**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-K-A**





FOR
      ANNUAL AND
      TRANSITION REPORTS PURSUANT TO


SECTIONS
      13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





(MARK
      ONE)


x
            ANNUAL
                REPORT
                PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


FOR
      THE FISCAL YEAR
      ENDED DECEMBER 31, 2004


*OR*


 ̈
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


FOR
      THE TRANSITION
      PERIOD FROM __________ TO __________





COMMISSION
      FILE
      NUMBER: 1-13861




**MED-EMERG
      INTERNATIONAL INC.**





(Exact
      Name of
      Registrant as Specified in Its Charter)





PROVINCE
      OF
      ONTARIO, CANADA


(State
      or Other
      Jurisdiction of Incorporation or Organization)





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





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





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





(Title
                of each
                class)
            (Name
                of each
                exchange on which registered)COMMON
                STOCK,
                NO PAR VALUE
            OTC
                Bulletin
                BoardREDEEMABLE
                COMMON STOCKPURCHASE
                WARRANTS
            OTC
                Bulletin
                Board





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





COMMON
                STOCK,
                NO PAR VALUE
            OTC
                Bulletin
                BoardREDEEMABLE
                COMMON STOCKPURCHASE
                WARRANTS
            OTC
                Bulletin
                Board





Securities
      for
      which there is a reporting obligation pursuant to Section 15(d) of the Act.
      NONE




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 an accelerated filer (as defined in Exchange Act
      Rule
      126-2). Yes  ̈ No x




The
      aggregate
      market value of the shares of common stock (based upon the closing sales price
      of the Company’s common stock as reported on the OTC Bulletin Board on March 31,
      2005) of the registrant held by non-affiliates on December 31, 2004 was
      approximately $23,311,000.




As
      of March 31,
      2005, 58,277,696 shares of the registrant’s common stock were
      outstanding.




(All
      figures in US
      dollars unless otherwise noted.)
















**PART
      I**





**ITEM
                1:**
            **BUSINESS**





**BACKGROUND**





Based
      in Ontario,
      Canada, Med Emerg International Inc (“MEII”) is an established health care
      solutions provider. Founded in 1983, initially to provide contract staffing
      of
      emergency room physicians and nurses, the Company has expanded to offer a wide
      variety of healthcare staffing solutions and medical services to governments,
      communities and facilities across Canada.





In
      these times,
      with the Canadian Healthcare system facing continuous challenges on several
      fronts, opportunities exist for a company like MEII to deliver innovative
      solutions within the confines of the Canada Health Act. Demand for more complex
      services from an ageing population, the capital and human resource requirements
      of new lifesaving technology and the need to retrofit existing ageing facilities
      all place strain on the system. The situation is exacerbated by burn-out in
      the
      workplace caused by declining enrolments in health professions and increased
      levels of retirement by the existing practitioners. The increasing severity
      of
      the condition now manifests itself in daily headlines announcing long waiting
      lists for elective surgery, shortages of family physicians and the governments
      struggle to keep pace with the ever increasing costs of a publicly funded,
      universally available healthcare system.





The
      Company
      currently employs staff covering 26 categories of healthcare professionals
      including physicians, dentists, pharmacists and nurses.





As
      a healthcare
      solutions provider, MEII in addition to its staffing business provides medical
      services such as chronic pain management and intravenous infusion services
      for
      pharmaceutical companies in conveniently located community-based
      clinics.





As
      a result of its
      many years of healthcare experience, MEII has developed a comprehensive
      understanding of primary care renewal, project evaluation, and healthcare human
      resource planning.





The
      recent equity
      investment from a group of Canadian and International investors provides MEII
      with an international recruiting expertise and capability in addition to its
      Canadian healthcare operations.





The
      Company's
      operations are divided into four units: Staffing Solutions, Medical Services,
      Government Healthcare Services and Healthcare Consulting Services.





**STAFFING
      SOLUTIONS**





Hospitals
      are
      increasingly turning to third-party experts to devise and implement improvements
      to the recruitment and management of their clinical staff. We provide physician
      staffing services to approximately 30 healthcare facilities in various
      provinces, including rural and urban facilities as well as tertiary care
      centers. In 2004 the company introduced Primary Health Care Nurse Practitioners
      to our mix of healthcare providers in hospitals.




MEII
      has developed
      a unique integrated staffing solution as a result of an approach by the Whitby
      Mental Health Centre to recruit primary care physicians. Reviewing the patient
      population, the nature of the cases being treated, and the total cost of the
      current system, MEII pioneered an integrated health care 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 awarded MEII a similar contract for primary care services.





Since
      1990, the
      Company has been involved in the provision of healthcare services in some of
      the
      most difficult environments. The Company currently provides after hours
      physician coverage to 8 federal penitentiaries in Ontario, and has developed
      a
      unique delivery model in a provincial penitentiary in Nova Scotia, using
      Physician Assistants supported telephonically by emergency
      physicians.











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. MEII will be responsible for the recruitment, credentialing, placement
      and monitoring of the pharmacists.





**MEDICAL
      SERVICES**





In
      addition to its
      healthcare staffing solutions, MEII provides innovative medical services
      directly to healthcare consumers.





*Infusion
      Services*


In
      March 2001,
      Med-Emerg entered into an agreement with Schering-Plough Canada to become a
      coordinator for the community-based infusion of RemicadeTM, in Ontario. 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
      has established over 20 infusion sites to-date and delivered over 6,000
      infusions in 2004. MEII is expecting continued growth for this service, as
      the
      trend seems to be to move infusion services from institution settings into
      community based settings.





*Pain
      Management
      Services*


Med-Emerg’s
      chronic
      pain management service, CPM Health Centres (“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. CPM has developed a standardized
      approach to the treatment of chronic pain, using an integrated
      multi-disciplinary approach including anesthetists, ER physicians,
      physiotherapists and chiropractors, amongst others.





It
      is estimated
      that more than 10% of Canadians suffer from chronic pain (unexplained pain
      lasting more than 6 months). This equates to more than 800,000 people living
      in
      southern Ontario who would potentially access medical services for the treatment
      of pain. Existing facilities in the region are backlogged with waiting times
      of
      4-6 months. Due to the large demand, existing facilities in the rural areas
      are
      backlogged with waiting times of between 4-12 months.





With
      the objective
      of reducing these waiting times, the Company has created a two-pronged approach
      to improving service availability to that require professional chronic pain
      management care. The Company developed and launched a training program
      specifically designed to educate emergency room physicians in chronic pain
      management. The first group has completed the didactic portion of the training
      program. Med-Emerg is now scheduling these doctors in our Toronto-area clinics
      to complete the clinical portion of their training.





Preliminary
      plans
      have been completed to increase the capacity and throughput of the Scarborough
      clinic by doubling the number of clinical pain providers and increasing the
      hours and days of operation of the facility. This clinic is currently receiving
      approximately 50 new referrals per week with a waiting time of almost three
      months to book initial assessment appointments. The volume of referrals will
      more than satisfy the increased capacity, once the clinic has been modified
      and
      the new providers are in place.





Plans
      are underway
      to open additional sites in 2005.





**GOVERNMENT
      HEALTHCARE SERVICES**





In
      March of 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. As the service administrator, the Company
      recruits, credentials, schedules and pays physicians, nurses, dentists,
      physiotherapists and other regulated healthcare professionals as required by
      the
      local health authority resident on each base. As of January 2005, Med-Emerg
      was
      supplying more than 750 healthcare providers to DND under this contract. The
      Company is paid a monthly administrative management fee by the DND that is
      linked to the number of providers being managed.











The
      primary benefit
      to DND from this contract is the creation of a “one-stop shopping” arrangement
      for the military base. As part of a national organization, the Company’s
      recruiters source health service providers from all regions of Canada. Because
      of its long-term relationships with its employees and sub-contractors, and
      its
      ability to react quickly to changing local conditions, the Company provides
      stability in the workforce and enhances continuity in the delivery of patient
      care for the DND.





In
      May 2004, Public
      Works and Government Services Canada (PWGSC) re-tendered the Contract, which
      was
      set to expire March 31, 2005. Med-Emerg responded to the tender proposal and
      its
      bid was one of three considered by PWGSC. In December 2004 Med-Emerg 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 will accordingly end on March 31 st ,
      2005.





After
      learning that
      its bid had not been successful, in January 2005 the Company launched a
      Cdn.$100,000,000 lawsuit against the winning bidder and a former employee of
      the
      Company. Med-Emerg believes that the successful bidder used confidential
      information obtained through the hiring of a former Med-Emerg employee to win
      the contract, and that the former Med-Emerg employee retained by the successful
      bidder breached his legal obligations by disclosing financial and other
      information confidential to Med-Emerg. 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, Med-Emerg alleges 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, Med-Emerg seeks to terminate the contract award to the winning
      bidder, to have Med-Emerg awarded the contract, or in the alternative, to have
      a
      new bid process conducted. In the further alternative, the Company asks that
      it
      be compensated for lost profit on the contract and the costs associated with
      the
      filing of the complaint. The CITT accepted the complaint for inquiry on February
      8, 2005. Subsequent to the commencement of the inquiry, PWGSC filed a motion
      to
      have the complaint dismissed on the grounds that the CITT did not have
      jurisdiction over a health services contract. The motion was denied. The CITT
      has until June 15, 2005 to rule on the complaint.





**HEALTHCARE
      CONSULTING**





Over
      the years,
      MEII has developed significant experience in international and domestic
      healthcare consulting. Currently the Company is involved with several provincial
      governments, advising on a variety of issues related to primary care staffing,
      training and integrated service delivery models. The Company is currently
      working with the four Atlantic Provinces (New Brunswick, Nova Scotia, PEI and
      Newfoundland and Labrador) and has created an innovative health human resource
      planning tool which is focused on a needs based model as opposed to the
      traditional supply based design. The Atlantic project has received wide
      recognition in the marketplace, and it is reasonable to expect new business
      opportunities as a result of this. The Company was recently awarded a contract
      by the Canadian Nurses Association to develop the standard of practice for
      nurse
      practitioners across Canada. In addition, the Company is working on other
      smaller healthcare consulting projects.





**FACTORS
      AFFECTING MEII’S BUSINESS**





**REGULATION
      OF HEALTHCARE IN CANADA**





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











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





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





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





**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


·
            Government
                Healthcare Services: Regional players that provide services for only
                one
                or two regulated health professions and national staffing
                agencies


·
            Healthcare
                Consulting: Independent consulting
                companies.





**EMPLOYEES**





As
      of December
      2004, the Company had 495 active full-time employees, 24 were employed in
      administration, 10 were involved in staffing solutions, 22 were active in
      medical services, 3 were in the consulting division and, and 436 were employed
      to carry out the contract with the DND. The Company believes its relations
      with
      its employees to be 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 560 contractors engaged on a full and part-time basis,
      of
      which about 300 are involved in the DND contract.





**ITEM
                2:**
            **PROPERTIES**





Our
      principal
      executive office is located at 6711 Mississauga Road, Suite 404, Mississauga,
      Ontario. The principal office occupies approximately 9,000 square feet of space
      under lease agreements that expire December 31, 2007, at an average annual
      rental rate of approximately $156,000 (CDN$202,000). We believe that our current
      office space is adequate for our future needs.





**ITEM
                3:**
            **LEGAL
                PROCEEDINGS**





Claims
      have been
      made against the Company for general damages for breach of contract and in
      tort.
      A claim for approximately $423,000 has been made against the company for
      wrongful termination of a person working on a third party contract. 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. Another claim of
      approximately $ 1,833,000 plus interest and costs has been made against the
      Company, for amongst other things, defamation and economic loss in regards
      to a
      healthcare provider working on a third-party contract. The Company’s lawyers are
      of the opinion that the amounts claimed are excessive and that if there is
      any
      liability on the Company, then the third-party contractor should be responsible
      to indemnify the Company. 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 revised consolidated financial statements.











YFMC
      HealthCare
      Inc. (“YFMC”), a wholly owned subsidiary of the Company, is in receipt of a
      letter from Canada Revenue Agency ("CRA") dated April 30, 2001, adjusting YFMC’s
      Goods and Services Tax returns for the period from December 31, 1992, to
      December 31, 1996. The total amount claimed by CRA for this period is $249,000.
      In the event that YFMC becomes liable to pay any such amount to CRA, the Company
      will claim an indemnity for such amount against the directors and certain named
      principals of YFMC pursuant to the Company’s rights under the Business
      Combination Agreement executed on August 10, 1999. The Company’s legal counsel
      has advised that CRA does not intend to pursue YFMC for these
      amounts.





On
      January 25,
      2005, MEII filed a statement of claim against Calian Limited (“Calian”) and a
      former employee of MEII, seeking Cdn$100,000,000 in damages, in regards to
      the
      recent contract award by Public Works and Government Services Canada (“PWGSC”)
      to provide services to the Canadian Forces, Department of National Defence.
      This
      contract would have been an extension of a current contract which expires March
      31, 2005. We have been advised that Calian intends to defend the
      claim.





On
      February 8,
      2005, the Canadian International Trade Tribunal (“CITT”) announced that it would
      conduct an inquiry into the award by PWGSC, of a medical staffing contract,
      to
      Calian. MEII filed a complaint with the CITT on January 31, 2005 alleging 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.





If
      the CITT
      determines that the complaint by MEII is valid, it could recommend that the
      contract award to Calian be terminated and a contract awarded to MEII, that
      the
      proposals be re-evaluated or that a new solicitation should take place, in
      no
      particular order of probability. In certain circumstances, MEII may be able
      to
      seek compensation for the lost opportunity.





Other
      than the
      above, the Company is not a party in any material legal
      proceedings.





**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, 2004.





**PART
      II**





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





The
      common shares
      and redeemable common stock purchase warrants are listed for trading under
      the
      symbols “MDER” and “MDERW”, respectively, on the OTC Bulletin Board. From
      February 12, 1998 to April 16, 2001 the Company’s common shares and redeemable
      common stock purchase warrants were listed on the NASDAQ Small Cap Market.
      Since
      April 16, 2001, the Company’s common shares have been listed on the OTC Bulletin
      Board.





The
      following table
      sets forth the range of high and low sales prices from First Quarter of
      2003:





**COMMON
                SHARES****HIGH**
            **LOW**Fourth
                Quarter, 2004
            $.55
            $.40Third
                Quarter, 2004
            $.57
            $.32Second
                Quarter, 2004
            $.65
            $.34First
                Quarter, 2004
            $.69
            $.33Fourth
                Quarter, 2003
            $.58
            $.29Third
                Quarter, 2003
            $.57
            $.37Second
                Quarter, 2003
            $.68
            $.40First
                Quarter, 2003
            $.77
            $.53











The
      Company has
      never paid or declared cash or stock dividends on its common stock. The payment
      of cash dividends, if any, is at the discretion of the Board of Directors and
      will depend upon the Company’s earnings, capital requirements, financial
      condition and other relevant factors. The Company intends, for the foreseeable
      future, to retain any future earnings for use in its business.





In
      early 2004,
      5,092 shares of common stock were issued to an investor pursuant to the
      acquisition of YMFC Healthcare Inc. on November 4, 1999 by MEII.





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
      $579,582, were forgiven. The preferred shares were redeemable in 2006, for
      common shares then valued at $4,500,000. 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, 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.











**ITEM
                6:**
            **SELECTED
                FINANCIAL DATA**





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





**US$****YEAR
                ENDED DECEMBER 31,****2004**
            ****
            **2003**
            ****
            **2002**
            ****
            **2001**
            ****
            **2000****Statement
                of Operations Data:**Revenue
            
            
            48,447,687
            
            
            54,335,558
            
            
            37,428,043
            
            
            15,813,250
            
            
            15,532,767Physician
                fees and other direct costs
            
            
            43,693,380
            
            
            49,217,416
            
            
            34,382,752
            
            
            13,223,282
            
            
            10,011,764Gross
                Profit
            
            
            4,754,307
            
            
            5,118,142
            
            
            3,045,291
            
            
            2,589,968
            
            
            5,521,003Operating
                expenses before undernoted items
            
            
            4,810,341
            
            
            4,678,665
            
            
            2,704,529
            
            
            2,439,373
            
            
            6,103,860Depreciation
                and amortization
            
            
            182,399
            
            
            120,924
            
            
            102,345
            
            
            92,575
            
            
            1,590,006Other
                expenses
            
            
            1,102,772
            
            
            1,730,587
            
            
            827,336
            
            
            2,078,753
            
            
            1,291,1506,095,512
            
            
            6,530,176
            
            
            3,634,210
            
            
            4,610,701
            
            
            8,985,016Loss
                before
                income taxes
            
            
            (1,341,205
            )
            
            (1,412,034
            )
            
            (588,919
            )
            
            (2,020,733
            )
            
            (3,464,013
            )Income
                taxes
                (recovery)
            
            
            -
            
            
            (2,458
            )
            
            -
            
            
            1,248,016
            
            
            (978,189
            )Minority
                interest
            
            
            -
            
            
            (2,095
            )
            
            (2,211
            )
            
            1,926
            
            
            (318,223
            )Discontinued
                operations
            
            
            -
            
            
            (167,169
            )
            
            (16,956
            )
            
            (3,470,892
            )
            
            -Net
                loss -
                Canadian GAAP
            
            
            (1,341,205
            )
            
            (1,574,650
            )
            
            (603,664
            )
            
            (6,741,567
            )
            
            (2,167,601
            )Net
                loss - US
                GAAP
            
            
            (1,176,578
            )
            
            (1,983,291
            )
            
            (619,214
            )
            
            (6,964,095
            )
            
            (3,689,914
            )Preferred
                share dividends
            
            
            (34,173
            )
            
            (135,006
            )
            
            (134,983
            )
            
            (134,870
            )
            
            (131,240
            )Forgiveness
                of Preferred share dividends
            
            
            579,582
            
            
            -
            
            
            -
            
            
            -Net
                loss
                attributable to common shareholders - Canadian GAAP
            
            
            (795,796
            )
            
            (1,709,656
            )
            
            (738,647
            )
            
            (6,876,437
            )
            
            (2,298,841
            )Net
                loss
                attributable to common shareholders - US GAAP
            
            
            (631,169
            )
            
            (2,118,297
            )
            
            (754,197
            )
            
            (7,098,965
            )
            
            (3,821,154
            )Basic
                loss
                per common share(1)Continuing
                operations
            
            
            (0.02
            )
            
            (0.16
            )
            
            (0.08
            )
            
            (0.41
            )
            
            (0.40
            )Discontinued
                operations
            
            
            (0.00
            )
            
            (0.02
            )
            
            (0.00
            )
            
            (0.42
            )
            
            (0.00
            )**Balance
                Sheet Data:**Working
                Capital Surplus (deficit)
            
            
            1,224,127
            
            
            (3,169,692
            )
            
            (2,329,525
            )
            
            (1,931,980
            )
            
            (2,471,958
            )Total
                Assets
            
            
            7,322,027
            
            
            4,044,225
            
            
            3,641,207
            
            
            3,421,080
            
            
            9,268,922Long-Term
                debt
            
            
            599,991
            
            
            599,991
            
            
            590,536
            
            
            590,536
            
            
            11,537Shareholders'
                equity (deficit) - Canadian GAAP
            
            
            559,249
            
            
            (3,448,142
            )
            
            (2,341,861
            )
            
            (1,844,350
            )
            
            4,142,345Shareholders'
                equity (deficit) - US GAAP
            
            
            1,647,121
            
            
            (2,360,270
            )
            
            (1,253,989
            )
            
            (756,478
            )
            
            3,777,466Year
                end US$
                exchange rate (equivalent to 1Cdn$)
            
            
            0.83
            
            
            0.77
            
            
            0.63
            
            
            0.63
            
            
            0.67Average
                US$
                exchange rate (equivalent to 1Cdn$)
            
            
            0.77
            
            
            0.71
            
            
            0.64
            
            
            0.65
            
            
            0.66Range
                of high
                and low rates (equivalent to 1Cdn$)
            
            
            0.71
                to 0.85
            
            
            0.63
                to 0.78
            
            
            0.62
                to 0.67
            
            
            0.62
                to 0.67
            
            
            0.64
                to 0.70





(1)
            Basic
                loss
                per common share reflects net loss available to common shareholders
                divided by the weighted average number of common shares
                outstanding.











**SUPPLEMENTARY
      FINANCIAL INFORMATION**





QUARTERLY
      FINANCIAL
      DATA (UNAUDITED)





4TH
                QUARTER
            
            3rd
                QUARTER
            
            2nd
                QUARTER
            
            1ST
                QUARTER2004
            
            2003
            
            2004
            
            2003
            
            2004
            
            2003
            
            2004
            
            2003Revenue
            
            
            13,619,890
            
            
            12,421,081
            
            
            11,704,989
            
            
            14,297,671
            
            
            10,569,207
            
            
            16,348,865
            
            
            12,553,601
            
            
            11,267,941Gross
                Profit
            
            
            1,252,482
            
            
            1,220,583
            
            
            1,148,196
            
            
            1,417,336
            
            
            1,169,895
            
            
            1,504,929
            
            
            1,183,734
            
            
            975,294Income(loss)
                before undernoted items
            
            
            520,908
            
            
            174,425
            
            
            (35,286
            )
            
            221,059
            
            
            (620,637
            )
            
            (32,359
            )
            
            78,981
            
            
            76,352Gain
                (loss)
                from discontinued operations
            
            
            3,449
            
            
            (898,848
            )
            
            0
            
            
            862,814
            
            
            7
            
            
            (71,179
            )
            
            (3,456
            )
            
            (59,956
            )Net
                profit
                (loss) for the period
            
            
            (253,018
            )
            
            (147,634
            )
            
            (234,864
            )
            
            114,715
            
            
            (160,350
            )
            
            (753,635
            )
            
            (147,564
            )
            
            (923,102
            )Basic
                loss
                per common shareContinuing
                operations
            
            
            0.01
            
            
            0.09
            
            
            0.00
            
            
            (0.08
            )
            
            (0.01
            )
            
            (0.08
            )
            
            (0.02
            )
            
            (0.09
            )Discontinued
                operations
            
            
            0.00
            
            
            (0.09
            )
            
            0.00
            
            
            0.09
            
            
            0.00
            
            
            (0.01
            )
            
            0.00
            
            
            (0.01
            )










**ITEM
                7:**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**








Forward-looking
      statements of MEII, included herein or incorporated by reference including,
      but
      not limited to, those regarding future business prospects, the adequacy of
      capital resources and other statements regarding trends relating to various
      revenue and expense items, could be affected by a number of uncertainties and
      other factors beyond management's control.








**FINANCIAL
      OVERVIEW**





The
      Company
      reported a net loss of approximately $1.3 million for the year ended December
      31, 2004 compared to a net loss of $1.6 million for the year ended December
      31,
      2003 and $600 thousand for the year ended December 31, 2002. The loss amounted
      to $0.02 per share for continuing operations and a $0.00 loss for discontinued
      operations for the year ended December 31, 2004 compared with a loss of $0.16
      per share for continuing operations and a $0.02 loss for discontinued operations
      for the year ended December 31, 2003 and a loss of $0.08 per share for
      continuing operations and a loss $0.00 per share for discontinued operation
      for
      the year ended December 31, 2002. The main reason for the decrease in the net
      loss during 2004 is the result of the non-cash stock compensation expenses
      that
      the Company recorded in 2003 as a result of re-pricing the outstanding warrants
      and the issuance of stock options. The Interest and financing expenses are
      also
      lower in the current year. These cost reductions were largely offset by reduced
      gross margins of about $360 thousand and closing costs associated with an equity
      financing of about $609 thousand. The results for 2002 were favorably affected
      by a $228 thousand gain associated with the forgiveness of debt. In 2004 the
      Company implemented their strategic plan of realigning the business units and
      the consolidation and closure of non-performing medical clinics. MEII continues
      to pursue profitable contracts that are consistent with the current operating
      strategy.





The
      net loss
      attributable to common shareholders is approximately $796 thousand for the
      year
      ended December 31, 2004 compared to a net loss of $1.7 million for the year
      ended December 31, 2003 and $740 thousand for the year ended December 31, 2002.
      The improvement over 2003 is due to the forgiveness of preferred share dividends
      of $579,582, during the year. The loss in 2003 was greater than the loss in
      2002
      largely because of stock compensation expenses of $1.16 million. These were
      largely attributable to the re-pricing of certain common share purchase
      warrants.





**REVENUE**





The
      Company's
      revenue for the year ended December 31, 2004 was $48.5 million, compared to
      $
      54.3 million for the year ended December 31, 2003, and $37.4 million for the
      year ended December 31, 2002.





The
      decrease of
      revenue in 2004, of approximately 11% was mainly attributable to the
      non-recurrence of the SARS crisis which caused a one-time increase in 2003
      revenues. The increase in 2003 revenues of 45% over 2002 was driven by the
      SARS
      crisis and increased revenues associated with the DND contract.





Revenue
      from the
      DND contract amounted to approximately $39 million during the year ended
      December 31, 2004 compared to $ 40.3 million for the year ended December 31,
      2003 and $31.3 for the year ended December 31, 2002. Revenues for this division
      are driven by requests by the Canadian Armed Forces for additional healthcare
      staff.





Revenue
      from the
      Staffing Solutions division were $7.5 million during the year ended December
      31,
      2004 compared to $13 million for the year ended December 31, 2003 and $5.7
      million for the year ended December 31, 2002. The spike in revenues in 2003
      was
      due to the one-time revenue generated in 2003 due to the SARS
      outbreak.





Revenue
      from the
      Medical Services division amounted to $1.2 million for the 2004 fiscal year
      compared to $900 thousand and $400 thousand for fiscal years’ ended December 31,
      2003 and 2002 respectively. The 33% increase in revenues in 2004 was driven
      by
      the increase in the number of infusions provided by the division during the
      year
      and reflects the continued growth of the division, which began in
      2002.











Revenue
      from
      Healthcare Consulting division amounted to approximately $790 thousand during
      the year ended December 31, 2004 compared to $155 thousand for the prior year,
      an increase of 410%. This is mainly due to revenue generated by the Atlantic
      Health and Human resources project.





**GROSS
      MARGIN**





Gross
      Margin
      (revenue less physician and other direct costs) reduced to $4.8 million for
      the
      year ended December 31, 2004 compared to approximately $5.1 million for the
      year
      ended December 31, 2003 and $3.0 million for the year ended December 31, 2002.





Physician
      fees and
      other direct costs, primarily fees paid to contract physicians, as a percentage
      of total revenues declined to about 90.1% in 2004 versus 90.6% in 2003 and
      91.9%
      in 2002. Gross margin percentages increased in the Staffing Solutions and
      Government Health Services divisions, the divisions that generate our greatest
      revenue.





**OPERATING
      EXPENSES**





Operating
      expenses
      totaled $4.8 million for the year ended December 31, 2004 compared to $4.7
      million in the prior year, and $2.7 million for the year ended December 31,
      2002. In 2004 there was an increase in salaries and benefits and travel and
      marketing as compared to the prior period, which was largely offset by a
      reduction in General and administration costs. In 2003 expenses increased over
      2002 as a result of a provision for adjustments on the DND contract and the
      continued growth of certain operating units.





**AMORTIZATION
      AND INTEREST**





Amortization
      increased from approximately $102 thousand for the year ended December 31,
      2002
      to $121 thousand in 2003 and $182 thousand in 2004. The increases are due to
      additions to computer hardware, software and leasehold
      improvements.





Interest
      and
      financing costs decreased to approximately $337 thousand during the year ended
      December 31, 2004 compared to $569 thousand in 2003 and $993 thousand in 2002.
      The reduction in 2004, of about 41%, is due to the fact that the company
      negotiated lower borrowing rates on its loan facilities and repaid the secured
      debenture. The reduction in 2003 compared to 2002 largely relates to a foreign
      exchange gain on the settlement of a financial instrument denominated in US
      dollars, and the Company having negotiated lower rates on its borrowing
      facilities in 2003.





**OTHER
      EXPENSES**





There
      was a
      one-time impact of the closing costs of $609 thousand associated with the equity
      financing. Also associated with the equity financing, the Company recognized
      a
      one-time benefit of $580 thousand, due to the forgiveness of unpaid accrued
      preferred share dividends. Stock compensation expenses were significantly lower
      at $99 thousand as compared to $1.1 million during the prior year. There has
      also been an impairment to the long-term investment of $58 thousand during
      the
      year.





**INCOME
      TAXES**





The
      Company has
      loss carry forwards of approximately $8.5 million to be applied against future
      corporate income taxes. This benefit has not been reflected in these
      statements.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      at December 31,
      2004, the Company's cash position was $2.3 million compared to $129 thousand
      at
      December 31, 2003 and $90 thousand at December 31, 2002. The $4.5 million equity
      financing (the “Financing”) that was completed in June 2004 was the prime source
      of the improved cash position.











Operating
      activities consumed $1.7 million of cash in the year of which $1.0 million
      was
      absorbed directly by operations and the remainder was consumed by changes in
      working capital. The biggest change in 2004 as compared to 2003 was the one-time
      impact of closing costs associated with the Financing. These costs totaled
      about
      $610 thousand. The working capital change is 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,
      based on invoice dates, 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. The decrease in cash flow from operations
      compares to cash generated by operating activities of about $965 thousand in
      2003 and $998 thousand in 2002. For both 2003 and 2002 the cash was generated
      by
      changes in working capital which amounted to $1.07 million in 2003 and $1.14
      million in 2002.





We
      expect that the
      loss of the DND contract will negatively impact our cash flows in 2005,
      commencing in the second quarter. While we adjust our business to deal with
      the
      loss of the contract we expect that we will use up to $700 thousand of our
      cash
      resources to fund operating activities.





Investing
      activities used cash of about $700 thousand in the year ended December 31,
      2004,
      of which about $500 thousand was used to upgrade computer hardware and software
      and to finance the leaseholds and furniture associated with our move to new
      premises. About $200 thousand was used in the purchase of the Scarborough Pain
      Clinic, and resulted in an increase in goodwill. This compares with cash
      generated by investing activities of $120 thousand in 2003, which was comprised
      of proceeds from the sale of our clinic operations of $470 thousand and which
      was offset by cash used to acquire property, plant and equipment of $135
      thousand and $210 thousand used by discontinued operations. In 2002, cash of
      about $300 thousand was used in investing activities. Of this about $100
      thousand was generated through the sale of an investment, $65 thousand was
      used
      to acquire property, plant and equipment, and $335 thousand was used to invest
      in discontinued operations.





Financing
      activities generated $4.5 million of cash during the year. This occurred when
      the Company issued 39,360,272 common shares as part of an equity financing.
      This
      compares to cash used by financing activities of $640 thousand in 2003 and
      $605
      thousand in 2002. In 2003 the cash was largely used to repay $660 thousand
      of
      debt. In 2002 the decrease in cash arose when the Company raised about $475
      thousand of debt, but in turn reduced bank indebtedness by $970 thousand and
      used $70 thousand to finance discontinued operations and $42 thousand to finance
      deferred financing costs.




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
      $580 thousand, 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 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.





**OFF
      BALANCE
      SHEET ARRANGEMENTS**





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





**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS**





The
      Company is
      committed to contractual obligations totaling $3.4 million. The Company has
      not
      engaged in off-balance sheet financing, commodity contract trading or
      significant related party transactions. Contractual obligations are as
      follows:










2005
            
            2006
            
            2007
            
            2008
            
            2009
            
            Thereafter
            
            Total
              ObligationsLong-term
                debt1
            
            
            295,960
            
            
            295,960
            
            
            295,960
            
            
            295,960
            
            
            69,247
            
            
            -
            
            
            1,253,087Operating
                lease obligations
            
            
            288,309
            
            
            293,276
            
            
            293,679
            
            
            135,342
            
            
            113,352
            
            
            171,472
            
            
            1,295,430Notespayable2
            
            
            -
            
            
            809,991
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            809,991Total
            
            $
            584,269
            
            $
            1,399,227
            
            $
            589,639
            
            $
            431,302
            
            $
            182,599
            
            $
            171,472
            
            $
            3,358,508





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
      revised 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 revised consolidated financial statements and related
      notes
      for the year ended December 31, 2004, 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
      revised 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, 2004, our allowance for doubtful accounts was $16 thousand (2003
                - $46
                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 is 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.





**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
      revised 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
            
            62
            
            Chairman
                of
                the BoardManfred
                Walt
            
            52
            
            DirectorJacob
                (Koby)
                Ofek
            
            47
            
            DirectorMajor
                General
                Lewis MacKenzie
            
            64
            
            DirectorJohn
                Yarnell
            
            76
            
            DirectorSidney
                Braun
            
            45
            
            President
                and
                Chief Operating Officer, DirectorRamesh
                Zacharias
            
            53
            
            Chief
                Executive Officer, DirectorDonald
                Ross
            
            53
            
            V.P.
                OperationsWilliam
                J.
                Danis
            
            49
            
            Chief
                Financial Officer






Name
            
            Position
            
            Principal
                Occupation and Positions HeldMichael
                Sinclair(1)
            
            Chairman
            
            Dr.
                Sinclair
                has been involved in several healthcare staffing companies in North
                America and the United Kingdom. Dr. Sinclair was Chairman and the
                largest
                individual shareholder of Lifetime Corporation, a NYSE listed company.
                Through his vision and leadership, Lifetime grew to the largest home
                healthcare provider in the US with about 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.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 was previously employed in various capacities
                for
                18 years with Brascan Corporation and its predecessor companies comprising
                the Edper/Brascan Group of
                Companies.










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.Lewis
                MacKenzie(1)(2)
            
            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.John
                Yarnell(1)(2)
            
            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
                SchoolSidney
                Braun
            
            President,
                Chief Operating Officer and Director
            
            For
                the last
                three years, Mr. Braun was an exclusive subcontractor to Poalim/IBI,
                the
                largest investment bank in Israel, covering the European financial
                markets. For the approximately two years prior to that, Mr. Braun
                was a
                representative for Raphael Zorn Helmsley, a UK investment bank. Mr.
                Braun
                assisted in taking Israeli based companies public on the AIM in London,
                EnglandRamesh
                Zacharias
            
            Chief
                Executive Officer and Director
            
            Dr.
                Ramesh
                Zacharias is the founder of Med-Emerg International Inc. and serves
                as the
                President and Chief Executive Officer, and Executive Medical Director,
                of
                Med-Emerg Inc. 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.










Donald
                Ross
            
            Vice
                President Business Development
            
            Dr.
                Ross has
                been Vice-President of Med-Emerg International Inc. since November
                1, 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 is
                an experienced financial professional, bringing 25 years of operational
                and investment experience to his role at MEII. Prior to joining the
                company Bill was a founding partner of Greybrook Corporation, a private
                equity investment company. Previously Bill held senior investment
                roles
                with Working Ventures Canadian Fund Inc. and Royal Trust Enterprise
                Capital. Bill left public accounting in 1985 to accept the position
                of
                Managing Director of an offshore subsidiary of Brascan Corporation
                (TSX:BNNA).





Notes:


(1)
            Member
                of the
                Compensation Committee.


(2)
            Member
                of the
                Audit Committee.





Board
      Structure and
      Committees:





As
      a result of the
      private placement of 43,708,272 common shares of the Company, completed on
      June
      15, 2004, the Board of Directors was increased from five (5) to nine (9) and
      Messrs. Braun, Ofek, Sinclair and Walt were appointed as directors.
      Contemporaneously with the completion of the private placement, Messrs. Frank
      Baillie and William E. Thomson resigned from the Board.





The
      Board has a
      standing Compensation Committee and 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
      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.





Mr.
      Yarnell has
      been designated as the Financial Expert on the Audit Committee. The Company
      has
      adopted a code of conduct for all employees, which has been reviewed by the
      Board of Directors and management.











**ITEM
                11:**
            **EXECUTIVE
                COMPENSATION**





The
      following table
      sets forth the cash compensation, as well as certain other compensation paid
      or
      accrued to the Company's executive officers for the fiscal years ended December
      31, 2004, 2003 and 2002. No other executive officer has a total annual salary
      and bonus of more than $100,000 during the reporting periods.





ANNUAL
                COMPENSATION(all
                amounts
                are Cdn$000's)NAME
                AND
              PRINCIPAL
                POSITION
            
            YEAR
            
            SALARY
            
            BONUS
            
            OTHER
              COMPENSATIONRamesh
                Zacharias
            
            2004
            
            345
            
            nil
            
            1,000,000
                optionsChief
                Executive Officer
            
            2003
            
            339
            
            nil2002
            
            339
            
            25
            
            200,000
                optionsSidney
                BraunPresident
                and
                COO
            
            2004
            
            2001
            
            
            
            1,250,000
                optionsDonald
                Ross
            
            2004
            
            142
            
            
            
            150,000
                optionsVice
                President Business Development
            
            2003
            
            131
            
            
            
            100,000
                options2002
            
            125
            
            15
            
            100,000
                optionsWilliam
                Danis
            
            2004
            
            172
            
            20
            
            250,000
                optionsCFO
                and
                Corporate Secretary
            
            2003
            
            1682





Notes:


1.
            Mr.
                Braun
                joined the company in June 2004. His salary for the year was approximately
                Cdn$80,000.


2.
            Mr.
                Danis
                joined the company in May 2003. His salary for the year was approximately
                Cdn$98,000.








Stock
      Option
      Plan





In
      November 1999,
      the Board of Directors and shareholders adopted and approved the Company’s Stock
      Option Plan (the “Plan”). The Plan provides for stock option grants to both
      employees and directors of the Company. The Plan is to be administered by the
      Board of Directors or a committee appointed by the Board. The Plan was amended
      in 2003 to authorize the Company to issue options to acquire up to 20% of the
      issued and outstanding common shares. Pursuant to the Plan, options to acquire
      an aggregate 11,655,538 shares of Common Stock may be granted, 1,825,000 of
      which have been granted as of December 31, 2004.





During
      the fiscal
      2004, 100,000 options were awarded under the Stock Option Plan .





Director
      Compensation:





During
      the fiscal
      year 2004 outside
      directors
      of the Company received Cdn$20,000 per year for acting in such capacities and
      were reimbursed for all reasonable expenses incurred in connection with
      activities on behalf of the Company. All committee members received Cdn$5,000
      per year for acting in such capacity and the Chairman of such committee received
      Cdn$7,500 for acting in such capacity. In lieu of directors’ fees, Messrs. Ofek
      and Sinclair have entered into consulting agreements with the Company, for
      which
      they were compensated Cdn$70,000 per annum. 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, Sinclair, MacKenzie and
      Yarnell, none of whom are employees and each of Messrs. Walt, 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**




PRINCIPAL
      SHAREHOLDERS





The
      following table
      sets forth, as of December 31, 2004 certain information with respect to stock
      ownership of (i) all Officers and Directors; (ii) persons known by the Company
      to be beneficial owners of 5% or more of its outstanding shares of Common Stock;
      (iii) all directors and officers as a group.





**Name
                of beneficial owner**
            
            **Number
                of**
              **Common
                Shares****(1)**
            
            **Percentage**
              **of
                Class**Jacob
                (Koby)
                Ofek(2)
                (3)
            
            15,778,265
            
            27.1%BXR1
                Holdings
                Inc.(2)
                (4)
            
            6,556,241
            
            11.25%The
                Sinclair
                Montrose Trust(2)
                (5)
            
            6,251,349
            
            10.7%Walt
&
                Co. Inc.(2)
                (6)
            
            4,370,827
            
            7.5%David
                Kassie(2)
                (7)
            
            4,370,827
            
            7.5%Ramesh
                Zacharias(8)
            
            3,200,000
            
            5.5%All
                Officers
                and Directors as a group(2)
                (9)
            
            31,450,441
            
            52.8%








(1)
            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.





(2)
            Under
                the
                terms of a warrant (the “A Warrants”) certificate issued by the Company on
                June 15, 2004, the Holder has the right to acquire up to a certain
                number
                of additional common shares of the Company
                at:





(i)
            $0.50
                US per
                common share on the basis of three common shares of the Company for
                each
                common share of the Company that is issued pursuant to
                the:





(A)
            2,325,000
                option currently outstanding which entitle the holder to purchase
                common
                shares at $0.50 US per common
                share;





(B)
            the
                1,437,500
                warrant currently outstanding which entitle the holder to purchase
                common
                shares at $0.50 US per common share (collectively hereinafter referred
                to
                as the “$0.50 Option Shares”); or





(ii)
            $1.00
                US per
                common share on the basis of three (3) common shares of the Company
                for
                each common share of the Company that is issued pursuant to the 100,000
                options currently outstanding for the purchase of common shares at
                $1.00
                US per common share (the “$1.00 Option
                Shares”).











The
      terms of the A
      Warrants provide the Holder with the right to acquire additional common shares
      only if any of the $0.50 Option Shares or $1.00 Option Shares are issued.
      Although the A Warrants allow the Holder to purchase additional common shares
      within one year after exercise conditional upon the issuance of the $0.50 Option
      Shares or the $1.00 Option Shares, we have not included the number of share
      issuable pursuant to the A Warrants in the number of common shares owned by
      the
      persons listed in the table noted above.





(3)
            Excludes
                the
                A Warrants granted to Mr. Ofek to purchase 4,182,976 Common Shares
                of the
                Company.





(4)
            Excludes
                the
                A Warrants granted to BXR1 Holdings Inc. to purchase 1,738,126 common
                shares of the Company.





(5)
            Excludes
                the
                A Warrants granted to The Sinclair Montrose Trust to purchase 1,657,295
                common shares of the Company.





(6)
            Excludes
                the
                A Warrants granted to Walt & Co. to purchase 1,158,750 common shares
                of the Company.





(7)
            Excludes
                the
                A Warrants granted to David Kassie to purchase 1,158,750 common shares
                of
                the Company.





(8)
            Includes
                (i)
                5,000,000 common shares owned by 1245841 Ontario Inc. (“1245841”), which
                is owned equally by Dr. and Mrs. Zacharias; (ii) options to purchase
                500,000 and 200,000 common shares granted by the board of directors
                on
                April 6, 2001, and May 15, 2003, respectively. Excludes warrants
                (the “B
                Warrants”) granted to 1245841 to purchase up to 1,931,250 common shares of
                the Company on the basis of one (1) common share upon the issuance
                of each
                two (2) $0.50 Option Shares or $1.00 Option Shares. Dr. Zacharias
                disclaims beneficial ownership of the shares and the B Warrants owned
                by
                his wife.





(9)
            Includes
                common shares owned directly by Koby Ofek; common shares owned indirectly
                by Michael Sinclair through The Sinclair Montrose Trust; common shares
                owned indirectly by Manfred Walt through Walt & Co. Inc.; common
                shares owned indirectly by Ramesh Zacharias through 1245841, as well
                as
                the options identified in item 8 above; 1,250,000 common shares owned
                by
                Sidney Braun; options to purchase 150,000 common shares at $0.50
                US per
                common share exercisable within sixty (60) days of the date hereof
                to each
                of Messrs. Lewis MacKenzie and John Yarnell; options to purchase
                200,000
                common shares at $0.50 US per common share exercisable within sixty
                (60)
                days of the date hereof to Don Ross; and options to purchase 100,000
                common shares at $0.50 US per common share exercisable within sixty
                (60)
                days of the date hereof to William J. Danis. Excludes options granted
                to
                Messrs. William E. Thomson and Frank Baillie, who resigned as directors
                on
                May 31, 2004, and May 28, 2004,
                respectively.





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 ten percent 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 ten percent 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 2004.











Equity
      Compensation Plan Information




(a)
              (b)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
              1,825,000
              0.50
              11,655,539Equity
                  compensation plans not approved by security holders
              3,250,000
              0.26
              0




In
      2004 the Company
      issued 100,000 options exercisable at $1.00, as partial consideration for the
      purchase of a pain management center. The options vest after 18 months and
      are
      exercisable until May 2009.





In
      2002 the Company
      awarded an aggregate of 600,000 options at prices ranging from $0.50 to $1.00
      in
      consideration to parties that assisted in arranging third-party financing for
      the Company. The options are fully vested, are exercisable for periods ranging
      from April 2007 to June 2007.








**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 have been retained as consultants and will be paid $53,785 (Cdn$70,000)
      per
      annum, each. During the year ended December 31, 2004 consulting fees of
      approximately $31,374 (Cdn$ 40,833) were paid to each of these two directors.
      Their contracts are scheduled to expire May 31, 2005. The Company believes
      all
      previous transactions between the Company and its officers, directors or 5%
      stockholders, and their affiliates were made on terms no less favorable to
      the
      Company than those available from unaffiliated parties. The Company presents
      all
      proposed transactions with affiliated parties to the Board of Directors for
      its
      consideration and approval. Any such transaction is approved by a majority
      of
      the disinterested directors.





**ITEM
                14:**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





The
      following table
      sets forth the fees paid to the Company’s independent auditor, Schwartz Levitsky
      Feldman llp, during fiscal years 2004 and 2003





AUDIT
      AND NON-AUDIT
      FEES:





2004
            
            2003Audit
                fees
            
            $
            55,448
                (CDN$72,165
            )
            $
            54,961
                (CDN$77,000
            )Audit
                related
                fees
            
            $
            NIL
            
            $
            NILTax
                fees
            
            $
            6,954
                (CDN$9,050
            )
            $
            NILAll
                other
                fees
            
            $
            NIL
            
            $
            NILTOTAL
            
            $
            62,402
                (CDN$81,215
            )
            $
            54,961
                (CDN$77,000
            )





(1)
            Audit
                fees
                relate to professional services rendered in connection with the audit
                of
                the Company’s annual revised 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
                revised consolidated financial statements, consultation on accounting
                standards or transactions and audits of employee benefit
                plans.


(3)
            Tax
                fees
                include $6,954 for professional services and advice relating to goods
                and
                services taxes.


(4)
            Other
                fees
                include professional services and advice relating to the equity financing
                completed in June 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,
                FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**





(A)
      EXHIBITS





14.1
            Code
                of
                Ethics of the Company21
            Subsidiaries
                of Med-Emerg International Inc.23.1
            Independent
                Auditors’ Consent31.1
            Rule
                13a-14(a) / 15d-14(a) Certification of Chief Executive
                Officer31.2
            Rule
                13a-14(a) / 15d-14(a) Certification of Chief Financial
                Officer32.1
            Section
                1350
                Certification of Chief Executive32.2
            Section
                1350
                Certification of Chief Financial
                Officer








(B)
      FINANCIAL
      STATEMENTS





Auditors’
      Report





Revised
      Consolidated Balance Sheet





Revised
      Consolidated Statement of Operations and Deficit





Revised
      Consolidated Statement of Changes in Financial Position





Notes
      to Revised
      Consolidated Financial Statements








(C)
      REPORTS ON FORM
      8-K





There
      were no
      reports filed on Form 8-K during the fourth quarter of fiscal 2004.











SIGNATURES





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








MED-EMERG
                INTERNATIONAL INC./s/
                Ramesh
                ZachariasRamesh
                ZachariasDirector,
                Chief Executive OfficerDATE:
                November 30, 2005





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




/s/
                Michael
                Sinclair
            
            /s/
                Jacob
                (Koby) OfekMichael
                Sinclair
            
            Jacob
                (Koby)
                OfekChairman
                of
                the Board
            
            DirectorDATE:
                November 30, 2005
            
            DATE:
                November 30, 2005/s/
                Ramesh
                Zacharias
            
            /s/
                Lewis
                MacKenzieRamesh
                Zacharias
            
            Lewis
                MacKenzieDirector,
                Chief Executive Officer
            
            DirectorDATE:
                November 30, 2005
            
            DATE:
                November 30, 2005/s/
                John
                Yarnell
            
            /s/
                Manfred
                WaltJohn
                Yarnell
            
            Manfred
                WaltDirector
            
            DirectorDATE:
                November 30, 2005
            
            DATE:
                November 30, 2005/s/
                Sidney
                Braun
            
            /s/
                William J
                DanisSidney
                Braun
            
            William
                J
                DanisPresident
                and
                Chief Operating Officer
            Chief
                Financial OfficerDATE:
                November 30, 2005
            
            DATE:
                November 30, 2005










**AUDITORS'
      REPORT**








To
      the Shareholders
      of


Med-Emerg
      International Inc.





We
      have audited the
      revised consolidated balance sheets of Med-Emerg International Inc. as at
      December 31, 2004 and 2003 and the related revised consolidated statements
      of
      operations and deficit and cash flows for each of the years ended December
      31,
      2004, 2003 and 2002. These revised consolidated financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these revised 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 revised consolidated financial statements
      are
      free of material misstatement. An audit includes examining, on a test basis,
      evidence supporting the amounts and disclosures in the revised 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 revised consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as at December 31, 2004 and
      2003
      and the results of its operations and its cash flows for each of the years
      ended
      December 31, 2004, 2003 and 2002 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
                18,
                2005 except for notes 11,12,14,18,
            
            Chartered
                Accountants20,
                21 and 26
                which are as of November 25, 2005










**Med-Emerg
                  International Inc.****Revised
                  Consolidated Balance Sheet****As
                  at
                  December 31, 2004 and 2003****(in
                  US$)**2004
              
              2003(as
                  restated)(see
                  note 25)**Assets****Current
                  assets**Cash
              
              $
              2,312,958
              
              $
              129,132Accounts
                  receivable (note 5)
              
              
              4,104,629
              
              
              3,409,771Prepaid
                  expenses and other
              
              
              74,810
              
              
              81,041Discontinued
                  operations (note 4)
              
              
              -
              
              
              102,7406,492,397
              
              
              3,722,684Long-term
                  investment (note 6)
              
              
              83,195
              
              
              134,979Property,
                  plant and equipment (note 7)
              
              
              508,839
              
              
              186,562Goodwill
                  (note 8)
              
              
              237,596
              
              
              -$
              7,322,027
              
              $
              4,044,225**Liabilities
                  and Shareholders' Equity (Deficit)****Current
                  liabilities**Accounts
                  payable and accrued liabilities
              
              $
              5,268,270
              
              $
              6,284,161Preferred
                  share dividends payable
              
              
              -
              
              
              547,512Discontinued
                  operations (note 4)
              
              
              -
              
              
              60,7035,268,270
              
              
              6,892,376**Long-term
                  liabilities**Notes
                  payable
                  (note 9)
              
              
              599,991
              
              
              599,991Long-term
                  debt (note 10)
              
              
              894,517
              
              
              -6,762,778
              
              
              7,492,367Commitments
                  and contingent liabilities (note 17 and 18)**Shareholders'
                  Equity (Deficit)**Capital
                  stock
                  (note 11)
              
              
              16,044,736
              
              
              11,544,736Contributed
                  surplus (note 12)
              
              
              2,536,409
              
              
              2,397,849Deficit
                  (note
                  14)
              
              
              (17,221,105
              )
              
              (16,425,309
              )Cumulative
                  translation adjustment
              
              
              (800,791
              )
              
              (965,418
              )559,249
              
              
              (3,448,142
              )$
              7,322,027
              
              $
              4,044,225
  The
        accompanying
        notes are an integral part of these consolidated financial
        statements.
  
  **Med-Emerg
                    International Inc.****Revised
                    Consolidated Statement of Operations and Deficit****For
                    the years ended December 31, 2004, 2003 and 2002****(in
                    US$)**2004
                
                2003
                
                2002(as
                    restated)
                
                (as
                    restated)(see
                    note
                    25)
                
                (see
                    note
                    25)**Revenue**
                
                $
                48,447,687
                
                $
                54,335,558
                
                $
                37,428,043**Physician
                    fees and other direct costs**
                
                
                43,693,380
                
                
                49,217,416
                
                
                34,382,7524,754,307
                
                
                5,118,142
                
                
                3,045,291**Expenses**Salaries
                    and
                    benefits
                
                $
                2,825,981
                
                $
                2,249,647
                
                $
                1,582,301General
                    and
                    administration
                
                
                1,250,213
                
                
                1,747,081
                
                
                708,502Occupancy
                    costs and supplies
                
                
                354,812
                
                
                334,460
                
                
                244,609Travel
                    and
                    marketing
                
                
                379,335
                
                
                347,477
                
                
                169,1174,810,341
                
                
                4,678,665
                
                
                2,704,529**Income
                    (loss) before under noted items**
                
                
                (56,034
                )
                
                439,477
                
                
                340,762Interest
                    and
                    financing expenses
                
                
                337,310
                
                
                569,325
                
                
                993,508Amortization
                    of property, plant, and equipment
                
                
                182,399
                
                
                120,924
                
                
                102,345Impairment
                    of
                    long-term investment
                
                
                57,626
                
                
                -
                
                
                -Stock
                    compensation expense
                
                
                98,622
                
                
                1,161,262
                
                
                62,287Closing
                    costs
                
                
                609,214
                
                
                -
                
                
                -Forgiveness
                    of loan
                
                
                -
                
                
                -
                
                
                (228,459
                )1,285,171
                
                
                1,851,511
                
                
                929,681**Loss
                    before income taxes**
                
                
                (1,341,205
                )
                
                (1,412,034
                )
                
                (588,919
                )Income
                    taxes
                    (recovery) (note 13)
                
                
                -
                
                
                (2,458
                )
                
                -**Net
                    loss before minority interest**
                
                
                (1,341,205
                )
                
                (1,409,576
                )
                
                (588,919
                )Minority
                    interest
                
                
                -
                
                
                (2,095
                )
                
                (2,211
                )**Net
                    loss before discontinued operations**
                
                
                (1,341,205
                )
                
                (1,407,481
                )
                
                (586,708
                )**Discontinued
                    operations (note 4)**Loss
                    from
                    operations of discontinued component
                
                
                -
                
                
                (200,702
                )
                
                (16,956
                )Gain
                    on
                    disposal of discontinued component
                
                
                -
                
                
                33,533
                
                
                -Loss
                    on
                    discontinued operations
                
                
                -
                
                
                (167,169
                )
                
                (16,956
                )**Net
                    loss**
                
                
                (1,341,205
                )
                
                (1,574,650
                )
                
                (603,664
                )Preferred
                    share dividends
                
                
                (34,173
                )
                
                (135,006
                )
                
                (134,983
                )Forgiveness
                    of preferred share dividends
                
                
                579,582
                
                
                -
                
                
                -**Net
                    loss attributable to common shareholders**
                
                
                (795,796
                )
                
                (1,709,656
                )
                
                (738,647
                )**Deficit,
                    beginning of the year**
                
                
                (16,425,309
                )
                
                (14,715,653
                )
                
                (13,977,006
                )**Deficit,
                    end of the year**
                
                $
                (17,221,105
                )
                $
                (16,425,309
                )
                $
                (14,715,653
                )**Basic
                    loss per common share (note 15)**Continuing
                    operations
                
                $
                (0.02
                )
                $
                (0.16
                )
                $
                (0.08
                )Discontinued
                    operations
                
                $
                -
                
                $
                (0.02
                )
                $
                (0.00
                )**Weighted
                    average common shares outstanding**
                
                
                37,982,583
                
                
                9,564,332
                
                
                9,444,332
  The
          accompanying
          notes are an integral part of these consolidated financial
          statements.
  **Med-Emerg
                    International Inc.****Revised
                    Consolidated Statement of Cash Flows****For
                    the years ended December 31, 2004, 2003 and 2002****(in
                    US$)**2004
                
                2003
                
                2002(as
                    restated)
                
                (as
                    restated)(see
                    note 25)
                
                (see
                    note
                    25)**Cash
                    Flows from Operating Activities**Net
                    loss
                    before discontinued operations
                
                $
                (1,341,205
                )
                $
                (1,407,481
                )
                $
                (586,708
                )Adjustments
                    for:Amortization
                    of property, plant and equipment (note 7)
                
                
                182,399
                
                
                120,924
                
                
                102,345Impairment
                    of
                    long-term investment
                
                
                57,626
                
                
                -
                
                
                -Minority
                    interest
                
                
                -
                
                
                (2,170
                )
                
                (2,160
                )Stock
                    compensation expense (note 12)
                
                
                98,622
                
                
                1,161,262
                
                
                62,287Forgiveness
                    of loan
                
                
                -
                
                
                -
                
                
                (228,459
                )Common
                    shares
                    issued for financing
                
                
                -
                
                
                -
                
                
                194,400(1,002,558
                )
                
                (127,465
                )
                
                (458,295
                )Increase
                    (decrease) in non-cash working capital components (note
                    16)
                
                
                (810,001
                )
                
                1,070,042
                
                
                1,141,029Discontinued
                    operations (note 4)
                
                
                42,037
                
                
                22,243
                
                
                315,566(1,770,522
                )
                
                964,820
                
                
                998,300**Cash
                    Flows from Investing Activities**Additions
                    to
                    property, plant, and equipment
                
                
                (504,676
                )
                
                (136,559
                )
                
                (65,866
                )Additions
                    to
                    Goodwill (note 8)
                
                
                (197,658
                )
                
                -
                
                
                -Proceeds
                    from
                    sale of investment in clinics (note 4)
                
                
                -
                
                
                469,341
                
                
                -Sale
                    of
                    investment in Next Generation TechnologyHoldings,
                    Inc.
                
                
                -
                
                
                -
                
                
                102,051Discontinued
                    operations (note 4)
                
                
                -
                
                
                (210,127
                )
                
                (333,634
                )(702,334
                )
                
                122,655
                
                
                (297,449
                )**Cash
                    Flows from Financing Activities**Repayment
                    of
                    bank indebtedness
                
                
                -
                
                
                -
                
                
                (969,026
                )Demand
                    loan
                
                
                -
                
                
                (11,462
                )
                
                11,462Deferred
                    financing costs incurred
                
                
                -
                
                
                42,883
                
                
                (42,883
                )Issuance/(repayment)
                    of debt
                
                
                -
                
                
                (660,505
                )
                
                466,710Discontinued
                    operations (note 4)
                
                
                -
                
                
                (10,235
                )
                
                (71,144
                )Common
                    shares
                    issued
                
                
                4,500,000
                
                
                -
                
                
                -4,500,000
                
                
                (639,319
                )
                
                (604,881
                )Effect
                    of
                    foreign currency exchange rate changes
                
                
                156,682
                
                
                (408,641
                )
                
                (15,550
                )**Increase
                    in cash**
                
                
                2,183,826
                
                
                39,515
                
                
                80,420Cash,
                    beginning of year
                
                
                129,132
                
                
                89,617
                
                
                9,197**Cash,
                    end of year**
                
                $
                2,312,958
                
                $
                129,132
                
                $
                89,617
  The
        accompanying
        notes are an integral part of these consolidated financial
        statements.


MED-EMERG
        INTERNATIONAL INC.


Notes
      to Revised
      Consolidated Financial Statements


December
      31, 2004,
      2003 and 2002





**1.**
            **ORGANIZATION
                AND DESCRIPTION OF BUSINESS**





Med-Emerg
      International Inc. (“MEII” or the “Company”) is a private sector provider of
      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 five units during the 2003 fiscal year. Subsequent
      to 2003, the Company is no longer actively involved in the Medical Clinics
      business. MEII’s four remaining business units are: Staffing Solutions,
      Government Healthcare Services (including Department of National Defence),
      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, British Columbia and
      Nova Scotia. At December 31, 2004, the Company had 28 physician and nurse
      staffing contracts.





The
      Company sold
      all the medical clinics during the 2003 fiscal year (see note 4).





The
      Company
      provides in-garrison medical personnel to the Canadian Forces (“CF”) at bases
      across Canada. Through this contract the Company recruits, schedules and manages
      physicians, nurses, dentists, physiotherapists and other healthcare
      professionals to provide services as required by the CF health authority
      resident at each base. This contract expires March 31, 2005.





The
      Medical
      Services division provides special access Remicade ’ infusion services
      to patients suffering from Crohn’s disease and rheumatoid arthritis at clinic
      locations across Ontario. The Company also provides similar services to Novartis
      Pharmaceuticals Canada Inc. and has begun to supply Zometa ’ for treating
      cancer patients with bone metastases. In November 2004, the Company acquired
      a
      pain management clinic and commenced offering services to those Canadians who
      experience chronic pain.


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





**2.**
            **BASIS
                OF PRESENTATION**





The
      accompanying
      audited revised consolidated financial statements have been prepared in
      accordance with Canadian generally accepted accounting principles (GAAP). These
      revised consolidated financial statements consolidate, with minority interest,
      the accounts of MEII and all wholly- and partially-owned subsidiaries of MEII
      i.e. 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, and CPM Health Centres Inc.





Significant
      intercompany accounts and transactions have been eliminated on
      consolidation.





The
      revised
      consolidated financial statements are expressed in U.S. dollars. Differences
      between Canadian and United States accounting principles are described in note
      21.





**3.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





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





The
      preparation of
      revised 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 undernoted 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. The Company has determined
      that there was no permanent decline in the value of the goodwill as at the
      year
      end.





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





At
      least annually
      and when events and circumstances warrant a review, the Company evaluates the
      carrying value of its assets for potential impairment. An impairment loss is
      recognized when the estimated net realizable value of any asset is less than
      its
      carrying value. Any impairment in assets is written down and 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 six tests
      identified for each of its service offerings. Accordingly, revenue is reported
      on a gross basis for all business units.





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





**(1)
      Staffing Solutions:**





Revenue
      is reported
      on a gross basis.





MEII
      acts as a
      principal in providing these services. MEII (a) negotiates price with the
      customers; and (b) contracts with emergency room physician and nursing personnel
      to provide services to hospitals and correctional facilities in Ontario, British
      Columbia and Nova Scotia, 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.





**(2)
      Government Healthcare Services (Includes Department of National Defence
      (“DND”)):**





Revenue
      is reported
      on a gross basis.





MEII
      negotiated an
      administrative management contract with Public Works and Government Services
      Canada (“PWGSC”) to provide personnel to Canadian armed forces across Canada on
      behalf of the Minister of National Defence.





Under
      the terms of
      the contract, MEII has the responsibility to hire medical personnel and support
      staff and where necessary provide appropriate training and supervision of the
      work performed at the respective bases across Canada. MEII bills DND for the
      work performed by these individuals and in turn pays the medical personnel
      and
      support staff based on the terms of the respective contracts signed with them.
      In the event of payment dispute, MEII has credit risk.





Revenue
      is
      recognized on a current basis, as services are delivered.





**(3)
      Medical
      Services:**





Revenue
      is reported
      on a gross basis.





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





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





Revenue
      is
      recognized on a current basis, as services are delivered.





**(4)
      Healthcare Consulting:**





Revenue
      is reported
      on a gross basis.





MEII
      is involved
      with several provincial governments, advising on a variety of issues related
      to
      primary care staffing, training and integrated service delivery models. MEII
      also advises several aboriginal communities with regards to healthcare
      infrastructure service delivery issues.





Revenue
      is
      recognized over the life of the contracts, based on pre-defined milestones.





**(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 revised 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 revised consolidated financial statements are being translated
      at different rates according to their nature, a translation adjustment is
      created. This translation adjustment has been included in the cumulative
      translation adjustment.





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





The
      Company 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**





Ontario
      Medical
      Clinics Sale


On
      September 5,
      2003 the Company entered into a transaction with AIM Health Group Ltd. (“AIM”)
      to dispose of MEII’s Ontario-based clinic operations and more specifically the
      following clinics: Elmvale, Merivale, Herongate, Kanata, Orleans, Hillside,
      Hampton, PSA, Caresource, Pond Mills, Central, Glenderry, Dundas and
      Wallaceburg.





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 CD) 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%)
                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.










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





2004
            
            2003
            
            2002$
            
            $
            
            $Revenue
            
            
            -
            
            $
            6,489,747
            
            $
            7,616,267Physician
                fees and other direct costs
            
            
            -
            
            
            3,593,429
            
            
            3,998,789Gross
                margin
            
            
            -
            
            
            2,896,318
            
            
            3,617,478Operating,
                general and administrativeexpenses
            
            
            -
            
            
            2,955,990
            
            
            3,413,537Depreciation
            
            
            -
            
            
            128,475
            
            
            195,029Other
                expense
            
            
            -
            
            
            13,255
            
            
            27,446Loss
                before
                income taxes
            
            
            -
            
            
            (201,402
            )
            
            (18,534
            )Income
                taxes
                (recovery)
            
            
            -
            
            
            (1,321
            )
            
            (13,570
            )Minority
                interest
            
            
            -
            
            
            621
            
            
            11,992Loss
                for the
                period
            
            
            -
            
            
            (200,702
            )
            
            (16,956
            )Gain
                on
                disposal of discontinued operations
            
            
            -
            
            
            (33,533
            )
            
            -Loss
                from
                discontinued operations
            
            
            -
            
            
            (167,169
            )
            
            (16,956
            )





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





2004
            
            2003$
            
            $Current
                AssetsCash
            
            
            -
            
            $
            43,134Accounts
                receivable
            
            
            -
            
            
            59,606Prepaid
                expenses and other
            
            
            -
            
            
            --
            
            
            102,740Property,
                plant and equipment
            
            
            -
            
            
            --
            
            
            102,740Current
                liabilitiesAccounts
                payable and accrued liabilities
            
            
            -
            
            $
            60,703Current
                portion of deferred revenue
            
            
            -
            
            
            -Other
                loans
            
            
            -
            
            
            --
            
            
            60,703Long-term
                liabilitiesDeferred
                revenue
            
            
            -
            
            
            --
            
            
            60,703Net
                assets
            
            
            -
            
            
            42,037











**5.**
            **ACCOUNTS
                RECEIVABLE**




2004
                
                2003Trade
                    receivable
                
                $
                4,120,429
                
                $
                3,455,886Allowance
                    for
                    doubtful accounts
                
                
                (15,800
                )
                
                (46,115
                )$
                4,104,629
                
                $
                3,409,771


**6.**
            **LONG-TERM
                INVESTMENT**





2004
            
            2003Investment
                in
                AIM Health Group Ltd.
            
            $
            83,195
            
            $
            134,979





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.





**7.**
            **PROPERTY,
                PLANT AND EQUIPMENT**




2004
                
                2003Accumulated
                
                
                
                
                
                AccumulatedCost
                
                Amortization
                
                Net
                
                Cost
                
                Amortization
                
                NetFurniture
                    and
                    fixtures
                
                $
                292,949
                
                $
                168,766
                
                $
                124,183
                
                $
                189,848
                
                $
                139,957
                
                $
                49,891Computer
                    software
                
                
                509,964
                
                
                432,492
                
                
                77,472
                
                
                329,144
                
                
                292,609
                
                
                36,535Computer
                    hardware
                
                
                687,887
                
                
                494,280
                
                
                193,607
                
                
                509,224
                
                
                409,088
                
                
                100,136Leasehold
                    improvements
                
                
                196,650
                
                
                83,073
                
                
                113,577
                
                
                67,946
                
                
                67,946
                
                
                -$
                1,687,450
                
                $
                1,178,611
                
                $
                508,839
                
                $
                1,096,162
                
                $
                909,600
                
                $
                186,562
  Amortization
      of
      property, plant, and equipment for the year amounted to $182,399 ($120,924
      for
      December 31, 2003 and $102,345 for December 31,2002).





**8.**
            **GOODWILL**





Goodwill
      amounting
      to $237,596 arises 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 has been recorded as
      goodwill. The net cash outflow for goodwill is $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
      promissory
      notes were issued on September 30, 2001, are due on September 30, 2006 and
      bear
      interest at 7%. 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 has been 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 liability. This change has been applied retroactively, and hence comparative
      figures have been restated (note 25). This treatment is in accordance with
      US
      GAAP, and hence the Canadian-US GAAP accounting policy difference has been
      eliminated.











**10.**
            **LONG-TERM
                DEBT**





The
      amount of
      $894,517 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 $23,050 ($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 will register a Lien under the Personal Property Security
      Act with the Province of Ontario to secure its position.








**11.**
            **CAPITAL
                STOCK**




Authorized
 Unlimited
          number of
          the following classes of shares and warrants:
 Preferred
          shares,
          voting, non-redeemable, non-retractable, having a cumulative dividend of 
US$0.27 per share payable by cash or shares at the option of the company;
          convertible to common shares
 Class
          "A",
          redeemable, retractable, non-cumulative preferred shares;
 Class
          "B",
          redeemable, retractable, non-cumulative preferred shares;
 Special
          shares,
          issuable in series, with rights, privileges and restricitions to be fixed
          by the
          directors;
 Common
          shares
 Common
          shares
          purchase warrants, redeemable, entitling holder to purchase one share of
          common
          stock at a price of US$0.50 per share to February 11, 2006.
 Issued
  2004
                  
                  2003Nil
                      Preferred
                      shares (2003-500,000 preferred shares)
                  
                  $
                  -
                  
                  $
                  445,71758,277,696
                      Common shares ( 2003-9,564,332 shares)
                  
                  
                  15,938,625
                  
                  
                  10,992,90813,025,000
                      Common stock purchase warrants
                  
                  
                  106,111
                  
                  
                  106,111(2003-1,437,500
                      warrants)$
                  16,044,736
                  
                  $
                  11,544,736
  Preferred
                      SharesNumber
                  
                  AmountBalance,
                      December 31, 2003 and 2002
                  
                  
                  500,000
                  
                  $
                  445,717Conversion
                      of
                      500,000 preferred shares into common shares
                  
                  
                  (500,000
                  )
                  $
                  (445,717
                  )Balance,
                      December 31, 2004
                  
                  
                  -
                  
                  $
                  -
  Common
                        SharesNumber
                    
                    AmountBalance,
                        December 31, 2003 and 2002
                    
                    
                    9,564,332
                    
                    $
                    10,992,908Shares
                        issued
                        to new investors
                    
                    
                    39,360,272
                    
                    
                    4,500,000Conversion
                        of
                        500,000 preferred shares into common shares
                    
                    
                    9,348,000
                    
                    
                    445,717Others
                    
                    
                    5,092
                    
                    
                    -Balance,
                        December 31, 2004
                    
                    
                    58,277,696
                    
                    $
                    15,938,625
  WarrantsNumber
                    
                    AmountBalance,
                        December 31, 2003 and 2002
                    
                    
                    1,437,500
                    
                    $
                    106,11111,587,500
                        unregistered warrants issued
                    
                    
                    11,587,500
                    
                    $
                    -Balance,
                        December 31, 2004
                    
                    
                    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.





(b)
      Stock Option
      Plan





The
      Company
      maintains a stock option plan (the “Plan”) for the benefit of directors,
      officers and employees. Pursuant to an amendment of the Plan, the maximum number
      of options that may be granted shall not exceed 11,655,539. Options expire
      no
      later than five years from date of grant. As
      at December 31,
      2004 total options outstanding of 5,075,000 are comprised of 1,825,000 granted
      under the Plan and 3,250,000 granted outside the Plan. The following options
      were granted in 2004, 2003 and 2002:




Date
                Quantity
                Option
                    Price
                Expiry
                Fair
                    Value
                Risk
                    free
                    rate
                Expected
                    life
                Expected
                    volatility
                Expected
                    dividends
                NotesJun
                    02
                100,000
                $1.00
                Jun
                    07
                62,287
                2.49%
                5
                    yrs
                91%
                NIL
                (1)May
                    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)





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 vested immediately. 250,000 of the options issued in
      June
      2004 vest 125,000 per year for two years. The remaining 2,300,000 options issued
      in June 2004 do not vest until earnings criteria are met. Since these criteria
      are not met, they do not vest and hence no stock compensation expense is booked.
      The 100,000 options issued in November 2004 become exercisable May 15, 2006.











The
      following
      summarizes options outstanding as at December 31:





Option
                price
            **Number
                of Shares**Expiry
                date
            per
                share
            2004
            2003
            2002Jan-04
            $1.870
            -
            -
            230,000Jul-04
            $1.500
            -
            -
            400,000Apr-06
            $0.500
            1,440,000
            1,440,000
            1,540,000Jun-07
            $1.000
            100,000
            100,000
            100,000May-08
            $0.500
            785,000
            785,000
            -Jan-09
            $0.500
            100,000
            -
            -Jun-09
            $0.115
            2,550,000
            -
            -Nov-09
            $1.000
            100,000
            -
            -5,075,000
            2,325,000
            2,270,000Weighted
                average exercise price at end of year
            $0.33
            $0.52
            $0.84





**Number
                of Shares**
              **YEAR
                OF ISSUANCE**2004
            2003
            2002Outstanding,
                beginning of year
            2,325,000
            2,270,000
            2,441,300Granted
            2,750,000
            785,000
            100,000Expired
            -
            -
            -Exercised
            -
            -
            -Forfeited
            -
            -
            -Cancelled
            -
            (730,000)
            (271,300)Outstanding,
                end of year
            5,075,000
            2,325,000
            2,270,000Exercisable,
                end of year
            2,487,500
            2,325,000
            2,270,000










Number
                of
                Shares
            
            Options
                Exercisable
            
            Option
                Price
            
            Weighted
                Avg.
                PriceOutstanding
                January 1, 2002
            
            
            2,441,300
            
            
            2,441,300
            
            $
            0.50
            
            $
            4.25
            
            $
            0.96Granted
            
            
            100,000
            
            
            
            
            $
            1.00
            
            $
            1.00
            
            $
            1.00Exercised
            
            
            0Cancelled
            
            
            (271,300
            )
            
            
            
            $
            0.50
            
            $
            4.25
            
            $
            1.96Outstanding
                December 31, 2002
            
            
            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
            
            $
            0.32





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.





**12.**
            **CONTRIBUTED
                SURPLUS**





2004
            
            2003Stock
                compensation expense
            
            $
            2,408,404
            
            $
            2,309,782Fair
                value of
                options in connection with acquisition of Scarborough pain clinic
            
            
            39,938
            
            
            -Share
                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$
            2,536,409
            
            $
            2,397,849





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 has been determined using an option pricing model
      (Black Scholes) as per section 3870 of the CICA handbook (note 11b). This amount
      has been credited to contributed surplus.











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 every year. 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
      employment agreement. Due to the issuance of new options, the fair value
      amounting to $57,746 has been determined using an option pricing model (Black
      Scholes) as per section 3870 of the CICA handbook (note 11b). This amount has
      been 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 is subject to a future earnings hurdle test. Since the earnings test
      is
      in a future period, no expense is recognized in the current
      quarter.





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 has been 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 had been
      determined, and was credited to contributed surplus (note 11c).





**13.**
            **FUTURE
                INCOME TAXES**





At
      December 31,
      2004, the Company has losses available to reduce future federal and provincial
      taxable income of approximately $ 8.5 million. These losses expire between
      tax
      years 2005 and 2010. The future tax benefits available as a result of these
      losses have been fully provided for in the revised consolidated financial
      statements.





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





**SHAREHOLDERS
      EQUITY (DEFICIT) CANADIAN GAAP**





**CAPITAL
                STOCK**
            
            2004
            
            2003
            
            2002Balance
                at
                the beginning of the year
            
            
            11,544,736
            
            
            11,544,736
            
            
            11,544,736Shares
                issued
                to new investors
            
            
            4,500,000
            
            
            -
            
            
            -Balance
                at
                the end of the year
            
            
            16,044,736
            
            
            11,544,736
            
            
            11,544,736**CONTRIBUTED
                SURPLUS**Balance
                at
                the beginning of the year
            
            
            2,397,849
            
            
            1,236,587
            
            
            1,174,300Stock
                option
                compensation
            
            
            98,622
            
            
            1,161,262
            
            
            62,287Fair
                value of
                options in connection with acquisition
            
            
            39,938
            
            
            -
            
            
            -of
                Scarborough pain clinicBalance
                at
                the end of the year
            
            
            2,536,409
            
            
            2,397,849
            
            
            1,236,587**DEFICIT**Balance
                at
                the beginning of the year
            
            
            (16,425,309
            )
            
            (14,715,653
            )
            
            (13,977,006
            )Net
                loss
                attributable to common shareholders
            
            
            (795,796
            )
            
            (1,709,656
            )
            
            (738,647
            )Balance
                at
                the end of the year
            
            
            (17,221,105
            )
            
            (16,425,309
            )
            
            (14,715,653
            )**CUMULATIVE
                TRANSLATION ADJUSTMENT**
            
            
            (800,791
            )
            
            (965,418
            )
            
            (407,531
            )**SHAREHOLDERS'
                EQUITY (DEFICIT)**
            
            
            559,249
            
            
            (3,448,142
            )
            
            (2,341,861
            )










**SHAREHOLDERS
      EQUITY (DEFICIT) US GAAP**





**CAPITAL
                STOCK**
            
            2004
            
            2003
            
            2002Balance
                at
                the beginning of the year
            
            
            12,596,202
            
            
            12,596,202
            
            
            11,544,736Shares
                issued
                to new investors
            
            
            4,500,000
            
            
            -
            
            
            -Capital
                stock
                issued on purchase of YFMC Healthcare Inc
            
            
            -
            
            
            -
            
            
            1,087,872Ascribed
                fair
                value of share purchase warrants issued
            
            
            -
            
            
            -
            
            
            (36,406
            )Balance
                at
                the end of the year
            
            
            17,096,202
            
            
            12,596,202
            
            
            12,596,202**CONTRIBUTED
                SURPLUS**Balance
                at
                the beginning of the year
            
            
            2,434,255
            
            
            1,272,993
            
            
            1,174,300Stock
                option
                compensation
            
            
            98,622
            
            
            1,161,262
            
            
            62,287Fair
                value of
                options in connection with acquisition
            
            
            39,938
            
            
            -
            
            
            -of
                Scarborough pain clinicShare
                purchase warrants
            
            
            -
            
            
            -
            
            
            36,406Balance
                at
                the end of the year
            
            
            2,572,815
            
            
            2,434,255
            
            
            1,272,993**DEFICIT**Balance
                at
                the beginning of the year
            
            
            (16,425,309
            )
            
            (14,715,653
            )
            
            (13,977,006
            )Net
                loss
                attributable to common shareholders
            
            
            (795,796
            )
            
            (1,709,656
            )
            
            (738,647
            )Balance
                at
                the end of the year
            
            
            (17,221,105
            )
            
            (16,425,309
            )
            
            (14,715,653
            )**CUMULATIVE
                TRANSLATION ADJUSTMENT**
            
            
            (800,791
            )
            
            (965,418
            )
            
            (407,531
            )**SHAREHOLDERS'
                EQUITY (DEFICIT)**
            
            
            1,647,121
            
            
            (2,360,270
            )
            
            (1,253,989
            )




**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, and the preferred shares and convertible
      debentures been converted, the effect on the basic loss per share would be
      anti-dilutive.





2004
            
            2003
            
            2002Basic
                loss
                per common share:Continuing
                operations
            
            $
            (0.02
            )
            $
            (0.16
            )
            $
            (0.08
            )Discontinued
                operations
            
            $
            (0.00
            )
            $
            (0.02
            )
            $
            (0.00
            )











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





(i)
            Changes
                in
                non-cash working capital components





2004
            
            2003
            
            2002Accounts
                receivable
            
            $
            (694,858
            )
            $
            (1,693,984
            )
            
            (120,870
            )Prepaid
                expenses and other
            
            
            6,231
            
            
            (12,963
            )
            
            (1,350
            )Accounts
                payable and accrued liabilities
            
            
            (121,374
            )
            
            2,776,989
            
            
            1,263,249$
            (810,001
            )
            $
            1,070,042
            
            
            1,141,029





(ii)
            Property,
                plant, and equipment





Property,
      plant,
      and equipment purchased during the year amounts to $504,676 ($136,559 for
      December 31, 2003, and $65,866 for December 31, 2002) through cash
      payments.





(iii)
            Interest
                and
                income taxes paid





Operating
      expenses
      reflect interest paid of $ 60,429 during the year ended December 31, 2004
      ($685,469 for December 31, 2003 and $993,508 for December 31, 2002); and income
      taxes paid of $23,172 during the year ended December 31, 2004 ($nil for December
      31, 2003 and $nil for December 31, 2002).





(iv)
            Non
                cash
                transaction





As
      part of the sale
      of clinics to AIM, the company received partial payment by way of Class A
      preferred shares in AIM.





**17.**
            **COMMITMENTS**





The
      Company is
      committed to payments under operating leases of its premises and equipment,
      long-term debt and notes payable totaling $3,358,508. Annual payments are as
      follows:





**CONTRACTUAL
      OBLIGATIONS**





2005
            
            2006
            
            2007
            
            2008
            
            2009
            
            Thereafter
            
            Total
              ObligationsLong-term
                debt1
            
            
            295,960
            
            
            295,960
            
            
            295,960
            
            
            295,960
            
            
            69,247
            
            
            -
            
            
            1,253,087Operating
                lease obligations
            
            
            288,309
            
            
            293,276
            
            
            293,679
            
            
            135,342
            
            
            113,352
            
            
            171,472
            
            
            1,295,430Notespayable2
            
            
            -
            
            
            809,991
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            809,991Total
            
            $
            584,269
            
            $
            1,399,227
            
            $
            589,639
            
            $
            431,302
            
            $
            182,599
            
            $
            171,472
            
            $
            3,358,508





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)
            YFMC
                HealthCare Inc (“YFMC”), a wholly owned subsidiary of the Company, is in
                receipt of a letter from CCRA dated April 30, 2001, adjusting YFMC’s Goods
                and Services Tax returns for the period from December 31, 1992, to
                December 31, 1996. The total amount claimed by CCRA for this period
                is
                $249,000. In the event that YFMC is ultimately found liable, the
                Company
                intends to claim an indemnity for such amount against the directors
                and
                certain named principals of YFMC pursuant to the Company’s rights under
                the purchase agreement for YFMC executed on August 10, 1999. 1292363
                Ontario Ltd, a subsidiary of YFMC, is in receipt of a letter from
                CCRA
                dated February 4, 2005 for YFMC’s Goods and Services Tax, and the total
                amount claimed is $50,828. The Company’s legal counsel has advised that
                CCRA does not intend to pursue YFMC for these amounts, and accordingly
                no
                provision has been made in these revised consolidated financial
                statements.





On
      the advice of
      the legal counsel, this note was removed in September 2005, because the
      contingency expired at that time.





(ii)
            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 revised consolidated financial
                statements.





(iii)
            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 $400 thousand to $1.3
                million.





(iv)
            Claims
                have
                been made against the Company for general damages for breach of contract
                and in tort. A claim for approximately $423,000 has been made against
                the
                company for wrongful termination of a person working on a third party
                contract. 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.
                Another claim of approximately $ 1,833,000 plus interest and costs
                has
                been made against the Company, for amongst other things, defamation
                and
                economic loss in regards to a healthcare provider working on a third-party
                contract. The Company’s lawyers are of the opinion that the amounts
                claimed are excessive and that if there is any liability on the Company,
                then the third-party contractor should be responsible to indemnify
                the
                Company. 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 revised consolidated financial statements.





(v)
            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 $1.7 million. In July of this year the Company was notified
                that
                one of the third parties was in default on their rent, in the amount
                of
                $29 thousand. We have been in touch with the third party and they
                are
                endeavoring to remedy the
                situation.





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





**19.**
            **FAIR
                VALUE OF FINANCIAL
                INSTRUMENTS**





The
      carrying value
      of accounts receivable, accounts payable and accrued liabilities approximate
      their fair value due to the short-term maturity of these items.





**20.**
            **SUBSEQUENT
                EVENTS**





On
      January 25,
      2005, MEII filed a statement of claim against Calian Limited (Calian) and a
      former employee of MEII, seeking Cdn$100,000,000 in damages, in regards to
      the
      recent contract award by Public Works and Government Services Canada (“PWGSC”)
      to provide services to the Canadian Forces, Department of National Defence.
      This
      contract would have been an extension of a current contract which expires March
      31, 2005. MEII has been advised that Calian intends to defend the
      claim.











On
      February 8,
      2005, the Canadian International Trade Tribunal (CITT) announced that it would
      conduct an inquiry into the award by PWGSC, of a medical staffing contract,
      to
      Calian. MEII filed a complaint with the CITT on January 31, 2005 alleging 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 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.





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, 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.





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





These
      revised
      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 (deficit)





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 differential 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 revised 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.











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





2004
            
            2003Capital
                stock
                (as previously shown)
            
            $
            16,044,736
            
            $
            11,544,736Capital
                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
            
            
            12,596,202Contributed
                surplus (as previously shown)
            
            
            2,536,409
            
            
            2,397,849Share
                purchase warrants
            
            
            36,406
            
            
            36,406Paid-in-capital
                - U.S. GAAP
            
            
            2,572,815
            
            
            2,434,255Deficit
                (as
                previously shown)
            
            
            (17,221,105
            )
            
            (16,425,309
            )Cumulative
                translation adjustment
            
            
            (800,791
            )
            
            (965,418
            )Shareholders’
                equity (deficit) - U.S. GAAP
            
            $
            1,647,121
            
            $
            (2,360,270
            )





(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 revised consolidated financial statements. Under
      U.S.
      GAAP, the comprehensive loss for the fiscal year ended December 31, 2004,2003
      and 2002 would be adjusted as follows:





2004
            
            2003
            
            2002Net
                loss
            
            $
            (1,341,205
            )
            $
            (1,574,650
            )
            $
            (603,664
            )Foreign
                currency translation adjustment
            
            
            164,627
            
            
            (408,641
            )
            
            (15,550
            )Comprehensive
                loss
            
            $
            (1,176,578
            )
            $
            (1,983,291
            )
            $
            (619,214
            )





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 revised 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 2004
      and 2003:





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.





**22.**
            **ECONOMIC
                DEPENDENCE**





Approximately
      80%
      of revenue and 53% of gross margin is derived from one customer (74% of revenue
      and 46% of gross margin in 2003; 84% of revenue and 62% of gross margin in
      2002). Receivables for this customer amounted to 64% of total receivables (41%
      of total receivables in 2003). The loss of a material amount of revenue to
      this
      customer could have a material adverse effect on operations of the
      Company.





In
      December 2004,
      the Company learned that we were not successful in our bid to win a follow-on
      contract with DND. March 31, 2005, will mark the end of the contract for the
      Company. In January 2005, the Company launched a Cdn.$100,000,000 lawsuit
      against the winning bidder and a former employee of the Company. MEII believes
      substantial evidence demonstrates that the successful bidder used confidential
      information obtained through the hiring of a former company 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 the company. Further, in February 2005, the Company filed a
      complaint under subsection 30.11(1) of the Canadian International Trade Tribunal
      Act (CITT). In the filing, MEII seeks to terminate the contract award to the
      winning bidder, have MEII awarded the contract, or in the alternative, to have
      a
      new bid process conducted. As an alternative to the above relief, we have
      proposed that we be compensated for lost profit on the contract and the costs
      associated with the filing of the complaint. The CITT responded by issuing
      a
      Notice of Inquiry, on February 8, 2005. The CITT has until June 15, 2005 to
      make
      its ruling on the complaint.





**23.**
            **SEGMENTED
                INFORMATION**





The
      Company
      operated under four business units during 2004 as follows: Staffing Solutions,
      Medical Services, Government Healthcare 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 chrohn’s
      disease and rheumatoid arthritis and pain management services.





The
      Government
      Healthcare Services unit recruits, schedules and manages physicians, nurses,
      dentists, physiotherapists and other regulated healthcare professionals at
      all
      Canadian Forces bases.





The
      Healthcare
      Consulting unit provides select Canadian public and private institutions,
      consulting services on a variety of healthcare topics.











The
      segmented
      information for the business units are as follows:





2004Staffing
              Solutions
            
            Physician
              Medical
              Services
            
            Government
              Healthcare
              Services
            
            Consulting
            
            ConsolidatedRevenue
            
            $
            7,485,801
            
            $
            1,227,533
            
            $
            38,944,441
            
            $
            789,912
            
            $
            48,447,687Gross
                margin
            
            $
            1,352,167
            
            $
            544,454
            
            $
            2,522,209
            
            $
            335,477
            
            $
            4,754,307-Net
                income
                (loss) before discontinued operations
            
            $
            188,648
            
            $
            99,290
            
            $
            (1,623,127
            )
            $
            (6,016
            )
            $
            (1,341,205
            )Property,
                plant and equipment employed at end of year
            
            $
            149,500
            
            $
            170,529
            
            $
            39,310
            
            $
            149,500
            
            $
            508,839Amortization
            
            $
            134,005
            
            $
            234
            
            $
            48,160
            
            $
            Nil
            
            $
            182,399






2003Staffing
              Solutions
            
            Medical
              Services
            
            Government
              Healthcare
              Services
            
            Consulting
            
            ConsolidatedRevenue
            
            $
            13,018,943
            
            $
            883,287
            
            $
            40,278,718
            
            $
            154,610
            
            $
            54,335,558Gross
                margin
            
            $
            2,169,176
            
            $
            422,878
            
            $
            2,371,478
            
            $
            154,610
            
            $
            5,118,142Net
                income
                (loss) before discontinued operations
            
            $
            (75,613
            )
            $
            (242,962
            )
            $
            (1,220,830
            )
            $
            131,924
            
            $
            (1,407,481
            )Property,
                plant and equipment employed at end of year
            
            $
            52,681
            
            $
            17,560
            
            $
            116,321
            
            $
            Nil
            
            $
            186,562Amortization
            
            $
            23,783
            
            $
            7,928
            
            $
            89,213
            
            $
            Nil
            
            $
            120,924




2002Staffing
              Solutions
            
            Medical
              Services
            
            Government
              Healthcare
              Services
            
            Consulting
            
            ConsolidatedRevenue
            
            $
            5,699,613
            
            $
            392,587
            
            $
            31,335,843
            
            $
            NIL
            
            $
            37,428,043Gross
                margin
            
            $
            1,023,718
            
            $
            139,344
            
            $
            1,882,229
            
            $
            NIL
            
            $
            3,045,291Net
                income
                (loss) before discontinued operations
            
            $
            (312,402
            )
            $
            (119,186
            )
            $
            (155,120
            )
            $
            NIL
            
            $
            (586,708
            )Property,
                plant and equipment employed at end of year
            
            $
            55,568
            
            $
            18,523
            
            $
            96,836
            
            $
            NIL
            
            $
            170,927Amortization
            
            $
            23,590
            
            $
            7,863
            
            $
            70,892
            
            $
            NIL
            
            $
            102,345




**24.**
            **RELATED
                PARTY TRANSACTIONS**





Consulting
      fees of
      approximately $ 31,374 (Cdn $ 40,833) were paid to each of two directors, who
      have been retained as consultants ($43,000 in 2003 and $65,000 in
      2002).





Closing
      costs
      including legal, travel and due diligence costs amounting to $609,214 have
      been
      paid to a related party (note 11a).





Unpaid
      preferred
      share dividends amounting to $579,582 have been forgiven by a related party
      (note 11a).











**25.**
            **COMPARATIVE
                FIGURES**





Certain
      figures in
      the 2003 and 2002 consolidated financial statements have been reclassified
      to
      conform with the basis of presentation in 2004.


(a)
            There
                has
                been a change in the accounting policy concerning the promissory
                notes.
                Section 3860 of the CICA Handbook has been amended in January 2004
                (effective November 2004). The promissory notes payable were previously
                treated as equity, and shown as Convertible debentures. However,
                with the
                amendment of section 3860, they are now classified as a liability.
                This
                change has been applied retroactively, and hence comparative figures
                have
                been restated (note 9).


(b)
            There
                has
                been an error in the foreign exchange amount conversion of Notes
                Payable
                (Convertible debentures). This error has been rectified during the
                current
                year, and as a result interest and financing expenses and notes payable
                amounts have been restated.


(c)
            There
                has
                been a change in the presentation of preferred share dividends payable
                which has been segregated from Accounts payable and accrued
                liabilities.





The
      effect of these
      restatements is as follows:





As
                restated
              In
                2003
            
            As
                previously
                reported
              in
                2003Accounts
                payable and accrued liabilities
            
            $
            6,284,161
            
            $
            6,717,406Notes
                payable
            
            $
            599,991
            
            
            -Convertible
                debentures
            
            
            -
            
            $
            414,434Deficit
            
            $
            16,425,309
            
            $
            16,265,370Cumulative
                translation adjustment
            
            $
            965,418
            
            $
            825,533Working
                Capital Deficit
            
            $
            3,169,692
            
            $
            3,055,425Interest
                and
                financing expenses
            
            $
            569,325
            
            $
            685,471Loss
                before
                income taxes
            
            $
            1,412,034
            
            $
            1,528,180Net
                loss
                attributable to common shareholders
            
            $
            1,709,656
            
            $
            1,825,802Convertible
                debenture charges
            
            
            -
            
            $
            105,996Basic
                loss
                per share continuing operations
            
            $
            0.16
            
            $
            0.17





**26.**
            **REVISED
                CONSOLIDATED FINANCIAL
                STATEMENTS**





These
      revised
      consolidated financial statements have been prepared to comply with the
      recommendations of the US Securities and Exchange Commission, which required
      the
      company to reverse the effect of the quasi reorganization and elimination of
      deficit. Accordingly, notes 11, 12, 14 and 21 have been amended. In addition,
      notes 18 and 20 for Contingent Liabilities and Subsequent Events have been
      updated. The net loss attributable to common shareholders and basic loss per
      common share from continuing and discontinued operations remain unchanged.