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 MARCH 31, 2003
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

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 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 May 14, 2003) of the registrant
held by non-affiliates on March 31, 2003 was approximately
US$5,902,293.

As of March 31, 2003, 9,519,828 shares of the registrant's
Common Stock were outstanding.

(All figures in US dollars unless otherwise indicated.)

MED-EMERG INTERNATIONAL INC.

MARCH 31, 2003 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. FINANCIAL STATEMENTS

Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31,
2002 (audited)

Consolidated Statements of Operations and Deficit for the three months ended
March 31, 2003 and 2002 (unaudited)

Consolidated Statement of Cash Flows for the three months ended March 31, 2003
and 2002 (unaudited)

Notes to Unaudited Consolidated Financial Statements

MED-EMERG INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002 (AUDITED)
(IN US$)

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, 2003 AND 2002 (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 MARCH 31, 2003 AND 2002 (UNAUDITED)
(IN US$)

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

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 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 are in Canada and are divided into five business units:
Hospital Staffing, Medical Clinics, Government Healthcare Services,
Pharmaceutical Support and Long-Term Care. The Company intends to broaden its
healthcare management services over a wider geographic base.

For hospital staffing, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals, on
a contractual basis. At March 31, 2003, the Company had 18 contracts for
physician staffing and 4 contracts for nurse staffing.

The Company owns and manages 21 medical clinic facilities. This unit provides
physicians with the ability to practice within a professional managed network
and to concentrate on the clinical aspects of their practices.

The Company provides medical personnel to the entire Canadian Forces. The
Company provides in-garrison healthcare 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 Canadian Forces health authority resident at each
base.

The Company provides special access Remicade(TM) infusion services to
patients suffering from Crohn's Disease and Rheumatoid Arthritis at clinic
locations across Canada.

MEII provides provides physician and nurse practitioners to select long-term
care facilities in Ontario. Such physician services include admission
physical assessments and regular primary care to residents of the facilities.

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting principles. 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.

Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the year ended December 31, 2003.

These 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, 2002.

Significant intercompany accounts and transactions have been eliminated on
consolidation.

The consolidated financial statements are expressed in US dollars and are
prepared in accordance with Canadian generally accepted accounting principles.
Differences between Canadian and United States accounting principles are
described in note 10.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

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 March 31, 2003, the Company had a working capital deficiency of
$2,656,197 and a shareholders' deficit of $ 2,009,067.

On June 28th, 2002 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 5 and 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.

The Company is continuously pursuing opportunities for alternative sources of
financing at more favourable interest rates and is currently reviewing term
sheets from various third party lendors. In addition the Company has plans to
raise equity through the use of convertible debentures. Its ability to continue
as a going concern is dependent on obtaining such financing and ensuring that
there is no further deterioration in its working capital and shareholders'
deficit.

Should the Company be unable to obtain such alternative financing, it may not be
able to continue as a going concern. As a result, certain assets and liabilities
currently reflected in the balance sheet at book value would have to be adjusted
to liquidated values.

b) 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 and 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.

c) Short term investments

Short term investments comprising marketable securities were written down to its
market value.

d) 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
Medical equipment 10% Declining balance
Computer software 100% Declining balance

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

Computer hardware 30% Declining balance
Leasehold improvements 5-10 years Straight-line

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) 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), 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 RemicadeTM 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.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

(3) Healthcare Services (Includes 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.

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
realizations 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 has adopted the recommendation of the Canadian Institute of
Chartered Accountants ("CICA") handbook section 1650 Foreign Currency
Translation. The amended standard eliminates the deferral and amortization
approach to exchange gains and losses on long-term monetary items and requires
the disclosure of the exchange gains and losses included in the calculation of
net income. There is no material effect of this change in accounting policy on
the financial statements of the Company.

The Company maintains its books and records in Canadian dollars. The 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, shareholder's 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
financial statements are being translated at different rates according to their
nature, a translation adjustment is created. This translation adjustment has
been included in cumulative translation adjustment.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

j) Stock compensation

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
either 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, or alternatively, the disclosure of
pro forma net earnings and earnings per share data as if stock based
compensation had been recognized in earnings.

4. CHANGE IN ACCOUNTING POLICY

The Company has retroactively adopted the new recommendations of the Canadian
Institute of Chartered Accountants for calculating and reporting earnings per
share. Under the new recommendations, basic and diluted earnings per share
should be computed using the treasury stock method. The treasury stock method
should reflect the effect of potentially dilutive securities, including stock
options, share purchase price warrants, preferred shares and notes payable, when
dilutive. Prior to the adoption of the new recommendations, diluted earnings per
share were calculated by adjusting basic earnings per share for the effect of
all dilutive securities outstanding and inputing interest income on the cash
proceeds derived from the exercise of such securities. The result of applying
the new recommendations had no effect on diluted loss per share due to the
anti-dilutive impact of the losses generated by the Company during the years
before and after adoption of the new recommendations.

5. DEMAND LOAN

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

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 23.4% per annum
3. convertible into common shares at $1 per share at the option of the
holder
4. balance due repayable at $35,000 on April 30, 2003 and $395,000 due on
May 31, 2003
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 options 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 (see note 7 for more
details).

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

6. REFINANCING ACTIVITIES (cont'd)

On June 28, 2002, MFSL paid HSBC $475,406 on MEII's behalf which was the balance
owing under the forbearance agreement. The completion of the aforementioned
financial transaction had the effect of reducing the Company's total debt by
$228,459 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 $475,406 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 are
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.

7. OTHER LOANS

8. CONVERTIBLE DEBENTURES

The convertible debentures 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 prior to maturity by way of cash or shares of
MEII common stock or a combination of cash and MEII common stock at the
discretion of the Company. Accordingly, these debentures have been reflected in
the financial statements at its estimated present value and included in
shareholder's deficit. The 2002 comparative figures have been restated (see note
14).

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

8. CONVERTIBLE DEBENTURES (cont'd)

The above debentures will be accreted up to their principal values at the rate
of 45% per annum on the net present values shown. During fiscal 2002 the amount
of $84,080 was accreted to principal with corresponding charge to retained
earnings and for the period ending March 31, 2002 $24,589 was accreted to the
balance.

9. CONTRIBUTED SURPLUS

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 has been extended from
February 11, 2003 to February 11, 2005.

Due to the amendment to the above mentioned warrants the fair value amounting to
$733,627 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.

10. 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) Deficit

Under Canadian GAAP, the convertible debentures have been presented in
Shareholders' deficit as the Company has the option to satisfy the debt by way
of cash or shares or a combination of cash and shares. The debentures have been
discounted to reflect the net present value as at the balance sheet date. Under
U.S. GAAP, these obligations should be shown as long-term debt on the balance
sheet.

If U.S. GAAP were employed, deficit for the period would be adjusted as follows:

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)

(b) Shareholders' deficit

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.

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' deficit would be adjusted as
follows:

(c) 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 fiscal year ended December 31, 2002 would
be adjusted as follows:

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)

(d) Recently issued Accounting Standards

The following standards were issued by the Financial Accounting Standards Board
during 2003 and 2002:

SFAS No. 143 - Accounting for asset retirement obligations - this
standard 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 the impairment or disposal of
long-lived assets. This standard supercedes SFAS No. 121
Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of. This standard requires that
businesses recognize impairment when the financial statement
carrying amount of long-lived asset or asset group exceeds its
fair value and is not recoverable.

SFAS No. 145 - Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB No. 13, and Technical Corrections. SFAS 145
updates, clarifies and simplifies existing accounting
pronouncements. SFAS 145 rescinds Statement No. 4, which required
all gains and losses from extinguishments of debt to be
aggregated and, if material, classified as an extraordinary
items, net of related income tax effect. As a result, the
criteria in APB Opinion No. 30 will now be used to classify those
gains and losses because Statement No. 4 has been rescinded.
Statement No. 44 was issued to establish accounting requirements
for the effects of transition to provisions of the Motor Carrier
Act of 1980. Because the transition has been completed, Statement
No. 44 is no longer necessary.

SFAS No. 146 - Accounting for Cost Associated with the Exit of
Disposal Activities. SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or
disposal plan. Previous accounting guidance was provided by
Emerging Issues Task Force ("EITF") Issue No. 94-3. SFAS 146
replaces EITF94-3. The Statement is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002.

SFAS No. 147 - Acquisition of certain financial institutions an
amendment of SFAS 72 and 144 and SFAS interpretation number 9
issued October 2002 and relates to acquisitions of financial
institutions.

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (cont'd)

SFAS No. 148 - Accounting for stock based compensation-transition
and disclosure an amendment of SFAS 123 issued December 2002 and
permits two additional transition methods for entities that adopt
the fair value based method of accounting for stock based
employee compensation to avoid the ramp-up effect arising from
prospective application. This statement also improves the
prominence and clarity of the pro-forma disclosures required by
SFAS 123.

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.

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.

11. ECONOMIC DEPENDENCE

Approximately 72% of revenue and 30% of gross margin is derived from one
customer (67% of revenue and 26% of gross margin in 2002). Receivables for this
customer amounted to 57% of total receivables (51% of total receivables in
2002). The loss of a material amount of revenue to this customer could have a
material adverse effect on operations of the Company.

12. SEGMENTED INFORMATION

The Company operates under five business units: Hospital Staffing, Medical
Clinics, Government Healthcare Services, 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 Government 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.

The segmented information for the business units are as follows:

13. CONTINGENT LIABILITIES

(i) YMFC HealthCare Inc., a wholly owned subsidiary of the Company, is in
receipt of a letter from 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 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. The Company's legal
counsel has advised that CCRA does not intend to pursue YFMC for these
amounts.

(ii) The Company is in receipt of two claims from former employees, claiming
damages for breach of contract and/or severance pay. The Company is
conducting an internal investigation of these complaints and is
prepared to defend itself. In the event that the Company must pay both
claims, the maximum amount payable would be $ 108,000.

(iii) There is uncertainty with respect to the Company's liability for Goods
and Services tax pertaining to certain services which it provides. The
measurement of this uncertainty is

MED-EMERG INTERNATIONAL INC.
Notes to Unaudited Consolidated Financial Statements Three months ended March
31, 2003 and 2002

13. CONTINGENT LIABILITIES (cont'd)

not determinable and accordingly no provision has been made in
respect thereof in these financial statements.

14. COMPARATIVE FIGURES

Certain figures in the 2002 financial statements have been reclassified and
restated to conform with the basis of presentation in 2003. The statement of
operations for the three months ended March 31, 2002 has been restated to
reflect a net present value discount applied to the convertible debentures
payable in connection with the conditional stock exchange option for certain
former HealthyConnect.com Inc. (HCCI) shareholders. The future payments of the
convertible debentures which can be settled at the Company's option in cash or
common stock has been reclassified from liabilities to shareholder's deficit.
The effect of this restatement is as follows:

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, based in Ontario, Canada, 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 are still an important
component of the Company's business, MEII 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. a leading
pharmaceutical company, to provide infusion services to patients.

The Company is positioned to build on its industry leadership by providing
integrated professional management services in the delivery of healthcare to the
healthcare consumer. The Company's operations are divided into five units:
Hospital Staffing, Medical Clinics, Government Healthcare Services,
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 first quarter of 2003, the Hospital Staffing unit
provided approximately 4300 hours of physician coverage and 700 hours of nursing
coverage per month for its' clients, compared to 3500 hours of physician
coverage and 1200 hours of nursing coverage during the first quarter of 2002. At
March 31, 2003, the Company had 18 contracts for physician staffing and 4
contracts for nurse staffing compared to 18 contracts for physician staffing and
9 contracts for nurse staffing at March 31, 2002.

MEDICAL CLINICS

The Company began expanding its healthcare services in the early 1990's, in
response to the changing needs of patient care. The Company opened three
immediate care clinics in London and Mississauga, well before the concept became
popular in Ontario. Today, the Company is one of the largest physician practice
management companies, owning and operating 21 family practice clinics throughout
Canada; located in Ottawa (11), Toronto (2), London (3), Winnipeg (1), Edmonton
(2) and Calgary (2). With a repository of more than 2,000,000 patient charts and
providing care to more than 500,000 patients per year, the Company also provides
administrative support services to physician practices including management,
billing, staffing, etc.

Beginning in 2001, the Company continues with a major restructuring of its
clinic facilities. Several small, unprofitable sites were closed or consolidated
into larger group practices that leveraged the overhead costs into a more
profitable model. The Company then developed business relationships with several
of the large retail pharmacy chains to build or manage group medical practices
adjacent to drug stores. In addition, the Company was engaged by several small
rural communities to assist in the development of their physician recruitment
and retention programs. One of the projects signed in 2001, resulted in the
Company being retained to build and manage a multi-physician practice that is

adjacent to the local pharmacy. The clinic is electronically linked to the
hospital's information technology systems providing seamless access to patient
information.

GOVERNMENT HEALTHCARE SERVICES

In March of 2001, the Company was awarded the administrative management services
contract, the largest of its kind, to provide up to 400 medical personnel to the
33 Canadian Forces Bases across Canada. The contract has two stages, an initial
period of three years with another three year renewal option extending to March
31, 2007. As the service administrator, 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. The contract was subsequently broadened, and as at March 31, 2003, the
Company managed more than 800 employees and independent healthcare professionals
in 39 bases across Canada.

Annual revenue for services provided under this contract is expected to exceed
$34 million for fiscal 2003, of which approximately $32 million will be paid to
the healthcare providers supporting this contract. The Company's staff who
manage this project have previous Canadian military experience and this
experience has been instrumental to match the project requirements to the
specific needs of the Canadian Forces.

The primary benefit to DND from this contract will be the existence 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. By developing a long-term relationship with their employees
and sub-contractors, and being able to react quickly to changing local
conditions, the Company provides some stability in the workforce and enhances
continuity in the delivery of patient care for the DND. The Company has
demonstrated the capability to manage large multi-site, multi-provider
contracts, on a national basis.

In December of 2002, the Company was retained to provide healthcare services for
the Canadian Contract Augmentation Program ("CANCAP") recently awarded by the
Department of National Defence to SNC-Lavalin PAE Inc. Under this five year
contract, MEII will provide all contract healthcare services to the Canadian
soldiers, sailors and air force personnel deployed outside of Canada. On any
given day, thousands of Canadian Forces ("CF") members are preparing for,
engaged in or have returned from overseas missions. Since 1947, the CF has
completed 73 international operations. With the addition of the CANCAP contract,
MEII will now be the provider of healthcare to Canada's military both home and
abroad.

The Company will apply knowledge gained about the unique healthcare requirements
of the Canadian Forces through its in-garrison contract, to the CANCAP contract.
On March 15, 2003, MEII began providing the first phase of care for the men and
women in uniform whether they are deployed overseas or at home in Canada.

PHARMACEUTICAL SUPPORT

On March 15th, 2001, the Company signed a contract to become the coordinator for
the community-based infusion of RemicadeTM. This multi-year contract with
Schering-Plough Canada capitalizes on the Company's national network of health
placement coordinators to provide timely access to clinics for the treatment of
patients with disabling Rheumatoid Arthritis and Crohn's Disease. The Company
has established 14 infusion sites, and is projected to open approximately 3 more
by the end of December 31st, 2003. It is estimated that approximately 40,000
patients in Canada suffer from the debilitating effects of these two diseases.
Under this agreement, the Company coordinates and manages infusion services for
patients referred to it by physicians at its clinic locations. By March 31,
2003, there were approximately 1200 patients registered with the Company for
this program, receiving regular infusions. It is anticipated that the number of
patients participating in this program will reach 1,400 by the end of 2003.

Through its Pharma Support program, MEII provides a turn-key solution that
manages all aspects of the referring specialist process, including
scheduling, benefit coordination, infusions and reporting.

With the knowledge and skills that it has developed providing infusion services,
the Company is now pursuing business development opportunities to provide
additional services to pharmaceutical manufacturers including other infusion
products, coordination of clinical trials and provision of compliance programs.

LONG-TERM CARE

The problem of physician shortages is evident not only in hospitals in Ontario
but also in its long-term care facilities. The Company has received requests
from long-term care facilities for physicians to provide admission physical
assessments and regular primary care to residents. Residents of these facilities
are typically not cared for by their family physicians once they are transferred
to long term care facilities, thus they lack routine primary healthcare. During
April 2002, the Company commenced providing admission physical assessments and
regular primary care to residents at long-term care facilities. As at March 31,
2003 the Company provided physicians and nurse practitioners to 11 long-term
care facilities in Ontario (6 in Ottawa and 5 in the Greater Toronto Area), and
has just obtained a contract with another facility to provide services on April
1, 2003. The Company has developed and now sells a comprehensive eight-part
training program for registered nursing staff that it conducts twice annually
for several of its long-term care facility clients. The Company intends to
expand this business unit in 2003 to provide services to 20 facilities.

RESULTS OF OPERATIONS

NET LOSS

The Company incurred a net loss of $ 923,102, or (0.10) per common share for the
three months ended March 31, 2003 compared to a net loss of $12,240, or (0.00)
per common share for the three months ended March 31, 2002.

REVENUE

The Company's revenue for the three months ended March 31, 2003 increased to
$13,143,820, compared to $ 9,741,534 for the three months ended March 31, 2002,
or 35%. This revenue growth was largely attributable to the Department of
National Defence management service contract whereby MEII staffed an increased
number of health providers in the first quarter of fiscal 2003 versus the prior
year. The Long-term care and Pharmaceutical Support business units have also
been responsible for increased revenues for the period ending March 31, 2003.

Revenue from the Government Healthcare Services Division amounted to $9,528,262
for the three months ended March 31, 2003 compared to $6,524,275 for the three
months ended March 31, 2002. As at March 31, 2003, the Company provided
approximately 800 medical personnel at DND bases across Canada, compared to 623
as at March 31, 2002.

Revenues from the Hospital Staffing unit increased to $1,558,376 for the three
months ended March 31, 2003 compared to $1,245,812 for the three months ended
March 31, 2002 an increase of approximately 25%. The increase in revenues is the
result of the Company obtaining new contracts in the first quarter of 2003.

For the three months ended March 31, 2003, revenues from Medical Clinics unit
increased to $2,057,182 or approximately 4.3% from $1,971,447 for the three
months ended March 31, 2002. The increase resulted from the higher revenues
achieved from the Pharmaceutical support division for the period ending March
31, 2003 compared to the three months ended March 31, 2002.

GROSS MARGIN

Gross Margin (revenue less physician and other direct costs) for the three
months ended March 31, 2003 increased to $1,824,842 or about 17%, compared to
$1,556,573 for the three months ended March 31, 2002. This increase in gross
margin was due to the Department of National Defence management service
contract and the Hospital Staffing, Long-term care, and Pharmaceutical
support business units.

Physician fees and direct costs for the quarter ended March 31, 2003
increased to $ 11,318,978, compared to $ 8,184,961 for the three months ended
March 31, 2002, an increase of approximately 38%. Physician fees and other
direct costs increased as a percent of revenue to approximately 86% of
revenue for the three months ended March 31, 2003 compared to approximately
84% of revenue for the three months ended March 31, 2002. This increase
reflected the growth 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 $ 1,763,204 for the three months ended March 31, 2003
compared to $1,376,936 for the three months ended March 31, 2002, an increase of
approximately 28%. The increase is the result of supporting the growing
Healthcare service contracts, the Pharmaceutical support division, the Long-term
care facility contracts, and new business development.

INCOME TAXES

The Company has loss carry forwards of approximately $5.0 million to be applied
against future corporate income taxes. This benefit has not been reflected in
these statements.

LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2003, the Company had a working capital deficit of $2,656,197 as
compared to $2,276,540 as at December 31, 2002.

On June 28, 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 secured debenture for net proceeds of $600,000 repayable on June 1,
2003. The balance owing as at March 31, 2003 is $430,000 (see note 7 for more
details).

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 $475,406 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 (see note 5 for more
details).

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no financial instruments that are sensitive to changes in interest
rates.

The Company has a financial instrument (see note 7 for details on secured
debenture) that has exposure 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, after supervising and participating in an
evaluation of the effectiveness of the Company's internal and disclosure
controls and procedures during the first quarter ended March 31, 2003 (the
"Evaluation Date"), has 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) 99.1 CERTIFICATION OF CEO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
99.2 CERTIFICATION OF CFO PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Dr. Ramesh Zacharias, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Med-Emerg
International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls.

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003
----------------------
Dr. Ramesh Zacharias
Chief Executive Officer

I, John Jarman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Med-Emerg
International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls.

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003
-----------------------
John Jarman
Chief Financial Officer

b) There were no reports filed on form 8-K during the first quarter of fiscal
2003.

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 15, 2003