
              35,000
              
              
              
              307,000
              
              
              
              41,000Tax effect of rate
      changes
              
              
              19,000
              
              
              
              144,000
              
              
              
              86,000Change in valuation
      allowance
              
              
              (515,000
              )
              
              
              (922,000
              )
              
              
              73,000$
              -
              
              
              $
              -
              
              
              $
              -


The tax
effect of significant temporary differences comprising the company's deferred
taxes as of December 31 is as follows:





2007
              
              
              2006
              
              
              2005Long-term deferred tax
      assetsOperatingloss
      carryforwards
              
              $
              1,943,000
              
              
              $
              2,409,000
              
              
              $
              3,407,000Excess of tax
      basis over book value of property, plant and
    equipment
              
              
              70,000
              
              
              
              119,000
              
              
              
              43,000Total long-term deferred tax
      assets
              
              
              2,013,000
              
              
              
              2,528,000
              
              
              
              3,450,000Less: valuation
      allowance
              
              
              (2,013,000
              )
              
              
              (2,528,000
              )
              
              
              (3,450,000
              )Net deferred tax
      asset
              
              $
              -
              
              
              $
              -
              
              
              $
              -




12.     NET
INCOME (LOSS) PER SHARE (BASIC AND DILUTED) ATTRIBUTABLE TO COMMON
SHAREHOLDERS




Net
income (loss) per share attributable to common shareholders is calculated using
the weighted average number of common shares outstanding during the year.
Diluted income per common share is calculated using the treasury stock method in
accordance with the recommendations of CICA Handbook section
3500.  Had share options and common share purchase warrants been
exercised the effect on the basic loss per share would be
anti-dilutive.





2007
              
              
              2006
              
              
              2005Net income (loss) per common share
      (basic and diluted):Continuing
      operations
              
              $
              (0.014
              )
              
              $
              (0.000
              )
              
              $
              (0.017
              )Discontinued
      operations
              
              $
              0.001
              
              
              $
              0.014
              
              
              $
              0.002


13.    
NOTES TO THE STATEMENTS OF CASH FLOWS





(i)
            Increase
      (decrease) in non-cash working capital
  components





2007
              
              
              2006
              
              
              2005Accounts
      receivable
              
              
              (197,242
              )
              
              $
              (392,852
              )
              
              $
              (579,351
              )Prepaid
      expenses
              
              
              (402,944
              )
              
              
              9,685
              
              
              
              (10,311
              )Accounts payable and accrued
      liabilities
              
              
              47,691
              
              
              
              123,308
              
              
              
              414,739Deferred
      revenues
              
              
              228,147
              
              
              
              -
              
              
              
              -$
              (324,348
              )
              
              $
              (259,859
              )
              
              $
              (174,923
              )





(ii)           Non-cash
transaction





There
were no non-cash transactions during the years ended December 31, 2007, 2006 and
2005.





F-20




14.       COMMITMENTS




The
Company is committed to contractual obligations totaling approximately $4.4
million.  The Company has not engaged in off-balance sheet financing,
commodity contract trading or significant related party transactions.
Contractual obligations are as follows:





2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              Thereafter
              
              
              Obligations3Long-term
      debt1
              
              $
              319,688
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              319,688Operating
      lease obligations
              
              
              1,220,909
              
              
              
              843,874
              
              
              
              774,615
              
              
              
              619,880
              
              
              
              106,684
              
              
              
              -
              
              
              
              3,565,962Notes
      payable2
              
              
              487,025
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              487,025-$
              2,027,622
              
              
              $
              843,874
              
              
              $
              774,615
              
              
              $
              619,880
              
              
              $
              106,684
              
              
              $
              0
              
              
              $
              4,372,675


Notes:





1
            Includes
      estimated interest to maturity on long-term debt at the prescribed rate
      established by the Canada Revenue Agency (CRA), currently set at
      8%.  These interest costs have been waived by CRA in recent
      years.


2
            Includes
      estimated interest to maturity at the rate of 7% on the interest-bearing
      portion of Notes Payable.  Interest is payable in cash or by the
      issuance of common stock, or any combination
  thereof.




15.     
CONTINGENT
LIABILITIES




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





(ii)
            There
      is uncertainty with respect to the Company’s liability arising from a
      contractual dispute with a third party.  The potential costs to
      the Company associated with this dispute range from $nil to $1.5
      million.  The Company is of the view that it is not probable
      that the Company will be found liable for these costs. No amount has been
      provided in these consolidated financial
  statements.





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





(iv)
            The
      Company sub-leased certain premises to third parties when it disposed of
      its clinic operations. In case of payment defaults by the third parties,
      the Company could be held liable for rent on these premises. Rent for
      these premises over the next four years, during the respective lease
      terms, totals $810,000.





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





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





16.       FINANCIAL
INSTRUMENTS





FAIR
VALUE


The
carrying value of cash and cash equivalents, accounts receivable and accounts
payable and accrued liabilities approximate their fair value due to the
short-term maturity of these items.  The carrying value of long-term
debt approximates fair value as the instruments’ interest rates are comparable
to rates currently offered for debt instruments of similar risk and
maturities.








F-21





CREDIT
RISK


The
company is exposed to credit risk on the accounts receivable from its customers.
In order to reduce its credit risk, the company has adopted credit policies
which include regular review of their credit limits.





17.        CANADIAN
AND UNITED STATES ACCOUNTING POLICY DIFFERENCES





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





Reconciliation
of Net Earnings Under Canadian GAAP to US GAAP





2007
              
              
              2006
              
              
              2005Net income (loss) - Canadian
      GAAP
              
              $
              (712,571
              )
              
              $
              823,711
              
              
              $
              (856,557
              )Impact of accretion expense (Note
      17(a))
              
              
              101,342
              
              
              
              48,124
              
              
              
              -Interest expense on financial liability
      carried at amortized cost (Note 17(e))
              
              
              15,723
              
              
              
              -
              
              
              
              -Net income (loss) - U.S.
      GAAP
              
              
              (595,506
              )
              
              
              871,835
              
              
              
              (856,557
              )





Consolidated
Statement of Earnings - U.S. GAAP





2007
              
              
              2006
              
              
              2005Revenue
              
              $
              21,668,567
              
              
              $
              17,716,778
              
              
              $
              13,785,449Physician fees and other
      direct
      costs
              
              
              15,189,341
              
              
              
              12,774,491
              
              
              
              10,292,9666,479,226
              
              
              
              4,942,287
              
              
              
              3,492,483ExpensesSalaries and
      benefits
              
              
              3,881,514
              
              
              
              2,795,130
              
              
              
              2,229,625General and
      administration
              
              
              1,817,157
              
              
              
              1,267,709
              
              
              
              909,397Occupancy costs
      and supplies
              
              
              778,438
              
              
              
              459,608
              
              
              
              407,134Travel and
      marketing
              
              
              381,273
              
              
              
              261,244
              
              
              
              239,6216,858,382
              
              
              
              4,783,691
              
              
              
              3,785,777Income/(loss) before undernoted
      items
              
              
              (379,156
              )
              
              
              158,596
              
              
              
              (293,294
              )Interest
      (income) expense, net of bank charges
              
              
              (84,822
              )
              
              
              (60,710
              )
              
              
              19,868Interest on
      long-term debt
              
              
              21,988
              
              
              
              19,886
              
              
              
              41,999Amortization of
      property, plant, and equipment
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413Settlement of
      Long Term Loan Payable
              
              
              -
              
              
              
              (146,387
              )Stock-based
      compensation expense
              
              
              -
              
              
              
              93,391
              
              
              
              370,881314,310
              
              
              
              137,901
              
              
              
              676,161-
              
              
              
              -Loss before discontinued
      operations
              
              
              (693,466
              )
              
              
              20,695
              
              
              
              (969,455
              )Net income from discontinued
      operations
              
              
              97,960
              
              
              
              851,140
              
              
              
              112,898Net income (loss) attributable to
      common shareholders - U.S. GAAP
              
              $
              (595,506
              )
              
              $
              871,835
              
              
              $
              (856,557
              )Net income (loss) per share, basic
      and diluted - U.S. GAAPContinuing
      operations
              
              $
              (0.012
              )
              
              $
              0.000
              
              
              $
              (0.017
              )Discontinued
      operations
              
              $
              0.002
              
              
              $
              0.015
              
              
              $
              0.002No. of shares
      outstanding
              
              
              58,277,696
              
              
              
              58,277,696
              
              
              
              58,277,696





F-22







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




2007
              
              
              2006
              
              
              2005Net income (loss) - U.S.
      GAAP
              
              
              (595,506
              )
              
              
              871,835
              
              
              
              (856,557
              )Foreign currency translation
      adjustment
              
              
              615,050
              
              
              
              (140,141
              )
              
              
              7,904Comprehensive income
      (loss)
              
              $
              19,544
              
              
              $
              731,694
              
              
              $
              (848,653
              )Consolidated Statement of
      Accumulated Other
      Comprehensive Income (loss) - U.S. GAAPAccumulated other comprehensive
      loss, beginning of year
              
              
              (933,029
              )
              
              $
              (792,888
              )
              
              $
              (800,792
              )Other comprehensive income
      (loss)
              
              
              615,050
              
              
              
              (140,141
              )
              
              
              7,904Accumulated other comprehensive loss, end of
      year
              
              $
              (317,979
              )
              
              $
              (933,029
              )
              
              $
              (792,888
              )





Consolidated
Balance Sheets





2007
              
              
              2006As reported
              
              
              U.S. GAAP
              
              
              As reported
              
              
              U.S. GAAPCurrent
    assetsCash
              
              $
              2,291,005
              
              
              $
              2,291,005
              
              
              $
              4,028,128
              
              
              $
              4,028,128Accounts
      receivable
              
              
              3,149,967
              
              
              
              3,149,967
              
              
              
              2,497,610
              
              
              
              2,497,610Prepaid
      expenses and other
              
              
              525,978
              
              
              
              525,978
              
              
              
              76,045
              
              
              
              76,045Discontinued
      operations
              
              
              -
              
              
              
              -
              
              
              
              463,870
              
              
              
              463,8705,966,950
              
              
              
              5,966,950
              
              
              
              7,065,653
              
              
              
              7,065,653Property, plant and
      equipment
              
              
              1,314,849
              
              
              
              1,314,849
              
              
              
              597,543
              
              
              
              597,543Goodwill
              
              
              237,596
              
              
              
              237,596
              
              
              
              237,596
              
              
              
              237,596Other intangible
      assets
              
              
              9,152
              
              
              
              9,152
              
              
              
              -
              
              
              
              -$
              7,528,547
              
              
              $
              7,528,546
              
              
              $
              7,900,792
              
              
              $
              7,900,792LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilitiesAccounts
      payable and accruedliabilities (Note
      17(e))
              
              $
              2,506,416
              
              
              $
              2,507,665
              
              
              $
              2,084,030
              
              
              $
              2,084,030Deferred
      revenue
              
              
              247,189
              
              
              
              247,189
              
              
              
              -
              
              
              
              -Current portion
      of long-term debt
              
              
              445,026
              
              
              
              445,026
              
              
              
              189,031
              
              
              
              189,031Discontinued
      operations
              
              
              296,007
              
              
              
              296,007
              
              
              
              880,373
              
              
              
              880,3733,494,638
              
              
              
              3,495,887
              
              
              
              3,153,434
              
              
              
              3,153,434Long-term
      liabilitiesLong-term
      debt
              
              
              -
              
              
              
              -
              
              
              
              453,369
              
              
              
              453,369Discontinued
      operations
              
              
              -
              
              
              
              -
              
              
              
              280,873
              
              
              
              280,873Redeemable,
      convertible Series I Special shares (Note 17(a))
              
              
              3,153,689
              
              
              
              -
              
              
              
              2,589,159
              
              
              
              -3,153,689
              
              
              
              -
              
              
              
              3,323,401
              
              
              
              734,2426,648,327
              
              
              
              3,495,887
              
              
              
              6,476,835
              
              
              
              3,887,676Series 1 Special Shares (Note
      17(a))
              
              
              -
              
              
              
              3,106,475
              
              
              
              -
              
              
              
              3,106,475SHAREHOLDERS'
      EQUITYCapital stock
      (Notes 17 (a, b, c))
              
              
              16,420,668
              
              
              
              16,990,091
              
              
              
              16,420,668
              
              
              
              16,990,091Contributed
      surplus (Note 17 ( c))
              
              
              3,106,792
              
              
              
              3,143,198
              
              
              
              3,106,792
              
              
              
              3,143,198Deficit (Notes
      17 (a, b, e))
              
              
              (17,949,550
              )
              
              
              (18,889,125
              )
              
              
              (17,253,951
              )
              
              
              (18,293,619
              )Accumulated
      other comprehensive income (Note 17 (f))
              
              
              (697,690
              )
              
              
              (317,979
              )
              
              
              (849,552
              )
              
              
              (933,029
              )880,220
              
              
              
              926,185
              
              
              
              1,423,957
              
              
              
              906,641$
              7,528,547
              
              
              $
              7,528,546
              
              
              $
              7,900,792
              
              
              $
              7,900,792








F-23





Consolidated
Statements of Cash Flows





2007
              
              
              2006
              
              
              2005Operating
      activitiesNet income/(loss) before
      discontinued operations
              
              $
              (693,466
              )
              
              $
              20,695
              
              
              $
              (969,455
              )Adjustments
      for:Amortization of
      property, plant and
      equipment
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413Non-cash gain
      on renegotiation of notes payable
              
              
              -
              
              
              
              (146,387
              )
              
              
              -Stock
      compensation expense
              
              
              -
              
              
              
              93,391
              
              
              
              370,880(316,322
              )
              
              
              199,420
              
              
              
              (355,162
              )Decrease in
      non-cash working capital components
              
              
              (324,348
              )
              
              
              (259,859
              )
              
              
              (174,923
              )Discontinued
      operations
              
              
              (385,530
              )
              
              
              797,075
              
              
              
              (946,239
              )(1,026,200
              )
              
              
              736,636
              
              
              
              (1,476,324
              )Cash Flows from (used in)
      Investing ActivitiesAdditions to
      property, plant, and equipment
              
              
              (942,328
              )
              
              
              (419,344
              )
              
              
              (183,089
              )Additions to
      other intangible assets
              
              
              (8,446
              )
              
              
              -
              
              
              
              -Discontinued
      operations (Note 4)
              
              
              -
              
              
              
              -
              
              
              
              300(950,774
              )
              
              
              (419,344
              )
              
              
              (182,789
              )Cash Flows from (used in)
      Financing ActivitiesIssuance of
      redeemable, convertible Series 1 Shares
              
              
              -
              
              
              
              3,106,554
              
              
              
              -Repayment of
      long-term debt
              
              
              (193,375
              )
              
              
              -
              
              
              
              -(193,375
              )
              
              
              3,106,554
              
              
              
              -Effect of foreign currency
      exchange rate changes on cash andcash
      equivalents
              
              
              433,226
              
              
              
              (56,665
              )
              
              
              7,904Increase (decrease) in cash and
      cash equivalents
              
              
              (1,737,123
              )
              
              
              3,367,181
              
              
              
              (1,651,209
              )Cash and cash equivalents,
      beginning of theyear
              
              
              4,028,128
              
              
              
              660,947
              
              
              
              2,312,156Cash and cash equivalents, end of
      the year
              
              $
              2,291,005
              
              
              $
              4,028,128
              
              
              $
              660,947





(a)
Redeemable, convertible Series 1 Special Shares





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





As a
result of accounting for the Series 1 Shares as a compound financial instrument
under Canadian GAAP, the liability component is accreted to the face value of
the shares over the five year period to maturity.  As the Series 1
Shares are not a liability for U.S. GAAP purposes the accretion expense charged
to net income for the period under Canadian GAAP is reversed for U.S. GAAP
purposes.  Furthermore, since under U.S. GAAP the Series 1 Shares are
“quasi-equity” the face value is adjusted to the initial U.S. dollar value on
issuance and the foreign currency translation adjustment recorded under Canadian
GAAP relating to the liability component is reversed for U.S. GAAP
purposes.





F-24





The
reconciliation of Canadian to U.S. GAAP for the Series 1 Shares is as
follows:




2007
              
              
              2006Liability portion of redeemable,
      convertible Series 1 Shares - Canadian
              
              $
              3,153,689
              
              
              $
              2,589,159Impact of accretion
      expense
              
              
              (149,546
              )
              
              
              (48,204
              )Equity portion of redeemable,
      convertible Series 1 Shares
              
              
              482,043
              
              
              
              482,043Translation adjustment
      attributable to Series 1 Shares
              
              
              (379,711
              )
              
              
              83,477Series 1 Shares - U.S.
      GAAP
              
              $
              3,106,475
              
              
              $
              3,106,475





(b)
Share capital and goodwill





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





(c)
Stock purchase warrants





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





(d)  Accounting for income taxes





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





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





(e)  Financial instruments - recognition and
measurement





On
January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
and Measurement”. It describes the standards for recognizing and measuring
financial instruments in the balance sheet and the standards for reporting gains
and losses in the financial statements. Financial assets available for sale,
assets and liabilities held for trading and derivative financial instruments,
whether part of a hedging relationship or not, have to be measured at fair
value.  The adoption of this Section was done retroactively without
restatement of the consolidated financial statements of prior periods. As at
January 1, 2007, the impact on the consolidated balance sheet of measuring the
financial assets and liabilities using the effective interest rate method was a
decrease in accounts payable and opening deficit of $16,972, of which $15,724
was amortized to earnings during the year.  U.S. GAAP does not require
a similar measurement of financial instruments.








F-25





(f)  Comprehensive
loss





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





The
effect of these accounting differences on capital stock, contributed surplus,
deficit, cumulative translation adjustment, net income (loss) are as
follows:





2007
                
                
                2006Capital stock - Canadian
      GAAP
                
                $
                16,420,668
                
                
                $
                16,420,668Capital stock issued on purchase
      of YFMC Healthcare Inc. (Note 17(b))
                
                
                1,087,872
                
                
                
                1,087,872Ascribed fair value of share
      purchase warrants issued (Note 17( c ))
                
                
                (36,406
                )
                
                
                (36,406
                )Equity portion of redeemable
      Series I Shares (Note 17(a))
                
                
                (482,043
                )
                
                
                (482,043
                )Capital stock - U.S.
      GAAP
                
                $
                16,990,091
                
                
                $
                16,990,091Contributed surplus - Canadian
      GAAP
                
                $
                3,106,792
                
                
                $
                3,106,792Share purchase warrants (Note 17(
      c ))
                
                
                36,406
                
                
                
                36,406Contributed surplus - U.S.
      GAAP
                
                $
                3,143,198
                
                
                $
                3,143,198Deficit - Canadian
      GAAP
                
                $
                (17,949,550
                )
                
                $
                (17,253,951
                )Write-off of goodwill on purchase
      of YFMC Healthcare Inc. (Note 17(b))
                
                
                (1,087,872
                )
                
                
                (1,087,872
                )Impact of accretion expense (Note
      17(a))
                
                
                149,546
                
                
                
                48,204Financial instruments -
      recognition and measurement (Note 17 (e))
                
                
                (16,972
                )
                
                
                -Interest expense on financial
      liability carried at amortized cost (Note 17 (a))
                
                
                15,724
                
                
                
                -Deficit - U.S.
      GAAP
                
                $
                (18,889,125
                )
                
                $
                (18,293,619
                )Cumulative translation adjustment
      - Canadian GAAP
                
                $
                (697,690
                )
                
                $
                (849,552
                )Translation adjustment
      attributable to Series I Shares (Note 17(a))
                
                
                379,711
                
                
                
                (83,477
                )Cumulative translation adjustment
      - U.S. GAAP
                
                $
                (317,979
                )
                
                $
                (933,029
                )Shareholders' equity - U.S.
      GAAP
                
                $
                926,185
                
                
                $
                906,641





(g)  Recently
issued accounting standards


i.
            In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.”  This standard
      provides companies with an option to report selected financial assets and
      liabilities at fair value.  The Standard’s objective is to reduce
      both complexity in accounting for financial instruments and the volatility
      in earnings caused by measuring related assets and liabilities
      differently. This standard also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that
      choose different measurement attributes for similar types of assets and
      liabilities.  This Statement is effective as of the beginning of
      an entity’s first fiscal year beginning after November 15,
      2007.  The Company is currently evaluating the potential impact
      of this statement on its consolidated financial
  statements.





ii.
            In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
      which is effective for fiscal years beginning after November 15, 2007 and
      for interim periods within those years. This statement defines fair value,
      establishes a framework for measuring fair value and expands the related
      disclosure requirements. The Company is currently evaluating the potential
      impact of this statement on its consolidated financial
      statements.




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






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





18.       SEGMENTED
INFORMATION





The
Company operated under four business units during 2007 as follows: Staffing
Solutions, Pain Management Services, Infusion Services, and Healthcare
Consulting Services.





The
segmented information for the business units are as follows:





2007
              
              
              2006
              
              
              2005RevenueStaffing
      solutions
              
              $
              10,048,614
              
              
              $
              10,708,540
              
              
              $
              9,284,794Pain management
      services
              
              
              6,568,252
              
              
              
              3,197,782
              
              
              
              1,563,729Infusion
      services
              
              
              4,308,794
              
              
              
              2,700,101
              
              
              
              1,805,234Healthcare
      consulting
              
              
              742,907
              
              
              
              1,110,355
              
              
              
              1,131,69221,668,567
              
              
              
              17,716,778
              
              
              
              13,785,449Divisional income (loss) before
      the undernotedStaffing
      solutions
              
              
              130,837
              
              
              
              310,975
              
              
              
              26,662Pain management
      services
              
              
              (1,145,199
              )
              
              
              (491,683
              )
              
              
              (347,213
              )Infusion
      services
              
              
              1,094,900
              
              
              
              486,713
              
              
              
              47,331Healthcare
      consulting
              
              
              (459,694
              )
              
              
              (147,409
              )
              
              
              (20,074
              )(379,156
              )
              
              
              158,596
              
              
              
              (293,294
              )Interest income, net of bank
      charges
              
              
              (84,822
              )
              
              
              (60,711
              )
              
              
              19,868Interest on long-term
      debt
              
              
              123,330
              
              
              
              68,011
              
              
              
              41,999Amortization of property, plant
      and equipment
              
              
              377,144
              
              
              
              231,721
              
              
              
              243,413Interest expense on financial
      liability carried at
              
              
              15,723
              
              
              
              -
              
              
              
              -Settlement of Long Term Loan
      Payable
              
              
              -
              
              
              
              (146,387
              )
              
              
              -Stock based compensation
      expenses
              
              
              -
              
              
              
              93,391
              
              
              
              370,881431,375
              
              
              
              186,025
              
              
              
              676,161Loss from continuing
      operations
              
              $
              (810,531
              )
              
              $
              (27,429
              )
              
              $
              (969,455
              )





19.  ECONOMIC
DEPENDENCE





The
Company derived approximately 20% of its revenue for the year ended December 31,
2007 (15% - 2006; 13% - 2005) from services provided under its contract with
Schering and as such is subject to concentration risk associated with the
continuation of its contract with Schering.




20.  RELATED PARTY
TRANSACTIONS





There
were no fees paid to related parties during 2007.  During 2006,
included in general and administrative expenses are administrative fees totaling
$31,743 (2005 - $24,765) paid to a Company controlled by a
director.  There are no related party balances outstanding at December
31, 2007 and 2006.  These transactions have been recorded at their
exchange amount which is the amount agreed to by the related
parties.




22.  COMPARATIVE
FIGURES
  Certain
figures in the 2006 and 2005 consolidated financial statements have been
reclassified to conform with the basis of presentation in 2007.






F-27