MED EMERG INTERNATIONAL INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2002
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)

2550 Argentia Road, Suite 205
Mississauga, Ontario, Canada L5N 5R1
(Address of Principal Executive Offices) (Zip Code)

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

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 [ ]

As of June 30, 2002, 9,469,827 shares of the registrant's
Common Stock were outstanding.

MED EMERG INTERNATIONAL INC.

JUNE 30, 2002 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition, Med
Emerg International Inc. disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date hereof.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31,
2001 (audited) .........
Consolidated Statements of Operations for the three and six months ended June
30, 2002 and 2001...............
Consolidated Statement of Cash Flows for the three and six months ended June 30,
2002 and 2001.................
Notes to Unaudited Consolidated Financial Statements...........................

MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2002 (UNAUDITED) AND DECEMBER, 2001 (AUDITED)
(IN US$)

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

MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
(IN US$)

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

MED-EMERG INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS AT JUNE 30, 2002 AND 2001 (UNAUDITED)
(IN US$)

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

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Med-Emerg International Inc. ("MEII" or the "Company") is a leading private
sector provider of quality healthcare management services to the Canadian
healthcare industry.

MEII is a publicly traded company. The Common Shares and Redeemable Common Stock
Purchase Warrants have been listed on the Boston Stock Exchange since February
12, 1998. 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 Company's operations are divided into five units: Hospital Staffing, Medical
Clinics, Healthcare Services (Department of National Defence), Pharmaceutical
Support and Long-Term Care.

HOSPITAL STAFFING
- -----------------

The Company provides emergency room physician staffing services to hospitals
in Ontario, a mix of rural and urban facilities including tertiary care
centers. The Company pays its physicians on an hourly or sessional basis, and
receives a fixed monthly administrative management fee from each hospital.
The Company also provides nursing coverage to hospital emergency departments
on a shift-by-shift basis. The Company charges a fixed hourly rate for every
hour of nursing coverage provided. During the second quarter of 2002, the
Hospital Staffing unit provided approximately 3800 hours of physician
coverage and 1500 hours of nursing coverage per month for its' clients,
compared to 4300 hours of physician coverage and 2100 hours of nursing
coverage during the second quarter of 2001. Despite losing a major contract
that generated 1,100 chargeable hours per month last year, the company was
successful in obtaining five additional contracts, two of which were in new
provinces, namely Manitoba and Newfoundland. Under the new revenue model,
operating income actually increased by $36,000 for the first six months
versus last year. At June 30, 2002, the Company had 22 contracts for
physician staffing and 10 contracts for nurse staffing compared to 17
contracts for physician staffing and 8 contracts for nurse staffing at June
30, 2001.

MEDICAL CLINICS
- ---------------

The Company is one of the largest physician practice management companies in
Canada. At June 30, 2002, the Company owned and operated 23 family practice
clinics throughout Canada; located in Ottawa (13), Toronto (2), London (3),
Winnipeg (1), Edmonton (2) and Calgary (2). In addition to its own clinics, the
Company provides administrative support services to physician practices
including management, billing and staffing. This administrative support provides
physicians with the ability to practice within a professional managed network
and to concentrate on the clinical aspects of their practices.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONT'D)

HEALTHCARE SERVICES (DEPARTMENT OF NATIONAL DEFENCE)
- ----------------------------------------------------

In March of 2001, the Company was awarded an administrative management services
contract to provide medical personnel to Canadian Forces Bases across Canada.
The contract has two stages, an initial period of three years with a three year
renewal option extending to March 31, 2007.

The Company recruits, schedules and pays physicians, nurses, dentists,
physiotherapists and other regulated healthcare professionals to provide
services as required by the local health authority resident on each base. The
Company is paid a monthly administrative management fee by the DND that is
linked to the number of providers being managed at any one time. As at June 30,
2002, the Company managed approximately 730 employees and independent healthcare
professionals in 36 bases across Canada. This compares to 103 employees and
independent healthcare professionals at 32 bases as at June 30, 2001. This has
exceeded the service delivery expectations of the Canadian Forces and
demonstrated the Company's ability to manage large multi-site, multi-provider
contracts, on a national basis.

PHARMACEUTICAL SUPPORT
- ----------------------

On March 15th, 2001, the Company signed a contract with Schering-Plough Canada
as the national coordinator for the community-based infusion of RemicadeTM for
the treatment of patients with rheumatoid arthritis and Chron's disease. At June
30, 2002, the Company had established 11 infusion sites compared to 4 infusion
sites as at June 30, 2001.

LONG-TERM CARE
- --------------

During April 2002, the Company commenced providing admission physical
assessments and regular primary care to residents at long-term care facilities.
During the three months ended June 30, 2002 the Company provided physicians and
nurse practitioners to 3 long-term care facilities in Ontario.

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
for interim financial reporting. These financial statements consolidate, with
minority interest, the accounts of MEII and all wholly- and partially-owned
subsidiaries of MEII.

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

These consolidated financial statements, footnote disclosures and other

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

2. BASIS OF PRESENTATION (CONT'D)

information should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Going concern

The consolidated financial statements have been prepared on principles
applicable to a going concern, which assumes that the Company will be able to
realize its assets and discharge its obligations in the normal course of
business. As at June 30, 2002, the Company had a working capital deficiency of
$2,309,090 and a shareholders' deficit of $14,216,797.

On June 28th the Company discharged its primary banker (HSBC) and MEII currently
does not have any traditional bank credit facilities.

Management has implemented certain plans and has obtained alternative financing
from private investors (see note 6 for further details), which it believes will
alleviate these conditions and enable the company to return to profitability in
the foreseeable future. These plans include:

1) closure of non-profitable clinics, termination of redundant staff and
cost-cutting measures;
2) negotiating discounts with creditors; and
3) disposition of redundant assets.

Consequently, on that basis, they have prepared the financial statements on a
going concern basis.

(b) Revenue reporting

The company has adopted the provisions of Emerging Issues Committee ("EIC")
- -123, issued by the Canadian Institute of Chartered Accountants (CICA). which
became effective on January 1, 2002. EIC - 123 addresses the reporting of
revenue on a gross basis as a principal versus on a net basis as an agent.

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

(1) Clinic Staffing:

Revenue is reported on a mix of both gross and net basis for clinic staffing.

MEII acts as principal in providing health service delivery through the clinic
network. MEII is the operator of the clinic that provides the health service,
has the responsibility to provide the facility (bricks & mortar),

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

staffing and follow-up effort (both by way of clinic managers and the London
Billing office) and also controls the patient records, patient billings and
patient collections. There are a number of risks MEII attempts to manage which
includes insurance coverage both in respect of the property and also coverage on
healthcare professionals who work for the Company. For certain clinics, MEII has
the risk of collection in that claims may be submitted for ineligible patients
or the Minister of Health may reject certain claims processed. Revenue from
these clinics is recognized on a gross basis. However, in certain other clinics
the billings are submitted and collected by the physicians directly and only the
Company's portion is remitted to MEII. In such cases the revenue is recorded on
a net basis.

(2) Hospital Staffing, Pharmaceutical support and Long-term care:

Revenue is reported on a gross basis.

MEII acts as a principal in providing these services. MEII contracts with
emergency room physician personnel to provide services to hospitals in
Ontario, a mix of rural and urban facilities including tertiary care centres.
Under contract with Schering-Plough Canada, MEII acts as the national
co-ordinator for the community-based infusion of Remicade for the treatment
of patients with rheumatoid arthritis and Chron's disease. During April 2002,
MEII commenced a new line of business, which involves contracting with
physicians and nurse practitioners to provide services to long-term care
facilities in Ontario. MEII has the risk of non-collection from these revenue
streams.

(3) Healthcare Services (Department of National Defence ("DND"):

Revenue is reported on a gross basis.

MEII has an administrative management contract with DND to provide medical
personnel to Canadian armed forces across Canada.

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 turns pays the
medical personnel and support staff based on the terms of the respective
contracts signed with them. MEII has a risk of non-collection from DND.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

4. DEMAND LOAN

The demand loan amount is owing to Morrison Financial Services Limited (MFSL)
under the terms described in note 6.

5. BANK INDEBTEDNESS

Bank indebtedness at December 31, 2001 was for borrowings from HSBC and as at
June 30, 2002, all amounts owing had been discharged. This was achieved by
obtaining alternative financing (see note 6) and by the foregiveness from HSBC
of the principal sum of $227,891.

6. REFINANCING ACTIVITIES

On May 24, 2002 the Company issued a $720,000 discounted secured debenture, with
net proceeds of $600,000 and repaid the bank loans from the net proceeds.

The terms of the secured debenture include:
1. maturity of June 1, 2003
2. an effective interest rate of 20% per annum
3. convertible into common shares at $1 per share
4. repayable at $20,000 per month (for months two and three); $30,000 per
month (for months four through six); $35,000 per month (for months
seven through eleven); $395,000 in month twelve
5. 216,000 restricted common shares issued to the debenture holders
6. redeemable on or before 180th day from the date of the closing at 115%
of the principal amount, and any date thereafter at 120% of the
principal amount.

A principal shareholder of the Company has guaranteed the debenture, providing
as security, unrestricted free trading common shares of the Company equivalent
to 150% of the face value of the debenture. In exchange for the guarantee, the
Company issued to the guarantor shareholder common share purchase warrants to
purchase 100,000 common shares at $1.00 per share. In the event that the market
value of the common shares provided as security falls below 200% of the face
amount of the debenture, the Company is required to pledge additional securities
to return the market value to 200% of the face amount.

On June 28, 2002, MFSL paid HSBC $496,049 on MEII's behalf which was the balance
owing under the forbearance agreement. The completion of the aforementioned
financial transaction has the effect of reducing the Company's total debt by
$227,891 since the obligation to the HSBC was eliminated at a discounted value.
MFSL provided the Company with a full-recourse invoice discounted facility in an
amount not to exceed $496,049 based on purchasing and advancing up to 75% of the
face amount of a qualifying invoice with the balance held on reserve until the
invoice is collected in full. The facility has a term of one year, with an
annualized interest rate of 34.22% that matures on June 28,2003. In addition to
the specific Standard Form Assignments (General), all amounts due to MFSL shall

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

6. REFINANCING ACTIVITIES (CONT'D)

be secured by a general security agreement on all assets and undertakings of
MEII, an assignment of all risk insurance policies and an assignment of key man
life insurance of a director.

The Company has approximately $20,000 outstanding as at June 30, 2002 to
Financial Institutions that are payable within the year.

7. LONG TERM DEBT

On September 18, 2001 MEII issued a promissory note with an interest rate of
7% that becomes due payable 5 years after issuance. MEII may pay the
principal amount and accrued interest in the note at any time, upon five
business days notice, prior to maturity. MEII may make payment of the note in
the form of cash or shares or a combination of cash and shares with an
aggregate market value equal to the principal amount of the note plus accrued
interest upon the note.

8. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES

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

Consolidated statements of operations

If U.S. GAAP were employed, net loss and shareholder's deficit for the period
would be adjusted as follows:

(a) Deferred Start-up Costs

Under Canadian GAAP, development and start-up costs, which meet certain
criteria, are deferred and amortized. Under United States GAAP, development and
start-up costs are expensed as incurred.

(b) Dilution Gain

Under US GAAP, the gain realized on the issuance of the shares of a subsidiary
to third party at an amount greater than the net book value is treated as
additional paid in capital.

(c) Basic Earnings (Loss) Per Share

U.S. GAAP requires common shares and warrants to purchase common shares, issued
or exercisable at prices below the initial public offering ("I.P.O.") price and
which were issued within one year prior to the initial filing of the
registration statement relating to the I.P.O., to be treated as if the common
shares were outstanding from the beginning of the period in the calculation of
weighted average number of common shares outstanding and loss per share, even
where such inclusion is anti-dilutive. Basic loss per common share is determined
using the weighted average number of shares outstanding during the year,
adjusted to reflect the application of the treasury stock method for outstanding
options and warrants in accordance with U.S. GAAP.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

8. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)

(d) Stock Compensation

All transactions in which goods or services are the consideration received for
the issuance of equity instruments are accounted for based on the fair value of
the consideration or the fair value of the equity instrument issued, whichever
is more reliably measurable, in accordance with the Statement of Financial
Accounting Standards Board No. 123, "Accounting for Stock-Based Compensation".

(e) Goodwill

Under Canadian GAAP, the purchase price 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 share 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 under Canadian GAAP was
$1.25. The share price used for the YFMC Healthcare Inc. acquisition under U.S.
GAAP was $1.859.

(f) Shareholders' Equity

Under Canadian GAAP, detachable stock purchase warrants issued in conjunction
with private stock offerings are given no recognition. Under US GAAP, detachable
stock purchase warrants are given separate recognition from the primary security
issued.

Under U.S. GAAP, loans issued to officers to acquire stock are presented as a
deduction from shareholders' equity (deficit).

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 U.S. GAAP, based on an ascribed fair value
of $0.364 for each of the 1,000,000 share warrants issued, share capital would
be lower by $36,406 and, given that the stock purchase warrants were cancelled
during the year, the carrying amount of contributed surplus would be increased
by $36,406.

The effect on shareholders' equity would be as follows:

(g) Comprehensive Income

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 financial statements. Under
U.S. GAAP, the comprehensive loss for the six months ended June 30 2002 and 2001
would be adjusted as follows:

(h) Recently issued Accounting Standards

The following standards were issued by the Financial Accounting Standards Board
during 2001:

SFAS No. 141 - Business Combinations and SFAS No. 142 - Goodwill and
Other Intangible Assets. SFAS No. 141 requires that companies use only
the purchase method for acquisitions occurring after June 30, 2001.
SFAS No. 142 requires that goodwill and intangible assets acquired
after June 30, 2001 should no longer be amortized but reviewed
annually for impairment.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

8. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONT'D)

SFAS No. 143 - Accounting for Asset Retirement Obligations. SFAS No.
143 requires that entities record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. This
standard is effective for fiscal years beginning after June 15, 2002.

SFAS No. 144 - Accounting for Impairment on Disposal of Long-Lived
Assets. SFAS No. 144 requires that business recognize impairment when
the financial statement carrying amount of long-lived asset or asset
group exceeds its fair value and is not recoverable.

Under U.S. GAAP the above standards would not have a material impact on the
financial position, results of operations or cash flows of the Company.

9. SEGMENTED INFORMATION

The Company operates under five business units: Hospital Staffing, Medical
Clinics, Healthcare Services (Department of National Defence), Pharmaceutical
Support and Long-Term Care.

The Hospital Staffing 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 Clinics unit owns and manages medical clinic facilities. The clinics
include family practice, walk-in services, and other related services such as
massage therapy and chiropractic services.

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

In the table below, the Hospital Staffing unit includes the revenue and cost for
the Long-term Care business unit and the Medical Clinics unit includes the
revenue and cost for the Pharmaceutical Support unit.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements
Six months ended June 30, 2002 and 2001

10. COMMITMENTS AND CONTINGENCIES

The Company has agreed to settle a claim by a landlord of certain premises
previously occupied by MEII. Initially the landlord alleged that the Company
renewed the lease for the premises and was claiming rent for the entire renewal
term in the amount of $121,000 plus interest and taxes. A settlement was agreed
upon in the amount of approximately $29,000 and will be paid in equal
installments over the next six months starting in August 2002. This amount has
been provided for in the financial statements.

YMFC HealthCare Inc. ("YFMC"), a wholly owned subsidiary of MEII was notified by
Canada Customs and Revenue Agency ("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 amount claimed by CCRA is $253,379. In the event that YFMC becomes
liable to pay any such amount to CCRA, MEII intends to claim an indemnity for
such amount from the directors and certain principals of YFMC pursuant to MEII's
rights under the Business Combination Agreement executed on August 10, 1999.

11. ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

The Annual and Special Meeting of shareholders of MEII was held on July 25, 2002
at the corporation's principal executive offices. There were four resolutions
presented and approved, namely;

(i) To elect a Board of Directors. William Thomson, Ramesh Zacharias, Patrick
Michaud and Dr. Frank Baillie were elected as directors of the Corporation.

(ii) To approve the appointment of Schwartz, Levitsky, Feldman, llp, Chartered
Accountants as the Corporation's independent public accountants for the ensuing
year.

(iii) To approve a special resolution amending the stock option plan for the
benefit of those key employees, directors and officers and consultants of the
Company and its wholly or partially owned subsidiaries to participate in the
growth of the Company and to provide effective incentives by increasing the
number of shares of common stock available from 1,000,000 to seventeen and one
half percent (17 1/2%) of the issued and outstanding shares of common stock of
the Company at a given time.

(iv) To approve resolutions passed by the directors of the Company on April 6
and May 7, 2001, granting options to certain individuals pursuant to the
provisions of the Stock Option Plan.

12. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
current period financial statement presentation.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward-looking statements of Med-Emerg International Inc. ("MEII" or the
"Company) included herein or incorporated by reference including, but not
limited to, those regarding future business prospects, the acquisition of
additional clinics, 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.

OVERVIEW

MEII is a provider of a broad range of quality healthcare management services.
Established in 1983, the Company specializes in the coordination and contract
staffing of emergency physicians for hospitals and clinics in Canada. Though
emergency-related services remain an important component of the Company's
business, the Company has expanded to offer a wide variety of medical services
including nurse staffing, medical clinics, the recruitment of various healthcare
professionals to fulfill a contract with the Department of National Defence, and
a contract with Schering Plough Canada Inc.

Management believes the Company is uniquely positioned to establish industry
leadership by providing integrated professional management services in the
delivery of healthcare.

In 2001, the Company was awarded the contract for civilian in-garrison
healthcare services for the Department of National Defence. The contract, the
largest of its kind in Canada is a six year agreement whereby the Company has
agreed to recruit and staff in excess of 800 full time healthcare providers at
all Canadian Forces Bases. The Company receives an administrative fee for these
services. Revenue for services provided under this contract is expected to
exceed $30 million per annum. This contract and the supporting infrastructure
create a horizontal platform that management believes will allow the Company to
secure other major government staffing contracts.

In March 2001, the Company and Schering Canada Inc, entered into an agreement
whereby the Company undertakes to recruit, credential and install new infusion
sites across Canada to deliver RemicadeTM infusion services to patients
suffering from Crohn's Disease and rheumatoid arthritis. It is estimated that
approximately 40,000 patients in Canada suffer from the debilitating effects of
these two diseases. As at June 30, 2002, there were approximately 800 patients
receiving infusions. It is anticipated that the number of patients participating
in this program will reach 1,000 by December 31, 2002.

During the three months ended June 30, 2002, the Company commenced providing
physicians and nurse practitioners to 3 long-term care facilities in Ontario.
The Company intends to expand this business unit in 2002.

RESULTS OF OPERATIONS

NET INCOME(LOSS)

The Company incurred a net loss of $ 227,088, or -0.02 per common share for the
three months ended June 30, 2002 compared to a net loss of $149,517, or -0.02
per common share for the three months ended June 30, 2001. The net loss was
$226,423 or -0.02 per common share for the six months ended June 30, 2002
compared to $319,004 or -0.04 per common share for the six months ended June 30,
2001.

REVENUE

The Company's revenue for the three months ended June 30, 2002 increased to
$11,310,318, compared to $ 4,247,913 for the three months ended June 30, 2001,
or 166%. For the six months ended June 30, 2002 revenue increased to $21,051,852
compared to $8,077,626 for the six months ended June 30, 2001. This revenue
growth was due to securing a management service contract with the Department of
National Defence that commenced in March 2001.

Revenue from Health Services Division amounted to $7,966,246 for the three
months ended June 30, 2002 compared to $746,015 for the three months ended June
30, 2001. Health Services revenue for the six months ended June 30, 2002
increased to $14,490,521 from $895,686 for the six months ended June 30, 2001.
As at June 30, 2002, the Company provided approximately 730 medical personnel at
DND bases across Canada, compared to 114 as at June 30, 2001.

Revenues from the Hospital Staffing unit decreased to $1,308,967 for the three
months ended June 30, 2002 compared to $1,702,707 for the three months ended
June 30, 2001 a decrease of approximately 23%. For the six months ended June 30,
2002 Hospital Staffing revenue was $2,554,779 compared to $3,285,436 for the six
months ended June 30, 2001 a decrease of approximately 22%. The decrease in
revenues resulted from the loss of a physician contract.

For the three months ended June 30, 2002, revenues from Medical Clinics unit
increased to $2,035,105 or approximately 13% from $1,799,209 for the three
months ended June 30, 2001. For the six months ended June 30, 2002 revenues
totaled $4,006,552 which were comparable to $3,826,504 for the six months ended
June 30, 2001.

GROSS MARGIN

Gross Margin (revenue less physician and other direct costs) for the three
months ended June 30, 2002 increased to $1,663,184 or about 3%, compared to $
1,609,210 for the three months ended June 30, 2001. For the six months ended
June 30, 2002, gross margin increased to $3,219,757 or approximately 4% from
$3,092,317 for the six months ended June 30, 2001. This increase in gross margin
was due to the Department of National Defence management service contract.

Physician fees and direct costs for the quarter ended June 30, 2002 increased to
$9,647,134, compared to $2,638,703 for the three months

ended June 30, 2001, an increase of approximately 266%. The physician fees and
direct costs for the six months ended June 30, 2002 was $17,832,095 compared to
$4,915,309 for the six months ended June 30, 2001. Physician fees and other
direct costs increased as a percent of revenue to approximately 85% of revenue
for the six months ended June 30, 2002 compared to approximately 61% of revenue
for the six months ended June 30, 2001. This increase reflected the inclusion of
the DND contract where physician fees are a greater percentage of revenue than
that of the Company's other business units.

OPERATING EXPENSES

Operating expenses totaled $1,576,558 for the three months ended June 30, 2002
compared to $1,479,806 for the three months ended June 30, 2001, an increase of
approximately 7%. For the six months ended June 30, 2002 operating expenses
increased to $2,953,493 or approximately 3% from $2,866,618 for the six months
ended June 30, 2001.

INCOME TAXES

The Company has loss carry forwards of approximately $5 million to be applied
against future corporate income taxes.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2002, the Company had a working capital deficit of $2,309,090.

On June 28th, 2002, the Company repaid all amounts owing to its primary banker
from the proceeds of financing secured on May 24, 2002. The Company issued a
$720,000 discounted secure debenture for net proceeds of $600,000 repayable on
June 1, 2003.

The company finances working capital needs for the DND contract through a
financing facility in the amount of $2.7 million ($4.3 million Canadian funds).

In June 2002, the lender provided the Company an additional full recourse
invoice discounting facility of up to $496,049 (note 4) to support its general
working capital needs.

The additional facility is secured by a general agreement and a postponement and
subordination of all security in respect of this financing.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

No disclosure required.

PART II OTHER INFORMATION

ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

None.

(b) Reports on Form 8-K.

There were no reports filed on Form 8-K during the quarter ended
September 30, 2001.

ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 25, 2002 the Company held its annual and special meeting of shareholders
at which the following proposals were adopted:(i) the election of the Company's
Board of Directors; (ii) the appointment of Schwartz, Levitsky, Feldman, llp,
Chartered Accountants to serve as the Company's independent accountants for the
ensuing year; (iii) to approve a resolution to amend the stock option plan (the
"Stock Option Plan"); (iv) to approve resolutions passed by the directors of the
Company on April 16 and May 7, 2001.

Proposal 1
Each of the following were elected to serve on the Company's Board of Directors:

William Thomson 4,375,730 Shares in Favor 0 Shares Against
--------- -
Ramesh Zacharias 4,361,380 Shares in Favor 14,350 Shares Against
--------- ------
Patrick Michaud 4,375,730 Shares in Favor 0 Shares Against
--------- -
Dr. Frank Baillie 4,375,730 Shares in Favor 0 Shares Against
--------- ------

Proposal 2

The Company's independent accountants, Schwartz, Levitsky, Feldman, llp, were
elected for the ensuing year by the following vote: 4,375,730 shares For, 0
Shares Against and 0 Shares Abstained.

Proposal 3

On the Resolution amending the stock option plan to increase the number of
shares of common stock that the Company may issue pursuant to the

provisions by the following vote: 519,653 Shares For, 58,684 Shares Against,
3,800 Shares Abstained, 3,793,593 Shares Not Voted.

Proposal 4

On the resolution to approve the grant of options to certain directors,
officers, employees and consultants of the Company, pursuant to resolutions
passed by the directors of the Company on April 6, 2001 and May 7, 2001 by the
following vote: 4,311,506 Shares For, 64,224 Shares Against

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

MED-EMERG INTERNATIONAL INC.

By: /s/ Ramesh Zacharias

Ramesh Zacharias
Chief Executive Officer
Date: August 16, 2002