**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, 2006  o
            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


REDEEMABLE
      COMMON
      SHARE PURCHASE WARRANTS





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
      or a
      non-accelerated filed See definition of “accelerated filer” and “large
      accelerated filer” in Rule 12b-2 of the Exchange Act.





Large
      accelerated
      filer o   Accelerated
      filer o Non-accelerated
      filer  x




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




As
      of April 16, 2007, 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 $3,328,822 million based on
      the
      last reported sale price of $0.105 per share on April 16, 2007 as quoted on
      the
      OTC Bulletin Board.



















**MED-EMERG
      INTERNATIONAL INC.**





PART
                I
            **4**ITEM
                1:
                BUSINESS
            4ITEM
                1A: RISK
                FACTORS
            10ITEM
                3: LEGAL
                PROCEEDINGS
            16ITEM
                4:
                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            16PART
                II
            **17**ITEM
                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
                OF
                OPERATIONS.
            20ITEM
                7A:
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            30ITEM
                8:
                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
            30ITEM
                9: CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            30FINANCIAL
                DISCLOSURE
            30ITEM
                9A:
                CONTROLS AND PROCEDURES
            30PART
                III
            **30**ITEM
                10:
                DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
            31**Notes:**
            **33**ITEM
                11:
                EXECUTIVE COMPENSATION
            34ITEM
                12:
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT
            40**Equity
                Compensation Plan Information**
            **42**ITEM
                13:
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            42ITEM
                14:
                PRINCIPAL ACCOUNTANT FEES AND SERVICES
            42PART
                IV
            **43**Item
                15.   Exhibits and Financial Statement Schedules
            43





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 (“MEII” 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 medical services and
      healthcare consulting to a variety of governments, communities and facilities
      across Canada.





The
      Company’s
      operations are comprised of three business units: Staffing Solutions, Medical
      Services and Healthcare Consulting Services. In 2006, 60% of the Company’s
      revenue was generated by the Staffing Solutions unit; 33% by the Medical
      Services unit; and 7% by the Healthcare Consulting unit. From a Gross Margin
      perspective, the contribution was 37%, 49% and 14%, 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.





MEII’s
      Medical
      Services include chronic pain management and intravenous infusion services
      for
      pharmaceutical companies in conveniently located community-based clinics.





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





MEII
      was founded in
      1983 and is incorporated under the Business Corporation Act (Ontario).





*STAFFING
      SOLUTIONS*




MEII
      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, MEII 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,
      MEII introduced a healthcare model combining Primary Care Physicians with
      Primary Care Nurse Practitioners. This was the first time a nurse practitioner
      function was introduced into a mental health setting. The program, now in its
      tenth 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 MEII a similar contract for primary care services. In 2004, the Company
      introduced Primary Health Care Nurse Practitioners to its mix of healthcare
      providers in community-based hospitals.




In
      September 2006
      the Company recruited 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, MEII developed and hosted
      training sessions designed to re-introduce family physicians to the ER. The
      program was




4




well
      received and
      it is anticipated that future training sessions will ensue in 2007. 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 MEII 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 MEII. Also, some physicians
      take advantage of out-of-town assignments by booking vacations close to
      hospitals in resort communities.




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




*MEDICAL
      SERVICES*




MEII
      provides
      innovative medical services directly to healthcare consumers.




*Infusion
      Services*





In
      March 2001, MEII
      entered into an agreement with Schering Canada Inc. to become a coordinator
      for
      the community-based infusion of the medication known as RemicadeTM.  This
      contract capitalizes on the Company's access to clinics for the treatment of
      patients with various inflammatory disorders, including rheumatoid arthritis
      and
      Crohn's disease. The Company delivered more than 10,100 infusions in 2006.





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





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





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 insure the medicine. Historically, more than 85% of infusions
      have related to Crohn’s disease and rheumatoid arthritis. Total infusions grew
      by 39% in 2006, growth for the two key indications was less than 8% in the
      year.
      The Company expects growth related to RemicadeTM to level off unless additional
      indications are approved by Health Canada.





The
      Company
      continues to look for additional products to offer through its infusion clinics
      and the opportunity to open clinics in new locations. In January 2007 the
      Company opened six new clinic locations.





5




*Pain
      Management
      Services*





MEII’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. A second location, in downtown Toronto, was opened
      in
      December 2004, two more locations were opened in 2005, in Hamilton and
      Mississauga and a fifth one in Oakville, Ontario opened in 2006.





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





In
      August of 2005,
      Dr. Roman Jovey, the President of the Canadian Pain Society, joined CPM as
      its
      Medical Director. Over the last 15 years, Dr. Jovey has developed an
      international reputation in the field of chronic, non-cancer pain, using
      pharmacotherapy. In addition to maintaining a private practice, Dr. Jovey also
      consults with the pharmaceutical industry and educational institutions on
      medical educational programs related to pain. He is also a medico-legal expert
      for the Canadian Medical Protective Association on cases related to opioids,
      pain and addiction. In his capacity as Medical Director, Dr. Jovey oversees
      the
      clinical aspects of CPM and assists in the training of new
      physicians.





The
      Company intends
      to increase the number of physicians available to treat those suffering from
      chronic pain and thereby improve service availability to a healthcare sector
      that is plagued by long wait times. The Company has developed and launched
      a
      training program specifically designed to educate emergency room physicians
      in
      chronic pain management.





The
      clinic that CPM
      acquired in November 2004 increased patient visits from approximately 300
      patients per month to more than 700 patients per month during 2006;
      year-over-year, CPM more than doubled its patient visits from approximately
      8,000 patients in 2005 to 16,300 in 2006.





Plans
      are underway
      to further increase capacity in 2007 by training more doctors and by opening
      additional clinic locations. During the first quarter of 2007, new clinics
      have
      been opened in Oshawa, Ottawa and London, Ontario.





*Family
      Medical
      Clinics*




In
      January 2005,
      the Company resumed operation of a family medical clinic in Wallaceburg, Ontario
      that it had sold in 2003, after the purchaser failed to achieve certain earnings
      targets. In November 2005, the Company resumed operation of a second clinic
      in
      Calgary, Alberta, when the buyer defaulted on certain payment obligations.
      The
      Company has entered into arrangements to dispose of its family medical clinics.
      For 2006 these operations have been reported as discontinued
      operations.




*HEALTHCARE
      CONSULTING*




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





In
      2006 the Company
      provided services to the Ministry of Health and Long-Term Care, Ontario, in
      regards to pandemic planning and the use of nurse practitioners and physicians’
assistants in an ER setting; developed and designed nine business plans with
      respect to Family Health Teams across Ontario; and assisted the Ministry of
      Health, Nova Scotia in researching the use of international medical graduates.





Similar
      opportunities are being explored both across Canada and internationally.





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





6




*DISCONTINUED
      OPERATIONS*




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




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





In
      January 2005 the
      Company filed a Cdn$100,000,000 lawsuit against the winning bidder and a former
      employee of the Company.  This action was settled on July 11, 2006, as
      described 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. The
      Company has entered into arrangements to dispose of its family medical clinics.
      For 2006 these operations have been reported as discontinued
      operations.





**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





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.


7




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
      4
      million Canadians, or about 12% of the population, do not have a family
      physician 4  .
      Consequently,
      emergency rooms are crowded with patients who would otherwise be seen by a
      general practitioner (GP). The increased burden on emergency rooms increases
      the
      staffing requirements of these units.





*MEDICAL
      SERVICES*





*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.








*Pain
      Management
      Services*


In
      2001, the
      European Federation of the International Association for the Study of Pain
      Chapters **** declared
      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.





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 GPs 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 staggering. 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


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*.
 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.




8




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 months 9  .
      The further one
      travels from the Greater Toronto Area, the longer the wait times are.





*HEALTHCARE
      CONSULTING*





The
      demographic
      challenges described under STAFFING SOLUTIONS, above, 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   T he
      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 2035 11 .
      Such a situation
      is unworkable.





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





FACTORS
      AFFECTING
      MEII’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.


9Peng, 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.




9




*COMPETITION*




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


•
            Staffing
                Solutions: Third party staffing agencies (nursing); small groups
                of
                physicians that provide competitive services to local hospitals
                (physicians)


•
            Medical
                Services: Public hospitals; homecare agencies; and physician practice
                management companies


•
            Healthcare
                Consulting: Independent consulting
                companies.





**EMPLOYEES**




As
      of December 31,
      2006, the Company had 109 active full and part-time employees, 19 were employed
      in administration, 17 were involved in staffing solutions, 68 were active in
      medical services, and five 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 which provide services to clients of the
      Company.





ITEM
      1A: RISK
      FACTORS





MEII’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 profit under Canadian generally accepted accounting principles
      (“CAN GAAP”) attributable to common shareholders of $823,711 (on revenues of
      $17,716,778) during the year ended December 31, 2006, as compared to a CAN
      GAAP
      net loss of $856,557 (on revenues of $13,785,449) during the year ended December
      31, 2005. As of December 31, 2006, the Company had an accumulated shareholders’
equity balance of $1,423,957. 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.**





The
      Company
      anticipates a period of significant growth, which it expects to 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 Canada Inc.**





We
      derive a
      significant portion of our revenues from a contract with Schering 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. Our contract, which was most recently renewed
      on July 1, 2005, is a renewable three year contract, which expires on June
      30,
      2008. 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
      1,000 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 our business.





10




**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 which 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.





**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




11




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 our newly
      designated Series I Shares grant to Calian rights that could enable Calian
      to
      control or influence our actions in a manner that conflicts with our interests
      and the interests of our stockholders.**





Calian
      Technologies
      Ltd. (“Calian”) currently holds 8,750,000 shares of our 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 our
      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 our
      Board of Directors or, in lieu thereof, an observer. While our Board of
      Directors is entitled to exclude Calian’s board designee or observer from
      participating in board meetings under specified conditions, with regard to
      Calian’s status as a competitor of ours, 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
      us. In addition, as a major stockholder, Calian currently is able to exercise
      significant influence over matters requiring the approval of our stockholders,
      including the election of directors and the sale of our company. Such a
      concentration of ownership may also have the effect of delaying or preventing
      a
      change in control of our company, including transactions in which our
      stockholders might otherwise receive a premium for their shares over then
      current market prices. Any of these facts could decrease the market price of
      our
      Common Shares.





**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, Dr. Roman Jovey its Program
      Medical Director for CPM Health Centres Inc. and Maddie Walker, its Director
      of
      Operations for CPM Health Centres. If the Company lost the services of any
      of
      Dr. Zacharias, Mr. Danis, Dr. Ross or Ms. Walker, 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 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 54.4% of the voting power of its capital stock. As a result,
      they
      will be 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 our 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




12




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 1% 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, 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 our 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.





**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 is currently planning the documentation and
      testing of its internal control systems and procedures and considering
      improvements that may be necessary in order for it to comply with the
      requirements of Section 404 by the end of 2007. This process will require the
      Company to hire additional personnel and outside advisory services and will
      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 completing the review and evaluation, 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 our 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




13




Company
      also
      competes with various local physician groups which provide hospitals with
      emergency staffing alternatives.





**Risk
      related to investment in a Canadian corporation.**





MEII
      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 UK. 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 *,* 2006, 2005 and
      2004. 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.





**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 our 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




14




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 without shareholder approval, to
      issue an unlimited number of common shares for any purpose without 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.





**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.





15


**ITEM
      2:
      PROPERTIES**




The
      Company does
      not own any real property. Our principal leases, as of December 31, 2006, are
      listed below:


**Monthly****Square**
            
            
            **Rent****Location**
            
            
            **Function**
            
            
            **Feet**
            
            
            **(Cdn$**
            **)**
            
            **Lease
                Expiration**Mississauga,
                Ontario
            
            
            Head
                office and clinical services
            
            
            8,940
            
            
            17,129
            
            
            December
                31, 2007London,
                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, 2012Calgary,
                Alberta
            
            
            Clinical
                services
            
            
            6,417
            
            
            10,200
            
            
            February
                28, 2009Hamilton,
                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, 2011





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 MEII as a defendant. The plaintiff claims
      unspecified damages for wrongful dismissal and breach of contract. In June
      2003,
      DND instructed MEII to remove the plaintiff from its premises. MEII 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.





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





The
      Company held
      its Annual General Meeting on October 16, 2006. 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-Votes**Ramesh
                Zacharias
            9,709,092
            3,913,038
            NilMichael
                Sinclair
            9,709,092
            3,913,038
            NilManfred
                Walt
            9,709,092
            3,913,038
            NilJacob
                (Koby)
                Ofek
            9,709,092
            3,913,038
            NilMajor
                General
                Lewis MacKenzie
            9,709,092
            3,913,038
            NilJohn
                Yarnell
            9,709,092
            3,913,038
            NilSidney
                Braun
            9,709,092
            3,913,038
            Nil





Voting
      with respect
      to the ratification of the appointment of Grant Thornton LLP was as follows:
      13,610,280 votes for; 11,850 votes against; 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 30, 2007 was $.13 per
      share.





**COMMON
                SHARES****HIGH**
            **LOW**Fourth
                Quarter, 2006
            $.15
            $.10Third
                Quarter, 2006
            $.29
            $.10Second
                Quarter, 2006
            $.30
            $.20First
                Quarter, 2006
            $.60
            $.35Fourth
                Quarter, 2005
            $.24
            $.13Third
                Quarter, 2005
            $.33
            $.17Second
                Quarter, 2005
            $.40
            $.25First
                Quarter, 2005
            $.60
            $.35





The
      number of
      record holders of the Company’s common shares on March 31, 2007 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,****2006(1**
            **)**
            
            **2005(1)(2**
            **)**
            
            **2004(1)(2**
            **)**
            
            **2003(1)(2**
            **)**
            
            **2002(1)(2**
            **)****Statement
                of Operations Data:**Revenue
            
            
            17,716,778
            
            
            13,785,449
            
            
            9,496,569
            
            
            14,254,652
            
            
            6,092,200Physician
                fees
                and other direct costs
            
            
            12,774,491
            
            
            10,292,966
            
            
            7,271,148
            
            
            11,494,170
            
            
            4,929,138Gross
                margin
            
            
            4,942,287
            
            
            3,492,483
            
            
            2,225,421
            
            
            2,760,482
            
            
            1,163,062Operating
                expenses before undernoted items
            
            
            4,783,691
            
            
            3,785,778
            
            
            3,601,423
            
            
            2,884,206
            
            
            1,808,498Depreciation
                and amortization
            
            
            231,721
            
            
            243,413
            
            
            134,238
            
            
            52,851
            
            
            52,453Other
                expenses
            
            
            100,691
            
            
            432,747
            
            
            865,939
            
            
            1,274,217
            
            
            416,667Loss
                before
                income taxes
            
            
            (27,429
            )
            
            (969,455
            )
            
            (2,318,552
            )
            
            (1,450,792
            )
            
            (1,114,526
            )Income
                taxes
                (recovery)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,458
            )
            
            -Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,094
            )
            
            (2,211
            )Income
                (loss)
                on discontinued operations
            
            
            851,140
            
            
            112,898
            
            
            977,348
            
            
            (128,410
            )
            
            508,651Net
                income
                (loss) - Canadian GAAP
            
            
            823,711
            
            
            (856,557
            )
            
            (1,341,205
            )
            
            (1,574,650
            )
            
            (603,664
            )Net
                income
                (loss) - US GAAP
            
            
            871,835
            
            
            (856,557
            )
            
            (1341,205
            )
            
            (1,574,650
            )
            
            (603,664
            )Preferred
                share
                dividends
            
            
            -
            
            
            -
            
            
            (34,173
            )
            
            (135,006
            )
            
            (134,983
            )Forgiveness
                of
                preferred share dividends
            
            
            -
            
            
            -
            
            
            579,582
            
            
            -
            
            
            -Net
                income
                (loss) attributable to common shareholders - Canadian GAAP
            
            
            823,711
            
            
            (856,557
            )
            
            (795,796
            )
            
            (1,709,656
            )
            
            (738,647
            )Net
                income
                (loss) attributable to common shareholders - US GAAP
            
            
            871,835
            
            
            (856,557
            )
            
            (631,169
            )
            
            (2,267,543
            )
            
            (754,197
            )Net
                income
                (loss) per common share (basicand
                diluted)
                (3)Continuing
                operations
            
            
            0.00
            
            
            (0.02
            )
            
            (0.05
            )
            
            (0.17
            )
            
            (0.08
            )Discontinued
                operations
            
            
            0.01
            
            
            0.00
            
            
            0.03
            
            
            (0.01
            )
            
            0.05**Balance
                Sheet Data:**Working
                Capital
                Surplus (deficiency)
            
            
            3,912,219
            
            
            (56,542
            )
            
            1,224,127
            
            
            (3,169,692
            )
            
            (2,329,525
            )Total
                Assets
            
            
            7,900,792
            
            
            4,618,106
            
            
            7,322,027
            
            
            4,044,225
            
            
            3,641,207Long-term
                debt
            
            
            453,369
            
            
            599,991
            
            
            599,991
            
            
            599,991
            
            
            590,536Shareholders'
                equity (deficiency)-Canadian GAAP
            
            
            1,423,957
            
            
            81,477
            
            
            559,249
            
            
            (3,448,142
            )
            
            (2,341,861
            )Shareholders'
                equity (deficiency) - US GAAP
            
            
            906,562
            
            
            81,477
            
            
            559,849
            
            
            (3,448,142
            )
            
            (2,341,861
            )Year
                end US$
                exchange rate (equivalent to 1Cdn$)
            
            
            0.86
            
            
            0.86
            
            
            0.83
            
            
            0.77
            
            
            0.63Average
                US$
                exchange rate (equivalent to 1Cdn$)
            
            
            0.88
            
            
            0.83
            
            
            0.77
            
            
            0.71
            
            
            0.64Range
                of high
                and low rates (equivalent to 1Cdn$)
            
            
            0.85
                to 0.91
            
            
            0.79
                to 0.87
            
            
            0.71
                to 0.85
            
            
            0.63
                to 0.78
            
            
            0.62
                to 0.67




(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, 2003, 2002 and 2001.


(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 from 2002 to 2005. See Note 18(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.








18





**SUPPLEMENTARY
        FINANCIAL INFORMATION**QUARTERLY FINANCIAL DATA
        (UNAUDITED)
  **4TH
                  QUARTER**
              
              **3rd
                  QUARTER**
              
              **2nd
                  QUARTER**
              
              **1ST
                  QUARTER******
              ****
              **2006**
              ****
              **2005**
              ****
              **2006**
              ****
              **2005**
              ****
              **2006**
              ****
              **2005**
              ****
              **2006**
              ****
              **2005**
              ****Revenue
              
              4,509,417
              
              3,954,733
              
              4,166,648
              
              3,984,986
              
              4,735,557
              
              2,880,374
              
              4,305,156
              
              2,965,356Gross
                  Profit
              
              1,265,379
              
              1,059,484
              
              1,102,735
              
              958,351
              
              1,377,488
              
              712,912
              
              1,196,685
              
              761,737Income
                  (loss)
                  before undernoted items
              
              (22,010
              )
              183,506
              
              (135,167
              )
              17,497
              
              210,001
              
              (204,613
              )
              105,771
              
              (289,676
              )Net
                  Income
                  (loss) before discontinued operations
              
              38,331
              
              (40,986
              )
              (191,185
              )
              (71,967
              )
              145,174
              
              (278,434
              )
              (19,750
              )
              (578,068
              )Gain
                  (loss)
                  from discontinued operations
              
              (333,479
              )
              3,021
              
              5
                  48,640
              
              (65,191
              )
              547,391
              
              (106,089
              )
              88,589
              
              281,157Net
                  income
                  (loss) for the period
              
              (295,148
              )
              (37,965
              )
              3
                  57,455
              
              (137,158
              )
              692,565
              
              (384,523
              )
              68,839
              
              (296,911
              )Net
                  income
                  (loss) per common share (basic and diluted)Continuing
                  operations
              
              0.00
              
              (0.00
              )
              (0.00
              )
              (0.00
              )
              0.00
              
              (0.00
              )
              (0.00
              )
              (0.01
              )Discontinued
                  operations
              
              (0.01
              )
              0.00
              
              0.01
              
              (0.00
              )
              0.01
              
              (0.00
              )
              0
                  .00
              
              0.00







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 three business units: Staffing Solutions, Medical
      Services and Healthcare Consulting Services. In 2006, 60% of the Company’s
      revenue was generated by the Staffing Solutions unit; 33% by the Medical
      Services unit; and 7% by the Healthcare Consulting unit. From a Gross Margin
      perspective, the contribution was 37%, 49% and 14%, 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.





MEII’s
      Medical
      Services include chronic pain management and intravenous infusion services
      for
      pharmaceutical companies in conveniently located community-based clinics.





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





MEII
      was founded in
      1983 and is incorporated under the Business Corporation 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 Medical Services,
      the
      Company tracks the number of infusions for Infusion Services and the number
      of
      patient referrals, average billing per patient and the number of patient visits
      for the pain management practice. For Healthcare Consulting Services, the
      Company tracks the gross margin per contract and our win / loss ratio on
      contract bids. We also measure certain key balance sheet ratios such as working
      capital, to monitor our cash flow situation.





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





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




20




revenue
      growth. For
      Pain Management Services, growth is dependent on our ability to recruit
      additional doctors to provide pain therapies. With the long wait-times for
      patients to obtain adequate pain management treatment, patient demand is less
      of
      a concern for the Company.





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





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





*STAFFING
      SOLUTIONS*




MEII
      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, MEII 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, MEII introduced a
      healthcare model combining Primary Care Physicians with Primary Care Nurse
      Practitioners. This was the first time a nurse practitioner function was
      introduced into a mental health setting. The program, now in its tenth 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 MEII
      a
      similar contract for primary care services. In 2004, the Company introduced
      Primary Health Care Nurse Practitioners to its mix of healthcare providers
      in
      community-based hospitals.




In
      September 2006 the Company recruited 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,
      MEII 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 2007. Concurrent with the addition of
      Dr.
      Ducharme, the division was realigned to expand its business development
      capabilities in anticipation of increased staffing opportunities.




*MEDICAL
      SERVICES*




MEII
      provides
      innovative medical services directly to healthcare consumers.




*Infusion
      Services*


In
      March 2001, MEII
      entered into an agreement with Schering Canada Inc. to become a coordinator
      for
      the community-based infusion of the medication known as RemicadeTM.  This
      contract capitalizes on the Company's access to clinics for the treatment of
      patients with various inflammatory disorders, including rheumatoid arthritis
      and
      Crohn's disease. The Company delivered more than 10,100 infusions in 2006.





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





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





21




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 insure the medicine. Historically, more than 85% of infusions
      have related to Crohn’s disease and rheumatoid arthritis. Total infusions grew
      by 39% in 2006, growth for the two key indications was less than 8% in the
      year.
      The Company expects growth related to RemicadeTM to level off unless additional
      indications are approved by Health Canada.





The
      Company
      continues to look for additional products to offer through its infusion clinics
      and the opportunity to open clinics in new locations. In the January 2007 the
      Company opened six new clinic locations.





*Pain
      Management
      Services*


MEII’s
      chronic pain
      management service, CPM Health Centres Inc. (“CPM”), was launched in November
      2004 with the acquisition of the Scarborough Pain Clinic. A second location,
      in
      downtown Toronto, was opened in December 2004, two more locations were opened
      in
      2005, in Hamilton and Mississauga and a fifth one in Oakville, Ontario opened
      in
      2006.





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





In
      August of 2005,
      Dr. Roman Jovey, the President of the Canadian Pain Society, joined CPM as
      its
      Medical Director. Over the last 15 years, Dr. Jovey has developed an
      international reputation in the field of chronic, non-cancer pain, using
      pharmacotherapy. In addition to maintaining a private practice, Dr. Jovey also
      consults with the pharmaceutical industry and educational institutions on
      medical educational programs related to pain. He is also a medico-legal expert
      for the Canadian Medical Protective Association on cases related to opioids,
      pain and addiction. In his capacity as Medical Director, Dr. Jovey oversees
      the
      clinical aspects of CPM and assists in the training of new
      physicians.





The
      Company intends
      to increase the number of physicians available to treat those suffering from
      chronic pain and thereby improve service availability to a healthcare sector
      that is plagued by long wait times. The Company has developed and launched
      a
      training program specifically designed to educate emergency room physicians
      in
      chronic pain management.





The
      clinic that CPM
      acquired in November 2004 increased patient visits from approximately 300
      patients per month to more than 700 patients per month during 2006;
      year-over-year, CPM more than doubled its patient visits from approximately
      8,000 patients in 2005 to 16,300 in 2006.





Plans
      are underway
      to further increase capacity in 2007 by training more doctors and by opening
      additional clinic locations. During the first quarter of 2007, new clinics
      have
      been opened in Oshawa, Ottawa and London, Ontario.




*HEALTHCARE
      CONSULTING*




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





In
      2006 the Company
      provided services to the Ministry of Health and Long-Term Care, Ontario, in
      regards to pandemic planning and the use of nurse practitioners and physicians’
assistants in an ER setting; developed and designed nine business plans with
      respect to Family Health Teams across Ontario; and assisted the Ministry of
      Health, Nova Scotia in researching the use of international medical graduates.





Similar
      opportunities are being explored both across Canada and internationally.





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




22




officer
      for a
      provincial government. In tandem with MEII’s own project manager, the contract
      was won in a competition against bids from several multi-national consulting
      firms.





**RESULTS
      OF
      OPERATIONS**





**REVENUE**




The
      Company's
      revenue from continuing operations for the year ended December 31, 2006 was
      $17,716,778 compared to $13,785,449 for the year ended December 31, 2005 and
      $9,496,569 for the year ended December 31, 2004.





Divisional
      revenues
      were:





**($millions)**
            **Year
                Ended December 31,****Division**
            **2006**
            **2005**
            **2004**Staffing
                Solutions
            10.7
            9.3
            7.5Medical
                Services
            5.9
            3.4
            1.2Healthcare
                Consulting
            1.1
            1.1
            0.8Total
            17.7
            13.8
            9.5





Revenue
      for the
      Staffing Solutions business increased by 15% in 2006 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.





Staffing
      revenues
      increased 24% in 2005 over 2004. In late 2004 and early 2005, the Company
      undertook a review of its Staffing operations. To encourage growth, the Company
      reduced some of its rates. Reception to this initiative was strong and the
      result was that at the end of 2005 the Company managed about 40 staffing
      contracts compared to about 25 a year earlier.





Revenue
      for Medical
      Services increased 75%, to $5,897,883 compared to $3,368,963 for the year ended
      December 31, 2005. The increase in revenues in 2006 was driven by the
      following:





1. In
      late 2004, the
      Company launched its Pain Management business. In 2006 the Pain Management
      business generated $3,197,781 in revenue compared to $1,563,729 in 2005 as
      the
      Company grew from four to five clinics. As discussed previously, the Company
      believes that the Pain Management business represents an opportunity to generate
      considerable growth. It is a field of healthcare that is vastly under serviced
      in Canada. The Company has recently opened three additional clinics and more
      sites are scheduled for 2007. It is anticipated that strong revenue growth
      will
      continue in the current fiscal year.




2. The
      Infusion business increased to $2,700,102 from $1,805,234 in 2005. The 50%
      increase in the Infusion business 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
      from the
      Medical Services division increased 230% to $3,368,963 in 2005 from $1,227,533
      in 2004. The increase was driven by:




1.
            In
                2005, the
                Pain Management business generated $1,563,729 in revenue compared
                to
                approximately $90,000 in 2004. The Company opened three clinics in
                2005,
                expanding from a single clinic to four locations. The growth also
                reflects
                a full year of operations compared to 2004 when the business was
                launched
                in November of that year.




2.
            The
                Infusion
                business increased $0.6 million to $1,805,234 from approximately
                $1.2
                million in 2004 The 50% growth in Infusions during 2005 was driven
                by a
                25% increase in infusions from about 6,000 in 2004 to more than 7,500
                in
                2005 and by the introduction of additional services at our Infusion
                clinics. The additional services also increased revenues by about
                25%.







Revenue
      for the
      year ended December 31, 2006 from Healthcare Consulting was $1,110,355 compared
      to $1,131,692 during the year ended December 31, 2005 and $789,912 for fiscal
      2004. For the last two years the Company has increased its focus on its
      Consulting practice. Much of the work in 2006 was related to the Province of
      Ontario’s Family Health Team initiative, which was launched in 2005. Certain
      contracts anticipated




23




in
      2006 did not
      come to fruition and as a result growth in the division was stalled and revenues
      for the year decreased slightly from 2005. Successes in health human resource
      planning and primary care renewal, led to increased 43% growth in revenues
      in
      2005 compared to 2004.




**GROSS
      MARGIN**




Gross
      Margin
      (revenue less physician and other direct costs) increased to $4,942,287, or
      42%
      for the year ended December 31, 2006 from $3,492,483 for the year ended December
      31, 2005 and compared to $2,225,421 for the year ended December 31, 2004.




**($millions)**
            **Year
                Ended December 31,****Division**
            **2006**
            **2005**
            **2004**Staffing
                Solutions
            1.8
            1.7
            1.4Medical
                Services
            2.4
            1.2
            0.5Healthcare
                Consulting
            0.7
            0.6
            0.3Total
            4.9
            3.5
            2.2





Gross
      Margin for
      the Staffing Solutions business increased by 6% in 2006 over 2005. This was
      the
      result of increased activity 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 Gross Margin in the second half of the
      year was lower than the same period in 2005.





The
      Gross Margin
      from the Staffing business increased to $1,735,469 from $1,311,258 in 2004.
      The
      increase of 32% was largely derived by the increase in the number of contracts
      under management ($250K) and to a lesser extent by an increase in the gross
      margin percentage; 18.7% in 2005 versus 17.6% in 2004. Despite the fact that
      the
      Company lowered some of its fees in 2005, it also introduced set-up fees for
      new
      contracts. This yielded a net increase in gross margin per
      contract.





Gross
      Margin for
      Medical Services increased 107% from $1,175,446 in 2005 to $2,432,213 in 2006.
      As discussed above this is a result of increased activity with the Pain
      Management business, where Gross Margin increased from $352,281 in 2005 to
      $999,063 in 2006 and the increased activity with the Infusion business, where
      Gross Margin increased to $1,433,150 in 2006 from $823,165 in 2005.





The
      Gross Margin
      for Medical Services increased 116% to $1,175,446 in 2005 compared to $544,454
      in 2004. As discussed above concerning revenue, this is attributable to the
      launch of the Pain management business ($0.3 million) and the increased Infusion
      volumes ($.38 million) and better margin per infusion ($0.02
      million).





The
      Gross Margin
      for Healthcare Consulting increased from $581,568 in 2005 to $691,436 in 2006,
      even though revenues decreased $20,000 over the same period. Gross Margin
      increased because the Company used more internal resources to complete the
      consulting projects. While Gross Margin increased as a result, this also
      increased operating costs for the division.





The
      Gross Margin
      for Healthcare Consulting doubled in 2005 from $335,477 in 2004 to $581,568
      in
      2005. The increase is Gross Margin is attributable to increased volume of
      activity in 2005 and also to better quoting of contracts. As experience is
      gained by the Consulting team, we are better able to increase our yield on
      our
      contracts.








**OPERATING
      EXPENSES**




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


24


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





**($millions)**
            **Year
                Ended December 31,****Division**
            **2006**
            **2005**
            **2004**Staffing
                Solutions
            1.70
            1.71
            2.04Medical
                Services
            2.30
            1.48
            0.93Healthcare
                Consulting
            0.78
            0.60
            0.63Total
            4.78
            3.79
            3.60





On
      an overall basis, operating expenses increased 26% or $997,767 to $4,783,545
      for
      the 2006 from $3,785,778 in 2005. The increase was largely attributable to
      increased costs associated with the Medical Services unit where costs increased
      by $823,580, driven by increased business volumes.





In
      2005, operating
      costs associated with Medical Services increased 59%, or $0.55 million. This
      was
      associated with an increase in all expenses as costs increased in line with
      the
      increased volume of business in the division.




**AMORTIZATION
      AND INTEREST**





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 $152,200
      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. During 2004 and
      2005, the Company increased its capital spending on computer hardware and
      software and also on office furniture and leaseholds. The equipment upgrades
      were part of a planned upgrade which occurred after the May 2004 equity
      financing. The leasehold improvements arose after the Company moved its head
      office in June 2004. Additionally, in 2005 the Company invested about $80,000
      on
      leaseholds associated with its pain clinics.





In
      2006 the Company
      earned interest net of bank charges of $60,711 compared to interest and bank
      charges of $19,868 in 2005. With the equity financing and settlement of an
      outstanding lawsuit in 2006, the Company’s cash balance increased from an
      average of approximately $400,000 to in excess of $4,000,000. In 2004, the
      Company incurred interest and bank charges of approximately $58,000. These
      costs
      were largely incurred before the Company’s financing in May 2004, at which time
      the Company went from a net borrower to a net investor of cash.





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 Special
      Shares. This is a non-cash expense. In 2005 and 2004, the only interest charges
      are associated with the Notes Payable.





**OTHER
      INCOME AND EXPENSES**





Stock
      based
      compensation expenses were $93,391 in 2006 compared to $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 2004, 262,500 options vested.





There
      were no
      meaningful Other Expenses in 2006 and 2005. In 2004, there was a one-time impact
      of the closing costs of $609,214 associated with an equity financing.





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. There was no meaningful Other Income in 2005 or
      2004.





25


**INCOME
      TAXES**




For
      the years ended
      December 31, 2006, 2005 and 2004, 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. We do not expect to pay
      significant corporate income tax in Canada in the foreseeable future because
      we
      have significant net operating loss carry forwards for Canadian income tax
      purposes.




**DISCONTINUED
      OPERATIONS**




**Government
      Health Services**


During
      the year
      ended December 31, 2006, the Company had a profit from Government Health
      Services (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. Income from
      the
      DND Contract was $1,034,974 for the year ended December 31, 2004, the last
      period in which the contract was operational for a full year.




**Family
      Medical Clinics**


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. The Family Medical Clinics were not operational in
      2004; however, the investment in AIM, which resulted from the sale of the Family
      Medical Clinics in 2003, were written-down in 2004 by $57,626. The clinic
      operations underperformed in 2006 and the Company is in the process of disposing
      of all Family Medical Clinics.







**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      at December 31,
      2006, the Company's cash position was $4,028,128 compared to $660,947 as at
      December 21, 2005 and compared to $2,312,156 at December 31, 2004.





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
      we
      have 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.





26




While
      the Company
      believes that cash on hand is adequate to finance our
      working
      capital, capital expenditure, and other obligations as described in the
      Contractual Obligations and Commercial Commitments table, below,
      nevertheless, the Company has
      initiated discussions with a lease financing company to finance a portion of
      the
      capital costs associated with Pain division growth plans.





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





**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 $4.3 million. The Company has
      not
      engaged in off-balance sheet financing, commodity contract trading or
      significant related party transactions. Contractual obligations are as
      follows:


****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            **Total**
            ********
            ****
            ****
            **2007**
            ****
            ****
            **2008**
            ****
            ****
            **2009**
            ****
            ****
            **2010**
            ****
            ****
            **2011**
            ****
            ****
            **Thereafter**
            ****
            ****
            **Obligations**Long-term
                debt1
            
            $
            330,530
            
            $
            302,343
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            632,873Operating
                lease obligations2
            
            
            827,113
            
            
            650,665
            
            
            550,843
            
            
            464,781
            
            
            330,710
            
            
            19,024
            
            
            2,843,136Notespayable3
            
            
            74,400
            
            
            361,995
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            436,395$
            1,232,043
            
            $
            1,315,003
            
            $
            550,843
            
            $
            464,781
            
            $
            330,710
            
            $
            19,024
            
            $
            3,912,404





Notes:


1  
      These amounts include interest on long-term debt at the prescribed rate
      established by the Canada Revenue Agency (CRA), currently set at 3.6%. These
      interest costs have been waived by CRA in recent years.


2  
      No provision is included in these amounts for the contingent lease obligations
      of approximately $926,000 referenced in Note 16 (iv) of the accompanying
      financial statements.


3  
      Includes interest at the rate of 7%. Interest is payable in cash or by the
      issuance of common stock, or any combination thereof.





**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, (iv) the determination of stock based compensation and (v) accounting
      for income taxes. We evaluate our estimates on an on-going basis. We state
      our
      accounting policies in the notes to the audited consolidated financial
      statements and related notes for the year ended December 31, 2006, contained
      herein. These estimates are based on information that is currently available
      to
      us and on various other assumptions that we believe to be reasonable under
      the
      circumstances. Actual results could vary from those estimates under different
      assumptions or conditions. We believe that the following critical accounting
      policies affect the more significant judgments and estimates used in the
      preparation of our consolidated financial statements:




27






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


•
            We
                maintain
                an allowance for doubtful accounts for estimated losses resulting
                from
                fraudulent claims made by patients, the inability of our corporate
                customers to make required payments, or as a result of a dispute
                in the
                invoiced amount. Fraudulent claims arise when patients seek medical
                care
                and provide an invalid health card for payment. The introduction
                of
                electronic medical records services, which pre-screen patients prior
                to
                services being rendered, is rapidly diminishing our exposure to fraudulent
                claims by patients. We determine the adequacy of our bad debt allowance
                by
                continually evaluating individual customer receivables, considering
                the
                customer’s financial condition, credit history and current economic and
                business conditions. If the financial condition of our customers
                were to
                deteriorate, resulting in an impairment of their ability to make
                payments,
                additional allowances may be required. Historically losses on
                uncollectible accounts have not exceeded our allowances. As of December
                31, 2006, our allowance for doubtful accounts was $23,203 (2005 -
                $17,836).


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


•
            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
                  $2.5
                  million associated with non-capital loss carryforwards and tax
                  pools of
                  $7.5 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.







28




Recently
      Issued
      Accounting Pronouncements





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





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





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




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





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





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





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





29




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





ITEM
      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:
      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.





We
      have
      undertaken significant efforts to establish a framework to improve internal
      controls over financial reporting.  We committed considerable resources to
      design, implement and document our internal controls. In performing the
      assessment, our management believes that these efforts have improved our
      internal controls over financial reporting; however, management has identified
      one material weakness in internal control over financial reporting existing
      as
      of December 31, 2006.  Management determined that our access controls over
      our financial application system did not operate to segregate incompatible
      duties.  This lack of segregation was not compensated effectively with
      other compensating, detective controls. This deficiency was evaluated as
      representing a more than remote likelihood that a misstatement that is more
      than
      inconsequential, but less than material, could occur. The control deficiency
      could result in a misstatement to the financial statement accounts, resulting
      in
      a material misstatement to annual or interim consolidated financial statements
      that would not be prevented or detected by our internal control over financial
      reporting.  As a result, management concluded that a material weakness
      exists and thus we are not able to conclude that our internal control
      over financial reporting and disclosure controls were effective as of the
      end of the period covered by our Annual Report on Form 10-K.  However, this
      weakness in our internal control over financial reporting did not result in
      any
      adjustments nor did it result in any material misstatement of our 2006 annual
      or
      interim consolidated financial statements. Management has initiated steps to
      segregate the incompatible duties in question.





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.





30


**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**
            **Position**Michael
                Sinclair
            64
            Chairman
                of
                the BoardManfred
                Walt
            54
            DirectorJacob
                (Koby)
                Ofek
            49
            DirectorMajor
                General
                Lewis MacKenzie
            69
            DirectorJohn
                Yarnell
            78
            DirectorSidney
                Braun
            47
            DirectorRamesh
                Zacharias
            55
            Chief
                Executive Officer and DirectorDonald
                Ross
            55
            Vice
                President - Business DevelopmentWilliam
                J.
                Danis
            51
            Chief
                Financial Officer and Corporate
                Secretary








**Name**
            **Position**
            **Principal
                Occupation and Positions Held**Michael
                Sinclair(1)
            Chairman
            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 Corporation, a NYSE listed company.
                Through his vision and leadership, Lifetime grew to the largest home
                healthcare provider in the US with about U$1.2 billion in revenues
                and
                over 70,000 nurses affiliated through its nationwide branches. It
                was sold
                for more than US $600 million. Currently, he is the co-founder and
                Chairman of Atlantic Medical Management, which manages the New York
                based
                healthcare venture fund Atlantic Medical Capital. He serves as the
                non-executive chairman of two portfolio companies: Nursefinders and
                Healthcare Capital Resources. Dr. Sinclair has served as Chairman
                of the
                Company’s Board of Directors since May 2004.Manfred
                Walt(1)(2)(4)
            Director
            Mr.
                Walt is
                President and CEO of Walt and Co Inc an investment and management
                company
                that since May 2002 provides consulting services to various Reichmann
                family entities and other third parties. Mr. Walt joined entities
                affiliated with Paul Reichmann and his family in May 1998 as Executive
                Vice President and Chief Financial Officer of Central Park Lodges
                Ltd., a
                privately held retirement home company, a position he held to March
                2003.  From April 2001 to April 2002 he was Executive Vice President
                and Chief Financial Officer of Retirement Residences Real Estate
                Investment Trust (“RRR”) a TSX publicly listed REIT. Mr. Walt was
                also a trustee of RRR from May 2005 to January 2006. Since September
                2006
                Mr. Walt has been a Strategic Advisor to Chartwell Seniors Housing
                REIT
                (CSH.un:TSX) the largest Seniors housing entity in Canada and since
                November 2003 a consultant to and director of its affiliate Spectrum
                Seniors Housing Development Corp, the largest developer of assisted
                living
                facilities in Canada. Mr. Walt is a director elect for Killam Properties
                Ltd (KMP:TSX) a publicly traded, Atlantic Canada based, real estate
                company focused on the acquisition, re-development, and management
                of
                multi-family apartments and manufactured home communities. Mr. Walt
                has
                served as a director of the Company since May
                2004.






31




**Name**
            **Position**
            **Principal
                Occupation and Positions
                Held**


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.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, General MacKenzie has regularly appeared
                on
                many of the international TV and radio networks as a commentator.
                Following the attacks of September 11, 2001, Lewis 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 currently the
                chairman
                of YTW Growth Capital, Summit Energy Management Inc. and Broadband
                Learning Corporation and a director of Alexandria Minerals Corporation.
                Mr. Yarnell is the founder and retired Chairman of the Quorum Group
                of
                companies and a former director and chairman of Poco Petroleums 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
            Mr.
                Braun is
                the President of ROMlight International Inc., a designer of electronic
                ballasts. Prior to joining ROMlight, Mr. Braun was President and
                Chief
                Operating Officer of Med-Emerg from June 2004 to August 2006. Prior
                to
                joining Med-Emerg in 2004, Mr. Braun was an exclusive subcontractor
                to
                Poalim/IBI, the largest investment bank in Israel, covering the European
                financial markets. For approximately two years prior to that, Mr.
                Braun
                was a representative for Raphael Zorn Helmsley, a UK investment bank.Ramesh
                Zacharias
            Chief
                Executive Officer and Director
            Dr.
                Ramesh
                Zacharias is the founder of Med-Emerg International Inc. and serves
                as its
                President and Chief Executive Officer, and Executive Medical Director.
                He
                has practiced medicine in Canada since 1981 and has extensive experience
                in the delivery of emergency and primary, medical care. He has provided
                consulting services regarding the delivery of emergency care
                internationally in the Caribbean, Saipan and Malaysia and provided
                management-consulting services regarding the operation of medical
                clinics
                in Canada, the United States and Russia. In his continued role in
                providing medical insight and with his extensive business experience,
                he
                provides the strategic guidance and leadership to the Company’s management
                team. Under his leadership, MEII has grown to become the leading
                Canadian
                medical clinic management and medical staffing organization. Dr.
                Zacharias
                has served as a director of the Company since September 1983.




32




**Name**
            **Position**
            **Principal
                Occupation and Positions
                Held**


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.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 MEII. 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.





**Board
      Meetings Structure**


The
      Board met five
      times during the year ended December 31, 2006. No director who served during
      the
      2006 fiscal year attended fewer than 80% 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.





33




**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 four times in 2006.





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 twice in
      2006.





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
      five times in 2006.





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 2006.





ITEM
      11: EXECUTIVE
      COMPENSATION




**COMPENSATION
      DISCUSSION AND ANALYSIS**




**Overview
      of
      Compensation Program**


The
      Compensation
      Committee of the Company's Board of Directors is responsible for establishing
      and evaluating the Company's policies governing the compensation of its
      executive officers and the Named Executive Officers. The Compensation
      Committee's goal is to ensure that the total compensation paid to each of the
      Company's Named Executive Officers is fair, reasonable and competitive. The
      Compensation Committee operates under the terms of a written
      charter.




**Compensation
      Objective**


The
      objectives of
      the Company's executive compensation programs are to:


•  attract
      and retain
      talented and experienced management personnel;


•  motivate
      and reward
      members of management whose knowledge, skills, performance and business
      relationships are critical to the Company's success; and


• align
      the interests
      of the Company's management and stockholders by motivating management to
      increase stockholder value and rewarding management when stockholder value
      increases.




34




The
      Company's
      executive compensation programs are designed to compensate individual management
      personnel based on a number of factors, including:


•  the
      individual's
      position and responsibilities within the Company;


•  the
      overall
      importance of the individual's responsibilities in helping the Company achieve
      success;


•  specific
      tasks that
      the individual may be required to perform during a particular time
      period;


•  the
      individual's
      skill set, experience and education;


•  market
      conditions,
      as measured by (among other things) feedback from recruiters and the Company's
      knowledge of peer company compensation policies;


•  the
      Company's
      performance in areas for which the individual has responsibility;
      and


•  the
      Company's
      overall performance.




**Role
      of
      Executive Officers and Others in Compensation Decisions**


The
      Compensation
      Committee makes all final decisions with respect to the compensation received
      by
      the Company's Named Executive Officers. It engages in arm's length negotiation
      and discussions with Dr. Zacharias, Dr. Ross and Mr. Danis with respect to
      each
      of their compensation packages, but deliberates outside their presence when
      making decisions on such matters.




**Setting
      Executive Compensation**


During
      2004, the
      Compensation Committee deliberated on the transition in the Company's general
      long-term equity incentive compensation policy from granting options that vested
      immediately to granting restricted stock options that vested over time and
      were
      subject to certain performance measurements. These changes are discussed further
      below.




**2006
      Executive Compensation Components**




For
      the fiscal year
      ended December 31, 2006, the principal components of compensation for the Named
      Executive Officers were:


•  annual
      base
      salary;


•  cash
      bonuses paid
      upon the completion of the Company's financing in July 2006;


•  long-term
      equity
      incentive compensation; and


•  other
      benefits.





**Base
      Salary**


Base
      salary is
      designed to attract and retain experienced executive officers who can drive
      the
      achievement of the Company's goals. Base salary is intended to provide Named
      Executive Officers with a predictable amount of cash flow that allows them
      to
      cover their day-to-day living expenses. Initial base salaries are primarily
      determined by arm's length negotiation with a prospective employee. Increases
      to
      base salary are determined based on a variety of factors, including individual
      performance, changes in role and/or responsibility and changes in the
      competitive market environment (including other potential opportunities
      available to existing employees). Base salaries were renegotiated in 2004 and
      the base salaries, as negotiated, continued for the three year duration of
      the
      Named Executive Officers’ employment agreements.




**Financing
      Bonuses**


In
      July 2006, the
      Company completed a transaction pursuant to which it raised approximately $3.1
      million from the private placement of Series I Special Shares and settled
      litigation for proceeds of approximately $1.8 million. The consummation of
      this
      transaction was a significant corporate goal and had required the dedicated
      effort of members of the management team while continuing to handle their
      respective responsibilities for the day-to-day operations of the Company. In
      order to reward them for achieving this goal, the Compensation Committee awarded
      additional discretionary cash bonuses to each of them upon completion of the
      transaction based on the individual efforts of each in consummating this
      financing, as further described in the footnotes to the Summary Compensation
      Table below.




**Long-Term
      Equity Incentive Compensation**


The
      Company awards
      long-term equity incentive awards the Named Executive Officers, as part of
      its
      total compensation package. These awards are intended to align the interests
      of
      employees to the interests of the Company's stockholders. The Compensation
      Committee reviews and approves the amount and type of each award to be granted
      to each employee. The Compensation Committee considers equity grants when the
      Named Executive Officers negotiate their employment agreements, although grants
      may be considered at other times to attract employees, to reward performance
      and/or to retain current employees. The amount, type and features of long-term
      equity incentive awards, if any, to be awarded to each employee is evaluated
      by
      the Compensation Committee based on a number of factors, including the past
      service of such employee to the





35




Compensation
        Committee based on a number of factors, including the past service of such
        employee to the Company,
        the
        present and potential contributions of such employee to the Company's success,
        such employee's then-current
        stock
        holdings, years of service, position with the Company and other factors.
        The
        Compensation Committee does not apply a formula assigning specific weights
        to
        any of these factors when making its determination.
  The
        Company's
        long-term equity incentive awards typically take the form of options to acquire
        its common stock. Stock
        option awards
        provide the holder with the right to purchase shares of Common Stock at a
        fixed
        exercise price for a period of up to ten years. Stock options are granted
        at a
        price not less than the prevailing market value at the time of grant and
        have
        realizable value only if the Company's stock price increases. Stock options
        that
        were awarded in 2004 vested over a five year period. Previously, stock option
        awards vested immediately. There were no option grants in fiscal 2005 and
        2006
        to the Named Executive Officers.
  **Other
        Benefits**
 Health
        and Welfare
        Benefits. All full-time employees, including the Named Executive Officers,
        may
        participate in the Company's health and welfare benefit programs, including
        medical, dental and vision care coverage and disability insurance.
  Perquisites.
        The
        Compensation Committee's policy is to provide limited perquisites, and it
        does
        not believe these perquisites
        and
        other personal benefits constitute a material component of a Named Executive
        Officer's compensation package.
  **Policy
        with
        Respect to Employment Agreements**
 The
        Compensation Committee's policy is for the Company to enter into employment
        agreements with each of its Named Executive Officers for a number of reasons,
        including the following:
 •
              the
                  need to
                  provide severance benefits that are competitive with those offered
                  by
                  other, similarly situated
                  companies;
 •
              the
                  belief
                  that severance benefits help to ensure that management is not financially
                  motivated to frustrate the execution of a change-in-control transaction
                  for fear that their personal compensation will be negatively impacted
                  as a
                  result thereof;
 •
              the
                  ability
                  to include non-competition and non-solicitation covenants in such
                  employment agreements in order to reduce the risk that a key member
                  of
                  management is recruited by a
                  competitor;
 •
              the
                  increased
                  certainty resulting from negotiated employment agreements reduces
                  that
                  distraction caused by ongoing negotiations over compensation
                  matters.
  The
        Company
        currently has employment agreements with each of the Named Executive Officers,
        which are described further under the caption "Employment Agreements"
        below.
  **Summary
        Compensation Table**
 The
        following table
        sets forth information for the fiscal year ended December 31, 2006 concerning
        compensation of (1) all individuals serving as our principal executive officer
        during the fiscal year ended December 31, 2006,
 (2)  all
        individuals
        serving as our principal financial officer during the fiscal year ended December
        31, 2006, and
 (3)  the
        two other
        employees who were serving as executive officers as of December 31, 2006
        and
        whose total compensation exceeded $100,000 (collectively, the "Named Executive
        Officers"):
 Stock
              
              
              All
                  OtherSalary
                  (1
              )
              
              Bonus
                  (3
              )
              
              Awards
                  (4
              )
              
              Compensation
              
              
              TotalName
                  and
                  Principal Position
              
              
              Year
              
              
              $
              
              
              $
              
              
              $
              
              
              $
              
              
              $Ramesh
                  Zacharias
                  Chief
                    Executive Officer
              
              
              2006
              
              
              348,000
              
              
              27,000
              
              
              -
              
              
              -
              
              
              375,000Sidney
                  Braun
                  (2)
                  President
                    and
                    COO
              
              
              2006
              
              
              154,000
              
              
              15,000
              
              
              -
              
              
              -
              
              
              169,000Donald
                    Ross
                    Vice
                      President, Business Development
              
              
              2006
              
              
              151,000
              
              
              15,000
              
              
              -
              
              
              -
              
              
              166,000William
                    Danis
                    Chief
                      Financial Officer and Treasurer
              
              
              2006
              
              
              176,000
              
              
              15,000
              
              
              -
              
              
              -
              
              
              191,000
  1.
        All
        amounts are in Canadian dollars.
 2.
        Mr.
        Braun resigned in August 2006. He continues with the Company as a member
        of the
        Board of Directors.
 3.
        Represents a bonus award pursuant to a financing transaction in July
        2006.
 4.
          The
          Company granted performance based share options in 2004, 20% of which vested
          in
          2006. The criteria underlying these performance options were not satisfied
          and
          no options were earned in the year.
 36
  **Grants
        of
        Plan-Based Awards**
 There
        were no
        options awarded during the year ended December 31, 2006.
 **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 our Board
        of Directors. 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 was effective as
        of May
        31, 2004. Under the Ross Agreement, Dr. Ross is entitled to an annual base
        salary of Cdn$152,000, 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. 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 Dr. Danis 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 Danis Agreement. Dr. 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 nine (9) months thereafter.
  37
 
  **OUTSTANDING
        EQUITY AWARDS AT FISCAL YEAR-END - DECEMBER 31, 2006**
 
  Option
                  Awards
              
              Stock
                  AwardsName
              Number
                  of
                  Securities Underlying Unexercised Options #
                  Exercisable
              Number
                  of
                  Securities Underlying Unexercised Options (5) #
                  Unexercisable
              Option
                  Exercise Price$
              Option
                  Expiration Date
              
              Number
                  of
                  Shares or Units of Stock that have not Vested #
              Value
                  of
                  Shares or Units of Stock that Have Not Vested$Ramesh
                  Zacharias
              200,000
              0
              0.50
              15/05/2008
              
              -
              -0
              600,000(1)
              0.115
              31/08/2009
              
              -
              -Sidney
                  Braun
              250,000
              0
              0.115
              30/06/2009
              
              -
              -0
              600,000(2)
              0.115
              31/08/2009
              
              -
              -Donald
                  Ross
              100,000
              0
              0.50
              15/05/2008
              
              -
              -0
              90,000(3)
              0.115
              31/08/2009
              
              -
              -William
                  Danis
              100,000
              0
              0.50
              28/01/2009
              
              -
              -0
              90,000(4)
              0.115
              31/08/2009
              
              -
              -
  (1)
              1,000,000
                  options were awarded on August 31, 2004. The options vest 20% annually
                  subject to specificearnings
                  performance criteria, see note (5) below. The earnings criteria
                  were not
                  satisfied in 2005 or 2006.
 (2)
              1,000,000
                  options were awarded on August 31, 2004. The options vest 20% annually
                  subject to specificearnings
                  performance criteria, see note (5) below. The earnings criteria
                  were not
                  satisfied in 2005 or 2006.
 (3)
              150,000
                  options were awarded on August 31, 2004. The options vest 20% annually
                  subject to specificearnings
                  performance criteria, see note (5) below. The earnings criteria
                  were not
                  satisfied in 2005 or 2006.
 (4)
              150,000
                  options were awarded on August 31, 2004. The options vest 20% annually
                  subject to specificearnings
                  performance criteria, see note (5) below. The earnings criteria
                  were not
                  satisfied in 2005 or 2006.
 (5)
              The
                  unexercisable options are subject to certain performance criteria.
                  For the
                  options to be exercisable thefollowing
                  criteria shall first be met:
 •
              for
                  each of
                  the 12 month periods ending June 30, 2007, 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.
  **Option
        Exercises and Stock Vested**
  During
        the fiscal
        year ended December 31, 2006 none of the Named Executive Officers exercised
        any
        options or held
        any stock
        awards that vested during such fiscal year.
  **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.
  **Director
        Compensation:**
  The
        following table
        sets forth information concerning the compensation of our directors for the
        fiscal year ended December 31,
        2006:
  38
 
  **Fees
                  Earned or Paid in Cash**
              
              
              **Option
                  Awards**
              
              
              **Total****Name
                  (1)**
              
              
              **$
                    (2**
              **)**
              
              **$
                    (2**
              **)**
              
              **$
                    (2**
              **)**Michael
                  Sinclair (3)
              
              
              64,500
              
              
              nil
              
              
              64,500Jacob
                  (Koby)
                  Ofek
              
              
              37,500
              
              
              nil
              
              
              37,500John
                  Yarnell
                  (4)
              
              
              37,500
              
              
              nil
              
              
              37,500Manfred
                  Walt
                  (5)
              
              
              37,500
              
              
              nil
              
              
              37,500Lewis
                  MacKenzie
              
              
              37,500
              
              
              nil
              
              
              37,500Sidney
                  Braun
                  (6)
              
              
              12,700
              
              
              nil
              
              
              12,700
 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
          our
          directors.
 2.  All
        amounts are in
        Canadian dollars.
 3.  Includes
        Cdn$27,000
        bonus paid pursuant to a financing transaction in July 2006.
 4.  The
        Company pays
        Yarnell Companies Inc. for the services provided by Mr. Yarnell as a
        director.
 5.  The
        Company pays
        Walt & Co. Inc. for the services provided by Mr. Walt as a
        director.
 6.  Mr.
        Braun resigned
        as President and COO on August 31, 2006.
  **Compensation
        Committee Interlocks and Insider Participation:**
  The
        current members
        of the Compensation Committee are Messrs. Walt, 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.
  REPORT
        OF THE
        COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
 The
        Compensation
        Committee has reviewed and discussed the Compensation Discussion and Analysis
        set forth below
        under the
        caption “Executive Compensation - Compensation Discussion and Analysis” with the
        Company’s management. Based on this review and discussion, the Compensation
        Committee recommended to the Board of Directors that the Compensation Discussion
        and Analysis be included in the Company’s Annual Report on Form 10-K for the
        fiscal year ended December 31, 2006.
 
  /s/
                  Michael
                  Sinclair
              
              /s/
                  Jacob
                  (Koby) OfekMichael
                  Sinclair
              
              Jacob
                  (Koby)
                  OfekChairman
                  of
                  the Board
              
              DirectorDATE:
                  April
                  12, 2007
              
              DATE:
                  April
                  12, 2007/s/
                  Manfred
                  Walt
              
              /s/
                  Lewis
                  MacKenzieManfred
                  Walt
              
              Lewis
                  MacKenzieDirector
              
              DirectorDATE:
                  April
                  12, 2007
              
              DATE:
                  April
                  12, 2007/s/
                  John
                  YarnellJohn
                  YarnellDirectorDATE:
                  April
                  12, 2007
   39
  ITEM
        12: SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  The
        following table
        sets forth, as of March 31, 2007 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.
  **Name
                  of beneficial owner (1)**
              
              
              **Common
                  Shares (2**
              **)**
              
              **Percentage
                  of Class (2**
              **)**Ramesh
                  Zacharias , CEO and Director
              
              
              5,985,044
                  (4
              )
              
              11.2
              %Sidney
                  Braun
                  , Director
              
              
              1,584,538
                  (5
              )
              
              3.7
              %Do
                  n ald Ross
                  , Vice President, Business Development
              
              
              100,000
                  (6
              )
              
              *William
                  Danis
                  , CFO and Corporate Secretary
              
              
              100,000
                  (6
              )
              
              *Michael
                  Sinclair, Chairman
              
              
              6,674,131
                  (7
              )
              
              11.4
              %Manfred
                  Walt,
                  Director
              
              
              4,646,428
                  (8
              )
              
              7.9
              %Jacob
                  (Koby)
                  Ofek, Director
              
              
              16,845,358
                  (9
              )
              
              28.4
              %Lewis
                  MacKenzie, Director
              
              
              150,000
                  (10
              )
              
              *John
                  Yarnell,
                  Director
              
              
              150,000
                  (10
              )
              
              *BXR1
                  Holdings
                  Inc.
              
              
              6,999,643
                  (11
              )
              
              12.0
              %David
                  Kas s
                  ie
              
              
              4,666,428
                  (12
              )
              
              8.0
              %H.
                  T.
                  Ardinger
              
              
              4,101,5001
              
              
              7.0
              %Calian
                  Technologies Ltd.
              
              
              8,750,000
              
              
              13.1
              %All
                  Officers
                  and Directors as a group
              
              
              33,342,978
                  (13
              )
              
              54.4
              %
 *Indicates
        less
        than 1%
  (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 is9040
                  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, we issued, to the
                  investors**[**and
                  to our
                  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 our 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
                  our Chief Executive Officer. The Class A and Class B
                  warrants
  40
  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.
  (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) 492,500 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 bea
                  beneficial
                  owner of the common shares and B Warrants held of record by that
                  company.
                  Mr. Zachariasshares
                  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)
                  84,538 common shares issuable upon exercise of A
                  Warrants.
 (6)
                Represents
                    common shares issuable upon exercise of stock
                    options.
 (7)
              Includes
                  (i)
                  422,782 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)
                  4,370,827 common shares held by Walt & Co Inc. (“Walt & Co.”) and
                  (ii) 295,601 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)
                    1,067,093 common shares issuable upon exercise of A Warrants
                    issued in
                    June 2004.
 (10)
                  Represents
                      common shares issuable upon exercise of stock
                      options.
 (11)
                    Includes
                        443,402 common shares issuable upon exercise of A Warrants
                        issued in June
                        2004.
 (12)
                      Includes
                          295,601 common shares issuable upon exercise of A Warrants
                          issued in June
                          2004.
 (13)
                          See
                              footnotes
                              (3) through (9)
                              above.
 
 41
  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 bysecurity
                  holders Plan A
              
              
              1,435,000
              
              
              0.448
              
              
              10,216,539Equity
                  compensation plans not approved bysecurity
                  holders Plan B
              
              
              1,380,000(1
              )
              
              0.115
              
              
              0Totals
              
              
              2,815,000
              
              
              0.285
              
              
              9,030,539
  (1)
        These options
        were issued to members of the management team: Dr. Zacharias (600,000), Mr.
        Braun (600,000), Dr. Ross (90,000) and Mr. Danis (90,000). All of these options
        are subject to certain earnings hurdles, as determined by the Compensation
        Committee; they vest 20% per annum over four 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 $31,743 (2005 - $24,765) 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 2005 and to Grant Thornton LLP in fiscal year 2006.
  AUDIT
        AND NON-AUDIT
        FEES:
  2006
              
              
              2005Audit
                  fees
                  (1)
              
              $
              74,949
              
              $
              59,848Audit
                  related
                  fees (2)
              
              $
              3,527
              
              $
              1,775Tax
                  fees
                  (3)
              
              $
              NIL
              
              $
              NILAll
                  other
                  fees (4)
              
              $
              NIL
              
              $
              NILTotal
              
              $
              78,476
              
              $
              61,623
  (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, consultation on accounting standards or
        transactions and audits of employee benefit plans.
 (3) Tax
        fees were NIL in
        2006 and for 2005.
 (4) Other
        fees were NIL
        in 2006 and 2005.
 42
 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.
  **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
              Specimen
                  Common Stock Certificate. (1)4.2
              Specimen
                  Warrant Certificate. (1)
 4.3
                Amendment
                    to
                    the Company's Articles - Series I Special Shares (2)10.1
                Employment
                    Agreement dated as of May 31, 2004 between the Company and Ramesh
                    Zacharias. (1)+10.2
                Employment
                    Agreement dated as of May 31,2004 between the Company and Donald
                    Ross.
                    (3)+10.3
                Employment
                    Agreement dated as of May 31,2004 between the Company and William
                    Danis.
                    (3)+10.4
                Operating
                    lease covering the Company's facilities. (1)10.5
                1997
                    Stock
                    Option Plan. (1)+10.6
                Form
                    of
                    Hospital Contract. (1)10.7
                Form
                    of
                    Physician Contract for Clinical Operations. (1)10.8
                Form
                    of
                    Physician Contract for Emergency Services. (I)10.9
                Securities
                    Purchase Agreement by and between the Company and the individuals
                    or
                    entities named therein dated
                    May 31,
                    2004.(3)10.11
                Subscription
                    Agreement dated as of July 11,2006 between the Company and Calian
                    Technologies Ltd. (2)10.12
                Investors
                    Rights Agreement dated as of July 11, 2006 between the Company
                    and Calian
                    Technologies Ltd.(2)
 14.1
              Code
                  of
                  Ethics.*21
              Subsidiaries
                  of the Company*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 toSection
                  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 toSection
                  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.
 (2)
                Incorporated
                    by reference from the Registrant's current report on Form 8-K.
                    filed on
                    July 14, 2006(3)
                Incorporated
                    by reference from the Registrant's Registration Statement on
                    Form SB-2
                    filed on August 28, 2006
   43
 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
                  Zacharias
                Director,
                  Chief Executive Officer
                DATE:
                  April
                  17, 2007
  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 Chairman of the Board
              
              Jacob
                  (Koby)
                  Ofek DirectorDATE:
                  April
                  17, 2007
              
              DATE:
                  April
                  17, 2007/s/
                  Ramesh
                  Zacharias
              
              /s/
                  Lewis
                  MacKenzieRamesh
                  Zacharias
                Director,
                  Chief Executive Officer
                DATE:
                  April
                  17, 2007
              
              Lewis
                  MacKenzie
                Director
                DATE:
                  April
                  17, 2007/s/
                  John
                  Yarnell
              
              /s/
                  Manfred
                  WaltJohn
                  Yarnell
                Director
                DATE:
                  April
                  17, 2007
              
              Manfred
                  Walt
                Director
                DATE:
                  April
                  17, 2007/s/
                  Sidney
                  Braun
              
              /s/
                  William J
                  DanisSidney
                  Braun
                Director
                DATE:
                  April
                  17, 2007
              
              William
                  J
                  Danis Chief Financial Officer DATE: April 17,
                  2007
 
 44
   **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 sheet of Med-Emerg International Inc. (an Ontario
        corporation) and subsidiaries as of December 31, 2006, and the related
        consolidated statements of operations, deficit, and cash flows
        for the year
        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 audit.
        The
        consolidated financial statements of Med-Emerg International Inc. as of and
        for
        the years ended December 31, 2005 and 2004 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 Notes 4 and 18(b)
        as
        to which the date is April
        16,
        2007.
  We
        conducted our
        audit 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 audit 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 audit provides 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, 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 significant respects from
        accounting principles generally accepted in the United States of America.
        Information relating to the nature and effect of such differences is presented
        in Note 18 to the consolidated financial statements.
 
  Mississauga,
                  Ontario, Canada
              /s/
                  GRANT
                  THORNTON LLPApril
                  16,
                  2007
              Independent
                  RegisteredChartered
                  Accountants
 
 45
  **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 18).
 
  Toronto,
                  Ontario, Canada
              /s/
                  SCHWARTZ
                  LEVITSKY FELDMAN LLPMarch
                  8, 2006
                  (except for Notes 4 and 18(b)
              Chartered
                    Accountantsfor
                  which the
                  date is April
                  16,
                  2007)
              Licensed
                  Public Accountants
  **COMMENT
        BY
        AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING
        DIFFERENCE**
  In
        the United
        States, reporting standards for auditors require the addition of an explanatory
        paragraph (following the opinion paragraph) when there are restatements of
        the
        Company’s comparative financial statements, such as the changes described in
        Note 18(b) to the consolidated financial statements. Our report to the
        shareholders dated March 8, 2006 (except for Note 4 and Note 18(b) which
        are as
        of April 16, 2007) is expressed in accordance with Canadian reporting standards
        which do not permit a reference
        to such
        events in the auditor’s report when these are adequately disclosed in the
        financial statements.
 
  Toronto,
                  Ontario, Canada
              /s/
                  SCHWARTZ
                  LEVITSKY FELDMAN LLPApril
                  16,
                  2007
              Chartered
                    AccountantsLicensed
                    Public Accountants
  
 46
  **Med-Emerg
        International Inc.**
 **Consolidated
        Balance Sheets**
 **As
        at
        December 31, 2006 and December 31, 2005**
 **(in
        US$)**
  **December**
              
              **December****2006**
              
              **2005****Assets****Current
                  assets**Cash
              
              $
              4,028,128
              
              $
              660,947Accounts
                  receivable (Note 5)
              
              
              2,497,610
              
              
              2,104,758Prepaid
                  expenses and other
              
              
              76,045
              
              
              85,730Discontinued
                  operations (Note 4)
              
              
              463,870
              
              
              1,035,9607,065,653
              
              
              3,887,395Discontinued
                  operations (Note 4)
              
              
              -
              
              
              83,195Property,
                  plant and equipment (Note 6)
              
              
              597,543
              
              
              409,920Goodwill
                  (Note 7)
              
              
              237,596
              
              $
              237,596$
              7,900,792
              
              $
              4,618,106**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  liabilities**Accounts
                  payable and accrued liabilities
              
              $
              2,273,061
              
              $
              2,149,519Long-term
                  debt (Note 8)
              
              
              -
              
              
              599,991Discontinued
                  operations (Note 4)
              
              
              880,373
              
              
              1,194,4273,153,434
              
              
              3,943,937**Long-term
                  liabilities**Discontinued
                  operations (Note 4)
              
              
              280,873
              
              
              592,692Long-term
                  debt (Note 8)
              
              
              453,369
              
              
              -Redeemable,
                  convertible Series I Special shares (Note 9)
              
              
              2,589,159
              
              
              -3,323,401
              
              
              592,6926,476,835
              
              
              4,536,629Commitments
                  (Note 15)Contingent
                  liabilities (Note 16)**SHAREHOLDERS'
                  EQUITY**Capital
                  stock
                  (Note 9)
              
              
              16,420,668
              
              
              1
                  6,044,736Contributed
                  surplus (Note 10)
              
              
              3
                  ,106,792
              
              
              2,907,290Deficit
              
              
              (17,253,951
              )
              
              (18,077,662
              )Cumulative
                  translation adjustment
              
              
              (
                  849,552
              )
              
              (792,887
              )1,423,957
              
              
              8
                  1,477$
              7,900,792
              
              $
              4,618,106
  The
        accompanying
        notes are an integral part of these consolidated financial
        statements.
  
 47
  **Med-Emerg
        International Inc.**
 **Consolidated
        Statements of Operations and Deficit**
 **For
        the
        Years Ended December 31, 2006, 2005 and 2004**
 **(in
        US$)**
 
  **December**
              
              **December**
              
              **December****2006**
              
              **2005**
              
              **2004****Revenue**
              
              $
              17,716,778
              
              $
              13,785,449
              
              $
              9,496,569**Direct
                  costs**
              
              
              12,774,491
              
              
              10,292,966
              
              
              7,271,1484,942,287
              
              
              3,492,483
              
              
              2,225,421**Expenses**Salaries
                  and
                  benefits
              
              
              2,795,130
              
              
              2,229,625
              
              
              2,047,450General
                  and
                  administration
              
              
              1,267,709
              
              
              909,397
              
              
              969,040Occupancy
                  costs and supplies
              
              
              459,608
              
              
              407,134
              
              
              334,650Travel
&
                  marketing
              
              
              261,244
              
              
              239,621
              
              
              250,2834,783,691
              
              
              3,785,777
              
              
              3,601,423**Income
                  (loss) before undernoted items**
              
              
              158,596
              
              
              (293,294
              )
              
              (1,376,002
              )Interest
                  (income) expense, net of bank charges
              
              
              (
                  60,711
              )
              
              19,868
              
              
              58,478Interest
                  on
                  long-term debt
              
              
              68,011
              
              
              41,999
              
              
              41,999Amortization
                  of property, plant and equipment
              
              
              231,721
              
              
              243,413
              
              
              134,238Stock
                  based
                  compensation expenses
              
              
              93,391
              
              
              370,881
              
              
              98,622Closing
                  costs
                  (Note 12)
              
              
              -
              
              
              -
              
              
              609,214Gain
                  on
                  renegotiation of notes payable (Note 8)
              
              
              (146,387
              )
              
              -
              
              
              -186,025
              
              
              676,161
              
              
              942,551**Loss
                  before discontinued operations**
              
              
              (
                  27,429
              )
              
              (969,455
              )
              
              (2,318,553
              )**Discontinued
                  operations**Net
                  income
                  from discontinued operations (Note 4)
              
              
              851,140
              
              
              112,898
              
              
              977,348**Net
                  income (loss)**
              
              
              823,711
              
              
              (856,557
              )
              
              (1,341,205
              )Preferred
                  share dividends
              
              
              -
              
              
              -
              
              
              (34,173
              )Forgiveness
                  of preferred share dividends (Note 12)
              
              
              -
              
              
              -
              
              
              579,582**Net
                  income (loss) attributable to common shareholders**
              
              
              823,711
              
              
              (856,557
              )
              
              (
                  795,796
              )**Deficit,
                  beginning of the year**
              
              
              (
                  18,077,662
              )
              
              (
                  17,221,105
              )
              
              (
                  16,425,309
              )**Deficit,
                  end of the year**
              
              $
              (17,253,951
              )
              $
              (18,077,662
              )
              $
              (
                  17,221,105
              )**Net
                  income (loss) per common share (basic and diluted) (Note
                  13)***Continuing
                  operations*
              
              $
              0.00
              
              $
              (0.02
              )
              $
              (0.05
              )*Discontinued
                  operations*
              
              $
              0.01
              
              $
              0.00
              
              $
              0
                  .03**Weighted
                  average number of common shares outstanding**
              
              
              58,277,696
              
              
              58,277,696
              
              
              37,982,583
  The
        accompanying
        notes are an integral part of these consolidated financial
        statements.
   48
 **Med-Emerg
        International Inc.**
 **Consolidated
        Statements of Cash Flows**
 **For
        the
        Years Ended December 31, 2006, 2005 and 2004**
 **(in
        US$)**
 
  **December**
              
              **December**
              
              **December****2006**
              
              **2005**
              
              **2004****Cash
                  Flows from Operating Activities**Net
                  loss
                  before discontinued operations
              
              
              ($27,429
              )
              
              ($969,455
              )
              
              ($2,318,553
              )Adjustments
                  for:Amortization
                  of
                  property, plant and equipment
              
              
              231,721
              
              
              243,413
              
              
              134,238Accretion
                  of
                  discount on Series I Shares
              
              
              48,124
              
              
              -
              
              
              -Non-cash
                  gain
                  on renegotiation of notes payable
              
              
              (146,387
              )
              
              -
              
              
              -Stock
                  based
                  compensation expenses
              
              
              93,391
              
              
              370,881
              
              
              98,622199,420
              
              
              (355,162
              )
              
              (2,085,693
              )Decrease
                  in
                  non-cash working capital components
              
              
              (259,859
              )
              
              (174,923
              )
              
              (405,095
              )Discontinued
                  operations
              
              
              797,075
              
              
              (946,239
              )
              
              468,285736,636
              
              
              (1,476,324
              )
              
              (2,022,503
              )**Cash
                  Flows from Investing Activities**Additions
                  to
                  property, plant and equipment
              
              
              (419,344
              )
              
              (
                  183,089
              )
              
              (
                  487,412
              )Additions
                  to
                  goodwill (Note 7)
              
              
              -
              
              
              -
              
              
              (
                  197,658
              )Discontinued
                  operations
              
              
              -
              
              
              300
              
              
              (17,264
              )(419,344
              )
              
              (182,789
              )
              
              (702,334)**Cash
                  Flows from Financing Activities**Common
                  shares
                  issued
              
              
              -
              
              
              -
              
              
              4,500,000Series
                  I
                  Special shares issued
              
              
              3,106,554
              
              
              -
              
              
              -3,106,554
              
              
              -
              
              
              4,500,000Effect
                  of
                  foreign currency translation
              
              
              (56,665
              )
              
              7
                  ,904
              
              
              156,682**Increase
                  (decrease) in cash**
              
              
              3,367,181
              
              
              (1,651,209
              )
              
              1,931,845Cash,
                  beginning of year
              
              
              660,947
              
              
              2,312,156
              
              
              380,311Cash,
                  end of
                  year
              
              $
              4,028,128
              
              $
              660,947
              
              $
              2,312,156
  The
        accompanying
        notes are an integral part of these consolidated financial
        statements.
   49
  MED-EMERG
                  INTERNATIONAL INC.Notes
                  to the
                  Consolidated Financial StatementsDecember
                  31,
                  2006, 2005 and 2004
  **1.** **ORGANIZATION
        AND DESCRIPTION OF BUSINESS**
  Med-Emerg
        International Inc. (“MEII”, Med-Emerg or the “Company”) provides quality
        healthcare solutions to the Canadian healthcare industry.
  The
        Company is
        publicly traded and listed on the OTC Bulletin Board. The Company completed
        its
        initial public offering in February 1998.
  The
        Company’s
        operations are carried out in three units: Staffing Solutions, Medical 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,
        2006,
        the Company had about 40 physician and nurse staffing contracts in approximately
        30 facilities across Ontario.
  The
        Medical
        Services division is comprised of (a) infusion services and (b) pain management
        services. The infusion business provides special access RemicadeTM infusion
        services to patients suffering from a variety of inflammatory disorders
        including Crohn’s disease and rheumatoid arthritis, at clinic locations across
        Ontario. In November
        2004, the
        Company acquired a pain management clinic and commenced offering services
        to
        Toronto- area
        residents who
        experience chronic pain. Since then, seven additional clinics have
        opened.
  MEII
        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 MEII and all of its
        wholly-owned subsidiaries 927563 Ontario Inc., 927564 Ontario Inc., Med-Emerg
        Inc., Med-Emerg Health Centres Inc., YFMC Healthcare Inc., YFMC Healthcare
        (Alberta) Inc., Doctors on Call Ltd, CPM Health Centres Inc. and OPA Locum
        Direct Inc.
  Significant
        intercompany accounts and transactions have been eliminated on
        consolidation.
  The
        consolidated
        financial statements are expressed in U.S. dollars for the benefit of U.S.
        readers. Differences between Canadian and United States GAAP are described
        in
        note 18.
  **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,
  50
 
  plant,
          and equipment and the rate of amortization related thereto; (iv) stock
          based
          compensation; and (v) accounting for income taxes. Actual results
          could
          differ from those estimates. When adjustments become necessary, those
          adjustments are reported in
          earnings in the
          period in which they become known.
  **(b)** **Long-term
        investments**
  Investments
        are
        accounted for at cost when the conditions for equity accounting are not present
        and on the equity basis when significant influence exists. 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
              100%
              Declining
                  balanceComputer
                  hardware
              30%
              Declining
                  balanceLeasehold
                  improvements
              lesser
                  of
                  lease termor
                  3-5
                  years
              Straight-line
  **(d)** **Goodwill**
  Goodwill
        is the
        excess of the purchase price of 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.
  **(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 “R *e* cording
        Revenue
        Gross as a Principal versus Net as an Agent” (EITF 99-19). Both EIC 123 and EITF
        99-19 address the reporting of revenue on a gross basis as a principal versus
        on
        a net basis as an agent. The pronouncements generally state that revenue
        should
        be reported on a gross basis if:
  • The
        enterprise is
        the primary obligor in the relationship;
 • The
        enterprise has
        latitude in establishing price;
 • The
        enterprise
        performs part of the service;
 • The
        enterprise has
        discretion in supplier selection;
 • The
        enterprise is
        involved in the determination of service specifications; and
 • The
        enterprise has
        credit risk.
  MEII
        meets the six
        tests identified for each of its service offerings. Accordingly, revenue
        is
        reported on a gross basis for all business units.
  The
        following is a
        description of MEII’s revenue recognition policies for each of our significant
        business units.
  **(1) Staffing Solutions:**
  Revenue is reported on a gross basis.
  MEII acts as a principal in providing these services. MEII (a) negotiates
        the
        price of these services with its customers; and (b) contracts with emergency
        room physician and nursing personnel to provide these
  51
 
  services
        to
        healthcare facilities. MEII recruits, schedules and bills the customer for
        the
        services provided and bears the risk of non-payment.
  Contracts
        are both
        fee-for-service and fixed monthly contracts. Contracts are negotiated annually
        and are cancelable by either party on 60 days notice.
  Revenue
        is
        recognized as services are delivered, and when there is reasonable assurance
        of
        collection.
 **(2)**  **Medical
        Services:**
 Revenue
        is reported
        on a gross basis.
  Under
        contract with
        Schering Canada Inc. (“Schering”), MEII acts as the coordinator for the
        community-based infusion of certain medications for the treatment of patients
        with rheumatoid arthritis, Crohn’s disease and certain other inflammatory
        diseases. MEII recruits, schedules and bills the customer for the services
        provided and encounters credit risk in the event of non-payment.
  MEII
        derived
        approximately 15% of its revenue for the year ended December 31, 2006 (13%
        -
        2005; 13% - 2004) 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.
  The
        Company acts as
        the principal in providing pain management treatments to patients in its
        Toronto-area clinics. MEII recruits, schedules and bills the customer for
        the
        services provided and encounters credit risk in the event of
        non-payment.
  Revenue
        is
        recognized as services are delivered, and when there is reasonable assurance
        of
        collection.
 **(3)**  **Healthcare
        Consulting:**
 Revenue
        is reported
        on a gross basis.
  MEII
        has been
        retained by several provincial governments to advise on a variety of issues
        related to primary
        care
        staffing, training and integrated service delivery models. MEII also advises
        several aboriginal communities
        with
        regards to healthcare service issues.
  Revenue
        is
        recognized over the life of each contract based on proportional performance
        as
        indicated by the
        achievement of
        milestones specified in the contract, and when there is reasonable assurance
        of
        collection.
  The
        profitability
        on individual contracts is monitored on a regular basis and any expected
        losses
        on completion are accrued in the period that a loss is determined to be
        likely.
  **(g)Future
        income
        taxes**
  The
        Company
        accounts for income taxes using the asset and liability method. Future tax
        assets and liabilities are recognized for the future taxes attributable to
        the
        temporary differences between the financial statement carrying amounts of
        existing assets and liabilities and their respective tax carrying values.
        Future
        tax assets and liabilities are measured using enacted or substantially enacted
        tax rates expected to apply to taxable income in the years in which those
        temporary differences are expected to be recovered or settled. A valuation
        allowance against future tax assets is provided to the extent that these
        future
        tax assets are not more likely than not, going to be realized.
  **(h) Cash**
 Cash
        consists of
        cash on hand and in banks.
  **(i) 
Foreign
        currency translation**
  The
        Company
        maintains its books and records in Canadian dollars. The consolidated financial
        statements are converted to U.S. dollars 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
  
 52
  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 the cumulative translation
        adjustment.
  **(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.
  **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
        January 2005 the
        Company launched a CDN$100,000,000 lawsuit against the winning bidder and
        a
        former employee of the Company. On July 11, 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.
  **Family
        Medical Clinics Sale**
  On
        September 5,
        2003 the Company entered into a transaction with AIM Health Group Ltd. (“AIM”)
        to dispose of MEII’s Ontario-based clinic operations and more specifically the
        following clinics: Elmvale, Merivale, Herongate, Kanata,
        Orleans,
        Hillside, Hampton, PSA, Caresource, Pond Mills, Central, Glenderry, Dundas
        and
        Wallaceburg.
  In
        consideration
        for the sale of the shares of these corporations, MEII received $597,763
        (CDN$775,000). The purchase price was settled as follows:
  I.
              $385,654 (CDN$500,000)
                cash
                upon signing the purchase and sale agreement on September 5,
                2003; II.
              $38,565 (CDN$50,000)
                cash upon
                the date of closing of the transaction of the purchase and sale for
                the
                purchased shares; III.
              $38,565
                  (CDN$50,000) cash on the later of the renegotiation of certain
                  contractual
                  obligations related to one of the clinic
                  operations;
 IV.
              $145,591
                  (CDN$175,000) by way of issuance by AIM of 175,000 Class A preferred
                  shares in the capital of AIM, with a face value of $0.77 (CDN$1)
                  per share
                  on September 30, 2003. The Class A
                  preferred
    53
  shares
                  were
                  recorded as a long-term investment. In 2004 the Class A preferred
                  shares
                  were written down to $83,195.
   In
        2004 the Company
        recorded a write-down of the Class A preferred shares in the amount of $57,626.
        MEII redeemed the 175,000 class A preferred shares for $nil proceeds, effective
        November 30, 2006. The Company reported a loss of $83,195 as a result of
        the
        redemption. Coincident with the redemption of the class A preferred shares
        the
        Company and AIM entered into a Release Agreement terminating the Letter
        Agreement, dated September 5, 2003 (the “Letter Agreement”).
  Alberta
        Medical
        Clinics Sale
 On
        December 31,
        2003, MEII’s indirect wholly-owned subsidiary YFMC Healthcare (Alberta) Inc.
        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, West Edmonton Mall Medical Centre. In
        consideration of the sale MEII received $15,426 (CDN$20,000) in cash during
        the
        2004 fiscal year.
  Ownership
        of two of
        the family medical clinics sold in 2003 reverted to the Company in 2005.
        During
        2006 the decision was taken to dispose of these assets.
  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. 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. The Family Medical Clinics were not operational in 2004,
        so no
        comparative results are available. The clinic operations underperformed in
        2006
        and the Company is in the process of disposing of all Family Medical
        Clinics.
  Discontinued
        operations include Government Healthcare Services (including Department of
        National Defence) and Family Medical Clinics.
  2006
              
              2005
              
              2004Revenue
              
              $
              1,061,924
              
              $
              12,130,365
              
              $
              38,951,118Physician
                  fees and other direct costs
              
              
              404,525
              
              
              10,934,944
              
              
              36,422,232Gross
                  margin
              
              
              657,399
              
              
              1,195,421
              
              
              2,528,886Operating,
                  general and administrativeexpenses
              
              
              874,634
              
              
              976,891
              
              
              1,208,919Amortization
              
              
              -
              
              
              3
                  8,296
              
              
              48,161Other
                  expense
              
              
              36,709
              
              
              67,336
              
              
              236,832Other
                  Income
                  - Calian settlement
              
              
              (1,229,257
              )
              
              -
              
              
              -Loss
                  on
                  preferred share investment
              
              
              83,195
              
              
              -
              
              
              5
                  7,626Write-off
                  of
                  sundry receivable
              
              
              40,978
              
              
              -
              
              
              -(193,741)
              
              
              1,082,523
              
              
              1,551,538Net
                  income
                  from discontinued operations
              
              $
              851,140
              
              $
              112,898
              
              $
              977,348
  
 54
  Results
        of
        discontinued operations for 2005 have been reclassified to reflect the
        impact of the decision taken in November
        2006 to
        discontinue the Family Medical Business. The reclassification had the
        following impact on the 2005
        results:
  **2005**
                **(as
                  previously reported)**
              
              **2005**Revenue
              
              $
              11,523,166
              
              $
              12,130,364Physician
                  fees and other direct costs
              
              
              10,549,299
              
              
              10,934,944Gross
                  margin
              
              
              973,867
              
              
              1,195,421Operating,
                  general and administrative expenses
              
              
              724,233
              
              
              976,891Net
                  income
                  from discontinued operations
              
              $
              144,005
              
              $
              112,898
  The
        2004 results
        have been reclassified to include the $57,626,write-down of the AIM investment
        as discontinued
        operations. The Company did not operate Family Medical Clinics in 2004, an
        accordingly there has been
        no adjustment
        to the financial results.
  **2006**
              
              **2005****Assets**CurrentCash
              
              $
              1,755
              
              $
              68,003Accounts
                  receivable
              
              
              462,115
              
              
              967,957463,870
              
              
              1,035,960Long-term
                  investment
              
              
              -
              
              
              83,195$
              463,870
              
              $
              1,119,155**Liabilities**CurrentAccounts
                  payable and accrued liabilities
              
              $
              880,373
              
              $
              1,194,427Long-term
                  debt
              
              
              280,873
              
              
              592,6921,161,246
              
              
              1,787,119Net
                  liabilities
              
              $
              697,376
              
              $
              667,964
  The
        long-term debt
        of $280,873 ($592,692 in 2005) pertains to the long-term portion of 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
        $24,742 (CDN$30,000) is payable monthly and is reviewable every six months.
        Accordingly, the current portion of this debt (2006 - $296,904; 2005 - $297,180)
        has been classified under Accounts payable and accrued liabilities. 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**
  **2006**
              
              **2005**Trade
                  receivable
              
              $
              2,520,813
              
              $
              2,122,594Allowance
                  for
                  doubtful accounts
              
              
              (
                  23,203
              )
              
              (
                  17,836
              )$
              2,497,610
              
              $
              2,104,758
   55
  **6. 
PROPERTY,
        PLANT AND EQUIPMENT**
 
  **2006**
              
              **2005****Accumulated**
              
              
              
              
              
              **Accumulated****Cost**
              
              **Amortization**
              
              **Net**
              
              **Cost**
              
              **Amortization**
              
              **Net**Furniture
                  and
                  fixtures
              
              $
              447,009
              
              $
              229,436
              
              $
              217,573
              
              $
              304,169
              
              $
              193,374
              
              $
              110,795Computer
                  software
              
              
              539,434
              
              
              486,866
              
              
              52,568
              
              
              431,155
              
              
              385,882
              
              
              45,273Computer
                  hardware
              
              
              648,616
              
              
              550,721
              
              
              97,895
              
              
              649,323
              
              
              528,525
              
              
              120,798Leasehold
                  improvements
              
              
              432,154
              
              
              202,647
              
              
              229,507
              
              
              272,014
              
              
              138,960
              
              
              133,054$
              2,067,213
              
              
              $
                  1,469,670
              
              $
              597,543
              
              $
              1,656,661
              
              $
              1,246,741
              
              $
              409,920
  **7.** **GOODWILL**
  Goodwill
        amounting
        to $237,596 arose from the acquisition of the business of the Scarborough
        Pain
        Clinic in 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 permanent decline
        in
        the value of the goodwill as at December 31, 2006.
  **8.** **LONG-TERM
        DEBT**
  Long-term
        debt is
        comprised of notes payable and accounts payable and accrued liabilities that
        are
        not due in the next 12 months. Amounts due at December 31 are:
  **2006**
              
              **2005**Notes
                  payable
              
              $
              348,369
              
              $
              599,991Accounts
                  payable and accrued liabilities not due within 12 months
              
              
              105,000
              
              
              -453,369
              
              
              599,991Less:
                  current
                  portion of Notes payable
              
              
              -
              
              
              599,991$
              453,369
              
              $
              0
  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. 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, 2006, $140,000 is due within 12 months and is classified in
        accounts payable and accrued liabilities in the current liabilities section
        of
        the balance sheet. The residual balance of $105,000 is due in 2008.
  (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. MEII 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
        $406,745 at December 31, 2006, $53,400 of this obligation is due
        within
  
 56
  twelve
        months and
        is classified in accounts payable and accrued liabilities in the current
        liabilities section of the balance sheet. The residual balance is due in
        2008.
  **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 restricitions to be fixed
        by the directors;
 Common
        shares
 Common
        shares
        purchase warrants, redeemable, entitling holder to purchase one share of common
        stock at a price of US$0.20 per share to August 11, 2006.
 Class
        A and B
        Warrants
 **Issued**
 **2006**
                
                **2005**58,277,696
                    Common shares ( 2005 and 2004 - 58,277,696 shares)
                
                $
                15,938,625
                
                $
                15,938,625Nil
                    Common share purchase warrants (2005 - 1,437,500)
                
                
                -
                
                
                106,1112,955,000
                    Class A Warrants (2005 - 11,587,500)
                
                
                -
                
                
                -492,500
                    Class B Warrants (2005 - 1,931,250)
                
                
                -
                
                
                -Equity
                    component of 8,750,000 Series I Special Shares (a)
                
                
                482,043
                
                
                -$
                16,420,668
                
                $
                16,044,736
 
 CommonSharesNumber
                
                AmountBalance
                    December 31, 2006, 2005 and 2004
                
                
                58,277,696
                
                $
                15,938,625
 
 Series
                    I Special
                    SharesNumber
                
                AmountBalance
                    December 31, 2005 and 2004
                
                
                -
                
                $
                -Issued
                    during the year
                
                
                8,750,000
                
                
                3,106,554Balance
                    recorded as equity
                
                
                
                
                
                482,043Balance
                    recorded as liability
                
                
                
                
                
                2,624,511Accretion
                    of expense on Series I Special Shares
                
                
                
                
                
                48,124Effect
                    of foreign currency translation
                
                
                
                
                
                (83,476)Balance
                    December 31, 2006
                
                
                0
                
                $
                2,589,159
 
 Share
                    Purchase
                    WarrantsNumber
                
                AmountBalance
                    December 31, 2005 and 2004
                
                
                1,437,500
                
                $
                106,111Expired
                    during the year, reclassified to contributed surplus
                
                
                (1,437,500
                )
                
                (106,111)Balance
                    December 31, 2006
                
                
                0
                
                $
                -
 
 Class
                    AWarrantsNumber
                
                AmountBalance
                    December 31, 2005 and 2004
                
                
                11,587,500
                
                $
                -Expired
                    during the year
                
                
                8,632,500
                
                
                -Balance
                    December 31, 2006
                
                
                2,955,000
                
                $
                -
 
 Class
                    BWarrantsNumber
                
                AmountBalance
                    December 31, 2005 and 2004
                
                
                1,931,250
                
                $
                -Expired
                    during the year
                
                
                1,438,750
                
                
                -Balance
                    December 31, 2006
                
                
                492,500
                
                $
                -
 57
  (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). On July 12, 2006, the Company
        received
        CDN$1.75 million ($1.57 million). The remainder of the funds consisting of
        CDN$
        1.75 million ($1.57
        million)
        were received by the Company as follows: (i) the amount of CDN$0.875 million
        ($0.785 million) was received on August 30, 2006, upon the filing by the
        Company
        of a registration statement covering the resale of the Common Shares underlying
        the Series I Shares and the (ii) remainder of the consideration was received
        on
        September 21, 2006, when the registration statement was declared effective
        by
        the Securities and Exchange Commission. The Series I Shares have a term of
        five
        years.
  The
        Series I Shares
        are, at the option of the holder, convertible at any time into the Company’s
        Common Shares, at an initial conversion rate of one Common Share for each
        Series
        I Share, subject to adjustment in the event of certain capital adjustments
        or
        similar transactions, such as a stock split or merger. Commencing on the
        second
        anniversary of issuance, the Company is entitled to require the conversion
        of
        outstanding Series I Shares at the applicable conversion rate, provided that
        the
        following conditions are satisfied: (i) the volume weighted average trading
        price (VWAP) of the Company’s Common Share on the principal exchange or market
        (including the OTC Bulletin Board) on which the Common Shares are traded
        or
        quoted is greater than or equal to
        $0.46 (as may be
        adjusted in respect of any stock split) during any 60 consecutive calendar
        day
        period, (ii) the total
        volume of
        Common Shares traded over such period exceeds 600,000 shares (as adjusted
        to
        reflect any stock splits), and (iii) the Company delivers written notice
        of such
        conversion to the holders of the Series I Shares within 10 days of the
        satisfaction of the above conditions. The Company's right to require such
        conversion is further subject to there being an effective registration statement
        at the time covering the resale of the Common Shares underlying the Series
        I
        Shares. If not converted into Common Shares prior to the fifth anniversary
        of
        issuance, the Series I Shares are automatically redeemable at the sole
        discretion of the Company in
        either (a) cash
        at a rate of $0.45 per share or (b) in Common Shares of the Company based
        on the
        VWAP of the Common Shares of the Company during the sixty (60) consecutive
        calendar day period immediately preceding the fifth anniversary. In the event
        of
        a change in control, the Series I Shares are also required to be redeemed
        in
        cash at a rate of $0.45 per share. The mandatory redemption and conversion
        features of the Series I Shares result in the classification of separate
        liability and equity components of the Series I Shares.
  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,
        2006 total options outstanding of 2,815,000 are comprised of 1,435,000 granted
        under the Plan A and 1,380,000 granted under Plan B. The following options
        were
        granted in 2006, 2005 and 2004:
 
  **Black
                  Scholes Assumptions****Grant
                  Date**
              **Quantity**
              **Option
                  Price**
              **Expiry**
              **Fair
                  Value**
              **Risk
                  free**
                **rate**
              **Expected
                  life**
              **Expected
                  volatility**
              **Expected dividends**
              **Notes**Jan-04
              100,000
              $0.50
              Jan-09
              $40,876
              1.43%
              5
                  yrs
              102%
              NIL
              (2)Jun-04
              2,550,000
              $0.115
              Jun-09
              $57,746
              1.43%
              5
                  yrs
              94%
              NIL
              (2)Nov-04
              100,000
              $1.00
              Nov-09
              $39,938
              2.43%
              5
                  yrs
              123%
              NIL
              (1)Aug-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 Note
        (2): These options were granted where exercise price equals market price
        on
        grant date
  The
        100,000 options
        issued in January 2004 were issued under Plan A and vested immediately. In
        June
        2004, 250,000
        options
        were issued under Plan A. These options vested over a two year period. The
        remaining 2,300,000
  
 58
  options
        issued in
        June 2004 were issued under Plan B and vest equally over five years, subject
        to
        certain earnings criteria being met. Since these criteria were not met in
        2005
        and 2006, 40% of the options awarded under this plan were forfeited during
        the
        respective years and no stock compensation expense was booked, thereon. The
        100,000 options
        issued in
        November 2004 were issued under Plan A and became exercisable May 15,
        2006.
  The
        100,000 options
        issued in 2005 were issued under Plan A. They vested immediately and are
        exercisable until August
        2010.
  The
        following
        summarizes options outstanding as at December 31:
 
  **Exercise****price**
              
              **Number
                  of Shares****Expiry
                  date**
              
              
              **per
                  share**
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**Apr-06
              
              $
              0.50
              
              
              -
              
              
              1,440,000
              
              
              1,440,000Jun-07
              
              $
              1.00
              
              
              100,000
              
              
              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
              
              
              1,630,000
              
              
              2,090,000
              
              
              2,550,000Nov-09
              
              $
              1.00
              
              
              100,000
              
              
              100,000
              
              
              100,000Aug-10
              
              $
              0.30
              
              
              100,000
              
              
              100,0002,815,000
              
              
              4,715,000
              
              
              5,075,000Weighted
                  averageexercise
                  price at endof
                  year
              
              
              
              
              $
              0.28
              
              $
              0.34
              
              $
              0.32
  **2006**
              
              **2005**
              
              **2004**Outstanding,
                  beginning ofyear
              
              
              4,715,000
              
              
              5,075,000
              
              
              2,325,000Granted
              
              
              -
              
              
              100,000
              
              
              2,750,000Expired
              
              
              (1,440,000
              )
              
              -
              
              
              -Forfeited
              
              
              (460,000
              )
              
              (460,000
              )
              
              -Outstanding,
                  end of year
              
              
              2,815,000
              
              
              4,715,000
              
              
              5,075,000Exercisable,
                  end of year
              
              
              1,435,000
              
              
              2,712,500
              
              
              2
                  ,487,500
  
 59
  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**
              
              **Range
                  of Option Price**
              
              **Weighted**
                **Avg.
                  Price**Outstanding
                  December 31, 2004
              
              
              5,075,000
              
              
              2,487,500
              
              $
              0.12
              
              $
              1.00
              
              $
              0.32Granted
              
              
              100,000
              
              
              
              
              $
              0.30
              
              $
              0.30
              
              $
              0.30Exercised
              
              
              -Cancelled
              
              
              (
                  460,000
              )
              
              
              
              $
              0.12
              
              $
              0.12
              
              $
              0.12Outstanding
                  December 31, 2005
              
              
              4,715,000
              
              
              2,712,500
              
              $
              0.115
              
              $
              1.00
              
              $
              0.34Granted
              
              
              -Exercised
              
              
              -Cancelled
              
              
              (
                  1,900,000
              )
              
              
              
              $
              0.115
              
              $
              0.50
              
              $
              0.41Outstanding
                  December 31, 2006
              
              
              2,815,000
              
              
              1,435,000
              
              $
              0.115
              
              $
              1.00
              
              $
              0.28
  The
        following table
        describes the weighted average life of the outstanding options as of December
        31, 2006:
  **Exercise
                  Price**
              
              **Options**
                **Outstanding**
              
              **Remaining**
                **Weighted
                  Average**
                **Contractual
                  Life**
                **(Years)**
              
              **Options**
                **Exercisable**0.115
              
              
              1,630,000
              
              
              2.5
              
              
              250,0000.300
              
              
              100,000
              
              
              3.7
              
              
              100,0000.500
              
              
              885,000
              
              
              1.6
              
              
              885,0001.000
              
              
              200,000
              
              
              2.1
              
              
              200,0002,815,000
              
              
              
              
              
              1,435,000
  No
        stock options were issued during the year ended December 31, 2006.
  (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.
  On
        December 15,
        2005, the Company filed a post-effective amendment to its Registration
        Statement, reducing the exercise price of the common stock purchase warrants
        from $0.50 to $0.20. As of the filing of this report, the amendment has not
        been
        declared effective by the SEC. The fair value determined by Black Scholes
        was $62,092,
        and the
        fair value assumptions were a risk-free rate of 2%, expected life of 1 year,
        expected volatility of 107%
        and expected
        dividends of NIL. This amount was charged to income as stock based compensation
        expense and credited to contributed surplus.
  During
        the first
        quarter of 2005, the terms of the common stock purchase warrants were amended,
        extending the expiry
        of these
        warrants from February 11, 2005 to February 11, 2006. The terms of the warrants
        were
  
 60
  amended
        such that
        if the common stock of MEII, closes at $0.70 or greater for thirty consecutives
        trading days, MEII has the right to redeem the Warrants at $0.01 per Warrant
        upon ten days prior notice. The fair value determined by Black Scholes was
        $228,347, and the fair value assumptions were a risk-free rate of 2.49%,
        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.
  **10. CONTRIBUTED
        SURPLUS**
  Cumulative
        totals
        of amounts credited to contributed surplus at December 31, 2006 and 2005
        are as
        follows:
 
  **2006**
              
              **2005**Stock
                  compensation expense
              
              $
              2,872,676
              
              $
              2,779,285Fair
                  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
              
              
              -$
              3,106,792
              
              $
              2,907,290
  **11.FUTURE
        INCOME
        TAXES**
  The
        income tax
        expense included in the statements of operations differs from the statutory
        income tax rate as follows:
  **2006**
              
              **2005**
              
              **2004**Net
                  loss
                  before discontinued operations
              
              $
              (
                  27,429
              )
              $
              (969,455
              )
              $
              (
                  2,318,553
              )Statutory
                  income tax rate
              
              
              36.1
              
              
              3
                  6.1
              
              
              3
                  6.1Income
                  tax
                  recovery based on statutory income tax rate
              
              $
              (
                  10,000
              )
              $
              (350,000
              )
              $
              (
                  837,000
              )Tax
                  effect of
                  non-deductible items and foreign currency translation
              
              
              481,000
              
              
              150,000
              
              
              36,000Tax
                  effect of
                  income from discontinued operations, offset by losses utilized
                  and not
                  previously recorded
              
              
              307,000
              
              
              41,000
              
              
              353,000Tax
                  effect of
                  rate changes
              
              
              144,000
              
              
              86,000
              
              
              -Change
                  in
                  valuation allowance
              
              
              (
                  922,000
              )
              
              73,000
              
              
              448,000$
              -
              
              $
              -
              
              $
              -
  61
  The
        tax effect of
        significant temporary items comprising the company's deferred taxes as of
        December 31 is as follows:
  **2006**
              
              **2005**Long-term
                  deferred tax assetsOperating
                  loss carryforwards
              
              $
              2,409,000
              
              $
              3,407,000Excess
                  of tax
                  basis over book value of property, plant andequipment
              
              
              119,000
              
              
              43,000Total
                  long-term deferred tax assets
              
              
              2,528,000
              
              
              3,450,000Less:
                  valuation allowance
              
              
              (
                  2,528,000
              )
              
              (
                  3,450,000
              )Net
                  deferred
                  tax asset
              
              $
              -
              
              $
              -
  At
        December 31,
        2006 the company has Canadian non-capital loss carryforwards totaling
        approximately $7,178,000, expiring in varying amounts from 2007 to 2016
        available to offset future taxable income. In addition, the company has Canadian
        property, plant and equipment tax pools in excess of the net book value totaling
        approximately $353,000 available to reduce taxable income and which are not
        subject to expiry.
  **12.C** **LOSING
        COSTS**
  On
        June 15, 2004, the Company issued 39,360,272 common shares for $4,500,000.
        Closing costs including legal,
        travel and
        due diligence costs for the equity financing amounted to $609,214, and were
        expensed during 2004. As a condition of the transaction, Preferred Shares,
        50%
        of which were indirectly held by Dr. Zacharias, the CEO of MEII, were converted
        into 9,348,000 common shares; and unpaid preferred share dividends, in the amount
        of $ 579,582, were forgiven.
  **13.** **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.
 
  **2006**
              
              **2005**
              
              **2004**Net
                  income
                  (loss) per common share (basic and diluted):Continuing
                  operations
              
              $
              0.00
              
              
              ($0.02
              )
              
              ($0.05
              )Discontinued
                  operations
              
              $
              0.01
              
              $
              0.00
              
              $
              0.03
  **14. NOTES
        TO THE
        STATEMENTS OF CASH FLOWS**
  (i)  Changes
        in non-cash
        working capital components
  **2006**
              
              **2005**
              
              **2004**Accounts
                  receivable
              
              $
              (392,852
              )
              $
              (579,351
              )
              $
              556,089Prepaid
                  expenses
              
              
              9,685
              
              
              (10,311
              )
              
              6,864Accounts
                  payable and accruedliabilities
              
              
              123,308
              
              
              414,739
              
              
              (968,048
              )$
              (259,859
              )
              $
              (174,923
              )
              $
              (405,095
              )
  (ii)  Non
        cash
        transaction
  There
        were no
        non-cash transactions during the years ended December 31, 2006, 2005 and
        2004.
   62
  **15. COMMITMENTS**
  The
        Company is
        committed to contractual obligations totaling approximately $3.9 million.
        The
        Company has not engaged in off-balance sheet financing, commodity contract
        trading or significant related party transactions. Contractual obligations
        are
        as follows:
 
  **Total****2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **Thereafter**
              
              **Obligations**Long-term
                  debt1
              
              $
              330,530
              
              $
              302,343
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              632,873Operating
                  lease obligations
              
              
              827,113
              
              
              650,665
              
              
              550,843
              
              
              464,781
              
              
              330,710
              
              
              19,024
              
              
              2,843,136Notes
                  payable2
              
              
              74,400
              
              
              361,995
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              436,395$
              1,232,043
              
              $
              1,315,003
              
              $
              550,843
              
              $
              464,781
              
              $
              330,710
              
              $
              19,024
              
              $
              3,912,404
  Notes:
  1  -
        Includes interest
        on long-term debt at the prescribed rate established by the Canada Revenue
        Agency (CRA),
        currently
        set at 3.6%. 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.
  **16.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 athird
        party. The
        potential costs to the Company associated with this dispute range from $nil
        to
        $1.6 million. Based on the advice of counsel, 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. Based on the advise of counsel, 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 and counsel are of the opinion that the claim
        is
        unlikely to succeed, no provision has been made in respect thereof in these
        consolidated financial statements. No amount has been provided in these
        consolidated financial statements.
  (iv) The
        Company
        sub-leased certain premises to third parties when it disposed of its clinic
        operations. In case of payment defaults by the third parties, the Company
        could
        be held liable for rent on these premises. Rent for these premises over the
        next
        seven years, during the respective lease terms, totals $926,000.
  (v)We
        are parties to various
        claims and legal proceedings arising in the normal course of business. While
        claims and litigation are subject to inherent uncertainties, management
        currently believes that the
        ultimate
        outcome of claims and proceedings, individually and in the aggregate, will
        not
        have a material adverse effect on our consolidated financial condition, results
        of operation or cash flows.
  Any
        liability
        resulting from the above will be reflected as a charge to income in the year
        the
        liability, if any, is confirmed.
  63
  **17.** **FINANCIAL
          INSTRUMENTS**
 **FAIR
        VALUE**
 The
        carrying value
        of 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 the notes payable and the long-term debt approximate fair value
        as the
        instruments’ interest rates are comparable to rates currently offered for debt
        instruments of similar risk and maturities.
  **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.
  **18.** **CANADIAN
        AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**
  These
        consolidated
        financial statements have been prepared in accordance with Canadian GAAP,
        which conform
        in all
        material respects with accounting principles generally accepted in the United
        States (“U.S. GAAP”) during
        the periods
        presented, except with respect to the following:
  **(a) 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 Securities* recommends
        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.
  The
        reconciliation
        of Canadian to U.S. GAAP for the Series 1 Shares is as follows:
  **2006**
              
              **2005**Liability
                  portion of redeemable, convertible Series 1 Shares - Canadian
                  GAAP
              
              $
              2,589,159
              
              $
              -Impact
                  of
                  accretion expense
              
              
              (
                  48,124
              )
              
              -Equity
                  portion of redeemable, convertible Series 1 Shares
              
              
              4
                  82,043
              
              
              -Translation
                  adjustment attributable to Series 1 Shares
              
              
              83,476
              
              
              -Series
                  1
                  Shares - U.S. GAAP
              
              $
              3,106,554
              
              $
              -
  **(b)** **Share
        capital, goodwill and correction of prior period error**
  Under
        Canadian
        GAAP, the purchase price of an acquisition is determined based on the share
        price on the date the transaction is consummated. Under U.S. GAAP, the purchase
        price of an acquisition where shares are issued is determined based on the
        share
        price for the period surrounding the announcement date of the acquisition.
        The
        share price used for the YFMC Healthcare Inc. acquisition in 1999 under Canadian
        GAAP was $1.25. The share price used for the YFMC Healthcare Inc. acquisition
        under U.S. GAAP was $1.859. The difference was allocated to goodwill at that
        time and, subsequently, the goodwill was impaired and written-off.
  At
        December 31,
        2005, in the reconciliation of shareholders’ equity under Canadian GAAP to U.S.
        GAAP, the Company
        had
        incorrectly excluded the above noted charge to the deficit that was created
        when
        the goodwill was written-off
        in
        2002. The effect of this error was to understate the ending deficit and
        overstate shareholders’ equity under U.S. GAAP by $1,087,272 at December 31,
        2005. This error did not affect reported net income (loss) or net income
        (loss)
        per common share for any period presented in these financial statements.
        The
        comparative figures reflected in the reconciliation of the deficit
        and total
        shareholders’ equity under U.S. GAAP have been restated from $18,077,662 to
        $19,165,534 and from $1,168,749 to $81,477, respectively, to correct this
        error.
  64
  **(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)** **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.
  65
 
 The
        effect of these accounting differences on capital stock, contributed surplus,
        deficit, cumulative translation adjustment, net income (loss) and net income
        (loss) per share are as follows:


**AS
                    RESTATED (b)****2006**
                
                **2005**Capital
                    stock - Canadian GAAP
                
                $
                16,420,668
                
                $
                16,044,736Capital
                    stock issued on purchase of YFMC Healthcare Inc. (b)
                
                
                1,087,872
                
                
                1,087,872Ascribed
                    fair value of share purchase warrants issued (c)
                
                
                (36,406
                )
                
                (36,406
                )Equity
                    portion of redeemable, convertible Series 1 Shares (a)
                
                
                (482,043
                )
                
                -Capital
                    stock - U.S. GAAP
                
                $
                16,990,091
                
                $
                17,096,202Contributed
                    surplus - Canadian GAAP
                
                $
                3,106,792
                
                $
                2,907,290Share
                    purchase warrants (c)
                
                
                36,406
                
                
                36,406Contributed
                    surplus - U.S. GAAP
                
                $
                3,143,198
                
                $
                2,943,696Deficit
                    - Canadian GAAP
                
                $
                (17,253,951
                )
                $
                (18,077,662
                )Write-off
                    of goodwill on purchase of YFMC Healthcare Inc. (b)
                
                
                (1,087,872
                )
                
                (1,087,872
                )Impact
                    of accretion expense (a)
                
                
                48,124
                
                
                -Deficit
                    - U.S. GAAP
                
                $
                (18,293,699
                )
                $
                (19,165,534
                )Cumulative
                    translation adjustment - Canadian GAAP
                
                $
                (849,552
                )
                $
                (792,887
                )Translation
                    adjustment attributable to Series 1 Shares (a)
                
                
                (83,476
                )
                
                -Cumulative
                    translation adjustment - U.S. GAAP
                
                $
                (933,028
                )
                $
                (792,887
                )Shareholders'
                    equity - U.S. GAAP
                
                $
                906,562
                
                $
                81,477




**FOR
                  THE YEAR ENDING DECEMBER 31**
              
              2006
              
              2005
              
              2004Net
                  income (loss) - Canadian GAAP
              
              $
              823,711
              
              $
              (856,557
              )
              $
              (1,341,205
              )Impact
                  of accretion expense (a)
              
              
              48,124
              
              
              -
              
              
              -Net
                  income (loss) - U.S. GAAP
              
              
              871,835
              
              
              (856,557
              )
              
              (1,341,205
              )Foreign
                  currency translation adjustment (d)
              
              
              (140,141
              )
              
              7,904
              
              
              164,627Comprehensive
                  income (loss) - U.S. GAAP
              
              $
              731,694
              
              $
              (848,653
              )
              $
              (1,176,578
              )Net
                  income (loss) per share, basic and diluted - Canadian GAAPContinuing
                  operations
              
              $
              (0.00
              )
              $
              (0.02
              )
              $
              (0.05
              )Discontinued
                  operations
              
              $
              0.01
              
              $
              0.00
              
              $
              0.03Net
                  income (loss) per share, basic and diluted - U.S. GAAPContinuing
                  operations
              
              $
              0.00
              
              $
              (0.02
              )
              $
              (0.05
              )Discontinued
                  operations
              
              $
              0.01
              
              $
              0.00
              
              $
              0.03


(e) Recently
        issued
        accounting standards
  i.  In
        February 2006, the United
        States Financial Accounting Standards Board (‘‘FASB’’) issued Statement of
        Financial Accounting Standard (‘‘SFAS’’) No. 155, ‘‘Accounting for Certain
        Hybrid Financial Instruments - an amendment to FASB Statements No. 133 and
        140’’
(‘‘SFAS 155’’). SFAS 155 simplifies the accounting for certain hybrid financial
        instruments containing embedded derivatives. SFAS 155 allows fair value
        measurement for any hybrid financial instrument that contains an embedded
        derivative that otherwise would require bifurcation under SFAS No. 133,
‘‘Accounting for Derivative Instruments and Hedging Activities’’ (‘‘SFAS 133’’).
        In addition, it amends SFAS No. 140 ‘‘Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities’’ (‘‘SFAS 140’’), to
        eliminate the prohibition on a qualifying special-purpose entity from holding
        a
        derivative financial instrument that pertains to a beneficial interest other
        than another derivative financial instrument. SFAS 155 is effective for all
        financial instruments acquired, issued, or subject to a re-measurement event
        occurring after the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The Company
        will adopt
        the provisions of SFAS 155 on January 1, 2007. The implementation of SFAS
        155 is not
        expected to have a material impact on the Company’s results of operations and
        financial condition.
  
 66
  ii. 
In
        June 2006, FASB
        ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in
        Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental
        Authorities Should be Presented in the Income Statement (That is, Gross Versus
        Net Presentation).” Issue No. 06-3 requires disclosure of an entity's accounting
        policy regarding the presentation of taxes assessed by a governmental authority
        that are directly imposed on a revenue producing transaction between a seller
        and a customer, including sales, use, value added and some excise taxes.
        The
        adoption of Issue No. 06-3, which is effective for interim and annual reporting
        periods beginning after December 15, 2006, is not expected to have an impact
        on
        the Company's consolidated financial statements.
  iii. In
        July 2006,
        FASB issued two related standards that address accounting for income taxes:
        FASB
        Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes,
        and
        FASB Staff Position (FSP) FAS 13-2, Accounting for a Change in the Timing
        of
        Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.
        Among other things, FIN 48 requires applying a “more likely than not” threshold
        to the recognition and de-recognition of tax positions, while FSP FAS 13-2
        requires a recalculation of returns on leveraged leases if there is a change
        or
        projected change in the timing of cash flows relating to income taxes generated
        by the leveraged lease. The new guidance will be effective for us on January
        1,
        2007. The implementation of FIN 48 and FAS 13-2 are not expected to have
        a
        material impact on our results of operations and financial
        condition.
  iv. In
        September
        2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the
        Effects of Prior Year Misstatements when Quantifying Misstatements in Current
        Year Financial Statements.” SAB 108 was issued to provide consistency between
        how registrants quantify financial statement misstatements.
  Historically,
        there
        have been two widely-used methods for quantifying the effects of financial
        statement misstatements. These methods are referred to as the “roll-over” and
“iron curtain” method. The roll-over method quantifies the amount by which the
        current year income statement is misstated. Exclusive reliance on an income
        statement approach can result in the accumulation of errors on the balance
        sheet
        that may not have been material to any individual income statement, but which
        may misstate one or more balance sheet accounts. The iron curtain method
        quantifies the error as the cumulative amount by which the current year balance
        sheet is misstated. Exclusive reliance on a balance sheet approach can result
        in
        disregarding the effects of errors in the current year income statement that
        results from the correction of an error existing in previously issued financial
        statements.
  SAB
        108 established
        an approach that requires quantification of financial statement misstatements
        based on the effects of the misstatement on each of the company’s financial
        statements and the related financial statement disclosures. This approach
        is
        commonly referred to as the “dual approach” because it requires quantification
        of errors under both the roll-over and iron curtain methods.
  SAB
        108 allows
        registrants to initially apply the dual approach either by (1) retroactively
        adjusting prior financial statements as if the dual approach had always been
        used or by (2) recording the cumulative effect
        of initially
        applying the dual approach as adjustments to the carrying values of assets
        and
        liabilities as
        of January 1,
        2006 with an offsetting adjustment recorded to the opening balance of retained
        earnings. Use of this “cumulative effect” transition method requires detailed
        disclosure of the nature and amount of each individual error being corrected
        through the cumulative adjustment and how and when it arose.
  The
        Company has
        historically applied the dual approach in quantifying financial statement
        misstatements in all prior periods. As such, no adjustment will be
        required.
  v.  In
        September
        2006, the FASB ratified the EITF consensus on Issue 06-4, “Accounting for
        Deferred Compensation and Postretirement Benefit Aspects of Endorsement
        Split-Dollar Life Insurance Arrangements”, which requires entities to recognize
        a liability and related compensation costs for endorsement split-dollar life
        insurance policies that provide a benefit to an employee that extends to
        postretirement periods. The liability should be recognized in accordance
        with
        SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
        Pensions”, based on the substantive agreement with the employee. This Issue is
        effective for us beginning January 1, 2008. The Issue can be applied as either
        (a) a change in accounting principle through a cumulative-effect adjustment
        to
        retained earnings as of the beginning of the year of adoption, or (b) a change
        in accounting principle
  67
 
  through
        retrospective application to all periods. The implementation of EITF 06-4
        is not
        expected to have a material impact on the Company’s results of operations and
        financial condition.
  vi. 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.
  vii.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 our consolidated financial
        statements.
  **19.SEGMENTED
        INFORMATION**
  The
        Company
        operated under three business units during 2006 as follows: Staffing Solutions,
        Medical Services, and Healthcare Consulting Services.
  The
        segmented
        information for the business units are as follows:
 
  **2006****Staffing**
                **Solutions**
              
              **Medical**
                **Services**
              
              **Healthcare**
                **Consulting**
              
              **Consolidated**Revenue
              
              $
              10,708,540
              
              $
              5,897,883
              
              $
              1,110,355
              
              $
              17,716,778Gross
                  margin
              
              $
              1,818,638
              
              $
              2,432,213
              
              $
              691,436
              
              $
              4,942,287Net
                  income
                  (loss) before discontinued operations
              
              $
              53,003
              
              $
              41,612
              
              
              ($122,044
              )
              
              ($27,429
              )Property,
                  plant and equipment employed at end of year
              
              $
              84,492
              
              $
              428,559
              
              $
              84,492
              
              $
              597,543Amortization
              
              $
              108,214
              
              $
              87,127
              
              $
              36,380
              
              $
              231,721
 
  **2005****Staffing**
                **Solutions**
              
              **Medical**
                **Services**
              
              **Healthcare**
                **Consulting**
              
              **Consolidated**Revenue
              
              $
              9,284,794
              
              $
              3,368,963
              
              $
              1,131,692
              
              $
              13,785,449Gross
                  margin
              
              $
              1,735,469
              
              $
              1,175,446
              
              $
              581,568
              
              $
              3,492,483Net
                  income
                  (loss) before discontinued operations
              
              
              ($243,275
              )
              
              ($614,531
              )
              
              ($111,649
              )
              
              ($969,455
              )Property,
                  plant and equipment employed at end of year
              
              $
              105,615
              
              $
              198,690
              
              $
              105,615
              
              $
              409,920Amortization
              
              $
              113,674
              
              $
              91,523
              
              $
              38,216
              
              $
              243,413
  
 68
  **2004****Staffing**
                **Solutions**
              
              **Medical**
                **Services**
              
              **Healthcare**
                **Consulting**
              
              **Consolidated**Revenue
              
              $
              7,479,124
              
              $
              1,227,533
              
              $
              789,912
              
              $
              9,496,569Gross
                  margin
              
              $
              1,345,490
              
              $
              544,454
              
              $
              335,477
              
              $
              2,225,421Net
                  income
                  (loss) before discontinued operations
              
              
              ($1,294,225
              )
              
              ($575,873
              )
              
              ($448,455
              )
              
              ($2,318,553
              )Property,
                  plant and equipment employed at end of year
              
              $
              149,738
              
              $
              170,767
              
              $
              149,738
              
              $
              470,243Amortization
              
              $
              81,214
              
              $
              32,888
              
              $
              20,136
              
              $
              134,238
  **20.** **RELATED
        PARTY TRANSACTIONS**
  Included
        in general
        and administration expenses are administrative fees totaling $31,743 (2005
        -
        $24,765), paid to a Company controlled by a director and consulting fees
        of $nil
        (2005 - $57,794) paid to two directors, who were retained as consultants.
        The
        directors’ consulting contracts expired in June 2005. There are no related party
        balances outstanding at December 31, 2006 and 2005. These transactions have
        been
        recorded at their exchange amount which is the amount agreed to by the related
        parties.
  **21.** **COMPARATIVE
        FIGURES**
  Certain
        figures in
        the 2005 and 2004 consolidated financial statements have been reclassified
        to
        conform with the basis of presentation in 2006. The results for Family Medical
        Clinics, which were reported as part of Medical Services in 2005, have been
        reclassified as discontinued operations (Note 4).
   69