**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 EXCHANGEACT
                  OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 ̈
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
                  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  ̈ 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  ̈   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  ̈





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  ̈   Accelerated
      filer  ̈  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  ̈ No x





-
          1
          -








The
      aggregate market value of the outstanding common shares of the registrant held
      by non-affiliates as of March 30, 2006 was approximately $11,655,500 based
      on
      the last reported sale price of $0.20 per share on that date as quoted on the
      OTC Bulletin Board (all figures in US dollars unless otherwise noted.).





As
      of
      March 30, 2006, 58,277,696 of the registrant’s common shares were
      outstanding.






















































































-
          2
          -


**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 2005, 64% of the
      Company’s revenue was generated by the Staffing Solutions unit; 28% by the
      Medical Services unit; and 8% by the Healthcare Consulting unit. From a Gross
      Margin perspective, the contribution was 46%, 38% and 16%,
      respectively.





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




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





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





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





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-staffing services to more than 40 healthcare facilities across
      Ontario, including rural and urban hospitals as well as tertiary care centers
      and corrections facilities. The Company believes that on-going physician
      shortages and continuing demand for improved levels of care will continue to
      drive its Staffing Solutions business.




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




In
      March
      2005, MEII reached an understanding with a provincial pharmacist association,
      to
      create a program to provide temporary placement of pharmacists in pharmacies
      across the province. Under the program, MEII was responsible for the
      recruitment, credentialing, placement and monitoring of the pharmacists. Late
      in
      2005, this program was discontinued through mutual agreement.




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.




-
          3
          -


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, 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 disabling rheumatoid arthritis and Crohn's
      disease. The Company delivered more than 7,500 infusions in
      2005.




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





As
      of
      December 31, 2005, the Company operated 13 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 three indications in Ontario:
      rheumatoid arthritis, Crohn’s disease, and ankylosing spondylitis. RemicadeTM is
      also prescribed for ulcerative colitis, psoriasis and psoriatic arthritis,
      but
      these indications are awaiting approval from Health Canada. 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 been related to Crohn’s disease and rheumatoid
      arthritis. Although total infusions grew by more than 25% in 2005, growth for
      the two key indications was less than 5% in the latter part of 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.





*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 and two more
      locations were opened in 2005, in Hamilton and Mississauga.





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.


-
          4
          -


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





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





The
      clinic that CPM acquired in November 2004 increased patient visits from
      approximately 300 patients per month to almost 700 patients per month during
      2005. Further, CPM as a whole more than tripled its volumes by seeing
      approximately 1,000 patients in November 2005, compared to the 289 patients
      seen
      in November of 2004.





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





*Family
      Medical Clinics*




In
      January 2005, the Company resumed operation of a family medical clinic in
      Wallaceburg, Ontario that it had sold in 2003, after the purchaser failed to
      achieve certain earnings targets. In November 2005, the Company resumed
      operation of a second clinic in Calgary Alberta, when the buyer defaulted on
      certain payment obligations. The Company has no plans to expand it Family
      Medical Clinics.




*HEALTHCARE
      CONSULTING*




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





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





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





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





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


-
          5
          -


*DISCONTINUED
      OPERATIONS (GOVERNMENT HEALTHCARE SERVICES)*




In
      March
      2001, the Company was awarded an administrative management services 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 the contract was amended
      and
      extended until March 31, 2005.





In
      May
      2004, Public Works and Government Services Canada (PWGSC) re-tendered the
      Contract. MEII responded to the tender proposal and its bid was one of three
      considered by PWGSC. In December 2004, MEII learned that it was not successful
      in its bid to win a follow-on 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 initiated a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  The Company believes that the
      successful bidder used confidential information obtained through the hiring
      of a
      former MEII employee to win the contract, and that the former MEII employee
      retained by the successful bidder breached his legal obligations by disclosing
      financial and other information confidential to MEII.  On January 31, 2005,
      the Company filed a complaint with the Canadian International Trade Tribunal
      (CITT).  The CITT is the
      administrative tribunal in Canada with the jurisdiction to conduct inquiries
      into complaints by potential suppliers concerning procurement by the federal
      government departments and agencies, including DND and PWGSC. In
      its
      submission to the CITT, MEII questioned the manner in which the Government
      of
      Canada’s procurement for the DND medical staffing contract, valued at
      $448,810,965, was conducted, including the evaluation of its proposal submitted
      in response to the Request for Proposal (RFP). Specifically, the Company alleged
      that PWGSC:





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


·
            Introduced
                unpublished evaluation criteria to the evaluation process,
                and


·
            Failed
                to properly apply the published evaluation
                criteria.





In
      filing
      the complaint, the company sought to terminate the contract award to the winning
      bidder, to have MEII awarded the contract, or in the alternative, to have a
      new
      bid process conducted.  In the further alternative, the Company asked that
      it be compensated for lost profit on the contract and the costs associated
      with
      the filing of the complaint. On June 15, 2005 the CITT ruled that the
      Company’s complaint against PWGSC was valid, in part, and awarded the Company
      its reasonable costs. On July 15, 2005 the Company filed an application for
      judicial review into the CITT decision. In its decision the CITT held that
      PWGSC
      breached the applicable trade agreements in conducting its procurement. Despite
      this, the CITT declined to grant any remedy aside from the award of reasonable
      costs. The Federal Court of Appeal convened on March 22, 2006 to consider the
      matter. A ruling has not yet been received.




**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.


____________________


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





-
          6
          -




5.
      Medical school enrolment decreases had only a modest impact on the decline
      in
      physicians. There was a 5% drop in output from Canadian medical schools
      beginning with the class of 1991 and a further 10% reduction beginning with
      the
      class of 1997.


6.
      Loss
      of physicians to the United States and other countries had little impact. In
      any
      given year during the decade, there was a net loss of Canadian physicians due
      to
      migration. However, this annual loss was only slightly greater from 1994 to
      2000
      than it was from 1990 to 1993. Hence, this phenomenon accounted for only 3%
      of
      the decline in net physician inflow. 2





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





Because
      of these demographic shifts, it is estimated by the Canadian Medical
      Association, that 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.




___________________


2 From
          Perceived Surplus to Perceived Shortage: What Happened to Canada’s Physician
          Workforce in the 1990s? Benjamin TB Chan, MD, MPH, MPA, June 2002, published
          by
          the Canadian Institute for Health Information.
 3 Ibid
 4  *Canadian
          Healthcare in Crisis,* CBS
          News,
          (AP), March 20, 2005.
 5 Moulin,
          D., Canadian National Pain Study, 2002, *Pain
          Research and Management* .





-
          7
          -


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




6 Morley-Foster *et
          al* , *Pain
          Research Management,* 2003.
 7  *Brunelli
          B* .
          et al. *Journal
          of Neurological Sciences. 2004 ;218(1-2):59-66*
 8 Stewart
          et al, The Journal of the American Medical Association, 2003;
          290:2443-54.
 9 Peng,
          unpublished data, 2005.
 10  *National
          Health Expenditure Trends, 1975-2005* ,
          published December 6, 2005, by the Canadian Institute for Health
          Information
 11  *Canadian
          Healthcare in Crisis,* CBS
          News,
          (AP), March 20, 2005.
  -
              8
              -
 Continuing
        budgetary constraints at both the federal and provincial level and the rapidly
        escalating costs of healthcare and reimbursement programs have led, and may
        continue to lead, to significant reductions in government and other third
        party
        reimbursements for certain medical charges. The Company's independent contracted
        physicians as well as the Company are subject to periodic audits by government
        reimbursement programs to determine the adequacy of coding procedures and
        reasonableness of charges.





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




*COMPETITION*




The
      Company competes with a variety of healthcare service providers. These include
      the following by 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, 2005, the Company had 109 active full and part-time employees,
      20
      were employed in administration, 24 were involved in staffing solutions, 61
      were
      active in medical services, and four were in the consulting division. The
      Company believes its relations with its employees are good. The Company’s
      employees do not belong to a union and there is no collective bargaining
      agreement covering the employees. The Company also has approximately 130
      contractors engaged on a part-time basis, all of which provide services to
      clients of the Company.





**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 CAN GAAP net loss attributable to common shareholders of
      $856,557 (on revenues of $14,392,647) during the year ended December 31, 2005,
      as compared to a CAN GAAP net loss of $795,796 (on revenues of $9,496,569)
      during the year ended December 31, 2004. As of December 31, 2005, the Company
      had an accumulated shareholders’ equity balance of $81,477. 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.


-
          9
          -


**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 aggregate per annum (Cdn$5,000,000 limit per occurrence)
      with
      respect to general commercial liability; and (ii) Cdn$4,000,000 aggregate per
      annum (Cdn$2,000,000 limit per occurrence) 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$10,000,000 aggregate per annum (Cdn$5,000,000 limit per occurrence) for
      medical malpractice caused by a negligent act, error or omission by the Company,
      or any person for whom it is legally liable. In addition, physicians staffed
      by
      the Company maintain their own malpractice insurance. To the extent such
      physicians may be regarded as agents of the Company in the practice of medicine,
      there can be no assurance that a patient or client would not sue the Company
      for
      any negligence of such physicians. In addition, in the event that the Company
      becomes liable, there can be no assurance that its current insurance policy
      will
      be adequate to cover any such liabilities.





**The
      Company’s business is subject to government regulation.**





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





Under
      a
      combination of statutory provisions, both Federal and provincial, physicians
      are
      prohibited from billing their patients for fees in excess of those payable
      for
      services listed in the provincial Schedule of Benefits. The Canada Health Act
      allows for cash contributions by the Federal government in respect of insured
      health services provided under provincial healthcare insurance
      plans.


-
          10
          -


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
      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; Sidney Braun, its President
      and
      Chief Operating Officer; William Danis, its Chief Financial Officer; and Dr.
      Donald Ross, its Vice President of Business Development. If the Company lost
      the
      services of any of Dr. Zacharias, Mr. Braun, Mr. Danis or Dr. Ross, 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 55.9% 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 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 is nevertheless 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.


-
          11
          -


**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 new and neither companies
      nor auditing firms have significant experience in testing or complying with
      these requirements. Accordingly, 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
      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 share and common share purchase warrants 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 an market for such
      securities.


-
          12
          -


**Currency
      Fluctuations may adversely affect the Company’s operating
      results** .





Revenue
      denominated in Canadian dollars accounted for 100% of the Company’s revenue for
      the year ended December 31 *,* 2005,
      100% for the year ended December31, 2004, and 100% for the year ended December
      31, 2003. 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 could 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 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 resale’s of a large number of common shares in the
      public market or even the perception that such resale’s 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 any cash dividends on its common shares and does not intend
      to pay cash dividends in the foreseeable future. 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.


-
          13
          -


**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.OO (other than securities registered on certain national securities
      exchanges or quoted on the NASDAQ system provided that current prices and volume
      information with respect to transactions in such securities are provided by
      the
      exchange or system). The penny stock rules require a broker-dealer, prior to
      a
      transaction in a penny stock not otherwise exempt from the rules, to deliver
      a
      standardized risk disclosure document that provides information about penny
      stocks and the risks in the penny stock market. The broker-dealer also must
      provide the customer with current bid and offer quotations for the penny stock,
      the compensation of the broker-dealer and its salesperson in the transaction
      and
      monthly account statements showing the market value of each penny stock held
      in
      the customers account In addition, the penny stock rules generally require
      that
      prior to a transaction in a penny stock the broker-dealer make a special written
      determination that the penny stock is a suitable investment for the purchaser
      and receive the purchasers written agreement to the transaction. These
      disclosure requirements may have the effect of reducing the level of trading
      activity in the secondary market for a stock that becomes subject to the penny
      stock rules.








**ITEM
      2: PROPERTIES**




We
      do not
      own any real property. Our principal leases, as of December 31, 2005, are listed
      below:




Location
              Function
              Square
                  Feet
              MonthlyRent
                  (CDN $)
              Lease
                  ExpirationMississauga,
                  Ontario
              Head
                  office and clinical services
              8,940
              17,129
              December
                  31, 2007London,
                  Ontario
              Administrative
                  services
              1,550
              1,549
              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, 2009





**ITEM
      3: LEGAL PROCEEDINGS**





(i)  On
      August
      3, 2004 a lawsuit (Burke v. Master Corporal Calvin Smith, Med-Emerg
      International Inc., and the Attorney General for Canada) was filed in the
      Superior Court of Justice (Ontario), naming the Company as a defendant. The
      lawsuit alleges defamation and wrongful termination and breach of employment
      contract and seeks damages from the Company in the amount of Cdn$550,000. The
      plaintiff was employed by the Company on a term definite contract with respect
      to the DND contract. In August 2003, the Company was advised by DND that DND
      was
      reviewing its staffing needs with respect to the base where the plaintiff was
      employed. Without the approval of PWGSC, the government arm responsible for
      DND
      procurement, MEII was unable to extend the plaintiff’s employment beyond
      September 26, 2003. On September 22, 2003, the Company was instructed to
      terminate the plaintiff’s contract immediately, for cause. MEII was denied the
      right to investigate the situation or to participate in DND’s investigation of
      the matter. Absent information to the contrary, the Company paid the plaintiff
      until the rightful end of his contract, September 26, 2003. The plaintiff has
      acknowledged that nothing further is owed to him by MEII. The Company has filed
      a cross-claim against the Attorney General for Canada, for damages incurred.




(ii)  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 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.




-
            14
            -
 (iii)  On
      January 24, 2005, the Company filed a complaint (Med-Emerge International Inc.
      v. Calian Technology Limited et al) with Ontario Superior Court of Justice
      alleging that the defendants, the winning bidder in the May 2004 re-tender
      of
      the DND contract and a former employee of the Company, used confidential
      information obtained through the hiring of the former MEII employee to win
      the
      contract, and that the former MEII employee retained by the successful bidder
      breached his legal obligations by disclosing financial and other information
      confidential to MEII. The Company is seeking Cdn$100,000,000 in damages. See *Discontinued
      Operations (Government Healthcare Services)* under
      Item 1 above.





(iv)  On
      January 31, 2005, the Company filed a complaint under subsection 30.13(1) of
      the
      Canadian International Trade Tribunal Act (CITT) alleging that PWGSC had
      improperly awarded the DND contract in the May 2004 re-tender. The Company
      sought to terminate the contract award to the winning bidder, to have MEII
      awarded the DND contract, or in the alternative, to have a new bid process
      conducted.  In the alternative, the Company asked that it be compensated
      for lost profit on the DND contract and the costs associated with the filing
      of
      the complaint. On June 15, 2005 the CITT ruled that the Company’s complaint
      against PWGSC was valid, in part, and awarded the Company its reasonable costs.
      On July 15, 2005 the Company filed an application for judicial review into
      the
      CITT decision. In its decision the CITT held that PWGSC breached the applicable
      trade agreements in conducting its procurement. Despite this, the CITT declined
      to grant any remedy aside from the award of reasonable costs. The Federal Court
      of Appeal convened on March 22, 2006 to consider the matter. A ruling has not
      yet been received. See *Discontinued
      Operations (Government Healthcare Services)* under
      Item 1
      above.





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**





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of the fiscal year ended, December 31, 2005.





**PART
      II**





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





The
      common shares and redeemable common share purchase warrants are traded under
      the
      symbols “MDER” and “MDERW”, respectively, on Nasdaq’s OTC Bulletin Board.
      Although trading in the Company’s common shares has occurred on a relatively
      consistent basis, 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, 2006 was $.20 per share.




**COMMON
                    SHARES****HIGH**
                
                **LOW**Fourth
                    Quarter, 2005
                
                $.24
                
                $.13Third
                    Quarter, 2005
                
                $.33
                
                $.17Second
                    Quarter, 2005
                
                $.40
                
                $.25First
                    Quarter, 2005
                
                $.60
                
                $.35Fourth
                    Quarter, 2004
                
                $.55
                
                $.40Third
                    Quarter, 2004
                
                $.57
                
                $.32Second
                    Quarter, 2004
                
                $.65
                
                $.34First
                    Quarter, 2004
                
                $.69
                
                $.33


-
          15
          -


The
      number of record holders of the Company’s common shares on March 31, 2006 was
      approximately 350. 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 beat 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 restriction as to its present or future ability to pay dividends.








**Unregistered
      Sales of Equity Securities**




None.








**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.


-
          16
          -





**US$****YEAR
                ENDED DECEMBER 31,****2005(1)**
            
            **2004(1)**
            
            **2003(1)**
            
            **2002(1)**
            
            **2001(1)****Statement
                of Operations Data:**Revenue
            
            
            14,392,647
            
            
            9,496,569
            
            
            14,254,652
            
            
            6,092,200
            
            
            6,845,826Physician
                fees and other direct costs
            
            
            10,678,611
            
            
            7,271,148
            
            
            11,494,170
            
            
            4,929,138
            
            
            5,643,347Gross
                Profit
            
            
            3,714,036
            
            
            2,225,421
            
            
            2,760,482
            
            
            1,163,062
            
            
            1,202,479Operating
                expenses before undernoted items
            
            
            4,038,437
            
            
            3,601,423
            
            
            2,884,206
            
            
            1,808,498
            
            
            1,894,888Depreciation
                and amortization
            
            
            243,413
            
            
            134,238
            
            
            52,851
            
            
            52,453
            
            
            76,331Other
                expenses
            
            
            432,748
            
            
            865,939
            
            
            1,274,217
            
            
            416,667
            
            
            1,898,310Loss
                before income taxes
            
            
            (1,000,562
            )
            
            (2,376,179
            )
            
            (1,450,792
            )
            
            (1,114,526
            )
            
            (2,667,050
            )Income
                taxes (recovery)
            
            
            -
            
            
            -
            
            
            (2,458
            )
            
            -
            
            
            1,248,016Minority
                interest
            
            
            -
            
            
            -
            
            
            (2,094
            )
            
            (2,211
            )
            
            1,926Gain
                (Loss) on Discontinued operations
            
            
            144,005
            
            
            1,034,974
            
            
            (128,410
            )
            
            508,651
            
            
            (2,824,575
            )Net
                loss - Canadian GAAP
            
            
            (856,557
            )
            
            (1,341,205
            )
            
            (1,574,650
            )
            
            (603,664
            )
            
            (6,741,567
            )Net
                loss - US GAAP
            
            
            (848,653
            )
            
            (1,176,578
            )
            
            (2,132,537
            )
            
            (619,214
            )
            
            (6,964,095
            )Preferred
                share dividends
            
            
            -
            
            
            (34,173
            )
            
            (135,006
            )
            
            (134,983
            )
            
            (134,870
            )Forgiveness
                of Preferred share dividends
            
            
            -
            
            
            579,582
            
            
            -
            
            
            -
            
            
            -Net
                loss attributable to common shareholders - Canadian GAAP
            
            
            (856,557
            )
            
            (795,796
            )
            
            (1,709,656
            )
            
            (738,647
            )
            
            (6,876,437
            )Net
                loss attributable to common shareholders - US GAAP
            
            
            (848,653
            )
            
            (631,169
            )
            
            (2,267,543
            )
            
            (754,197
            )
            
            (7,098,965
            )Basic
                loss per common share(2)Continuing
                operations
            
            
            (0.02
            )
            
            (0.05
            )
            
            (0.17
            )
            
            (0.08
            )
            
            (0.48
            )Discontinued
                operations
            
            
            0.00
            
            
            0.03
            
            
            (0.01
            )
            
            0.05
            
            
            (0.34
            )**Balance
                Sheet Data:**Working
                Capital Surplus (deficit)
            
            
            (56,542
            )
            
            1,224,127
            
            
            (3,169,692
            )
            
            (2,329,525
            )
            
            (1,931,980
            )Total
                Assets
            
            
            4,618,106
            
            
            7,322,027
            
            
            4,044,225
            
            
            3,641,207
            
            
            3,421,080Notes
                Payable
            
            
            599,991
            
            
            599,991
            
            
            599,991
            
            
            590,536
            
            
            590,536Shareholders'
                equity (deficit) - Canadian GAAP
            
            
            81,477
            
            
            559,249
            
            
            (3,448,142
            )
            
            (2,341,861
            )
            
            (1,844,350
            )Shareholders'
                equity (deficit) - US GAAP
            
            
            1,169,349
            
            
            1,647,121
            
            
            (2,360,270
            )
            
            (1,253,989
            )
            
            (756,478
            )Year
                end US$ exchange rate (equivalent to 1Cdn$)
            
            
            0.86
            
            
            0.83
            
            
            0.77
            
            
            0.63
            
            
            0.63Average
                US$ exchange rate (equivalent to 1Cdn$)
            
            
            0.83
            
            
            0.77
            
            
            0.71
            
            
            0.64
            
            
            0.65Range
                of high and low rates (equivalent to 1Cdn$)
            
            
            0.79
                to 0.87
            
            
            0.71
                to 0.85
            
            
            0.63
                to 0.78
            
            
            0.62
                to 0.67
            
            
            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)
                Basic
                    loss per common share reflects net loss available to common shareholders
                    divided by the weighted average number of common shares
                    outstanding.




-
          17
          -




**SUPPLEMENTARY
                FINANCIAL INFORMATION**QUARTERLY
                FINANCIAL DATA (UNAUDITED)4TH
                QUARTER
            
            3rd
                QUARTER
            
            2nd
                QUARTER
            
            1ST
                QUARTER2005
            
            2004
            
            2005
            
            2004
            
            2005
            
            2004
            
            2005
            
            2004Revenue
            
            
            4,193,481
            
            
            2,590,644
            
            
            4,109,121
            
            
            2,281,743
            
            
            3,010,613
            
            
            2,178,969
            
            
            3,079,432
            
            
            2,445,213Gross
                Profit
            
            
            1,139,791
            
            
            580,505
            
            
            1,005,479
            
            
            533,701
            
            
            760,893
            
            
            567,826
            
            
            807,873
            
            
            543,389Income
                (loss) before undernoted items
            
            
            166,574
            
            
            86,955
            
            
            15,585
            
            
            (339,740
            )
            
            (227,177
            )
            
            (900,261
            )
            
            (279,383
            )
            
            (222,956
            )Net
              loss before discontinued operations
            
            
            (57,918
            )
            
            (624,473
            )
            
            (73,879
            )
            
            (476,146
            )
            
            (300,998
            )
            
            (958,492
            )
            
            (567,767
            )
            
            (317,068
            )Gain
                (loss) from discontinued operations
            
            
            19,945
            
            
            356,301
            
            
            (63,279
            )
            
            241,279
            
            
            (83,525
            )
            
            234,142
            
            
            270,864
            
            
            203,252Net
                loss for the period
            
            
            (37,973
            )
            
            (253,017
            )
            
            (137,158
            )
            
            (234,867
            )
            
            (384,523
            )
            
            (160,346
            )
            
            (296,903
            )
            
            (147,566
            )Basic
                loss per common shareContinuing
                operations
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            (0.01
            )
            
            (0.01
            )
            
            (0.02
            )
            
            (0.01
            )
            
            (0.04
            )Discontinued
                operations
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            0.01
            
            
            0.00
            
            
            0.02
            )





-
          18
          -


**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 2005, 64% of the
      Company’s revenue was generated by the Staffing Solutions unit; 28% by the
      Medical Services unit; and 8% by the Healthcare Consulting unit. From a Gross
      Margin perspective, the contribution was 46%, 38% and 16%,
      respectively.





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





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





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





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





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





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





Growth
      of
      the Company’s Medical Services business is dependent on several factors. The
      Infusion business is reliant upon our ability to introduce new drug therapies
      through our infusion clinics and by expanding the number of clinic locations.
      Failure to succeed with either of these initiatives will limit the Company’s
      ability to drive its revenue growth. For Pain Management Services, growth is
      dependent on our ability to recruit additional doctors to provide pain
      therapies. With the long wait-times for patients to obtain adequate pain
      management treatment, patient demand is less of a concern for the Company.





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.


-
          19
          -


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 40 healthcare facilities across
      Ontario, including rural and urban hospitals as well as tertiary care centers
      and corrections facilities. The Company believes that on-going physician
      shortages and continuing demand for improved levels of care will continue to
      drive its Staffing Solutions business.




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




In
      March
      2005, MEII reached an understanding with a provincial pharmacist association,
      to
      create a program to provide temporary placement of pharmacists in pharmacies
      across the province. Under the program, MEII was responsible for the
      recruitment, credentialing, placement and monitoring of the pharmacists. Late
      in
      2005, this program was discontinued through mutual agreement.




*MEDICAL
      SERVICES*




MEII
      provides innovative medical services directly to healthcare consumers.




*Infusion
      Services*


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




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




As
      of
      December 31, 2005, the Company operated 13 virtual clinics across Ontario.
      On an
      as-required basis, the Company rents space in community-based medical clinics.
      MEII’s team of infusion coordinators arrange for patients to arrive at the
      clinic at a prescribed time and for a physician and nurse to be available to
      attend to their needs. The RemicadeTM is supplied by a local pharmacy.




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




*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 and two more
      locations were opened in 2005, in Hamilton and Mississauga.





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.


-
          20
          -


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





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





The
      clinic that CPM acquired in November 2004 increased monthly capacity from
      approximately 300 patients per month to almost 700 patients per month during
      2005. Further, CPM as a whole more than tripled its volumes by seeing about
      1,000 patients in the month November, compared to the 289 patients seen in
      November of 2004.





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





*HEALTHCARE
      CONSULTING*




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





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





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





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





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





**RESULTS
      OF OPERATIONS**





**REVENUE**




The
      Company's revenue from continuing operations for the year ended December 31,
      2005 was $14.4 million compared to $9.5 million for the year ended December
      31,
      2004, and $14.3 million for the year ended December 31, 2003.


-
          21
          -


The
      increase in revenue in 2005 over 2004, of approximately 52% was attributable
      to
      an increase in all operating divisions. Divisional revenues were:





($millions)
            
            Year
                Ended December 31,Division
            
            2005
            
            2004
            
            2003Staffing
                Solutions
            
            
            9.3
            
            
            7.5
            
            
            13.2Medical
                Services
            
            
            4.0
            
            
            1.2
            
            
            0.9Consulting
            
            
            1.1
            
            
            0.8
            
            
            0.2Total
            
            
            14.4
            
            
            9.5
            
            
            14.3





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
      from the Staffing business was $7.5 million during the year ended December
      31,
      2004 compared to $13.2 million for the year ended December 31, 2003. The spike
      in revenues in 2003 was due to the one-time revenue generated in 2003 due to
      the
      SARS outbreak. The SARS crisis generated more than $6.0 million of non-recurring
      staffing revenue. Absent the SARS business, 2004 revenue was as expected by
      management.




Revenue
      from the Medical Services division increased 230% to $4.0 million from about
      $1.2 million in 2004. The increase was driven by three factors. First, in late
      2004, the Company launched its Pain management business. In 2005, the Pain
      business generated $1.6 million in revenue compared to $90K in 2004. Second,
      the
      Infusion business increased $0.6 million to $1.8 million from $1.2 million
      in
      2004, and finally, during the year, the Company re-assumed responsibility for
      two family medical clinics. These clinics generated about $0.6 million in
      revenue compared to $nil in 2004. The Pain business, as discussed last year,
      is
      an opportunity for the Company to generate considerable growth. It is an area
      of
      healthcare that is vastly under serviced in Canada. The Company has opened
      three
      additional clinic locations and more sites are scheduled for 2006. It is
      anticipated that strong revenue growth will continue in the current fiscal
      year.
      Revenues in the Infusion business grew 50% during 2005. This 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%. The family medical clinics were
      previously owned by the Company and were sold in 2003. In January 2005, the
      Company resumed operation of a clinic in Wallaceburg, Ontario, after it 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 no plans to expand it Family
      Medical Clinics.




Compared
      to 2003, revenue for Medical Services increased by 33%, to $1.2 million compared
      to $0.9 million for the year ended December 31, 2003. The increase in revenues
      in 2004 was driven by a similar increase in the number of infusions provided
      by
      the division during the year.





Revenue
      from Healthcare Consulting amounted to approximately $1.1 million compared
      to
      $0.8 million during the year ended December 31, 2004 and compared to $155
      thousand for fiscal 2003. For the last two years the Company has increased
      its
      focus on its Consulting practice. Working with leading academics and industry
      experts, the Company has successfully bid on, and won, an increasing number
      of
      contracts. Our early successes in health human resource planning and primary
      care renewal, led to increased opportunities in 2005. Further, our experience
      with primary care led to our involvement, in 2005, with the Province of
      Ontario’s Family Health Team initiative. The Company has signed several
      contracts to assist community-based Family Health Teams to develop business
      plans for funding of their individual family health teams.




**GROSS
      MARGIN**




Gross
      Margin (revenue less physician and other direct costs) increased to $3.7
      million, or 68% from $2.2 million for the year ended December 31, 2004 and
      compared to $2.8 million for the year ended December 31, 2003.


-
          22
          -




($millions)
            
            Year
                Ended December 31,Division
            
            2005
            
            2004
            
            2003Staffing
                Solutions
            
            
            1.7
            
            
            1.4
            
            
            2.2Medical
                Services
            
            
            1.4
            
            
            0.5
            
            
            0.4Consulting
            
            
            0.6
            
            
            0.3
            
            
            0.2Total
            
            
            3.7
            
            
            2.2
            
            
            2.8




The
      Gross
      Margin from the Staffing business increased to $1.7 million from $1.4 million
      in
      2004. The increase of 21% 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 18.1% 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.





Compared
      to 2003, Gross Margin in the Staffing division decreased by $0.8 million, even
      though gross margin percentage increased in 2004 from 16.7% to 18.6%. The change
      in gross margin was entirely driven by the non-recurrence of business related
      to
      SARS. Gross margin percentage was lower in 2003 because much of the SARS work
      was taken at reduced mark-ups.





The
      Gross
      Margin for Medical Services increased 180% ($0.9 million) in 2005 compared
      to
      2004. As discussed above concerning revenue, this is attributable to (a) the
      launch of the Pain management business ($0.3 million); (b) increased Infusion
      volumes ($.38 million) and better margin per infusion ($0.02 million); and
      (c)
      the resumption of the family medical clinics ($0.2 million).





Compared
      to 2003, Gross Margin for Medical Services in 2004 increased 25% to $0.5 million
      from $0.4 million, but as a percentage of revenue, fell to 44.3% in 2004 from
      47.8% in 2003. The increase in the absolute amount of gross margin is
      attributable to the 33% increase in infusions in the year. The Gross Margin
      percentage fell because of lower gross margins earned on the ZometaTM business.
      The Company attempted to grow ZometaTM as a second line of infusion medicines in
      2004, but abandoned the product when suitable volumes and gross margins could
      not be earned.





The
      Gross
      Margin for Consulting Services doubled in 2005 from $0.3 million in 2004 to
      $0.6
      million 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.





A
      comparison of 2004 to 2003 is not meaningful because the Company did not track
      direct costs associated with its consulting work until 2004. Accordingly, in
      2003, gross margin is shown to be 100%.





**OPERATING
      EXPENSES**




Operating
      expenses are comprised of both direct and indirect operating expenses. Indirect
      expenses include corporate overheads, which are allocated to the divisions,
      based on gross margin earned by the division.





On
      an
      overall basis, operating expenses increased 12% to $4.04 million for the year
      ended December 31, 2005 from $3.6 million for the year ended December 31, 2004.
      The increase of about $0.44 million was attributable to increased costs
      associated with the Pain business ($0.54 million) and the Family Medical Clinics
      ($0.25 million). Net of these cost increases there was a reduction in operating
      costs of about $0.35 million, or almost 10% of 2004’s expenses. The reduction in
      costs were largely driven by a reduction in corporate overheads associated
      by
      staffing reductions ($0.2 million) implemented after the loss of the DND
      contract and reduced business development expenses of $0.14 million as the
      Company focused on growth in its existing business units.




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


-
          23
          -




($millions)
            
            Year
                Ended December 31,Division
            
            2005
            
            2004
            
            2003Staffing
                Solutions
            
            
            1.66
            
            
            2.04
            
            
            2.17Medical
                Services
            
            
            1.79
            
            
            0.93
            
            
            0.52Consulting
            
            
            0.59
            
            
            0.63
            
            
            0.19Total
            
            
            4.04
            
            
            3.60
            
            
            2.88





In
      2004,
      corporate overheads remained largely constant compared to 2003; there were
      minimal reallocations of overheads to the divisions, as noted
      below.





In
      2004,
      the Staffing costs decreased about 1% or about $0.1 million. This was
      attributable to a decrease in the allocation of overheads of $0.4 million and
      an
      increase in salaries of about $0.25 million. Salaries increased in 2004 when
      the
      Company added additional resources in an attempt to garner new staffing
      contracts, to make up for the lost SARS revenue.





In
      2004,
      operating costs associated with Medical Services increased 79%, or $0.41
      million. This was associated with an increase in the allocation of overheads
      ($0.25 million) and also by an increase in salary costs of about $0.14 million.
      The salary costs increased in line with the increased volume of infusions
      processed by the division.




In
      2004,
      the operating costs associated with Healthcare Consulting increased $0.44
      million (231%) over 2003. The increase was related to increased allocation
      of
      overheads of $0.14 million and a $0.3 million increase in divisional expenses.
      The divisional expenses grew in association with the growth of the consulting
      business, as 2004 was the first year that the Company allocated expenses to
      the
      Consulting division.








**AMORTIZATION
      AND INTEREST**





Amortization
      increased from approximately $0.13 million for the year ended December 31,
      2004
      to $0.24 million in 2005. 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 $0.08 million on leaseholds associated with its pain
      clinics. In 2004, amortization increased from $.05 million to $0.13 million.
      The
      increase was again linked to the capital spending that occurred after the May
      2004 financing.




In
      2005,
      the Company incurred interest and financing charges of approximately $0.06
      million, compared to interest and financing costs of $0.1 million in 2004 and
      $0.113 million in 2003. When the Company completed its financing in 2004, it
      went from a net borrower to a net investor of cash. Accordingly the only
      interest charges in 2005 are associated with the Notes Payable. The reduction
      in
      2004 relative to 2003, of about 12% **,** is
      due to
      the fact that the company negotiated lower borrowing rates on its loan
      facilities and repaid the secured debenture.





**OTHER
      EXPENSES**





Stock
      compensation expenses were $0.37 million for the year-ended December 31, 2005
      compared to $0.10 million for 2004 and $1.2 million for 2003. Stock compensation
      expenses arise when options or warrants, issued to employees or others, vest.
      In
      2005, 225,000 options vested and 1.4 million stock purchase warrants, that
      were
      set to expire, 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. In 2003, 785,000 options vested and 1.4 million warrants were re-priced
      from $4.50 to $0.50.





There
      were no other meaningful Other Expenses in 2005.





In
      2004,
      there was a one-time impact of the closing costs of $0.61 million associated
      with the equity financing.





In
      2004,
      an impairment to the long-term investment of $0.06 million was booked, during
      the year.





**INCOME
      TAXES**




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


-
          24
          -


**DISCONTINUED
      OPERATIONS (GOVERNMENT HEALTHCARE SERVICES)**




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. MEII responded to the tender proposal and its bid was one of three
      considered by PWGSC (the New Contract). In December 2004 MEII learned that
      it
      was not successful in its bid to win the New Contract with DND. Its contractual
      relationship with the Canadian government for DND medical staffing services
      ended on March 31, 2005.





In
      January 2005 the Company launched a Cdn$100,000,000 lawsuit against the winning
      bidder and a former employee of the Company.  The Company believes that the
      successful bidder used confidential information obtained through the hiring
      of a
      former MEII employee to win the New Contract, and that the former MEII employee
      retained by the successful bidder breached his legal obligations by disclosing
      financial and other information confidential to MEII.  On January 31, 2005,
      the Company filed a complaint with the Canadian International Trade Tribunal
      (CITT).  The CITT is the
      administrative tribunal in Canada with the jurisdiction to conduct inquiries
      into complaints by potential suppliers concerning procurement by the federal
      government departments and agencies, including DND and PWGSC. In
      its
      submission to the CITT, MEII questioned the manner in which the Government
      of
      Canada’s procurement for the DND medical staffing contract, valued at
      $448,810,965, was conducted, including the evaluation of its proposal submitted
      in response to the Request for Proposal (RFP). Specifically, the Company alleged
      that PWGSC:




Ÿ
                Awarded
                    the New Contract to a bidder that did not meet the mandatory
                    requirements
                    of the bid;Ÿ
                Introduced
                    unpublished evaluation criteria to the evaluation process,
                    andŸ
                Failed
                    to properly apply the published evaluation
                    criteria.




In
      filing
      the complaint, the Company sought to terminate the New Contract award to the
      winning bidder, to have MEII awarded the New Contract, or in the alternative,
      to
      have a new bid process conducted.  In the further alternative, the Company
      asked that it be compensated for lost profit on the contract and the costs
      associated with the filing of the complaint. On June 15, 2005 the CITT
      ruled that the Company’s complaint against PWGSC was valid, in part, and awarded
      the Company its reasonable costs. On July 15, 2005 the Company filed an
      application for judicial review into the CITT decision. In its decision the
      CITT
      held that PWGSC breached the applicable trade agreements in conducting its
      procurement. Despite this, the CITT declined to grant any remedy aside from
      the
      award of reasonable costs. The Federal Court of Appeal convened on March 22,
      2006 to consider the matter. A ruling has not yet been received.




During
      2005, the Company had a profit from discontinued operations of $0.14 million.
      Included in this amount was about $0.35 million of expenses that arose after
      the
      expiry of the Contract. The expenses related to legal and consulting services
      incurred while (a) protesting the loss of the contract and (b) in trying to
      collect certain amounts owing from the existing Contract. The Company expects
      to
      receive about $0.35 million from the settlement of certain disputed amounts
      under the Contract.




**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      at
      December 31, 2005, the Company's cash position was $0.66 million compared to
      $2.3 million at December 31, 2004 and $0.38 million at December 31, 2003.





The
      Company’s principal source of liquidity is its cash flow from operations.
      Historically we have incurred operating losses. Losses were stabilized and
      reversed in the latter half of 2005. The Company generated $110,000 in cash
      from
      continuing operations in the last six months of 2005 and, of this $100,000
      of
      cash from continuing operations was generated in the last three months of the
      year. Based on the result of recent business initiatives, management anticipates
      that this positive trend will continue in 2006. **** The
      Company is also in negotiations with a former customer to settle long-disputed
      amounts owing. The Company expects this negotiation to conclude favorably and
      to
      receive about $350,000 in settlement of the dispute in the second quarter of
      2006.


-
          25
          -


The
      reduction in the cash position of ($1.7) million in 2005 over 2004 resulted
      from
      (a) a ($0.56) million change from operations, comprised of ($0.39) million
      operating losses from continuing operations, less non-cash items, of ($0.18)
      million; (b) a ($0.9) million change from discontinued operations, comprised
      of
      a $0.1million profit from discontinued operations and a ($1.0) million decrease
      in working capital from discontinued operations; and (c) about ($0.18) million
      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.





The
      $1.9
      million improvement in cash in 2004, compared to 2003 was the result of the
      $4.5
      million equity financing that was completed in June 2004. From this, operating
      activities consumed ($2.0) million of cash in the year of which ($2.1) million
      was absorbed directly by operations and the remainder was consumed by changes
      in
      working capital of ($0.4) million which was more than offset by $0.5 million
      generated by discontinued operations. The working capital change was largely
      attributable to an increase in accounts receivable relative to the accounts
      payable. While cyclicality in accounts receivable and accounts payable are
      common on a month-to-month basis, the accounts payable did not increase as
      much
      as the accounts receivable because proceeds from the Financing were used to
      reduce long, outstanding accounts payable. Investing activities consumed ($0.70)
      million of cash. This was comprised of ($0.5) million of fixed asset additions
      and ($0.2) million of additions to goodwill. The fixed asset additions related
      to hardware, software and leasehold improvements, related to the Company’s move
      to new premises. The goodwill relates to the acquisition of a pain management
      clinic, in November 2004. The remaining $0.1 million of cash resulted from
      a
      change in the foreign exchange rate. The Canadian dollar strengthened, relative
      to the US dollar, during the year.





As
      demand
      for the Company’s services remain strong, it is anticipated that cash flow from
      operations will be adequate to satisfy our working capital, capital expenditure,
      and other obligations as described in the Contractual Obligations and Commercial
      Commitments table, below, except for the payment of the $0.8 million of Notes
      Payable. The Notes Payable are due September 30, 2006 and are payable, along
      with interest at the rate of 7%, in cash or stock, or any combination thereof,
      at the Company’s option. It is anticipated that the Notes Payable and
      interest will be settled through the issuance of additional common
      stock.





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





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





**OFF
      BALANCE SHEET ARRANGEMENTS**




The
        Company is not a party to any off-balance sheet arrangements.
 -
              26
              -
 **CONTRACTUAL
        OBLIGATIONS AND COMMERCIAL COMMITMENTS**





The
      Company is committed to contractual obligations totaling $2.9 million. The
      Company has not engaged in off-balance sheet financing, commodity contract
      trading or significant related party transactions. Contractual obligations
      are
      as follows:





Total2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            Thereafter
            
            ObligationsLong-term
                  debt1
            
            
            331,212
            
            
            331,212
            
            
            302,967
            
            
            -
            
            
            -
            
            
            -
            
            
            965,392Operating
                  lease obligations
            
            
            403,120
            
            
            403,570
            
            
            226,377
            
            
            109,583
            
            
            21,385
            
            
            14,897
            
            
            1,178,932Notespayable2
            
            
            778,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            778,500Total
            
            $
            1,512,832
            
            $
            734,782
            
            $
            529,344
            
            $
            109,583
            
            $
            21,385
            
            $
            14,897
            
            $
            2,922,824





Notes:





1
      -
      Includes interest on long-term debt at the prescribed rate established by the
      Canada Revenue Agency (CRA), currently set at 7%. 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.








**CRITICAL
      ACCOUNTING POLICIES AND ASSUMPTIONS**





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





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


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





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




-
            27
            -


Recently
      Issued Accounting Pronouncements





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




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





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





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





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





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





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








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


-
          28
          -


**ITEM
      7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





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





**ITEM
      8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





The
      Company’s consolidated financial statements and the related notes, together with
      the report of Schwartz Levitsky Feldman LLP thereon, are set forth in Item
      15.





**ITEM
      9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND**


**FINANCIAL
      DISCLOSURE**





There
      have not been disagreements with the auditors on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedures, which disagreements if not resolved to their satisfaction would
      have
      caused them to make reference in connection with their opinion to the subject
      matter of the disagreement.





**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. Based on this evaluation,
      our
      Chief Executive Officer and Chief Financial Officer have concluded that as
      of
      such date, our disclosure controls and procedures are effective to provide
      reasonable assurance that information required to be disclosed by us in reports
      that we file or submit under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in applicable SEC rules and
      forms. ****





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.





**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
            63
            Chairman
                of the BoardManfred
                Walt
            53
            DirectorJacob
                (Koby) Ofek
            48
            DirectorMajor
                General Lewis MacKenzie
            65
            Director


John
                Yarnell
            77
            DirectorSidney
                Braun
            46
            President
                and Chief Operating Officer, DirectorRamesh
                Zacharias
            54
            Chief
                Executive Officer, DirectorDonald
                Ross
            54
            Vice
                President , Business DevelopmentWilliam
                J. Danis
            50
            Chief
                Financial Officer




-
            29
            -


**Name**
            **Position**
            **Principal
                Occupation and Positions Held**Michael
                Sinclair
            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 US $1.2 billion in
                revenues
                and over 70,000 nurses affiliated through its nationwide branches.
                It was
                sold for more than US $600 million. 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)
            Director
            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. Since May 2002, Mr. Walt has been principally employed
                as President and Chief Executive Officer of Walt & Co. Inc., a private
                investment and management company. 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. Mr. Walt is a director and consultant to Spectrum
                Seniors
                Housing Development Corp, the largest developer of assisted living
                facilities in Canada. Mr. Walt was previously associated for 18 years
                in
                various capacities with Brookfield Asset Management Inc. (“BAM”), an
                entity previously affiliated with Peter and Edward Bronfman and the
                Edper
                Group of Companies. BAM, a diversified conglomerate, held interests
                in the
                natural resources, energy, merchant banking and real estate development
                sectors. Mr. Walt has served as a director of the Company since May
                2004.


-
          30
          -





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 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
            President,
                Chief Operating Officer and Director
            Prior
                to joining the Company, Mr. Braun was an exclusive subcontractor
                to
                Poalim/IBI, the largest investment bank in Israel, covering the European
                financial markets. For approximately two years prior to that, Mr.
                Braun
                was a representative for Raphael Zorn Helmsley, a UK investment bank.
                Mr.
                Braun assisted in taking Israeli based companies public on the AIM
                in
                London, England. Mr. Braun has served as President and Chief Operating
                Officer and as a director of the Company since May 2004. Mr. Braun
                also
                serves as a director of SPO Medical Inc.Ramesh
                Zacharias
            Chief
                Executive Officer and Director
            Dr.
                Ramesh Zacharias is the founder of Med-Emerg International Inc. and
                served
                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 this 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.


-
          31
          -





Donald
                Ross
            Vice
                President Business Development
            Dr.
                Ross has been Vice-President of Med-Emerg International Inc. since
                November 2000 and is responsible for the operations of 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 Treasurer
            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.LV.A).





Notes:(1)
            Member
                of the Compensation Committee.(2)
            Member
                of the Audit Committee.(3)
            Member
                of the Governance and Nomination
                Committee





**Board
      Meetings Structure**


The
      Board
      met five times during the year ended December 31, 2005. No director who served
      during the 2005 fiscal year attended fewer than 60% of the meetings of the
      Board
      and of the committees of the Board of which he was a member.




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




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





**Board
      Committees**





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





The
      Compensation Committee is primarily responsible for reviewing the compensation
      arrangements for the Company’s executive officers, including the Chief Executive
      Officer, and for administering the Company’s stock option plans. Members of the
      Compensation Committee are Dr. Sinclair and Messrs. Walt, Ofek, MacKenzie and
      Yarnell. The Compensation Committee met four times in 2005.


-
          32
          -


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 two times in
      2005.





The
      Audit
      Committee is primarily responsible for overseeing the services performed by
      the
      Company’s independent auditors and internal audit department evaluating the
      Company’s accounting policies and its system of internal controls and reviewing
      significant financial transactions. The Audit Committee is comprised of three
      members: Messrs. Walt, MacKenzie and Yarnell. The Company believes that each
      member of the Audit Committee meets the independence criteria set out in Rule
      4200(a)(15) of the Marketplace Rules of the National Association of Securities
      Dealers and the rules of the and other requirements of the SEC. The Board of
      Directors has determined that Mr. Yarnell qualifies as an "audit committee
      financial expert" as defined in the rules of the SEC. The Audit Committee met
      four times in 2005.





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 is attached to this Annual Report as
      an
      exhibit.





**ITEM
      11: EXECUTIVE COMPENSATION**




The
      following table sets forth all compensation earned by the Company's Chief
      Executive Officer and the most highly compensated executive officers and key
      employees of the Company whose total annual salaries and bonuses exceeded
      $100,000 for the year ended December 31, 2005 (the "Named Executive Officers"):





SUMMARY
                    COMPENSATION TABLEAnnual
                    Compensation
                Long-Term
                    Compensation------------------------------------
                -------------------------------Name
                    and
                  Principal
                    Position
                Year
                Salary(1)
                Bonus
                Other
                    Annual
                  Compensation
                Securities
                    Underlying
                  Options
                    (#) (2)
                All
                    Other
                  CompensationRamesh
                    Zacharias
                2005
                332,000
                --
                --
                --
                --Chief
                    Executive Officer
                2004
                345,000
                --
                --
                1,000,000
                --2003
                339,000
                --
                --
                --
                --Sidney
                    Braun
                2005
                190,000
                --
                --
                --
                --President
                    and COO
                2004
                80,000(3)
                --
                --
                1,250,000
                --Donald
                    Ross
                2005
                151,000
                --
                --
                --
                --Vice
                    President, Business
                2004
                142,000
                --
                --
                150,000
                --Development
                2003
                131,000
                --
                --
                100,000
                --William
                    DanisCFO
                    and Corporate Secretary
                2005
                172,000
                --
                --
                --
                --2004
                172,000
                --
                --
                250,000
                --2003
                98,000(4)
                --
                --
                --


(1)
              All
                  amounts are in Canadian dollars.(2)
              Represents
                  shares of Common Stock issuable upon exercise of the employee stock
                  options issued in the year indicated under the Company’s two stock option
                  plans: Plan A, as amended and approved by the security holders
                  in August
                  2003; and Plan B, a plan established by the Board of Directors
                  in
                  2004.(3)
              Mr.
                  Braun joined the Company in June 2004.(4)
              Mr.
                  Danis joined the Company in May 2003.
  -
            33
            -
 **AGGREGATE
      OPTIONS EXERCISED IN 2005 AND 2005 YEAR END OPTION VALUES**


Name
              
              Shares
                  Acquired on Exercise
              
              Value
                  Realized
                ($)
              
              Number
                  of Securities
                Underlying
                  Unexercised
                Options
                  at Fiscal Year End (#)
              
              Value
                  of Unexercised In-the-
                Money
                  Options At Fiscal Year
                End
                  ($)Exercisable
              
              Unexercisable
              
              Exercisable
              
              Unexercisable
                  (1)Ramesh
                  Zacharias
              
              
              -
              
              
              -
              
              
              700,000
              
              
              800,000
              
              
              -
              
              
              20,000Sidney
                  Braun
              
              
              -
              
              
              -
              
              
              187,500
              
              
              862,500
              
              
              4,688
              
              
              21,563Donald
                  Ross
              
              
              -
              
              
              -
              
              
              200,000
              
              
              120,000
              
              
              -
              
              
              3,000William
                  Danis
              
              
              -
              
              
              -
              
              
              100,000
              
              
              120,000
              
              
              -
              
              
              3,000


(1)
      Based
      upon the difference between the exercise price of such options and the closing
      price of the Common Stock ($0.14) on December 31, 2005, as quoted on the
      Over-The-Counter Bulletin Board.





Director
      Compensation:





During
      2005, each non-management director
      of the Company received cash compensation of Cdn$32,500, inclusive of all
      committee and Chair fees. In lieu of director’s fees, Messrs. Ofek and Sinclair
      entered into consulting agreements with the Company, under which they were
      compensated Cdn$70,000 per annum, each. These agreements terminated on June
      30,
      2005. On termination of the consulting agreements, Messrs. Ofek and Sinclair
      began to draw director’s fees. Total cash compensation for Messrs. Ofek and
      Sinclair in 2005 was Cdn$48,750.





The
      Company pays Yarnell Companies Inc. and Walt & Co. Inc. for the services
      provided by Messrs. Yarnell and Walt as directors, respectively.






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.





**ITEM
      12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      following table sets forth, as of March 31, 2006 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.


-
          34
          -


**Name
                      of beneficial owner (1)**
                  **Number
                      of**
                    **Common
                      Shares****(2)**
                  **Percentage**
                    **of
                      Class (2)**Ramesh
                      Zacharias, CEO and Director
                  7,923,794
                      (3)
                  10.4%Sidney
                      Braun, President, COO and Director
                  3,195,086
                      (4)
                  4.2%Donald
                      Ross, VP Business Development
                  200,000
                      (5)
                  *William
                      J. Danis, CFO, Treasurer and Secretary
                  100,000
                      (5)
                  *
 
 Michael
                      Sinclair, Chairman
                  8,503,077
                      (6)
                  11.2%Manfred
                      Walt, Director
                  5,529,577
                      (7)
                  7.3%Jacob
                      (Koby) Ofek, Director
                  21,499,772
                      (8)
                  28.3%Lewis
                      MacKenzie, Director
                  150,000
                      (9)
                  *John
                      Yarnell, Director
                  150,000
                      (9)
                  *BXR1
                      Holdings Inc.
                  8,294,367
                      (10)
                  10.9%David
                      Kassie
                  5,529,577
                      (11)
                  7.3%H.
                      T. Ardinger
                  4,111,500
                  5.4%All
                      executive officers and directorsas
                      a group (9 persons)
                  42,561,515
                      (12)
                  55.9%
 
 *Indicates
        less than 1%




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




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





(3)
            Includes
                (i) 700,000 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) 1,931,250 common shares
                issuable upon exercise of common share purchase warrants (“A Warrants”)
                issued in June 2004 to 1245841 Ontario Inc. exercisable to purchase
                three
                common shares (A) at $0.20 per share for each one common share issued
                by
                the Company upon the exercise of (1) the 2,325,000 options currently
                outstanding which entitle the holder to purchase common shares at
                $0.20
                per share; and (2) the 1,437,500 warrants currently outstanding which
                entitle the holder to purchase common shares at $0.20 per share
                (collectively, the “$0.20 Option”); or (B) at $1.00 per share for each one
                common share issued by the Company upon the exercise of the 100,000
                options currently outstanding which entitle the holder to purchase
                of
                common shares at $1.00 per share (the “$1.00 Option”). As an officer,
                director and 50% owner of 1245841 Ontario Inc., Mr. Zacharias may
                be
                deemed to be a beneficial owner of the common shares and A Warrants
                held
                of record by that company. Mr. Zacharias shares voting and investment
                power over the common shares and A Warrants held of record by 1245841
                Ontario Inc. with his wife, Victoria Zacharias. Mr. Zacharias disclaims
                beneficial ownership of the common shares and A Warrants held of
                record by
                1245841 Ontario Inc.





(4)
            Includes
                (i) 250,000 common shares issuable upon exercise of stock options;
                (ii)
                331,388 common shares issuable upon exercise of A Warrants; and (iii)
                1,363,698 common shares (“Escrowed Shares”) that would be transferred to
                Mr. Braun pursuant to the shareholders agreement dated as of May
                31 2004
                (the “Shareholders Agreement”) between Mr. Braun, Jacob (Koby) Ofek and
                the Sinclair Montrose Trust Ltd. (the “Transferees”) and BXR1 Holdings
                Inc., Walt & Co. Inc., Lillian Brachfeld, 1619271 Ontario Limited and
                David J. Kassie (collectively, the “Transferors”) if at any time prior to
                June 30, 2007 (A) the closing price of the common shares is $1.00
                or more
                for 120 consecutive trading days and the Company’s audited earnings before
                interest, taxes, depreciation and amortization (“EBITDA”) for the most
                recently ended fiscal year exceeds $0.13 per share; or (B) the closing
                price of the common shares is $1.45 or more for 120 consecutive trading
                days and the Company audited EBITDA for the most recently ended fiscal
                year exceeds $0.117 per share; or (C) any Transferor sells any of
                its
                common shares at a price of $1.45 or more per
                share.


-
          35
          -





(5)
            Represents
                common shares issuable upon exercise of stock
                options.





(6)
            Includes
                (i) 1,657,295 common shares issuable upon exercise of A Warrants
                issued in
                June 2004 to Sinclair Montrose Trust Ltd. (the “Trust”) and (ii) 594,433
                common shares that may be transferred to the Trust pursuant to the
                Shareholders Agreement. 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.





(7)
            Represents
                (i) 4,370,827 common shares held by Walt & Co Inc. (“Walt & Co.”)
                and (ii) 1,158,750 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.
                Includes 874,166 common shares that Walt & Co. may transfer pursuant
                to the Shareholders Agreement.





(8)
            Includes
                (i) 4,182,976 common shares issuable upon exercise of A Warrants
                issued in
                June 2004 and (ii) 1,538,531 common shares that may be transferred
                to Mr.
                Ofek pursuant to the Shareholders Agreement.





(9)
            Represents
                common shares issuable upon exercise of stock
                options.




(10)
              Includes
                  1,738,126 common shares issuable upon exercise of A Warrants issued
                  in
                  June 2004. Includes 1,311,248 common shares that the holder may
                  transfer
                  pursuant to the Shareholders Agreement.(11)
              Includes
                  1,158,750 common shares issuable upon exercise of A Warrants issued
                  in
                  June 2004. Includes 874,166 common shares that Mr. Kassie may transfer
                  pursuant to the Shareholders Agreement(12)
              See
                  footnotes (3) through (9)
                  above.







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
      2005.


-
          36
          -


Equity
      Compensation Plan Information





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




Plan
                  category
              Number
                  of Securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              Weighted-average
                  exercise
                price
                  of outstanding options, warrants and rights
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))Equity
                  compensation plans approved by security holders Plan A
              2,625,000
              0.519
              9,030,539Equity
                  compensation plans not approved by security holders Plan B
              2,090,000(1)
              0.115
              0Totals
              4,715,000
              0.340
              9,030,539





(1)
      Consists of (i) 2,090,000 options from Plan B, exercisable at $0.115. Of these
      options, 250,000 were issued to Mr. Braun, an officer of the Company. The
      options vest over 24 months and are exercisable until June 2009. The remaining
      options were issued to members of the management team: Dr. Zacharias (800,000),
      Mr. Braun (800,000), Dr. Ross (120,000) and Mr. Danis (120,000). 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 two
      directors who were retained as consultants and paid Cdn$70,000 per annum each,
      during the 12 month period ended June 30, 2005, at which time the contracts
      expired and administrative fees of approximately $24,765 (Cdn$30,000) which
      were
      paid to a related Company ($Nil in 2004).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.







-
          37
          -


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 2005 and 2004




AUDIT
        AND
        NON-AUDIT FEES:
 2005
                2004Audit
                    fees (1)
                $59,848
                    (CDN$72,500)
                $55,448
                    (CDN$72,165)Audit
                    related fees (2)
                $1,775
                    (CDN$2,150)
                $
                    NILTax
                    fees (3)
                $NIL
                $6,954
                    (CDN$9,050)All
                    other fees (4)
                $NIL
                $
                    NILTOTAL
                $61,623
                    (CDN$74,650)
                $62,402
                    (CDN$81,215)





(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 2005 and for 2004 include $6,954 for professional
                services and advice relating to goods and services
                taxes.


(4)
            Other
                fees were NIL in 2005 and 2004.








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
                Form
                    of Warrant Agreement. (1)4.2
                Specimen
                    Common Stock Certificate. (1)4.3
                Specimen
                    Warrant Certificate. (1)10.1
                1997
                    Stock Option Plan. (1)+14.1
                Code
                    of
                    Ethics.*21
                Subsidiaries
                    of the
                    Company*23.1
                Independent
                  Auditors'
                  Consent31.1
                Certification
                    of Chief Executive
                    Officer pursuant to Section 302 of Sarbanes-Oxley Act.
                    *31.2
                Certification
                    of Principal Financial
                    Officer pursuant to Section 302 of Sarbanes-Oxley Act.
                    *32.1
                Certification
                    of Chief Executive
                    Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                    to Section
                    906 of the Sarbanes-Oxley act of 2002.*32.2
                Certification
                    of Principal Financial
                    Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                    to Section
                    906 of the Sarbanes-Oxley act of 2002.*+
                Management
                    agreement*
                Filed
                    herewith.(1)
                Incorporated
                    herein by reference from the Registrant’s Registration Statement on Form
                    F-1 (No. 333-21899) filed with the U.S. Securities and Exchange
                    Commission
                    and declared effective on February 4,
                    1998.


-
            39
            -




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 Zacharias_______________________________Ramesh
                ZachariasDirector,
                Chief Executive OfficerDATE:
                March 31, 2006




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) Ofek_______________________________
            _____________________________Michael
                Sinclair
            Jacob
                (Koby) OfekChairman
                of the Board
            DirectorDATE:
                March 31, 2006
            DATE:
                March 31, 2006/s/
                Ramesh Zacharias
            /s/
                Lewis MacKenzie_______________________________
            _____________________________Ramesh
                Zacharias
            Lewis
                MacKenzieDirector,
                Chief Executive Officer
            DirectorDATE:
                March 31, 2006
            DATE:
                March 31, 2006/s/
                John Yarnell
            /s/
                Manfred Walt_______________________________
            _________________________John
                Yarnell
            Manfred
                WaltDirector
            DirectorDATE:
                March 31, 2006
            DATE:
                March 31, 2006/s/
                Sidney Braun
            /s/
                William J Danis_______________________________
            __________________________Sidney
                Braun
            William
                J DanisPresident
                and Chief Operating Officer
            Chief
                Financial OfficerDATE:
                March 31, 2006
            DATE:
                March 31, 2006















-
          40
          -


AUDITORS'
      REPORT





To
      the
      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 21).














Toronto,
                Ontario, Canada
            /s/
                Schwartz Levitsky
                Feldman llpMarch
                8, 2006
            Chartered
                Accountants











-
          41
          -


**Med-Emerg
                International Inc.****Consolidated
                Balance Sheets****As
                at December 31, 2005 and 2004****(in
                US$)**2005
            
            2004(as
                restated)(see
                note 24)**Assets****Current
                assets**Cash
            
            $
            660,947
            
            $
            2,312,156Accounts
                receivable (note 5)
            
            
            2,104,758
            
            
            1,451,993Prepaid
                expenses
            
            
            85,730
            
            
            72,557Discontinued
                operations (note 4)
            
            
            1,035,960
            
            
            2,655,6913,887,395
            
            
            6,492,397Long-term
                investment (note 6)
            
            
            83,195
            
            
            83,195Property,
                plant and equipment (note 7)
            
            
            409,920
            
            
            470,243Goodwill
                (note 8)
            
            
            237,596
            
            
            237,596Discontinued
                operations (note 4)
            
            
            -
            
            
            38,596$
            4,618,106
            
            $
            7,322,027**Liabilities
                and Shareholders' Equity****Current
                liabilities**Accounts
                payable and accrued liabilities
            
            $
            2,149,519
            
            $
            1,660,864Notes
                payable (note 9)
            
            
            599,991
            
            
            -Discontinued
                operations (note 4)
            
            
            1,194,427
            
            
            3,607,4063,943,937
            
            
            5,268,270**Long-term
                liabilities**Notes
                payable (note 9)
            
            
            -
            
            
            599,991Long-term
                debt (note 10)
            
            
            592,692
            
            
            894,5174,536,629
            
            
            6,762,778Commitments
                and contingent liabilities (note 17 and 18)**Shareholders'
                Equity**Capital
                stock (note 11)
            
            
            16,044,736
            
            
            16,044,736Contributed
                surplus (note 12)
            
            
            2,907,290
            
            
            2,536,409Deficit
                (note 14)
            
            
            (18,077,662
            )
            
            (17,221,105
            )Cumulative
                translation adjustment
            
            
            (792,887
            )
            
            (800,791
            )81,477
            
            
            559,249$
            4,618,106
            
            $
            7,322,027The
                accompanying notes are an integral part of these consolidated financial
                statements.


-
              42
              -




**Med-Emerg
                  International Inc.****Consolidated
                  Statements of Operations and Deficit****For
                  the years ended December 31, 2005, 2004 and 2003****(in
                  US$)**2005
              
              2004
              
              2003(as
                  restated)
              
              (as
                  restated)(see
                  note 24)
              
              (see
                  note 24)**Revenue**
              
              $
              14,392,647
              
              $
              9,496,569
              
              $
              14,254,652**Physician
                  fees and other direct costs**
              
              
              10,678,611
              
              
              7,271,148
              
              
              11,494,1703,714,036
              
              
              2,225,421
              
              
              2,760,482**Expenses**Salaries
                  and benefits
              
              $
              2,384,485
              
              $
              2,047,450
              
              $
              1,411,807General
                  and administration
              
              
              945,196
              
              
              969,040
              
              
              965,286Occupancy
                  costs and supplies
              
              
              464,855
              
              
              334,650
              
              
              310,070Travel
                  and marketing
              
              
              243,901
              
              
              250,283
              
              
              197,0434,038,437
              
              
              3,601,423
              
              
              2,884,206**Loss
                  before under noted items**
              
              
              (324,401
              )
              
              (1,376,002
              )
              
              (123,724
              )Interest
                  and financing expenses
              
              
              61,867
              
              
              100,477
              
              
              112,955Amortization
                  of property, plant, and equipment
              
              
              243,413
              
              
              134,238
              
              
              52,851Impairment
                  of long-term investment
              
              
              -
              
              
              57,626
              
              
              -Stock
                  compensation expense
              
              
              370,881
              
              
              98,622
              
              
              1,161,262Closing
                  costs
              
              
              -
              
              
              609,214
              
              
              -676,161
              
              
              1,000,177
              
              
              1,327,068**Loss
                  before income taxes**
              
              
              (1,000,562
              )
              
              (2,376,179
              )
              
              (1,450,792
              )Income
                  taxes (recovery) (note 13)
              
              
              -
              
              
              -
              
              
              (2,458
              )**Net
                  loss before minority interest**
              
              
              (1,000,562
              )
              
              (2,376,179
              )
              
              (1,448,334
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              (2,094
              )**Net
                  loss before discontinued operations**
              
              
              (1,000,562
              )
              
              (2,376,179
              )
              
              (1,446,240
              )**Discontinued
                  operations (note 4)**Gain
                  (Loss) from operations of discontinued component
              
              
              144,005
              
              
              1,034,974
              
              
              (161,943
              )Gain
                  on disposal of discontinued component
              
              
              -
              
              
              -
              
              
              33,533Gain
                  (Loss) from discontinued operations
              
              
              144,005
              
              
              1,034,974
              
              
              (128,410
              )**Net
                  loss**
              
              
              (856,557
              )
              
              (1,341,205
              )
              
              (1,574,650
              )Preferred
                  share dividends
              
              
              -
              
              
              (34,173
              )
              
              (135,006
              )Forgiveness
                  of preferred share dividends
              
              
              -
              
              
              579,582
              
              
              -**Net
                  loss attributable to common shareholders**
              
              
              (856,557
              )
              
              (795,796
              )
              
              (1,709,656
              )**Deficit,
                  beginning of the year**
              
              
              (17,221,105
              )
              
              (16,425,309
              )
              
              (14,715,653
              )**Deficit,
                  end of the year**
              
              $
              (18,
                  077, 662
              )
              $
              (17,
                  221, 105
              )
              $
              (16,
                  425, 309
              )**Basic
                  loss per common share (note 15)**Continuing
                  operations
              
              $
              (0.02
              )
              $
              (0.05
              )
              $
              (0.17
              )Discontinued
                  operations
              
              $
              0.00
              
              $
              0.03
              
              $
              (0.01
              )**Weighted
                  average common shares outstanding**
              
              
              58,277,696
              
              
              37,982,583
              
              
              9,564,332The
                  accompanying notes are an integral part of these consolidated financial
                  statements.


-
          43
          -


**Med-Emerg
                  International Inc.****Consolidated
                  Statement of Cash Flows****For
                  the years ended December 31, 2005, 2004 and 2003****(in
                  US$)**2005
              
              2004
              
              2003(as
                  restated)
              
              (as
                  restated)(see
                  note 24)
              
              
              (see
                  note 24)**Cash
                  Flows from Operating Activities**Net
                  loss before discontinued operations
              
              $
              (1,000,562
              )
              $
              (2,376,179
              )
              $
              (1,446,240
              )Adjustments
                  for:Amortization
                  of property, plant and equipment (note 7)
              
              
              243,413
              
              
              134,238
              
              
              52,851Impairment
                  of long-term investment
              
              
              
              
              
              57,626
              
              
              -Minority
                  interest
              
              
              -
              
              
              -
              
              
              (2,170
              )Stock
                  compensation expense (note 12)
              
              
              370,881
              
              
              98,622
              
              
              1,161,262(386,268
              )
              
              (2,085,693
              )
              
              (234,297
              )Increase
                  (decrease) in non-cash working capital components (note
                  16)
              
              
              (177,283
              )
              
              (405,095
              )
              
              291,500Discontinued
                  operations (note 4)
              
              
              (912,773
              )
              
              468,285
              
              
              1,183,660(1,476,324
              )
              
              (2,022,503
              )
              
              1,240,863**Cash
                  Flows from Investing Activities**Additions
                  to property, plant, and equipment
              
              
              (183,089
              )
              
              (487,412
              )
              
              (136,559
              )Additions
                  to Goodwill (note 8)
              
              
              -
              
              
              (197,658
              )
              
              -Proceeds
                  from sale of investment in clinics (note 4)
              
              
              -
              
              
              -
              
              
              469,341Discontinued
                  operations (note 4)
              
              
              300
              
              
              (17,264
              )
              
              (210,127
              )(182,789
              )
              
              (702,334
              )
              
              122,655**Cash
                  Flows from Financing Activities**Demand
                  loan
              
              
              -
              
              
              -
              
              
              (11,462
              )Deferred
                  financing costs incurred
              
              
              -
              
              
              -
              
              
              42,883Repayment
                  of debt
              
              
              -
              
              
              -
              
              
              (525,544
              )Discontinued
                  operations (note 4)
              
              
              -
              
              
              -
              
              
              (10,235
              )Common
                  shares issued
              
              
              -
              
              
              4,500,000
              
              
              --
              
              
              4,500,000
              
              
              (504,358
              )Effect
                  of foreign currency exchange rate changes
              
              
              7,904
              
              
              156,682
              
              
              (557,887
              )**Increase
                  (decrease) in cash**
              
              
              (1,651,209
              )
              
              1,931,845
              
              
              301,273Cash,
                  beginning of year
              
              
              2,312,156
              
              
              380,311
              
              
              79,038**Cash,
                  end of year**
              
              $
              660,947
              
              $
              2,312,156
              
              $
              380,311The
                  accompanying notes are an integral part of these consolidated financial
                  statements.


-
            44
            -


MED-EMERG
      INTERNATIONAL INC.


Notes
      to
      Consolidated Financial Statements


December
      31, 2005, 2004 and 2003





**1.
      ORGANIZATION AND DESCRIPTION OF BUSINESS**





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





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





The
      Company’s operations were divided into four units during the 2004 fiscal year.
      Subsequent to 2004, the Company is no longer actively involved in the Government
      Healthcare Services (including Department of National Defence “DND”). MEII’s
      three remaining business units are: Staffing Solutions, Medical Services and
      Healthcare Consulting.





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, 2005,
      the Company had about 40 physician and nurse staffing contracts.




The
      Medical Services division is comprised of (a) infusion services, (b) pain
      management services, and (c) two family medical clinics. The infusion business
      provides special access RemicadeTM infusion
      services to patients suffering from a variety of inflammatory disorders
      including Crohn’s disease and rheumatoid arthritis, at clinic locations across
      Ontario. During 2004, the Company also provided similar services for treating
      cancer patients with bone metastases, however; this infusion therapy did not
      garner adequate market acceptance. In November 2004, the Company acquired a
      pain
      management clinic and commenced offering services to Toronto-area residents
      who
      experience chronic pain. Subsequently, three additional clinics were opened.
      In
      January 2005, the Company resumed operation of a family medical clinic
      previously sold in 2003, after it failed to achieve certain earnings targets.
      In
      November, 2005, the Company resumed operation of a second clinic, when the
      buyer
      defaulted on certain payment obligations.




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





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





The
      Company sold all of its medical clinics during the 2003 fiscal year (see note
      4). During 2005, two of these clinics have reverted to the Company’s control.
      These two clinics are not material to the Company’s operations. They are now
      accounted for under Medical Services.





**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. Differences
      between Canadian and United States accounting principles are described in note
      21.


-
          45
          -


**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





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





The
      preparation of consolidated financial statements in conformity with Canadian
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent liabilities during the reporting period. Significant
      areas requiring the use of estimates relate to: 1) the reported amounts of
      revenues and expenses, 2) the disclosure of contingent liabilities, 3) the
      carrying value of property, plant, and equipment and the rate of amortization
      related thereto. Actual results could differ from those estimates. When
      adjustments become necessary, those adjustments are reported in earnings in
      the
      period in which they become known.





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





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




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





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





Furniture
                and fixtures
            20%
            Declining
                balanceComputer
                software
            100%
            Declining
                balanceComputer
                hardware
            30%
            Declining
                balanceLeasehold
                improvements
            3-4
                years
            Straight-line





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





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





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





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





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





The
      Company has adopted the provisions of EIC - 123 and EITF 99-19. Both address
      the
      reporting of revenue on a gross basis as a principal versus on a net basis
      as an
      agent. The pronouncements generally state that revenue should be reported on
      a
      gross basis if:


§
            The
                enterprise is the primary obligor in the
                relationship;


§
            The
                enterprise has latitude in establishing
                price;


§
            The
                enterprise performs part of the
                service;


§
            The
                enterprise has discretion in supplier
                selection;


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


§
            The
                enterprise has credit risk.





With
      the
      exception of determining how the specific service is delivered, MEII meets
      the
      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.


-
          46
          -


MEII
      acts
      as a principal in providing these services. MEII (a) negotiates price with
      the
      customers; and (b) contracts with emergency room physician and nursing personnel
      to provide services to hospitals and correctional facilities in Ontario, a
      mix
      of rural and urban facilities including tertiary care centers. MEII recruits,
      schedules and bills the customer for the services provided and encounters credit
      risk in the event of non-payment.





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





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





***(2)
      Medical Services:***





Revenue
      is reported on a gross basis.





Under
      contracts with Schering-Plough Canada, MEII acts as the coordinator for the
      community-based infusion of certain medications for the treatment of patients
      with rheumatoid arthritis and Crohn’s disease. MEII schedules the nurse, doctor
      and patient and bills the customer for the services provided and encounters
      credit risk in the event of non-payment.





The
      Company acts as the principal in providing pain management treatments to
      patients in its Toronto-based clinics. MEII, manages the patient and billing
      process for the services provided and assumes the credit risk in the event
      of
      non-payment.





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





***(3)
      Healthcare Consulting:***





Revenue
      is reported on a gross basis.





MEII
      is
      involved with several provincial governments and national and provincial
      healthcare bodies advising on a variety of issues related to primary care
      staffing, health human resource planning, training and integrated service
      delivery models.





Revenue
      is recognized over the life of the contracts, based on pre-defined milestones
      determined in the specific contracts, and where there is reasonable assurance
      of
      collection. ****





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





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





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





Cash
      consists of cash on hand and 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 the current rate prevailing at the balance sheet date,
      shareholders’ equity (deficit) is translated at historical rates and all income
      and expense items are translated at average rates for the year. Due to the
      fact
      that items in the consolidated financial statements are being translated at
      different rates according to their nature, a translation adjustment is created.
      This translation adjustment has been included in the cumulative translation
      adjustment.


-
          47
          -


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





The
      Company has adopted section 3870 issued by the CICA in respect of stock based
      compensation and other stock based payments. This section requires that a fair
      value based method of accounting be applied to all stock based payments to
      non-employees and to direct awards of stock to employees. The standard requires
      the recognition of a compensation expense for grants of stock, stock options,
      and other equity instruments to employees based on the estimated fair value
      of
      the instruments at the grant date.





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





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




**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.  The Company believes that the
      successful bidder used confidential information obtained through the hiring
      of a
      former MEII employee to win the New Contract, and that the former MEII employee
      retained by the successful bidder breached his legal obligations by disclosing
      financial and other information confidential to MEII.  On January 31, 2005,
      the Company filed a complaint with the Canadian International Trade Tribunal
      (“CITT”).  The CITT is the
      administrative tribunal in Canada with the jurisdiction to conduct inquiries
      into complaints by potential suppliers concerning procurement by the federal
      government departments and agencies, including DND and PWGSC. In
      its
      submission to the CITT, Med-Emerg questioned the manner in which the Government
      of Canada’s procurement for the DND medical staffing contract, valued at
      $448,810,965, was conducted, including the evaluation of its proposal submitted
      in response to the Request for Proposal (“RFP”). Specifically, the Company
      alleged that PWGSC:




Ÿ
              Awarded
                  the New Contract to a bidder that did not meet the mandatory requirements
                  of the bid;Ÿ
              Introduced
                  unpublished evaluation criteria to the evaluation process,
                  andŸ
              Failed
                  to properly apply the published evaluation
                  criteria.




In
      filing
      the complaint, the company sought to terminate the New Contract award to the
      winning bidder, to have MEII awarded the New Contract, or in the alternative,
      to
      have a new bid process conducted.  In the further alternative, the Company
      asked that it be compensated for lost profit on the contract and the costs
      associated with the filing of the complaint. On June 15, 2005 the CITT
      ruled that the Company’s complaint against PWGSC was valid, in part, and awarded
      the Company its reasonable costs. On July 15, 2005 the Company filed an
      application for judicial review into the CITT decision. In its decision CITT
      held that PWGSC breached the applicable trade agreements in conducting its
      procurement. Despite this, the CITT declined to grant any remedy aside from
      the
      award of reasonable costs. The Federal Court of Appeal convened on March 22,
      2006 to consider the matter. A ruling has not yet been received.




Ontario
      Medical Clinics Sale


On
      September 5, 2003 the Company entered into a transaction with AIM Health Group
      Ltd. (“AIM”) to dispose of


-
          48
          -


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.





The
      Company sold the subsidiary corporations that owned these clinics to AIM. The
      names of these corporations are as follows: 1189543 Ontario Inc. (and its
      subsidiaries 1180668 Ontario Inc., 1292363 Ontario Corporation and 1024528
      Ontario Inc.), Med-Plus Health Centres Ltd. (and its subsidiary Glenderry
      Medical Walk-In Clinic Inc.), Med-Emerg Urgent Care Inc. and Caremedics
      (Elmvale) Inc.





MEII
      sold
      all of the shares owned by MEII in these companies (including all assets and
      liabilities of the companies identified
      above), complete with all lease and employee obligations.





In
      consideration for the sale of the shares of these corporations, MEII received
      $597,763 ($775,000 CDN). The purchase price was settled as follows:





I.
            $385,654
                ($500,000 CDN) cash upon signing the purchase and sale agreement
                on
                September 5, 2003;


II.
            $38,565
                ($50,000 CDN) cash upon the date of closing of the transaction of
                the
                purchase and sale for the purchased
                shares;


III.
            $38,565
                ($50,000 CDN) cash on the later of the renegotiation of certain
                contractual obligations related to one of the clinic operations;


IV.
            $145,591
                ($175,000 CDN) 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 ($1 CDN)
                per
                share on September 30, 2003.





This
      transaction resulted in a $104,138 gain on disposition of these clinic companies
      as the net assets of the companies sold were less than proceeds received by
      MEII.





The
      Company has accounted for the investment using the cost method at a value of
      $0.77 ($1 CDN) for each Class A preferred share. It is the Company’s intention
      to hold the Class A preferred shares for greater than one year and accordingly
      it has classified the investment as long-term (see note 6).





Each
      Class A preferred share entitles the holder to receive for each fiscal year
      as
      declared by the board of directors of AIM a cumulative dividend at an amount
      equal to the greater of:


I.
            Three
                (3%) percent of the amount recorded in the stated capital account
                maintained in respect of the Class A preferred shares of AIM (“fixed
                dividends”); and


II.
            Twenty
                (20%) percent of the cumulative net income of the clinic corporations
                calculated under generally accepted accounting principles on a basis
                consistent with those of the previous years (“variable
                dividends”).




The
      cumulative amount of the fixed dividends paid to the holders of Class A
      preferred shares in prior years shall reduce the variable dividends payable
      to
      the holders of Class A preferred shares in a given year.





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 ($20,000 CDN) in cash during
      the
      2004 fiscal year.





This
      transaction resulted in a $51,581 loss on disposition of these clinic companies
      as the net assets of the companies sold were higher than proceeds received
      by
      MEII.





Manitoba
      Medical Clinic Sale


During
      the fourth quarter of 2003, MEII sold certain assets of the Wildwood Medical
      Centre located in Winnipeg, Manitoba. In consideration for the sale, MEII
      received $6,557($8,500 CDN) in cash. This transaction resulted in net loss
      of
      $19,024 upon disposition as the net assets of the companies sold were higher
      than proceeds received by MEII.


-
          49
          -


The
        summarized
        statements of income (loss) for the Discontinued Operations are as
        follows:


2005
              
              2004
              
              2003Revenue
              
              $
              11,523,166
              
              $
              38,951,118
              
              $
              46,570,653Physician
                  fees and other direct costs
              
              
              10,549,299
              
              
              36,422,232
              
              
              41,316,675Gross
                  margin
              
              
              973,867
              
              
              2,528,886
              
              
              5,253,978Operating,
                  general and administrativeexpenses
              
              
              724,233
              
              
              1,208,919
              
              
              4,750,448Amortization
              
              
              38,296
              
              
              48,161
              
              
              196,548Other
                  expense
              
              
              67,333
              
              
              236,832
              
              
              469,625Income
                  (Loss) before income taxes
              
              
              144,005
              
              
              1,034,974
              
              
              (162,643)Income
                  taxes (recovery)
              
              
              -
              
              
              -
              
              
              (1,321)Minority
                  interest
              
              
              -
              
              
              -
              
              
              621Gain
                  (Loss) for the year
              
              
              144,005
              
              
              1,034,974
              
              
              (161,943)Gain
                  on disposal of discontinued operations
              
              
              -
              
              
              -
              
              
              33,533Gain
                  (Loss) from discontinued operations
              
              $
              144,005
              
              $
              1,034,974
              
              
              ($128,410)
  The
                    summarized balance sheets for the Discontinued Operations are
                    as
                    follows:2005
                
                2004Current
                    assetsCash
                
                $
                68,003
                
                $
                800Accounts
                    receivable
                
                
                967,957
                
                
                2,652,637Prepaid
                    expenses
                
                
                -
                
                
                2,2541,035,960
                
                
                2,655,691Property,
                    plant and equipment
                
                
                -
                
                
                38,596$
                1,035,960
                
                $
                2,694,287Current
                    liabilitiesAccounts
                    payable and accrued liabilities
                
                $
                1,194,427
                
                $
                3,607,406Net
                    assets
                
                
                ($158,467)
                
                
                ($913,119)


-
            50
            -
 **5.
      ACCOUNTS RECEIVABLE**


2005
                
                2004Trade
                    receivable
                
                $
                2,122,594
                
                $
                1,467,793Allowance
                    for doubtful accounts
                
                
                (17,836
                )
                
                (15,800
                )$
                2,104,758
                
                $
                1,451,993


**6.
      LONG-TERM INVESTMENT**





2005
            
            2004Investment
                in AIM Health Group Ltd.
            
            $
            83,195
            
            $
            83,195





MEII
      has
      an investment of 175,000 class A preferred shares of AIM as a result of
      disposition of the Ontario based clinics on September 30, 2003 (see note 4
      for
      further details). It was determined that there was an impairment in the carrying
      value of the long term investment, and hence the investment has been written
      down by $57,626 in 2004. The asset was further tested for impairment in 2005,
      and a write down was not considered necessary.





**7.
      PROPERTY, PLANT AND EQUIPMENT**




2005
              
              2004Accumulated
              
              
              
              
              
              AccumulatedCost
              
              Amortization
              
              Net
              
              Cost
              
              Amortization
              
              NetFurniture
                  and fixtures
              
              $
              304,169
              
              $
              193,374
              
              $
              110,795
              
              $
              276,753
              
              $
              162,493
              
              $
              114,260Computer
                  software
              
              
              431,155
              
              
              385,882
              
              
              45,273
              
              
              329,557
              
              
              254,120
              
              
              75,437Computer
                  hardware
              
              
              649,323
              
              
              528,525
              
              
              120,798
              
              
              628,254
              
              
              461,285
              
              
              166,969Leasehold
                  improvements
              
              
              272,014
              
              
              138,960
              
              
              133,054
              
              
              196,650
              
              
              83,073
              
              
              113,577$
              1,656,661
              
              $
              1,246,741
              
              $
              409,920
              
              $
              1,431,214
              
              $
              960,971
              
              $
              470,243





Amortization
      of property, plant, and equipment for the year amounted to $243,413 ($134,238
      for December 31, 2004 and $52,851 for December 31, 2003).





**8.
      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 the year end.





**9.
      NOTES PAYABLE**





The
      unsecured notes payable were issued on September 30, 2001, are due on September
      30, 2006 and 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.





There
      has
      been a change in the accounting policy concerning the promissory notes. Section
      3860 of the CICA Handbook was amended in January 2004 (effective November 2004).
      The promissory notes were previously treated as equity, and shown as Convertible
      debentures. However, with the amendment of section 3860, they are now classified
      as a liability.


-
          51
          -


**10.
      LONG-TERM DEBT**





The
      amount of $592,692 ($894,517 in 2004) pertains to the long-term portion of
      the
      Goods and Services Tax which is payable over a period of five years, as per
      an
      agreement between the Company and the Canada Revenue Agency (“CRA”). An amount
      of $24,765 ($30,000 CDN) is payable monthly and is reviewable every six months.
      Accordingly, the current portion of this debt 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.




**11.
      CAPITAL STOCK**


AuthorizedUnlimited
                    number of the following classes of shares and warrants:Preferred
                    shares, voting, non-redeemable, non-retractable, having a cumulative
                    dividend ofUS$0.27
                    per share payable by cash or shares at the option of the company;convertible
                    to common sharesClass
                    "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 thedirectors;Common
                    sharesCommon
                    shares purchase warrants, redeemable, entitling holder to purchase
                    one
                    share ofcommon
                    stock at a price of US$0.20 per share to August 11, 2006.
  Issued2005
                  
                  200458,277,696
                      Common shares ( 2004-58,277,696 shares)
                  
                  
                  15,938,625
                  
                  
                  15,938,62513,025,000
                      Common stock purchase warrants
                  
                  
                  106,111
                  
                  
                  106,111(2004-13,025,000
                      warrants)$
                  16,044,736
                  
                  $
                  16,044,736Common
                      SharesNumber
                  
                  
                  AmountBalance,
                      December 31, 2004
                  
                  
                  58,277,696
                  
                  $
                  15,938,625Balance,
                      December 31, 2005
                  
                  
                  58,277,696
                  
                  $
                  15,938,625WarrantsNumber
                  
                  
                  AmountBalance,
                      December 31, 2004
                  
                  
                  13,025,000
                  
                  $
                  106,111Balance,
                      December 31, 2005
                  
                  
                  13,025,000
                  
                  $
                  106,111


(a)
      Share
      Capital


On
      June
      15, 2004, the Company issued 39,360,272 common shares for $4,500,000. 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 which were in arrears, in the
      amount of $579,582, were forgiven.




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




The
      Investors received 43,708,272 common shares of MEII, of which 39,360,272 were
      purchased from the Company for $4,500,000 and 4,348,000 were purchased directly
      from the Preferred Shareholder for $500,000. Closing costs including legal,
      travel and due diligence costs for the equity financing amounted to $609,214,
      and were expensed during the second quarter.




In
      addition to issuing the common shares, MEII also issued to the Investors and
      the
      former Preferred Shareholder, 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 Investors’ and former Preferred Shareholder to
      maintain their pro rata share of their equity position. On
      December 15, 2005, the
      Company filed a post-effective amendment to its Registration Statement, reducing
      the -
            52
            -
 exercise
      price of the common stock purchase warrants from $0.50 to $0.20. The exercise
      price of the New Warrants is linked to the exercise price of the common stock
      purchase warrants. Accordingly, the exercise price of the New Warrants were
      similarly reduced. As of the filing of this report, the amendment has not been
      declared effective by the SEC.





(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 not
      approved by the security holders. 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, 2005 total options outstanding of 4,715,000 are comprised of
      2,625,000 granted under the Plan A and 2,090,000 granted under Plan B. The
      following options were granted in 2005, 2004 and 2003:




Date
              
              Quantity
              
              Option
                  Price
              
              Expiry
              
              Fair
                  Value
              
              Risk
                  free rate
              
              Expected
                  life
              
              Expected
                  volatility
              
              Expected
                  dividends
              
              NotesMay
                  03
              
              
              785,000
              
              
              $
                  0.50
              
              
              May
                  08
              
              
              370,662
              
              
              2.68%
              
              
              5
                  yrs
              
              
              98%
              
              
              NIL
              
              
              (2)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. The options issued in June 2004 were issued under Plan B. 250,000
      of these options vest 125,000 per year for two years. The remaining 2,300,000
      options issued in June 2004 vest equally over five years, subject to certain
      earnings criteria being met. Since these criteria were not met in 2005, 20%
      of
      the options awarded under this plan were forfeited during the year and no stock
      compensation expense was booked, thereon. The 100,000 options issued in November
      2004 were issued under Plan A and become 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:


Option
                    price
                    per
                      share
                  
                  **Number
                      of Shares**Expiry
                      date
                  
                  
                  2005
                  
                  2004
                  
                  2003Apr
                      2006
                  
                  $
                  0.500
                  
                  
                  1,440,000
                  
                  
                  1,440,000
                  
                  
                  1,440,000Jun
                      2007
                  
                  $
                  1.000
                  
                  
                  100,000
                  
                  
                  100,000
                  
                  
                  100,000May
                      2008
                  
                  $
                  0.500
                  
                  
                  785,000
                  
                  
                  785,000
                  
                  
                  785,000Jan
                      2009
                  
                  $
                  0.500
                  
                  
                  100,000
                  
                  
                  100,000
                  
                  
                  -Jun
                      2009
                  
                  $
                  0.115
                  
                  
                  2,090,000
                  
                  
                  2,550,000
                  
                  
                  -Nov
                      2009
                  
                  $
                  1.000
                  
                  
                  100,000
                  
                  
                  100,000
                  
                  
                  -Aug
                      2010
                  
                  $
                  0.300
                  
                  
                  100,000
                  
                  
                  -
                  
                  
                  -4,715,000
                  
                  
                  5,075,000
                  
                  
                  2,325,000Weighted
                      average exercise price at end of year
                  
                  
                  $
                  0.34
                  
                  $
                  0.33
                  
                  $
                  0.52


-
                      53
                      -


2005
              2004
              2003Outstanding,
                  beginning of year
                Granted
                Expired
                Exercised
                Forfeited
                Cancelled
                Outstanding,
                  end of year
                Exercisable,
                  end of year
              5,075,000
              2,325,000
              2,270,000100,000
              2,750,000
              785,000-
              -
              --
              -
              -(460,000)
              -
              --
              -
              (730,000)4,715,000
              5,075,000
              2,325,0002,712,500
              2,487,500
              2,325,000




Number
                of Shares
            
            Options
                Exercisable
            
            Option
                Price
            
            Weighted
                Avg. PriceOutstanding
                January 1, 2003
            
            
            2,270,000
            
            
            2,270,000
            
            
            $
                0.50
            
            
            $
                1.00
            
            
            $
                0.84Granted
            
            
            785,000
            
            
            
            
            
            $
                0.50
            
            
            $
                0.50
            
            
            $
                0.50Exercised
            
            
            0Cancelled
            
            
            (730,000)
            
            
            
            
            
            $
                0.50
            
            
            $
                1.87
            
            
            $
                1.48Outstanding
                December 31, 2003
            
            
            2,325,000
            
            
            2,325,000
            
            
            $
                0.50
            
            
            $
                1.00
            
            
            $
                0.52Granted
            
            
            2,750,000
            
            
            
            
            
            $
                0.115
            
            
            $
                1.00
            
            
            $
                0.14Exercised
            
            
            0Cancelled
            
            
            0Outstanding
                December 31, 2004
            
            
            5,075,000
            
            
            2,487,500
            
            
            $
                0.115
            
            
            $
                1.00
            
            
            $
                0.32Granted
            
            
            100,000
            
            
            
            
            
            $
                0.30
            
            
            $
                0.30
            
            
            $
                0.30Exercised
            
            
            0Forfeited
            
            
            (460,000)
            
            
            
            
            
            $
                0.115
            
            
            $
                0.115
            
            
            $
                0.115Outstanding
                December 31, 2005
            
            
            4,715,000
            
            
            2,712,500
            
            
            $
                0.115
            
            
            $
                1.00
            
            
            $
                0.34




The
        following table describes the weighted average life of the outstanding options
        as of December 31, 2005:
  ExercisePrice
                
                Options
                    Outstanding
                
                Remaining
                    Weighted Average Contractual Life (Years)
                
                Options
                    Exercisable0.115
                
                2,090,000
                
                3.5
                
                187,5000.300
                
                100,000
                
                4.7
                
                100,0000.500
                
                2,325,000
                
                1.2
                
                2,325,0001.000
                
                200,000
                
                2.7
                
                100,0004,715,000
                
                
                
                2,712,500


-
          54
          -


The
      Company expensed the fair value of the stock options granted during the
      year.





(c
      )
      Common stock purchase warrants


During
      the first quarter of 2003, the terms of the warrants were amended entitling
      each
      warrant holder to purchase one share of common stock at a price of $0.50
      (previously $4.50). The expiry of these warrants was extended from February
      11,
      2003 to February 11, 2005. The fair value determined by Black Scholes was
      $790,600, and the fair value assumptions were a risk-free rate of 2.49%,
      expected life of 2 yrs, expected volatility of 125% and expected dividends
      of
      NIL.





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 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
      1
      yr, expected volatility of 119% and expected dividends of NIL.





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 yr, expected
      volatility of 107% and expected dividends of NIL.





On
      February 10, 2006, the expiry of these warrants was extended from February
      11,
      2006 to August 11, 2006.





**12.
      CONTRIBUTED SURPLUS**





2005
            
            2004Stock
                compensation expense
            
            $
            2,779,285
            
            $
            2,408,404Fair
                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
            
            
            41,775$
            2,907,290
            
            $
            2,536,409





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. As a result of this, stock compensation expense of $228,347
      was determined and was credited to contributed surplus (note 11c). In addition,
      an amount of $26,006 has been recorded as stock compensation expense for options
      granted to an employee in 2004 for the portion that vested in the first quarter
      of 2005. These amounts were credited to contributed surplus.





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





During
      the third quarter of 2005, an amount of $16,921 was recorded as stock
      compensation expense for 100,000 options granted as per section 3870 of the
      CICA
      handbook (note 11b). In addition, an amount of $8,619 was recorded as stock
      compensation expense for options granted to an employee in 2004 for the portion
      that vested in the third quarter of 2005. These amounts were credited to
      contributed surplus.





During
      the fourth quarter of 2005, an amount of $62,092 was recorded as stock
      compensation expense for re-pricing of warrants and this amount was credited
      to
      contributed surplus (note 11c). In addition, an amount of $8,529 was recorded
      as
      stock compensation expense for options granted to an employee in 2004 for the
      portion that vested in the fourth quarter of 2005. These amounts were credited
      to contributed surplus.





During
      the first quarter of 2004, 100,000 options were granted with an exercise price
      of $0.50 per option. The options vested immediately and are available for a
      term
      of five years expiring on January 30, 2009. Due to the issuance of new options
      the fair value, amounting to $40,876, was been determined using an option
      pricing model (Black Scholes) as per section 3870 of the CICA handbook (note
      11b). This amount was credited to contributed surplus.  -
            55
            -
 During
      the second quarter of 2004, 250,000 options were granted to an employee with
      an
      exercise price of $0.115 per option. 125,000 options would vest annually.
      Options for 125,000 shares shall be exercisable on the first anniversary and
      options for the remaining 125,000 would be exercisable on the second anniversary
      of the award. Due to the issuance of new options, the fair value amounting
      to
      $57,746 was determined using an option pricing model (Black Scholes) as per
      section 3870 of the CICA handbook (note 11b). This amount was credited to
      contributed surplus.





Options
      amounting to 1,000,000 each were granted to two employees, and 150,000 each
      to
      two other employees, at an exercise price of $0.115 per option. The vesting
      of
      these options occurs in equal amounts over five years, subject to an earnings
      hurdle test. Since the earnings test was not achieved during the first year,
      no
      expense was recognized during 2005.





During
      the fourth quarter of 2004, 100,000 options were granted in connection with
      the
      acquisition of the Scarborough pain clinic. An amount of $39,938 was credited
      to
      contributed surplus (note 11b).





During
      the first quarter of 2003, the terms of warrants were amended entitling each
      warrant holder to purchase one share of common stock at a price of $0.50
      (previously $4.50). Due to this amendment, the fair value amounting to $790,600
      was determined, and was credited to contributed surplus (note 11c).





**13.
      FUTURE INCOME TAXES**





At
      December 31, 2005, the Company has losses available to reduce future federal
      and
      provincial taxable income of approximately $10 million. These losses expire
      between tax years 2006 and 2015. The future tax benefits available as a result
      of these losses have been fully provided for in the consolidated financial
      statements.





**14.
      SHAREHOLDERS’ EQUITY (DEFICIT)**





The
      Consolidated Financial Statements are prepared in accordance with Canadian
      GAAP.
      Differences between Canadian and United States accounting principles are
      described in note 21, and hence Shareholders’ equity (deficit) is presented as
      per Canadian GAAP and US GAAP.








-
          56
          -


**SHAREHOLDERS’
      EQUITY (DEFICIT) CANADIAN GAAP**





**CAPITAL
                STOCK**
            
            **2005**
            
            **2004**
            
            **2003**Balance
                at the beginning of the year
            
            
            16,044,736
            
            
            11,544,736
            
            
            11,544,736Shares
                issued to new investors
            
            
            -
            
            
            4,500,000
            
            
            -Balance
                at the end of the year
            
            
            16,044,736
            
            
            16,044,736
            
            
            11,544,736**CONTRIBUTED
                SURPLUS**Balance
                at the beginning of the year
            
            
            2,536,409
            
            
            2,397,849
            
            
            1,236,587Stock
                option compensation
            
            
            370,881
            
            
            98,622
            
            
            1,161,262Fair
                value of options in connection with acquisitionof
                Scarborough pain clinic
            
            
            -
            
            
            39,938
            
            
            -Balance
                at the end of the year
            
            
            2,907,290
            
            
            2,536,409
            
            
            2,397,849**DEFICIT**Balance
                at the beginning of the year
            
            
            (17,221,105
            )
            
            (16,425,309
            )
            
            (14,715,653
            )Net
                loss attributable to common shareholders
            
            
            (856,557
            )
            
            (795,796
            )
            
            (1,709,656
            )Balance
                at the end of the year
            
            
            (18,077,662
            )
            
            (17,221,105
            )
            
            (16,425,309
            )**CUMULATIVE
                TRANSLATION ADJUSTMENT**
            
            
            (792,887
            )
            
            (800,791
            )
            
            (965,418
            )**SHAREHOLDERS'
                EQUITY (DEFICIT)**
            
            
            81,477
            
            
            559,249
            
            
            (3,448,142
            )











-
          57
          -


**SHAREHOLDERS’
      EQUITY (DEFICIT) US GAAP**





**CAPITAL
                STOCK**
            
            
            
            **2005**
            **2004**
            **2003**Balance
                at the beginning of the year
            
            17,096,202
            12,596,202
            12,596,202Shares
                issued to new investors
            
            
            -
            4,500,000
            -Balance
                at the end of the year
            
            
            17,096,202
            17,096,202
            12,596,202**CONTRIBUTED
                SURPLUS**Balance
                at the beginning of the year
            
            2,572,815
            2,434,255
            1,272,993Stock
                option compensation
            
            
            370,881
            98,622
            1,161,262Fair
                value of options in connection with acquisitionof
                Scarborough pain clinic
            
            
            -
            39,938
            -Balance
                at the end of the year
            
            
            2,943,696
            2,572,815
            2,434,255**DEFICIT**Balance
                at the beginning of the year
            
            (17,221,105)
            (16,425,309)
            (14,715,653)Net
                loss attributable to common shareholders
            (856,557)
            (795,796)
            (1,709,656)Balance
                at the end of the year
            
            
            (18,077,662)
            (17,221,105)
            (16,425,309)**CUMULATIVE
                TRANSLATION ADJUSTMENT**
            (792,887)
            (800,791)
            (965,418)**SHAREHOLDERS'
                EQUITY (DEFICIT)**
            
            1,169,349
            1,647,121
            (2,360,270)





**15.
      BASIC LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS**





Basic
      loss per share attributable to common shareholders is calculated using the
      weighted average number of common shares outstanding during the year. Diluted
      earnings per common share is calculated using the treasury stock method in
      accordance with the recommendations of 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.




2005
              
              2004
              
              2003Basic
                  loss per common share:Continuing
                  operations
              
              
              $
                  (0.02)
              
              
              $
                  (0.05)
              
              
              $
                  (0.17)Discontinued
                  operations
              
              
              $
                  (0.00)
              
              
              $
                  0.03
              
              
              $
                  (0.01)




**16.
      NOTES TO THE STATEMENT OF CASH FLOWS**





(i)
            Changes
                in non-cash working capital
                components





2005
            
            2004
            
            2003Accounts
                receivable
            
            $
            (652,765
            )
            $
            556,089
            
            
            (1,261,009
            )Prepaid
                expenses
            
            
            (13,173
            )
            
            6,864
            
            
            (17,239
            )Accounts
                payable and accrued liabilities
            
            
            488,655
            
            
            (968,048
            )
            
            1,569,748$
            (177,283
            )
            $
            (405,095
            )
            
            291,500


-
            58
            -
 **** (ii)  Property,
      plant, and equipment





Property,
      plant, and equipment purchased during the year amounted to $183,089 ($487,412
      for December 31, 2004, and $136,559 for December 31, 2003). Purchases were
      financed by cash payments.





(iii)  Interest
      and income taxes paid





Operating
      expenses reflect interest expense of $61,867 for the year ended December 31,
      2005 ($100,477 of interest expense for December 31, 2004 and interest expense
      of
      $112,955 for December 31, 2003); and income tax recoveries of $nil for the
      year
      ended December 31, 2005 ($nil for December 31, 2004 and $2,458 for December
      31,
      2003).





(iv)  Non
      cash
      transaction





There
      were no non-cash transactions during the year.




**17.
      COMMITMENTS**





The
      Company is committed to payments under operating leases of its premises and
      equipment, long-term debt and notes payable totaling $2,922,824. Annual payments
      are as follows:




**CONTRACTUAL
                OBLIGATIONS**Total2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            Thereafter
            
            ObligationsLong-term
                debt1
            
            
            331,212
            
            
            331,212
            
            
            302,967
            
            
            -
            
            
            -
            
            
            -
            
            
            965,392Operating
                lease obligations
            
            
            403,120
            
            
            403,570
            
            
            226,377
            
            
            109,583
            
            
            21,385
            
            
            14,897
            
            
            1,178,932Notespayable2
            
            
            778,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            778,500Total
            
            $
            1,512,832
            
            $
            734,782
            
            $
            529,344
            
            $
            109,583
            
            $
            21,385
            
            $
            14,897
            
            $
            2,922,824





Notes:





1
      -
      Includes interest on long-term debt at the prescribed rate established by the
      Canada Revenue Agency (CRA), currently set at 7%. 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.








**18.
      CONTINGENT LIABILITIES**





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





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





(iii)
            Claims
                have been made against the Company for general damages for breach
                of
                contract and in tort. Claims for approximately $482,000 have been
                made
                against the company for wrongful termination of a person working
                on a
                third party contract. Another claim for unspecified damages has been
                made
                against the company for wrongful dismissal and breach of contract.
                The
                Company’s lawyers are of the view that liability, if any, would be the
                responsibility of the third party contractor. The Company’s lawyers are of
                the opinion that the amount claimed grossly exceeds what a court
                would
                award in light of the current law. Since the Company’s lawyers are of the
                opinion that these claims are unlikely to succeed, no provision has
                been
                made in respect thereof in these consolidated financial
                statements.


-
          59
          -





(iv)
            The
                Company sub-leased certain premises to third parties when it disposed
                of
                its clinic operations. In case of payment defaults by the third parties,
                the Company could be held liable for rent on these premises. Rent
                for
                these premises over the next seven years, during the respective lease
                terms, totals $1.2 million. In July 2005, the Company was notified
                that
                one of the third parties was in default on their rent. In November
                2005,
                the Company resumed operation of the related clinic when the third
                party
                abandoned the business. No obligation was inherited by the Company
                for
                delinquent rent or other payments.





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





**19.
      FINANCIAL INSTRUMENTS**





**FAIR
      VALUE**


The
      carrying value of accounts receivable, 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.





**20.
      SUBSEQUENT EVENTS**





During
      the first quarter of 2006, the terms of the 1,437,500 common stock purchase
      warrants issued in February 1998 were amended, extending the expiry of these
      warrants from February 11, 2006 to August 11, 2006.





**21.
      CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES**





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





(a )  Shareholders’
      equity





Under
      Canadian GAAP, the purchase price of an acquisition is determined based on
      the
      share price on the date the transaction is consummated. Under U.S. GAAP, the
      purchase price of an acquisition where shares are issued is determined based
      on
      the share price for 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. Subsequently, the Goodwill was impaired and
      written-off.





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.  -
            60
            -


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


2005
                  
                  2004Capital
                      stock (as previously shown)
                  
                  $
                  16,044,736
                  
                  $
                  16,044,736Capital
                      stock issued on purchase of YFMC Healthcare Inc.
                  
                  
                  1,087,872
                  
                  
                  1,087,872Ascribed
                      fair value of share purchase warrants issued
                  
                  
                  (36,406
                  )
                  
                  (36,406
                  )Capital
                      stock - U.S. GAAP
                  
                  
                  17,096,202
                  
                  
                  17,096,202Contributed
                      surplus (as previously shown)
                  
                  
                  2,907,290
                  
                  
                  2,536,409Share
                      purchase warrants
                  
                  
                  36,406
                  
                  
                  36,406Paid-in-capital
                      - U.S. GAAP
                  
                  
                  2,943,696
                  
                  
                  2,572,815Deficit
                      (as previously shown)
                    Cumulative
                      translation adjustment
                  
                  
                  (18,077,662
                    (792,887
                  )
                    )
                  
                  (17,221,105
                    (800,791
                  )
                    )Shareholders’
                      equity - U.S. GAAP
                  
                  $
                  1,169,349
                  
                  $
                  1,647,121


(b)  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 comprehensive
      loss for the fiscal year ended December 31, 2005, 2004 and 2003 would be
      adjusted as follows:




2005
            
            2004
            
            2003Net
                loss
            
            $
            (856,557
            )
            $
            (1,341,205
            )
            $
            (1,574,650
            )Foreign
                currency translation adjustment
            
            
            7,904
            
            
            164,627
            
            
            (557,887
            )Comprehensive
                loss
            
            $
            (848,653
            )
            $
            (1,176,578
            )
            $
            (2,132,537
            )





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.








(c)
      Recently issued accounting standards





The
      following standards were issued by the Financial Accounting Standards Board
      during 2005 and 2004:





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




SFAS
        No.
        152-Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB
        Statements No. 66 and 67. This Statement amends FASB Statement No. 66,
        Accounting for Sales of Real Estate, to reference the financial accounting
        and
        reporting guidance for real estate time-sharing transactions that is provided
        in
        AICPA Statement of Position.
 
 SFAS
        No.
        153-Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The
        guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions,
        is
        based on the principle that exchanges of nonmonetary assets should be measured
        based on the fair value of the assets exchanged.


-
          61
          -


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





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





SFAS
      No.
      154 - Accounting Changes and Error Corrections—a replacement of APB Opinion No.
      20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, *Accounting
      Changes,* and FASB
      Statement No. 3, *Reporting
      Accounting Changes in Interim Financial Statements,* and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This Statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. When a pronouncement includes specific
      transition provisions, those provisions should be followed.





SFAS
      No.
      155 - Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
      Statements No. 133 and 140. This Statement amends FASB Statements No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* and No.
      140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities.* This
      Statement resolves issues addressed in Statement 133 Implementation Issue No.
      D1, “Application of Statement 133 to Beneficial Interests in Securitized
      Financial Assets.”





SFAS
      No.
      156 - Accounting for Servicing of Financial Assets—an amendment of FASB
      Statement No. 140. This Statement amends FASB Statement No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities.








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





**22.
      SEGMENTED INFORMATION**





The
      Company operated under three business units during 2005 as follows: Staffing
      Solutions, Medical Services, and Healthcare Consulting Services.





The
      Staffing Solutions unit contracts with hospitals for the provision of physician
      staffing, nurse staffing and administrative support services. The Company also
      contracts with clinical facilities and local communities for the locum or
      permanent placement of a physician in a community.





The
      Medical Services unit provides infusion services to patients suffering from
      Crohn’s disease and rheumatoid arthritis and pain management
      services.





The
      Healthcare Consulting unit provides select Canadian public and private
      institutions, consulting services on a variety of healthcare topics.  -
            62
            -
 The
      segmented information for the business units are as follows:




2005Staffing
            
            Medical
            
            Healthcare
            
            ConsolidatedSolutions
            
            Services
            
            ConsultingRevenue
            
            $
            9,284,794
            
            $
            3,976,161
            
            $
            1,131,692
            
            $
            14,392,647Gross
                margin
            
            $
            1,735,469
            
            $
            1,396,999
            
            $
            581,568
            
            $
            3,714,036Net
                income (loss) before discontinued operations
            
            $
            (243,277
            )
            $
            (645,636
            )
            $
            (111,649
            )
            $
            (1,000,562
            )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






2004Staffing
            
            Medical
            
            Healthcare
            
            ConsolidatedSolutions
            
            Services
            
            ConsultingRevenue
            
            $
            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
            )
            $
            (633,499
            )
            $
            (448,455
            )
            $
            (2,376,179
            )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








2003Staffing
            
            Medical
            
            Healthcare
            
            ConsolidatedSolutions
            
            Services
            
            ConsultingRevenue
            
            $
            13,211,324
            
            $
            887,237
            
            $
            156,091
            
            $
            14,254,652Gross
                margin
            
            $
            2,177,563
            
            $
            426,828
            
            $
            156,091
            
            $
            2,760,482Net
                income (loss) before discontinued operations
            
            $
            (1,030,608
            )
            $
            (303,707
            )
            
            (111,925
            )
            $
            (1,446,240
            )Property,
                plant and equipment employed at end of year
            
            $
            99,509
            
            $
            17,560
            
            $
            NIL
            
            $
            117,069Amortization
            
            $
            41,224
            
            $
            8,456
            
            $
            3,171
            
            $
            52,851








**23.
      RELATED PARTY TRANSACTIONS**





Consulting
      fees of approximately $57,784 (Cdn$70,000) were paid to each of two directors,
      who were retained as consultants ($31,374 in 2004 and $43,000 in 2003). Their
      contracts expired in June 2005. Administrative fees of approximately $24,765
      (Cdn$30,000) were paid to a related Company ($Nil in 2004). There are no related
      party balances outstanding at the year end.  -
            63
            -
 **24.
      COMPARATIVE FIGURES**





Certain
      figures in the 2004 and 2003 consolidated financial statements have been
      reclassified to conform with the basis of presentation in 2005.


(a)
      There
      has been a change due to operations of Government Healthcare Services being
      classified as discontinued operations (note4).


(b)
      Amendments based on a review of FRR 210, concerning quasi reorganizations,
      which
      led management to reverse the accounting treatment previously applied. The
      net
      loss attributable to common shareholders and basic loss per common share from
      continuing and discontinued operations, assets, liabilities and cash flows
      remain unchanged. The overall Shareholders’ Equity too remains unchanged, but
      the allocation between Capital Stock, Contributed Surplus and Deficit has
      changed.





-
              64
              -