MED-EMERG INTERNATIONAL INC - 10-Q Quarterly Report

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 MARCH 31, 2005
		OR
o		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(g) of the Act.

(Title of each class)	(Name of each exchange on which registered)
COMMON STOCK, NO PAR VALUE	OTC Bulletin Board
REDEEMABLE COMMON STOCK
PURCHASE 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 whether registrant is an accelerated filer (as defined in Exchange Act Rule 12(b)-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 was approximately US$ 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 indicated.)

MED-EMERG INTERNATIONAL INC.

MARCH 31, 2005 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Item 4.	Controls and Procedures

PART II: OTHER INFORMATION

Item 5.	Exhibits and Reports on Form 8-K
	(a) Exhibits
	(b) Reports on Form 8-K
	Signatures

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. (“MEII” or the “Company”) disclaims any obligations to update any forward-looking statements to reflect events or circumstances after the date hereof.

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

Consolidated Balance Sheets as at March 31, 2005 (unaudited) and December 31, 2004 (audited)

Consolidated Statement of Operations and Deficit for the three months ended March 31, 2005 and 2004 (unaudited)

Consolidated Statement of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)

Notes to Unaudited Consolidated Financial Statements

Med-Emerg International Inc.
Consolidated Balance Sheet
As at March 31, 2005 (Unaudited) and December 31, 2004 (Audited)
(in US$)

	March 31			December 31
		2005			2004
Assets

Current assets
Cash	$	1,470,116		$	2,312,156
Accounts receivable		1,808,251			1,452,586
Prepaid expenses and other		137,008			72,557
Discontinued operations (note 4 )		2,818,528			2,655,098
		6,233,903			6,492,397

Long-term investment		83,195			83,195

Property, plant and equipment		446,751			470,243
Goodwill		237,596			237,596
Discontinued operations (note 4 )		33,853			38,596
	$	7,035,298		$	7,322,027

Liabilities and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities	$	1,726,673		$	1,661,794
Discontinued operations (note 4 )		3,386,025			3,606,476
		5,112,698			5,268,270

Long-term liabilities
Notes payable		599,991			599,991
Discontinued operations (note 4 )		815,074			894,517
		6,527,763			6,762,778


Contingent liabilities (note 11)

Shareholders' Equity
Capital stock (note 5)		1,361,280			1,361,280
Contributed surplus (note 6)		318,197			67,080
Deficit		(365,223	)		(68,320	)
(Accumulated deficit of $17,152,785 has been eliminated
by applying it against contributed surplus and capital stock)
Cumulative translation adjustment		(806,719	)		(800,791	)
		507,535			559,249
	$	7,035,298		$	7,322,027


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

Med-Emerg International Inc.
Consolidated Statement of Operations and Deficit
Three months ended March 31, 2005 and 2004 (Unaudited)
(in US$)
	March 31			March 31
		2005			2004

Revenue	$	3,079,432		$	2,445,213
Physician fees and other direct costs		2,271,559			1,901,824
		807,873			543,389
Expenses
Salaries and benefits	$	665,107		$	416,427
General and administration		227,968			191,556
Occupancy costs and supplies		120,297			91,166
Travel and marketing		73,884			67,196
		1,087,256			766,345

Income (loss) before under noted items		(279,383	)		(222,956	)

Interest income		(5,390	)		-
Interest and financing expenses		-			45,571
Amortization of property, plant, and equipment		42,657			8,171
Stock compensation expense		251,117			40,370
		288,384			94,112
Net loss before discontinued operations		(567,767	)		(317,068	)

Discontinued operations
Income from discontinued operations (note 4 )		270,864			203,252
Net loss		(296,903	)		(113,816	)
Preferred share dividends		-			(33,750	)
Net loss attributable to common shareholders		(296,903	)		(147,566	)

Deficit, beginning of the period		(68,320	)		(16,425,309	)

Deficit, end of the period	$	(365,223	)	$	(16,572,875	)

Basic loss per common share
Continuing operations	$	(0.01	)	$	(0.04	)
Discontinued operations	$	0.00		$	0.02

Weighted average common shares outstanding		58,277,696			9,569,424

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

Med-Emerg International Inc.
Consolidated Statement of Cash Flows
Three months ended March 31, 2005 and 2004 (Unaudited)
(in US$)
	March 31			March 31
		2005			2004

Cash Flows from Operating Activities
Net loss before discontinued operations	$	(567,767	)	$	(317,068	)
Adjustments for:
Amortization of property, plant and equipment		42,657			8,171
Stock compensation expense		251,117			40,370
		(273,993	)		(268,527	)

Decrease in non-cash working capital components		(355,237	)		(60,410	)
Discontinued operations (note 4)		(188,024	)		(396,501	)
		(817,254	)		(725,438	)
Cash Flows from Investing Activities
Additions to property, plant, and equipment		(19,165	)		(6,963	)
Discontinued operations (note 4)		307			(11,770	)
		(18,858	)		(18,733	)
Cash Flows from Financing Activities
Demand loan		-			773,429
		-			773,429


Effect of foreign currency exchange rate changes		(5,928	)		31,913

Increase (decrease) in cash		(842,040	)		61,171
Cash, beginning of the period		2,312,156			380,310
Cash, end of the period	$	1,470,116		$	441,481
The accompanying notes are an integral part of these consolidated financial statements.

MED-EMERG INTERNATIONAL INC

Notes to Unaudited Consolidated Financial Statements

Three months ended March 31, 2005 and 2004

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 four units during the 2004 fiscal year. The contract with the Department of National Defence (“DND”) expired on March 31, 2005. MEII’s three remaining business units are: Staffing Solutions, Medical Services and Healthcare Consulting.

For Staffing Solutions, the Company provides emergency department physician and nurse recruitment, staffing and administrative support services to hospitals and federal corrections facilities, on a contractual basis, and physician and nurse practitioners to select long-term facilities in Ontario, British Columbia and Nova Scotia. At March 31, 2005, the Company had 34 physician and nurse staffing contracts.

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. In November 2004, the Company acquired a pain management clinic and commenced offering services to 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 unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). These financial statements consolidate the accounts of MEII and its wholly owned subsidiaries 927563 Ontario Inc., 927564 Ontario Inc., Med-Emerg Inc., Med-Emerg Health Centres Inc., YFMC Healthcare Inc., YFMC Healthcare (Alberta) Inc., Doctors on Call Ltd, and CPM Health Centres Inc.

Significant intercompany accounts and transactions have been eliminated on consolidation.

The consolidated financial statements are expressed in U.S. dollars. Differences between Canadian and United States accounting principles are described in note 9.

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.

Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2005.

These unaudited consolidated financial statements are condensed, and do not include all disclosures required for annual financial statements, which are contained in the notes to the Company’s audited consolidated financial statements filed as part of the Company’s December 31, 2004 Form 10K. These unaudited consolidated financial statements, footnote disclosures and other 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, 2004.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Use of estimates

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

b) Long-term investments

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

(c) Property, plant, and equipment

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

Furniture and fixtures	20%	Declining balance
Computer software	100%	Declining balance
Computer hardware	30%	Declining balance
Leasehold	improvements3-5 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 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) Staffing Solutions:

Revenue is reported on a gross basis.

MEII acts as a principal in providing these services. MEII 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 centres.

(2) 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, Chron’s disease and certain cancers.

The Company acts as the principal in providing pain management treatments to patients in its Toronto-based clinics.

(3) 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.

(4) Government Healthcare Services (Includes Department of National Defence (“DND”))- Discontinued Operations:

Revenue is reported on a gross basis.

MEII had 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 had 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 billed DND for the work performed by these individuals and in turn paid the medical personnel and support staff based on the terms of the respective contracts signed with them. This contract expired on March 31, 2005.

(g) Future income taxes

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

(h) Cash

Cash consists of cash on hand and in banks.

(i) Foreign currency translation

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

(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

The contract with DND, to provide personnel to Canadian armed forces across Canada, expired on March 31, 2005. This was a significant contract generating separate identifiable cash flows, and hence it has been classified as a discontinued operation, and accounted for accordingly.

The summarized statements of income for the Discontinued Business for the three months ended March 31, 2005 and 2004 are as follows:
	2005		2004


Revenue	$	10,972,289	$	10,108,387
Physician fees and other direct costs		10,299,918		9,468,043
Gross margin		672,371		640,344

Operating, general and administrative
expenses		336,196		341,630

Depreciation		4,435		11,678
Interest and financing		60,876		83,784
Income from discontinued operations	$	270,864	$	203,252

The summarized balance sheets for the Discontinued Business as at March 31, 2005 and December 31, 2004 are as follows:
	Mar-05			Dec-04


Current assets
Cash	($	10,893	)	$	800
Accounts receivable		2,829,101			2,652,044
Prepaid expenses and other		320			2,254
		2,818,528			2,655,098

Property, plant and equipment		33,853			38,596
	$	2,852,381		$	2,693,694

Current liabilities
Accounts payable and accrued liabilities	$	3,386,025		$	3,606,476
		3,386,025			3,606,476

Long-term liabilites
Accounts payable and accrued liabilities		815,074			894,517
	$	4,201,099		$	4,500,993

Net assets	($	1,348,718	)	($	1,807,299	)

5. CAPITAL STOCK

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, 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 of 2004.

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.

6. CONTRIBUTED SURPLUS

During the first quarter of 2005, the terms of the common stock purchase warrants were amended, extending the expiry of these warrants from February 11, 2005 to February 11, 2006. As a result of this, stock compensation expense of $225,442 was recorded. In addition, an amount of $25,675 has been recorded as stock compensation expense for options granted to an employee in 2004 for the portion that vested in the first quarter of 2005. These amounts have been credited to contributed surplus.

During the first quarter of 2004, 100,000 options were granted with an exercise price of $0.50 per option. The options vested immediately and are available for a term of five years expiring on January 30, 2009. Due to the issuance of new options the fair value amounting to $40,876 has been determined using an option pricing model (Black Scholes) as per section 3870 of the CICA handbook. 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 vest every year. Options for 125,000 shares were 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. 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.

7. ELIMINATION OF DEFICIT

On August 18, 2004, at the Company’s Annual and Special meeting of shareholders, shareholders adopted a resolution to reduce the stated capital account of the common shares, by the amount of the deficit as at the end of the fiscal quarter following the shareholders’ meeting. Accordingly, the Company’s accumulated deficit of $16,892,002 as at September 30, 2004 has been eliminated by applying $2,469,329 against contributed surplus and the balance of $14,422,673 against the capital stock of the Company.


	Capital Stock			Contributed Surplus

Balance at December 31, 2003	$	11,544,736		$	2,397,849
Stock compensation expense for 2004		0			98,622
Fair value of options in connection with acquisition of a clinic					39,938
		11,544,736			2,536,409
Shares issued to new investors		4,500,000			0
		16,044,736			2,536,409
Elimination of Sept 30, 2004 deficit		(14,422,673	)		(2,469,329	)
Elimination of Dec 31, 2004 deficit*		(260,783	)		0
Balance at December 31, 2004		1,361,280			67,080
Stock compensation expense for 2005		0			251,117
Balance at March 31, 2005	$	1,361,280		$	318,197

* In December 2004 the Company changed its accounting policy regarding its promissory notes, as required by section 3860 of the CICA Handbook. Had this change been made in September 2004, the amount of the deficit eliminated would have been higher. To capture the essence of this change in accounting policy, we have modified the calculation of deficit elimination accordingly.

8. RELATED PARTY TRANSACTIONS

Consulting fees of approximately $ 14,262 (Cdn 17,500) were paid to each of two directors, who have been retained as consultants.

9. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which conform in all material respects with those

in the United States (“U.S. GAAP”) during the periods presented, except with respect to the following:

(a) Shareholders’ equity (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 under Canadian GAAP was $1.25. The share price used for the YFMC Healthcare Inc. acquisition under U.S. GAAP was $1.859.

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 financial statements. 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, 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:

	March 2005			December 2004

Capital stock (as previously shown)	$	1,361,280		$	1,361,280
Capital stock issued on purchase of YFMC Healthcare Inc.		1,087,872			1,087,872
Ascribed fair value of share purchase warrants issued		(36,406	)		(36,406	)
Capital stock - U.S. GAAP		2,412,746			2,412,746
Contributed surplus (as previously shown)		318,197			67,080
Share purchase warrants		36,406			36,406
Paid-in-capital - U.S. GAAP		354,603			103,486
Deficit (as previously shown)		(365,223	)		(68,320	)
Cumulative translation adjustment		(806,719	)		(800,791	)
Shareholders’ equity - U.S. GAAP	$	1,595,407		$	1,647,121

(b) Comprehensive loss

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (SFAS 130), establishes standards for reporting and display of comprehensive loss and its components in the financial statements. Under U.S. GAAP, the comprehensive loss for the three months ended March 31, 2005 and 2004 would be adjusted as follows:

	March			March
	2005			2004

Net loss - U.S. GAAP		($296,903	)		($147,566	)
Foreign currency translation adjustment		(5,928	)		30,389

Comprehensive loss		($302,831	)		($117,177	)

10. 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 consolidated financial statements.

(ii)

There is uncertainty with respect to the Company’s liability for Goods and Services tax pertaining to certain services that it provides, and with respect to the Company’s liability for Workers Safety and Insurance Board premiums pertaining to its contract with PWGSC. The measurement of this uncertainty is not determinable and accordingly no provision has been made in respect thereof in these consolidated financial statements.

(iii)

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 consolidated financial statements.

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

11. COMPARATIVE FIGURES

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

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

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 several 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 three units: Staffing Solutions, Medical 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 34 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 Remicade™, 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.

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.

GOVERNMENT HEALTHCARE SERVICES - DISCONTINUED OPERATIONS

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 ended 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.

RESULTS OF OPERATIONS

NET LOSS

The Company reported a net loss of $296,903 for the three months ended March 31, 2005 compared to a net loss of $147,566 for the three months ended March 31, 2004. The loss amounted to $0.01 per share for continuing operations for the three months ended March 31, 2005 compared with a loss of $0.04 per share for continuing operations for the three months ended March 31, 2004. The main reasons for the increase in loss is the higher amount of non-cash Stock compensation expense recorded due to the extension of warrants, and the lower amounts of Interest and financing expenses. Furthermore, the Company continues to implement its strategic plan of realigning the business units and pursuing profitable opportunities that are consistent with its current operating strategy.

REVENUE

The Company’s revenue for the three months ended March 31, 2005 increased to $3,079,432, compared to $ 2,445,213 for the three months ended March 31, 2004 or by 26%.

This revenue increase was mainly attributable to the Medical Services Division where increases were experienced in both the Infusion Services and the Pain Management segments of the business.

Revenue from the Institutional Staffing Division decreased slightly to $1,987,634 for the three months ended March 31, 2005 compared to $2,025,745 for the three months ended March 31, 2004 a decrease of approximately 2%.

Revenue from the Infusion Services Division increased significantly to $438,725 for the three months ended March 31, 2005 compared to $266,621 for the three months ended March 31, 2004 an increase of approximately 65%. This increase results from a similar increase in the number of Remicade infusions.

Revenue from the Healthcare Consulting division increased to $307,718 for the three months ended March 31, 2005 compared to $152,384 for the corresponding period in the prior year, an increase of approximately 102%.

Revenue from the Pain Management segment was $231,279 for the three months ended March 31, 2005 as compared to $NIL for the corresponding period last year. The Pain Management division commenced operations in November 2004.

GROSS MARGIN

Gross Margin (revenue less direct costs) for the three months ended March 31, 2005 increased to $807,873 compared to $543,389 for the three months ended March 31, 2004, an increase of approximately 49%. This increase in gross margin was due to the Medical Services Division and the Healthcare Consulting division, both of which enjoyed increased gross margins associated with growth in the respective divisions.

OPERATING EXPENSES

Operating expenses from continuing operations totaled $1,087,256 for the three months ended March 31, 2005 compared to $766,345 for the three months ended March 31, 2004, an increase of approximately 42%. There was an increase in salaries and benefits and general and administration expenses as compared to the prior period.

AMORTIZATION AND INTEREST

Interest and financing costs were eliminated in the period, decreasing from $45,571 for the three months ended March 31, 2004 to a positive balance of $5,390 for the three months ended March 31, 2005. This is due to the fact that, with the recent equity financing, the Company has reduced its reliance on banks and other financial institutions.

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.

ITEM 3: 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 4: CONTROLS AND PROCEDURES

Included on the signature page of this report is the Certification that is required under Section 302 of the Sarbanes-Oxley Act of 2002. This section of the report contains information concerning the controls evaluation referred to in the Section 302 Certifications and the information contained herein should be read in conjunction with the Certification.

Internal controls are designed with the objective of ensuring that assets are safeguarded, transactions are authorized, and financial reports are prepared on a timely basis in accordance with generally accepted accounting principles in the United States. The disclosure procedures are designed to comply with the regulations established by the Securities and Exchange Commission.

Internal controls, no matter how designed, have limitations. It is the Company's intent that the internal controls be conceived to provide adequate, but not absolute, assurance that the objectives of the controls are met on a consistent basis. Management plans to continue its review of internal controls and disclosure procedures on an ongoing basis.

The Company's chief executive officer and chief financial officer, after supervising and participating in an evaluation of the effectiveness of the Company's internal and disclosure controls and procedures during the three months ended March 31, 2005 (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's internal and disclosure controls and procedures were effective.

There were no significant changes in the Company's internal and disclosure controls or in other factors that could significantly affect such internal and disclosure controls subsequent to the date of their evaluation.

PART II: OTHER INFORMATION

ITEM 5. EXHIBITS AND REPORTS OF FORM 8-K

(a) Exhibits

Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications.

Exhibit 32.1 Certification by the Chief Executive Officer Relating to a Periodic Report Containing Financial Statements.*

Exhibit 32.2 Certification by the Chief Financial Officer Relating to a Periodic Report Containing Financial Statements.*

(b) Reports on Form 8-K

Attached

* The Exhibit attached to this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

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: May 13, 2005