CML HealthCare Income Fund Reports Fiscal 2007 Third Quarter Financial Results



    Toronto Stock Exchange Symbol: CLC.UN

    MISSISSAUGA, ON, Nov. 2 /CNW/ - CML HealthCare Income Fund (the "Fund"),
(TSX: CLC.UN) today reported its financial results for the three and
nine-month periods ended September 30, 2007.

    
    Q3 07 Highlights

    -   Revenue increased 10.9% to $78.1 million from $70.4 million in
        Q3 2006
    -   Net earnings increased 15.8% to $25.6 million compared to
        $22.1 million in Q3 2006
    -   EBITDA(xx) increased 7.0% to $31.4 million compared to $29.4 million
        in Q3 2006
    -   Cash provided by operating activities totaled $30.8 compared to
        $25.8 million in Q3 2006
    -   The Fund generated distributable cash(*) of $26.6 million and
        declared distributions totaling $22.4 million, representing a payout
        ratio of 84.1%
    -   Completed acquisitions of ProMed Echo-Ultrasound ("ProMed"), North
        York Diagnostic Imaging ("North York") and Quality Medical Imaging
        ("QMI"), comprising 8 medical imaging clinics
    -   Commenced rollout of Picture Archiving Communications System ("PACS")
        in Edmonton, Alberta and a new Radiology Information System ("RIS")
        in Ontario, within the Fund's medical imaging operations
    

    "We are pleased to report continued growth in revenue earnings and cash
flow from operations for the quarter," said Paul Bristow, President and CEO of
CML HealthCare Income Fund. "Our improved third quarter results were driven by
organic growth in our capped and non-capped laboratory services and medical
imaging revenues, with additional growth being driven by accretive
acquisitions of medical imaging clinics completed over the past 12 months. We
have moved rapidly to integrate these acquisitions and continue to build our
acquisition pipeline. We remain committed to the continued advancement of
other value creation initiatives, including our national branding and clinic
refurbishment programs, and our focused diversification strategy."
    "We are also announcing today the commencement of a PACS rollout in our
Edmonton-based medical imaging operations, which will supplement our already
fully-digitized operations in Calgary," continued Mr. Bristow. We have also
commenced the rollout of a new RIS in our medical imaging operations in
Ontario. The capital required to finance these programs will be funded out of
existing cash on hand and, as such, will not impact distributable cash flow.
In combination, these initiatives will prepare CML HealthCare for the future
of digital imaging, electronic health records and teleradiology, and deliver
enhanced care for patients and physicians."

    Financial Results

    For the three months ended September 30, 2007, cash provided by operating
activities totaled $30.8 million, the Fund generated distributable cash(*) of
$26.6 million, and declared distributions totaling $22.4 million, representing
a payout ratio of 84.1%. For the nine months ended September 30, 2007, cash
provided by operating activities totaled $78.0 million, the Fund generated
distributable cash(*) of $75.4 million, and declared distributions (including
payments to non-controlling interest and Part VI.1 tax paid) totaling
$66.1 million, representing a payout ratio of 87.6%.
    Revenue for the Fund in the third quarter of 2007 increased 10.9% to
$78.1 million compared to revenue of $70.4 million in the third quarter of
2006. The Fund's increased revenue in the quarter resulted primarily from:
$4.3 million in new revenue from acquired medical imaging clinics in Ontario
and Alberta; a $0.9 million increase in cap revenue; $0.3 million in
additional retroactive fee increases by the Ontario Ministry of Health and
Long-Term Care ("MOH") for certain imaging services performed; $1.6 million in
additional funding as set-out in the MOH Funding Agreement for laboratory
services; and, organic growth of non-capped revenue.

    
    -------------------------------------------------------------------------
    Standardized Distributable Cash(1) and
     Distributable Cash(*) Table                        July 1,    January 1,
                                                       2007 to       2007 to
    ($000s)                                       September 30, September 30,
    (unaudited)                                           2007          2007
    -------------------------------------------------------------------------
    Cash flow from operating activities                 30,806        78,035

    Less:
      Total capital expenditures (as per
       consolidated statements of cash flows)           (2,430)       (3,558)
      Restrictions on distributions arising from
       the existence of non-controlling interest
       in a subsidiary                                       -           (53)
                                                  ---------------------------
    Standardized Distributable Cash(1)                  28,376        74,424
    Normalizing adjustments to non-cash working
     capital items(2)                                   (1,506)        4,772
    Capital expenditures
      Add back: One time capital expenditures               32           284
      Changes in capital expenditure notional
       reserve                                             854        (1,070)
      Capital lease payments                              (297)         (880)
    Other
      Part VI.1 tax adjustment(3)                            -            27
      Add back: payments to non-controlling
       interest                                              -            53
                                                  ---------------------------
    Cash available for distributions                    27,459        77,610
                                                  ---------------------------
    Non-recurring revenue(4)                              (876)       (2,180)
                                                  ---------------------------
    Distributable cash(*)                               26,583        75,430
                                                  ---------------------------
                                                  ---------------------------
    Distributions to unitholders                        22,368        66,034
    Payments to non-controlling interest                     -            53
    Part VI.1 tax paid                                       -            27
                                                  ---------------------------
    Total distributions/payments to non-controlling
     interest and part VI.1 tax paid                    22,368        66,114
                                                  ---------------------------
                                                  ---------------------------
    Total payouts as a percentage of Distributable
     Cash(*)                                             84.1%         87.6%
    Total distributions/payments to non-controlling
     interest and part VI.1 tax paid as a percentage
     of Standardized Distributable Cash                  78.8%         88.8%
    -------------------------------------------------------------------------

    ------------------
    (1) On July 18, 2007, the Canadian Institute of Chartered Accountants
        issued its interpretive release "Standardized Distributable Cash in
        Income Trusts and Other Flow Through Entities: Guidance on
        Preparation and Disclosures". The Fund has reviewed the interpretive
        release and has adopted the guidance as applicable to the Fund. The
        above table represents a summarized presentation. Please refer to our
        Q3 2007 Management's Discussion and Analysis ("MD&A") for complete
        disclosure relating to Standardized Distributable Cash.
    (2) Comprised of adjustments related to known and measurable timing
        differences in respect of: MOH cap revenue receivables; interest
        payments on long-term debt; and, corporate bonus and LTIP payments.
    (3) Adjustment to normalize the income tax expense which would not be
        payable if the exchangeable shares were converted to units.
    (4) The adjustment for the third quarter of fiscal 2007 consisted of
        additional funding as set out in the MOH agreement for the MOH years
        ending March 31, 2007 and 2008. The adjustment for the nine-month
        period ended September 30, 2007 represents the additional funding as
        set out in the MOH agreement for the MOH year ended March 31, 2007
        and from Alberta Health relating to services performed in fiscal
        2006.
    

    Operating, general and administrative ("OG&A") expenses for the third
quarter of 2007 were $46.6 million, or 59.7% of revenue, compared to OG&A
expenses of $41.0 million, or 58.3% of revenue, in the third quarter a year
ago. The increase in OG&A expenses resulted from higher operating expenses
(including salaries and professional fees) to support the growth in tests and
procedures performed.
    Earnings before Interest, Taxes, Depreciation, Amortization,
Non-Controlling Interest, Other Expenses, and Provisions (EBITDA)(xx) in the
third quarter of 2007 totaled $31.4 million, or 40.3% of revenue, compared to
EBITDA(xx) of $29.4 million, or 41.7% of revenue, in the third quarter of
2006.
    The Fund's net earnings for the third quarter of 2007 totaled
$25.6 million or $0.29 per Fund unit (basic and diluted), compared to net
earnings of $22.1 million or $0.28 per Fund unit (basic and diluted) in the
third quarter of 2006.
    For the nine months ended September 30, 2007, revenue for the Fund
totaled $230.4 million, EBITDA(xx) totaled $92.7 million or 40.2% of revenue,
and net earnings totaled $75.8 million or $0.88 per Fund unit (basic and
diluted) compared to revenue of $216.8 million, EBITDA(xx) of $90.6 million or
41.8% of revenue, and net earnings of $70.6 million or $0.89 per Fund unit
(basic and diluted), in the first nine months of 2006. OG&A expenses for the
nine months ended September 30, 2007 totaled $137.7 million or 59.8% of
revenue, compared to OG&A expenses of $126.3 million or 58.2% of revenue, in
the first nine months of 2006.
    As at September 30, 2007, the Fund had working capital of $59.5 million,
including cash and cash equivalents of $54.8 million, compared to working
capital of $72.9 million, including cash and cash equivalents of $70.7 million
as at December 31, 2006. Lower working capital and cash and cash equivalents
as at September 30, 2007, is primarily the result of cash outlays for the
completion of medical imaging clinic acquisitions. CML HealthCare has closed
or made deposits on acquisitions, from January 1, 2007 to September 30, 2007,
for total cash consideration of approximately $18.4 million. CML HealthCare is
currently in the process of securing a revolving credit facility from a senior
lender to be used primarily to finance acquisitions. Long-term debt of the
Fund, including the current portion, was $191.9 million as at September 30,
2007, compared to $192.3 million as at December 31, 2006.
    As at September 30, 2007, there were 86,642,404 Fund units issued and
outstanding.

    Notice of Conference Call

    Management of CML HealthCare Income Fund will host a conference call
today, November 2 at 10:00 am (EDT) to discuss the Fund's 2007 third quarter
financial results. A live audio webcast of the call will be available at
www.cmlhealthcare.com. Webcast attendees are welcome to listen to the
conference in real-time or on-demand at your convenience. A taped replay of
the conference call will be available until November 9 at midnight at
1-877-289-8525 or 416-640-1917, reference number 21251345 followed by the
number sign.

    ((*))Distributable cash of the Fund is not a Canadian generally accepted
    accounting principle ("GAAP") measure, and though it is generally used by
    Canadian open-ended trusts as an indicator of financial performance, it
    should not be seen as a measure of liquidity or a substitute for
    comparable metrics prepared in accordance with GAAP. One characteristic
    of certain non-GAAP measures such as Distributable Cash is the inclusion
    of management's adjustments for entity-specific issues not contemplated
    in a standard measurement, such as Standardized Distributable Cash that
    focuses on comparability across entities and consistency over time.
    Therefore, the Fund's Distributable Cash may differ from similar
    calculations as reported by other similar entities and, accordingly, may
    not be comparable to Distributable Cash as reported by such entities. The
    Fund's objective for disclosing the Distributable Cash calculation is to
    outline the net cash flow generated by the Fund that was available for
    distribution during the period and anticipated to be sustained into the
    next period. The Fund uses Distributable Cash to evaluate, on a
    consistent basis, sustainable cash generated from its operations, and to
    evaluate cash available for distributions.

    ((xx))EBITDA is not a recognized measure under Canadian GAAP. Management
    believes that, in addition to net earnings, EBITDA is a useful
    supplemental measure, as it provides investors with an indication of the
    Fund's performance. EBITDA is used by the Fund to analyze and compare
    profitability between periods. Investors should be cautioned, however,
    that EBITDA should not be construed as an alternative to net income in
    accordance with GAAP. The Fund's method of calculating EBITDA may differ
    from other companies' or income trusts' and, accordingly, EBITDA may not
    be comparable to measures used by other companies or income trusts.

    Caution concerning forward-looking statements
    ---------------------------------------------
    Statements made in this news release, other than those concerning
historical financial information, may be forward-looking and therefore subject
to various risks and uncertainties. Some forward-looking statements may be
identified by words like "may", "will", "anticipate", "estimate", "expect",
"intend", or "continue" or the negative thereof or similar variations. Readers
are cautioned not to place undue reliance on such statements, as actual
results may differ materially from those expressed or implied in such
statements. Factors that could cause results to vary include, but are not
limited to: dependence on government-based revenues; pending and proposed
legislative or regulatory developments including the impact of changes in
laws, regulations and the enforcement thereof; intensifying competition from
established competitors and new entrants in the businesses in which we
operate; technological change; interest rate fluctuations and general economic
conditions; insurance coverage of sufficient scope to satisfy any liability
claims; fluctuations in operating results; dependence on our operating
subsidiary to pay its interest obligations; fluctuations in cash distributions
and capital investment; management of credit, market, liquidity and funding
and operational risks; judicial judgments and legal proceedings; our ability
to complete strategic acquisitions and to integrate our acquisitions
successfully; changes in accounting policies and methods we use to report our
financial condition, including uncertainties associated with critical
accounting assumptions and estimates; operational and infrastructure risks
including possible equipment failure and performance of information technology
systems; fluctuations in total patient referrals; loss of services of key
senior management personnel; other factors that may affect future growth and
results including, timely development and introduction of new products and
services; changes in our estimates relating to reserves and allowances; future
sales of units; changes in tax laws; technological changes and obsolescence,
natural disasters, the possible impact on our businesses from public health
emergencies, international conflicts and other developments including those
relating to terrorism; and our success in anticipating and managing the
foregoing risks.
    We caution that the foregoing list of factors is not exhaustive and that
when reviewing our forward-looking statements, investors and others should
refer to the "Risk Factors" section of the Fund's Annual Information Form, the
"Risks and Uncertainties" and other sections of our Management's Discussion
and Analysis of Operating Results and Financial Position and our other
periodic filings with Canadian securities regulatory authorities. All
forward-looking statements presented herein should be considered in
conjunction with such filings. The Fund does not undertake to update any
forward-looking statements; such statements speak only as of the date made.

    About CML HealthCare Income Fund

    CML HealthCare Income Fund is an unincorporated open-ended trust that
owns CML HealthCare Inc., one of Canada's largest healthcare services
businesses. CML is a leading provider of laboratory testing services in
Ontario and the largest private provider of medical imaging services in
Canada. CML HealthCare Income Fund is publicly traded on the Toronto Stock
Exchange under the symbol "CLC.UN" and has approximately 86.6 million units
outstanding. To reach CML HealthCare Income Fund via the worldwide web log on
to www.cmlhealthcare.com.


    
    CML HealthCare Income Fund
    Unaudited Consolidated Balance Sheets
    -------------------------------------------------------------------------
    (in thousands of dollars)
                                                  September 30,  December 31,
                                                          2007          2006
                                                             $             $
    -------------------------------------------------------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                           54,806        70,715
    Accounts receivable                                 33,892        29,772
    Income taxes receivable                                160         3,088
    Other current assets                                 2,290         2,097
    Future income taxes                                  1,939         1,383
    Due from related parties (note 8)                       29           123
                                                  ---------------------------
                                                        93,116       107,178
                                                  ---------------------------

    Property and equipment                              29,254        23,318
    Licences (note 3)                                  501,894       491,980
    Intangible assets (note 13)                          4,734             -
    Goodwill                                           203,983       195,437
    Investments and other assets                           836         1,551
    Restricted cash                                        912           912
                                                  ---------------------------
    Total Assets                                       834,729       820,376
                                                  ---------------------------
                                                  ---------------------------

    LIABILITIES
    Current liabilities
    Accounts payable and accrued liabilities            24,758        26,022
    Distributions payable (note 6)                       7,456         7,125
    Current portion of long-term debt                    1,392         1,180
                                                  ---------------------------
                                                        33,606        34,327
                                                  ---------------------------

    Long-term debt                                     190,473       191,138
    Future income taxes                                 72,502        69,848
                                                  ---------------------------
    Total Liabilities                                  296,581       295,313
                                                  ---------------------------

    Non-controlling interest (note 3)                        -         7,902

    UNITHOLDERS' EQUITY
    Trust units (note 4)                               512,463       500,636
    Retained earnings                                   25,685        16,525
                                                  ---------------------------
                                                       538,148       517,161
                                                  ---------------------------
    Total Liabilities and Unitholders' equity          834,729       820,376
                                                  ---------------------------
                                                  ---------------------------

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



    CML HealthCare Income Fund
    Unaudited Consolidated Statements of Earnings and Comprehensive Income
    -------------------------------------------------------------------------
    (in thousands of dollars,
     except for per unit amounts)

                           For the       For the       For the       For the
                       nine months   nine months  three months  three months
                             ended         ended         ended         ended
                         September     September     September     September
                                30,           30,           30,           30,
                              2007          2006          2007          2006
                                 $             $             $             $
    -------------------------------------------------------------------------

    Revenue                230,446       216,845        78,087        70,400
                        -----------------------------------------------------

    Expenses
    Operating, general
     and administrative    137,700       126,295        46,644        41,013
    Amortization of
     property and
     equipment               3,215         2,319         1,159           808
    Amortization of
     intangible assets
     (note 13)                 181             -           103             -
    Other expenses
     (note 11)                   -         2,113             -            21
                        -----------------------------------------------------
                           141,096       130,727        47,906        41,842
                        -----------------------------------------------------

    Income before the
     undernoted             89,350        86,118        30,181        28,558
    Recovery of
     impairment
     of investments and
     other assets
     (note 12)                   -          (553)            -          (553)
    Interest expense
      Long-term debt         8,265         8,473         2,751         2,820
                        -----------------------------------------------------
    Earnings before
     income taxes           81,085        78,198        27,430        26,291
                        -----------------------------------------------------

    Provision for
     (recovery of)
     income taxes
     (note 7)
    Current taxes            3,941         5,609         1,622         1,297
    Future taxes             1,146        (4,190)          256         1,002
                        -----------------------------------------------------
                             5,087         1,419         1,878         2,299

    Earnings before the
     following              75,998        76,779        25,552        23,992

    Non-controlling
     interest (note 3)         169         6,151             -         1,922
                        -----------------------------------------------------
    Net earnings and
     comprehensive
     income for the
     period                  75,829       70,628        25,552        22,070
                        -----------------------------------------------------

    Basic and diluted
     earnings per unit
     (note 5)                  0.88         0.89          0.29          0.28
                        -----------------------------------------------------

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



    CML HealthCare Income Fund
    Unaudited Consolidated Statement of Unitholders' Equity
    -------------------------------------------------------------------------


    (in thousands)
                                  Trust Units               Treasury Units
                        -----------------------------------------------------
                            Number          $           Number          $
                        -----------------------------------------------------
    January 1, 2007         85,681       501,670            70         1,034
    Trust units acquired
     (note 4)                  129         1,902          (129)       (1,902)
    Exchangeable shares
     exchanged for
     trust units
     (note 3)                  961        13,729             -             -
    Distributions
     declared during
     the period to
     unitholders
     (note 6)
    Change in accounting
     policy - net of
     taxes of $329
     (note 2)
    Net earnings for the
     period
                        -----------------------------------------------------
    September 30, 2007      86,642       515,399           199         2,936
                        -----------------------------------------------------
                        -----------------------------------------------------

                                                                       Total
                                                      Retained   Unitholders'
                                   Net Units          Earnings        Equity
                        -----------------------------------------------------
                            Number          $             $             $
                        -----------------------------------------------------
    January 1, 2007         85,611       500,636        16,525       517,161
    Trust units acquired
     (note 4)                 (129)       (1,902)                     (1,902)
    Exchangeable shares
     exchanged for
     trust units
     (note 3)                  961        13,729                      13,729
    Distributions
     declared during
     the period to
     unitholders
     (note 6)                                          (66,034)      (66,034)
    Change in accounting
     policy - net of
     taxes of $329
     (note 2)                                             (635)         (635)
    Net earnings for the
     period                                             75,829        75,829
                        -----------------------------------------------------
    September 30, 2007      86,443       512,463        25,685       538,148
                        -----------------------------------------------------
                        -----------------------------------------------------


    (in thousands)
                                  Trust Units               Treasury Units
                        -----------------------------------------------------
                            Number          $           Number          $
                        -----------------------------------------------------
    January 1, 2006         79,693       408,278            44           624
    Trust units acquired
     (note 4)                                              135         1,962
    Exchangeable shares
     exchanged for trust
     units (note 3)             11           160             -             -
    Trust units
     distributed to
     employees                                             (68)       (1,009)
    Distributions
     declared during the
     year to unitholders
     (note 6)
    Net earnings for the
     period
                        -----------------------------------------------------
    September 30, 2006      79,704       408,438           111         1,577
                        -----------------------------------------------------
                        -----------------------------------------------------

                                                                       Total
                                                      Retained   Unitholders'
                                   Net Units          Earnings        Equity
                        -----------------------------------------------------
                            Number          $             $             $
                        -----------------------------------------------------
    January 1, 2006         79,649       407,654         3,741       411,395
    Trust units acquired
     (note 4)                 (135)       (1,962)                     (1,962)
    Exchangeable shares
     exchanged for trust
     units (note 3)             11           160                         160
    Trust units
     distributed to
     employees                  68         1,009                       1,009
    Distributions
     declared during the
     year to unitholders
     (note 6)                                          (58,272)      (58,272)
    Net earnings for the
     period                                             70,628        70,628
                        -----------------------------------------------------
    September 30, 2006      79,593       406,861        16,097       422,958
                        -----------------------------------------------------
                        -----------------------------------------------------

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



    CML HealthCare Income Fund
    Unaudited Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------
    (in thousands of dollars)

                           For the       For the       For the       For the
                       nine months   nine months  three months  three months
                             ended         ended         ended         ended
                         September     September     September     September
                                30,           30,           30,           30,
                              2007          2006          2007          2006
                                 $             $             $             $
    -------------------------------------------------------------------------
    Cash provided by
     (used in)

    Operating
     activities
       Net earnings for
        the period          75,829        70,628        25,552        22,070
       Items not
        affecting cash                                                     -
          Amortization
           of property
           and equipment     3,215         2,319         1,159           808
          Amortization
           of definite-
           lived
           intangible
           asset               181             -           103             -
          Long-term
           incentive
           plan expense      1,071         1,235           357           605
          Phantom unit
           plan expense        220             -           190             -
          Non-cash
           interest
           expense               -           157             -            52
          Future income
           taxes             1,146        (4,190)          256         1,002
          Non-controlling
           interest            169         6,151             -         1,922
    -------------------------------------------------------------------------
                            81,831        76,300        27,617        26,459
        Net change in
        non-cash working
        capital items
        (note 9)            (3,796)       (6,912)        3,189          (615)

    -------------------------------------------------------------------------
                            78,035        69,388        30,806        25,844
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Investing
     activities
      Purchase of
       property and
       equipment            (3,558)       (3,938)       (2,430)       (1,147)
      Acquisition of
       licence                   -          (376)            -             -
      Deposit paid for
       potential future
       acquisitions           (749)            -             -        (3,043)
       Business
        acquisitions
        (note 13)          (17,656)       (3,043)       (7,067)            -
    -------------------------------------------------------------------------
                           (21,963)       (7,357)       (9,497)       (4,190)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Financing
     activities
      Principal
       repayment of
       long-term debt       (4,417)         (837)         (297)         (283)
      Distributions
       paid                (65,703)      (57,930)      (22,368)      (19,881)
      Trust units
        acquired            (1,902)       (1,962)            -             -
       Payments to non-
        controlling
        interest               (53)       (3,390)            -        (1,157)
       Increase in due
        from related
        parties - net           94          (343)           10           (88)
    -------------------------------------------------------------------------
                           (71,981)      (64,462)      (22,655)      (21,409)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (Decrease)/Increase
     in cash and cash
     equivalents           (15,909)       (2,431)       (1,346)          245
    Cash and cash
     equivalents,
     beginning of
     period                 70,715        68,178        56,152        65,502
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period              54,806        65,747        54,806        65,747
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary
     information
    Interest paid      $    11,066   $    11,048   $     5,567   $     5,500
    Income taxes paid  $     2,130   $     6,051   $       726   $     3,428


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



    CML HealthCare Income Fund

    Notes to Unaudited Consolidated Financial Statements

    1   Organization and nature of operations

    The CML HealthCare Income Fund (the "Fund") is a trust established under
    the laws of the Province of Ontario pursuant to a declaration of trust
    dated January 16, 2004. The Fund was created to invest in common shares
    and $794,807,000 of 12% unsecured subordinated notes and $60,619,200
    non-interest bearing unsecured demand note of CML HealthCare Inc.
    ("CML"). Through its wholly-owned subsidiaries, the Fund provides medical
    laboratory services in Ontario and medical imaging services in the
    provinces of Ontario, Quebec, Manitoba, Alberta and British Columbia.

    2   Basis of presentation

    The accompanying interim consolidated financial statements of the Fund
    have been prepared in accordance with accounting principles generally
    accepted in Canada for interim reporting. Accordingly, these consolidated
    financial statements do not include all of the disclosures required by
    generally accepted accounting principles for annual consolidated
    financial statements and should be read in conjunction with the 2006
    annual consolidated financial statements of the Fund. In the opinion of
    management, all adjustments considered necessary for fair presentation
    have been included. All such adjustments are of a normal recurring
    nature. Operating results for the nine months ended September 30, 2007
    are not necessarily indicative of the results that may be expected for
    the year ending December 31, 2007.

    There have been no changes to the accounting policies as described in
    Note 2 to the consolidated financial statements for the year ended
    December 31, 2006, except as described below.

    The following section describes the impact of recently issued accounting
    standards:

    Impact of recently issued accounting standards

    Financial Instruments:

    The new CICA Handbook Section 3855, Financial Instruments - Recognition
    and Measurement, prescribes when a financial asset, financial liability,
    or non-financial derivative is to be recognized on the balance sheet and
    at what amount - initially at fair value and subsequently either at fair
    value or cost-based measures. It also specifies how financial instrument
    gains and losses are to be presented. The Fund adopted CICA Handbook
    Section 3855 effective January 1, 2007. In accordance with this standard,
    the Fund has classified its financial assets and liabilities as follows:

        i)    The Fund's long-term debt is designated an other liability and
              is therefore carried at amortized cost. The deferred finance
              fees are transaction costs associated with the long-term debt
              and management has elected an accounting policy to expense
              these costs as incurred. Accordingly, deferred finance fees of
              $964,000 ($635,000, net of tax of $329,000), as at January 1,
              2007, have been adjusted through retained earnings.

        ii)   The Fund has classified its cash and cash equivalents as
              held-for-trading financial assets and recorded at face value;
              accounts receivable and due from related parties as receivables
              and accounted for at cost; and distributions payable, accounts
              payable and accrued liabilities as other financial liabilities
              and recorded at cost.

    Credit risk exposures

    Financial instruments that potentially subject the Fund to credit risk
    consist principally of cash and cash equivalents and accounts receivable.
    The Fund places its cash with high credit quality financial institutions.
    Credit risk with respect to accounts receivable is limited, as the
    majority of the receivable balance is due from the Ministry of Health and
    Long-Term Care ("MOH") and other government bodies.

    Interest rate exposures

    The Fund's long-term debt of $190,000,000 has a fixed interest rate.
    Accordingly, the fair value of the long-term debt will vary with changes
    in interest rates.

    Fair values of financial assets and liabilities

    The fair values of cash and cash equivalents, accounts receivable,
    accounts payable and accrued liabilities, amounts due from related
    parties, and distributions payable approximate their carrying amounts
    included in the consolidated balance sheets, due to the relatively short
    period of maturity of the instruments.

    The fair value of the capital lease obligations approximates their
    carrying values.

    As at December 31, 2006, the fair value of long-term debt was estimated
    to be $197,298,000 based on current interest rates adjusted for the
    Fund's credit rating. There is no formal market for the long-term debt
    and, therefore, the estimated fair market value may not be representative
    of the aggregate fair value of the securities.

    Other Accounting Changes:

    Also effective January 1, 2007, the Fund adopted the CICA handbook
    sections 3865, Hedges; 1530, Comprehensive Income; and 3251, Equity. The
    adoption of these CICA handbook sections has not had a material impact on
    the consolidated financial statements.

    Recently Issued Accounting Standards and Not Yet Effective:

    Capital Disclosures, CICA Handbook Section 1535: Section 1535 requires
    disclosure of an entity's objectives, policies and processes for managing
    capital, quantitative data about what the entity regards as capital and
    whether the entity has complied with any capital requirements and, if it
    has not complied, the consequences of such non-compliance. This standard
    is effective for the Fund for interim and annual financial statements
    beginning on January 1, 2008. Management has not yet determined the
    impact of the adoption of this change on the disclosure in its financial
    statements.

    Financial Instruments - Disclosures, CICA Handbook Section 3862: Section
    3862 increases the disclosures currently required that will enable users
    to evaluate the significance of financial instruments for an entity's
    financial position and performance, including disclosures about fair
    value. In addition, disclosure is required of qualitative and
    quantitative information about exposure to risks arising from financial
    instruments, including specified minimum disclosures about liquidity risk
    and market risk. The quantitative disclosures must also include a
    sensitivity analysis for each type of market risk to which an entity is
    exposed, showing how net income and other comprehensive income would have
    been affected by reasonably possible changes in the relevant risk
    variable. This standard is effective for the Fund for interim and annual
    financial statements beginning on January 1, 2008. Management has not yet
    determined the impact of the adoption of this change on the disclosure in
    its financial statements.

    Financial Instruments - Presentation, CICA Handbook Section 3863: Section
    3863 replaces the existing requirements on presentation of financial
    instruments which have been carried forward unchanged to this new
    section. This standard is effective for the Fund for interim and annual
    financial statements beginning on January 1, 2008. Management does not
    expect the adoption of this standard to have a material impact on
    presentation in its financial statements.

    International Financial Reporting Standards: The CICA plans to converge
    Canadian GAAP with International Financial Reporting Standards (IFRS)
    over a transition period expected to end in 2011. Management is reviewing
    the transition to IFRS on the Fund's financial statements and has not yet
    determined the impact.

    3   Acquisition of non-controlling interest

    During the nine-month period ended September 30, 2007, the remaining
    961,392 exchangeable shares of CML HealthCare Inc. were converted to
    961,392 units of the Fund, pursuant to the exchangeable share provisions.
    The conversion of the exchangeable shares has been accounted for as a
    step acquisition and has resulted in a reduction of the non-controlling
    interest to a balance of nil as at September 30, 2007. The 961,392 units
    of the Fund were valued at $13,729,000. The excess of the purchase price
    over the carrying value of the non-controlling interest of $8,018,000 was
    allocated to licences in the amount of $6,881,000 and to future income
    tax liabilities in the amount of $1,170,000.

    As at September 30, 2007, there are no exchangeable shares of CML
    HealthCare Inc. issued and outstanding.

    4   Unitholders' equity

    The authorized capital of the Fund consists of an unlimited amount of
    units. The exchangeable shares of CML HealthCare Inc. were convertible on
    a one for one basis to units of the Fund. The remaining exchangeable
    shares held as of February 23, 2007 were exchanged into units of the Fund
    on that date. As a result, during the nine-month period ended
    September 30, 2007, 961,392 exchangeable shares of CML HealthCare Inc.
    were converted to 961,392 units of the Fund.

    As at September 30, 2007, 86,642,404 units of the Fund are issued and
    outstanding, of which 198,564 units were held by the Fund as treasury
    units in connection with the Long-Term Incentive Plan "LTIP".

    Long-Term Incentive Plan

    Effective February 23, 2004, the Fund created an LTIP for certain
    employees of the Fund. On July 18, 2005, the Fund created a Trust,
    administered by a third party, to act as Trustee for the Fund's LTIP.
    Pursuant to the LTIP, on an annual basis, the Fund pays to the Trust
    amounts for exceeding certain defined distributable cash per unit
    threshold amounts, as defined in the agreement, over the base
    distribution, which in 2007 is $1.06 per unit. The Trust purchases units
    of the Fund in the open market on behalf of eligible employees. The units
    will be transferred to the employees each year over a three-year vesting
    period commencing November 30.

    During the nine-month period ended September 30, 2007, the Fund paid
    $1,902,000 (nine months ended September 30, 2006 - $1,962,000) to the
    Trust for exceeding certain 2006 defined distributable cash threshold
    amounts, subsequent to which the Trustee acquired 129,000 units (nine
    months ended September 30, 2006 - 135,000 units) of the Fund on the open
    market. The Fund units held by the Trust will be distributed to the
    employees in accordance with the terms of the LTIP. During the period
    ended September 30, 2007, there were no distributions to the employees.
    However, the Fund paid $336,000 to a unitholder and Trustee of the Fund,
    to settle an LTIP liability in cash rather than units of the Fund. During
    the period ended September 30, 2006, there were 68,000 units of the Fund
    that had vested and were distributed to eligible employees.

    As at September 30, 2007, the Fund has recorded a liability of $2,405,000
    relating to the LTIP and recognized compensation expense of $1,071,000
    (nine months ended September 30, 2006 - $1,235,000) in respect of this
    LTIP.

    Phantom unit plan

    The Fund has established a phantom unit plan that provides for the
    granting of stock appreciation rights ("SARs") to directors and certain
    employees (the "participants"). The SARs provide the holder with the
    opportunity to earn a cash benefit equal to the fair market value of the
    Fund's units less the price at which the SARs were issued. Compensation
    expense is measured based on the market price of the Fund's units at the
    end of each reporting period and recognized as an expense over the
    vesting period. The SARs outstanding under the plan have been granted at
    the average closing price of the Fund's units five days prior to the date
    of grant and vest at the end of the three-year period.

    During the nine-months ended September 30, 2007, the Fund granted 141,475
    SARs which vest between March 16, 2009 and August 10, 2010, or under
    special circumstances. The participants will be entitled to a cash
    payment equal to the difference between the quoted market value of the
    Fund units and the average market value of a Fund unit for the five days
    prior to the date of grant.

    During this quarter, 180,000 SARS vested and as at September 30, 2007,
    the total number of SARs outstanding was 431,475. Of the 180,000 SARS
    that had vested, the Fund has recorded a liability of $64,000 to reflect
    amounts payable to a unitholder and Trustee of the Fund.

    Of the total number of SARs outstanding at September 30, 2007, 340,000
    were granted during the year ended December 31, 2006. As at September 30,
    2007, the Fund has recorded a liability of $188,300 relating to the SARs
    and recognized compensation expense of $220,000.

    5   Earnings per unit

    Earnings per unit is calculated using the weighted average number of
    units outstanding, including the treasury units. The weighted average
    number of units outstanding for the nine-month period ended September 30,
    2007 was 86,453,000 (September 30, 2006 - 79,664,518) and the three-month
    period ended September 30, 2007 was 86,642,404 (September 30, 2006 -
    79,703,816).

    Diluted earnings per unit reflects the effect of the conversion of the
    exchangeable shares of CML HealthCare Inc. for units of the Fund. The
    following table reconciles the basic and diluted weighted average number
    of Fund units outstanding and basic and diluted earnings per unit:


                                                Adjustments for
                                      Basic      conversions of    Diluted
                                    earnings per  exchangeable   earnings per
    (in thousands of dollars,        Fund unit      shares         Fund unit
    except per unit amounts)
                                        Nine months ended September 30, 2007

    Net earnings for the period      $    75,829  $        169  $     75,998
    Earnings per Fund unit           $      0.88                $       0.88
    Weighted average number of
     Fund units outstanding           86,453,000       189,404    86,642,404

                                        Nine months ended September 30, 2006

    Net earnings for the period      $    70,628  $      6,151  $     76,779
    Earnings per Fund unit           $      0.89  $       0.89
    Weighted average number of
     Fund units outstanding           79,699,541     6,938,588    86,638,129

                                        Three month ended September 30, 2007

    Net earnings for the period      $    25,552  $          -  $     25,552
    Earnings per Fund unit           $      0.29                $       0.29
    Weighted average number of
     Fund units outstanding           86,642,404             -    86,642,404

                                        Three month ended September 30, 2006

    Net earnings for the period      $    22,070  $      1,922  $     23,992
    Earnings per Fund unit           $      0.28                $       0.28
    Weighted average number of
     Fund units outstanding           79,703,816     6,938,588    86,642,404


    6   Distributions and payments to non-controlling interest declared

    The distribution policy of the Fund is to make distributions of its
    available cash to the fullest extent possible, subject to the discretion
    of the Trustees, taking into account trends in revenue, earnings and cash
    flows.

    During the nine-month period ended September 30, 2007, the Fund declared
    total distributions to unitholders of $66,034,000 and total dividends to
    non-controlling interest of $53,000. The amounts and record dates of
    distributions to unitholders were as follows:

    (in thousands of dollars, except per unit  amounts)
                                                             Trust Units
                                                           $         Amount
    Record Date                                                     per Unit
    -------------------------------------------------------------------------
    January 31, 2007                                     7,134        0.0833
    February 28, 2007                                    7,214        0.0833
    March 30, 2007                                       7,203        0.0833
    April 30, 2007                                       7,203        0.0833
    May 31, 2007                                         7,456       0.08625
    June 29, 2007                                        7,456       0.08625
    July 31, 2007                                        7,456       0.08625
    August 31, 2007                                      7,456       0.08625
    September 28, 2007                                   7,456       0.08625
    -------------------------------------------------------------------------
                                                        66,034       0.76445
    -------------------------------------------------------------------------

    During the nine-month period ended September 30, 2006, the Fund declared
    total distributions to unitholders of $58,272,000 and total dividends to
    non-controlling interest of $3,390,000. The amounts and record dates of
    distributions and payments were as follows:

    (in thousands of dollars, except per unit and per share amounts)
                               Trust Units          Non-controlling interest
                                       Amount                      Amount
    Record Date            $          per Unit          $         per Share
    -------------------------------------------------------------------------
    January 31, 2006         6,285        0.0789           366        0.0526
    February 28, 2006        6,285        0.0789           365        0.0526
    March 31, 2006           6,285        0.0789           365        0.0526
    April 30, 2006           6,285        0.0789           365        0.0526
    May 31, 2006             6,627        0.0833           386        0.0556
    June 30, 2006            6,627        0.0833           386        0.0556
    July 31, 2006            6,626        0.0833           386        0.0556
    August 31, 2006          6,626        0.0833           386        0.0556
    September 30, 2006       6,626        0.0833           386        0.0556
    -------------------------------------------------------------------------
                            58,272        0.7321         3,390        0.4884
    -------------------------------------------------------------------------

    7   Income taxes

    The effective income tax rate on consolidated earnings is influenced by
    items such as non-taxable income and non-deductible expenses:

                                                  For the nine  For the nine
                                                  months ended  months ended
                                                  September 30, September 30,
                                                       2007          2006

    (in millions of dollars)                             $             $

    Combined Canadian federal and provincial
     income tax rate of 35.90% (2006 - 36.12%)          29,110        28,245

    Increase (decrease) in statutory income tax
     resulting from the following:

    Fund income not taxable                            (23,422)      (20,396)

    Reduction in Future income taxes resulting
     from reduction in substantively
     enacted tax rates                                  (1,090)       (6,271)

    Non-deductible expenses and other                      489          (159)

                                                   --------------------------
    Provision for income taxes                           5,087         1,419
                                                   --------------------------

    8   Related party balances and transactions

    On February 23, 2004, CML entered into an administrative services
    agreement with Cipher Pharmaceuticals Inc. ("Cipher"). Under this
    agreement, CML was to provide certain general and administrative services
    to Cipher including investor relations services, securities compliance,
    and certain administrative services. This agreement to provide these
    services to Cipher was terminated on June 30, 2007. For the nine-month
    period ended September 30, 2007, CML charged Cipher $62,000 (nine-month
    period ended September 30, 2006 - $93,000) in accordance with the
    administration agreement. The due from related parties balance as at
    September 30, 2007 of $29,000 consists of amounts due from Cipher and its
    wholly-owned subsidiaries, in respect of the provision of administrative
    services by CML and certain other reimbursements to CML.

    The Fund leases facilities from a company that is subject to significant
    influence and is controlled by a unitholder and Trustee of the Fund. Rent
    expense for the six-month period ended September 30, 2007 of $920,000
    (nine-month period ended September 30, 2006 - $920,000) relating to these
    leased facilities, measured at the exchange amount as agreed to between
    the parties, has been included in operating, general and administrative
    expenses.

    The Fund has also entered into a commitment to lease office space from a
    company that is subject to significant influence or control by a
    unitholder and Trustee of the Fund. Annual net rent of this office space
    is expected to be approximately $371,000. The lease is expected to
    commence in 2008.

    See also Note 4.

    9   Statement of cash flows

                      For the nine  For the nine  For the three For the three
                      months ended  months ended  months ended  months ended
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
    (in thousands of         $             $             $             $
        dollars)
    -------------------------------------------------------------------------
    Net change in non-cash working capital items comprises
      Accounts
       receivable           (3,472)         (251)        3,070         5,135
      Other current
       assets                 (193)       (1,045)         (231)         (340)
      Accounts payable
       and accrued
       liabilities          (3,059)       (6,509)         (546)       (4,603)
      Income taxes
       receivable            2,928           893           896          (807)
    -------------------------------------------------------------------------
                            (3,796)       (6,912)        3,189          (615)
    -------------------------------------------------------------------------

    10  Industry cap agreement

    During the nine-month period ended September 30, 2007, the Fund
    recognized $3,150,000 in respect of the $4,800,000 additional funding
    available under the industry cap agreement, for the MOH year ended
    March 31, 2007. A further $1,050,000 in respect of the $4,800,000 was
    previously recognized during the second, third and fourth quarters of
    fiscal 2006. Also, during the nine-month period ended September 30, 2007,
    the Fund recognized $2,100,000 in respect of the $8,200,000 additional
    funding available under the industry cap agreement, for the MOH year
    ending March 31, 2008. Due to the inherent uncertainties and the limited
    information on industry conditions available at the time the unaudited
    consolidated financial statements were prepared, further additional
    funding has not been recorded during the nine-month period ended
    September 30, 2007. Revenue recognized during the nine-month period ended
    September 30, 2007 is based on management's best estimate of its share of
    the additional funding earned in the period based on information
    currently available.

    The Fund has used the latest available information in estimating the
    amount of fees received that will have to be reimbursed. Assumptions were
    made with respect to the amount of reimbursement required and the volume
    and type of laboratory tests referred to the Fund. It is possible that
    changes in future conditions in the near term could require a change in
    the amount to be reimbursed, or received, and such changes could be
    material.

    11  Other expenses

    During the nine-month period ended September 30, 2006, the fund incurred
    and expensed professional fees of $2,113,000 in respect of a potential
    acquisition that was not completed.

    12  Recovery of impairment of investments and other assets

    During 2005, the Fund determined that note receivable was impaired due to
    uncertainty of the amounts and timing of repayments of this note
    receivable. Accordingly, an impairment charge of $1,733,000 was recorded
    to reduce the carrying value of the note receivable to its estimated fair
    value of $nil. In the third quarter of 2006, the Fund recovered $553,000
    in respect of this note receivable.

    13  Business acquisitions

    The Fund completed one acquisition in the second quarter and two
    acquisitions in the third quarter. These acquisitions have been accounted
    for by the purchase method, with the results from operations included in
    earnings from the date of acquisition. The purchase price has been
    allocated to these assets acquired and liabilities assumed based on
    management's best estimate of the fair values. Given the short time that
    has elapsed since the acquisitions, the allocation of the purchase price
    is subject to change based on the final resolution of these estimates,
    which may result in changes to the allocated amounts.

    Second quarter acquisition:

    On April 23, 2007, the Fund completed the business acquisition of MYK
    Diagnostic Imaging ("MYK"). MYK is the third largest medical imaging
    services provider in Calgary, Alberta, providing both adult and pediatric
    specialty imaging services, including MRI, x-ray, ultrasound,
    mammography, fluoroscopy, and bone densitometry.

    Total cash consideration paid for this acquisition was $10,534,000. On
    April 23, 2007, the Fund repaid the long-term debt and capital lease
    obligations assumed in the acquisition in the amount of $3,537,000. The
    purchase price relating to this acquisition was allocated as follows:

                                                          Total for the nine
                                                                months ended
                                                          september 30, 2007
    (in thousands of dollars)                                              $
    -------------------------------------------------------------------------
    Intangible assets                                                  3,322
    Goodwill                                                           5,993
    Property and equipment                                             4,612
    Grant receivable                                                     648
    Long-term debt and capital lease                                  (3,537)
    Accounts payable and accrued liabilities                            (504)
    -------------------------------------------------------------------------
    Cash consideration paid                                           10,534
    -------------------------------------------------------------------------

    The intangible assets acquired of $3,322,000 represent the lists and
    records pertaining to physicians who refer clients and patients to the
    acquired clinics. These assets are being amortized over their estimated
    useful life of 10 years.

    The goodwill and intangible assets arising in this acquisition are
    deductible for income tax purposes as cumulative eligible capital.

    Also during the second quarter, the Fund paid $138,000 additional
    consideration for a business acquisition which was completed during the
    year ended December 31, 2006. This amount has primarily been allocated to
    property and equipment and licenses.

    Third quarter acquisitions:

    On August 15, 2007, the Fund completed the business acquisition of
    Toronto-based North York Diagnostic Imaging ("North York") and Quality
    Medical Imaging ("QMI"). The acquisitions of the North York and QMI
    clinic networks has added four additional medical imaging clinics in the
    North York region, two additional clinics in the downtown core, and one
    clinic in Scarborough, Ontario. Total cash consideration paid for this
    acquisition was $6,590,000.

    On July 25, 2007, the Fund completed the business acquisition of ProMed
    Echo-Ultrasound "ProMed"). ProMed is an ultrasound medical imaging clinic
    based in the North York region of Toronto, Ontario. The total cash
    consideration paid for this acquisition was $894,000.

    The purchase price relating to these acquisitions was allocated as
    follows:

                                                          Total for the nine
                                                                months ended
                                                          september 30, 2007
    (in thousands of dollars)                                              $
    -------------------------------------------------------------------------
    Intangible assets                                                  1,593
    Licenses                                                           3,090
    Goodwill                                                           2,590
    Property and equipment                                               789
    Loan payable                                                        (427)
    Future tax liabilities                                              (151)
    -------------------------------------------------------------------------
    Cash consideration paid                                            7,484
    -------------------------------------------------------------------------

    The intangible assets acquired of $1,593,000 represent the lists and
    records pertaining to physicians who refer clients and patients to the
    acquired clinics. These assets are being amortized over their estimated
    useful life of 10 years.

    The goodwill and intangible assets arising in this acquisition are
    deductible for income tax purposes.

    As at September 30, 2007, the Fund had deposits and acquisition costs of
    $749,000 primarily related to two potential acquisitions, comprising of
    8 diagnostic imaging clinics. Management expects to complete these
    acquisitions during the fourth quarter of fiscal 2007.
    

    %SEDAR: 00020333E




For further information:

For further information: Bruce Wigle, Investor Relations, The Equicom
Group Inc., (416) 815-0700 ext 228, (416) 815-0080 fax, Email:
bwigle@equicomgroup.com; Tom S. Weber, CA, Chief Financial Officer, CML
HealthCare Income Fund, (905) 565-0043, (905) 565-2844 fax, Internet:
www.cmlhealthcare.com

Organization Profile

CML HEALTHCARE INC. (FORMERLY CML HEALTHCARE INCOME FUND)

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