UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549


FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


[ ]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:May 31, 20112012
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
[ ]SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:number:  0-31092


MEDICURE INC.

(Exact name of registrant as specified in its charter)

Canada

Canada
(Jurisdiction

 (Jurisdiction of incorporation or organization)


2 - 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6
(Address

 (Address of principal executive offices)


Dr. Albert D. Friesen, Tel: (204) 487-7412, Fax: (204) 488-9823
2 - 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6
(Name,

 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


Securities registered or to be registered pursuant to Section 12(b) of the Act:None


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


Common Shares, without par value

(Title of Class)

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


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:


At May 31, 20112012 the registrant had 130,307,552182,947,595 common shares issued and outstanding


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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes                      [   ]    No[X]

____ü___


If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes                      [   ]    No [X]

____ü___



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]ü           No [   ]

____ ___


Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes                      [   ]    No[   ]

____ ___


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer[   ]Accelerated Filer[   ]Non-Accelerated Filer[X]


Large Accelerated Filer   ______                                 Accelerated Filer ______                                                         Non-Accelerated Filer ___ ü____

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP[   ]International Financial ReportingOther[X]
Standards as issued by the International
Accounting Standards Board[   ]


US GAAP    ______       International Financial Reporting                                                                              Other                                
           Standards as issued by the International
           Accounting Standards Board ______ü_ _

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 [X]_______                                           Item 18 [   ]

_______


If this is an annual report, indicate by check mark whether the registrant is a shell Companycompany (as defined in Rule 12b-2 of the Exchange Act).

Yes                      [   ]    No[X]

As of May 31, 2011, the rate for Canadian dollars was US $0.9688 for CND $1.00.

____ü___


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TABLE OF CONTENTS


GENERAL5
GLOSSARY OF TERMS5
FORWARD LOOKING STATEMENTS5
PART I8
PART I8
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS8
A. Directors and Senior Management8
B. Advisers8
C. Auditors8
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE8
ITEM 3. KEY INFORMATION8
A. Selected Financial Data8
B. Capitalization and Indebtedness1112
C. Reasons for the Offer and Use of Proceeds1112
D. Risk Factors1112
ITEM 4. INFORMATION ON THE COMPANY2329
A. History and Development of the Company2329
B. Business Overview2429
C. Organizational Structure2937
D. Property, Plants and Equipment2937
ITEM 4A. UNRESOLVED STAFF COMMENTS2937
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS3037
A. Operating Results3342
B. Liquidity and Capital Resources3748
C. Research and Development, Patents and Licenses, Etc.3749
D. Trend Information4153
E.  Off-balance Sheet Arrangements4154
F.  Contractual Obligations4254
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES4356
A. Directors and Senior Management4356
B. Compensation4658
C. Board Practices4659
D. Employees5369
E. Share Ownership5369
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS5571
A. Major Shareholders5571
B. Related Party Transactions5672
C. Interests of Experts and Counsel5775
ITEM 8. FINANCIAL INFORMATION5775
A. Consolidated Statements or Other Financial Information5775
B.  Significant Changes
75
ITEM 9. THE OFFERING AND LISTING5876
A. Listing Details5876
B.  Plan of Distribution
76
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C.  Markets5976
D.      Selling Shareholders
76
E.       Dilution
77
F.       Expenses of the Issue
77
ITEM 10. ADDITIONAL INFORMATION5977


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A. Share Capital5977
B. Memorandum and Articles of Association5977
C. Material Contracts6380
D. Exchange Controls6380
E. Taxation6482
F. Dividends and Paying Agents7290
G. Statement by Experts7390
H. Documents on Display7391
I. Subsidiary Information7391
ITEM11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK7391
ITEM12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES7391
ITEM13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES7392
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF CURITYSECURITY HOLDERS ANDUSE OF PROCEEDS7492
ITEM15. CONTROLS AND PROCEDURES7492
ITEM 16. RESERVED93
ITEM16. RESERVED75
ITEM16A. AUDIT COMMITTEE FINANCIAL EXPERT7694
ITEM16B. CODE OF ETHICS7694
ITEM16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES7694
ITEM16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES7795
ITEM16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDPURCHASERS7795
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT95
PART IIIITEM 16G. CORPORATE GOVERNANCE7895
ITEM 16H.MINE SAFETY DISCLOSURE95
PART III96
ITEM17. FINANCIAL STATEMENTS7896
ITEM18. FINANCIAL STATEMENTS7996
ITEM 19. EXHIBITS137
ITEM19. EXHIBITS79
Exhibit 12.1 – Certification of CEO pursuant to Section 302141
Exhibit 12.2 – Certification of CFO pursuant to Section 302143
Exhibit 13.1 – Certification of CEO and CFO145
Exhibit 23.1 – Consentconsent of Independent Registered Pubic Accounting Firmindependent registered public accounting firm147


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GLOSSARY OF TERMS

The following words and phrases shall have the meanings set forth below:

"angina"means chest pain;

"angioplasty"means an operation to repair a damaged blood vessel or unblock an artery;

“CABG”means coronary artery bypass graft;

"FDA"means the United States Food and Drug Administration;

"ischemia" means the lack of blood flow;

"myocardial infarction" means scarring and death to portions of the heart wall;

"myocardial ischemia" means blockages to parts of the heart muscle;

"TPD" means the Canadian Therapeutic Products Directorate, formerly the Canadian Health Protection Branch;


GENERAL

As used in this annual report,Annual Report, the “Corporation” or “Company” refers to “Medicure Inc.”, the Companycompany resulting from the amalgamation of Medicure Inc. and Lariat Capital Inc., and “Medicure” refers to “Medicure Inc.” prior to its amalgamation with Lariat Capital Inc. unless

The Company uses the Canadian dollar as its reporting currency.  Unless otherwise indicated, all references to dollar amounts in this annual reportAnnual Report are to Canadian dollars.

As of May 31, 2012, the rate for Canadian dollars was US $1.0329 for CND $1.00. See also Item 3 – Key Information for more detailed currency and conversion information.


Except as noted, the information set forth in this Annual Report is as of September 14, 2012 and all information included in this document should only be considered correct as of such date.

GLOSSARY OF TERMS

The following words and phrases shall have the meanings set forth below:
“angina” means chest pain;
“angioplasty” means an operation to repair a damaged blood vessel or unblock an artery;
 “CABG” means coronary artery bypass graft;
“FDA” means the United States Food and Drug Administration;
“ischemia” means the lack of blood flow;
“myocardial infarction” means scarring and death to portions of the heart wall;
“myocardial ischemia” means blockages to parts of the heart muscle;
“TPD” means the Canadian Therapeutic Products Directorate, formerly the Canadian Health Protection Branch; and
“TSX-V” means the TSX Venture Exchange.

FORWARD LOOKING STATEMENTS


Medicure Inc. cautions readers that certain important factors (including without limitation those set forth in this Form 20-F) may affect the Company’s actual results in the future and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F annual report, or that are otherwise made by or on behalf of the Company.  This Annual Report contains forward-looking statements and information which may not be based on historical fact, which may be identified by the words “believes,” “may,” “plan,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions and the negative of such expressions.  Such forward looking statements include, without limitation, statements regarding:


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  • sales and marketing strategy;

  • anticipated sources of revenue;

  • intentions regarding the protection of the Company's intellectual property;

  • business strategy; and

  • intention with respect to dividends.

·  
intention to sell and market its acute care cardiovascular drug, AGGRASTAT®  (tirofiban hydrochloride) in the United States and its territories through the Company's U.S. subsidiary, Medicure Pharma Inc.;

·  intention to develop and implement clinical, regulatory and other plans to generate an increase in the value of AGGRASTAT;

·  intention to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT’s approved prescribing information;

·  intention to increase sales of AGGRASTAT;

·  
intention to develop TARDOXALTM for neurological disorders;

·  intention to investigate and advance certain other product opportunities;

·  intention to obtain regulatory approval for the Company's products;

·  expectations with respect to the cost of the testing and commercialization of the Company's products;

·  sales and marketing strategy;

·  anticipated sources of revenue;
·  intentions regarding the protection of the Company's intellectual property;
·  business strategy; and

·  intention with respect to dividends.
Such forward-looking statements and information involve a number of assumptions as well as known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements and information including, without limitation:


·  general business and economic conditions;

·  the impact of changes in Canadian-US dollar and other foreign exchange rates on the Company's revenues, costs and results;

·  the timing of the receipt of regulatory and governmental approvals for the Company's research and development projects;

·  the ability of the Company to continue as a going concern;
·  the availability of financing for the Company's commercial operations and/or research and development projects, or the availability of financing on reasonable terms;

·  results of current and future clinical trials;

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·  the uncertainties associated with the acceptance and demand for new products;

·  clinical trials not being unreasonably delayed and expenses not increasing substantially;

·  government regulation not imposing requirements that significantly increase expenses or that delay or impede the Company's ability to bring new products to market;

·  the Company's ability to attract and retain skilled staff;

·  inaccuracies and deficiencies in the scientific understanding of the interaction and effects of pharmaceutical treatments when administered to humans;

·  market competition;

·  tax benefits and tax rates; and

·  the Company's ongoing relations with its employees and with its business partners.

These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements and information.  The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements and information contained herein to reflect future results, events or developments, except as otherwise required by applicable law. Additional risks and uncertainties relating to the Company and its business can be found in the “Risk Factors” section of this Annual Report.

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PART I


ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS


A. Directors and Senior Management


Not applicable


B. Advisers


Not applicable


C. Auditors


Not applicable


ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE


Not applicable


ITEM 3. KEY INFORMATION


A. Selected Financial Data


The selected financial data of the Company as at May 31, 2012 and 2011, and June 1, 2010 and for the fiscal years ended May 31, 2011, 20102012 and 20092011 was extracted from the audited consolidated financial statements of the Company included in this annual reportAnnual Report on Form 20-F.  The information contained in the selected financial data is qualified in its entirety by reference to the more detailed consolidated financial statements and related notes included in Item 1718 - Financial Statements, and should be read in conjunction with such financial statements and with the information appearing in Item 5 - Operating and Financial Review and Prospects.Prospects.  The selected financial data as at May 31, 2010, 2009 2008 and 20072008 and for the fiscal years ended May 31, 20082010, 2009 and 20072008 was extracted from the audited financial statements of the Company not included in this annual report. Reference is made to Note 17 ofAnnual Report.

The information provided in the audited consolidated financial statements included in this Annual Report on Form 20-F is prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).  This is the Company’s first set of annual financial statements prepared in accordance with IFRS.  Prior to June 1, 2010, the Company included herein for a discussion of the material measurement differences between Canadian GAAP and U.S. GAAP, and their effect on the Company’sprepared its financial statements. Except where otherwise indicated, all amounts are presentedstatements in accordance with Canadian GAAP.

To date,Generally Accepted Accounting Principles (GAAP).  Included in the Company has not generated sufficient cash flow from operations to fund ongoing operational requirements, debt service obligations and cash commitments. The Company has financed its operations principally through the net revenue received from the sale of AGGRASTAT®, sale of its equity securities, the issue of warrants and stock options, interest on excess funds held and the issuance of debt. As at May 31, 2011 the Company had significant debt servicing obligations that it did not have the ability to repay without refinancing or restructuring and the Company wastables in defaultthis section are presentations of the terms of its long-term debt financing obligations. financial information prepared for periods prior to June 1, 2010 in accordance with Canadian GAAP and United States GAAP. Such financial information is not comparable to financial information prepared in accordance with IFRS.

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Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classified as a current liability as at May 31, 2011 as described in Note 8 to the accompanying financial statements. On July 18, 2011, the long-term debt was settled as described in Note 16 to the accompanying financial statements. The Company’s future operations are dependent upon its ability to maintain or grow sales of AGGRASTAT®, and/or secure additional capital, which may not be available under favourable terms, should these objectives not be achieved, the Company will have to consider additional strategic alternatives which may include, among other strategies, asset divestitures and/or monetization of certain intangibles.

International Financial Reporting Standards (in Canadian dollars):

          
Statement of Financial Position Data 
May 31,
2012
  
May 31,
2011
  
June 1,
2010
 
 
(as at period end)
 $  $  $ 
Current Assets  2,211,951   1,804,010   1,489,440 
Property and            
Equipment  30,745   46,942   68,752 
Intangible Assets  2,500,928   3,298,286   4,414,882 
Other Assets  -   -   - 
Total Assets  4,723,624   5,149,238   5,973,074 
Current Liabilities  1,378,288   32,078209   30,967,698 
Non-current Liabilities  5,186,009   -   - 
Total Liabilities  6,564,297   32,078,209   30,697,698 
Net Assets /            
(Deficiency)  (1,820,673)  (26,928,971)  (24,994,624)
Capital Stock and            
Contributed Surplus  121,379,570   120,136,490   120,059,433 
Accumulated Other Comprehensive            
Income (Loss)  102,809   (376,630)  - 
Deficit  (123,303,052)  (146,688,831)  (145,054,057)
Statement of Net Income (Loss)
(for the fiscal year ended on)
            
Product Sales  4,796,811   3,628,274     
Interest and Other            
Income  775   473     
Gain on Settlement            
of Debt  23,931,807   -     
Net Income (Loss) for            
the Period  23,385,779   (1,634,774)    
Comprehensive Income (Loss) for the            
Period  23,865,218   (2,011,404)    
Basic and Diluted            
Income (Loss) per            
Share  0.13   (0.01)    
Weighted-Average Number of            
Common Shares            
Outstanding            
     Basic  176,187,808   130,307,552     
     Diluted  176,287,808   130,307,552     

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Previously Reported Under Canadian Generally Accepted Accounting Principles (in Canadian dollars):

         
Balance Sheet Data May 31,  May 31,  May 31,  May 31,  May 31,  
May 31,
2010
  
May 31,
2009
  
May 31,
2008
 
 2011  2010  2009  2008  2007 
(as at period end) $  $  $  $  $  $  $  $ 
Current Assets 1,824,625  1,489,440  3,519,609  14,402,736  35,827,187   1,489,440   3,519,609   14,402,736 
Property and Equipment 50,996  68,752  93,532  132,887  196,521 
Property and            
Equipment  68,752   93,532   132,887 
Intangible Assets 3,298,286  4,414,882  5,936,819  8,353,610  23,412,131   4,414,882   5,936,819   8,353,610 
Other Assets -  -  -  11,916,000  349,963   -   -   11,916,000 
Total Assets 5,173,907  5,973,074  9,549,960  34,805,233  59,785,802   5,973,074   9,549,960   34,805,233 
Total Liabilities 32,067,612  30,929,727  29,096,919  41,361,393  25,479,333   30,929,727   29,096,919   41,361,393 
Net Assets / (Deficiency) (26,893,705) (24,956,653) (19,546,959) (6,556,160) 34,306,469 
Capital Stock, Warrants and Contributed Surplus 129,202,210  129,125,153  129,002,341  128,677,313  112,137,421 
Net Assets /            
(Deficiency)  (24,956,653)  (19,546,959)  (6,556,160)
Capital Stock, Warrants and            
Contributed Surplus  129,125,153   129,002,341   128,677,313 
Deficit (156,095,915) (154,081,806) (148,549,300) (135,233,473) (77,830,952)  (154,081,806)  (148,549,300)  (135,233,473)
Statement ofOperations(for the fiscal yearended on)                      
Product Sales 3,628,274  3,317,073  4,792,513  2,247,129  5,944,730   3,317,073   4,792,513   2,247,129 
Interest and Other 473  4,913  255,713  1,149,574  1,590,801             
Income                 4,913   255,713   1,149,574 
Loss from Continuing Operations (2,014,109) (5,532,506) (13,315,827) (57,402,521) (31,703,386)
Net Loss for the Period (2,014,109) (5,532,506) (13,315,827) (57,402,521) (31,703,386)
Basic and Diluted Loss per Share Weighted-Average (0.02) (0.04) (0.10) (0.46) (0.30)
Number of Common Shares Outstanding 130,307,552  130,307,552  130,307,552  125,476,086  104,879,404 
Loss from Continuing            
Operations  (5,532,506)  (13,315,827)  (57,402,521)
Net Loss for the            
Period  (5,532,506)  (13,315,827)  (57,402,521)
Basic and Diluted            
Loss per Share  (0.04)  (0.10)  (0.46)
Weighted-Average Number of            
Common Shares            
Outstanding  130,307,552   130,307,552   125,476,086 


The Company was not required to retrospectively apply IFRS to its financial statements for years prior to fiscal 2011.  Accordingly, the operating results and financial information in the chart above for 2010, 2009 and 2008 was prepared in accordance with previous Canadian GAAP.
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Under

Previously Reported Under U.S. Generally Accepted Accounting Principles (in Canadian dollars):

 Balance Sheet Data May 31,  May 31,  May 31,  May 31,  May 31, 
  2011  2010  200$9  2008  2007 
 (as at Period end) $  $       $   
Current Assets 1,824,625  1,489,440  3,519,609  14,402,736  35,827,187 
Property and Equipment 50,996  68,752  93,532  132,887  196,521 
Intangible Assets 3,011,909  3,845,916  4,676,656  5,510,661  20,078,862 
Other Assets 1,751,482  2,014,801  2,250,518  14,470,081  349,963 
Total Assets 6,639,012  7,418,909  10,540,315  34,516,365  56,452,533 
Total Liabilities 33,829,691  32,982,499  31,347,086  43,915,123  25,479,333 
Net Assets / (deficiency) (27,190,679) (25,563,590) (20,806,771) (9,398,758) 30,973,200 
Capital Stock, warrants and Contributed Surplus 136,381,144  136,304,087  145,246,995  144,921,967  128,382,255 
Deficit (163,571,823) (161,867,677) (166,053,766) (154,320,725) (97,409,055)
Statement ofOperations          
Product Sales 3,628,274  3,317,073  4,792,513  2,247,129  5,944,730 
Interest and Other Income 473  4,913  255,713  1,149,574  1,590,801 
Loss from Continuing Operations (1,704,146) (4,772,309) (11,733,041) (56,911,670) (32,114,817)
Net Loss for the Period (1,704,146) (4,772,309) (11,733,041) (56,911,670) (32,114,817)
Basic and Diluted Loss per Share (0.01) (0.04) (0.09) (0.45) (0.31)
Weighted-Average Number of Common Shares Outstanding 130,307,552  130,307,552  130,307,552  125,476,086  104,879,404 

          
Balance Sheet Data 
May 31,
2010
  
May 31,
2009
  
May 31,
2008
 
 
(as at Period end)
 $  $  $ 
Current Assets  1,489,440   3,519,609   14,402,736 
Property and Equipment  68,752   93,532   132,887 
Intangible Assets  3,845,916   4,676,656   5,510,661 
Other Assets  2,014,801   2,250,518   14,470,081 
Total Assets  7,418,909   10,540,315   34,516,365 
Total Liabilities  32,982,499   31,347,086   43,915,123 
Net Assets / (deficiency)  (25,563,590)  (20,806,771)  (9,398,758)
Capital Stock, warrants            
and Contributed Surplus  136,304,087   145,246,995   144,921,967 
Deficit  (161,867,677)  (166,053,766)  (154,320,725)
Statement of Operations            
Product Sales  3,317,073   4,792,513   2,247,129 
Interest and Other            
Income  4,913   255,713   1,149,574 
Loss from Continuing            
  Operations  (4,772,309)  (11,733,041)  (56,911,670)
Net Loss for the Period  (4,772,309)  (11,733,041)  (56,911,670)
Basic and Diluted Loss            
per Share  (0.04)  (0.09)  (0.45)
Weighted-Average Number of            
Common Shares            
Outstanding  130,307,552   130,307,552   125,476,086 


Dividends


No cash dividends have been declared nor are any intended to be declared.  The Company is not subject to legal restrictions respecting the payment of dividends except that they may not be paid if the Company is, or would after the payment be, insolvent.  Dividend policy will be based on the Company's cash resources and needs and it is anticipated that all available cash will be required to further the Company’s research and development activities for the foreseeable future.



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Exchange Rates


Unless otherwise indicated, all reference to dollar amounts are to Canadian dollars.  On September 14, 2012, the rate of exchange of the Canadian dollar, based on the daily noon rate in Canada as published by the Bank of Canada, was US$1.00 = Canadian $0.9710.  Exchange rates published by the Bank of Canada are available on its website, www.bankofcanada.ca, are nominal quotations — not buying or selling rates — and are intended for statistical or analytical purposes.

The following table setstables set out the exchange rates, for one Canadian dollar expressedbased on the daily noon rates in terms of one U.S. dollar for the periods indicated. Rates of exchange are obtained fromCanada as published by the Bank of Canada and believed byfor the Registrant to approximate closely the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank in New York.

 May 31, 2011May 31, 2010May 31, 2009May 31, 2008May 31, 2007
      
Period End0.96880.95830.91601.00700.9349
Average0.96790.94030.86450.98570.8798


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 SeptemberAugustJulyJuneMayAprilMarch
 2011201120112011201120112011
 (Sep. 1- 21)      
High for Period(1)1.02711.04521.06301.03901.05821.05821.0340
Low for Period(1)0.99411.00311.02881.00931.01871.02861.0093

Notes:
(1) Figures are extracted from daily exchange rates

Asconversion of September 21, 2011 the exchange rate to convert one Canadian dollarDollars into one U.S. dollar was 1.0059.

Dollars.



 
 For the year ended May 31
(Canadian Dollar per U.S. Dollar)
 
  2012  2011  2010  2009  2008 
                
Period End  1.0349   0.9688   1.0462   1.0961   0.9942 
Average for the Period*  0.9983   1.0074   1.0652   1.1585   1.0112 
High for the Period  1.0604   1.0660   1.1655   1.3000   1.0755 
Low for the Period  0.9449   0.9486   0.9961   1.0013   0.9170 

*The average rate for each period is the average of the daily noon rates on the last day of each month during the period.


Monthly High and Low Exchange Rate (Canadian Dollar per U.S. Dollar)
 HighLow
September 2012 (Until September 14, 2012)0.99020.9710
August 20121.00620.9863
July 20121.02141.0014
June 20121.04181.0178
May 20121.03490.9839
April 20121.00390.9807
March 20121.00150.9849


B. Capitalization and Indebtedness


Not applicable


C. Reasons for the Offer and Use of Proceeds


Not applicable


D. Risk Factors


An investment in the Company's common shares is highly speculative and subject to a number of risks. Only those persons who can bear the risk of the entire loss of their investment should participate. An investor should carefully consider the risks described below and the other information that the Company furnishes to, or files with, the Securities and Exchange Commission and with Canadian securities
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regulators before investing in the Company's common shares.  The Company’s business entails significant risks. In addition torisks described below are not the usualonly ones faced by the Company.  Additional risks associated with a business,that management is unaware of or that the Company currently believes are immaterial may indeed become important factors that affect the Company's business.  If any of the following is a general descriptionrisks occur, or if others occur, the Company's business, operating results and financial condition could be seriously harmed and the investor may lose all of certain significant risk factors which are applicable to the Company.

his or her investment.


Going concern risk


The accompanying consolidated financial statements for the year ended May 31, 2012 have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles.IFRS.  The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.  There is significantsubstantial doubt about the appropriateness of the use of the going concern assumption because the Company hashad experienced operating losses since incorporation.

The Company has experienced a loss of $2,014,109 for the year endingfrom incorporation to May 31, 2011 and has accumulated a deficit of $156,095,915$123,303,052 as at May 31, 2011.2012.  Management has forecast that it has sufficient working capital through the end of fiscal 2013, however contractual commitments and debt service obligations exceed the company's net cash flows and working capital beginning in early fiscal 2014.  The Company’s future operations are dependent upon its ability to maintain or grow sales of AGGRASTAT®,AGGRASTAT, and/or secure additional capital, which may not be available under favourable terms. Should these objectives not be achieved,terms or at all.  If the Company is unable to grow sales or raise additional capital, management will have to consider additional strategic alternatives which may include, among other strategies including further cost curtailments, delays of research and development activities, asset divestituresdivestures and/or monetization of certain intangibles.

As at May 31, 2011

The ability of the Company had significant debt servicing obligationsto continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which are intended to mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these financial statements.  There is no certainty that it did not have the abilityCompany’s working capital will be sufficient through fiscal 2013 or that the above described and other strategies will be sufficient to repay without refinancing or restructuring andpermit the Company was in default of the terms of its long-term debt financing obligations. Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classifiedto continue as a current liability as at May 31, 2011 and 2010 as described in note 8 of the audited consolidated financial statements for the year ended May 31, 2011. On July 18, 2011, the long-term debt was settled as described in Note 16 of the audited consolidated financial statements for the year ended May 31, 2011.


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going concern.

The financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.  If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheetstatement of financial position classifications used.


Prior to the acquisition of AGGRASTAT,®, the Company had no products in commercial production or use.  As such, the Company was considered to be a development-stage enterprise for accounting purposes prior to the acquisition.  The Company expects to continue to incur losses and may never achieve profitability, which in turn may harm its future operating performance and may cause the market price of its stock to decline.


With the exception of AGGRASTAT,®, the Company’s products are in the development stage and accordingly, its business operations are subject to all of the risks inherent in the establishment and maintenance of a developing business enterprise, such as those related to competition and viable operations management.


The Company has incurred net losses every year since inception in 1997.to May 31, 2011.   The Company incurredrecorded net lossesincome of $2,014,109$23,385,779 for the year ended May 31, 2011,2012, primarily as a result of a gain on the settlement of the Company’s long-term debt.  The Company incurred a net loss of $1,634,774 for the year ended May 31, 2011.  Additionally, as reported under previous Canadian GAAP, the Company incurred net
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losses of $5,532,506 for the year ended May 31, 2010, $13,315,827 for the year ended May 31, 2009, and $57,402,521 for the year ended May 31, 2008, and $31,703,386 for the year ended May 31, 2007.

2008.


The long-term profitability of the Company’s operations is uncertain, and may never occur.  The Company’s long-term profitability will be directly related to its ability to develop a commercially viable drug product or products.  This in turn depends on numerous factors, including the following:


a)  a)

the success of the Company’s research and development activities, including its drug discovery, preclinical and clinical development programs;

activities;
b)  b)

obtaining Canadian and United States regulatory approvals to market any of  its leaddevelopment products;

c)  c)

the ability to contract for the manufacture of the Company’s products according to schedule and within budget, given that it has no experience in large scale manufacturing;

d)  d)

the ability to develop, implement and maintain appropriate systems and structures to market and operate within applicable regulatory, industry and legal guidelines;

e)  e)

the ability to successfully prosecute and defend its patents and other intellectual property; and

f)  f)

the ability to successfully market the Company’s products including AGGRASTAT®(tirofiban hydrochloride), given that it has limited resources.


If the Company does achieve profitability, it may not be able to sustain or increase profitability in the future.


The Company may be exposed to short-term liquidity risk.

To a certain extent the Company relies on trade credit, as well as cash from operations, term debt and equity issues to provide the necessary short-term financing to conduct the Company’s research and development activities, as well as its commercial operations.  Should suppliers and other creditors decline to extend short-term credit to the Company in the future, it may have a material adverse effect on the Company’s business prospects, financial results and financial condition.


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Despite

Under current indebtedness levels the Company must meet its debt repayment obligations. Additionally, the Company may still be able to incur substantially more debt.  This could further exacerbate the risks associated with the Company’s substantial leverage.

On July 18, 2011, the Company’s previously existing long-term debt was settled as described in Note 8 of the audited consolidated financial statements for the year ended May 31, 2012 resulting in a gain on the statement of net income of $23,931,807.  Also on July 18, 2011, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program, to assist in this previously described settlement.  The loan bears interest annually at the crown corporation borrowing rate plus two percent and matures on July 1, 2016.  The loan is payable interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity.  The loan is secured by the Company’s assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer.  The Company must meet its debt repayment obligations and failure to do so could cause the lender to demand on its security on the Company's long-term debt.  The Company has made all payments to date in relation to this indebtedness, however there is no certainty that the Company will be able to continue servicing the debt once principal repayments are required.

Despite current indebtedness levels, the Company may still be able to incur substantial additional indebtedness in the future. As at May 31, 2011 the Company had significant debt servicing obligations that it did not have the ability to repay without refinancing or restructuring and the Company was in default of the terms of its long-term debt financing obligations. Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classified as a current liability as at May 31, 2011 and 2010 as described in note 8 of the audited consolidated financial statements for the year ended May 31, 2011. On July 18, 2011, the long-term debt was settled as described in Note 16 of the audited consolidated financial statements for the year ended May 31, 2011.


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The Company may never receive regulatory approval in Canada, the United States or abroad for any of its products in development.  Therefore, the Company may not be able to sell any therapeutic products currently under development.


The Company’s failure to obtain necessary regulatory approvals to fully market its current and future development stage products in one or more significant markets may adversely affect its business, financial condition and results of operations.  The process involved in obtaining regulatory approval from the competent authorities to market therapeutic products is long and costly and may delay product development.  The approval to market a product may be applicable to a limited extent only or it may be refused entirely.


With the exception of AGGRASTAT,®, all of the Company’s products are currently in the research and development stages.  The Company may never have another commercially viable drug product approved for marketing.  To obtain regulatory approvals for its products and to achieve commercial success, human clinical trials must demonstrate that the products are safe for human use and that they show efficacy.  Unsatisfactory results obtained from a particular study or clinical trial relating to one or more of the Company’s products may cause the Company to reduce or abandon its commitment to that program.


If the Company fails to successfully complete its clinical trials, it will not obtain approval from the U.S. Food and Drug Administration (“FDA”) and other international regulatory agencies, to market its leading products.  Regulatory approvals also may be subject to conditions that could limit the market its products can be sold in or make either products more difficult or expensive to sell than anticipated.  Also, regulatory approvals may be revoked at any time for various reasons, including for failure to comply with regulatory requirements or poor performance of its products in terms of safety and effectiveness.


The Company’s business, financial condition and results of operations may be adversely affected if it fails to obtain regulatory approvals in Canada, the United States and abroad to market and sell its products or any current or future drug products, including any limitations imposed on the marketing of such products.


If the Company fails to acquire and develop additional product candidates or approved products, it will impair the Company’s ability to grow its business and to increase value for shareholders.
The Company generates product revenue only from AGGRASTAT.  A component of the Company’s plan to generate additional revenue is its intention to develop and/or to acquire or license, and then develop and market, additional product candidates or approved products. The success of this growth strategy depends upon the Company’s ability to identify, select and acquire or license pharmaceutical products that meet the criteria it has established.  Due to the fact the Company has limited financial capacity and limited value in its equity, relative to other companies in the industry, it has a limited number of product opportunities to choose from.  Moreover, the Company’s ability to research and develop its own, or other acquired/licensed products, is limited by the extent of its internal scientific research capabilities. In addition, proposing, negotiating and implementing an economically viable acquisition or license is a lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources, may compete with the Company for the acquisition or license of product candidates and approved products. The Company may not be able to acquire or license the rights to additional product candidates and approved products on terms that it finds acceptable, or at all.

The Company may never receive regulatory approval in the United States to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT’s prescribing information.  Therefore, the Company may not be able to materially increase the sales of AGGRASTAT.

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In order to market AGGRASTAT for expanded indications and dosing regimens, the Company will need to conduct appropriate clinical trials, obtain positive results from those trials and obtain regulatory approval for such proposed indications and dosing regimens. The Company’s failure to obtain necessary regulatory approvals from the FDA to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT’s prescribing information may adversely affect its business, financial condition and results of operations.  The process involved in obtaining such regulatory approval is long and costly and may require additional investments that may not be reasonably achievable by the Company.  The regulatory authorities have substantial discretion in the approval process and may refuse to accept any application. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a new indication for a product.  Furthermore, the approval to modify the prescribing information may be applicable to a limited extent only or it may be refused entirely.

The current approved prescribing information for AGGRASTAT does not include all of the dosing and therapeutic indications provided for in the prescribing information of its competitors.  Moreover, the prescribing information does not include all of the dosing and therapeutic indications for which a physician may wish to use the product.  Although health care professionals may utilize a product at doses and for indications outside of the approved prescribing information, the Company is prohibited from promoting such uses.

To obtain regulatory approvals to modify the prescribing information, the Company must supply sufficient information supporting the safety and efficacy of such uses to the FDA, which in turn must review and deem this information to be sufficient to modify the label in the agreed upon fashion. Unsatisfactory or insufficient results obtained from any particular study or clinical trial relating to the Company’s products may cause the Company to reduce or abandon its efforts to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT’s prescribing information.

If the Company does not comply with federal, state and foreign laws and regulations relating to the health care business, it could face substantial penalties.
The Company and its customers are subject to extensive regulation by the federal government, and the governments of the states in which the business is conducted. In the United States, the laws that directly or indirectly affect the Company’s ability to operate its business include the following:
·  the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service for which payment may be made under federal health care programs such as Medicare and Medicaid;
·  other Medicare laws and regulations that prescribe the requirements for coverage and payment for services performed by the Company’s customers, including the amount of such payment;
·  the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;
·  the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with delivery of or payment for health care benefits, items or services; and
·  various state laws that impose similar requirements and liability with respect to state healthcare reimbursement and other programs.

16

If the Company’s operations are found to be in violation of any of the laws and regulations described above or any other law or governmental regulation to which the Company or its customers are or will be subject, the Company may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of its operations. Similarly, if the Company’s customers are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on the Company. Any penalties, damages, fines, curtailment or restructuring of the Company’s operations would adversely affect its ability to operate its business and financial results. Any action against the Company for violation of these laws, even if the Company is able to successfully defend against it, could cause it to incur significant legal expenses, divert management’s attention from the operation of the business and damage the Company’s reputation.

Due to the fact a substantial amount of the use of AGGRASTAT is outside of the FDA approved indications and/or dosing information contained within AGGRASTAT’s prescribing information, the Company may be at a greater risk than another pharmaceutical company would be whose products are predominantly used within the approved prescribing information.

AGGRASTAST competes with a variety of drugs, which may limit the use of AGGRASTAT and adversely affect the Company’s revenue.
Due to the incidence and severity of cardiovascular diseases, the market for anticoagulant and antiplatelet therapies is large and competition is intense. There are a number of anticoagulant and antiplatelet drugs currently on the market, awaiting regulatory approval or in development, including orally administered agents. AGGRASTAT competes with, or may compete with in the future, these drugs to the extent AGGRASTAT and any of these drugs are approved for the same or similar indications.
AGGRASTAT competes primarily with other platelet inhibitors, in particular the other GP IIb/IIIa inhibitors, ReoPro (abciximab) (sold by Eli Lilly and Johnson & Johnson/Centocor, Inc.) and Integrilin (eptifibatide) (sold by Merck & Co., Inc.).  It also competes with a number of oral platelet inhibitors, which can be used alone or in conjunction with anticoagulants, most notably with heparin (sold generically by a number of companies) or Angiomax (bivalirudin) (sold by The Medicines Company, Inc.).  These competitors are all marketed by large pharmaceutical companies with significantly more resources and experience than the Company.  In the majority of hospitals in the United States AGGRASTAT is not available on the hospital formulary and it can be very difficult and time consuming to have AGGRASTAT added to formulary for use by health care professionals.  In many cases, the other treatment approaches may have FDA approval for dosing regimens and/or therapeutic indications that are outside of AGGRASTAT’s approved prescribing information.  The risk of bleeding associated with AGGRASTAT may cause physicians to choose an alternative therapy.  In some circumstances, AGGRASTAT competes with other drugs for the use of hospital financial resources. Although AGGRASTAT is positioned as a relatively low cost therapy, in certain circumstances, other treatment approaches are lower cost and may for this reason be preferred by health care professionals, in particular where oral antiplatelet agents are deemed suitable.

The Company may not be able to hire or retain the qualified scientific, technical and management personnel it requires.


The Company’s business prospects and operations depend on the continued contributions of certain of the Company’s executive officers and other key management and technical personnel, certain of whom would be difficult to replace.


14


The CompanyCompany’s subsidiary, Medicure International, Inc., has a contract with CanAm Bioresearch Inc. (“CanAm”) to perform for it a significant amount of its research and development activities.  Because of
17

the specialized scientific nature of the Company’s business, the loss of services of CanAm may require the Company to attract and retain replacement qualified scientific, technical and management personnel.  Competition in the biotechnology industry for such personnel is intense and the Company may not be able to hire or retain a sufficient number of qualified personnel, which may compromise the pace and success of its research and development activities.


Also, certain of the Company’s management personnel are officers and/or directors of other companies, some publicly-traded, and will only devote part of their time to the Company.  Although subsequent to May 31, 2011, the Company purchasedhas key person insurance for Dr. Albert Friesen, Chief Executive Officer, the Company does not have key person insurance in effect in the event of a loss of any other management, scientific or other key personnel.  The loss of the services of one or more of the Company’s current executive officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on the Company’s business prospects, financial results and financial condition.

The Company faces substantial technological competition from many biotechnology and pharmaceutical companies with much greater resources, and it may not be able to effectively compete.


Technological and scientific competition in the pharmaceutical and biotechnology industry is intense.  The Company competes with other companies in Canada, the United States and abroad to develop products designed to treat similar conditions.  Many of these other companies have substantially greater financial, technical and scientific research and development resources, manufacturing and production and sales and marketing capabilities than the Company.  Small companies may also prove to be significant competitors, particularlywhether acting independently or through collaborative arrangements with large pharmaceutical and biotechnology companies.  Developments by other companies may adversely affect the competitiveness of the Company’s products or technologies or the commitment of its research and marketing collaborators to its programs or even render its products obsolete.


The pharmaceutical and biotechnology industry is characterized by extensive drug discovery and drug research efforts and rapid technological and scientific change.  Competition can be expected to increase as technological advances are made and commercial applications for biopharmaceutical products increase.  The Company’s competitors may use different technologies or approaches to develop products similar to the products which it is developing, or may develop new or enhanced products or processes that may be more effective, less expensive, safer or more readily available before or after the Company obtains approval of its products.  The Company may not be able to successfully compete with its competitors or their products and, if it is unable to do so, the Company’s business, financial condition and results of operations may suffer.


The Company may be unable to establish collaborative and commercial relationships with third parties.


The Company’s success will depend partly on its ability to enter into and to maintain various arrangements with corporate partners, licensors, licensees and others for the research, development, clinical trials, manufacturing, marketing, sales and commercialization of its products. These relationships will be crucial to the Company’s intention to license to or contract with larger, internationalother pharmaceutical companies for the manufacturing, marketing, sales andand/or distribution of any products it may commercialize for production.its current or future products.  There can be no assurance that any licensing or other agreements will be established on favourable terms, if at all. The failure to establish successful collaborative arrangements may negatively impact the Company’s ability to develop and commercialize its products, and may adversely affect its business, financial condition and results of operations.


18

15

The Company has licensed certain technologies relating to products under development and may enter into future licensing agreements. The Company’s current licensing agreements contain provisions allowing the licensors to terminate such agreements if it becomes insolvent or breach the terms and conditions of the licensing agreements without rectifying such event of default in accordance with the agreement terms.

The Company is currently dependent on its remaining inventory of its sole commercial product, AGGRASTAT®and does not have in place a qualified supplier of raw material used in the manufacture of AGGRASTAT®.

Subsequent to May 31, 2011,AGGRASTAT.

During fiscal 2012, the Company’s subsidiary, Medicure International, Inc., acquired a significant quantity of the raw material used in the manufacture of AGGRASTAT®and terminated its supply contract with its sole supplier of the raw material for AGGRASTAT®.AGGRASTAT.  In addition, Medicure International, Inc. sold drug substance from inventory on hand to a third party as described in Note 16party.  Also during fiscal 2012, Medicure International engaged and initiated work with a contract manufacturing organization to establish a new source of the audited consolidated financial statementsraw material for the year ended May 31, 2011. AGGRASTAT.
The Company’s subsidiary, Medicure Pharma, Inc., also has a third party manufacturer of the final product AGGRASTAT®and that supply arrangement is due todoes not expire onuntil July 1, 2012. 2015.
If either the supply of raw material or the final product manufacturing agreement for AGGRASTAT® is terminated or interrupted, or if the Company and its subsidiaries are unable to establish new or maintain existing third party manufacturers, or if the inventories of AGGRASTAT® currently held are contaminated or otherwise lost, and the Company was unable to obtain a replacement supplier or manufacturer, it could have a material adverse effect on the Company’s business prospects, financial results and financial condition.

The Company may fail to obtain acceptable prices or appropriate reimbursement for its products and its ability to successfully commercialize its products may be impaired as a result.


Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians, medical device companies, drugpharmaceutical companies, medical supply companies, and companies, such as the Company, that offer or plan to offer various products in the United States and other countries in the future.countries. The Company’s ability to earn sufficient returns on its products will depend in part on the extent to which reimbursement for the costs of such products, related therapies and related treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the United States, the Company’s ability to have its products and related treatments and therapies eligible for Medicare or private insurance reimbursement is and will beremain an important factor in determining the ultimate success of its products. If, for any reason, Medicare or the insurance companies decline to provide reimbursement for the Company’s products and related treatments, the Company’s ability to commercialize its products would be adversely affected. There can be no assurance that the Company’s products and related treatments will be eligible for reimbursement.


There has been a trend toward declining government and private insurance expenditures for many healthcare items. Third-party payers are increasingly challenging the price of medical products and services.


If purchasers or users of the Company’s products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products and related treatments, they may forgo or reduce such use. Even if the Company’s products and related treatments are approved for reimbursement by Medicare and private insurers, of which there can be no assurance,as is the case with AGGRASTAT, the amount of reimbursement may be reduced at times, or even eliminated. This would have a material adverse effect on the Company’s business, financial condition, and results of operations.


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16

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, and there can be no assurance that adequate third-party coverage will be available.


The Company does not have manufacturing experience and has limited marketing resources and may never be able to successfully manufacture or market certain of its products.


The Company has no experience in commercial manufacturing and has limited resources for marketing or selling its products.  The Company may never be able to successfully manufacture and market certain of its products.  If any other of its development products are approved for sale, the Company intends to contract with and rely on third parties to manufacture, and possiblepossibly also to market and sell its products.  Accordingly, the quality, timing and ultimately the commercial success of such products may be outside of the Company’s control.  Failure of or delay by a third party manufacturer of the Company’s products to comply with good manufacturing practices or similar quality control regulations or satisfy regulatory inspections may have a material adverse effect on its future prospects.  Failure of or delay by a third party in the marketing or selling of the Company’s products or failure of the Company to successfully market and sell such products likewise may have a material adverse effect on its future prospects.


The Company has limited product liability insurance and may not be able to obtain adequate product liability insurance in the future.


The sale and use of the Company’s commercial and development products, , and the conduct of clinical studies involving human subjects, may entailentails product and professional liability risks whichthat are inherent in the testing, production, marketing and sale of new drugs to humans.  While the Company has taken, and will continue to take, what it believes are appropriate precautions, there can be no assurance that it will avoid significant liability exposure. Although the Company currently carries product liability insurance for clinical trials, there can be no assurance that it has sufficient coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain insurance on economically feasible terms or to otherwise protect against potential product liability claims could inhibit or prevent the commercialization of products developed by the Company.  The obligation to pay any product liability claim or recall for a product may have a material adverse effect on its business, financial condition and future prospects.  In addition, even if a product liability claim is not successful, adverse publicity and the time and expense of defending such a claim may significantly interfere with the Company’s business.


If the Company is unable to successfully protect its proprietary rights, its competitive position will be adversely affected.


The patent positions of pharmaceutical companies are generally uncertain and involve complex legal, scientific and factual issues. The Company’s success depends significantly on its ability to:

·  obtain and maintain U.S. and foreign patents, including defending those patents against adverse claims;
·  secure patent term extensions for the patents covering its approved products;
·  protect trade secrets;
·  operate without infringing the proprietary rights of others; and
·  prevent others from infringing its proprietary rights.

The Company’s success will depend partlyto a significant degree on its ability to obtain and protect its patents and protect its proprietary rights in unpatented trade secrets.


20

The Company owns or jointly owns numerous patents from the United States Patent Office and other jurisdictions.  The Company has additional pending United States patent applications along with applications pending in other jurisdictions.  The Company’s pending and any future patent applications may not be accepted by the United States Patent and Trademark Office or any other jurisdiction in which applications may be filed.  Also, processes or products that may be developed by the Company in the future may not be patentable.


17

  Errors or ill-advised decisions by Company staff and/or contracted patent agents may also affect the Company’s ability to obtain or maintain valid patent protection.


The patent protection afforded to biotechnology and pharmaceutical companies is uncertain and involves many complex legal, scientific and factual questions.  There is no clear law or policy involving the degree of protection afforded under patents.  As a result, the scope of patents issued to the Company may not successfully prevent third parties from developing similar or competitive products.  Competitors may develop similar or competitive products that do not conflict with the Company’s patents.  Litigation may be commenced by the Company to prevent infringement of its patents.  Litigation may also commence against the Company to challenge its patents that, if successful, may result in the narrowing or invalidating of such patents.  It is not possible to predict how any patent litigation will affect the Company’s efforts to develop, manufacture or market its products.  However, the cost of litigation to prevent infringement or uphold the validity of any patents issued to the Company may be significant, in which case its business, financial condition and results of operations may suffer.  Patents provide protection for only a limited period of time, and much of such time can occur well before commercialization commences.


The U.S. Congress is considering patent reform legislation. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the value of patents, once obtained, and the Company’s ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal courts, and the United States Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that would weaken the Company’s ability to obtain new patents or to enforce its existing patents and patents that it might obtain in the future.

Disclosure and use of the Company’s proprietary rights in unpatented trade secrets not otherwise protected by patents are generally controlled by written agreements.  However, such agreements will not provide the Company with adequate protection if they are not honoured, others independently develop an equivalent technology, disputes arise concerning the ownership of intellectual property, or its trade secrets are disclosed improperly.  To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the Company, disputes may also arise as to the rights to related or resulting know-how or inventions.


Others could claim that the Company infringes on their proprietary rights, which may result in costly, complex and time consuming litigation.


The Company’s success will depend partly on its ability to operate without infringing upon the patents and other proprietary rights of third parties.  The Company is not currently aware that any of its products or processes infringes the proprietary rights of third parties.  However, despite its best efforts, the Company may be sued for infringing on the patent or other proprietary rights of third parties at any time in the future.


Such litigation, with or without merit, is time-consuming and costly and may significantly impact the Company’s financial condition and results of operations, even if it prevails.  If the Company does not prevail, it may be required to stop the infringing activity or enter into a royalty or licensing agreement, in
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addition to any damages it may have to pay.  The Company may not be able to obtain such a license or the terms of the royalty or license may be burdensome for it, which may significantly impair the Company’s ability to market its products and adversely affect its business, financial condition and results of operations.


The Company is subject to stringent governmental regulation, in the future may become subject to additional regulations and if it is unable to comply, its business may be materially harmed.


Biotechnology, medical device, and pharmaceutical companies operate in a high-risk regulatory environment. The FDA and other national health agencies can be very slow to approve a product and can also withhold product approvals. In addition, these health agencies also oversee many other medical product operations, such as research and development, manufacturing, and testing and safety regulation of medical products. As a result, regulatory risk is normally higher than in other industry sectors.


The Company is or may become subject to various federal, provincial, state and local laws, regulations and recommendations.  The Company is subject to various laws and regulations in Canada, relating to product emissions, use and disposal of hazardous or toxic chemicals or potentially hazardous substances, infectious disease agents and other materials, and laboratory and manufacturing practices used in connection with its research and development activities.  If the Company fails to comply with these regulations, it may be fined or suffer other consequences that could materially affect its business, financial condition or results of operations.


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The pharmaceutical sales and marketing industry within which the Company operates isin a complex legal and regulatory environment.  The failure to comply with applicable laws, rules and regulations may result in civil and criminal legal proceedings.  As those rules and regulations change or as governmental interpretation of those rules and regulations evolve, prior conduct may be called into question.  The Company may become subject of federal and/or state governmental investigations into pricing, marketing, and reimbursement of its prescription drug product.  Any such investigation could result in related restitution or civil litigation on behalf of the federal or state governments, as well as related proceedings initiated against the Company by or on behalf of consumers and private payers.  Such proceedings may result in trebling of damages awarded or fines in respect of each violation of law.  Criminal proceedings may also be initiated against the Company.  Any of these consequences could materially and adversely affect the Company’s financial results.


The Company is unable to predict the extent of future government regulations or industry standards. However, it should be assumed that government regulations or standards will increase in the future.  New regulations or standards may result in increased costs, including costs for obtaining permits, delays or fines resulting from loss of permits or failure to comply with regulations.


The Company’s products may not gain market acceptance, and as a result it may be unable to generate significant revenues.


Except with respect to AGGRASTAT,®, the Company does not currently have the required manufacturing capabilities, clinical data and resultsregulatory approvals necessary to successfully market its product candidatesproducts under development in any jurisdiction; future clinical or preclinical results may be negative or insufficient to allow it to successfully market any of its product candidates;products under development; and obtaining needed data and results may take longer than planned, and may not be obtained at all.


Even if the Company’s products under development are approved for sale, they may not be successful in the marketplace. Market acceptance of any of the Company’s products will depend on a number of factors, including demonstration of clinical effectiveness and safety; the potential advantages of its
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products over alternative treatments; the availability of acceptable pricing and adequate third-party reimbursement; and the effectiveness of marketing and distribution methods for the products.  Providers, payors or patients may not accept the Company’s products, even if they prove to be safe and effective and are approved for marketing by the FDA and other national regulatory authorities.  The Company anticipates that it will take many years before its initial products may be sold commercially.  If the Company’s products do not gain market acceptance among physicians, patients, and others in the medical community, its ability to generate significant revenues from its products would be limited.


The Company may not achieve its projected development goals in the time frames it announces and expects.


The Company sets goals for and may from time to time make public statements regarding timing of the accomplishment of objectives related to AGGRASTAT and/or its products under development, that are material to itsthe Company’s success, such as the commencement and completion of clinical trials, anticipated regulatory approval dates, and timing of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in the Company’s clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving product development, manufacturing or marketing milestones necessary to commercialize its products. There can be no assurance that the Company’s clinical trials will be completed, that it will make regulatory submissions or receive regulatory approvals as planned, or that it will be able to adhere to its current schedule for the scale-up of manufacturing and launch of any of its products. If the Company fails to achieve one or more of these milestones as planned, that could materially affect its business, financial condition or results of operations and the price of its common shares could decline.


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The Company’s business involves the use of hazardous material, which requires it to comply with environmental regulations.


The Company’s research and development processes and commercial activities may involve the controlled storage, use, and disposal of hazardous materials and hazardous biological materials. The Company is subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials and certain waste products. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result, and any such liability could exceed its resources. There can be no assurance that the Company will not be required to incur significant costs to comply with current or future environmental laws and regulations, or that its business, financial condition, and results of operations will not be materially or adversely affected by current or future environmental laws or regulations.


The Company’s insurance may not provide adequate coverage with respect to environmental matters.


Environmental regulation could have a material adverse effect on the results of the Company’s operations and its financial position.


The Company is subject to a broad range of environmental regulations imposed by federal, state, provincial, and local governmental authorities. Such environmental regulation relates to, among other things, the handling and storage of hazardous materials, the disposal of waste, and the discharge of contaminants into the environment. Although the Company believes that it is in material compliance with applicable environmental regulation, as a result of the potential existence of unknown environmental issues and frequent changes to environmental regulation and the interpretation and enforcement thereof,
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there can be no assurance that compliance with environmental regulation or obligations imposed thereunder will not have a material adverse effect on the Company in the future.


The Company operates in an industry that is more susceptible to legal proceedings. The Company may become involved in litigation.

The Company operates in an industry consisting of firms that are more susceptible to legal proceedings than firms in other industries, due to the uncertainty and complex regulatory environment involved in the development and sale of pharmaceuticals. The Company intends to vigorously defend such actions if and when they arise. Defense and prosecution of legal claims can be expensive and time consuming, may adversely affect the Company regardless of the outcome due to the diversion of financial, management and other resources away from the Company’s primary operations, and could impact the Company’s ability to continue as a going concern in the longer term. In addition, a negative judgment against the Company, even if the Company is planning to appeal such a decision, or even a settlement in a case, could negatively affect the cash reserves of the Company, and could have a material negative effect on the development and sale of its products.

Indemnification obligations to the Company’s directors and senior management may adversely affect its financial condition.

The Company has entered into agreements pursuant to which it will indemnify the directors and senior management in respect of certain claims made against them while acting in their capacity as such. If the Company is called upon to perform its indemnity obligations, the Company’s financial condition will be adversely affected. The Company is not currently aware of any matters pending or under consideration that may result in indemnification payments to any of its present or former directors or senior management.

The Company is exposed to foreign exchange movements since the majority of its debt financing and its commercial sales operations are denominated in U.S. currency.


The majority of the Company’s sales revenues and a substantial portion of its selling, general and administrative expenses are denominated in U.S. dollars.  The Company does not utilize derivatives, such as foreign currency forward contracts and futures contracts, to manage its exposure to currency risk and as a result a change in the value of the Canadian dollar against the U.S. dollar could have a negative impact on the Company’s business prospects, financial results and financial condition. As well, at May 31, 2011, the Company had US$47.2 million of future debt service obligations (minimum payments), which was subsequently settled.


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The Company may need to raise additional capital through the sale of its securities, resulting in dilution to its existing shareholders.  Such funds may not be available, or may not be available on reasonable terms, adversely affecting the Company’s operations.


The Company has limited financial resources and has financed much of its operations through the sale of securities, primarily common shares.  The Company has significant on-going cash expenses and limited ability to generate cash from operations.  To meet its on-going cash needs the Company may need to continue its reliancerely on the sale of such securities for future financing, resulting in dilution to its existing shareholders. The Company’s long-term capital requirements may be notably significant and will depend on many factors, including continued scientific progress in its product discovery and development program, revenue, progress in the maintenance and expansion of its sales and marketing capabilities, progress in its pre-clinical and clinical evaluation of products and product candidates, time and expense associated with filing, prosecuting and enforcing its patent claims and costs associated with obtaining regulatory approvals.  In order to meet such capital requirements, the Company will consider contract fees,
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collaborative research and development arrangements, public financing or additional private financing (including the issuance of additional equity securities) to fund all or a part of particular programs.


The Company’s business, financial condition and results of operations will depend on its ability to obtain additional financing which may not be available under favourable terms, if at all.  The Company’s ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as its business performance.  Where additional financing is available, the Company may be required to obtain approval forfrom the Company’s shareholders.  Such approval may not be provided.

  The Company has not completed a financing through sale of its securities since fiscal 2008.


The Company is listed on the TSX-V, which is a stock exchange based in Canada.  Under policy 4.1 of the TSX-V’s Corporate Finance Manual, a listed company is not permitted to issue securities at less than $0.05 per share.  As at May 31, 2012, the closing trading price for the Company’s shares was $0.035.  There can be no certainty that the share price will trade regularly above the minimum share issuance price.  Since investors are unlikely to be willing to purchase shares at prices above the then current trading price, there is considerable uncertainty regarding the ability of the Company to complete an equity financing until its share price has stabilized above $0.05 per share.

A consolidation of shares to reduce the total number of outstanding shares is one approach taken by companies to increase the share price of their listed securities.  At the Company’s most recent annual and special meeting of shareholders held on November 22, 2011, the Company obtained the necessary approvals from shareholders to give the board of directors of the Company authority, in its sole discretion, to implement a share consolidation at any time prior to November 22, 2012 subject to any required regulatory approvals.  The Company’s board of directors was also given the authority, in its sole discretion, to select the exact consolidation ratio, provided that (i) the ratio may be no smaller than one post-consolidation share for every four pre-consolidation shares and no larger than one post-consolidation share for every fifteen pre-consolidation shares, and (ii) the number of pre-consolidation shares in the ratio must be a whole number of shares.

If its capital resources are exhausted and adequate funds are not available, the Company may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of its proposed products, or obtain funds through arrangements with corporate partners that require it to relinquish rights to certain of its technologies or products.


The Company is exposed to risks given its significant dependence on revenue from the sale of its sole commercial product, AGGRASTAT.

The Company has limited financial resources and is largely dependent upon revenue from the sale of its sole commercial product. The Company has significant on-going cash expenses, including commitments to advance research and development programs, however, the Company has limited ability to generate cash from other sources, such as financing through the sale of equity.

If revenue from the sale of AGGRASTAT is not maintained or increased, the Company may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of its proposed products, or obtain funds through arrangements with corporate partners that require it to relinquish rights to certain of its technologies or products.

Future issuance of the Company’s common shares will result in dilution to its existing shareholders.  Additionally, future sales of the Company’s common shares into the public market may lower the market price which may result in losses to its shareholders.


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As of May 31, 2011,2012, the Company had 130,307,552,182,947,595 common shares issued and outstanding.  A further 2,322,19214,439,192 common shares are issuable upon exercise of outstanding stock options and another 9,358,5215,373,913 common shares are issuable upon exercise of share purchase warrants, all of which may be exercised in the future resulting in dilution to the Company’s shareholders.  The Company’s stock option plan allows for the issuance of stock options to purchase up to a maximum of 10% of the outstanding common shares at any time.

On


During fiscal 2012, on July 18, 2011, the Company issued 52,640,043 shares and 12,542,000 stock options in conjunction with transactions announced on that date as described in Note 16 to the audited consolidated financial statements for the year ended May 31, 2011.

Business Overview section of this Annual Report.


Sales of substantial amounts of the Company’s common shares into the public market, or even the perception by the market that such sales may occur, may lower the market price of its common shares.


The Company’s common shares may experience extreme price and volume volatility which may result in losses to its shareholders.


On May 31, 2011,2012, the Company’s common shares closed at a price of CDN$0.020.035 on the NEX board of the TSX Venture Exchange (“NEX”).TSX-V.  For the period from June 1, 20102011 to May 31, 2011,2012, the high and low trading prices of the Company’s common shares were CDN$0.030.06 and CDN$0.005,0.015, respectively, with a total trading volume of 27,386,21155,192,594 shares.  The Company’s shares were delisted from Amex on July 3, 2008 and from the TSX on March 26, 2010.


  From March 26, 2010 until October 21,

2011, shares of the Company traded on the NEX board of the TSX-V under the symbol “MPH.H”.  On October 24, 2011 shares of the Company commenced trading on the TSX-V under the symbol “MPH”.


Daily trading volume on the TSX of the Company’s common shares for the period from June 1, 20102011 to May 31, 20112012 has fluctuated, with a high of 2,023,36511,056,630 shares and a low of nilshares,nil shares, averaging approximately 107,941 shares.219,018 shares per trading day.  Accordingly, the trading price of the Company’s common shares may be subject to wide fluctuations in response to a variety of factors including announcement of material events by the Company, such as the status of required regulatory approvals for its products, competition by new products or new innovations, fluctuations in its operating results, general and industry-specific economic conditions and developments pertaining to patent and proprietary rights.  The trading price of the Company’s common shares may be subject to wide fluctuations in response to a variety of factors and/or announcements concerning such factors, including:


·  actual or anticipated period-to-period fluctuations in financial results;
·  litigation or threat of litigation;
·  failure to achieve, or changes in, financial estimates of individual investors and/or by securities analysts;
·  new or existing products or services or technological innovations by the Company or its competitors;
·  comments or opinions by securities analysts or major shareholders;
·  conditions or trends in the pharmaceutical, biotechnology and life science industries;
·  significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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·  results of, and developments in, the Company’s research and development efforts, including results and adequacy of, and developments in, its clinical trials and applications for regulatory approval;
·  additions or departures of key personnel;
·  sales of the Company’s common shares, including by holders of the notes on conversion or repayment by the Company in common shares;
·  economic and other external factors or disasters or crises;
·  limited daily trading volume; and
·  developments regarding the Company’s patents or other intellectual property or that of its competitors.
In addition, the securities markets in the United States and Canada have recently experienced a high level of price and volume volatility, and the market price of securities of biotechnology companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.


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There may not be an active, liquid market for the Company’s common shares.

On March 26, 2010, the Company’s common shares were delisted from the TSX due to the Company’s current inability to meet continued listing requirements.  On March 29, 2010, the Company’s common shares commenced trading on the NEX board of the TSX Venture ExchangeTSX-V under the symbol “MPH.H”.  The transfer in stock exchange listingshares continued trading on the NEX until October 21, 2011, at which time the trading of the Company’s shares was transferred to the NEX was designed to ensure continuous trading and continued liquidity forTSX-V under the Company’s shareholders.

symbol “MPH”.


The Company’s shares ceased trading on the Amex effective July 3, 2008.


There is no guarantee that an active trading market for the Company’s common shares will be maintained on the NEX.TSX-V.  Investors may not be able to sell their shares quickly or at the latest market price if trading in its common shares is not active.


If there are substantial sales of the Company’s common shares, the market price of its common shares could decline.

Sales of substantial numbers of the Company’s common shares could cause a decline in the market price of its common shares.  Any sales by existing shareholders or holders of options or warrants may have an adverse effect on the Company’s ability to raise capital and may adversely affect the market price of its common shares.

The Company has no history of paying dividends, does not intend to pay dividends in the foreseeable future and may never pay dividends.


Since incorporation, the Company has not paid any cash or other dividends on its common shares and does not expect to pay such dividends in the foreseeable future as all available funds will be invested to finance the growth of its business.  The Company will need to achieve profitability prior to any dividends being declared, which may never happen.


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If the Company is classified as a “passive foreign investment Company” for United States income tax purposes, it could have significant and adverse tax consequences to United States holders of its common shares.

The Company does not believe that it was a “passive foreign investment Company” for the taxable year ended May 31, 2011,2012, and does not expect that it will be a “passive foreign investment Company” (PFIC) for the taxable year ending May 31, 2012.2013.  (See more detailed discussion in Item 10 E10ETaxation)Taxation)  However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its “passive foreign investment Company” status or that the Company will not be a “passive foreign investment Company” for the current taxable year or any subsequent taxable year.  Accordingly, although the Company expects that it may be a QFC“Qualified Foreign Corporation” (QFC) for the taxable year ending May 31, 2012,2013, there can be no assurances that the IRS will not challenge the determination made by the Company concerning its QFC status, that the Company will be a QFC for the taxable year ending May 31, 20122013 or any subsequent taxable year, or that the Company will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.


The Company’s classification as a PFIC could have significant and adverse tax consequences for United States holders of its common shares.


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The Company no longer has adopted a shareholder rights plan.

The

During fiscal 2012, the Company has adopted aallowed its shareholder rights plan.plan to expire. The provisions of such plan were intended to provide benefit to shareholders.
Penny stock classification could affect the marketability of the Company's common shares and shareholders could find it difficult to sell their shares.
The penny stock rules in the United States require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.
Further, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.  These additional broker-dealer practices and disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the Company's common shares in the United States, and shareholders may find it more difficult for a third party to acquire a majority of the Company’s outstanding common shares, the effect of which may be to deprive the Company’s shareholders of a control premium that might otherwise be realized in connection with an acquisition of its commonsell their shares.

Risks associated with Materialmaterial weaknesses within the Company’s financial reporting and review process

In connection with its review of the Company’s internal controlInternal Control over financialFinancial Reporting, the Company has identified material weaknesses with the Company’s financial reporting and review process, involving the preparation and review of the reconciliation from Canadian GAAP to United States GAAP, the accounting and reporting for complex transactions, due to limited staff and the resignationnot allowing for appropriate reviews of the Company’s Chief Financial Officer subsequent to year-end resulting in procedures over the year-end close process not operating effectively. Based on such determination, the Company’s management concluded that the Company’s internal control over financial reporting was not effective as of May 31, 2011. The Company either plans to ensure adequate personnel are available with the necessary training and expertise or rely on an external third party to provide this control. In addition, the Company appointed a new Chief Financial Officer on September 22, 2011.transactions.  Any failure to remediate the material weaknesses, to implement the
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required new or improved control, or difficulties encountered in the implementation, could cause the Company to fail to meet its reporting obligations on a timely basis or result in material misstatements in the annual or interim financial statements.  Inadequate internal control over financial reporting could also cause investors to lose confidence in the Company’s reported financial information, which could cause the Company’s stock price to decline.

ITEM 4. INFORMATION ON THE COMPANY


A. History and Development of the Company


On December 22, 1999, the Company was formed by the amalgamation of Medicure Inc. with Lariat Capital Inc. pursuant to the provisions of theBusiness CompanysCorporations Act (Alberta).  The Company was continued from Alberta to the federal jurisdiction by Certificate of Continuance issued pursuant to the provisions of theCanada Business CompanysCorporations Acton February 23, 2000.


The Company’s current legal and commercial name is Medicure Inc. and its current registered office is 30th Floor, 360 Main Street, Winnipeg, Manitoba, Canada, R3C 4G1, Phone (204) 487-7412.  The Company’s head office is located at 2-1250 Waverley Street, Winnipeg, Manitoba, Canada, R3T 6C6.


In August 2006, the Company acquired the U.S. rights to its first commercial product, AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, Virgin Islands and Guam) for US$19,000,000.


In September 2007, the Company monetized a percentage of its current and potential future commercial revenues by entering into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for proceeds of US$25 million (See Item 5 B – Liquidity and Capital Resources).

million.


In February 2008, the Company announced that its pivotal Phase III MEND-CABG II clinical trials with MC-1 did not meet the primary endpoint and as a result was not sufficient to support the filings.  As a result, the Company announced a restructuring plan that resulted in the organization reducing its head count by approximately 50 employees and full-time consultants. The restructuring and downsizing in March 2008 conserved capital for ongoing operations.


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In fiscal 2009,


Since March 2008, the Company has continued to focus on the sale and marketing of AGGRASTAT® and on focusing its research and development activities on the development of TARDOXAL,TM, for Tardive Dyskinesia,Dyskinesia.  The Company has also explored and MC-1 for chronic cardiovascular disorders, and exploring furtherimplemented a number of cost savings measures.measures and has further downsized its operations.    All these initiatives were initiated due to the restructuring plan announced towards the end of fiscal 2008.  These activities assisted in further reducing the Company’s use of capital, in particular its investment in research and development programs, but have moved forward certain programs on a limited and focused fashion such as the development and implementation of a new clinical, product and regulatory strategy for AGGRASTAT and the ongoing Phase II clinical study of TARDOXALTM for the treatment of Tardive Dyskinesia.

Since that time and up until the current date, further organizational charges have been undertaken to further reduce expenses and find operational efficiencies. TARDOXAL.


The Company’s future operations are dependent upon its ability to continue in operation forgrow sales of AGGRASTAT, and/or secure additional capital, which may not be available under favourable terms or at all.  If the foreseeable future remains dependent upon the effective execution of its business development and strategic plans, and on maintaining adequate workingCompany is unable to grow sales or raise additional capital, whether by means of financing, debt, revenue andmanagement will consider other strategies including further cost control measures. As at May 31, 2011 the Company had significant debt servicing obligations that it did not have the ability to repay without refinancing curtailments, delays of research and development activities, asset divestures and/or restructuring and the Company was in defaultmonetization of the terms of its long-term debt financing obligations. Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classified as a current liability as at May 31, 2011. On July 18, 2011, the Company settled its long-term debt to Birmingham in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT® sales until 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT® sales and increases on sales exceeding that amount.

certain intangibles.


B. Business Overview


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Plan of Operation

Medicure is a specialty pharmaceutical company engaged in the research, clinical development and commercialization of human therapeutics.  The Company’s primary operating focus is on the sale and marketing of its acute care cardiovascular drug, AGGRASTAT®  (tirofiban hydrochloride) owned by its subsidiary, Medicure International, Inc. and distributed in the United States and its territories through the Company’s U.S. subsidiary, Medicure Pharma, Inc.

The Company’s research and development program is primarily focused on developing and implementing  new plans related toregulatory, brand and life cycle management strategy for AGGRASTAT®  and, secondly, on the clinical development of TARDOXALTM for neurological disorders.  The Company also continues to explore certain other product opportunities.


Strategic changes made over the past year, coupled with focused capital conservation efforts, have assisted the Company in reducing its use of capital.  The Company's ability to continue in operation for the foreseeable future remains dependent upon the effective execution of its business development and strategic plans. The Company estimates it has sufficient working capital and revenue to fund ongoing operations. On July 18, 2011, the Company settled its existing long-term debt.


The ongoing focus of the Company and its primary asset of interest is AGGRASTAT® (tirofiban HCl).AGGRASTAT.  In parallel with the Company’s ongoing commitment to support the product, its valued customers and the continuing efforts of the commercial organization, the Company is in the process of developing and implementing a new regulatory, brand and life cycle management strategy for AGGRASTAT®.AGGRASTAT.  The objective of this effort is to further expand AGGRASTAT®’sAGGRASTAT’s share of, the US $400$330 million glycoprotein IIb/IIIa (GP IIb/IIIa) inhibitor market.  GP llb/llaIIb/IIIa inhibitors are injectable platelet inhibitors used to treat acute coronary syndromes and related conditions and procedures.


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Recent Developments


To date, the Company has not generated sufficient cash flow from operations to fund ongoing operational requirements, debt service obligations and cash commitments.  The Company has financed its operations principally through the net revenue received from the sale of inventory:

OnAGGRASTAT, sale of its equity securities, the issue of warrants and stock options, interest on excess funds held and the issuance of debt.  During fiscal 2012, on July 6,18, 2011, the Company entered into an agreement with Iroko Cardio, LLC ("Iroko") to advance AGGRASTAT®Company’s previously existing long-term debt was settled as described in each of Medicure and Iroko's respective territories. Iroko owns rights to AGGRASTAT® outside of the Company's territory. Under the terms of the agreement, the Company transferred to Iroko AGGRASTAT® drug substance from inventory on hand and the rights to purchase additional quantities from a third party. In turn, Iroko paid Medicure International Inc. US$1,059,000 on July 6, 2011 and will pay an additional US$850,000 on or before November 1, 2011, subject to certain conditions. In addition, Iroko made availableNote 8 to the Company certain analytical methods for testing of AGGRASTAT® drug productaccompanying financial statements. Based on management's current estimates and provided the Company the optionexpected operating activities, sufficient financial resources exist to obtain certain data used by Iroko to obtain changesfund operations to the approved useend of AGGRASTAT® in Europe.fiscal 2013.  The Company’s future operations are dependent upon its ability to grow sales of AGGRASTAT, and/or secure additional capital, which may not be available under favourable terms or at all.  If the Company exercisesis unable to grow sales or raise additional capital, management will consider other strategies including further cost curtailments, delays of research and development activities, asset divestures and/or monetization of certain intangibles.

Recent Developments
·  
New Clinical Trial of AGGRASTAT®:
On May 10, 2012 the Company announced the commencement of enrollment in a new clinical trial of AGGRASTAT (tirofiban HCl) entitled “Shortened Aggrastat Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI).
The Company had previously announced its optionplans for the new clinical trial on January 30, 2012.
SAVI-PCI is a randomized, open-label study enrolling approximately 600 patients undergoing percutaneous coronary intervention (PCI) at sites across the United States.  The study is designed to obtain
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evaluate whether patients receiving the data andinvestigational, High-Dose Bolus (HDB) regimen of AGGRASTAT (25 mcg/kg bolus over 3 minutes) followed by an infusion of 0.15 mcg/kg/min for a shortened duration of 1 to 2 hours will have outcomes that are similar, or “non-inferior,” to patients receiving a 12 to 18 hour infusion of Integrilin® (eptifibatide) (Merck & Co., Inc.) at its FDA approved dosing regimen.  The primary objective of SAVI-PCI is successful in getting changesto demonstrate AGGRASTAT is non-inferior to Integrilin with respect to the composite endpoint of death, PCI-related myocardial infarction, urgent target vessel revascularization, or major bleeding within 48 hours following PCI or hospital discharge.  The secondary objectives of this study include the assessment of safety as measured by the incidence of major bleeding.  The first patient is anticipated to be enrolled during the second quarter of calendar 2012.  The Principal Investigator for the study is Steven V. Manoukian, MD, Director of Cardiovascular Research at the Sarah Cannon Research Institute (SCRI).  The AGGRASTAT dosing regimen and the treatment setting studied in the SAVI-PCI study have not been approved by the FDA.
Both AGGRASTAT and Integrilin are reversible, small molecule GP IIb/IIIa inhibitors that have been shown in clinical trials to reduce the combined incidence of death and myocardial infarction in patients with unstable angina (UA) or non-ST elevation myocardial infarction (NSTEMI) undergoing cardiac catheterization when compared to heparin.  These agents work by preventing the ability of platelets to aggregate together.  These platelet aggregates – commonly known as blood clots - can result in a partial or complete blockage of the coronary artery if left untreated.
Bleeding is a common adverse reaction associated with the use of AGGRASTAT®GP IIb/IIIa inhibitors due to their unique ability to prevent and disaggregate blood clots.  A patient’s risk of bleeding is an important factor when determining an optimal treatment approach and, in some cases, complicates or limits the use of these agents.  With the SAVI-PCI study, the investigators will explore whether AGGRASTAT® HDB plus a shortened infusion can reduce the risk of bleeding while maintaining comparable ischemic protection relative to the currently practiced 18 hour infusion of Integrilin.  Other studies have indicated that shortening the infusion duration of GP IIb/IIIa inhibitors can potentially lead to a reduction in bleeding complications for patients undergoing PCI.  It is important to note that bleeding complications have been linked to increased rates of other major complications and mortality, as well as increased overall cost of care. A goal of the SAVI-PCI study is to further optimize the safety, efficacy and efficiency of treatment used in the setting of PCI.
·  Phase II Clinical Trial of Tardoxal:
On January 23, 2012 the Company provided an update and announced the addition of a site in India for its ongoing Phase II Clinical Trial, TardoxalTM for the Treatment of Tardive Dyskinesia (TEND-TD). The Company has received approval from the Drug Controller General of India and has begun enrollment at the site. The trial is approved in the United States Iroko will be entitledby the FDA, and in Canada, by the TPD, where sites are actively recruiting patients.

The addition of the new trial site (Schizophrenia Research Foundation, Chennai, India) is expected to receiveincrease the rate of enrollment. Current enrollment is at 34 patients, with 40 total patients needed for a royaltyplanned interim analysis.  The results from the interim analysis are expected in September 2012.

The Company has received FDA Fast Track designation for the clinical investigation of upTardoxal for the treatment of moderate to US$3.5 million on future AGGRASTAT® sales based on a percentagesevere TD. Fast Track designation is designed to facilitate the development and expedite the review of sales.

  • Debt settlementnew drugs that are intended to treat serious or life-threatening conditions and related transactions:

    that demonstrate the potential to address unmet medical needs.

  • ·  Listing Elevated to Tier 2 of the TSX Venture Exchange:
    31

    On October 24, 2011, the Company’s listing was elevated from the NEX board of the TSX–V to Tier 2 of the TSX-V.
    ·  Appointment of Chief Financial Officer:
    On September 21, 2011, the Company appointed Mr. James Kinley, CA as Chief Financial Officer.
    ·  Appointment of President and Chief Operating Officer:
    On July 25, 2011, the Company appointed Mr. Dawson Reimer as President and Chief Operating Officer.
    ·  Debt settlement and related transactions:
    On July 18, 2011, the Company settled its long-term debt to Birmingham Associates Ltd. in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT®sales until 2023.  The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT®sales and increases on sales exceeding that amount.

    In addition, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program. The loan bears interest annually at the crown company borrowing rate and matures on July 1, 2016.  The loan repayment schedule is interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. The loan is secured by the Company's assets and guaranteed by the Company’s Chief Executive Officer, and entities controlled by the Chief Executive Officer. The Company issued 20,000,000 common shares of the Company in consideration for this guarantee to the Company’s Chief Executive Officer and entities controlled by the Chief Executive Officer.  The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument (MI) 61-101.  Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.

    Additionally, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.

  • Stock options:

  • ·  Stock options:
    On July 18, 2011, the Company issued 12,542,000 stock options under the Company's approved stock option plan to employees and consultants of the Company, including the chief executive officer and chief operating officer, at an exercise price of $0.10 per common share.  The options vest immediately and expire after ten years.

    ·  
    Sale of inventory:
    On July 6, 2011, the Company entered into an agreement with Iroko Cardio, LLC (“Iroko”) to advance AGGRASTAT in each of Medicure and Iroko's respective territories. Iroko owns rights to AGGRASTAT outside of the Company's territory. Under the terms of the agreement, the Company transferred to Iroko AGGRASTAT drug substance from inventory on hand and the rights to purchase additional quantities from a third party. In turn, Iroko paid Medicure International Inc. US$1,909,000 during fiscal 2012.  In addition, Iroko made available to the Company certain analytical methods for testing of AGGRASTAT drug product and provided the Company the option to obtain certain data used by Iroko to obtain changes to the approved use of AGGRASTAT in Europe.  If the Company had exercised its option to obtain the data and was successful in getting changes to the approved use
    32

    of AGGRASTAT in the United States, Iroko would have been entitled to receive a royalty of up to US$3.5 million on future AGGRASTAT sales based on a percentage of sales.  Subsequent to May 31, 2012, this option expired without the Company exercising it rights thereunder.
    Commercial:


    In fiscal 2007, the CompanyCompany’s subsidiary, Medicure International, Inc., acquired the U.S. rights to its first commercial product, AGGRASTAT,® Injection (tirofiban hydrochloride), in the United States and its territories (Puerto Rico, Virgin Islands, and Guam).  AGGRASTAT,®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome (ACS) including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction (MI).  The CompanyUnder a contract with Medicure International, Inc., the Company’s subsidiary, Medicure Pharma, Inc., continues to support, market and distribute the product through itsproduct.  Through a services agreement with Medicure Inc., work related to AGGRASTAT is conducted by home office staff in Winnipeg, Canada and a small dedicated field forcenumber of cardiovascular specialists employed under the Company’s US subsidiary, Medicure Pharma Inc.


    26

    third party contractors.


    Net revenue from the sale of finished AGGRASTAT® products for the year ended May 31, 2011 increased 9%2012 decreased 21% over the net revenue for the year ended May 31, 2010.2011.  All of the Company’s sales are denominated in USU.S. dollars.  The increasedecrease in revenues compared to the previous fiscal year corresponds with an overall decline in use of injectable antiplatelet drugs.  It is also attributable to an increaseincreases in wholesale purchasing of AGGRASTAT®, a reduction in hospital discounts to customers and fluctuations in foreign currency exchange rates.  The decrease may also reflect normal fluctuations in wholesale purchasing in the period.  Although wholesale purchasing generally reflects hospital demand, it is also subject to fluctuations attributed to wholesaler inventory adjustments.


    Net revenues from unfinished products were $1.9 million due to the sale during the year ended May 31, 2012 of unfinished product to a European pharmaceutical company, Iroko, as described above.  There were no similar sales of unfinished products during fiscal 2011.

    Going forward and contingent on sufficient finances being available, the Company plans to explore opportunitiesintends to further expand revenue through strategic investments related to AGGRASTAT® and the acquisition of other niche products that fit the commercial organization.


    Research and Development:


    The Company’s research and development activities are predominantly conducted by its subsidiary, Medicure International, Inc.

    The primary ongoing research and development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®.AGGRASTAT.   The extent to which the Company is able to invest in this plan is dependent upon the availability of sufficient finances.


    On May 10, 2012 the Company announced the commencement of enrollment in a new clinical trial of AGGRASTAT entitled “Shortened Aggrastat Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI).  SAVI-PCI is a randomized, open-label study enrolling approximately 600 patients undergoing percutaneous coronary intervention (PCI) at sites across the United States.  The study is designed to evaluate whether patients receiving the investigational, High-Dose Bolus (HDB) regimen of AGGRASTAT (25 mcg/kg bolus over 3 minutes) followed by an infusion of 0.15 mcg/kg/min for a shortened duration of 1 to 2 hours will have outcomes that are similar, or “non-inferior,” to patients receiving a 12 to 18 hour infusion of Integrilin® (eptifibatide) (Merck & Co., Inc.) at its FDA approved dosing regimen.  The primary objective of SAVI-PCI is to demonstrate AGGRASTAT is non-inferior to Integrilin with respect to the composite endpoint of death, PCI-related myocardial infarction, urgent target
    33

    vessel revascularization, or major bleeding within 48 hours following PCI or hospital discharge.  The secondary objectives of this study include the assessment of safety as measured by the incidence of major bleeding.  The first patient is anticipated to be enrolled during the second quarter of calendar 2012.  The Principal Investigator for the study is Steven V. Manoukian, MD, Director of Cardiovascular Research at the Sarah Cannon Research Institute (SCRI).
    The AGGRASTAT dosing regimen and the treatment setting studied in the SAVI-PCI study have not been approved by the FDA.  The study is intended to generate additional clinical data on this experimental approach to using AGGRASTAT which may in the future help support other investments aimed at expanding the approved dosing regimen and the treatment setting for the Product.  In this way, SAVI-PCI is a component of the Company’s ongoing investment in the regulatory, brand and life cycle management strategy for the Product.  The SAVI-PCI study is not expected nor intended to be sufficient to support FDA approval of the AGGRASTAT dosing regimen and the treatment setting used in SAVI-PCI.

    The Company is also exploring other experimental uses and dosing approaches related to AGGRASTAT.

    The Company’s primary, non-AGGRASTAT® research and development activity is TARDOXALTM for the treatment of Tardive Dyskinesia ("TD"(“TD”).  This program evolved from Medicure’s extensive clinical experience with MC-1, a naturally occurring small molecule, for cardiovascular conditions.  A modest amount of capital is being used for an ongoing Phase II clinical study of TARDOXAL,TM. The Company is interested in out-licensing its library entitled Tardoxal for the Treatment of small molecule antithrombotic drugs.

    Tardive Dyskinesia (TEND-TD).


    The following table summarizes the Company’s research and development programs, their therapeutic focus and their stage of development.


    Product CandidateTherapeutic focusStage of Development
    AGGRASTAT®
    Acute CardiologyPhase III/IV - planningApproved – Additional studies underway
    TARDOXALTM
    TD/Neurological indicationsPhase II - enrolling patients
    MC-45308Thrombosis reductionDiscovery - pursuing partnership

    The TARDOXALTM program benefits from over 10 years of work that Medicure invested in the advancement of this compound, including extensive human clinical testing in unrelated cardiovascular conditions and other pre-clinical, formulation, manufacturing and safety research and development. The Company believes the information and physical assets resulting from this activity are a valuable asset that will reduce costs and also speed development of this molecule for application to TD.


    The development of MC-1 for cardiovascular conditions is not listed in the table above as these initiatives have been placed on hold.

      Similarly, the Company no longer lists its library of other novel small molecule antithrombotic drugs (including the preclinical lead compound MC-45308) as it has placed development of these drug candidates on hold.


    The Company intends to pursue a license or development partnership for TARDOXALTM with a large pharmaceutical company.  Such a partnership may provide funding and other resources for further clinical trials and commercialization.  While the Company has had informal discussions with potential partners, noNo such formal agreement, or letter of intent, has been entered into by the Company as of the date hereof.


    27


    The Company’s library of novel therapeutics includes a series of small molecule dual acting anticoagulant/antiplatelet compounds (including the preclinical lead compound MC-45308) which may be useful in treating venous and arterial thrombosis. These compounds, which have shown activity in venous and arterial models of thrombosis, provide a basis for further research, optimization and preclinical development.

    Medicure’s library of novel therapeutics includes a series of small molecule dual acting anticoagulant/antiplatelet compounds (including the preclinical lead, MC-45308) which may be useful in treating venous and arterial thrombosis. These compounds, which have shown activity in venous and arterial models of thrombosis, provide a basis for further research, optimization and preclinical development.


    The Company is interested in out-licensing its library of small molecule anti thrombotic drugs.

    The Company may from time to time evaluateevaluates the acquisition or license of other product opportunities for potential licenseproducts with the objective of further broadening its product portfolio and patent portfolio.

    generating additional revenue. No such formal agreement, or letter of intent, has been entered into by the Company as of the date hereof.


    Potential New Products in Development Stage


    34

    One of the Company’s primary focusesongoing investments is the clinical development and commercialization of its lead research product, TARDOXALTM (pyridoxal 5-phosphate) for TD.   TD is a serious movement disorder which results from long-term treatment with antipsychotic medications.  At present there is no treatment available for TD in the US.  TARDOXALTM’sTARDOXAL’s potential for treatment of TD is supported by its biological mechanism of action and by preliminary clinical studies which indicated efficacy of a related compound in treatment of TD.


    Until 2008, the Company had been focused on the development of its then lead product MC-1 as a cardioprotective treatment in reducing damage to the heart associated with acute ischemic and reperfusion injury (MEND-1 Phase-II study). Due to lack of resources and the inability to demonstrate efficacy in the Company’s Phase III study, MEND-CABG II, this development program was placed on hold. This product also has potential to provide other chronic cardiovascular benefits to patients with hyperlipidemia, hperglycemia and hypertension. The Company has clinical data and intellectual property related to some of these potential applications and is interested in advancing these applications through a partnership with another pharmaceutical company. However, at this time sufficient resources are not available to pursue these applications. MC-1 is the same chemical compound being developed for TD under the name TARDOXALTM.

    InTARDOXAL.


    The Company is also exploring other experimental uses and dosing approaches related to AGGRASTAT.  This work may lead to other new product formats and formulations of AGGRASTAT, any of which would require substantial additional research and development conducted prior to fiscal 2009,investment by the Company developed a novel series of small molecule dual acting anticoagulant/antiplatelet compounds which may be useful in treating venous and arterial thrombosis.

    The Company seeks to establish a licensing arrangement or R&D collaboration to advance these compounds to human clinical studies when sufficient financial resources are available to do so.

    Company.


    As at May 31, 2011,2012, the Company had numerous issued United States patents (see Item 5 – Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses, Etc. below).


    28


    Competitors’ Current Products


    The Company’s only commercial product the corporation currently has, being AGGRASTAT,®, which is owned by the Company’s subsidiary, Medicure International, Inc., and is sold in the United States of America through the Company’s subsidiary, Medicure Pharma, Inc.


    AGGRASTAT® competes in a market segment commonly referred to as the anti-thrombotic market (treatments to remove or prevent formation of blood clots).  More specifically, AGGRASTAT®is one of a handful ofan antiplatelet drugs which affectaffects thrombus (blood clot) formation by preventing the aggregation of platelets in the blood stream.  Of the different classes of antiplatelet drugs, AGGRASTAT® is a representative of the glycoprotein IIB/IIIA inhibitors drug class.  There are three of these agents approved for use, including abciximababciximab (ReoPro®), eptifibatide (Integrilin®), and tirofiban (Aggrastat®).  All three are proprietary drugs that do not have generic equivalents.  Of the two directly competing agents, AGGRASTAT® is most closely comparable to Integrilin® as they are both highly potent, small molecule drugs that have reversible antiplatelet effects.


    Competitors’ Products in Development


    At present the Company is not aware of any other glycoprotein IIb/IIIa inhibitors in mid to late stage clinical development.  However, the utilizationchoice and use of its drugAGGRASTAT may be affected by the continued advancement of new antithrombotic and antiplatelet agents, including the recently approved oral antiplatelet agents, ticagrelor (Brilinta®) and prasugrel (Effient®).  The potential future launch of generic versions of AGGRASTAT® and/or of other competitive drugs is also expected to impact utilization of the Company’s drug. Many companies, including large pharmaceutical and biotechnology companies, are conducting development of products that are intended to address the same or a similar medical need.  Many of these companies have much larger financial and other resources than the Company does, including those related to research and development, manufacturing, and sales and marketing.   The Company also faces competition in recruiting scientific personnel from colleges, universities, agencies, and research organizations who seek patent protection and licensing agreements for the technologies they develop.

    35

    Competitive Strategy and Position


    The Company is primarily focusing on:


    1.·  

    Maintaining and Growing AGGRASTAT®sales in the United States. The present market for the class of drug GP IIb/IIIa, of which AGGRASTAT®is one of three in the USA market, is approximately $400 million per year (2010). At present AGGRASTAT®has ≤ 2% of this market. AGGRASTAT®is recommended by the AHA and ACC Guidelines as one of the three GP IIb/IIIa drugs to be used for the treatment of ACS. AGGRASTAT®has been shown, in several clinical trials, to reduce mortality and/or morbidity (myocardial infarction) post ACS by as much as 40%.

    States.
    The Company is working to expand sales of AGGRASTAT in the United States.  The present market for GP IIb/IIIa inhibitors, of which AGGRASTAT is one of three agents, is approximately $330 million per year (2012). At present AGGRASTAT has ≤ 2% of this market. The use of AGGRASTAT is recommended by the AHA and ACC Guidelines for the treatment of ACS. AGGRASTAT has been shown, in several clinical trials, to reduce mortality and/or morbidity (myocardial infarction) post ACS by as much as 40%.

    ·  
    2.

    The development and implementation of a new regulatory, brand and clinical strategy for AGGRASTAT®:As stated previously, the Company’s primary ongoing Research and Development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®. One important aspect of the strategy is the Company’s efforts to expand and modify the product label. Any such change is dependent upon review and approval by the FDA and may necessitate substantial regulatory filing fees. Clinical development activities would also require substantial financial resources to conduct. While the Company believes that it will be able to finalize a relatively low cost clinical, product and regulatory strategy, it requires additional resources to implement all aspects of this plan. Until such resources become available, the Company is working to advance this program with the modest capital investment that it can make from its available cash resources.

    for AGGRASTAT:
    As stated previously, the Company’s primary ongoing Research and Development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT.


    29

    One important aspect of the strategy is the Company’s efforts to expand and modify the product label. The recently initiated SAVI-PCI trial is intended to generate additional clinical data on this experimental approach to using AGGRASTAT which may in the future help support other investments aimed at expanding the approved dosing regimen and the treatment setting for the Product. The SAVI-PCI study is not expected nor intended to be sufficient to support FDA approval of the AGGRASTAT dosing regimen and the treatment setting used in SAVI-PCI.

    The Company also wishes to obtain, and is conducting work to obtain, approvals from the FDA to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT’s prescribing information. As at the date hereof, no request for such a change has been submitted to the FDA. Any such change is dependent upon review and approval by the FDA and may necessitate substantial regulatory filing fees. Clinical development activities would also require substantial financial resources to conduct.

    While the Company believes that it will be able to implement a relatively low cost clinical, product and regulatory strategy, it requires additional resources to conduct all aspects of this plan. The Company is working to advance this program with the modest capital investment that it can make from its available cash resources.

    3.·  

    The development of TARDOXALTMfor Tardive Dyskinesia and other neurological indications.The Company is focusing initially on these markets because of preclinical and clinical evidence supporting the product’s safety and potential efficacy in these applications.

    The Company is focusing initially on these markets because of preclinical and clinical evidence supporting the product’s safety and potential efficacy in these applications.

    It is the Company’s intention to secure a partnership with a large pharmaceutical company for commercialization of TARDOXALTM or other agentsproducts that it may from its product pipeline.time to time develop.  Such a partnership would provide funding for clinical development, add experience to the product development process and provide market positioning expertise.  While the Company has had informal discussions with potential partners in this regard, noNo formal agreement or letter of intent has been entered into by the Company as of the date hereof.


    36

    C. Organizational Structure


    Medicure International, Inc., a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of Barbados, West Indies, on May 23, 2000.  Medicure International, Inc.’s registered office is located at Whitepark House, White Park Road, Bridgetown, Barbados.  Medicure International Inc.’s head office is located at 2nd Street, Holetown, St. James, Barbados.


    Medicure Pharma, Inc., a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30, 2005.  Medicure Pharma Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.  Medicure Pharma, Inc.’s head office is located at 500 Atrium Drive, Somerset, NJ, 08873.


    American Cardio Therapeutics Inc., a Company that is 49% owned by Medicure Pharma Inc., was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30, 2005.  American Cardio Therapeutics Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808. As at May 31, 2011,2012, American Cardio Therapeutics Inc. had no activity and it is the Company’s intention that American Cardio Therapeutics Inc. will be wound up.

    Medicure Europe Limited, a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of the United Kingdom, on May 19, 2006. Medicure Europe Limited ceased operations on August 4, 2009.


    D. Property, Plants and Equipment


    Office Space


    Included in connection withwithin thebusiness and administration services agreemententered into with Genesys Venture Inc. (see F. Item 5F - Contractual Obligations)Obligations), is the use of office space at Genesys Venture Inc.’s head office located at 1250 Waverley Street in Winnipeg, Manitoba, Canada.  The Company currently has use of approximately 750 square feet of office space as part of its business services contract with a related party. The office is located in Winnipeg, Manitoba, Canada.

    5.5 offices.

    ITEM 4A. UNRESOLVED STAFF COMMENTS


    Not applicable


    30


    ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS


    This section contains forward-looking statements involving risks and uncertainties.  The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under part Item 33D -  Key Information - D. Risk Factors.Factors.  The following discussion of the financial condition, changes in financial conditions and results of operations of the Company for the years ended May 31, 2011, May 31, 20102012 and May 31, 20092011 should be read in conjunction with the consolidated financial statements of the Company.  The Company’s consolidated financial statements are presented in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”)IFRS included under Item 1718 to this annual report. Material measurement differences between Canadian and U.S. GAAP, as applicable to the Company, are set forth in note 17 to the consolidated financial statements of the Company included herein.

    Annual Report.


    Critical Accounting Policies and Estimates


    Going concern

    The Company’s consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). A reconciliation in accordance with Item 17 of Form 20-F of adjustments required to present in accordance with United States generally accepted accounting principles (“US GAAP”) is described in note 17 to the audited consolidated financial statements for the year ended May 31, 2011. These accounting principles require management to make certain estimates and assumptions. Management believes that the estimates and assumptions upon which the Company relies are reasonable based upon information available at the time these estimates and assumptions are made. Actual results could differ from these estimates. Future estimates and assumptions may lead to different judgments than those applied in the preparation of these consolidated financial statements. Areas of significant estimates include revenue recognition, research and development costs, clinical trial expenses, the assessment of net recoverable value of intangible assets, income taxes, stock-based compensation and accounting for warrants.

    Going concern assumption and continuity of operations
    The accompanying consolidated financial statements2012 have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles.IFRS.  The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.  There is significantsubstantial doubt

    37

    about the appropriateness of the use of the going concern assumption because the Company hashad experienced operating losses since incorporation.

    The Company has experienced a loss of $2,014,109 for the year endingfrom incorporation to May 31, 2011 and has accumulated a deficit of $156,095,915$123,303,052 as at May 31, 2011.2012.  Management has forecast that it has sufficient working capital through the end of fiscal 2013, however contractual commitments and debt service obligations exceed the company's net cash flows and working capital beginning in early fiscal 2014.  The Company’s future operations are dependent upon its ability to maintain or grow sales of AGGRASTAT®,AGGRASTAT, and/or secure additional funds,capital, which may not be available under favourable terms should these objectives not be achieved,or at all.  If the Company is unable to grow sales or raise additional capital, management will have to consider additional strategic alternatives which may include, among other strategies including further cost curtailments, delays of research and development activities, asset divestituresdivestures and/or monetization of certain intangibles.

    As at May 31, 2011

    The ability of the Company had significant debt servicing obligationsto continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which are intended to mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these financial statements.  There is no certainty that it did not have the abilityCompany’s working capital will be sufficient through fiscal 2013 or that the above described and other strategies will be sufficient to repay without refinancing or restructuring andpermit the Company was in default of the terms of its long-term debt financing obligations. Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classifiedto continue as a current liability as at May 31, 2011 and 2010 as described in note 8 of the audited consolidated financial statements for the year ended May 31, 2011. On July 18, 2011, the long-term debt was settled as described in Note 16 of the audited consolidated financial statements for the year ended May 31, 2011.


    31

    going concern.

    The financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.  If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheetstatement of financial position classifications used.

    Revenue recognition


    Estimates

    The Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).  IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

    Estimates and underlying assumptions are reviewed on an on-going basis.  Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

    Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the notes the financial statements.  Areas of significant estimates include; valuation of the royalty obligation, valuation of the warrant liability, provisions for returns and discounts, the estimation of accruals for research and development costs, the measurement and period of useful life of intangible assets, the assumptions and model used to estimate the value of share-based payment transactions and the measurement of the amount and assessment of the recoverability of income tax assets.

    Valuation of the royalty obligation and warrant liability
    The Company recognizes product revenuehas the following non-derivative financial liabilities which are classified as other financial liabilities:  accounts payable and accrued liabilities, accrued interest on long-term debt, long-term debt and royalty obligation.

    38

    All other financial liabilities are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.  Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.  Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to interest expense.

    The Company derecognizes a financial liability when substantially allits contractual obligations are discharged or cancelled or expire.

    The initial value of the royalty obligation was based on an expected value approach and the royalty obligation is subsequently recorded at amortized cost with the associated cash flows being reviewed each period.  The net accretion of the royalty obligation is recorded within finance expense on the Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss).

    Warrants with an exercise price denominated in a foreign currency are recorded as a warrant liability and classified as fair value through profit and loss. The warrant liability is included within accounts payable and accrued liabilities and the change in the fair value of the warrants is recorded as a gain or loss in the consolidated statement of net income (loss) and comprehensive income (loss) within finance expense. These warrants have not been listed on an exchange and therefore do not trade on an active market.

    The warrant liability is measured by reference to the fair value of the warrants at the date at which they were granted and subsequently revalued at each reporting date.  Estimating fair value for these warrants requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them.

    The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:

    Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

    Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

    Level 3 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

    The fair value of the warrant liability is based on level 2 (significant observable inputs).

    Provision for returns and discounts
    Revenue from the sale of goods, comprising finished and unfinished products, in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.  Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customerbuyer, recovery of the consideration is probable, the associated costs and collectionpossible returns of goods can be estimated reliably, there is reasonably assured. Revenueno continuing management involvement with the goods, and the amount of revenue can be measured reliably.  If it is probable that discounts will be granted and the amount can measured reliably, then the discount is recognized upon product delivery, and when no significant contractual obligations remain. As is common practice inas a reduction of revenue as the pharmaceutical industry, the Company’s sales are made to pharmaceutical wholesalers for further distribution to end consumers.

    recognized.


    39

    Net sales reflect a reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, discounts, allowances for product returns, and other rebates (product sales allowances).  Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT®  may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals.  In determining the amounts for these allowances and accruals, the Company uses estimates. Through reports provided by the Company’s wholesalers and other third party external information, management estimates customer and wholesaler inventory levels, sales trends and hospital demand.  Management uses this information along with such factors as: historical experience and average contractual chargeback rates to estimate product sales allowances.  Third-party data is subject to inherent limitations of estimates due to the reliance on information from external sources, as this information may itself rely on certain estimates.

    Research


    Estimation of accruals for research and development costs
    All costs of
    Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

    Development activities involve a plan or design for the production of new or substantially improved products and processes.  Development expenditures are expensed incapitalized only if development costs can be measured reliably, the period in which theyproduct or process is technically and commercially feasible, future economic benefits are incurred. Development costs are charged as an expense inprobable, and the period incurred unless aCompany intends to and has sufficient resources to complete development project meets stringent criteria for cost deferral and amortization. The Company assesses whether these costs have metto use or sell the relevant criteria for deferral and amortization at each reporting date.asset.  No development costs have been deferredcapitalized to date.

    Clinical trial


    Research and development expenses include all direct and indirect operating expenses supporting the products in development.

    Clinical trial expenses are a component of the Company’s research and development costs.  These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting.  These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.


    Measurement and period of use of intangible assets
    Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.  Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates.  All other expenditures are recognized in profit or loss as incurred.

    Costs incurred in obtaining patentsa patent are capitalized and amortized commencing upon issuance on a straight-line basis over the remaining legal life of the respective patents, being approximatelypatent, ranging from five to twenty years, or theirits economic life, if shorter.  Costs incurred in obtaining a trademark are capitalized and amortized on a straight-line basis over the legal life of the respective trademark, being ten years, or its economic life, if shorter.  Costs incurred in obtaining a customer list are capitalized and amortized on a straight-line basis over its estimated economic life of approximately ten years.

    Costs incurred in successfully obtaining a patent, trademark or customer list are measured at cost less accumulated amortization and accumulated impairment losses.  The costcosts of servicing the Company’s patents isand trademarks are expensed as incurred. Intangible assets

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    Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates.  All other expenditures are recorded at acquisition costrecognized in profit and are amortized on a straight-line basis based on the following estimated useful lives:

    loss as incurred.
    Technology license8 years
    Patents5-20 years
    Trademark10 years
    Customer list10 years



    32

    The Company determinesassesses at each reporting period whether there is an indication that a non-financial asset may be impaired.  An impairment loss is recognized when the carrying amount of an asset, or its cash generating unit (CGU) exceeds its recoverable amount.  Impairment losses are recognized in net income (loss) and comprehensive income (loss) and included in research and development expense if they relate to patents.  A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.  The recoverable amount is the greater of the asset’s or CGU’s fair value less costs to sell and value in use.  In assessing value in use, the estimated useful lifefuture cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of intangible assets based on a numberthe time value of factors, including: legal, regulatory or contractual limitations; known technological advances; anticipated demand;money and the existencerisks specific to the asset or absence of competition. A significant change in any of these factors could require a revision of the expected useful life of the intangible asset, which could have a material impact on the Company’s results of operations through an increase to amortization.

    On a regular basis, management reviews the valuation of intangible assets taking into consideration any events and circumstances which may impair their recoverable value including expected cash flows, the potential benefit the Company expects to derive from the costs incurred to date and the Company’s ongoing development plans. A change in any of these assumptions could produce a differentCGU.  In determining fair value which could have a material impact onless cost to sell, an appropriate valuation model is used.  For an asset that does not generate largely independent cash inflows, the Company’s results of operations.

    Income Taxes
    The Company followsrecoverable amount is determined for the CGU to which the asset and liability method of accountingbelongs.


    Impairment losses recognized in prior periods are assessed at each reporting date for income taxes. Under this method, future income tax assets and liabilities are recognized forany indications that the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enactedloss has decreased or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities ofno longer exists.  An impairment loss is reversed if there has been a change in tax ratesthe estimates used to determine the recoverable amount.  An impairment loss is recognized in income inreversed only to the periodextent that includes the dateasset’s carrying amount does not exceed the carrying amount that would have been determined, net of substantive enactment. Givenamortization, if no impairment loss had been recognized.

    Assumptions and model used to estimate the Company’s historyvalue of net losses, the Company is of the opinion that it is more likely than not that these tax assets will not be realized in the foreseeable future and therefore, a full valuation allowance has been recorded against these income tax assets. As a result, no future income tax assets or liabilities are recorded on the Company’s balance sheets.

    Stock-based compensation
    share-based payment transactions

    The Company has a stock option plan for its directors, management, employees, and consultants.  Compensation expense is recorded for stock options issued to employees and non employees using the fair value method. The Company must calculate thegrant date fair value of stock options issued and amortize the fair valueshare-based awards granted to stock compensationemployees is recognized as a personnel expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.  The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting period,conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and adjustnon-market performance conditions at the amortization for stock option forfeitures and cancellations. The Company usesvesting date.  For share-based payment awards with non-vesting conditions, the Black-Scholes model to calculate thegrant date fair value of stock options issuedthe share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

    Share-based payment arrangements in which requires that certain assumptions including the expected life of the option and expected volatility of the stock be estimated at the time that the optionsCompany receives goods or services as consideration for its own equity instruments are issued. The Company amortizes the fair value using the accelerated method over the vesting period of the options, generally a period of three years. The factors included in the Black-Scholes model are reasonably likely to change from period to period due to changes in the Company’s stock price and external factors,account for as further stock optionsequity-settled share-based payment transactions.  In situations where equity instruments are issued and as adjustments are made to previous calculations for unvested stock option forfeitures and cancellations.

    The stock-based compensation recordedsome or all of the goods or services received by the Company is a critical accounting estimate because of the value of compensation recorded, the volume of the Company’s stock option activity, and the many assumptions thatentity as consideration cannot be specifically identified, they are required to be made to calculate the compensation expense. The Black-Scholes model is not the only permitted model to calculate themeasured at fair value of stock options. A different model, such as the binomial model, as well as any changes to the assumptions made may result in a different stock compensation expense calculation. share-based payment.


    For the year ended May 31, 2011,2012, the Company recorded stock-based compensation of $77,057$224,445 (May 31, 20102011 - $122,812)$77,057).


    Measurement of the amount and assessment of the recoverability of income tax assets
    Income tax expense comprises current and deferred tax.  Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

    Current tax is the expected tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax receivable or payable in respect of previous years.

    41

    33

    Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.  Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future.  In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.  Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.  Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

    A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised.  Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

    Changes in accounting policies

    Adoption of International Financial Reporting Standards (IFRS):
    The consolidated financial statements for the year ended May 31, 2012 of the Company and its subsidiaries were prepared in accordance with IFRS as issued by the IASB.  These are the first annual consolidated financial statements prepared in accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied.

    The audited consolidated financial statements for the year ended May 31, 2012 provide the following reconciliations from Canadian generally accepted accounting principles (GAAP) to IFRS for the consolidated:

    ·  statement of financial position, including equity as at June 1, 2010;
    ·  statement of financial position, including equity as at May 31, 2011; and the
    ·  statement of net loss and comprehensive loss for the year ended May 31, 2011.

    In preparing the accompanying consolidated financial statements in accordance with IFRS 1, First time Adoption of International Financial Reporting Standards, the Company has applied the mandatory exceptions of IFRS.

    In preparing its opening IFRS statement of financial position, the Company has adjusted amounts reported previously in the consolidated financial statements prepared in accordance with Canadian GAAP.  An explanation of how the transition from Canadian GAAP to IFRS has affected the Company's financial position and financial performance is set in note 19 of the consolidated financial statements as at and for the year ending May 31, 2012.  The transition from Canadian GAAP to IFRS has not had a material impact on the statement of cash flows.  The reconciling items between Canadian GAAP and IFRS presentation have no net effect on the cash flows generated.

    A. Operating Results


    General


    42

    The Company has concentrated primarily on research and development and has yet to and may never derive any revenues from its clinical products.  The Company has a limited operating history and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered with the establishment of a business in a highly competitive industry, characterized by frequent new product introductions.


    Year Ended May 31, 20112012 Compared to the Year Ended May 31, 2010

    2011


    Net product sales for fiscal 20112012 were $3,628,000,$4,797,000, compared to $3,317,000$3,628,000 in fiscal 2010.2011.  The Company currently sells finished AGGRASTAT® to drug wholesalers.  These wholesalers subsequently sell AGGRASTAT® to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals.  All of the Company’s sales are denominated in US dollars.  Additionally in fiscal 2012, the Company sold unfinished product used in the manufacture of AGGRASTAT to a European Pharmaceutical company.

    Net revenue from the sale of finished AGGRASTAT products for the year ended May 31, 2012 decreased 21% over the net revenue for the year ended May 31, 2011.  All of the Company’s sales are denominated in U.S. dollars.  The decrease in revenues compared to the previous fiscal year corresponds with an overall decline in use of injectable antiplatelet drugs.  It is also attributable to increases in discounts to customers and fluctuations in foreign exchange rates.  The decrease may also reflect normal fluctuations in wholesale purchasing in the period.  Although wholesale purchasing generally reflects hospital demand, it is also subject to fluctuations attributed to wholesaler inventory adjustments.
    Net revenues from unfinished products were $1.9 million due to a sale during the year ended May 31, 2012 of unfinished product to a European pharmaceutical company.  There were no similar sales of unfinished products during fiscal 2011.

    Cost of goods sold represents direct product costs associated with AGGRASTAT including and write-downs for obsolete inventory and amortization of the related acquired AGGRASTAT intangible assets.

    Cost of goods sold, excluding amortization, for fiscal 2012 were $223,000 compared to $674,000 in fiscal 2011.  For the year ended May 31, 2012, decreases to cost of goods sold are the result of decreases in net sales of AGGRASTAT and the lower write-offs of expired inventory during fiscal 2012 when compared to fiscal 2011.  Additionally, the Company has a minimum purchase commitment for the manufacturing of AGGRASTAT and as a result had recorded a $0.1 million charge to recognize this commitment during 2011.  This commitment was subsequently fulfilled resulting in an adjustment to reduce cost of goods sold by $0.1 million during fiscal 2012.

    Amortization of AGGRASTAT intangible assets remained consistent for the year ended May 31, 2012 at $846,000, when compared to $840,000 in fiscal 2011.
    Total Selling, general, and administrative expenditures for fiscal 2012 were $2,674,000, compared to $2,833,000 in fiscal 2011.  Selling, general, and administrative expenditures related to AGGRASTAT were $1,159,000 in fiscal 2012, compared to $1,657,000 in fiscal 2011.  Selling, general, and administrative expenditures – Other were $1,515,000 in fiscal 2012, compared to $1,176,000 in fiscal 2011.  Selling, general and administrative expenses include salaries and related costs for those employees not directly involved in research and development.  The expenditures are required to support sales and marketing efforts of AGGRASTAT and ongoing business development and corporate stewardship activities.   The balance also includes professional fees such as legal, audit, investor and public relations.

    43

    Selling, general and administrative expenditures – AGGRASTAT decreased during the year ended May 31, 2012 as compared to same period in the prior year mainly due to:

    ·  The Company payroll costs were lower during the year, attributable to management's efforts to reduce operating costs;

    ·  The average US exchange rate for the period was lower than the in the comparable periods of 2011 resulting in a decrease in selling, general and administrative expenditures; and

    ·  Overall the Company’s selling, general and administrative expenditures related to AGGRASTAT are lower as a result of ongoing measures taken under the cost curtailment program.

    Selling, general and administrative expenditures – Other increased during the year ended May 31, 2012 as compared to same period in the prior year mainly due to:

    ·  An increase of $0.3 million in selling, general and administrative expenses during year ended May 31, 2012 primarily relating to a recovery of general and administrative costs in the prior year as a result of bad debt recoveries.

    ·  $0.2 million of non-cash stock-based compensation recorded during the year ended May 31, 2012 relating to stock options that were granted on July 18, 2011.  These options vested immediately.  Stock-based compensation expense during the year ended May 31, 2011 was $0.1 million

    ·  Increases in professional fees and costs during the current year relating to the on-going operations of the Company including the transition from Canadian GAAP to IFRS.

    Net research and development expenditures for fiscal 2012 were $1,044,000, compared to $524,000 in fiscal 2011.  Research and development expenditures include costs associated with the Company’s clinical development and preclinical programs including salaries, research centred costs and monitoring costs.  The Company expenses research costs and has not had any development costs that meet the criteria for capitalization under IFRS.  The increase in research and development expenditures, for the year ended May 31, 2012 as compared to the same period in fiscal 2011 is due to the commencement of a new clinical trial of AGGRASTAT (tirofiban HCl) entitled “Shortened Aggrastat Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI).  Additional funds were also allocated by the Company to advance its TARDOXAL clinical trial.

    Included in research and development expenses are charges related to impairment of the Company’s intangibles assets.  Impairments of intangible assets for fiscal 2012 were $216,000, compared to $280,000 in fiscal 2011. Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to no longer pursue these patents and as a result the carrying value of these patents was written off.

    It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments.  The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company's commercial strategy.

    44

    During the year ended May 31, 2012, the Company recorded a non cash gain in the amount of $23,932,000 related to the settlement of its previously existing long-term debt.  In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for proceeds of US$25 million. Under the terms of the agreement, Birmingham was to receive payments based on a percentage of AGGRASTAT net sales. Birmingham was entitled to a return of 20 percent on the first US$15 million in AGGRASTAT revenues, 17.5 percent on the next US$10 million, 15 percent on the next US$5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual payments started at US$2.5 million in 2008 and were to escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement in aggregate were US$49.7 million. The annual minimum payments were reflected in the effective interest rate calculation of the debt.

    As at May 31, 2011, the Company was in default of the terms of its debt financing obligations.  The portion of the minimum payments that were past due included in the accrued interest on long-term debt at May 31, 2011 was $4,804,788, or US$4,933,471.  The debt agreement contained no express provisions to accelerate debt payments in an event of default, however under the agreement the lender could have exercised its security rights at any time while in default.   Accordingly, for financial reporting purposes, the outstanding long term debt of US$25 million that was in default was classified as a current liability at May 31, 2011 and June 1, 2010.

    On July 18, 2011, the Company settled the Birmingham long-term debt in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT sales until May 1, 2023.  The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter.  The previous lender has a one-time option to switch the royalty payment from AGGRASTAT to a royalty on MC-1 sales.  Management has determined there is no value to the option to switch the royalty.

    In accordance with the terms of the agreement, if the Company were to dispose of its AGGRASTAT rights, the acquirer would be required to assume the obligations under the royalty agreement.

    The difference between the carrying amount of the long-term debt extinguished and the consideration paid, comprising cash, equity instruments and the royalty obligation assumed, has been recognized as a gain on the settlement of debt in the statement of net income for the year ended May 31, 2012.  In accordance with International Financial Reporting Interpretations Committee (IFRIC) 19 Extinguishing financial liabilities with equity instruments, the shares issued in partial consideration for the settlement of the debt have been included in consideration paid and measured at their fair value at the date of the settlement of $652,801.

    As at July 18, 2011 the Company had total Canadian dollar book value of long-term debt of $22,254,966, net of unamortized deferred financing fees of $941,454.  The Company also had accrued interest payable of $8,145,865 for a total carrying value of the debt settled on July 18, 2011 of $30,400,831.

    The gain on the settlement of debt totals $23,931,807 and consideration paid comprised $4,750,000 cash paid, common shares with a value of $652,801 and a royalty obligation valued at $901,915, in addition to legal costs associated with the debt settlement transaction of $164,308.

    Finance expense for fiscal 2012 was $554,000, compared to $3,100,000 in fiscal 2011.  The significant decrease in finance expense for the year ended May 31, 2012 as compared to the prior fiscal year is due to the settlement of the Company’s long-term debt on July 18, 2011 as described above and in Note 8 of the
    45

    audited consolidated financial statements for the year ended May 31, 2012.  Finance expense in the prior fiscal year relate primarily to interest on the Birmingham long-term debt.  Finance expense in the current fiscal year relates to interest on the Birmingham debt from June 1, 2011 to its settlement on July 18, 2011, as well as interest associated with the Company’s long-term debt obtained on July 18, 2011 which had an effective interest rate of seven percent during the year ended May 31, 2012.

    The net foreign exchange loss for the year ended May 31, 2012 was $2,000, compared to a net foreign exchange gain of $2,707,000 in fiscal 2011. The net foreign exchange loss during the year ended May 31, 2012 changed significantly from the previous fiscal year due the settlement of the US dollar denominated debt in the first quarter of fiscal 2012.  In addition the functional currency of one of the Company's subsidiaries changed to U.S. dollars at June 1, 2011 as a result of a change in focus of its operations driven by the settlement of the Birmingham long-term debt and other factors, which resulted in currency translation from this subsidiary primarily being recorded in other comprehensive income for the year ended May 31, 2012.

    For the year ended May 31, 2012, the Company recorded a consolidated net income of $23,386,000 or $0.13 per share compared to a consolidated net loss of $1,635,000 or $0.01 per share for the year ended May 31, 2011.  As discussed above the main factors contributing to the net income in fiscal 2012 when compared to the loss during the 2011 fiscal year were the non-cash gain on the settlement of the Birmingham long-term debt, increased sales resulting from the $1.9 million of revenue recognized on the sale of unfinished product, and a decrease in interest expense as a result of the settling of the long-term debt, offset by lower foreign exchange gains as a result of the settling of the US dollar denominated debt in the first quarter of fiscal 2012 and the change in the functional currency of one of the Company's subsidiaries to U.S. dollars at June 1, 2011 as described above.

    For the year ended May 31, 2012, the Company recorded total comprehensive income of $23,865,000 compared to comprehensive loss of $2,011,000 for the year ended May 31, 2011. The change in comprehensive income (loss) results from the factors described above, plus the change in the translation adjustment relating to the foreign currency translation of the Company's subsidiaries.

    The weighted average number of common shares outstanding used to calculate basic income (loss) per share was 176,187,808 for the year ended May 31, 2012 and 130,307,552 for the year ended May 31, 2011.  The weighted average number of common shares outstanding used to calculate diluted income (loss) per share was 176,287,808 for the year ended May 31, 2012 and 130,307,552 for the year ended May 31, 2011.

    Year Ended May 31, 2011 Compared to the Year Ended May 31, 2010

    The Company was not required to retrospectively apply IFRS to its financial statements for years prior to fiscal 2011.  Accordingly, the operating results for fiscal 2010 were not restated under IFRS and the following information provides a comparison of the years ended May 31, 2011 and 2010 under previous Canadian GAAP.

    Net product sales for fiscal 2011 were $3,628,000, compared to $3,317,000 in fiscal 2010.  The Company currently sells AGGRASTAT to drug wholesalers.  These wholesalers subsequently sell AGGRASTAT to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT may result in sales of AGGRASTAT to wholesalers that do not track directly with demand for the product at hospitals.  All of the Company’s sales are denominated in US dollars.  The increase compared to fiscal 2010 is attributable to an increase in wholesale purchasing of AGGRASTAT,®, a reduction in hospital discounts and fluctuations in foreign
    46

    currency exchange rates.  Although wholesale purchasing generally reflects hospital demand, it is also subject to fluctuations attributed to wholesaler inventory adjustments.


    Cost of goods sold represents direct product costs associated with AGGRASTAT® including and write-downs for obsolete inventory.  Amortization of the related acquired AGGRASTAT® intangible assets is separately discussed below.


    Cost of goods sold, excluding amortization, for fiscal 2011 were $674,000 compared to $572,000 in fiscal 2010.  The Company has a minimum purchase commitment for the manufacturing of AGGRASTAT® and as a result has recorded a $0.1 million charge to recognize this commitment.  For the year ended May 31, 2011, increases to cost of goods sold are the result of increases in net sales of AGGRASTAT®AGGRASTAT and the write-off of expired inventory during 2011.


    Total Selling, general, and administrative expenditures for fiscal 2011 were $2,818,000, compared to $4,475,000 in fiscal 2010.  Selling, general, and administrative expenditures related to AGGRASTAT® were $1,657,000 in fiscal 2011, compared to $3,277,000 in fiscal 2010.  Selling, general and administrative expenses include salaries and related costs for those employees not directly involved in research and development.  The expenditures are required to support sales and marketing efforts of AGGRASTAT® and ongoing business development and corporate stewardship activities.   The balance also includes professional fees such as legal, audit, investor and public relations.


    Selling, general and administrative expenditures - AGGRASTAT® decreased during the year ended May 31, 2011 as compared to same period in the prior year mainly due to :


    34

    to:


    ·  The Company payroll costs were lower during the period, attributable to management's efforts to reduce operating costs;

    ·  The average US exchange rate for the period was lower than the in the comparable periods of 2010 resulting in a decrease in selling, general and administrative expenditures; and

    ·  Overall the Company’s selling, general and administrative expenditures related to AGGRASTAT are lower in many areas as a result of the cost curtailment program.

    Selling, general and administrative expenditures – Other decreased during the year ended May 31, 2011 as compared to same period in the prior year mainly due to:


    ·  Overall the Company’s selling, general and administrative expenditures – other are lower in many areas as a result of the cost curtailment program.  Significant reductions are noted in payroll, rent, and insurance;

    ·  During fiscal 2011, the Company has incurred an increase of legal and professional fees related to ongoing discussions with the Company's secured lender.

    Net research and development expenditures for fiscal 2011 were $205,000, compared to $393,000 in fiscal 2010.  Research and development expenditures include costs associated with the Company’s clinical development and preclinical programs including salaries, research centred costs and monitoring costs.  The Company expenses all research and development costs.  The decrease in research and development expenditures, for the year ended May 31, 2011 as compared to the same period in fiscal 2010 is due to reductions in the modest funds allocated by the Company to advance its TARDOXALTM clinical trial.  As a result of the decline in research and development activities, there were not any
    47

    investment tax credit recoveries during fiscal 2011.  In fiscal 2010, investment tax credit recoveries totalled $0.3 million.


    The Company’s Impairment of Intangibles assets for fiscal 2011 were $280,000, compared to $769,000 in fiscal 2010. Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to surrender certain issued patents and withdraw certain applications under review.  The majority of these patents were in the review stage in numerous countries.  As a result, impairment charges of $280,235 were recorded to write off the carrying value of certain specific patents.


    It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments.  The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company's commercial strategy.


    Amortization for the year ended May 31, 2011 was $899,000, compared to $919,000 in fiscal 2010.  For the year ended May 31, 2011, amortization decreased as compared to the prior year as a result of the write-down in intangibles in the third and fourth quarters of fiscal 2010. The majority of amortization expense in both periods relates to the amortization of AGGRASTAT®AGGRASTAT intangible assets.


    Interest expense for fiscal 2011 was $3,122,000, compared to $3,280,000 in fiscal 2010.  The decrease in interest expense for the year ended May 31, 2011 as compared to the prior fiscal year is primarily due to the increase in the strength of the Canadian dollar as compared to the US dollar.


    The net foreign exchange gain for the year ended May 31, 2011 was $2,355,000, compared to a net foreign exchange gain of $1,247,000 in fiscal 2010. The net foreign exchange gain during the year ended May 31, 2011 changed by $1.11 million due to a weakening of the U.S. dollar relative to the Canadian dollar in the quarter.  Foreign exchange gain represents changes in the Canadian dollar value of foreign currency denominated operating accounts and long-term debt in response to changes in the value of the Canadian dollar relative to US dollar.  The value of the Canadian dollar relative to the US dollar increased over the period, with exchange rates moving from 1.046 as at May 31, 2010 to 0.969 as at May 31, 2011, which resulted in a foreign exchange gain of $2.4 million for the period.  In the prior year, the value of the Canadian dollar as compared to the US dollar strengthened, with exchange rate equal to 1.092 as at May 31, 2009 moving to 1.046 as at May 31, 2010, which resulted in a foreign exchange gain of $1.25 million for the prior year.


    35


    For the year ended May 31, 2011, the Company recorded a consolidated net loss of $2,014,000 or $0.02 per share compared to a consolidated net loss of $5,533,000 or $0.04 per share for the year ended May 31, 2010.  As discussed above the main factors contributing to the decrease in the loss as compared to 2010 fiscal year were the increases in wholesale AGGRASTAT,®, sales and the Company's cost curtailment program whereby operating costs (exclusive of debt servicing requirements and costs related to restructuring of debt as discussed above) have been reduced.


    The weighted average number of common shares outstanding used to calculate basic and diluted loss per share was 130,507,552 for the years ended May 31, 2011 and 2010.

    Year Ended May 31, 2010 Compared to the Year Ended May 31, 2009

    Net product sales for fiscal 2010 were $3,317,000, compared to $4,793,000 in fiscal 2009. The Company sells AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT® to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals. The decline is attributable to fluctuations in foreign currency exchange rates and an increase in wholesaler purchasing in advance of a price increase introduced during the 3rd quarter of 2009. Since then, wholesale purchasing has more closely reflected hospital demand with modest fluctuations attributing to wholesaler inventory adjustments.

    Cost of goods sold represents direct product costs associated with AGGRASTAT® including and write-downs for obsolete inventory. Amortization of the related acquired AGGRASTAT® intangible assets is separately discussed below.

    Cost of goods sold, excluding amortization, for fiscal 2010 were $572,000 compared to $377,000 in fiscal 2009. The Company has a minimum purchase commitment for the manufacturing of AGGRASTAT® and as a result has recorded a $0.3 million charge to recognize this commitment. The increase is partially offset by direct costs linked to lower sales volume during the year ended May 31, 2010 as compared to of 2009.

    Total Selling, general, and administrative expenditures for fiscal 2010 were $4,475,000, compared to $9,255,000 in fiscal 2009. Selling, general, and administrative expenditures related to AGGRASTAT® were $3,277,000 in fiscal 2010, compared to $6,598,000 in fiscal 2009. Selling, general, and administrative expenditures for AGGRASTAT® are primarily related to field selling expenses, product promotion costs and administrative expenses. The appreciation of the US dollar compared the Canadian dollar favourably impacted our expenditures which complimented Management’s cost curtailment program implemented since the beginning of the fiscal year. Other selling, general, and administrative expenditures in fiscal 2010 decreased to $1,198,000 from $2,657,000 in fiscal 2009 mainly due to Management’s cost curtailment program, as well as a one-time provision against research advances recorded in fiscal 2009. These reductions were offset by professional and advisory fee related to ongoing discussions with the Company’s secured lender.

    Net Research and development expenditures for fiscal 2010 were $393,000, compared to $23,000 in fiscal 2009. The increase in research and development expenditures as compared to fiscal 2009 is due to the Company continuing with its Phase II clinical study TARDOXALTM on a cost conservative basis until such time as the Company’s financial condition improves. In 2009, the Company recovered approximately $800,000 in research and development expenses as a result of negotiations and support from clinical partners and service providers for costs incurred in 2008. This recovery was applied against existing 2009 expenditures.


    36

    The Company’s Impairment of Intangibles assets decreased from $1,756,000 in fiscal 2009 to $769,000 in fiscal 2010. During fiscal 2009 the Company had initiated a review of all outstanding patents as part of its ongoing cost curtailment program. Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to surrender issued patents and withdraw applications under review. The majority of these patents were in the review stage in numerous countries. As a result, an impairment charge of $1.0 million was recorded to write off the carrying value of these specific patents.

    It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments. The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company's commercial strategy.

    Amortization for the year ended May 31, 2010 was $919,000, compared to $939,000 in fiscal 2009. The majority of amortization expense in both periods relates the amortization of AGGRASTAT® intangibles. The amortization was lower in fiscal 2010 due to the write-down of the intangibles in fiscal 2009 and 2010.

    Interest and other income for the year ended May 31, 2010 was $5,000, compared to $256,000 in fiscal 2009. The decrease in interest and other income in fiscal 2010 is the result of lower cash and cash equivalents balance and lower interest rates as compared to the prior fiscal year.

    Interest expense for fiscal 2010 was $3,280,000, compared to $4,945,000 in fiscal 2009. The decrease in interest expense for the year ended May 31, 2010 as compared to fiscal 2009 is primarily due to the repayment of the term loan facility during the second quarter of 2009.

    The net foreign exchange gain for the year ended May 31, 2010 was $1,247,000, compared to a net foreign exchange loss of $1,636,000 in fiscal 2009. The net foreign exchange gain during the year ended May 31, 2010 changed by $2.88 million due to a weakening of the U.S. dollar relative to the Canadian dollar in the year. Foreign exchange loss represents changes in the Canadian dollar value of foreign currency denominated operating accounts and long-term debt in response to changes in the value of the Canadian dollar relative to US dollar. The value of the Canadian dollar relative to the US dollar increased over the period, with exchange rates moving from $1.095 as at May 31, 2009 to $1.046 as at May 31, 2010, which resulted in a foreign exchange gain of $1.2 million for the year. In the prior year, the value of the Canadian dollar decreased, with exchange rates moving from $0.994 as at May 31, 2008 to $1.092 as at May 31, 2009, which resulted in a foreign exchange loss of $1.64 million for the prior year.

    For the year ended May 31, 2010, the Company recorded a consolidated net loss of $5,532,000 or $0.04 per share compared to a consolidated net loss of $13,316,000 or $0.10 per share for the year ended May 31, 2009. As discussed above the main factors contributing to the decrease in the loss as compared to the 2009 fiscal year resulted from the cost curtailment program whereby normal operating costs (exclusive of debt servicing requirements and costs related to restructuring of debt as discussed above) have been brought in line with revenues. Savings were offset by decreases in wholesale AGGRASTAT® sales.


    37

    The weighted average number of common shares outstanding used to calculate basic and diluted loss per share was 130,507,552 for the years ended May 31, 2010 and 2009.

    B. Liquidity and Capital Resources


    48

    Since the Company’s inception, it has financed operations primarily from net revenue received from the sale of AGGRASTAT,®, sale of its equity securities, the issue and exercise of warrants and stock options, interest on excess funds held and the issuance of debt.


    Based on management's current estimates and expected operating activities, sufficient financial resources exist to fund operations to the end of fiscal 2013.  The Company’s future operations are dependent upon its ability to grow sales of AGGRASTAT, and/or secure additional capital, which may not be available under favourable terms or at all.  If the Company is unable to grow sales or raise additional capital, management will consider other strategies including further cost curtailments, delays of research and development activities, asset divestures and/or monetization of certain intangibles.

    Cash provided by (used in) operating activities for the year ended May 31, 2011 increased $1,930,2882012 decreased $13,000 to $444,479$417,000 compared to ($1,452,809)$430,000 for 20102011 primarily due to improved operating resultslower sales of AGGRASTAT finished products, higher payments on outstanding payables throughout the year and the payment of interest and royalties during fiscal 2012 relating to the debt settlement and new long-term debt obtained on July 18, 2011, offset by the sale of unfinished product used in the Company’smanufacture of AGGRASTAT® operations and lower overall expenditures to a European pharmaceutical company during the fiscal year.

    Investing activities for the year ended May 31, 2012 were cash used totaling $98,000 primarily relating to the acquisition of intangible assets compared to $45,000 for the year ended May 31, 2011.

    Financing activities for the year ended May 31, 2012 consisted of proceeds on long-term debt as a result of a new loan with the cost curtailment program.

    InvestingGovernment of Manitoba totaling $5,000,000.  The loan is interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. Of these proceeds received $4,750,000 was used to repay existing debt as a part of the Birmingham debt settlement transaction on July 18, 2011 as described above and in note 8 to the audited consolidated financial statements for the year ended May 31, 2012.  Additionally, the Company paid $198,000 in costs associated with the issuance of Common Shares, and settling the existing debt, all occurring on July 18, 2011  There were no cash flows from financing activities for the year ended May 31, 2011 and 2010 were insignificant.

    2011.


    At May 31, 20112012 the Company had cash totaling $750,184$1,124,345 compared to $371,262$750,184 as of May 31, 2010.2011.  As at May 31, 2011,2012, the Company had working capital of $957,000 compared to a working capital deficiency of $30.2 million compared to $29.4$30.3 million at May 31, 2010. Fluctuations2011.  The significant change in the working capital are mainly due to increases in accrued interest onof the Company between the two years is as a result of the settlement of the Birmingham long-term debt and use of funds to support operations and changes in foreign currency exchange rates.

    on July 18, 2011.


    The CorporationCompany has long-term debt at May 31, 20112012 of US$25.0$5.0 million recorded in its financial statements relating to the Birmingham debtGovernment of Manitoba loan described in Note 8 of the Company's consolidated financial statements for the year ended May 31, 2011.2012. Interest is accrued based on an annual effective interest rate of 13.3% 7.0%. The minimum annual debt obligations are disclosed under Contractual Obligations.

    At May 31, 2011, the Company has accrued US$7.8 million (CDN$7.6 million) in debt service obligations. Of this amount, US$1,739,659 was originally due July 15, 2009; US$180,811 was originally due October 15, 2009; US$195,550 was originally due January 15, 2010; US$160,359 was originally due April 15, 2010; US$2,063,280 was originally due on July 15, 2010, US$168,085 was originally due October 15, 2010, US$167,025 was originally due January 15, 2011, US$258,703 was originally due April 15, 2011, and US$2,906,188 was originally due on July 15, 2011. As described in the "Recent Developments" section of this annual report, the Company settled its long-term on July 18, 2011.


    The total number of common shares issued and outstanding at May 31, 2012 and 2011 was 182,947,595 and 2010130,307,552 respectively.  As at May 31, 2012 the Company had 14,139,192 options to purchase common shares and 5,373,913 warrants to purchase common shares outstanding.

    The total number of common shares issued and outstanding at September 14, 2012 was 130,307,552.

    182,947,595.  As at September 14, 2012 the Company had 14,375,317 options to purchase common shares and 5,373,913 warrants to purchase common shares outstanding.

    C. Research and Development, Patents and Licenses, Etc.


    49

    Research and Development


    The Company’s research and development activities are predominantly conducted by its subsidiary, Medicure International, Inc.

    The primary ongoing research and development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT.   The extent to which the Company is able to invest in this plan is dependent upon the availability of sufficient finances.  The Company is conducting a clinical trial of AGGRASTAT entitled “Shortened Aggrastat Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI).

    The Company’s primary, non-AGGRASTAT research and development activity is TARDOXAL for the treatment of Tardive Dyskinesia (“TD”). A modest amount of capital is being used for an ongoing Phase II clinical study of TARDOXAL, entitled TardoxalTM for the Treatment of Tardive Dyskinesia (TEND-TD).

    For further information on the Company’s research and development activity see Item 4B – Business Overview.

    The Company’s primary ongoing research and development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®.AGGRASTAT.   The extent to which the Company is able to invest in this plan is dependantdependent upon the availability of sufficient finances.


    The Company’s primary, non-AGGRASTAT® research and development activity is TARDOXALTM for the treatment of Tardive Dyskinesia ("TD"(“TD”).  This program evolved from Medicure’s extensive clinical experience with MC-1, a naturally occurring small molecule, for cardiovascular conditions.  A modest amount of capital is being used for an ongoing Phase II clinical study of TARDOXALTM.TARDOXAL.   The Company is interested in out-licensing its library of small molecule anti thrombotic drugs.


    38


    The TARDOXALTM program benefits from over 10 years of work that Medicure invested in the advancement of this compound, including extensive human clinical testing in unrelated cardiovascular conditions and other pre-clinical, formulation, manufacturing and safety research and development.  The Company believes the information and physical assets resulting from this activity are a valuable asset that will reduce costs and also speed development of this molecule for application to TD.


    The Company intends to pursue a license or development partnership for TARDOXALTM with a large pharmaceutical company.  Such a partnership may provide funding and other resources for further clinical trials and commercialization.  While the Company has had informal discussions with potential partners, no formal agreement, or letter of intent, has been entered into by the Company as of the date hereof.


    Medicure’s library of novel therapeutics includes a series of small molecule dual acting anticoagulant/antiplatelet compounds (including the preclinical lead, MC-45308) which may be useful in treating venous and arterial thrombosis.  These compounds, which have shown activity in venous and arterial models of thrombosis, provide a basis for further research, optimization and preclinical development.  The Company is interested in out-licensing its library of small molecule anti thrombotic drugs.


    The Company may from time to time evaluate other product opportunities for potential license with the objective of further broadening its product and patent portfolio.

    As outlined in Item 17,


    50

    Company-sponsored research and development net expenditures for fiscal 20112012 were $205,000 (2010$816,000 (2011 - $393,000; 2008$205,000; 2010 - $23,000)$393,000). During fiscal 2009,

    Patents and Licenses

    In addition to a number of pending patent applications, the Company and with the support of our clinical partners and service providers, was able to secure a recovery on certain research and development costs incurred in fiscal 2008 of approximately $970,000.

    Patents and Licenses

    The Company has 2417 issued patents 23 from the United States Patent Office and one patent from New Zealand providing protection for AGGRASTAT® and certain uses of MC-1 and related compounds in treatment of cardiovascular diseasesits current and other compounds for the use in cardiovascular disease.historic development compounds.  The Company will continue to file patents related to extend protection of MC-1its research and for new compounds in development.development activities.  The United States patents currently issued to the Company are as follows:


    Patent Number Issue DateTitle
    5,292,756March 8, 19945,733,919Novel Sulfonamide Fibrinogen Receptor Antagonists
    5,733,919March 31, 1998Compositions for Inhibiting Platelet Aggregation
    5,965,581October 12, 1999Compositions for Inhibiting Platelet Aggregation
    5,972,967October 26, 1999Compositions for Inhibiting Platelet Aggregation
    5,978,698November 2, 1999Angioplasty Procedure Using Nonionic Contrast Media
    6,043,259March 28, 20006,136,794Treatment of Cardiovascular and Related Pathologies
    6,051,587April 18, 2000Treatment of Age Related Hypertension
    6,136,794October 24, 2000Platelet Aggregation Inhibition Using Low Molecular Weight Heparin in Combination with a GP IIb/IIIa Antagonist
    6,339,085January 15, 2002Prodrugs of MC1


    39

    6,417,204July 9, 20025-AZA Analogues
    6,538,112March 25, 2003Anticoagulant Test
    6,770,660August 3, 2004Method for Inhibiting Platelet Aggregation
    6,780,997August 24, 20046,861,439Cardioprotective Phosphonates and Malonates
    6,861,439March 1, 2005Treatment of Cerebrovascular Disease
    6,867,215March 15, 2005Cardioprotective Phosphonates and Malonates
    6,897,228May 24, 2005Pyridoxine and Pyridoxal Analogues: Cardiovascular Therapeutics
    7,105,673September 12, 2006Cardioprotective Phosphonates and Malonates
    7,132,430November 7, 2006Treatment of Cardiovascular and Related Pathologies
    7,148,233December 12, 2006Treatment of Cardiovascular and Related Pathologies
    7,375,112May 20, 2008Compounds and Methods for Reducing Triglyceride Levels
    7,425,570September 16, 20087,812,037Pyridoxine and Pyridoxal Analogues: New Uses
    7,442,689October 28, 2008Cardioprotective Phosphonates and Malonates
    7,812,037October 12, 2010Dual antiplatelet/anticoagulant pyridoxine analogs
    548,346May 13, 2010Combination therapies employing a composition comprising a HMG CoA reductase inhibitor and a vitamin B6 related compound

    Patents 6,043,259, 6,051,587, and


    51

    Patent 6,339,085 areis jointly owned by the Company and the University of Manitoba.  Pursuant to a Licence Agreement dated August 18, 1997, an Assignment Agreement dated September 26, 1997, an updated License Agreement dated August 30, 1999 and a newly revised version executed November 24, 2006, which supersedes all previous versions, (the ‘‘Licence Agreement’’) the University of Manitoba licensed the exclusive worldwide use of the patents and the MC-1 technology to the Company.  Pursuant to the License Agreement, the Company has agreed to pay the University of Manitoba a royalty payment of up to 3% of net sales from any cardiovascular product derived from the MC-1 technology.  The License Agreement was originally signed on August 30, 1999 and subsequently amended on November 24, 2006 and shall terminate if a patent or patents, domestic or foreign, are obtained prior to commercialization of a Licensed Product, the expiration date of the last to expire of any patents covered by the Patent Rights.

    The MC-1 technology is derived from work done by employees of the Company and by two employees of the University of Manitoba, Dr. Naranjan Dhalla and Dr. Krishnamurti Dakshinamurti, Professor Emeritus, Department of Biochemistry.


    Patents 5,292,756, 5,733,919, 5,965,581, 5,972,967, 5,978,698,  6,136,794, 6,538,112 and 6,770,660 were purchased by the Company from MGI GP, INC. (a Delaware corporation doing business as MGI PHARMA and its Affiliate, Artery, LLC).  Pursuant to an Asset Purchase Agreement dated August 8, 2006, MGI GP, INC. sold the exclusive use of the patents to the Company in the specified territory (the United States of America including the Commonwealth of Puerto Rico; Guam; and the United States Virgin Islands).  Pursuant to the Asset Purchase Agreement the Company agreed to pay MGI GP, INC. a one-time fee for the procurement of the acquired assets.  The Asset Purchase Agreement was executed August 8, 2006.

    There are 13 pending patent applications, including 4 filed with the United States Patent Office as either regular or provisional applications. Certain of these are owned by the Company by virtue of their inventorship, in whole or in part, by employees of the Company and, subsequent to June 1, 2000, by CanAm Bioresearch Inc.


    40


    Much of the work, including some of the research methods, that is important to the success of the Company’s business is germane to the industry and may not be patentable.  For this reason all employees, contracted researchers and consultants are bound by non-disclosure agreements.


    Given that the patent applications for these technologies involve complex legal, scientific and factual questions, there can be no assurance that patent applications relating to the technology used by the Company will result in patents being issued, or that, if issued, the patents will provide a competitive advantage or will afford protection against competitors with similar technology, or will not be challenged successfully or circumvented by competitors.


    The Company has filed patents in accordance with the Patent Cooperation Treaty (the ‘‘PCT’’).  The PCT is a multilateral treaty that was concluded in Washington in 1970 and entered into force in 1978.  It is administered by the International Bureau of the World Intellectual Property Organization (the ‘‘WIPO’’), headquartered in Geneva, Switzerland.  The PCT facilitates the obtaining of protection for inventions where such protection is sought in any or all of the PCT contracting states (total of 104 at July 1999).  It provides for the filing of one patent application (the ‘‘international application’’), with effect in several contracting states, instead of filing several separate national and/or regional patent applications.  At the present time, an international application may include designation for regional patents in respect of contracting states party to any of the following regional patent treaties: The Protocol on Patents and Industrial Designs within the framework of the African Regional Industrial Property Organization, the Eurasian Patent Convention, the European Patent Convention, and the Agreement Establishing the African Intellectual Property Organization.  The PCT does not eliminate the necessity of prosecuting the international application in the national phase of processing before the national or regional offices, but it does facilitate such prosecution in several important respects by virtue of the procedures carried out first on all international applications during the international phase of processing under the PCT.  The formalities check, the international search and (optionally) the international preliminary examination carried out during the international phase, as well as the automatic deferral of national processing which is entailed; give the applicant more time and a better basis for deciding whether and in what countries to further pursue the application.  Further information may be obtained from the official WIPO internet website (http://www.wipo.int).


    52

    On June 1, 2000 the Company entered into the Medicure International Licensing Agreement whereby it licensed the world-wide development and marketing rights for MC-1, except for Canada, to its wholly owned subsidiary, Medicure International, Inc.  As consideration for the grant of the license, Medicure International, Inc. agreed to pay the Company a fee of $1.00 upon the completion of specified milestones in the development process, together with a variable royalty of 7% to 9% of net sales of MC-1 (if any sales are ever in fact made).  The term of the Medicure International Licensing Agreement will expire on the date of expiration of the last to expire patent on MC-1, or in the absence of any such patent, on the 10th anniversary of the date of the first commercial sale of MC-1 in the country where it was last introduced (if it is ever so introduced).  The Medicure International Licensing Agreement may be terminated under a number of circumstances and, in any event, by either party at any time by providing the other with at least 90 days prior written notice of its intention to terminate the Medicure International Licensing Agreement.


    Medicure International, Inc. subsequently entered into a development agreement with CanAm on June 1, 2000 to perform research and development of MC-1 and other compounds at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced.  The parties to the development agreements have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of each agreement.  The term of the CanAm development agreement is to expire on the completion of all research and development activities by CanAm and the written acknowledgment by CanAm and Medicure International, Inc. that no further research projects will be undertaken.


    41


    The development agreements may be terminated under a number of circumstances and, in any event, by Medicure International, Inc. at any time by providing CanAm with at least 30 days prior written notice of its intention to terminate, or by CanAm at any time by providing Medicure International, Inc., with at least 90 days prior written notice of its intention to terminate the development agreement.


    The agreements provide that all confidential information developed or made known during the course of the relationship with the Company is to be kept confidential except in specific circumstances.


    D. Trend Information


    Net revenue from the sale of finished AGGRASTAT® products for fiscal 2011 increased 9%the year ended May 31, 2012 decreased 21% over the net revenue for the in fiscal 2010.year ended May 31, 2011.  All of the Company’s sales are denominated in USU.S. dollars.  The increasedecrease in revenues compared to the previous fiscal year corresponds with an overall decline in use of injectable antiplatelet drugs.  It is also attributable to an increaseincreases in wholesale purchasing of AGGRASTAT®, a reduction in hospital discounts to
    customers and fluctuations in foreign currency exchange rates.  The decrease may also reflect normal fluctuations in wholesale purchasing in the period.  Although wholesale purchasing generally reflects hospital demand, it is also subject to fluctuations attributed to wholesaler inventory adjustments.

    adjustments


    Net revenues from unfinished products were $1.9 million due to a one-time sale during the year ended May 31, 2012 of unfinished product to a European pharmaceutical company.  There were no similar sales of unfinished products during fiscal 2011.

    The Company is not aware of any other trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition except the potential effect the following items may or may not have:

    Subsequent to year end the Company settled its long-term debt to Birmingham Associates Ltd. in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT® sales until 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT®sales and increases on sales exceeding that amount.



    53


    E.  Off-balance Sheet Arrangements


    As of May 31, 20112012 the Company does not have any off-balance sheet arrangements, other than those disclosed below.


    42


    F.  Contractual Obligations


    The following tables set forth the Company’s contractual obligations as of May 31, 2011:

    2012:
     Contractual Obligations Payment Due By Period
    (in thousands ofCDN$)Total20122013201420152016Thereafter
    Long-term debt obligations1$43,995$3,798$4,253$4,764$5,335$5,976$19,869
    Purchase Agreement commitments282375964----
    Management services agreement commitments3180180-----
    Total$44,998$4,737$4,317$4,764$5,335$5,976$19,869

      Contractual Obligations Payment Due By Period 
    (in thousands of CDN$) Total  2013  2014  2015  2016  2017  Thereafter 
    Accounts Payable and Accrued Liabilities $1,356  $1,356   -   -   -   -   - 
    Long-term debt obligations 1
     $5,712  $263  $1,624  $1,816  $1,729  $280   - 
    Purchase Agreement commitments 2
      3,082   1,357   690   690   345   -   - 
    Management services agreement commitments 3
      111   111   -   -   -   -   - 
    Total $10,261  $3,087  $2,314  $2,506  $2,074  $280  $- 

    1.  Long-term debt obligations reflect the principal and interest payments under the debt financing agreement.  The Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program. The loan bears interest annually at the crown company borrowing rate and matures on July 1, 2016.  The loan repayment schedule is interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. The loan is secured by the Company's assets and guaranteed by the Company’s Chief Executive Officer, and entities controlled by the Chief Executive Officer. The Company issued 20,000,000 common shares of the Company in consideration for this guarantee to the Company’s Chief Executive Officer and entities controlled by the Chief Executive Officer.  The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument (MI) 61-101.  Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.

    2.  The Company has entered into manufacturing and supply agreements to purchase a minimum quantity of AGGRASTAT from a third party.  Subsequent to May 31, 2012, the Company made an AGGRASTAT purchase resulting in $492,000 of the contractual obligation for fiscal 2013 being paid.

    3.  Effective October 1, 2009, the Company entered into a business and administration services agreement with Genesys Venture Inc. (GVI), a company controlled by the Chief Executive Officer, under which the Company was committed to pay $25,000 per month or $300,000 per annum. On October 1, 2010, an amendment was made to the agreement thereby reducing the fees to $15,000 per month, or $180,000 per year effective November 1, 2010.  Effective January 1, 2012, the Company entered into a new business and administration services agreement with GVI under which

    54

    the Company is committed to pay $15,833.33 per month or $190,000 per annum along with a flexible lease of an additional $500 per month for each office space it requests and is given access to by GVI. The agreement is for a one year term and shall be automatically renewed for a succeeding term of one year if not terminated by the Company at least 90 days prior to expiry.  Either party may terminate the agreement at any time after June 30, 2012, upon 90 days written notice to the other party.

    Debt obligations reflect the minimum annual payments under the debt financing agreement.  In addition to the contractual obligations disclosed above, the Company and its wholly-owned subsidiaries, have ongoing research and development agreements with third parties in the ordinary course of business. These agreements include the research and development ofrelated to AGGRASTAT®, and TARDOXALTM as well as other product opportunities.

    In addition, as at May 31,


    On July 18, 2011, the Company has committedrenewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.  The Company may terminate this agreement at any time upon 120 days written notice.

    In addition to fund up to a maximum of $3,000,000 inthe contractual obligations disclosed above, the Company and its wholly-owned subsidiaries have ongoing research and development activities under a development agreementagreements with athird parties in the ordinary course of business.

    Contracts with contract research organization. Theorganizations (CROs) are payable over the terms of the trials and timing of expenditures and payments is largely atdependent on various milestones being met, such as the discretionnumber of patients recruited, number of monitoring visits conducted, the Companycompletion of certain data management activities, trial completion, and

    1

    In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for a US$25 million up-front cash payment. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of AGGRASTAT® net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in AGGRASTAT® revenues, 17.5 percent on the next US$10 million, 15 percent on the next US$5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual returns start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement aggregate to US$49.7 million. Additional information can be found in the Company's Annual Report on Form 20-F for the year ended May 31, 2011, which can be obtained on SEDAR (www.sedar.com).

    Birmingham also received the option to convert its rights based on AGGRASTAT® to MC-1 within six months after MC-1’s commercialization, if achieved. The exact percentage of AGGRASTAT® or MC-1 revenue that Birmingham would have received was tiered and declined as certain revenue levels were to be achieved. Upon conversion to MC-1, Birmingham would have been entitled to a return of 10 percent on the first US$35 million in MC-1 revenues, 5 percent on the next US$40 million in MC-1 revenues and 3 percent thereafter. Birmingham would have also received a minimum annual return of US$2.6 Million on MC-1 net sales, if approved until May 31, 2020. Birmingham would have received payments based on MC-1 revenues until December 31, 2024, unless a novel patent is obtained for MC-1, which could extend the period of payments.

    During the 30 day period following the date on which the U.S. Food and Drug Administration shall have first approved MC-1 for sale to the public, the Company could have elected to terminate AGGRASTAT® or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period of US$70 Million to Birmingham. In addition, upon the approval of MC-1 for a second indication, the Company could have once again elect to terminate AGGRASTAT® or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period of US$120 Million to Birmingham.

    With the settlement of the Birmingham long-term debt on July 18, 2011, all associated commitments and obligations were cancelled. Under the debt settlement Birmingham is entitled to a royalty on future AGGRASTAT® sales until 2023.

    2

    The Company has entered into manufacturing and supply agreements to purchase a minimum quantity of AGGRASTAT® from a third party.

    3

    Effective October 1, 2009, the Company entered into a business and administration services agreement with Genesys Venture Inc. (GVI), a company controlled by the Chief Executive Officer, under which the Company is committed to pay $25,000 per month or $300,000 per annum. On October 1, 2010, an amendment was made to the agreement thereby reducing the fees to $15,000 per month, or $180,000 per year effective November 1, 2010. The agreement shall be automatically renewed for succeeding terms of one year on terms to be mutually agreed upon by the parties. The Company may terminate this agreement at any time upon 60 days written notice.

    other trial-related activities.


    43

    the agreement may be terminated at any time provided thirty (30) days notice is provided. Accordingly, no obligations are included in the above table in relation to this agreement.

    The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with respect to these indemnification obligations.


    As a part of the Birmingham debt settlement described above and in note 8 to the consolidated financial statements, beginning on July 18, 2011, the Company is obligated to pay a royalty to the previous lender based on future commercial AGGRASTAT sales until 2023.  The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter.  The previous lender has a one-time option to switch the royalty payment from AGGRASTAT to a royalty on MC-1 sales.  Management has determined there is no value to the option to switch the royalty.

    As part of the sale of unfinished product as described in note 11 to the consolidated financial statements, if the Company exercised its option to obtain AGGRASTAT data and was successful in getting changes to the approved use of AGGRASTAT in the United States, the Company would be obligated to pay a three percent royalty of up to US$3,500,000 on future AGGRASTAT sales.  Subsequent to year end, the
    55

    option to obtain the data expired without the Company exercising its rights thereunder.  As a result the Company has no ongoing or potential royalty obligation in connection with this agreement.

    The Company has granted a 3% royaltyis obligated to pay royalties to the University of Manitoba based on any future commercial net sales of MC-1, for cardiovascular uses.aggregating up to 3.9 percent on net sales.  To date, no royalties are due and/or payable and, given these development programs have been placed on hold, the Company does not anticipate any such royalties to be paid.  Such royalty does not apply to the sale of TARDOXALTMTARDOXAL.
    .

    The above commitments exclude any royalty obligations to Birmingham in excess

    In the normal course of minimum annual payments pursuant to the debt financing agreement. With the settlement of the Birmingham long-term debt on July 18, 2011, these royalties were cancelled. Under the debt settlement Birmingham is entitled to a royalty on future AGGRASTAT® sales until 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT® sales and increases on sales exceeding that amount.

    In addition, as part of a transaction on July 6, 2011, Iroko made available tobusiness the Company certain analytical methods for testingmay from time to time be subject to various claims or possible claims.  Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of AGGRASTAT® in Europe. If the company exercises its option to obtain the dataoperations, or cash flows, these matters are inherently uncertain and is successful in getting changes to the approved usemanagement’s view of AGGRASTAT®these matters may change in the United States, Iroko will be entitled to receive a royalty of up to US$3.5 million on future AGGRASTAT® sales based on a percentage of sales.

    future.

    ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


    A. Directors and Senior Management


    Directors and Senior Management


    The members of the board of directors and senior officers of the Company including a brief biography of each are as follows:


    Dr. Albert D. Friesen, Winnipeg, Manitoba, Canada - Director, Chairman and Chief Executive Officer


    The founder of Medicure Inc., Dr. Friesen holds a Ph.D. in protein chemistry from the University of Manitoba.  Dr. Friesen played a key role in founding several health industry companies including Rh Pharmaceuticals (acquired by Cangene Inc.), ABI Biotechnology (acquired by Apotex Inc.), Viventia Biotech Inc., Genesys Pharma Inc. and KAM Scientific Inc.  Dr. Friesen has experience in the establishment of pharmaceutical production facilities and has also managed and initiated the research and clinical development of several pharmaceutical candidates.  Dr. Friesen is a founder of the Industrial Biotechnology Association of Canada (IBAC) and past Chairman of its board of directors and former member of the Industrial Advisory Committee to the Biotechnology Research Institute in Montreal.  In addition to his role with the Company, Dr. Friesen is currently the President and Chairman of Genesys Venture Inc., a biotech incubator, based in Winnipeg.  Dr. Friesen provides his services to the Company through A.D. Friesen Enterprises Ltd., his private consulting corporation.  He also served as President until July 25, 2011 at which point that position was filled by Mr. Dawson Reimer. Date of birth is May 19, 1947


    44


    Dr. Arnold Naimark, Winnipeg, Manitoba, Canada - Director

    Dr. Arnold Naimark, O.C., O.M., M.D., L.L.D., F.R.C.P.(C), F.R.S.C, FCAHS,. has had a distinguished career in biomedical research, medicine and higher education.  He is President Emeritus and Dean of Medicine Emeritus and Professor of Medicine and Physiology at the University of Manitoba.  He is currently Director of the Centre for the Advancement of Medicine, Chair of Genome Prairie and Chair of Health Canada’s Ministerial Science Advisory Board and Chairman of Genome Prairie.CancerCare Manitoba.  Dr. Naimark serves on the Research Council of the Canadian Institute for Advanced Research, the National Statistics Council of Canada as aand is Vice-Chair of the Statistics Canada Audit Committee. He was formerly: Chair of Health Canada’s Ministerial Science Advisory Board , Member of the CancerCare Manitoba Board, and on the International Advisory Committee on Research of the Alberta Cancer Board, Research Institute. He isInstitute, Vice-Chair of CancerCare Manitoba, the Manitoba Health Research Council and Director of the Audit Committee of Statistics Canada.Robarts Research Institute. He served asis the founding Chairman of the North Portage Development Corporation, the Canadian
    56

    Health Services Research Foundation and the Canadian Biotechnology Advisory Committee, and as a Director of the Robarts Research Institute.Committee. He has served as President of several academic bodies including, the Canadian Physiological Society, the Canadian Society for Clinical Investigation, the Association of Canadian Medical Colleges, the Association of Universities and Colleges of Canada and as Chairman of the Association of Commonwealth Universities.  Dr. Naimark is an Officer of the Order of Canada, a Member of the Order of Manitoba and a Fellow of the Royal College of Physicians and Surgeons of Canada, the Royal Society of Canada, and the Canadian Academy of Health Sciences.  He is recipient of the G. Malcolm Brown Award of the Royal College of Physicians and Surgeons and Medical Research Council of Canada, the Osler Award, the Distinguished Service Award of Ben Gurion University, the Symons Award of the Association of Commonwealth Universities; and of honorary doctorates from Mount Allison University and the University of Toronto, and of several other awards and distinctions related to his professional, academic and civic activities. Date of birth is August 24, 1933.


    Gerald P. McDole, Mississauga, Ontario, Canada, MBA – Director


    Mr. McDole is currently a director of several Canadian healthcare companies.  Mr. McDole is Past President of AstraZeneca Canada Inc.  He was named President and CEO of AstraZeneca Canada Inc.'s pharmaceutical operations in 1999 and immediately led the merger of Astra Pharma and Zeneca Pharma Inc. Prior to this, Mr. McDole was president and CEO of Astra Pharma Inc., a position he assumed in 1985 after having served as Executive Vice-President. Mr. McDole is a member of the Canadian Healthcare Marketing Hall of Fame, and has been recognized by Canadian Healthcare Manager Magazine with the Who's Who in Healthcare Award in the pharmaceutical category. In recognition of Mr. McDole's outstanding contributions to the biotech and pharmaceutical industries, the University of Manitoba recently established The Gerry McDole Fellowship in Health Policy and Economic Growth. Mr. McDole holds a Bachelor of Science and a Certificate of Business Management from the University of Manitoba, an MBA from Simon Fraser University, and a Business Administration diploma from the University of Toronto.  Date of birth is January 25, 1940.


    45


    Peter Quick, Mill Neck, New York, USA - Director


    Mr. Quick currently serves on the Board of Directors for Fund for the Poor, the Board of Governors of St. Francis Hospital on Long Island, and the National Selection Committee for the Jefferson Scholars Program of the University of Virginia.  Mr. Quick is past President and CEO of Quick & Reilly, Inc. and a former President of the American Stock Exchange. Mr. Quick has also served on the Board of Governors of the Chicago Stock Exchange and as Chairman of the Midwest Securities Trust Company. Mr. Quick received a bachelor's degree in engineering from the University of Virginia and attended Stanford University's Graduate School of Petroleum Engineering. He was a lieutenant in the United States Navy, and served four years active duty.  Date of birth is February 11, 1956.


    Dawson Reimer, MAES – President and Chief Operating Officer


    Dawson Reimer proceeded from a Master's Degree in Economic Development, University of Waterloo to be employed as a full-time consultant to the Federal Department of Western Diversification. In this capacity, he conducted entrepreneurship training and developed a business start-up training program. Beginning in 1996, he served as Business Development/Investor Relations with Genesys Pharma Inc. He was also project coordinator for the establishment of the Company's new research and pharmaceutical production facility. In 1997, he began conducting business activities for Genesys Venture Inc., a biotech business incubator, where he has assisted numerous biotechnology ventures in developing business plans, obtaining financing, and developing intellectual property protection. In this capacity, Mr. Reimer became actively involved in the Company at its inception and has been directly employed by the Company since 2001. He was appointed President and Chief Operating Officer of the Company effective July 25, 2011.  
    57

    Before that date he served as Vice President, Operations.  Mr. Reimer is a son-in-law of Dr. Albert D. Friesen, Director, President, Chairman and Chief Executive Officer.   Date of birth is May 7, 1971.


    James Kinley, CA – Chief Financial Officer


    Effective September 21, 2011 Mr. James Kinley was appointed as CFO of the Company, replacing Dawson Reimer, who has actedserved as The Company’s Chief Financial Officer in an interim capacity since September 2011. HisJuly 15, 2011 until Mr. Kinley’s appointment. Mr. Kinley’s services are provided to the Company through a Management Services Agreement with Genesys Venture Inc. (“GVI”).  Previous to his time at GVI and the Company, he was Manager, Financial Reporting at Manitoba Telecom Services Inc. and was involved in all aspects of financial reporting, including publicly filed documents such as their financial statements.  James is a Chartered Accountant and holds a Bachelor of Commerce (Hons.) degree from the University of Manitoba.  Date of birth is July 9, 1978.


    Management


    Dr. Albert D. Friesen - Chairman, Chief Executive Officer and Director: Dr. Friesen directs the overall business management of the Company (see “Directors and Senior Management” under this item).


    Dawson Reimer - President and Chief Operating Officer: Subject to the direction of the Chief Executive Officer, Mr. Reimer has general charge of the Corporation’s day to day business activities with a primary focus on its commercial direction, including the advancement and management of new and existing pharmaceutical products. (See “Directors and Senior Management” under this item)


    James Kinley, CA - Chief Financial Officer: Mr. Kinley is responsible for the Company’s financial management and accounting practices (see “Directors and Senior Management” under this item).


    46


    B. Compensation

    No compensation of any kind was


    Compensation paid to the directors, and executive officers of the Company during the year ended May 31, 2011, except for the accrual for unpaid board compensation2012, is described below and stock-based compensation described in Item 6(E) belowbelow:

    The independent members of the Board of Directors were paid $90,000 relating to amounts accrued from services provided prior to the debt settlement that occurred on July 18, 2011.  Additionally, the Board members were paid $24,000 for attendance at meetings between July 19, 2011 and as follows:

    May 31, 2012 and the chairs of the Audit and Finance Committee and executive compensation, nominating and corporate governance committee were paid $5,000 each for services are committee chairs.


    On October 1, 2001, a compensation agreement was entered into between the Company and A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen and subsequently amended on October 1, 2003, October 1, 2005, October 1, 2006, and October 1, 2007.2007 and July 18, 2011.  For the year ended May 31, 2011,2012, the Company paid A.D. Friesen Enterprises Ltd., $201,000$186,000 in consulting compensation, including taxable benefits.  Dr. Friesen is eligible for an annual bonus, if certain objectives of the Company are met, as determined by the Board of Directors.


    Dawson Reimer serves the Company as President and Chief Operating Officer and received a salary of $161,000$165,000 payable in equal semi-monthly instalments in fiscal 2011.

    2012.


    During the year ended May 31, 2011,2012, the Company paid directors a total of Nil (Year ended May 31, 2011: Nil; Year ended May 31, 2010: Nil; Year ended May 31, 2009: Nil; Year ended May 31, 2008: Nil; Year ended May 31, 2007: Nil) for consulting fees.


    58

    The Company has agreed to provide its independent directors $2,000 for each quarterly board meeting they personally attend ($1,000 via telephone), and $1,500 for each quarterly executive compensation, nominating and corporate governance committee meeting or audit and finance committee meeting they attend.

    attend that is not held in conjunction with a regular Board meeting.


    For fiscal 2011 and prior, due to the Company’s current financial position, the board had offered and committed not to request, and has therefore not received, any compensation for their services as independent directors.   As at May 31, 2011, theThe Company had accrued director compensation of $295,000$309,000 relating to the independent directors’ service as directors prior to May 31, 2011 and an additional $12,000 prior to July 18, 2011.

      Subsequent to the debt settlement that occurred on July 18, 2011, the Company began paying the Board members this amount owing and had paid $90,000 during fiscal 2012 relating to these accrued amounts.  As at May 31, 2012, the Company has $231,000 of accrued compensation owing to the independent members of the Board of Directors relating to fees from the periods prior to July 18, 2012.


    The Company does not provide any cash compensation for its directors who are also officers of the Company for their services as directors.


    No pension, retirement fund and other similar benefits have been set aside for the officers and directors of the Company.


    C. Board Practices


    The Board of Directors presently consists of four directors who were elected at the Company’s annual general meeting of the shareholders held on November 29, 2010.22, 2011.  Each director holds office until the next annual general meeting of the Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the ArticlesBy-Laws of the Company, or with the provisions of theCanada Business CompanysCorporations Act.  Dr. Albert D. Friesen has served as a director of the Company since September 1997.  Dr. Arnold Naimark has served as a director of the Company since March 2000.  Gerald McDole has served as a director of the Company since January 2004.  Peter Quick has served as a director of the Company since November 2005.


    Audit and Finance Committee

    Pursuant to Section 171 of theCanada Business CompanysCorporations Act (the “Act”), the Company is required to have an Audit Committee.  As at the date hereof, the Audit and Finance Committee is comprised of three independent directors: Gerald McDole (Chair), Dr. Arnold Naimark, and Peter Quick.  The relevant experience of each member is described above. (See “Item 6. 6 - Directors, Senior Management and Employees”Employees”.)  Section 171(1) of the Act requires the directors of a reporting corporation to elect from among their number a committee composed of not fewer than three directors, of whom a majority must not be officers or employees of the corporation or an affiliate of the corporation.  Section 171(3) of the Act provides that, before financial statements are approved by the directors, they must be submitted to the audit committee for review.  Section 171(4) of the Act provides that the auditor must be given notice of, and has the right to appear before and to be heard at, every meeting of the audit committee, and must appear before the audit committee when requested to do so by the committee.  Finally, section 171(5) of the Act provides that on the request of the auditor, the audit committee must convene a meeting of the audit committee to consider any matters the auditor believes should be brought to the attention of the directors or members.


    47


    Under the Sarbanes-Oxley Act of 2002, the independent auditor of a public Company is prohibited from performing certain non-audit services. The Audit and Finance Committee has adopted procedures and
    59

    policies for the pre-approval of non-audit services, as described in the audit committee charter.

    Audit and Finance Committee Charter reproduced below.

    60


    AUDIT AND FINANCE COMMITTEE CHARTER

    GENERAL FUNCTIONS, AUTHORITY, AND ROLE

    The purpose of the Audit and Finance Committee (the “Committee”) is to oversee the accounting, and financial reporting and disclosure processes of the Company and the audits of its financial statements, and thereby assist the Board of Directors of the Company (the “Board”) in monitoring the following:
    (1) the integrity of the financial statements of the Company, Company;
    (2) compliance by the Company with ethical policies and legal and regulatory requirements related to financial reporting and disclosure;
    (3) the appointment, compensation, qualifications, independence and performance of the Company’s internal and external auditors, auditors;
    (4) the performance of the Company's independent auditors, and auditors;
    (5) performance of the Company's internal controls and financial reporting process.

    The Audit and Financedisclosure processes; and

    (6) that management of the Company has assessed areas of potential significant financial risk to the Company and taken appropriate measures.
    The Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities and personnel of the Company, its auditors and its legal advisors. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this charter, the Audit and Finance Committee has the authority to independently retain, and set and pay compensation to, special legal, accounting, or other consultants to advise it, and may request any officer or employee of the Company, its independent legal counsel or independent auditor to attend a meeting of the Audit and Finance Committee or to meet with any members of, or consultants to, the Audit and Finance Committee. The Audit and Finance Committee has the power to create specific sub-committees with all of the power to conduct or authorize investigations into any matters within the scope of the mandate of the sub-committee, with full access to all books, records, facilities and personnel of the Company, its auditors and its legal advisors.

    The Company's independent auditor is ultimately accountable to the Board of Directors and to the Audit and Finance Committee, who, as representatives of the Company's shareholders, have the authority and responsibility to evaluate the independent auditor, appoint and replace the independent auditor, and to determine appropriate compensation for the independent auditor.

    In the course of fulfilling its specific responsibilities hereunder, the AuditCommittee has authority to, and Finance Committee must, maintain free and open communication between the Company's independent auditors,auditor, Board of Directors and Company management. The responsibilities of a member of the Audit and Finance Committee are in addition to such member's duties as a member of the Board of Directors.


    48

    Board.

    While the Audit and Finance Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Audit and Finance Committee to plan or conduct audits or to determine that the Company's financial statements are complete, accurate, and in accordance with generally accepted accounting principles.International Financial Reporting Standards (“IFRS”). This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit and Finance Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company’s Code of Ethics. Any responsibilities that the Audit and Finance Committee has the power to act upon, may be recommended to the Board to act upon.

    MEMBERSHIP

    The membership of the Audit and Finance Committee will be as follows:

    The Committee shall consist of a minimum of three members of the Board, of Directors, appointed from time to time, each of whom is affirmatively confirmed as independent by the Board in accordance with the definition of Directors,independence for audit committee members set out in Appendix I hereto, with such affirmation disclosed in the Company's Management Information Circular for its annual Information Circular.

    meeting of shareholders. All members

    61

    of the Committee should be “financially literate”, as defined in Appendix I, and at least one of the members shall be an “audit committee financial expert” as defined in as defined in Appendix I.
    The Board will elect, by a majority vote, one member as chairperson.

    In the absence of the Chair of the Committee, the members shall appoint an acting Chair.

    The members of the Audit and Finance Committee willshall meet all independence and financial literacy requirements of The American StockTSX Venture Exchange, The Toronto Stock Exchange, Rule 10A-3 of the Securities Exchange Act of 1934, as amended, Multilateral Instrument 52-110 and the requirements of such other securities exchange or quotations system or regulatory agency as may from time to time apply to the Company.

    Any member of the Committee may be removed and replaced at any time by the Board and will automatically cease to be a member of the Committee as soon as such member ceases to be a Director. The Board may fill vacancies in the Committee by election from among the members of the Board. If and whenever a vacancy exists on the Committee, the remaining members may exercise all its powers so long as a quorum remains in office.
    A quorum shall be a majority of the members provided that if the number of members is an even number, one half of the number plus one shall constitute a quorum.
    A member of the Audit and Finance Committee may not, other than in his or her capacity as a member of the Audit and Finance Committee, the Board, of Directors, or any other Board committee, accept any consulting, advisory, or other compensatory fee from the Company, and may not be an affiliated person of the Company or any subsidiary thereof.

    RESPONSIBILITIES

    The responsibilities of the Audit and Finance Committee shall be as follows:

    Frequency of Meetings

    Meet quarterly or more often as may be deemed necessary or appropriate in its judgment, either in person or telephonically.

    The Audit and Finance Committee will meet with the independent auditor at least quarterly,annually, either in person or telephonically.

    Reporting Responsibilities

    Provide to the Board of Directors proper Committee minutes.

    Report Committee actions to the Board of Directors with such recommendations as the Committee may deem appropriate.


    49

    Committee and Charter Evaluation

    The Committee shall annually review, discuss and assess its own performance. In addition, the Committee shall periodically review its role and responsibilities.
    Annually review and reassess the adequacy of this Charter and recommend any proposed changes to the Board of Directors for approval.

    Whistleblower Mechanism

    Adopt and review annually a procedure through which employees and others can confidentially and anonymously inform the Audit and Finance Committee regarding any concerns about the Company's accounting, internal accounting controls or auditing matters. The procedure shall include responding to and the retention of, any such complaints.

    62

    Legal Responsibilities

    Perform such functions as may be assigned by law, by the Company's certificate of incorporation, memorandum, articles or similar documents, or by the Board of Directors.

    Board.

    INDEPENDENT AUDITOR

    Nominations

    Nominates annually the

    Nomination, Compensation and Evaluation
    The Company’s independent auditor is ultimately accountable to be proposed for shareholder approval.

    Compensationthe Committee and Evaluation

    Approve the Board and shall report directly to the Committee. The Committee shall review the independence and performance of the auditor and annually recommend to the Board the appointment and compensation of the independent auditor evaluateor approve any discharge of auditor when circumstances warrant.

    Review of Work
    The Committee is directly responsibility for overseeing the performancework of the independent auditor and, if so determined byengaged to prepare or issue an audit report or perform other audit, review or attest services for the Committee, replaceCompany, including the resolution of disagreements between management and the independent auditor.

    Pre-approveauditor regarding financial reporting.

    Approval in Advance of Related Party Transactions
    Pre-approval of all “related party transactions,” which are transactions or loans between the Company and a related party involving goods, services, or tangible or intangible assets that are are:
    (1) material to the Company or the related party,party; or
    (2) unusual in their nature or conditions.
    A related party includes an affiliate, major shareholder, officer, other key management personnel or director of the Company, a Companycompany controlled by any of those parties or a family member of any of those parties.

    Engagement Procedures for Audit and Non-auditNon-Audit Services

    Approve in advance all audit services to be provided by the independent auditor. Establish policies and procedures that establish a requirement for approval in advance of the engagement of the independent auditor to provide permitted non-audit services provided to the Company or its subsidiary entities and to prohibit the engagement of the independent auditor for any activities or services not permitted by any of the Canadian provincial securities commissions, the SECSecurities Exchange Commission (“SEC”) or any securities exchange on which the Company's shares are traded including any of the following ten types of non-audit services:

    ·Bookkeeping or other services related to accounting records or financial statements of the Company;

    ·Financial information systems design and implementation consulting services;

    ·Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;

    ·Actuarial services;


    50

    ·Internal audit outsourcing services;

    63

    ·Any management or human resources function;

    ·Broker, dealer, investment advisor, or investment banking services;

    ·Legal services;

    ·Expert services related to the auditing service; and

    ·Any other service the Board of Directors determines is not permitted.

    Hiring Practices

    Review and approve the Company’s hiring policy regarding the partners, employees and former partners and employees of the present and former independent auditor of the Company. Ensure that no individual who is, or in the past 3three years has been, affiliated with or employed by a present or former auditor of the Company or an affiliate, is hired by the Company as a senior officer until at least 3three years after the end of either the affiliation or the auditing relationship.

    Independence Test

    Take reasonable steps to confirm the independence of the independent auditor, which shall annually include:

    ·Ensuring receipt from the independent auditor of a formal written statement delineating all relationships between the independent auditor and the Company, consistent with the Independence Standards Board Standard No. 1 and related Canadian regulatory body standards;

    ·Considering and discussing with the independent auditor any relationships or services
    provided to the Company, including non-audit services, that may impact the objectivity and independence of the independent auditor; and

    ·As necessary, taking, or recommending that the Board of Directors take, appropriate action to oversee the independence of the independent auditor and evaluate whether it is appropriate to rotate the independent auditor on a regular basis.

    Audit and Finance Committee Meetings

    Notify the independent auditor of every Audit and Finance Committee meeting and permit the independent auditor to appear and speak at those meetings.

    At the request of the independent auditor, convene a meeting of the Audit and Finance Committee to consider matters the auditor believes should be brought to the attention of the directors or shareholders.

    Keep minutes of its meetings and report to the Board for approval of any actions taken or recommendations made.

    Restrictions

    Confirm with management and the independent auditor that no restrictions are placed on the scope of the auditors' review and examination of the Company's accounts.

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    51

    OTHER PROFESSIONAL CONSULTING SERVICES

    Engagement Review

    As necessary, consider with management the rationale and selection criteria for engaging professional consulting services firms.

    Ultimate authority and responsibility to select, evaluate and approve professional consulting services engagements.

    AUDIT AND REVIEW PROCESS AND RESULTS

    Scope

    Consider, in consultation with the independent auditor, the audit scope, staffing and planning of the independent auditor.

    Review Process and Results

    Consider and review with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61,such auditing standards as the same may be modified or supplemented from time to time.

    applicable.

    Review and discuss with management and the independent auditor at the completion of annual and quarterly examinations:

    examinations, if any:

    ·The Company's audited and unaudited financial statements and related notes;

    ·The Company's Management Discussion & Analysis (“MD&A&A”) and news releases related to financial results;

    ·The Company’s management certifications of the financial statements and accompanying MD&A as required under applicable securities laws;
    ·The Company’s annual information form (“AIF”), if one is prepared and filed.
    ·The independent auditor's audit of the financial statements and its report thereon;

    ·Any significant changes required in the independent auditor's audit plan;

    ·The appropriateness of the presentation of any non-GAAPnon-IFRS related financial information;

    ·Any serious difficulties or disputes with management encountered during the course of the audit; and

    ·Other matters related to the conduct of the audit, which are to be communicated to the Audit and Finance Committee under generally accepted auditing standards.

    Review the management letter, if any, delivered by the independent auditor in connection with the audit.

    Following such review and discussion, if so determined by the Committee, recommend to the Board that the annual financial statements be included in the Company's annual report.

    Review, discuss with management and approve annual and interim quarterly financial statements prior to public disclosure. The chairperson of the Audit and Finance Committee may represent the entire Audit and Finance Committee for purposes of this review.

    Review and discuss with management and the independent auditor the adequacy of the Company's
    65

    internal accounting and financial controls that management and the Board of Directors have established and the effectiveness of those systems, and inquire of management and the independent auditor about significant financial risks or exposures and the steps management has taken to minimize such risks to the Company.


    52

    Meet separately with the independent auditor and management, as necessary or appropriate, to discuss any matters that the Audit and Finance Committee or any of these groups believe should be discussed privately with the Audit and Finance Committee.

    Review and discuss with management and the independent auditor the accounting policies which may be viewed as critical, including all alternative treatments for financial information within generally accepted accounting principlesIFRS that have been discussed with management, and review and discuss any significant changes in the accounting policies of the Company and industry accounting and regulatory financial reporting proposals that may have a significant impact on the Company's financial reports.

    reports

    .
    Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the Company's financial statements.

    Review with management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company's financial statements or accounting policies.

    Review with the Company's General Counsellegal counsel legal matters that may have a material impact on the financial statements, the Company's financial compliance policies and any material reports or inquiries received from regulators or governmental agencies related to financial matters.

    SECURITIES REGULATORY FILINGS

    Review filings with the Canadian provincial securities commissions and the SEC and other published documents containing the Company's financial statements.

    Review, with management, and the independent auditor, prior to filing with regulatory bodies,public disclosure, the interim quarterlyCompany’s financial reports (includingstatements and MD&A and related notes and MD&A) at the completion of any review engagement or other examination.press releases. The chairperson of the Audit and Finance Committee may represent the entire Audit and Finance Committee for purposes of this review.

    Ensure that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the disclosure stated above, and periodically assess the adequacy of those procedures.
    RISK ASSESSMENT

    Meet periodically with management to review the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures.

    Assess risk areas and policies to manage risk including, without limitation, environmental risk, insurance coverage and other areas as determined by the Board of Directors from time to time.

    Review and discuss with management, and approve changes to, the Company's Corporate TreasuryInvestment Policy.

    ADOPTION

    LIMITATION ON DUTIES OF AUDIT AND FINANCE COMMITTEE
    In contributing to the Committee’s discharging of its duties under this charter, each member of the Committee shall be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this charter is intended, or may be construed, to impose on any member of the Committee a standard of care or diligence that is in any way more onerous or extensive than the standard to which all Board members are subject.
    66

    ADOPTION OF CHARTER

    This charter was originally adopted by the Board of Directors on August 23, 2004 and revised on January 17, 2012.

    APPENDIX I
    GLOSSARY OF TERMS
    “Independent” means a director who has no direct or indirect material relationship with the Company or its subsidiaries.
    A “material relationship” is revieweda relationship which could, in the view of the Board of the Company, be reasonably expected to interfere with the exercise of the person’s independent judgment.
    For greater certainty, certain individuals will be deemed not to be independent:
    a)an individual who is, or has been within the last three years, an employee or executive officer of the Company;
    b)an individual whose immediate family member is, or has been within the last three years, an executive officer of the Company;
    c)an individual who is a partner of, or employed by the Company’s internal or external auditor or who was, within the last three years, a partner or employee of that audit firm and amendedpersonally worked on the Company’s audit within that time. For this purpose, “partner” does not include a fixed income partner;
    d) an individual whose child or stepchild shares a home with the individual or whose spouse, is a partner of the Company’s internal or external auditor, or is an employee of the audit firm and participates in its audit, assurance or tax compliance practice or who was within the last three years a partner or employee of the audit firm and personally worked on the Company’s audit within that time. For this purpose, “partner” does not include a fixed income partner;
    e)an individual who, or whose immediate family member, is or has been within the last three years, an executive officer of an entity if any of the Company’s current executive officers serve or served at the same time on the entity’s compensation committee; and
    f)an individual who received, or whose immediate family member who is employed as necessaryan executive officer of the Company received, more than $75,000 in direct compensation from the Company during any 12 month period within the last three years. For purposes hereof, direct compensation does not include remuneration for acting as a member of the Board or of any Board committee or remuneration consisting of fixed amounts of compensation under a retirement plan for prior service provided that such compensation is not contingent on any way on continued service.
    For purposes hereof, “Company” includes Medicure Inc. and any subsidiaries thereof.
    Notwithstanding the foregoing, a person will not be considered to have a material relationship with the Company solely because he or she:
    a)has previously acted as an annualinterim chief executive officer of the issuer, or
    b)acts, or has previously acted, as a chair or vice-chair of the Board or any Board committee, on a part-time basis.

    67

    53

    Meaning Of “Independence” For Audit Committees
    In addition to the requirement of being an Independent Director as described above, members of the Audit Committee will not be considered “independent” for that purpose where the individual:
    a)accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or subsidiary of the Company, other than as remuneration for acting in his or her capacity as a member of the Board or any Board committee, or as a part-time or vice-chair of the Board or any Board Committee; or
    b) is an affiliated entity (as defined in National Instrument 52-110 Audit Committees) of the Company or any of its subsidiaries.
    For purposes hereof, indirect acceptance by an individual of any consulting, advisory or other compensatory fee includes acceptance of a fee by (i) an individual’s spouse, minor child or stepchild, or child or stepchild who shares the individual’s home, or (ii) an entity in which such individual is a partner, member, executive officer or managing director (or comparable position) and which provides accounting, consulting, legal, investment banking or financial advisory services to the Company or any subsidiary of the Company. Notwithstanding the foregoing, compensatory fees do not include receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the issuer if the compensation is not contingent in any way on continued service.
    Meaning of “financially literate”
    For purposes hereof, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.
    Meaning of “audit committee financial expert”
    An “audit committee financial expert” means a person who has the following attributes:
    (1) An understanding of generally accepted accounting principles and financial statements;
    (2) The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
    (3) Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities;
    (4) An understanding of internal controls over financial reporting;
    (5) An understanding of audit committee functions.
    A person shall have acquired such attributes through:
    (1) Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
    (2) Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;
    68

    (3) Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or
    (4) Other relevant experience.

    Executive Compensation, Nominating and Corporate Governance Committee

    The Executive Compensation, Nominating and Corporate Governance Committee is responsible for determining the compensation of executive officers of the Company. The current members of the Committee are Dr. Arnold Naimark (Chair), Gerald McDole and Peter Quick, none of whom is a current or former executive officer of the Company. The Committee meets at least once a year.

    The Committee has developed a policy to govern the Company's approach to corporate governance issues and provides a forum for concerns of individual directors about matters not easily or readily discussed in a full board meeting, e.g., the performance of management. The Committee ensures there is a clear definition and separation of the responsibilities of the Board, the Committees of the Board, the Chief Executive Officer and other management employees. It also ensures there is a process in place for the orientation and education of new directors and for continuing education of the Board. The Committee also assesses the effectiveness of the Board and its committees on an ongoing ad hoc basis. It also reviews at least annually the Company's responsiveness to environmental impact, health and safety and other regulatory standards.

    The Committee reviews the objectives, performance and compensation of the Chief Executive Officer at least annually and makes recommendations to the Board for change. The Committee makes recommendations based upon the Chief Executive Officer’s suggestions regarding the salaries and incentive compensation for senior officers of the Company. The Committee also reviews significant changes to compensation, benefits and human resources policies and compliance with current human resource management practices, such as pay equity, performance review and staff development. The Committee is responsible for reviewing and recommending changes to the compensation of directors as necessary.


    The charter of the Executive Compensation, Nominating and Corporate Governance Committee can be found on the Company’s website at www.medicure.com.


    D. Employees


    In addition to the individuals disclosed in Section A. Directors and Senior Management of this item, the Company has 4 employees.


    E. Share Ownership


    With respect to the persons referred to above in Section B, Compensation, the following table discloses the number of shares (each share possessing identical voting rights), stock options held and percent of the shares outstanding held by those persons at May 31, 2011.

    2012.
    Title of ClassIdentity of Person or GroupAmount Owned  Percentage of Class 
           
    Common sharesDr. Albert D. Friesen(1)(2)(3)9,621,699(1) 7.38%
    Common sharesDr. Arnold NaimarkNil  Nil 
    Common sharesGerald P. McDole10,000  0.01%
    Common sharesPeter QuickNil  Nil 
    Common sharesJames KinleyNil  Nil 
    Common sharesDawson Reimer289,735  0.22%
    69



    54

    Title of ClassIdentity of Person or GroupAmount OwnedPercentage of Class
        
    Common shares
    Dr. Albert D. Friesen(1)(2)(3)
    29,821,699(1)
    16.30%
    Common sharesDr. Arnold NaimarkNilNil
    Common sharesGerald P. McDole10,0000.01%
    Common sharesPeter QuickNilNil
    Common sharesJames KinleyNilNil
    Common sharesDawson Reimer289,7350.22%

    (1)

    Dr. Albert D. Friesen holds 2,837,5008,037,500 shares personally or in an RRSP, a Canadian individual retirement plan.  The rest of the shares are held by ADF Family Holding Corp., his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited Partnership Fund (the “Fund”).  Dr. Friesen is the General Partner of the Fund.

    (2)

    On July 18, 2011, the Company issued 20,000,000 common shares of the Company to Dr. Albert D. Friesen and entities controlled by Dr. Albert D. Friesen for consideration relating to the guarantee of a loan obtained subsequent toduring the year ended May 31, 2011,2012, as described in Note 168 to the accompanying financial statements.

    (3)

    Additionally, Dr. Albert D. Friesen purchased an additional 200,0001,026,000 shares subsequent to May 31, 20112012 on the open market.

    market


    Incentive Stock Options


    The following table discloses the stock options beneficially held by the aforementioned persons, as of May 31, 2011.2012.  The stock options are for shares of Common Stock of the Company.




    Name of Person
    Number of
    Shares
    Subject to
    Issuance
    Exercise
    Price per
    Share


    Expiry Date
    Dr. Albert D. Friesen
    150,000
    150,000
    6,210,000
    $1.65
    $1.63
    $0.10
    December 6, 2015
    October 14, 2016
    July 18, 2021
    Dr. Arnold Naimark


    35,000
    110,000
    50,000
    10,000
    $1.65
    $0.98
    $0.04
    $0.04
    December 6, 2015
    December 11, 2017
    September 3, 2018
    April 16, 2019
    Gerald P. McDole


    75,000
    10,000
    50,000
    10,000
    $1.65
    $0.98
    $0.04
    $0.04
    December 6, 2015
    December 11, 2017
    September 3, 2018
    April 16, 2019
    Peter Quick



    100,000
    50,000
    10,000
    50,000
    10,000
    $1.65
    $1.54
    $0.98
    $0.04
    $0.04
    December 6, 2015
    January 16, 2017
    December 11, 2017
    September 3, 2018
    April 16, 2019
    James Kinleyniln/an/a
    Dawson Reimer

    65,000
    100,000
    100,000
    4,000,000
    $1.65
    $1.63
    $0.03
    $0.10
    December 6, 2015
    October 14, 2016
    November 10, 2018
    July 18, 2021


    70

    The Company has established an Incentive Stock Option Plan (the ‘‘Plan’’) for its directors, key officers, employees and consultants.  Options granted pursuant to the Plan will not exceed a term of ten years and are granted at an option price and on other terms which the directors determine is necessary to achieve the goal of the Plan and in accordance with regulatory requirements, including those of the TSX Venture Exchange.  Each option entitles the holder thereof to purchase one (1) Common Share of the Company on the terms set forth in the Plan and in such purchaser’s specific stock option agreement.  The option price may be at a discount to market price, which discount will not, in any event, exceed that permitted by any stock exchange on which the Company’s Common Shares are listed for trading.


    55


    The number of Common Shares allocated to the Plan, the exercise period for the options, (not to exceed five years), and the vesting provisions for the options will be determined by the board of directors of the Company from time to time.  The aggregate number of shares reserved for issuance under the Plan, together with any other employee stock option plans, options for services and employee stock purchase plans, will not exceed 10% of the issued and outstanding Common Shares.


    The Common Shares issued pursuant to the exercise of options, when fully paid for by a participant, are not included in the calculation of Common Shares allocated to or within the Plan.  Should a participant cease to be eligible due to the loss of corporate office (being that of an officer or director) or employment, the option shall cease for varying periods not exceeding 90 days.  Loss of eligibility for consultants is regulated by specific rules imposed by the directors when the option is granted to the appropriate consultant.  The Plan also provides that estates of deceased participants can exercise their options for a period not exceeding one year following death.


    On July 18, 2011, the Company issued 12,542,000 stock options under the Company's approved stock option plan to employees and consultants of the Company, including the chief executive officer and chief operating officer, at an exercise price of $0.10 per common share.  The options vested immediately and expire after ten years.


    ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS


    A. Major Shareholders


    As of May 31, 2011,2012, the following table sets forth the beneficial ownership of the Company's common shares by each person known by the Company to own beneficially more than 5% of the issued and outstanding common shares of the Company. Information as to shares beneficially owned, directly or indirectly, by each nominee or over which each nominee exercises control or direction, not being within the knowledge of the Company, has been furnished by the respective nominees individually.  CDS & Company, Toronto, Ontario is a clearing house that owns approximately 76,483,337 (58.7%110,346,180 (60.32%) of common shares of the Company on behalf of beneficial owners.  The Company does not know the majority of the ultimate beneficial owners of these common shares.

    Title of ClassIdentity of Person or GroupAmount OwnedPercentage of Class
        
    Common shares
    Dr. Albert D. Friesen(2)(3)(4)
    Winnipeg, Manitoba
    9,621,699(1)
    7.38%
    Common shares
    Dr. Lars Hoie
    London, England
    20,018,230
    15.36%


    Title of ClassIdentity of Person or GroupAmount OwnedPercentage of Class
        
    Common shares
    Dr. Albert D. Friesen(2)(3)(4)
    29,821,699(1)
    16.30%
     Winnipeg, Manitoba  
    Common sharesElliot International Capital Advisors32,640,04317.84%
    Common sharesDr. Lars Hoie20,018,23010.94%
     London, England  

    71

    Notes:

    (1)

    Amount of shares as of May 31, 2011.

    2012.
    (2)

    Dr. Albert Friesen holds 2,837,5008.037,500 shares personally or in an RRSP.  The rest of the shares are held by ADF Family Holding Corp., his wife Mrs. Leona M. Friesen, and the Fund.

    (3)

    On July 18, 2011, the Company issued 20,000,000 common shares of the Company to Dr. Albert D. Friesen and entities controlled by Dr. Albert D. Friesen for consideration relating to the guarantee of a loan obtained subsequent to May 31, 2011, as described in Note 16 to the accompanying financial statements.

    (4)

    Additionally, Dr. Albert D. Friesen purchased an additional 200,0001,026,000 shares subsequent to May 31, 20112012 on the open market.



    56

    As of April 27, 2009,October 31, 2011 there were approximately 6,860 shareholders of record worldwide.  As of this date there were approximately 1,6021,600 shareholders of record in the United States holding a total of 24,906,24051,771,096 common shares of the Company.


    To the best of the Company's knowledge, it is not owned or controlled, directly or indirectly, by another Company, by any foreign government or by any other natural or legal person severally or jointly.

    As of May 31, 2011,2012, the total number of issued and outstanding common shares of the Company beneficially owned by the directors and executive officers of the Company as a group was 10,940,49930,121,434 (or 8.40%16.46% of common shares).


    To the best of the Company's knowledge, there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Company.


    The major shareholders do not have any special voting rights.

    B. Related Party Transactions

    Other than as set forth below, management


    Insider Reports under Canadian Securities Legislation

    Since the Company a reporting issuer under the Securities Acts of each of the provinces of Canada, certain "insiders" of the Company is not aware of any material interest, direct or indirect, of any director or officer of the Company, any person beneficially owning,(including its directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership of the Company’s votingCompany's common shares five days following the trade under National Instrument 55-104 – Insider Reporting Requirements and Exemptions, as adopted by the Canadian Securities Administrators.  Insider reports must be filed electronically five days following the date of the trade at www.sedi.ca. The public is able to access these reports at www.sedi.ca.


    The U.S. rules governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above.  Section 13 of the Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act.  In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act.  This information is also required to be sent to the issuer of the securities or any associate or affiliate of any such person in any transaction withinand to each exchange where the last three years or in any proposed transaction which in either case has materially affected or will materially affectsecurities are traded.

    B. Related Party Transactions

    Except as disclosed below, the Company or its subsidiaries.

    has not, since June 1, 2011, and does not at this time propose to:

    72


    (1)enter into any transactions which are material to the Company or a related party or any transactions unusual in their nature or conditions involving goods, services or tangible or intangible assets to which the Company or any of its former subsidiaries was a party;

    (2)make any loans or guarantees directly or through any of its former subsidiaries to or for the benefit of any of the following persons:

    (a)enterprises directly or indirectly through one or more intermediaries, controlling or controlled by or under common control with the Company;

    (b)associates of the Company (unconsolidated enterprises in which the Company has significant influence or which has significant influence over the Company) including shareholders beneficially owning 10% or more of the outstanding shares of the Company;

    (c)individuals owning, directly or indirectly, shares of the Company that gives them significant influence over the Company and close members of such individuals families;

    (d)key management personnel (persons having authority in responsibility for planning, directing and controlling the activities of the Company including directors and senior management and close members of such directors and senior management); or

    (e)enterprises in which a substantial voting interest is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.

    On October 1, 2001, a two-year consulting contract was entered into with A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen.  This agreement, which was subsequently amended on February 1, 2002, paid A.D. Friesen Enterprises Ltd. an annual salary of $150,000 payable in monthly instalments.  On October 1, 2003 a new two year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $175,000.  On October 1, 2005, a one-year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $200,000.  On October 1, 2006, a two-year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $250,000.  On October 1, 2007, a consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $275,000. The consulting contract expired on December 31, 2008. During the year ended May 31, 2008, the Company paid a total of $272,249 to A.D. Friesen Enterprises Ltd.  During the year ended May 31, 2009, the Company paid a total of $281,000 to A.D. Friesen Enterprises Ltd.  This salary is reviewed annually by the Board.  Dr. Friesen is also eligible for grants of incentive stock options and bonuses, if certain objectives between the Board and Dr. Friesen are met, as determined by the Board. On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.  The Company may terminate this agreement at any time upon 120 days written notice.  During the year ended May 31, 2012, the Company paid a total of $186,000 to A.D. Friesen Enterprises Ltd.  During the year ended May 31, 2011, the Company paid a total of $201,000 to A.D. Friesen Enterprises Ltd.  During the year ended May 31, 2010 the Company paid a total of $281,000 to A.D. Friesen Enterprises Ltd. During the year ended May 31, 2009, the Company paid a total of $281,000 to A.D. Friesen Enterprises Ltd.


    Dr. Friesen, a director, the Chairman, the President and the Chief Executive Officer of the Company also owns a leasing company, Waverley Business and Science Centre Inc. (1200 Waverley Street, Winnipeg) which entered into a lease with the Company as of March 1, 2002.  The lease agreement was subsequently amended on March 15, 2005.  Pursuant to this agreement, the Company leased approximately 4,000 square feet of office space from Waverley Business and Science Centre Inc. for minimum annual rental
    73

    payments of $44,264, with additional overhead payable under the lease dependant on usage.  The lease terminated effective October 31, 2010.  Also in October 2010,On November 1, 2009, the Company entered into a leasesub-lease agreement with South Waverley Business and Science CentreGenesys Venture Inc. (1250 Waverley Street, Winnipeg), whicha company that is a leasing company alsomajority owned by Dr. Friesen. PursuantFriesen to thissub-lease office space at 1250 Waverley Street in Winnipeg, Manitoba.  This sub-lease agreement as at Maywas subsequently amended on October 1, 2010 and then terminated on December 31, 2011, the Company has leased approximately 750 scquare feet of office space.2011.  During the fiscal year 2011, $17,671 was paid for base and additional rent.  During fiscal 2010, $45,477 was paid for base and additional rent.  During fiscal 2009, $69,012 was paid for base and additional rent.


    57

      Effective January 1, 2012, the Company entered into a new business and administration services agreement with GVI which now includes the cost of all facilities rented by the Company.  Rent paid during fiscal 2012 totalled $19,563 between the two agreements.


    Dr. Friesen, a director, the Chairman, the President and the Chief Executive Officer of the Company is also the majority shareholder in a management service company, Genesys Venture Inc. which entered into a management service agreement with the Company as of October 1, 2010.   Effective January 1, 2012, the Company entered into a new business and administration services agreement with GVI under which the Company is committed to pay $15,833.33 per month or $190,000 per annum along with an additional $500 per month for each office space it requests and is given access to by GVI. The agreement is for a one year term and shall be automatically renewed for a succeeding term of one year if not terminated by the Company at least 90 days prior to expiry.  Either party may terminate the agreement at any time after June 30, 2012, upon 90 days written notice to the other party.  The Chief Financial Officer's services, intellectual property management, accounting, payroll, human resources, and information technology are provided pursuant to this agreement.  During fiscal 2011 $225,0002012 $184,667 was paid in accordance with the terms of this agreement.

      Additionally, during fiscal 2012 the Company paid GVI $46,275 for commercial support services.


    Dr. Friesen, a director, the Chairman the President  and the Chief Executive Officer of the Company also owns a clinical research organization, GVI Clinical Development Solutions Inc. (“GVI CDS”) which entered into the following clinical research contracts with the Company;


    Nature of AgreementEffective DateTerms
    Regulatory affairs supportJune 22, 2009Services provided as needed.
    Pharmacovigilance and medical affairs supportAugust 1, 2009Monthly retainer of $4,000, plus hourly charges for pharmacovigilance services outside base services.
    Quality assurance supportJune 1, 2010Services provided as needed.
    AGGRASTAT®clinical trial management
    May 1, 2010Services provided for on an hourly fee basis under terms of the contract.



    During the fiscal 2011, $169,7622012, $146,154 (2011 - $169,762) was paid to GVI CDS.


    The Company also has a consulting agreement with CanAm Bioresearch Inc. (CanAm), a company controlled by a close family member of Dr. Friesen’s to provide contract research services.  During the fiscal 2012, the Company paid CanAm $254,493 ($138,817) for contract research.  In addition, during the year ended May 31, 2011, the Company received $400,000 from CanAm relating to recoveries of amounts previously provided for.  This amount is recorded as a reduction in selling, general and administration expenses for the year ended May 31, 2011.  There were no similar recoveries during fiscal 2012.

    74

    These transactions were in the normal course of business and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

    On July 18, 2011, the Company issued 20,000,000 common shares of the Company in consideration for the guarantee of long-term debt by the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. These shares had a value of $371,834, net of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method as described in note 8 to the consolidated financial statements.   In connection with the guarantee the Company entered into an indemnification agreement with the CEO  under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement the Company agreed to provide certain compensation upon a change in control of the Company.

    C. Interests of Experts and Counsel


    Not applicable


    ITEM 8. FINANCIAL INFORMATION


    A. Consolidated Statements or Other Financial Information


    Financial Statements

    Included in Item 17 hereto are the


    The consolidated financial statements of the Company for the years ended May 31, 2012 and 2011 2010have been prepared in accordance with IFRS, as issued by the IASB, and 2009.are included under Item 18 of this Annual Report.  The consolidated financial statements including related notes are accompanied by the report of the Company’s independent registered public accounting firm, KPMG LLP.


    Legal Proceedings


    There are no legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability.  There are no significant legal proceedings to which the Company is a party, nor to the best of the knowledge of the Company’s management are any legal proceedings contemplated.


    58


    Dividend Policy


    The Company has not paid dividends in the past and it has no present intention of paying dividends on its shares as it anticipates that all available funds will be invested to finance the growth of its business.  The directors of the Company will determine if and when dividends should be declared and paid in the future based upon the Company’s financial position at the relevant time.  All of the Company’s Shares are entitled to an equal share of any dividends declared and paid.


    B.           Significant Changes

    There have been no significant changes to the accompanying financial statements since May 31, 2012, except as disclosed in this Annual Report on Form 20-F.


    75

    ITEM 9. THE OFFERING AND LISTING


    A.    Listing Details


    The Company's commonCompany’s shares are listedwere delisted from NYSE Amex (now NYSE MKT) on July 3, 2008 and from the TSX on March 26, 2010.  From March 26, 2010 until October 21, 2011, shares of the Company traded on the NEX board of the TSX Venture Exchange (“NEX”)TSX-V under the symbol “MPH.H”.  Prior to March 26, 2010, The Company’sOn October 24, 2011 shares tradedof the Company commenced trading on the Toronto Stock Exchange.TSX-V under the symbol “MPH”.  The historical trading data for the common shares of the Company on the above-mentioned exchanges is set out below.

     TSX/NEXTSX/NEXAmex(1)Amex(1)
    Fiscal Period/Year EndedHigh ($)Low ($)High ($US)Low
        ($US)
    May 31, 20110.030.005(2)(2)
    May 31, 20100.060.01(2)(2)
    May 31, 20090.060.02(2)(2)
    May 31, 20081.700.061.640.05
    May 31, 20071.881.101.700.91
         
    Fiscal Quarter Ended
         
    May 31, 20110.030.005  
    February 28, 20110.020.01  
    November 30, 20100.020.01  
    August 31, 20100.0250,01  
    May 31, 20100.040.02  
    February 28, 20100.060.02  
    November 30, 20090.050.01  
    August 30, 20090.020.01  
         
    Month    
         
    August 20110.0450.03  
    July 20110.0750.02  
    June 20110.030.015  
    May 20110.030.005  
    April 20110.0150.005  
    March 20110.0150.01  

    Note:

    (1)

    The Company commenced trading on the American Stock Exchange on February 17, 2004.

    TSX/NEX/TSX-V
    High ($)
    TSX/NEX/TSX-V
    Low ($)
    (2)
    Fiscal Quarter Ended
    May 31, 2012
    February 29, 2012
    November 30, 2011
    August 31, 2011
    May 31, 2011
    February 28, 2011
    November 30, 2010
    August 31, 2010
    May 31, 2010
    February 28, 2010
    November 30, 2009
    August 31, 2009

    The Company ceased trading on the American Stock Exchange on July 3, 2008.

    0.045
    0.045
    0.035
    0.06
    0.03
    0.02
    0.02
    0.025
    0.04
    0.06
    0.05
    0.02
    0.025
    0.015
    0.02
    0.015
    0.005
    0.01
    0.01
    0,01
    0.02
    0.02
    0.01
    0.01


    59

    B.           Plan of Distribution

    Not applicable.

    C.    Markets


    The Company's common shares commenced trading on the Toronto Stock Exchange on March 15, 2002 and on the American Stock Exchange (later called NYSE Amex and now called NYSE MKT) on February 17, 2004. The Company’s shares ceased trading on theNYSE Amex effective July 3, 2008 and transferred from the Toronto Stock Exchange to the NEX board of the TSX Venture Exchange on March 26, 2010.

      From March 26, 2010 until October 21, 2011, shares of the Company traded on the NEX board of the TSX-V under the symbol “MPH.H”.  On October 24, 2011 shares of the Company commenced trading on the TSX-V under the symbol “MPH”.

    D.           Selling Shareholders

    Not applicable.

    76

    E.           Dilution

    Not applicable.

    F.           Expenses of the Issue

    Not applicable.


    ITEM 10. ADDITIONAL INFORMATION


    A. Share Capital


    Not applicable


    B. Memorandum and Articles of Association


    1.  Objects and Purposes of the Company


    The MemorandumArticles of Continuance (the “Articles”) and  the By-Laws of the Company placesplace no restrictions upon the Company’s objects and purposes.


    2.  Directors


    Under applicable Canadian law, the directors and officers of the Company, in exercising their powers and discharging their duties, must act honestly and in good faith with a view to the best interests of the Company.  The directors and officers must also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.


    Section 4.144.18 of By-Law No.1No.1A of the Company (the “By-Law”) provides that a director shall not be disqualified by reason of his office from contracting with the Company or a subsidiary thereof.  Subject to the provisions of theCanada Business CompanysCorporations Act(the “Act”), a director shall not by reason only of his office be accountable to the Company or its shareholders for any profit or gain realized from a contract or transaction in which he has an interest.  Such contract or transaction shall not be voidable by reason only of such interest, or by reason only of the presence of a director so interested at a meeting, or by reason only of his presence being counted in determining a quorum at a meeting of the directors at which such a contract or transaction is approved, provided that a declaration and disclosure of such interest shall have been made at the time and in the manner prescribed by section 120 of the Act, and the director so interested shall have refrained from voting as a director on the resolution approving the contract or transaction (except as permitted by the Act) and such contract shall have been reasonable and fair to the Company and shall have been approved by the directors or shareholders of the Company as required by section 120 of the Act.


    Section 4.01 of the By-Law states that the exact number of directors to form the board shall be determined from time to time by the directors of the Company entitled to vote at regular meetings.  A quorum of the board shall be a majority of the board.  No business shall be transacted at a meeting unless a quorum is present.


    Section 3.01 of the By-Law states that the board may, without the authorization of the shareholders:


    i)     borrow money upon the credit of the Company;
    77

    i)

    borrow money upon the credit of the Company;

    ii)

    issue, reissue, sell or pledge debt obligations of the Company, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured;



    60

    iii)

    subject to section 44 of the Act, give a guarantee on behalf of the Company to secure performance of an obligation of any person; and

    iv)

    mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company.


    The borrowing powers of the directors can be varied by amending the By-Law of the Company.


    There is no provision in the By-Law imposing a requirement for retirement or non-retirement of directors under an age limit requirement.


    Section 4.02 states that a director need not be a shareholder to be qualified as a director.


    3.  Shares


    The Articles of the Company provide that the Company is authorized to issue an unlimited number of shares designated as Common Shares, Class A Common Shares and Preferred Shares.  Except for meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or series, each holder of the Common and Class A shares is entitled to receive notice of, to attend and to vote at all meetings of the shareholders of the Company.  Subject to the rights, privileges, restrictions and conditions attached to any other class of shares of the Company, the holders of the Common and Class A shares are also entitled to receive dividends if, as and when declared by the directors of the Company and are entitled to share equally in the remaining property of the Company upon liquidation, dissolution or winding-up of the Company.


    The Preferred Shares may from time to time be issued in one or more series and, subject to the following provisions, and subject to the sending of articles of amendment in respect thereof, the directors may fix from time to time and before issue a series of Preferred Shares, the number of shares which are to comprise that series and the designation, rights, privileges, restrictions and conditions to be attached to that series of Preferred Shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion, and any sinking fund or other provisions.


    The Preferred Shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, rank on a parity with the Preferred Shares of every other series and be entitled to preference over the Common and Class A Common Shares and over any other shares of the Company ranking junior to the Preferred Shares.  The Preferred Shares of any series may also be given other preferences, not inconsistent with these articles, over the Common Shares and Class A Common Shares and any other shares of the Company ranking junior to the Preferred Shares of a series as may be fixed in accordance with terms outlined above.


    If any cumulative dividends or amounts payable on the return of capital in respect of a series of Preferred Shares are not paid in full, all series of Preferred Shares shall participate rateably in respect of accumulated dividends and return of capital.


    Unless the directors otherwise determine in the articles of amendment designating a series of Preferred Shares, the holder of each share or a series of Preferred Shares shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided in the Act.


    78

    61


    4.  Rights of Shareholders


    Under the Act, shareholders of the Company are entitled to examine, during its usual business hours, the Company’s articles and by-laws, notices of directors and change of directors, any unanimous shareholder agreements, the minutes of meetings and resolutions of shareholders and the list of shareholders.


    Shareholders of the Company may obtain a list of shareholders upon payment of a reasonable fee and sending an affidavit to the Company or its transfer agent stating, among other things, that the list of shareholders will not be used by any person except in connection with an effort to influence the voting of shareholders of the Company, an offer to acquire shares of the Company or any other matter relating to the affairs of the Company.


    Under the Act, shareholders of the Company may apply to a court having jurisdiction directing an investigation to be made of the Company.  If it appears to the court that the formation, business or affairs of the Company were conducted for fraudulent or unlawful purposes, or that the powers of the directors were exercised in a manner that is oppressive or unfairly disregards the interests of the shareholders, the court may order an investigation to be made of the Company.


    To change the rights of holders of stock, where such rights are attached to an issued class or series of shares, requires the consent by a separate resolution of the holders of the class or series of shares, as the case may be, requiring a majority of two-thirds of the votes cast.


    The Company is organized under the laws of Canada.  The majority of the Company’s directors, officers, and affiliates of the Company, as well as the experts named in this registration statement, are residents of Canada and, to the best of the Company’s knowledge, all or a substantial portion of their assets and all of the Company’s assets are located outside of the United States.  As a result, it may be difficult for shareholders of the Company in the United States to effect service of process on the Company or these persons above within the United States, or to realize in the United States upon judgments rendered against the Company or such persons.  Additionally, a shareholder of the Company should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against the Company or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Company or such persons predicated upon the U.S. federal securities laws or other laws of the United States.


    Laws in the United States and judgments of U.S. courts would generally be enforced by a court of Canada unless such laws or judgments are contrary to public policy in Canada, are or arise from foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and are not in compliance with applicable laws in Canada regarding the limitation of actions.  Further, a judgment obtained in a U.S. court would generally be recognized by a court of Canada, except under the following examples:


    i)

    the judgment was rendered in a U.S. court that had no jurisdiction according to applicable laws in Canada;

    ii)

    the judgment was subject to ordinary remedy (appeal, judicial review and any other judicial proceeding which renders the judgment not final, conclusive or enforceable under the laws of the applicable state) or not final, conclusive or enforceable under the laws of the applicable state;

    iii)

    the judgment was obtained by fraud or in any manner contrary to natural justice or rendered in contravention of fundamental principles of procedure; and

    79

    iv)

    a dispute between the same parties, based on the same subject matter has given rise to a judgment rendered in a court of Canada or has been decided in a third country and the judgment meets the necessary conditions for recognition in a court of Canada.



    62

    5.  Meetings


    Subject to the provisions of the Act, the annual general meeting of the shareholders shall be on such date in each year as the board of directors may determine, and a special meeting of the shareholders may be convened at any time by order of the President or by the board on their own motion or on the requisition of shareholders as provided for in the Act.  Notice of the time and place of each meeting of shareholders shall be given not less than 21 days nor more than 60 days before the date of the meeting to each director and shareholder.  A meeting of shareholders may be held without notice at any time and at any place provided a waiver of notice is obtained in accordance with section 136 of the Act.  The quorum for the transaction of business at meetings of the shareholders shall consist of not less than one (1) shareholder present or represented by proxy and holding in all not less than five (5%) percent of the issued capital of the Company carrying voting rights.  At any meeting of shareholders, every person shall be entitled to vote who, at the time of the taking of a vote (or, if there is a record date for voting, at the close of business on such record date) is entered in the register of shareholders as the holder of one or more shares carrying the right to vote at such meeting, subject to the provisions of the Act.


    6.  Ownership of Securities


    There are no limitations on the right to own securities, imposed by foreign law or by the Articles or By-Law or other constituent document of the Company.


    7.  Change in Control of Company


    No provision of the Company’s articles of association, charterArticles or By-Law would have the effect of delaying, deferring, or preventing a change in control of the Company, and operate only with respect to a merger, acquisition or corporate restructuring of the Company or any of its subsidiaries.  The Company does haveno longer has a shareholder rights plan as outlined in Item 3.D – Risk Factors.

    8.    Ownership Threshold

    The Manitoba and OntarioSecurities Acts provide that a person that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of, and control or direction over, securities of the issuer carrying more than 10% of the voting rights attached to all the issuer's outstanding voting securities must, within 10 days of becoming an "insider", file an insider report in the required form effective the date on which the person became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. The Manitoba and OntarioSecurities Acts also provide for the filing of a report by an "insider" of a reporting issuer who acquires or transfers securities of the issuer. This insider report must be filed within 5 days after the change takes place.

    The U.S. rules governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.


    63

    plan.


    C. Material Contracts


    The following are the material contracts of the Company, other than those mentioned elsewhere in this Form, to which the Company or any member of the group is a party, for the two years immediately preceding publication of this registration statement.


    a)  a)

    Management services agreement with Genesys Venture Inc., dated OctoberJanuary 1, 2010.

    2012.

    b)  
    b)

    Debt settlement agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011.


    c)  
    c)

    Royalty and guarantee agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011.


    D. Exchange Controls


    There is no law or governmentgovernmental decree ofor regulation in Canada that restricts the export or import of capital, or that affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. SeeAny such remittances to United States
    80

    residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. (See "Item 7 Taxation."

    10E - Taxation", below.)


    There is no limitation imposed by Canadian law or by the articlescharter or other charterconstituent documents of the Company on the right of a non-resident to hold or vote the Common Shares or the Class A common shares of the Company, other than as provided inCompany.  However, the Investment Canada Act as amended(Canada) (the "Investment Act"“Investment Act”) has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation.

    The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire Common Shares of the Company. The discussion is general only; it is not a substitute for independent legal advice from an investor’s own advisor; and it does not anticipate statutory or regulatory amendments.

    The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an “entity”).

    The Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Act, the Investment Act generally prohibits implementation of a reviewablethe investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is a "non-Canadian" as defined in the Investment Act (a "non-Canadian"), unless, after review, the Minister responsible for the Investment Actof Industry, is satisfied that the investment is likely to be of net benefit to Canada. If an investment by a non-Canadian is not a reviewable investment, it nevertheless requires the filing of a short notice which may be given at any time up to 30 days after the implementation of the investment.

    An investment in Common Shares of the Company by a non-Canadian that is a "WTO investor" (an individual or other entity that is a national of, or has the right of permanent residence in, a member of the World Trade Organization, current members of which include the European Community, Germany, Japan, Mexico, the United Kingdom and the United States, or a WTO investor-controlled entity, as defined in the Investment Act) would be reviewable under the Investment Act if it were an investment to acquire direct control, through a purchase of assets or voting interests, of the Company and the value of the assets of the Company equalled or exceeded $184 million, the threshold established for 1999, as indicated on the financial statements of the Company for its fiscal year immediately preceding the implementation of the investment. In subsequent years, such threshold amount may be increased or decreased in accordance with the provisions of the Investment Act.

    An investment in Common Shares of the Company by a non-Canadian, other than a WTO investor, would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company and the value of the assets were $5.0 million or more, as indicated on the financial statements of the Company for its fiscal year immediately preceding the implementation of the investment.


    A non-Canadian whether a WTO investor or otherwise, would acquire control of the Company for the purposes of the Investment Act through the acquisition of Common Shares if he, she or itthe non-Canadian acquired a majority of the Common Shares of the Company or acquired all or substantially all ofCompany.

    Further, the assets used in conjunction with the Company's business. The acquisition of less than a majority but one-third or more of the Common Shares of the Company would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of the Common Shares.


    64


    For a direct acquisition that would result in an acquisition of control of the Company, subject to the exception for “WTO-investors” that are controlled by persons who are resident in World Trade Organization (“WTO”) member nations (there are currently 153 WTO members), a proposed investment would be reviewable where the value of the acquired assets is CAD $5 million or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, where the value of the acquired assets is less than CAD $5 million.
    For a proposed indirect acquisition that is not a so-called WTO transaction and that would result in an acquisition of control of the Company through the acquisition of a non-Canadian parent entity, the investment would be reviewable where (a) the value of the Canadian assets acquired in the transaction is CAD $50 million or more, or (b) the value of the Canadian assets is greater than 50% of the value of all of the assets acquired in the transaction and the value of the Canadian assets is CAD $5 million or more.
    In the case of a direct acquisition by or from a “WTO investor”, the threshold is significantly higher, and is adjusted for inflation each year. The 2012 threshold is CAD$330 million. Other than the exception noted below, an indirect acquisition involving a WTO investor is not reviewable under the Investment Act.

    The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying on a “cultural business”.  The acquisition of a Canadian business that is a “cultural business” is subject to lower review thresholds under the Investment Act wouldbecause of the perceived sensitivity of the cultural sector.
    81

    In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Industry Minister has reasonable grounds to believe that an investment by a non-Canadian “could be injurious to national security,” the Industry Minister may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Canada Act. To date, there is neither legislation nor guidelines published, or anticipated to be published, on the meaning of “injurious to national security.” Discussions with government officials suggest that very few investment proposals will cause a review under these new sections.

    Certain transactions, except those to which the national security provisions of the Investment Act may apply, to certain transactions in relationrelating to Common Shares of the Company including:

    are exempt from the Investment Act, including

    (a)

    an acquisition of Common Shares of the Company by anya person if the acquisition were made in the ordinary course of that person'sperson’s business as a trader or dealer in securities;

    securities,

    (b)

    an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for anya purpose related to the provisions ofon the Investment Act;Act, and


    (c)

    an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remainsCommon Shares, remained unchanged.


    E. Taxation


    U.S. Federal Income Tax Consequences


    The following is a summary of the anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares of (“Common Shares”).


    This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares.  In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.  Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.


    Scope of this Summary


    Authorities


    This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (the “IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each
    82

    case, as in effect and available, as of the date of this Annual Report.  Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis.  This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.


    65


    U.S. Holders


    For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.


    Non-U.S. Holders


    For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder.  This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders.  Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.


    U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed


    This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders:  (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code;  (i) U.S. Holders who are U.S. expatriates or former long-term residents of the United States.; or (j) U.S. Holders that own (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company.  U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.


    If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally
    83

    will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners).  Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.


    66


    Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed


    This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.  (See “Taxation—Canadian Federal Income Tax Consequences” above).


    U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares


    Distributions on Common Shares


    General Taxation of Distributions


    A U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company.  To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares.  (See more detailed discussion at “Disposition of Common Shares” below).


    Reduced Tax Rates for Certain Dividends


    For taxable years beginning before January 1, 2011, a dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date.”  The Company generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (b) the Common Shares are readily tradable on an established securities market in the U.S.  However, even if the Company satisfies one or more of such requirements, the Company will not be treated as a QFC if the Company is a “passive foreign investment Company” (as defined below) for the taxable year during which the Company pays a dividend or for the preceding taxable year.


    As discussed below, the Company does not believe that it was a “passive foreign investment Company” for the taxable year ended May 31, 2010,2012, and does not expect that it will be a “passive foreign investment Company” for the taxable year ending May 31, 2011.2013.  (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below).  However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its “passive foreign investment Company” status or that the Company will not be a “passive foreign investment Company” for the current taxable year or any subsequent taxable year.  Accordingly, although the Company expects that it may be a QFC
    84

    for the taxable year ending May 31, 2011,2012, there can be no assurances that the IRS will not challenge the determination made by the Company concerning its QFC status, that the Company will be a QFC for the taxable year ending May 31, 20112012 or any subsequent taxable year, or that the Company will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.


    67


    If the Company is not a QFC, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).  The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.


    Distributions Paid in Foreign Currency


    The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt.  A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt.  Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).


    Dividends Received Deduction


    Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.”  The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financial advisor, legal counsel, or accountant regarding the dividends received deduction.


    Disposition of Common Shares


    A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of.  Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year.  Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules unless the gain is subject to tax in Canada and resourced as “foreign source” under the U.S.-Canada Tax Convention and the U.S. Holder elects to treat such gain as “foreign source”.


    Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust.  There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation.  Deductions for capital losses are subject to significant limitations under the Code.


    The amount realized on a sale or other disposition of Common Shares for an amount in foreign currency will generally be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any)  between the  U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date.


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    Foreign Tax Credit


    A U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid.  Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.


    68


    Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income.  In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.”  In addition, this limitation is calculated separately with respect to specific categories of income.  Dividends paid by the Company generally will constitute “foreign source” income and generally will be categorized as “passive income.”  The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.


    Information Reporting; Backup Withholding Tax


    Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, or proceeds arising from the sale or other taxable disposition of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax.  However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.  Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.


    Additional Rules that May Apply to U.S. Holders


    If the Company is a “passive foreign investment Company” (as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.



    Passive Foreign Investment Company


    The Company generally will be a “passive foreign investment Company” under Section 1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income or (b) 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if the Company is not publicly traded and either is a “controlled
    86

    foreign corporation” or makes an election).  “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.


    69


    For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation.  In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.


    In addition, if the Company is a PFIC and owns shares of another foreign corporation that also is a PFIC, under certain indirect ownership rules, a disposition of the shares of such other foreign corporation or a distribution received from such other foreign corporation generally will be treated as an indirect disposition by a U.S. Holder or an indirect distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code discussed below.  To the extent that gain recognized on the actual disposition by a U.S. Holder of Common shares or income recognized by a U.S. Holder on an actual distribution received on Common Shares was previously subject to U.S. federal income tax under these indirect ownership rules, such amount generally should not be subject to U.S. federal income tax.


    If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”).  A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”


    Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares.  The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Shares generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year.  A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.


    A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above.  However, a U.S. Holder that makes a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the “net capital gain” of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the “ordinary earnings” of the Company, which will be taxed as ordinary income to such U.S. Holder.  A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.


    A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above.  A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are “marketable stock” (as defined in Section 1296(e) of the Code).  A U.S. Holder that makes a Mark-to-Market Election will include in gross income, for each taxable year in which the
    87

    Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares.  A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the Common Shares over (b) the fair market value of such Common Shares as of the close of such taxable year.


    70


    The Company does not believe that it was a PFIC for the taxable year ended May 31, 2010,2011, and, based on current operations and financial projections, does not expect that it will be a PFIC for the taxable year ending May 31, 2011.2012.  The determination of whether the Company was, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.  In addition, whether the Company will be a PFIC for the taxable year ending May 31, 20092012 and each subsequent taxable year depends on the assets and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Annual Report.  Accordingly, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status or that the Company was not, or will not be, a PFIC for any taxable year.


    The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

    Canadian Federal Income Tax Considerations for United States Residents


    The following, as of the date hereof, is a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Shares by a holder, (a) who for the purposes of the Income Tax Act (Canada) (the “Tax Act”) at all relevant times, is not resident, or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company for the purpose of the Tax Act, holds the Common Shares as capital property and does not use or hold, and is not deemed to use or hold,  the Common Shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of theCanada - United States Income Tax Convention(the “Convention”) at all relevant times, is a resident of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) Common Shares in connection with a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Convention.  Common Shares will generally be considered to be capital property to a holder unless such shares are held in the course of carrying on a business, or in an adventure or concern in the nature of trade.  Holders who meet all the criteria in clauses (a) and (b) are referred to herein as a “U.S. Holder” or “U.S. Holders” and this summary only addresses the tax considerations to such U.S. Holders.  The summary does not deal with special situations, such as the particular circumstances of traders or dealers, limited liability companies, tax exempt entities, insurers or financial institutions.  Such holders should consult their own tax advisors.


    This summary is based upon the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (“Regulations”), all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the current provisions of the Convention and the current administrative practices of the Canada Revenue Agency published in writing prior to the date hereof.  This summary does not otherwise take into account or anticipate any changes in law or administrative practices whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of the United States or of any other jurisdiction outside Canada.


    88

    For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares must be converted into Canadian dollars based on the relevant exchange rate applicable thereto.


    71


    This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder and no representation with respect to the federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. The tax liability of a U.S. Holder will depend on the holder’s particular circumstances. Accordingly, U.S. Holders should consult with their own tax advisors for advice with respect to their own particular circumstances.


    Dividends


    Amounts paid or credited or deemed to be paid or credited to a U.S. Holder as, on account or in lieu of payment, or in satisfaction of, dividends on Common Shares will be subject to Canadian withholding tax on the gross amount of the dividends. Under the Convention, the rate of Canadian withholding tax on dividends paid or credited by the Company to a U.S. Holder that beneficially owns such dividends is generally 15% unless the beneficial owner is a Company which owns at least 10% of the voting stock of the Company at that time in which case the rate of Canadian withholding tax is reduced to 5%.


    Dispositions


    A U.S. Holder will generally not be subject to tax under the Tax Act on any capital gain realized on a disposition of Common Shares, unless the shares constitute “taxable Canadian property” to the U.S. Holder at the time of disposition and the U.S. Holder is not entitled to relief under the Convention. Generally, Common Shares will not constitute taxable Canadian property to a U.S. Holder provided that such shares are listed on a designated stock exchange (which currently includes the NEX at the time of the disposition and, during the 60-month period immediately preceding the disposition, the U.S. Holder, persons with whom the U.S. Holder does not deal at arm’s length, or the U.S. Holder together with such persons has not owned 25% or more of the issued shares of any series or class of the Company’s capital stock.


    If the Common Shares constitute taxable Canadian property to a particular U.S. Holder, any capital gain arising on their disposition may be exempt from Canadian tax under the Convention if at the time of disposition the Common Shares do not derive their value principally from real property situated in Canada.


    Canadian Federal Income Tax Consequences


    The following is a summary of the principal Canadian federal income tax considerations, as of the date hereof, generally applicable to Security holders who deal at arm's length with the Company, who, for purposes of the Income Tax Act (Canada) (the "Canadian“Canadian Tax Act"Act”) and any applicable tax treaty or convention, have not been and will not be resident or deemed to be resident in Canada at any time while they have held shares of the Company, to whom such shares are capital property, and to whom such shares are not "taxable“taxable Canadian property"property” (as defined in the Canadian Tax Act). This summary does not apply to a non-resident insurer.


    Generally, shares of the Company will be considered to be capital property to a holder thereof provided that the holder does not use such shares in the course of carrying on a business or has not acquired them in one or more transactions considered to be an adventure in the nature of trade. All security holders
    89

    should consult their own tax advisors as to whether, as a matter of fact, they hold shares of the Company as capital property for the purposes of the Canadian Tax Act.


    72


    Under the current provisions of the Canadian Tax Act, as modified by the Proposed Amendments (see below), one-half of capital gains (‘‘taxable capital gains’’) must be included in computing the income of a holder in the year of disposition.  One-half of capital losses (‘‘allowable capital losses’’) may generally be deducted against taxable capital gains for the year of disposition subject to and in accordance with the provisions of the Canadian Tax Act.


    Allowable capital losses in excess of a holder’s taxable capital gains of a taxation year may generally be carried back three years and carried forward indefinitely for deduction against taxable capital gains realized in those years, to the extent and under circumstances permitted under the Canadian Tax Act.


    This discussion takes into account specific proposals to amend the Canadian Tax Act and the regulations thereunder publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments"“Proposed Amendments”) and assumes that all such Proposed Amendments will be enacted in their present form. No assurances can be given that the Proposed Amendments will be enacted in the form proposed, if at all; however the Canadian federal income tax considerations generally applicable to security holders described herein will not be different in a material adverse way if the Proposed Amendments are not enacted.


    Except for the foregoing, this discussion does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein.


    Generally, shares of the Company will not be taxable Canadian property at a particular time provided that such shares are listed on a prescribed stock exchange (which exchanges currently include the Toronto Stock Exchange), the holder does not use or hold, and is not deemed to use or hold, the shares of the Company in connection with carrying on a business in Canada and the holder, persons with whom such holder does not deal at arm's length, or the holder and such persons, have not owned (or had under option) 25% or more of the issued shares of any class or series of the capital stock of the Company at any time within five years preceding the particular time.


    A holder of shares of the Company that are not taxable Canadian property will not be subject to tax under the Canadian Tax Act on the sale or other disposition of shares.


    While intended to address all material Canadian Federal Income Tax considerations, this summary is for general information purposes only, and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares.  No opinion was requested by the Company, or is provided by its legal counsel and/or auditors.  Additionally, this summary does not consider the effects of United States federal, state, local or foreign income tax consequences.


    Accordingly, holders and prospective holders of common shares should consult their own tax advisors about the consequences of purchasing, owning, and disposing of common shares of the Company.


    F. Dividends and Paying Agents


    Not applicable


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    73

    G. Statement by Experts


    Not applicable


    H. Documents on Display

    The documents described herein


    Exhibits attached to this Annual Report are available for viewing on EDGAR, or may be inspected at the head office of Company at 2 – 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6, during normal business hours.

      Copies of the Company’s financial statements and other continuous disclosure documents required under Canadian securities legislation are available for viewing on the internet at www.sedar.com.


    I. Subsidiary Information


    Not applicable


    ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


    INTEREST RATE RISK


    The primary objective of the Company’s investment activities is to preserve principal by maximizing the income the Company receives from such activities without significantly increasing risk.  Securities that the Company invests in are generally highly liquid short-term investments such as term deposits with terms to maturity of less than one year.

    Due to

    Interest rate risk is the short-term naturerisk that the future cash flows of these investments, thea financial instrument will fluctuate because of changes in market interest rates.  The Company believes there is no material exposureexposed to interest rate risk arising primarily from such investmentsfluctuations in interest rates on its cash and accordingly, no quantitative tabular disclosure is required.

    cash equivalents.

    An increase in interest rates of one percent during the year ended May 31, 2012, with all other variables held constant, would have increased net income by approximately $9,400 (2011 - $2,900).  An increase in the crown company borrowing rate of one percent during the year ended May 31, 2012, with all other variables held constant, would have decreased net income by approximately $ 44,000 (2011 - nil).
    FOREIGN EXCHANGE RISK

    The parent of the Company’s primary currency of operations is the Canadian dollar.  However,Its wholly-owned operating subsidiaries primary currency of operations is the US dollar.  The Company has expenditures and holds investments denominated in a foreign currency.US dollars.  In fiscal 2011,2012, it is estimated that approximately 85%75% of the Company’s expenditures were denominated in a foreign currency, primarily being the US dollar and 100% of the Company’s product revenues were denominated in the US dollar.  To date the Company has not entered into any future or forward contracts, or other derivative instruments, for either hedging or speculative purposes, to mitigate the impact of foreign exchange fluctuations on these costs, revenues or on U.S. dollar denominated debt.  A 10% change in foreign exchange rates for fiscal 20112012 would have impacted loss for the year by 10%.

    ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES


    Not applicable


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    PART II


    ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES


    Not applicable


    74


    ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS ANDUSE OF PROCEEDS


    Not applicable


    ITEM 15. CONTROLS AND PROCEDURES


    Disclosure Controls and Procedures


    The Company’s disclosure controls and procedures, (“DCP”), as such term is defined in Rules 13(a)-13(e) and 15(d)-15(e) of the Exchange Act are designed to provide reasonable assurance that all relevant information is communicated to senior management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure.  We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO. Based on this evaluation these officers concluded that as of the end of the period covered by this Annual Report on Form 20-F, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including our company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that the disclosure controls and procedures were not effective was due to the presence of a material weaknessesweakness in internal control over financial reporting as identified below under the heading “Internal Controls over Financial Reporting Procedures”. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses areweakness is remediated.

    Management’s Annual Report on Internal Control over Financial Reporting

    The management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and the board of directors regarding the reliability of financial reporting and preparation and fair presentation of published financial statements for external purposes in accordance with GAAP.IFRS.  Internal control over financial reporting includes those policies and procedures that:

    1.  1.

    pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

    2.  
    2.

    provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

    92

    3.  
    3.

    provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.


    All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.


    75


    Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the design and operation of internal control over financial reporting as of May 31, 2011,2012, based on the framework set forth in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on this evaluation, management concluded that the Company’s ICFR was not effective as at May 31, 20112012 due to the following material weaknesses:

    1.

    The Company did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of United States GAAP to allow for the independent preparation and review of the reconciliation from Canadian GAAP to United States GAAP as disclosed in Note 17 to the annual financial statements.

    2.


    Due to the limited number of staff and the inability to attract outside expert advice on a cost effective basis, there is a risk of material misstatements related to the accounting and reporting for complex transactions.

    3.

    Due to the resignation of the Chief Financial Officer subsequent to year-end, procedures over the year end close process, including detailed reviews and verification of inputs related to the analysis and reconciliation of accounts and schedules supporting financial statements amounts and notes were not operating effectively.

    These control deficiencies, resulted in adjustments to the Company’s consolidated financial statements priorlimited number of staff with an appropriate level of technical accounting knowledge, experience and training and the inability to their issuanceattract outside expert advice on a cost effective basis, there is a risk of material misstatements related to the accounting and reporting for complex transactions. This control deficiency creates a reasonable possibility that a material misstatement of the annual financial statements would not have been prevented or detected in a timely manner.

    Attestation Report of the Registered Public Accounting Firm

    This annual reportAnnual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

    Annual Report.

    Changes in Internal Control over Financial Reporting and Planned Remediation Activities

    There

    Other than the appointment of a new Chief Financial Officer on September 22, 2011, there have been no changes in the Company's internal controls identified in connection with the evaluation described in the preceding paragraph that occurred during the period covered by this Annual Report on Form 20-F which have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

    Other than the appointment of a new Chief Financial Officer on September 22, 2011, no other

    No remediation activities have been undertaken to date in fiscal 2012.2013. Due to resource constraints and the present stage of the Company’s development including the Company’s focus on its capital restructuring, the Company does not have sufficient size and scale to warrant the hiring of additional staff to correct thesethis material weaknessesweakness at this time.

    ITEM 16. RESERVED


    Not applicable

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    76


    ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT


    As of May 31, 2011,2012, Mr. Gerald McDole, a non-employee director, was a member of the audit committee of the Company.  The board of directors of the Company has determined that Mr. McDole (i) qualifies as an audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F and (ii) is independent as defined by Rule 121A of the NYSE AmexMKT Company Guide and Rule 10A-3 of the Exchange Act.  In addition, all members of the audit committee are considered financially literate under applicable Canadian laws.


    ITEM 16B. CODE OF ETHICS


    On August 23, 2004, the Company adopted a written Code of Business Conduct and Ethics (“Code of Ethics”) that applies to the Company’s principal executive officer, principal financial officer and to all its other employees.  These standards are a guide to help ensure that all of the Company’s employees live up to high ethical standards.  A copy of the Code of Ethics is maintained on the Company’s website at www.medicure.com.

    The


    During the most recently completed fiscal year, the Company intends to disclosehas neither: (a) amended its Code of Ethics; nor (b) granted any amendment to or waiver from(including any implicit waiver) form any provision in theof its Code of Ethics, that has occurred during the past fiscal year and that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, either in its Exchange Act annual report or on the Company’s Internet website.

    Ethics.


    ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES


    In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the chartered accountants, KPMG LLP, is approved in advance by the Audit Committee, including the proposed fees for such work.  The Audit Committee is informed of each service actually rendered that was approved through its pre-approval process.

    (a) Audit fees20112010
     $109,000$87,500

    (a)  Audit fees                                                 2012                      2011
                             $139,500                $109,000

    Audit fees consist of fees billed for the audit of the Company’s annual financial statements.

    (b) Audit-related fees20112010
    $-$8,900

    (b)  Audit-related fees                                   20122011
       $15,000                           $-

    Audit-related fees consist of fees billed for accounting consultations and services associated with the issuance of securities filings and prospectuses.

    consultations.


    (c)  Tax fees                                            - No compensation was paid to KPMG for tax compliance, tax advice and tax planning in fiscal2012                     2011 or 2010.

    (d) All other fees20112010
    $-$-
            $-                            $-


    (d)  All other fees                                           2012                      2011
            $-                            $-

    (e)  Audit Committee’s Pre-approval Policies


    All KPMG services and fees are approved by the Audit Committee.


    94

    77

    ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES


    Not applicable


    ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDPURCHASERS


    In the year ended May 31, 2012, the Company did not purchase any of its issued and outstanding Common Shares pursuant to any repurchase program or otherwise.

    ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

    None.

    ITEM 16G. CORPORATE GOVERNANCE

    Not applicable

    applicable.

    ITEM 16H.MINE SAFETY DISCLOSURE

    Not applicable.
    95

    78

    PART III


    ITEM 17. FINANCIAL STATEMENTS


    Not applicable. See “Item 18 – Financial Statements”.

    ITEM 18. FINANCIAL STATEMENTS

    The consolidated financial statements were prepared in accordance with Canadian GAAPIFRS, as issued by the IASB, and are presented in Canadian dollars. There are material measurement differences between United States and Canadian GAAP. A reconciliation of the consolidated financial statements to United States GAAP is set forth in Note 17 of the notes to the consolidated financial statements.


    The consolidated financial statements are in the following order:


    1.  1.

    Report of Independent Registered Public Accounting Firm;

    2.  2.

    Consolidated Balance Sheets;

    3.

    Consolidated Statements of Operations and Comprehensive loss;

    Financial Position;
    3.  4.

    Consolidated Statements of Shareholders’ Equity (Deficiency)

    Net Income (Loss) and Comprehensive Income (Loss);
    4.  Consolidated Statements of Changes in Deficiency
    5.

    Consolidated Statements of Cash Flows; and

    6.  6.

    Notes to Consolidated Financial Statements.





    96


    Consolidated Financial Statements
    (Expressed in Canadian Dollars)

    MEDICURE INC.

    Year

    Years ended May 31, 2012 and 2011



    97


    MANAGEMENT REPORT

    The accompanying financial statements have been prepared by management and approved by the Board of Directors of Medicure Inc. (the "Company"“Company”).  Management is responsible for the information and representations contained in these financial statements.

    These financial statements have been prepared in accordance with Canadian generally accepted accounting principles.International Financial Reporting Standards.  The significant accounting policies, which management believes are appropriate for the Company, are described in note 23 to these financial statements.  The Company maintains a system of internal control and processes intended to provide reasonable assurance that assets are safeguarded and to assist in preparation ofensure that relevant and reliable financial information.

    information is produced.

    The Board of Directors is responsible for reviewing and approving these financial statements and overseeing management'smanagement’s performance of its financial reporting responsibilities.  An Audit Committee of three non-management Directors is appointed by the Board.  The Audit Committee reviews the financial statements, audit process and financial reporting with management and with the external auditors and reports to the Board of Directors prior to the approval of the audited consolidated financial statements for publication.

    KPMG LLP, the Company'sCompany’s external auditors, who are appointed by the shareholders, audited the financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) to enable them to express to the shareholders their opinion on these financial statements.  Their report follows.

    /s/ /s/ Albert Friesen  /s//s/ James Kinley
     
    Dr. Albert D. Friesen Mr. James F. Kinley CA
    President & CEO Chief Executive Officer    Chief Financial Officer
    September 14, 2012

    98


    KPMG LLPTelephone(204) 957-1770
    Chartered AccountantsFax(204) 957-0808
    Suite 2000 – One Lombard PlaceInternetwww.kpmg.ca
    Winnipeg MB R3B 0X3
    Canada

    INDEPENDENT AUDITORS’ REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM

    To the Shareholders of Medicure Inc.


    We have audited the accompanying consolidated balance sheetsfinancial statements of Medicure Inc. and subsidiaries, which comprise the consolidated statements of financial position as at May 31, 2012, May 31, 2011 and May 31,June 1, 2010, and the related consolidated statements of operationsnet income (loss) and comprehensive loss, shareholders’income (loss), changes in deficiency and cash flows for each of the years in the three-year period ended May 31, 2011. These2012 and May 31, 2011, and notes, comprising a summary of significant accounting policies and other explanatory information.
    Management’s Responsibility for the Consolidated Financial Statements
    Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are the responsibility of Medicure Inc.’s management. free from material misstatement, whether due to fraud or error.
    Auditors’ Responsibility
    Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with Canadian Generallygenerally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free offrom material misstatement.

    An audit includes examining, on a test basis,involves performing procedures to obtain audit evidence supportingabout the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes assessingevaluating the appropriateness of accounting principlespolicies used and significantthe reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation. statements.
    We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.

    99

    Opinion
    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medicure Inc. and subsidiaries as at May 31, 2012, May 31, 2011 and May 31,June 1, 2010, and theirits consolidated results of operationsfinancial performance and theirits consolidated cash flows for each of the years in the three-year period ended May 31, 2012 and May 31, 2011 in conformityaccordance with Canadian generally accepted accounting principles.

    International Financial Reporting Standards as issued by the International Accounting Standards Board.

    Emphasis of Matter
    The accompanying consolidated financial statements have been prepared assuming that Medicure Inc. will continue as a going concern. As discussed in note 12(c) to the consolidated financial statements, Medicure Inc. has experienced operating losses and has accumulated a deficit of $123,303,052 since incorporation that raises significantsubstantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in note 1.2(c). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


    KPMG LLP
    Chartered Accountants

    September 27, 2011
    14, 2012
    Winnipeg, Canada

    KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG
    network of independent member firms affiliated with KPMG International Cooperative
    (“KPMG International”), a Swiss entity.
    KPMG Canada provides services to KPMG LLP

    100


    MEDICURE INC.
    Consolidated Balance Sheets
    (Expressed in Canadian dollars)
    May 31, 2011 and 2010

      2011  2010 
           
           
           
    Assets      
    Current assets:      
             Cash and cash equivalents$ 750,184 $ 371,262 
             Accounts receivable (Note 4) 365,490  390,923 
             Inventories (Note 5) 460,886  550,975 
             Prepaid expenses 248,065  176,280 
           
      1,824,625  1,489,440 
           
    Property and equipment (Note 6) 50,996  68,752 
    Intangible assets (Note 7) 3,298,286  4,414,882 
           
     $ 5,173,907 $ 5,973,074 
           
           
           
    Liabilities and Shareholders' Deficiency      
    Current liabilities:      
             Accounts payable and accrued liabilities$ 1,729,517 $ 1,320,185 
             Accrued interest on long-term debt (Note 8) 7,869,577  5,469,343 
             Long-term debt (Note 8) 22,468,518  24,140,199 
           
      32,067,612  30,929,727 
           
    Shareholders' deficiency:      
             Capital stock (Note 9(b)) 116,014,623  116,014,623 
             Warrants (Note 9(d)) 5,010,222  9,065,720 
             Contributed surplus 8,177,365  4,044,810 
             Deficit (156,095,915) (154,081,806)
           
      (26,893,705) (24,956,653)
    Nature of operations and going concern (Note 1)      
    Commitments and contingencies (Note 11)      
    Subsequent events (Notes 8, 9 and 16)      
           
     $ 5,173,907 $ 5,973,074 

    MEDICURE INC.
    Consolidated Statements of Financial Position
    (expressed in Canadian dollars)

     Note 
    May 31, 2012
      May 31, 2011  June 1, 2010 
               
    Assets          
    Current assets:          
    Cash  $1,124,345  $750,184  $371,262 
    Accounts receivable4  420,197   365,490   390,923 
    Inventories5  542,325   449,874   550,975 
    Prepaid expenses   125,084   238,462   176,280 
                  
    Total current assets   2,211,951   1,804,010   1,489,440 
                  
    Non-current assets:             
    Property and equipment6  30,745   46,942   68,752 
    Intangible assets7  2,500,928   3,298,286   4,414,882 
                  
    Total non-current assets   2,531,673   3,345,228   4,483,634 
                  
    Total assets   $4,743,624   $5,149,238   $5,973,074 
                  
    Liabilities and Deficiency             
    Current liabilities:             
    Accounts payable and accrued liabilities  $1,355,993  $1,740,114  $1,358,156 
    Accrued interest on long-term debt8  22,295   7,869,577   5,469,343 
    Current portion of long-term debt8  -   22,468,518   24,140,199 
                  
    Total current liabilities   1,378,288   32,078,209   30,967,698 
                  
    Non-current liabilities             
    Long-term debt                                        8  4,647,740   -   - 
    Royalty obligation                                     8  538,269   -   - 
                  
    Total non-current liabilities   5,186,009   -   - 
    Total liabilities   6,564,297   32,078,209   30,967,698 
                  
    Deficiency:             
    Share capital9  117,033,258   116,014,623   116,014,623 
    Contributed surplus   4,346,312   4,121,867   4,044,810 
    Accumulated other comprehensive income   102,809   (376,630)  - 
    Deficit   (123,303,052)  (146,688,831)  (145,054,057)
                  
    Total deficiency   (1,820,673 )  (26,928,971 )  (24,994,624 )
                  
    Going concern2(c)            
    Commitments and contingencies13            
    Subsequent events11 & 13            
    Total liabilities and deficiency   $4,743,624   $5,149,238   $5,973,074 
                  
    On behalf of the Board:

    "Dr. "Dr. Albert D. Friesen""Mr. Gerald McDole"
     Director  DirectorDirector

    See accompanying notes to the consolidated financial statements.

    - F-1-

    101

    MEDICURE INC.
    Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
    (expressed in Canadian dollars)

       Year  Year 
       
    ended
      ended 
     Note 
    May 31, 2012
      May 31, 2011 
    Revenue:       
    Product sales, net11 $4,796,811  $3,628,274 
              
    Cost of goods sold5, 7 & 15  1,069,279   1,513,247 
    Gross Profit   3,727,532   2,115,027 
              
    Expenses:         
    Selling, general and administrative14 & 15  2,673,725   2,833,217 
    Research and development13 & 15  1,044,491   523,888 
        3,718,216   3,357,105 
    Operating income (loss)   9,316   (1,242,078)
              
    Other income:         
    Gain on settlement of debt8  (23,931,807)  - 
              
    Finance costs (income):         
    Finance income   (775)  (473)
    Finance expense12  553,734   3,100,175 
    Foreign exchange loss, net   2,385   (2,707,006)
        555,344   392,696 
    Net income (loss)  $23,385,779  $(1,634,774)
              
    Other comprehensive income (loss)         
    Foreign currency translation differences for foreign operations   479,439   (376,630)
    Total comprehensive income (loss)  $23,865,218  $(2,011,404)
    Basic and diluted earnings (loss) per share  $0.13  $(0.01)
    Weighted average number of common shares used in computing basic income (loss) per share   176,187,808   130,307,552 
    Weighted average number of common shares used in computing fully diluted income (loss) per share   176,287,808   130,307,552 

    MEDICURE INC.
    Consolidated Statements of Operations and Comprehensive Loss
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

      2011  2010  2009 
              
    Revenue:         
             Product sales, net$ 3,628,274 $ 3,317,073 $ 4,792,513 
              
    Expenses:         
             Cost of goods sold, excluding amortization (Note 5) 673,522  571,688  377,079 
             Selling, general and administrative (Note 12) 2,818,159  4,474,825  9,255,219 
             Research and development (Note 11(a)) 204,690  393,385  22,706 
             Investment tax credits -  (306,692) (565,932)
             Write-down of fixed and intangible assets 280,235  769,335  1,755,955 
             Amortization 898,931  919,215  938,733 
              
      4,875,537  6,821,756  11,783,760 
              
    Loss before the undernoted (1,247,263) (3,504,683) (6,991,247)
              
    Other expenses (income):         
             Interest and other income (473) (4,913) (255,713)
             Interest expense 3,122,364  3,279,608  4,944,682 
             Foreign exchange (gain) loss, net (2,355,045) (1,246,872) 1,635,611 
              
      766,846  2,027,823  6,324,580 
              
    Loss and comprehensive loss$ (2,014,109)$ (5,532,506)$ (13,315,827)
              
    Basic and diluted loss per share$ (0.02)$ (0.04)$ (0.10)
    Weighted average number of common shares used in computing basic and diluted loss per share 130,307,552  130,307,552  130,307,552 

    See accompanying notes to the consolidated financial statements.

    - F-2-

    102


    MEDICURE INC.
    Consolidated Statements of Shareholders' Deficiency
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

      2011  2010  2009 
              
    Capital stock:         
             Balance, beginning of year$ 116,014,623 $ 116,014,623 $ 116,014,623 
             Balance, end of year 116,014,623  116,014,623  116,014,623 
    Warrants:         
             Balance, beginning of year 9,065,720  9,065,720  9,094,635 
             Warrants expired during year (4,055,498) -  (28,915)
             Balance, end of year 5,010,222  9,065,720  9,065,720 
    Contributed surplus:         
             Balance, beginning of year 4,044,810  3,921,998  3,568,055 
             Stock-based compensation 77,057  122,812  325,028 
             Warrants expired during year 4,055,498  -  28,915 
             Balance, end of year 8,177,365  4,044,810  3,921,998 
    Deficit:         
             Balance, beginning of year (154,081,806) (148,549,300) (135,233,473)
             Loss and comprehensive loss for the year (2,014,109) (5,532,506) (13,315,827)
             Balance, end of year (156,095,915) (154,081,806) (148,549,300)
    Shareholders' deficiency$ (26,893,705)$ (24,956,653)$ (19,546,959)

    MEDICURE INC.
    Consolidated Statements of Changes in Deficiency
    (expressed in Canadian dollars)

             Cumulative       
       
    Share
      Contributed  Translation       
     Note 
    Capital
      
    Surplus
      Account  Deficit  Total 
                     
    Balance, June 1, 2010  $116,014,623  $4,044,810  $-  $(145,054,057) $(24,994,624)
                          
    Net loss for the year ended May 31, 2011   -   -   -   (1,634,774)  (1,634,774)
    Other comprehensive loss for the year                     
         ended May 31, 2011   -   -   (376,630)  -   (376,630)
    Transactions with owners, recorded directly in equity                     
    Share-based payments9(c)  -   77,057   -   -   77,057 
    Total transactions with owners   -   77,057   -   -   77,057 
    Balance, May 31, 2011  $116,014,623  $4,121,867  $(376,630) $(146,688,831) $(26,928,971)
                          
    Net income for the year ended May 31, 2012   -   -   -   23,385,779   23,385,779 
    Other comprehensive income for the year                     
         ended May 31, 2012   -   -   479,439   -   479,439 
    Transactions with owners, recorded directly in equity                     
    Issuance of common shares9(b)  1,018,635   -   -   -   1,018,635 
    Share-based payments9(c)  -   224,445   -   -   224,445 
    Total transactions with owners   1,018,635   224,445   -   -   1,243,080 
    Balance, May 31, 2012  $117,033,258  $4,346,312  $102,809  $(123,303,052) $(1,820,673)
    See accompanying notes to the consolidated financial statements.

    - F-3-

    103

    MEDICURE INC.
    Consolidated Statement of Cash Flows
    (expressed in Canadian dollars)

       Year  Year 
       
    ended
      ended 
     Note 
    May 31, 2012
      May 31, 2011 
            
    Cash provided by (used in):       
    Operating activities:       
    Net income (loss) for the period  $23,385,779  $(1,634,774)
    Adjustments for:         
    Gain on settlement of debt8  (23,931,807)  - 
    Amortization of property and equipment6  19,663   20,243 
    Amortization of intangible assets7  857,887   878,688 
    Stock-based compensation9  224,445   77,057 
    Write-down of inventory5  109,194   292,950 
    Write-down of intangible assets7  216,011   280,235 
    Finance expense12  553,734   3,100,175 
    Unrealized foreign exchange loss   (873)  (2,766,612)
    Change in the following:         
    Accounts receivable   (54,707)  25,433 
    Inventories   (201,645)  (202,861)
    Prepaid expenses   113,378   (71,785)
    Accounts payable and accrued liabilities   (497,468)  436,706 
    Interest paid12  (221,278)  (5,185)
    Debt issuance costs8  (70,240)  - 
    Royalties paid8  (84,784)  - 
    Cash flows from operating activities   417,289   430,270 
              
    Investing activities:         
    Acquisition of property and equipment6  (1,488)  (2,487)
    Acquisition of intangible assets7  (96,424)  (42,327)
    Cash flows used in investing activities   (97,912)  (44,814)
              
    Financing activities:         
    Share issuance costs9  (34,166)  - 
    Proceeds from long-term debt8  5,000,000   - 
    Repayments of long-term debt8  (4,750,000)  - 
    Debt settlement costs8  (164,308)  - 
    Cash flows from financing activities   51,526   - 
    Foreign exchange gain on cash held in foreign currency   3,258   (6,534)
    Increase in cash   374,161   378,922 
    Cash, beginning of period   750,184   371,262 
    Cash, end of period  $1,124,345  $750,184 
              
    Supplementary information:         
    Non-cash financing activities:         
    Shares issued on debt settlement8  646,801   - 
    Shares issued for guarantee of long-term debt8  371,834   - 

    MEDICURE INC.
    Consolidated Statement of Cash Flows
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

      2011  2010  2009 
              
              
    Cash provided by (used in):         
    Operating activities:         
       Loss and comprehensive loss for the year$ (2,014,109)$ (5,532,506)$ (13,315,827)
       Adjustments for:         
             Amortization of property and equipment 20,243  22,969  42,907 
             Amortization of intangible assets 878,688  896,244  895,826 
             Amortization of deferred debt issue expense 200,675  198,192  383,445 
             Accretion on long-term debt -  285,818  426,521 
             Stock-based compensation 77,057  122,812  325,028 
             Write-down of inventory 292,950  -  92,985 
             Write-down of property and equipment -  4,041  - 
             Write-down of intangible assets 280,235  765,294  1,755,955 
             Unrealized foreign exchange (gain) loss (1,818,613) (1,372,970) 1,657,142 
       Change in the following:         
             Accounts receivable 25,433  160,774  332,646 
             Inventories (202,861) 80,328  (407,929)
             Prepaid expenses (71,785) 181,604  739,220 
             Research advance -  -  200,000 
             Accounts payable and accrued liabilities 409,332  (192,192) (4,338,798)
             Accrued interest on long-term debt 2,400,234  2,926,783  792,740 
              
    Cash flows from (used in) operating activities 477,479  (1,452,809) (10,418,139)
              
    Investing activities:         
       Acquisition of property and equipment (2,487) (2,230) (3,552)
       Acquisition of intangible assets (42,327) (139,601) (234,990)
              
    Cash flows used in investing activities (44,814) (141,831) (238,542)
              
    Financing activities:         
       Repayments of long-term debt -  -  (14,454,000)
       Cash released from restriction -  -  14,454,000 
              
    Cash flows used in financing activities -  -  - 
              
    Foreign exchange gain (loss) on cash held in foreign currency (53,743) (12,823) 730,476 
              
    Increase (decrease) in cash and cash equivalents 378,922  (1,607,463) (9,926,205)
    Cash and cash equivalents, beginning of year 371,262  1,978,725  11,904,930 
              
    Cash and cash equivalents, end of year$ 750,184 $ 371,262  1,978,725 
              
              
    Supplementary information:         
       Cash transactions:         
             Interest paid$ - $ - $ 3,341,975 
             Interest received 527  14,350  542,761 

    See accompanying notes to the consolidated financial statements.

    - F-4-

    104


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    1.     Reporting entity:
    Medicure Inc. (the Company) is a company domiciled and incorporated in Canada and as of October 24, 2011 its Common Shares are listed on the TSX Venture Exchange.  Prior to October 24, 2011 and beginning on March 29, 2010, the Company's Common Shares were listed on the NEX board of the TSX Venture Exchange.  Prior to March 29, 2010, the Company's Common Shares were listed on the Toronto Stock Exchange.  The address of the Company's registered office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada.  The Company is a biopharmaceutical company engaged in the research, development and commercialization of human therapeutics. Through its subsidiary Medicure International, Inc., the Company has rights to the commercial product, AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, U.S. Virgin Islands, and Guam). AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome ("ACS") including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction.  The Company’s primary ongoing research and development activity is the development and implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®.  The Company’s primary, non-AGGRASTAT® research and development activity is TARDOXALTM for the treatment of Tardive Dyskinesia ("TD").  This program evolved from the Company’s extensive clinical experience with MC-1, a naturally occurring small molecule, for new chronic medical conditions.
    2.     Basis of preparation of financial statements:
    (a)   Statement of compliance
    These consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").  These are the first annual consolidated financial statements prepared in accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied.
    An explanation of how the transition to IFRS has affected the financial position, financial performance and cash flows is provided in note 19.
    The consolidated financial statements were authorized for issue by the Board of Directors on September 14, 2012.
    (b)   Basis of presentation
    The consolidated financial statements have been prepared on the historical cost basis except for the following items in the statement of financial position:
    MEDICURE INC.·  
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009
    Derivative financial instruments are measured at fair value.

    1.·  

    NatureFinancial instruments at fair value through profit and loss are measured at fair value.

    (c)   Going concern
    These consolidated financial statements have been prepared on a going concern basis in accordance with IFRS.  The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.  There is substantial doubt about the appropriateness of the use of the going concern assumption because the Company had experienced operating losses from incorporation to May 31, 2011 and has accumulated a deficit of $123,303,052 as at May 31, 2012.  Management has forecast that it has sufficient working capital through the end of fiscal 2013, however contractual commitments and debt service obligations exceed the company's net cash flows and working capital beginning in early fiscal 2014.  The Company’s future operations are dependent upon its ability to grow sales of AGGRASTAT, and/or secure additional capital, which may not be available under favourable terms or at all.  If the Company is unable to grow sales or raise additional capital, management will consider other strategies including further cost curtailments, delays of research and development activities, asset divestures and/or monetization of certain intangibles.
    105

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars) 

    2.     Basis of preparation of financial statements (continued):
    (c)   Going concern (continued:)
    The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which are intended to mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these financial statements.  There is no certainty that the Company’s working capital will be sufficient through fiscal 2013 or that the above described and other strategies will be sufficient to permit the Company to continue as a going concern.
    The financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.  If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported revenues and expenses, and the statement of financial position classifications used.
    (d)   Functional and presentation currency
    The financial statements are presented in Canadian dollars, which is the Company's functional currency.  All financial information presented has been rounded to the nearest dollar except where indicated otherwise.
    (e)   Use of estimates and judgments
    The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
    Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
    Areas where management has made critical judgments in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include the determination of the Company and its subsidiaries functional currency and the determination of the Company's cash generating units ("CGU") for the purposes of impairment testing.
    Information about key assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities with the next financial year are included in the following notes:
    ·  Note 3(c)(ii): Valuation of operationsthe royalty obligation
    ·  Note 3(c)(ii): Valuation of the warrant liability
    ·  Note 3(d): Provisions for returns and going concern:

    discounts
    ·  

    Medicure Inc. (the Company) is a biopharmaceutical company engaged in the research, development and commercializationNote 3(g)(i): The estimation of human therapeutics. Through its subsidiary Medicure International Inc., the Company has rights to the commercial product, AGGRASTAT®Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, U. S. Virgin Islands, and Guam). AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is usedaccruals for the treatment of acute coronary syndrome (ACS) including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction.

    The Company's primary ongoing research and development activity iscosts

    ·  Note 3(g)(ii): The measurement and period of use of intangible assets
    ·  Note 3(j)(ii): The assumptions and model used to estimate the development and implementationvalue of a new regulatory, brand and life cycle management strategy for AGGRASTAT®.share-based payment transactions
    ·  Note 3(l): The Company's primary, non-AGGRASTAT®research and development activity is TARDOXALTMfor the treatment of Tardive Dyskinesia (TD). This program evolved from the Company's extensive clinical experience with MC-1, a naturally occurring small molecule, for new chronic medical conditions. The Company is also pursuing licensing opportunities for its library of small molecule anti thrombotic drugs.

    These consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is significant doubt about the appropriatenessmeasurement of the useamount and assessment of the going concern assumption because the Company has experienced operating losses since incorporation.

    The Company has experienced a lossrecoverability of $2,014,109 for the year ending May 31, 2011, and has accumulated a deficit of $156,095,915 as at May 31, 2011. The Company's future operations are dependent upon its ability to maintain or grow sales of AGGRASTAT®, and/or secure additional capital, which may not be available under favourable terms. Should these objectives not be achieved, the Company will have to consider additional strategic alternatives which may include, among other strategies, asset divestitures and/or monetization of certain intangibles.

    As at May 31, 2011 the Company had significant debt servicing obligations that it did not have the ability to repay without refinancing or restructuring and the Company was in default of the terms of its long-term debt financing obligations. Under an event of default, the lender could have exercised its security rights under the agreement, and accordingly the long-term debt obligation has been classified as a current liability as at May 31, 2011 and 2010 as described in note 8. On July 18, 2011, the long-term debt was settled as described in Note 16.

    The ability of the Company to continue as a going concern and to realize the carrying value of itsincome tax assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which are intended to mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these financial statements. There is no certainty that these and other strategies will be sufficient to permit the Company to continue as a going concern.

    The financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

    2.

    Significant accounting policies:

    (a)

    Basis of presentation:

    These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP). The measurement principles applied are also in conformity, in all material respects, with accounting principles generally accepted in the United States of America (U.S. GAAP) except as described in note 17 to the consolidated financial statements.

    106

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars) 

    3.     Significant accounting policies:
    The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at June 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated.
    (a) Basis of consolidation
    These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Medicure International Inc., and Medicure Pharma Inc.  The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.  All significant inter-company transactions and balances have been eliminated.
    (b) Foreign currency
    Items included in the financial statements of each of the Company's consolidated subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency. The U.S. dollar is the functional currency of Medicure Pharma Inc.  In the three months ended August 31, 2011, as a result of the long-term debt settlement (note 8) and other factors, the focus of Medicure International, Inc.'s operations changed and accordingly its functional currency was changed from the Canadian dollar to the U.S. dollar, effective June 1, 2011.  In accordance with International Accounting Standard ("IAS") 21, the Effects of Changes in Foreign Exchange Rates, this change has been accounted for prospectively.
    Foreign currency transactions are translated into the respective functional currencies of the Company and its subsidiaries using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit and loss. The results and financial position of the Company's consolidated subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
    (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that balance sheet;
    (ii) income and expenses for each year are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
    (iii) all resulting exchange differences are recognized in other comprehensive income in the cumulative translation account.
    When a foreign operation is disposed of, a proportionate share of the cumulative exchange differences previously recognized in equity is recognized in the income statement, as part of the gain or loss on sale where applicable.
    (c) Financial instruments
    (i) Financial assets
    The Company initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
    The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

    107

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (c) Financial instruments (continued):
    (i) Financial assets (continued)
    Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
    The Company classifies non-derivative financial assets into the following categories: loans and receivables.  The Company has not classified any assets or liabilities as held-to-maturity or as available-for-sale.
    Cash and cash equivalents
    Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.
    Loans and receivables
    Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise  accounts receivables.
    (ii) Financial liabilities
    The Company has the following non-derivative financial liabilities which are classified as other financial liabilities:  accounts payable and accrued liabilities, accrued interest on long-term debt, long-term debt and royalty obligation.
    All other financial liabilities are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.  Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.  Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to interest expense.
    The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
    Warrants with an exercise price denominated in a foreign currency are recorded as a warrant liability and classified as fair value through profit and loss. The warrant liability is included within accounts payable and accrued liabilities and the change in the fair value of the warrants is recorded as a gain or loss in the consolidated statement of net income (loss) and comprehensive income (loss) within finance expense. These warrants have not been listed on an exchange and therefore do not trade on an active market.
    The warrant liability is measured by reference to the fair value of the warrants at the date at which they were granted and subsequently revalued at each reporting date.  Estimating fair value for these warrants requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them.
    108

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (c) Financial instruments (continued):
    (iii) Fair Value Measurement
    The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following hierarchy:
    Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
    Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
    Level 3 - F-5-

    Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
    The fair value of the warrant liability is based on level 2 (significant observable inputs).
    (iv) Share capital
    Common voting shares are classified as equity.  Incremental costs directly attributable to the issuance of common voting shares are recognized as a deduction from equity, net of any tax effects.
    (d) Revenue Recognition
    Revenue from the sale of goods, comprising finished and unfinished products, in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
    (e) Inventories
    Inventories consist of unfinished product (raw materials) and packaging materials, as well as finished products and are measured at the lower of cost and net realizable value. The cost of inventories is based on the first in first out principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
    Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
    (f) Property and equipment
    (i) Recognition and measurement
    Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.  When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.  The costs of the day-to-day servicing of property and equipment are recognized in the statement of net income (loss) and comprehensive income (loss) in the period in which they are incurred.
    109

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (f) Property and equipment (continued):
    (ii) Depreciation
    Depreciation is recognized in profit or loss over the estimated useful lives of each part of an item of property and equipment in a manner which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.  The estimated useful lives for the current and comparative periods are as follows:

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    2.

    Significant accounting policies (continued):


    (a)

    Basis of presentation (continued):

    These financial statements have been prepared on a consolidated basis to include the accounts of the Company and its wholly-owned subsidiaries, Medicure International Inc., Medicure Pharma Inc., and Medicure Europe Limited. All significant inter-company transactions and balances have been eliminated.

    (b)

    Revenue recognition:

    The Company recognizes product revenue when substantially all of the risks and rewards of ownership have transferred to the customer and collection is reasonably assured. Revenue is recognized upon product delivery, and when no significant contractual obligations remain. Net sales reflect a reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, discounts, allowances for product returns, and other rebates. Interest income is recognized as earned.

    (c)

    Inventories:

    Inventories of raw materials and packaging materials are valued at the lower of cost and net realizable value. Inventories of finished goods are valued at the lower of cost and net realizable value. Cost is determined under the first- in, first-out method.

    (d)

    Cash and cash equivalents:

    Cash and cash equivalents include cash on hand and balances with banks, as well as highly liquid term deposits and commercial paper. The Company considers all highly liquid term deposits and commercial paper with terms to maturity when acquired of three months or less to be cash equivalents.

    (e)

    Property and equipment:

    Property and equipment are stated at cost. Amortization is recorded over the estimated useful life of the assets at the following rates:


    AssetBasisAnnual rate
    Rate
    Computer equipmentStraight-line25%
    Furniture, fixtures and equipmentDiminishing balance20% to 25%
    Leasehold improvementsStraight-line20%
    Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
    (g) Intangible assets
    (i) Research and development
    Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.
    Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.  No development costs have been capitalized to date.
    Research and development expenses include all direct and indirect operating expenses supporting the products in development.
    (ii) Intangible assets
    Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.  Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates.  All other expenditures are recognized in profit or loss as incurred.
    Costs incurred in obtaining a patent are capitalized and amortized on a straight-line basis over the legal life of the respective patent, ranging from five to twenty years, or its economic life, if shorter.  Costs incurred in obtaining a trademark are capitalized and amortized on a straight-line basis over the legal life of the respective trademark, being ten years, or its economic life, if shorter.  Costs incurred in obtaining a customer list are capitalized and amortized on a straight-line basis over its estimated economic life of approximately ten years.
    Costs incurred in successfully obtaining a patent, trademark or customer list are measured at cost less accumulated amortization and accumulated impairment losses.  The cost of servicing the Company's patents and trademarks are expensed as incurred.
    (iii) Subsequent expenditure
    Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates.  All other expenditures are recognized in profit or loss as incurred.

    (f)

    Intangible assets:

    Costs incurred in obtaining patents are capitalized and amortized upon issuance on a straight-line basis over the remaining legal life of the respective patents, being approximately twenty years, or their economic life, if shorter. The cost of servicing the Company's patents is expensed as incurred.

    Intangible assets are recorded at acquisition cost and are amortized on a straight-line basis based on the following estimated useful lives:


    110

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (g) Intangible assets (continued):
    (iv) Clinical trial expenses:
    Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.
    (v) Government assistance and investment tax credits:
    Government assistance toward current expenses is recorded as a reduction of the related expenses in the period the expenses are incurred. Government assistance towards property and equipment is deducted from the cost of the related property and equipment. The benefits of investment tax credits for scientific research and experimental development expenditures ("SR&ED") incurred directly by the Company are recognized in the period the qualifying expenditure is made, providing there is reasonable assurance of recoverability. SR&ED investment tax credits receivable are recorded at their net realizable value.
    (h) Impairment of financial assets
    At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss for financial assets carried at amortized cost. The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.
    Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.
    (i) Impairment of non-financial assets
    The Company assesses at each reporting period whether there is an indication that a non-financial asset may be impaired.  An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount.  Impairment losses are recognized in net income (loss) and comprehensive income (loss) and included in research and development expense if they relate to patents.  A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.  The recoverable amount is the greater of the asset's or CGU's fair value less costs to sell and value in use.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.  In determining fair value less cost to sell, an appropriate valuation model is used.  For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.
    Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.  An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.  An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.
    111

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (j) Employee benefits
    (i) Short-term employee benefits
    Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
    (ii) Share-based payment transactions
    The grant date fair value of share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.  The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.  For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
    Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.
    (k) Finance income and finance costs
    Finance income comprises interest income on funds invested which is recognized as it accrues in profit or loss, using the effective interest method.
    Finance costs comprise interest expense on borrowings which are recognized in profit or loss using the effective interest method, changes in the fair value of the warrant liability, accretion on the royalty obligation and amortization of deferred debt issue costs using the effective interest method.
    Foreign currency gains and losses are reported on a net basis.
    (l) Income tax
    Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
    Current tax is the expected tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax receivable or payable in respect of previous years.
    Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
    112

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (l) Income tax (continued):
    A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
    (m)  Earnings (loss) per share
    The Company presents basic earnings per share ("EPS") data for its common voting shares.  Basic EPS is calculated by dividing the profit or loss attributable to common voting shareholders of the Company by the weighted average number of common voting shares outstanding during the period, adjusted for own shares held.  Diluted EPS is computed similar to basic EPS except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive.  The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercise were used to acquire common shares at the average market price during the reporting periods.
    (n) New standards and interpretations not yet adopted
    Certain new standards, interpretations and amendments to existing standards issued by the International Accounting Standards Board ("IASB") or the International Financial Reporting Interpretations Committee ("IFRIC") that are not yet effective up to the date of issuance of the Company’s financial statements are listed below.  The Company is assessing the impact of these pronouncements on its consolidated results and financial position. The Company intends to adopt those standards when they become effective.
    IFRS 9 Financial Instruments: Classification and Measurement
    IFRS 9 (2009) replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement, on the classification and measurement of financial assets.  The Standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables.
    Financial assets will be classified into one of two categories on initial recognition:
    Patents·  5 - 20 years
    Trademark10 years
    Technology license8 years
    Customer list10 yearsfinancial assets measured at amortized cost; or

    - F-6-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    2.·  

    Significant accounting policies (continued):


    (g)

    Deferred debt issue expenses:

    Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to interest expense.

    (h)

    Impairment of long-lived assets:

    The carrying amount of long-lived assets which includes property and equipment and intangible assets to be held and used is reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized when the carrying amount of an asset to be held and used exceeds the projected undiscounted future net cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount of the asset exceeds its fair value.

    (i)

    Stock-based compensation:

    The Company has a stock option plan [note 9(c)] for its directors, management, employees and consultants. The Company uses the fair value method of accounting for stock options granted. The fair value of the options is expensed over their vesting period. The Company estimates forfeitures for each grant and incorporates this estimate into the calculation of compensation cost recorded each period.

    (j)

    Government assistance and investment tax credits:

    Government assistance toward current expenses is recorded as a reduction of the related expenses in the period the expenses are incurred. Government assistance towards property and equipment is deducted from the cost of the related property and equipment. The benefits of investment tax credits for scientific research and experimental development expenditures (SR&ED) incurred directly by the Company are recognized in the period the qualifying expenditure is made, providing there is reasonable assurance of recoverability. SR&ED investment tax credits receivable are recorded at their net realizable value.

    (k)

    Research and development:

    All costs of research activities are expensed in the period in which they are incurred. Development costs are charged as an expense in the period incurred unless a development project meets criteria for cost deferral and amortization. No development costs have been deferred to date. Tangible and intangible assets acquired for use in research and development projects are accounted for as described in note 2(e) and (f).

    (l)

    Clinical trial expenses:

    Clinical trial expenses are a component of the Company's research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company's behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.

    (m)

    Income taxes:

    The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of substantive enactment. When realization of future income tax assets does not meet the more likely than not criterion, a valuation allowance is provided for the difference.

    - F-7-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    2.

    Significant accounting policies (continued):


    (n)

    Earnings (loss) per share:

    Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the year including contingently issuable shares where the contingency has been resolved. The treasury stock method requires that diluted per share amounts be calculated as if all the common share equivalents, such as options and warrants where the average market price for the period exceeds the exercise price, had been exercised at the beginning of the reporting period or at the date of issue, if later, and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of the common shares during the period. For all periods presented, all common share equivalents have been excluded from the calculation of dilutive loss per share as their effect is anti- dilutive.

    (o)

    Foreign currency translation:

    Current assets and current liabilities in foreign currencies have been translated into Canadian dollars at the rates of exchange in effect at the balance sheet date. Income and expense transactions are translated at actual rates of exchange during the year. Exchange gains and losses are included in loss for the period.

    The operations of the Company's foreign subsidiaries are considered to be integrated foreign operations and, accordingly, are converted to Canadian dollars using the temporal method. Under this method, monetary assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date, non-monetary assets and liabilities are translated at the rate in effect when the assets were acquired or liabilities were assumed and items included in the statements of operations at the average exchange rates in effect at the date of such transactions with resulting exchange gains or losses included in the determination of earnings.

    (p)

    Use of estimates:

    The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Estimates are used when accounting for items and matters such as revenue recognition and allowances for estimated returns and other rebates, inventory provisions, estimated useful lives of intangible assets and property and equipment, impairment assessments, taxes and related valuation allowances and provisions, share-based compensation, contingencies, and fair values assigned to warrants issued in connection with share and debt issuances. Actual results could differ from those estimates.

    (q)

    Financial instruments:

    Financial assets and financial liabilities, including derivatives are initially recognized at fair value. Subsequent measurement is determined by the classification of each financial asset and liability. The fair value of financial assets designated as held-for-trading is determined based on quoted prices in active markets for identical assets, per Level I of the fair value hierarchy. When the carrying value of a financial asset exceeds its fair value on a basis that is other than temporary, the carrying value is reduced to the fair value. The Company has designated its financial instruments as follows:

  • Cash and cash equivalents are classified as held-for-trading. They are measured at fair value.

    Under IFRS 9 (2010), for financial liabilities measured at fair value under the fair value option, changes in fair value attributable to changes in credit risk will be recognized in other comprehensive income ("OCI"), with the remainder of the change recognized in profit and loss.
    IFRS 9 (2010) supersedes IFRS 9 (2009) and is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted.  For annual periods beginning before January 1, 2015, either IFRS 9 (2009) or IFRS 9 (2010) may be applied.
    The Company intends to adopt IFRS 9 (2010) in its consolidated financial statements for the annual period beginning on June 1, 2015.  The extent of the impact of adoption of IFRS 9 (2010) has not yet been determined.
    113

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (n) New standards and interpretations not yet adopted (continued):
    IFRS 10 Consolidated Financial Statements
    In May 2011, the IASB published IFRS 10, Consolidated Financial Statements. The standard is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted, with .  IFRS 10 replaces IAS 27 and Standing Interpretation Committee ("SIC") 12, Consolidation Special Purpose Entities. The consolidation requirements previously included in IAS 27 have been included in IFRS 10, whereas the amended IAS 27 sets standards to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee, eliminating the risks and rewards approach included in SIC-12. An investor must possess the following three elements to conclude it controls an investee: power over the investee, exposure or rights to variable returns from involvement with the investee, and the ability to use power over the investee to affect the amount of the investor’s returns. IFRS 10 requires continuous reassessment of changes in an investor’s power over the investee and changes in the investor’s exposure or rights to variable returns.
    The company intends to adopt IFRS 10 in its consolidated financial statements for the annual period beginning on June 1, 2013.  The extent of the impact of adoption of IFRS 10 has not yet been determined.
    IFRS 13 - Fair Value Measurement
    In May 2011, the IASB published IFRS 13 Fair Value Measurement, which is effective prospectively for annual periods beginning on or after January 1, 2013, with earlier application permitted.  The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application. IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. IFRS 13 explains how to measure fair value when it is required or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.
    The Company intends to adopt IFRS 13 prospectively in its consolidated financial statements for the annual period beginning on June 1, 2013.  The extent of the impact of adoption of IFRS 13 has not yet been determined.
    Amendments to IAS 1, Presentation of Financial Statements
    In June 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements, which is effective for annual periods beginning on or after July 1, 2012, with earlier application permitted.  The amendments to IAS 1 require companies preparing financial statements to group together items with OCI on the basis of whether they may be reclassified to the profit and loss section of the income statement.  The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements.
    The intends to adopt the amendments in its consolidated financial statements for the annual period beginning on June 1, 2013.  The extent of the impact of adoption of the amendments has not yet been determined.
    Annual Improvement to IFRSs 2009-2011 Cycle - Various Standards
    In May 2012, the IASB published Annual Improvements to IFRSs - 2009-2011 Cycle as part of its annual improvements process to make non-urgent but necessary amendments to IFRS effective for annual periods beginning on or after January 1, 2013 with retrospective application.
    114

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    3.     Significant accounting policies (continued):
    (n) New standards and interpretations not yet adopted (continued):
    Annual Improvement to IFRSs 2009-2011 Cycle - Various Standards (continued):
    The impending changes that potential have an effect on the Company include:
    ·  
    IAS 1 Presentation of Financial Statements - the changes involve amendments to the presentation and disclosure of comparative information beyond the minimum and the gains or losses resulting from re-measurement atpresentation of the endopening statement of each period are recognized in net loss forfinancial position.
    ·  IAS 34 Interim Financial Reporting - the period.

  • Accounts receivable are classified as loans and receivables. They are measured at amortized cost using the effective interest rate method.

  • Accounts payable and accrued liabilities, accrued interest on long-term debt and long-term debt are classified as other financial liabilities. They are measured at amortized cost using the effective interest rate method.

    Transaction costs that are directly attributablechanges involve amendments to the acquisition or issuancepresentation and disclosure of financialsegment assets or liabilities not classified as held-for-trading are accounted for as part of the respective asset or liability's carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method.

    liabilities.

    - F-8-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    2.

    Significant accounting policies (continued):


    (r)

    Recent accounting pronouncements not yet adopted

    In January 2009, the Canadian Institute of Charter Accountants (CICA) issued Handbook Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements, and Section 1602, Non-controlling Interests. These Sections apply to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year. An entity adopting Section 1582 also must adopt Sections 1601 and 1602 at the same time.

    Section 1582 requires business acquisitions to be measured at fair value on the acquisition date, acquisition-related costs to be expensed, gains from bargain purchases to be recorded in net earnings, and expands the definition of a business. Section 1601 establishes standards for the preparation of consolidated financial statements and Section 1602 requires that non-controlling interest be presented as part of equity and that transactions between the Company and the non-controlling interests be reported as equity transactions. Section 1582 will apply to any business combinations following June 1, 2011.


    3.

    Convergence to International Financial Reporting Standards ("IFRS"):

    In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that significantly affects financial reporting requirements for Canadian companies. The AcSB's strategic plan outlined the convergence of Canadian GAAP with IFRS over a five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada's own GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company's first year end under IFRS will be May 31, 2012. The transition date for the Company will be June 1, 2011 and will require restatement for comparative purposes of amounts reported by the Company for the year ended May 31, 2011. The Company is in the process of determining the impact of adoption of IFRS on its financial statements.

    4.

    Accounts receivable:


       May 31, 2011  May 31, 2010 
            
     Trade accounts receivable$ 353,473 $ 375,228 
     Interest receivable -  54 
     Other 12,017  15,641 
            
      $ 365,490 $ 390,923 

    The Company intends to adopt the amendments to the standards in its consolidated financial statements for the annual period beginning on June 1, 2013.  The extent of the impact of the adoption of the amendments has not yet been determined.
    4.     Accounts receivable:
     
    May 31, 2012
     May 31, 2011 June 1, 2010 
           
    Trade accounts receivable389,193 353,473 375,228 
    Other accounts receivable31,004 12,017 15,695 
     420,197 365,490 390,923 
    As at May 31, 2011,2012, the trade accounts receivable consists of amounts owing from threefour customers which represent approximately 100 percent (May 31, 2011 - 100 percent and June 1, 2010 - 90 percent) of trade accounts receivable.

    - F-9-


    5.     Inventories:

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    5.

    Inventories:


       May 31, 2011  May 31, 2010 
     Raw materials and packaging materials$ 74,902 $ 120,035 
     Finished goods 385,984  430,940 
      $ 460,886 $ 550,975 

     
    May 31, 2012
     May 31, 2011 June 1, 2010 
           
    Unfinished product and packaging materials228,210 74,902 120,035 
    Finished product314,115 374,972 430,940 
     542,325 449,874 550,975 
    During the year ending May 31, 2011,2012, the Company wrote-off unusableany inventory that had expired or was otherwise unuseable of $292,950 (May 31, 2010$109,194 (2011 - nil, May 31,2009 - $92,985)292,950).  Inventory expensed as part of cost of goods sold during the year ended May 31, 20112012 was $268,572$227,515 (May 31, 20102011 - $218,702,$268,572).
    115

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    6.     Property and equipment:

    Cost
    Computer and
     office equipment
      
    Furniture, Fixtures
     and equipment
      Total 
             
    Balance, June 1, 2010$36,377  $136,429  $172,806 
    Additions 1,487   -   1,487 
    Effect of movements in exchange rates (2,143)  (11,756)  (13,899)
                
    Balance, May 31, 2011 35,721   124,673   160,394 
    Additions 1,488   -   1,488 
    Disposals (12,578)  -   (12,578)
    Effect of movements in exchange rates -   7,333   7,333 
                
    Balance, May 31, 2012 24,631   132,006   156,637 
    Accumulated amortization and impairment losses
    Computer and
     office equipment
      
    Furniture, Fixtures
     and equipment
      Total 
                
    Balance, June 1, 2010$13,704  $90,350  $104,054 
    Amortization for the year 8,338   10,674   19,012 
    Effect of movements in exchange rates (1,173)  (8,441)  (9,614)
                
    Balance, May 31, 2011 20,869   92,583   113,452 
    Amortization for the year 7,217   12,446   19,663 
    Disposals (12,578)  -   (12,578)
    Effect of movements in exchange rates -   5,355   5,355 
                
    Balance, May 31, 2012 15,508   110,384   125,892 
    Carrying amounts
    Computer and
     office equipment
      
    Furniture, Fixtures
     and equipment
      Total 
                
    At  June 1, 2010$22,673  $46,079  $68,752 
    At May 31, 2011 14,852   32,090   46,942 
    At  May 31, 2012 9,123   21,622   30,745 
    116


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    7.     Intangible assets

    CostPatents  Trademarks  Customer List  Total 
                
    Balance, June 1, 2010$8,872,044  $1,534,440  $270,784  $10,677,268 
    Additions 42,327   -   -   42,327 
    Change due to impairment (359,079)  -   -   (359,079)
                    
    Balance, May 31, 2011 8,555,292   1,534,440   270,784   10,360,516 
    Additions 96,424   -   -   96,424 
    Change due to impairment (339,680)  -   -   (339,680)
    Effect of movements in exchange rates 546,734   101,525   17,916   666,175 
                    
    Balance, May 31, 2012$8,858,770  $1,635,965  $288,700  $10,783,435 
                    
    Accumulated amortization and write-downsPatents  Trademarks  Customer List  Total 
                    
    Balance, May 31, 2010$(5,304,021) $(814,610) $(143,755) $(6,262,386)
    Amortization (746,408)  (112,438)  (19,842)  (878,688)
    Change due to impairment 78,844   -   -   78,844 
                    
    Balance, May 31, 2011 (5,971,585)  (927,048)  (163,597)  (7,062,230)
    Amortization (721,405)  (116,010)  (20,472)  (857,887)
    Change due to impairment 123,669   -   -   123,669 
    Effect of movements in exchange rates (409,730)  (64,880)  (11,449)  (486,059)
                    
    Balance, May 31, 2012$(6,979,051) $(1,107,938) $(195,518) $(8,282,507)
                    
                    
    Carrying amountsPatents  Trademarks  Customer List  Total 
    At  June 1, 2010$3,568,023  $719,830  $127,029  $4,414,882 
    At May 31, 2011$2,583,707  $607,392  $107,187  $3,298,286 
    Balance, May 31, 2012$1,879,719  $528,027  $93,182  $2,500,928 
    The Company has considered indicators of impairment at May 31, 2009 - $279,872).

    6.

    Property and equipment:


          Accumulated  Net book 
     May 31, 2011 Cost  amortization  value 
               
     Computer equipment$ 37,916 $ 22,145 $ 15,771 
     Furniture, fixtures and equipment 136,851  101,626  35,225 
               
      $ 174,767 $ 123,771 $ 50,996 

          Accumulated  Net book 
     May 31, 2010 Cost  amortization  value 
               
     Computer equipment$ 36,377 $ 13,704 $ 22,673 
     Furniture, fixtures and equipment 136,429  90,350  46,079 
               
      $ 172,806 $ 104,054 $ 68,752 

    Included in general2012, May 31, 2011 and administration expenses is a gain on sale of property and equipment of nil (2010 - $7,193, 2009 -nil) andJune 1, 2010.  To May 31, 2012, the Company alsohas recorded an aggregate impairment loss of $16,074,192 primarily resulting from a previous write-down of AGGRASTAT intangible assets and from patent applications no longer being pursued or patents being abandoned.  The Company recorded a write-down of property and equipmentintangible assets of nil (2010 - $4,041, 2009 - nil).

    - F-10-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    7.

    Intangible assets:


       Cost, net of  Accumulated  Net book 
     May 31, 2011 impairments  amortization  value 
               
     Patents$ 8,555,292 $ 5,971,585 $ 2,583,707 
     Trademarks 1,534,440  927,048  607,392 
     Customer list 270,784  163,597  107,187 
               
      $ 10,360,516 $ 7,062,230 $ 3,298,286 

       Cost, net of  Accumulated  Net book 
     May 31, 2010 impairments  amortization  value 
               
     Patents$ 8,872,044 $ 5,304,021 $ 3,568,023 
     Trademarks 1,534,440  814,610  719,830 
     Customer list 270,784  143,755  127,029 
               
      $ 10,677,268 $ 6,262,386 $ 4,414,882 

    As part of its ongoing review of all intellectual property, the Company recorded an impairment write-down$216,011 during the year ended May 31, 20112012 (2011 - $280,235) relating to patent applications no longer being pursued and patents being abandoned.  The average remaining amortization period of $280,235 (May 31, 2010 - $765,294,the Company's intangible assets is approximately 4.4 years.

    For the year ended May 31, 2009 - $1,755,955). The Company also reviewed the remaining2012, amortization of intangible assets relating to AGGRASTAT totaling $845,869 (2011 - $839,725) is recognized in cost of goods sold and amortization of non-AGGRASTAT intangible assets totaling $12,018 (2011 - $38,963) and write-downs of intangible assets totaling $216,011 (2011 - $280,235) are recognized in research and development expense.
    As described in note 8, certain intangible assets were pledged as security against long-term debt.
    117

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    8.     Long-term debt:
              
      
    May 31, 2012
      May 31, 2011  June 1, 2010 
              
    Manitoba Industrial Opportunities Program loan $4,647,740  $-  $- 
    Birmingham long-term debt  -   22,468,518   24,140,199 
       4,647,740   22,468,518   24,140,199 
    Current portion of long-term debt  -   22,468,518   24,140,199 
                 
      $4,647,740  $-  $- 
    Principal repayments to maturity by fiscal year are as follows:   
        
    2013 $- 
    2014  1,388,889 
    2015  1,666,667 
    2016  1,666,667 
    2017  277,777 
         
       5,000,000 
    Less deferred debt issue expenses (net of accumulated amortization of $117,981)  352,260 
         
      $4,647,740 
    In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. ("Birmingham"), an affiliate of Elliott Associates, L.P. ("Elliott") for impairmentsproceeds of US$25 million. Under the terms of the agreement, Birmingham was to receive payments based on a percentage of AGGRASTAT net sales. Birmingham was entitled to a return of 20 percent on the first US$15 million in AGGRASTAT revenues, 17.5 percent on the next US$10 million, 15 percent on the next US$5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual payments started at US$2.5 million in 2008 and were to escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement in aggregate were US$49.7 million. The annual minimum payments were reflected in the effective interest rate calculation of the debt.
    As at May 31, 2011, the Company was in default of the terms of its debt financing obligations.  The portion of the minimum payments that were past due included in the accrued interest on long-term debt at May 31, 2011 was $4,804,788, or US$4,933,471.  The debt agreement contained no express provisions to accelerate debt payments in an event of default, however under the agreement the lender could have exercised its security rights at any time while in default.   Accordingly, for financial reporting purposes, the outstanding long term debt of US$25 million that was in default was classified as a current liability at May 31, 2011 and has determined no further write-downs were necessary.

    As described in Note 8, certain intangible assets are pledged as security against long-term debt.

    8.

    Long-term debt:


       May 31, 2011  May 31, 2010 
     Birmingham long-term debt$ 22,468,518 $ 24,140,199 
     Current portion of long-term debt (22,468,518) (24,140,199)
      $ - $ - 

    Principal repayments to maturity by fiscal year are as follows:

     2012$ 804,775 
     2013 1,681,668 
     2014 2,412,141 
     2015 3,292,062 
     2016 4,347,266 
     Thereafter 11,682,088 
         
       24,220,000 
     Less deferred debt issue expenses (net of accumulated amortization of $760,512) (1,751,482)
         
      $ 22,468,518 

    June 1, 2010.

    On July 18, 2011, the Company settled the aboveBirmingham long-term debt in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT sales until May 1, 2023.  The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter.  The previous lender has a one-time option to switch the royalty payment from AGGRASTAT to a royalty on MC-1 sales.  Management has determined there is no value to the option to switch the royalty.
    In accordance with the terms of the agreement, if the Company were to dispose of its AGGRASTAT rights, the acquirer would be required to assume the obligations under the royalty agreement.
    118

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    8.     Long-term debt (continued):
    The difference between the carrying amount of the long-term debt extinguished and the consideration paid, comprising cash, equity instruments and the royalty obligation assumed, has been recognized as describeda gain on the settlement of debt in Note 16.

    the statement of net income for the year ended May 31, 2012.  In accordance with IFRIC 19 Extinguishing financial liabilities with equity instruments, the shares issued in partial consideration for the settlement of the debt have been included in consideration paid and measured at their fair value at the date of the settlement of $652,801.

    As at July 18, 2011 the Company had total Canadian dollar book value of long-term debt of $22,254,966, net of unamortized deferred financing fees of $941,454.  The Company also had accrued interest payable of $8,145,865 for a total carrying value of the debt settled on July 18, 2011 of $30,400,831.
    The gain on the settlement of debt totals $23,931,807 and consideration paid comprised $4,750,000 cash paid, common shares with a value of $652,801 and a royalty obligation valued at $901,915, in addition to legal costs associated with the debt settlement transaction of $164,308.
    The initial value assigned to the royalty obligation, based on an expected value approach, was estimated at $901,915.  The royalty obligation is recorded at amortized cost with the associated cash flows being revised each period resulting in a carrying value at May 31, 2012 of $640,996 (May 31, 2011 - F-11-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011,nil and June 1, 2010 and 2009

    8.

    Long-term debt (continued):

    In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for proceeds of US$25 million. Under the terms of the agreement, Birmingham receives payments based on a percentage of AGGRASTAT®net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in AGGRASTAT®revenues, 17.5 percent on the next US$10 million, 15 percent on the next US$5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual payments start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement in aggregate are US$49.7 million. The annual minimum payments are reflected in the effective interest rate calculation of the debt.

    As at May 31, 2011, the Company was in default of the terms of its debt financing obligations. The portion of the minimum payments that are past due included in the accrued interest on long-term debt is $4,804,788, or US$4,933,471 (May 31, 2010 - $4,540,151 or US$4,339,659). Of this amount, US$1,739,659 was originally due July 15, 2009; US$180,811 was originally due October 15, 2009; US$195,550 was originally due January 15, 2010; US$160,359 was originally due April 15, 2010; US$2,063,280 was originally due on July 15, 2010, US$168,085 was originally due October 15, 2010, US$167,025 was originally due January 15, 2011, and US$258,703 was originally due April 15, 2011. The debt agreement contains no express provisions to accelerate debt payments in an event of default, however under the agreement the lender can exercise its security rights at any time while in default. Accordingly, for financial reporting purposes, based on the guidance in "EIC-59 Long Term Debt With Covenant Violations", the outstanding long term debt of US$25 million that is in default has been classified as a current liability as at May 31, 2011 and 2010 (Note 1).

    As disclosed in (Note 9(d)), the Company issued 1,000,000 warrants associated with the debt financing agreement. The warrants were valued at fair value of $809,344 at the date of issuance using the Black-Scholes option pricing model. The warrants have been recorded in shareholders' equity and the Company recorded a long-term debt liability of $24,213,256. The Company also incurred debt issuance costs of $1,727,902, which it has recorded as a discount on the debt. The imputed effective interest rate is 13.3 percent.

    Birmingham has the option to convert its rights based on AGGRASTAT®to MC-1 (products that contains pyridoxal 5'- phosphate (P5P)) within six months after MC-1's commercialization, if achieved. Upon conversion to MC-1, Birmingham would be entitled to a return of 10 percent on the first US$35 million in MC-1 revenues, 5 percent on the next US$40 million in MC-1 revenues and 3 percent thereafter, subject to a minimum annual return of US$2.6 million until May 31, 2020. Birmingham would receive payments based on MC-1 revenues until December 31, 2024, unless a novel patent is obtained for MC-1, which could extend the period of payments.

    Birmingham's participation rights are secured by a first security interest in the intellectual property rights of the Company in AGGRASTAT®and MC-1 (subject to certain specified MC-1 lien release terms), the proceeds derived from the commercialization of AGGRASTAT®and MC-1 (including without limitation any royalties receivable derived from any licensing of AGGRASTAT®and MC-1 to any third party and accounts receivable from the sale of AGGRASTAT®and MC-1 products), all intellectual, proprietary and other rights (including without limitation to contractual promotion and licensing rights and benefits) associated with, or derived from, AGGRASTAT®and MC-1, as well as shares in Medicure Pharma Inc. and Medicure International Inc.

    During the 30 day period following the date on which the U.S. Food and Drug Administration shall have first approved MC-1 for sale to the public, the Company may elect to terminate AGGRASTAT®or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period, of US$70 million to Birmingham.

    In addition, upon the approval of MC-1 for a second indication, the Company may once again elect to terminate AGGRASTAT®or MC-1 debt payment rights with the payment, prior to the end of such 30 day period, of US$120 million to Birmingham. The termination options represent an embedded derivative as defined in CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement. As of May 31, 2011, the estimated fair value of the termination options is nil.

    - F-12-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    9.

    Capital stock:

    (a)

    Authorized:

    The Company has authorized share capital of an unlimited number of common voting shares, an unlimited number of class A common shares and an unlimited number of preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued, the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares.

    (b)

    Shares issued and outstanding:

    Shares issued and outstanding are as follows:


       Number of Common Shares  Amount 
     Balance, May 31, 2009 130,307,552 $ 116,014,623 
     Balance, May 31, 2010 130,307,552 $ 116,014,623 
     Balance, May 31, 2011 130,307,552 $ 116,014,623 

    (c)

    Options:

    The Company has a stock option plan which is administered by the Board of Directors of the Company with stock options granted to directors, management, employees and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum of ten percent of the outstanding common shares of the Company at any time. The stock options generally are subject to vesting over a period up to three years and have a maximum term of ten years.

    Changes in the number of options outstanding during the year ended May 31, 2011 and 2010 are as follows:


          May 31, 2011     May 31, 2010 
                  
          Weighted     Weighted 
          average     average 
          exercise     exercise 
       Shares  price  Shares  price 
                  
     Balance, beginning of period 5,032,192 $ 0.71  7,272,807 $ 0.57 
     Forfeited, cancelled or expired (2,710,000) 0.64  (2,240,615) 0.26 
                  
     Balance, end of period 2,322,192 $ 0.74  5,032,192 $ 0.71 
                  
     Options exercisable, end of period 2,322,192 $ 0.74  4,311,349 $ 0.74 

    nil).  The net accretion of the royalty obligation for the year ended May 31, 2012 of ($217,973) (2011 - F-13nil) is recorded within finance expense on the Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss).  Royalties for the year ended May 31, 2012 total $99,965 in regards to the royalty obligation (2011 -

    nil), with payments made in fiscal 2012 being $84,784 (2011 - nil).
    The Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities ("MIOP") Program, to assist in the settlement of the Birmingham long-term debt. The loan bears interest annually at the crown company borrowing rate plus two percent and matures on July 1, 2016.  The loan is payable interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity.  The loan is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 20,000,000 common shares of the Company with a fair value of $371,834, net of share issue costs of $28,166, in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. In connection with the guarantee the Company entered into an indemnification agreement with the CEO  under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement the Company agreed to provide certain compensation upon a change in control of the Company.  The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument (MI) 61-101.  Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.
    The Company is required to maintain certain financial and non-financial covenants under the terms of the MIOP loan.  As at May 31, 2012, management believes it is in compliance with the terms of the loan.
    The effective interest rate on the MIOP loan for the year ended May 31, 2012 was 7.0%.
    9.     Capital stock:
    (a)      Authorized:
    The Company has authorized share capital of an unlimited number of common voting shares, an unlimited number of class A common shares and an unlimited number of preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued, the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares.
    119

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    9.     Capital stock (continued)
    (b)      Shares issued and outstanding:
    Shares issued and outstanding are as follows:
      
    Number of
    Common Shares
      Amount 
           
    Balance, June 1, 2010  130,307,552  $116,014,623 
             
    Balance, May 31, 2011  130,307,552  $116,014,623 
    Shares issued on July 18, 2011  52,640,043   1,018,635 
             
    Balance, May 31, 2012  182,947,595  $117,033,258 
    On July 18, 2011, the Company issued 32,640,043 common shares as part of the consideration of the settlement of the Company's existing debt. These shares had a value of $646,801, net of share issue costs of $6,000 (note 8).
    On July 18, 2011, the Company issued 20,000,000 common shares of the Company in consideration for the guarantee of long-term debt by the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. These shares had a value of $371,834, net of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method (note 8).
    (c)      Stock option plan:
    The Company has a stock option plan which is administered by the Board of Directors of the Company with stock options granted to directors, management, employees and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum of ten percent of the outstanding common shares of the Company at any time. The stock options generally are subject to vesting over a period up to three years and have a maximum term of ten years.
    On July 18, 2011, the Company issued 12,542,000 stock options to employees and consultants of the Company, including the Chief Executive Officer and Chief Operating Officer, at an exercise price of $0.10 per common share.  The options vested immediately and expire after ten years.
    Changes in the number of options outstanding during the year ended May 31, 2012 and 2011 are as follows:
        May 31, 2012    May 31, 2011 
         Weighted     Weighted 
         average     average 
         exercise     exercise 
      Shares  price  Shares  price 
                 
    Balance, beginning of period  2,322,192  $0.74   5,032,192  $0.71 
    Granted  12,542,000   0.10   -   - 
    Forfeited, cancelled or expired  (425,000)  0.09   (2,710,000)  0.64 
                     
    Balance, end of period  14,439,192  $0.20   2,322,192  $0.74 
                     
    Options exercisable, end of period  14,439,192  $0.20   2,322,192  $0.74 
    120


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009
    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    9.     Capital stock (continued)
    (c)       Stock option plan: (continued):
    Options outstanding at May 31, 2012 consist of the following:
         
      Weighted averageOptions outstanding 
    Range ofNumberremainingweighted averageNumber
    exercise pricesoutstandingcontractual lifeexercise priceexercisable
         
    $0.03 - $0.5013,197,0008.96 years$0.1013,197,000
    $0.51 - $1.00470,0255.52 years$0.85470,025
    $1.01 - $1.68772,1673.88 years$1.63772,167
         
    $0.03 - $1.6814,439,1928.58 years$0.2014,439,192

    9.

    Capital stock (continued):

    (c)

    Options (continued):

    Options outstanding at May 31, 2011 consist of the following:


      Weighted averageOptions outstanding 
    Range ofNumberremainingweighted averageNumber
    exercise pricesoutstandingcontractual lifeexercise priceexercisable
         
    $0.03 - $0.501,080,0007.29 years$0.051,080,000
    $0.51 - $1.00470,0256.52 years$0.85470,025
    $1.01 - $1.68772,1674.88 years$1.63772,167
         
    $0.03 - $1.682,322,1926.33 years$0.742,322,192

    The compensation expense related to stock options granted during the period and in previous periods under the stock option plan for the year ended May 31, 20112012 was $77,057 (2010$224,445 (2011 - $122,812, 2009 - $325,028)$77,057).

    The compensation expense was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing model.  There were no stock options grantedissued during the years ended May 31, 2011 and 2010.

    fiscal 2011.
     (d)

    Warrants:

    May 31, 2012
    Expected option life4.1 years
    Risk free interest rate1.90%
    Dividend yieldnil
    Expected volatility193.05%

    (d)      Warrants:
    Changes in the number of warrants outstanding during years ended May 31, 2011, 20102012, and 20092011 are as follows:

         Exercise                
    Issue Original  price  May 31,  Granted  May 31,  Granted  May 31, 
    (Expiry date) granted  per share  2009  (Expired)  2010  (Expired)  2011 
                          
    2,602,750 units (August 19, 2010) 2,602,750 $1.18  2,602,750  -  2,602,750  (2,602,750) - 
                          
    4,000,000 units (May 9, 2011) 4,000,000  USD $2.10  4,000,000  -  4,000,000  (4,000,000) - 
                          
    3,984,608 units (December 22, 2011) 3,984,608  USD $1.70  3,984,608  -  3,984,608  -  3,984,608 
                          
    1,000,000 units (December 31, 2016) 1,000,000  USD $1.26  1,000,000  -  1,000,000  -  1,000,000 
                          
    4,373,913 units (October 5, 2012) 4,373,913  USD $1.50  4,373,913  -  4,373,913  -  4,373,913 
        Exercise               
    Issue Original price June 1,  Granted  May 31,  Granted  May 31, 
    (Expiry date) granted per share 2010  (Expired)  2011  (Expired)  2012 
                        
    4,000,000 units                   
    (May 9, 2011)  4,000,000 USD $2.10  4,000,000   (4,000,000)  -   -   - 
    3,984,608 units                         
    (December 22, 2011)  3,984,608  USD $1.70  3,984,608   -   3,984,608   (3,984,608)  - 
    1,000,000 units                         
    (December 31, 2016)  1,000,000 USD $1.26  1,000,000   -   1,000,000   -   1,000,000 
    4,373,913 units                         
    (October 5, 2012)  4,373,913 USD $1.50  4,373,913   -   4,373,913   -   4,373,913 

    121


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    9.     Capital stock (continued)
    (d)       Warrants: (continued):
    IFRS requires warrants with an exercise price denominated in a currency other the entity's functional currency to be treated as a liability measured at fair value.  The warrants, all with U.S. dollar exercise prices, are recorded at fair value within accounts payable and accrued liabilities as at May 31, 2012 and total $35,053 (May 31, 2011 - $10,597 and June 1, 2010 - $37,971). Changes in fair value of the warrants for the year ended May 31, 2012 of $24,490 (2011 - ($27,374) are recorded within finance expense.
    The warrants, with the exception of the warrants expiring on December 31, 2016, were issued together with common shares either under prospectus offerings or private placements with the net proceeds allocated to common shares and warrants based on their relative fair values using the Black-Scholes model. The warrants expiring on December 31, 2016 were issued with the debt financing agreement in September 2007, as disclosed in note 8.

    2007.

    The warrants expiring on December 22, 2011, October 5, 2012, and December 31, 2016 may be exercised, upon certain conditions being met, on a cashless basis based on a formula described in the warrant agreements.

    - F-14-

    (e)      Shareholder rights plan:
    The Company had a shareholder rights plan, the primary objective of which was to ensure, to the extent possible, that all shareholders of the Company are treated fairly in connection with any takeover offer for the Company and to ensure that the Board of Directors is provided with sufficient time to evaluate unsolicited takeover bids and to explore and develop alternatives to maximize shareholder value.  The shareholder rights plan expired on November 22, 2011 and was not renewed by the Company.
    (f)      Per share amounts
    The weighted average number of common voting shares outstanding for the year ended May 31, 2012 and 2011 was 176,187,808 and 130,307,552, respectively.  For the year ended May 31, 2012, the dilution created by options and warrants has been reflected in the per share amounts. For the period ended May 31, 2011, the dilution created by options and warrants has not been reflected in the per share amounts as the effect would be anti-dilutive.
    122


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    9.

    Capital stock (continued):

    (e)

    Shareholder rights plan:

    The Company has a shareholder rights plan, the primary objective of which is to ensure, to the extent possible, that all shareholders of the Company are treated fairly in connection with any takeover offer for the Company and to ensure that the Board of Directors is provided with sufficient time to evaluate unsolicited takeover bids and to explore and develop alternatives to maximize shareholder value.

    10.

    Income taxes:

    Significant components of the Company's future tax assets are as follows:


       2011  2010 
            
     Future tax assets:      
            Non-capital loss carry-forwards$ 7,008,000 $ 5,984,000 
            Scientific research and experimental development 3,793,000  3,793,000 
            Share issue costs 99,000  249,000 
            Other 701,000  737,000 
            
       11,601,000  10,763,000 
     less: Valuation allowance (11,601,000) (10,763,000)
            
      $ - $ - 

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    10.           Income taxes:
    The Company recognized no income taxes in the statements of net income (loss) and comprehensive income (loss), as it has been incurring losses since inception, excluding the gain on the settlement of debt during the year ended May 31, 2012, and it is not probable that future taxable profits will be available against which the accumulated tax losses can be utilized.
    As at May 31, 2012 and 2011, deferred tax assets have not been recognized with respect to the following items:
      2012  2011 
           
    Non-capital loss carry-forwards $6,816,000  $7,008,000 
    Scientific research and experimental development  3,793,000   3,793,000 
    Share issue costs  56,000   99,000 
    Other  771,000   701,000 
       11,436,000   11,601,000 
    The reconciliation of the Canadian statutory rate to the income tax provisionrate applied to the net income (loss) for the period to the income tax recovery is as follows:

      2011  2010  2009 
              
    Loss for the year:         
           Canadian$ 1,564,488 $ 1,250,420 $ 3,777,652 
           Foreign 449,621  4,282,086  9,538,175 
              
     $ 2,014,109 $ 5,532,506 $ 13,315,827 
              
              
    Canadian federal and provincial income taxes at 27.00% (2010 - 27.00%; 2009 - 27.00%)$ 544,000 $ 1,494,000 $ 3,595,000 
    Permanent differences and other items (42,000) 59,000  (64,000)
    Foreign tax rate in foreign jurisdiction (120,000) (932,000) (2,256,000)
    Change in valuation allowance (838,000) (662,000) (759,000)
    Other 456,000  41,000  (516,000)
              
     $ - $ - $ - 

           
      2012  2011 
           
    Loss for the year:      
    Canadian $(1,699,690) $(1,537,114)
    Foreign  25,085,469   (97,660)
      $23,385,779  $(1,634,774)
             
    Canadian federal and provincial income taxes at 27.00% (2011 - 27.00%) $(6,314,000) $544,000 
    Permanent differences and other items  (74,000)  (42,000)
    Gain on settlement of debt  598,000   - 
    Foreign tax rate in foreign jurisdiction  6,097,000   (120,000)
    Change in unrecognized deferred tax assets  165,000   (838,000)
    Other  (472,000)  456,000 
      $-  $- 
    The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados (2.5 percent) and the United States (38 percent) that are applicable to losses incurred by the Company's wholly-owned subsidiaries, Medicure International Inc. and Medicure Pharma Inc.

    At May 31, 2012, the Company has the following Canadian non-capital losses available for application in future years:
    Expires in:   
    2014 $171,296 
    2026  939,620 
    2027  1,111,169 
    2029  5,288,028 
    2030  2,711,408 
    2031  1,893,976 
    2032  1,485,583 
      $13,601,080 
    123

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    10.           Income taxes (continued):
    Scientific research and development tax credits of  $3,826,000 (2011 - F-15-

    $3,826,000), which can be applied against Canadian income taxes otherwise payable, with expiry by 2028.
    At May 31, 2012, the Company has the following United States net operating losses available for application in future years:
    Expires in:   
    2029 $1,247,857 
    2030  430,846 
    2032  383,595 
      $2,062,298 
    At May 31, 2012, the Company has the following Barbados losses available for application in future years:
    Expires in:   
    2013 $3,329,175 
    2014  10,891,624 
    2015  9,092,149 
    2016  24,076,128 
    2017  37,271,739 
    2018  6,889,185 
    2019  1,876,026 
    2020  962,247 
      $94,388,273 
    11. Revenue:
    During the year ended May 31, 2012 and 2011, the Company earned revenues as follows:
      
    May 31, 2012
      May 31, 2011 
           
    Sale of finished products -  AGGRASTAT $2,881,378  $3,628,274 
    Sale of unfinished products  1,915,433   - 
      $4,796,811  $3,628,274 
    On July 6, 2011, the Company entered into an agreement with Iroko Cardio, LLC ("Iroko") to advance AGGRASTAT in each of the Company's and Iroko's respective territories. Iroko owns rights to AGGRASTAT outside of the Company's territory. Under the terms of the agreement, the Company transferred to Iroko AGGRASTAT unfinished product from inventory on hand and the rights to purchase additional quantities from a third party. In turn, Iroko paid Medicure International Inc. US$1,059,000 on July 6, 2011 and agreed to pay an additional US$850,000 on or before November 1, 2011, subject to certain conditions, which were satisfied prior to November 1, 2011 and full payment was received. The Company recognized $1,915,433 of revenue during the year ended May 31, 2012 in relation to this sale.
    In addition, Iroko made available to the Company certain analytical methods for testing of AGGRASTAT drug product and provided the Company the option, exercisable by the Company within one year, to obtain certain data used by Iroko to obtain changes to the approved use of AGGRASTAT in Europe.  If the Company exercised its option to obtain the data and was successful in getting changes to the approved use of AGGRASTAT in the United States, Iroko would have been entitled to receive a royalty of up to US$3,500,000 on future AGGRASTAT sales based on three percent of sales per year.  Management has determined the value of the option received to obtain such data used by Iroko is not significant.  Subsequent to May 31, 2012, the option to obtain the data expired without the Company exercising its rights thereunder.  As a result the Company has no ongoing or potential royalty obligation in connection with this agreement.

    124


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    10.Income taxes (continued):

    At May 31, 2011, the Company has the following available for application in future years:
  • Unutilized Canadian non-capital loss carried-forward balances for income tax purposes of $12,595,458 (2010 - $10,536,865; 2009 - $7,900,396), with expiry dates ranging from 2012 to 2031;

  • Unutilized foreign non-capital loss carried-forward balances for income tax purposes of $112,106,328 (2010 - $108,978,814; 2009 - $104,421,816), with no expiry;

  • Scientific research and development tax credits of $3,826,000 (2010 - $3,826,000; 2009 - $3,826,000), which can be applied against income taxes otherwise payable, with expiry by 2028.


    11.

    Commitments and contingencies:


    (a)

    Commitments:

    As at May 31, 2011 and in the normal course of business the Company has obligations to make future payments, representing contracts and other commitments that are known and committed.


       Purchase 
       agreement 
       commitments 
         
     Contractual obligations payment due by fiscal period ending May 31:   
     2012 759,000 
     2013 64,000 
         
     $ 823,000 

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    12. Finance Costs:
    During the year ended May 31, 2012 and 2011, the Company incurred finance costs as follows:
      
    May 31, 2012
      May 31, 2011 
           
    Interest on Birmingham long-term debt  385,663   3,122,364 
    Interest on MIOP loan  348,838   - 
    Revaluation of warrant liability  24,490   (27,374)
    Revaluation of royalty obligation  (217,973)  - 
    Other interest and banking fees  12,716   5,185 
      $553,734  $3,100,175 
    During the year ended May 31, 2012 and 2011, the Company paid finance costs as follows:
      
    May 31, 2012
      May 31, 2011 
           
    Interest paid on MIOP loan  208,562   - 
    Other interest and banking fees paid  12,716   5,185 
      $221,278  $5,185 
    13. Commitments and contingencies:
    (a)      Commitments:
    As at May 31, 2012 and in the normal course of business the Company has obligations to make future payments, representing contracts and other commitments that are known and committed.
        
      Purchase 
      agreement 
      commitments 
        
    Contractual obligations payment due by fiscal period ending May 31:   
    2013  1,467,833 
    2014  690,000 
    2015  690,000 
    2016  345,000 
         
      $3,192,833 
    The Company entered into manufacturing and supply agreements, as amended, to purchase a minimum quantity of AGGRASTAT®from a third party totaling a minimum of $823,000$2,907,000 or US$849,0002,814,000 (based on current pricing) over the term of the agreement, which expires in fiscal 2013.

    In addition, as described in note 82016.  Subsequent to May 31, 2012, the Company has entered into a debt financing agreementmade an AGGRASTAT purchase resulting in $492,000 of the contractual obligation for a US$25 million upfront cash payment. The minimum annual payments start at US$2.5 millionfiscal 2013 being paid.


    125

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in 2008Canadian dollars)

    13. Commitments and escalate to US$6.9 million in 2017 and continue until May 31, 2020. The cumulative minimum annual payments (from 2008 to 2020) under the agreement in aggregate are US$49.7 million. On July 18, 2011, the Company settled its long-term as described in Note 16.

    contingencies (continued):

    (a)      Commitments (continued):
    Effective October 1, 2009, the Company entered into a business and administration services agreement with Genesys Venture Inc. (GVI)("GVI"), a company controlled by the Chief Executive Officer (Note 12)(note 14), under which the Company committed to pay $25,000 per month or $300,000 per annum. On October 1, 2010, an amendment was made to the agreement thereby reducing the fees to $15,000 per month, or $180,000 per year effective November 1, 2010.  TheOn January 1, 2012, the Company entered into a new agreement shall be automatically renewed for succeeding terms of onewith GVI under which the Company committed to pay $15,833 per month, or $190,000 per year on terms to be mutually agreed upon by the parties. The Companyeffective January 1, 2012.  Either party may terminate this agreement at any time after June 30, 2012 upon 6090 days written notice.

    In addition to the contractual obligations disclosed above, the Company and its wholly-owned subsidiaries have ongoing research and development agreements with third parties in the ordinary course of business.

    Contracts with contract research organizations (CROs)("CROs") are payable over the terms of the trials and timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial-related activities. As at May 31, 2011,
    (b)      Guarantees:
    The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company has committed to fundcompensate the other party for certain damages and costs incurred as a further $3,000,000result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under developmentthese indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with CROs.respect to these indemnification obligations.
    (c)      Royalties:
    As a part of the Birmingham debt settlement described in note 8, beginning on July 18, 2011, the Company is obligated to pay a royalty to the previous lender based on future commercial AGGRASTAT sales until 2023.  The timingroyalty is based on four percent of expendituresthe first $2,000,000 of quarterly AGGRASTAT sales, six percent of quarterly sales between $2,000,000 and $4,000,000 and eight percent of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding quarter.  The previous lender has a one-time option to switch the royalty payment from AGGRASTAT to a royalty on MC-1 sales.  Management has determined there is no value to the option to switch the royalty.  Royalties for the year ended May 31, 2012 total $99,965 in regards to the royalty obligation (2011 - nil), with payments made in fiscal 2012 being $84,784 (2011 - nil).
    As part of the sale of unfinished product as described in note 11, if the Company exercised its option to obtain AGGRASTAT data and was successful in getting changes to the approved use of AGGRASTAT in the United States, the Company would be obligated to pay a three percent royalty of up to US$3,500,000 on future AGGRASTAT sales.  Subsequent to May 31, 2012, the option to obtain the data expired without the Company exercising its rights thereunder.  As a result the Company has no ongoing or potential royalty obligation in connection with this agreement.
    The Company is largely atobligated to pay royalties to third parties based on any future commercial sales of MC-1, aggregating up to 3.9 percent on net sales.  To date, no royalties are due and/or payable.
    (d)      Contingencies:
    In the discretionnormal course of business the Company may from time to time be subject to various claims or possible claims.  Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of these matters may change in the future.
    126

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    14. Related party transactions:
    (a) Key management personnel compensation
    Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company.  The Board of Directors, Chief Executive Offer, and President and Chief Operating Officer are key management personnel.
    In addition to their salaries, the Company also provides non-cash benefits and participation in the Stock Option Plan.  The following table details the compensation paid to key management personnel for the years ended May 31:
           
      
    2012
      2011 
           
    Salaries, fees and short-term employee benefits $380,250  $690,320 
    Share-based payments  182,713   14,615 
      $562,963  $704,935 
    The Company has $253,310 (May 31, 2011 - $307,000) recorded within accounts payable and accrued liabilities relating to amounts payable to the members of the Company's Board of Directors for services provided.
    (b) Transactions with related parties
    Directors and key management personnel control 16 percent of the voting shares of the Company as at May 31, 2012.
    During the year ended May 31, 2012, the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $184,167 (2011 - $225,000) for business administration services, $19,563 (2011 - $17,671) in rental costs and the agreements may be terminated at any time provided 30 days notice is provided.

    $46,275 (2011 - F-16-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    11.

    Commitments and contingencies (continued):

    (b)

    Guarantees:

    The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with respect to these indemnification obligations.

    (c)

    Royalties:

    The Company is obligated to pay royalties to third parties based on any future commercial sales of MC-1, aggregating up to 3.9 percent on net sales. To date, no royalties are due and/or payable.

    These royalty commitments exclude any obligations to Birmingham pursuant to the debt financing agreement (notes 8 and 16).

    (d)

    Contingencies:

    In the normal course of business the Company may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company's financial position, results of operations, or cash flows, these matters are inherently uncertain and management's view of these matters may change in the future.

    12.

    Related party transactions:

    Related parties consist of certain officers and shareholders, companies with significant influence, and companies in which certain directors, officers, or shareholders have interests. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed upon by the related parties.

    Related party transactions incurred during the years ended May 31, 2011, 2010 and 2009 are as follows:


       2011  2010  2009 
               
     Rent 17,671  45,477  69,012 
     Business and administrative services 426,000  431,000  281,000 
     Clinical research services 169,762  88,918  - 

    In accordance with the above noted contract (Note 11(a)),nil) for commercial support services.  As described in note 13, the Chief Financial Officer's services are provided through a consulting agreement with GVI.  In addition, intellectual property, accounting, payroll, human resources and information technology services are provided to the Company through the GVI agreement.

    Also, included in business and administrative service are amounts paid to the Chief Executive Officer. On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.

    Clinical research services are provided through a consulting agreement with GVI Clinical Development Solutions ("GVI CDS"), a company controlled by the Chief Executive Officer.  Pharmacovigilance and safety, regulatory support, quality control and clinical support are provided to the Company through the GVI CDS agreement.

      During the year ended May 31, 2012, the Company paid GVI CDS $146,154 (2011 - $169,762) for clinical research services.

    Research and development services are provided through a consulting agreement with CanAm Bioresearch Inc. ("CanAm"), a company controlled by a close family member of the Chief Executive Officer.  During the year ended May 31, 2012, the Company paid CanAm $254,493 (2011 - $138,817) for research and development services.  In addition, during the year ended May 31, 2011, the Company received $400,000 from CanAm relating to recoveries of amounts previously provided for.  This amount is recorded as a reduction in selling, general and administration expenses for the year ended May 31, 2011.  There were no similar recoveries during fiscal 2012.
    These transactions were in the normal course of business and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
    As of November 30, 2011, included in accounts payable and accrued liabilities is $7,862 (May 31, 2011 - $2,471) payable to GVI, $10,403 (May 31, 2011 - $11,200) payable to GVI CDS and $51,705 (May 31, 2011 - $24,043) payable to CanAm, which are unsecured and payable on demand.
    On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.  The Company may terminate this agreement at any time upon 120 days written notice.
    On July 18, 2011, the Company issued 20,000,000 common shares of the Company toin consideration for the guarantee of long-term debt by the Company's Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer for consideration relatingOfficer. These shares had a value of $371,834, net of share issue costs of $28,166 and have been recorded as deferred debt issue costs and are being amortized using the effective interest method (see note 8).
    127

    MEDICURE INC.
    Notes to the guarantee of a loan obtained subsequent toConsolidated Financial Statements
    (expressed in Canadian dollars)

    15.           Expenses by nature:
    Expenses incurred for the years ended May 31, 2012 and 2011 are as described in Note follows:
           
      
    May 31, 2012
      May 31, 2011 
           
    Personnel expenses      
    Wages and salaries $1,106,603  $1,456,888 
    Short-term benefits and insurance premiums  35,341   155,351 
    Share-based payments  224,445   77,057 
             
       1,366,389   1,689,296 
    Amortization and derecognition  1,093,560   1,179,166 
    Research and development  538,076   197,911 
    Manufacturing  130,957   - 
    Inventory material costs  227,515   380,572 
    Write-off of inventory  109,194   292,950 
    Medical affairs  38,971   150,834 
    Administration  291,175   (87,389)
    Selling and logistics  516,872   470,821 
    Professional fees  474,786   596,191 
      $4,787,495  $4,870,352 
    16.

    - F-17-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    13.

    Financial instruments:

    The Company has classified its financial instruments as follows:


       May 31, 2011  May 31, 2010 
            
     Financial assets:      
            Cash and cash equivalents (held-for-trading) 750,184  371,262 
            Accounts receivable (loans and receivables) 365,490  390,923 
            
       1,115,674  762,185 
            
     Financial liabilities:      
            Accounts payable and accrued liabilities (other financial liabilities) 1,729,517  1,320,185 
            Accrued interest on long-term debt (other financial liabilities) 7,869,577  5,469,343 
            Long-term debt (other financial liabilities) 22,468,518  24,140,199 
            
       32,067,612  30,929,727 

               Financial instruments:

    (a) Financial assets and liabilities:
    The Company has determined that the estimated fair values of its financial instruments based on appropriate valuation methodologies.  The carrying values of its short-term financialcurrent monetary assets and liabilities includingapproximate their fair values due to their relatively short periods to maturity.  The fair value of the Company's long-term debt is estimated to approximate its carrying value, based on the terms of the long-term debt, as described in note 8, and because the loan bears interest at a variable rate.  The carrying value of the royalty obligation approximates its fair value as the royalty obligation is recorded at amortized cost with the associated cash flows being revised each period.
    (b) Risks arising from financial instruments and risk management:
    The Company's activities expose it to a variety of financial risks; market risk (including foreign exchange and interest rate risks), credit risk and liquidity risk.  Risk management is the responsibility of the Company, which identifies, evaluates and, where appropriate, mitigates financial risks.
    (i)      Market risk:
    (a) Foreign exchange risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of changes in foreign exchange rates.  The Company is exposed to currency risks primarily due to its U.S dollar denominated cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximates their fair value because of the relatively short periods to maturity of these instruments. Management cannot reasonably estimate the fair value of the long term debt and the associated accrued interest on long-term debt due to the financial condition of the Company (note 1) and the underlying terms and conditions of the debt agreement (note 8). Subsequent to May 31,royalty obligation.  On July 18, 2011, the Company settled its US dollar denominated long-term debt as described in Note 16.8.  The Company has not entered into future or forward contractsany foreign exchange hedging contracts.
    128

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    16.           Financial instruments (continued):
    (c) Risks arising from financial instruments and risk management (continued):
    (i)      Market risk (continued):
    The Company is exposed to U.S. dollar currency risk through the following U.S. denominated financial assets and liabilities:
    (Expressed in USD $) 
    May 31, 2012
      May 31, 2011 
           
    Cash and cash equivalents $988,734  $694,351 
    Accounts receivable  376,796   362,235 
    Accounts payable and accrued liabilities  (700,340)  (673,066)
    Royalty obligation  (521,124)  - 
    Accrued interest on long-term debt  -   (8,123,015)
    Long term debt  -   (25,000,000)
      $144,066  $(32,739,495 
    Based on the above net exposures as at May 31, 2011.

    2012, assuming that all other variables remain constant, a five percent appreciation or deterioration of the Canadian dollar against the U.S. dollar would not have a significant impact on net income (loss) (2011 - $1,600,000).

    (b) Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.  The Company is exposed to interest rate risk arising primarily from fluctuations in interest rates on its cash and cash equivalents and long-term debt.
    An increase in interest rates of one percent during the year ended May 31, 2012, with all other variables held constant, would have increased net income by approximately $9,400 (2011 - $2,900).  An increase in the crown company borrowing rate of one percent during the year ended May 31, 2012, with all other variables held constant, would have decreased net income by approximately $ 44,000 (2011 - nil).
    (ii)      Credit risk:
    Credit risk is the risk of financial loss to the Company if a partner or counterparty to a financial instrument fails to meet its contractual obligation and arises principally from the Company’s cash and cash equivalents, and accounts receivable. The carrying amounts of the financial assets represents the maximum credit exposure.
    The Company limits its exposure to credit risk on cash and cash equivalents by placing these financial instruments with high-credit quality financial institutions.
    The Company is subject to a concentration of credit risk related to its accounts receivable as amounts are owing primarily from four customers. At May 31, 2012, the outstanding accounts receivable were within normal payment terms and the Company had recorded no allowance for doubtful accounts.
    (iii)            Liquidity risk:
    Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities and to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due and to fund future operations.
    The majority of the Company’s accounts payable and accrued liabilities are due within the current operating period.  For long-term debt repayments see note 8.
    129

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    16.           Financial instruments (continued):
    (d) Capital management:
    The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern (note 2c) and to provide capital to pursue the development and commercialization of its products.
    In the management of capital, the Company includes cash and cash equivalents, long-term debt, capital stock, stock options, warrants and contributed surplus.
    The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share and warrant issuances, granting of stock options, the issuance of debt or by undertaking other activities as deemed appropriate under the specific circumstance. The Company’s overall strategy with respect to capital risk management remains unchanged for the year ended May 31, 2012.
    17. Determination of fair values:
    A number of the Company's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities.  Fair values have been determined for measurement and/or disclosure purposes based on the following models.  When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
    (a) Intangible assets
    The fair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
    (b) Share-based payment transactions
    The fair value of the employee share options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
    (c) Warrant liability
    The warrant liability is measured by reference to the fair value of the warrants at the date at which they were granted and is subsequently revalued at each reporting date.  Estimating fair value for these warrants required determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them.

    130

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    18. Segmented information:
    The Company operates in one business segment, the biopharmaceutical industry. Substantially all of the Company’s assets and operations are located in; Canada, the United States and Barbados. During the year ended May 31, 2012, 100 percent of revenues from the sale of finished product were generated from sales of AGGRASTAT in the United States, which was to six customers. Customer A accounted for 35 percent, Customer B accounted for 28 percent, Customer C accounted for 25 percent, Customer D accounted for 11 percent and the remaining two customers accounted for one percent of revenues.  Additionally during fiscal 2012, the Company recorded a sale of unfinished product to a European pharmaceutical company as described in note 11.
    Property and equipment and intangible assets are located in the following countries:
      
    May 31, 2012
      May 31, 2011  June 1, 2010 
              
    Canada  9,256   32,218   40,871 
    Barbados  2,500,928   3,284,196   4,397,819 
    United States  21,489   28,814   44,944 
       2,531,673   3,345,228   4,483,634 
    19. Transition to IFRS:
    As stated in note 2(a), these are the Company's first consolidated financial statements prepared in accordance with IFRS.
    The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended May 31, 2012, the comparative information presented in these financial statements for the year ended May 31, 2011 and in the preparation of an opening IFRS statement of financial position at June 1, 2010 (the Company's date of transition).
    In preparing its opening IFRS statement of financial position, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian Generally Accepted Accounting Principles ("GAAP").  An explanation of how the transition from previous Canadian GAAP to IFRS has affected the Company's financial instrumentsposition, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
    (a) Transition elections
    Business combinations
    The Company has elected not to apply IFRS 3, Business Combinations, retrospectively to the acquisition of businesses as defined under IFRS 3 that occurred prior to the transition date.
    Cumulative translation adjustment exemption
    In accordance with IFRS 1, the Company has elected to deem all foreign currency translation differences that arose prior to the date of transition in respect of all foreign operations to be nil at the date of transition.
    Share-based payment transaction exemption
    IFRS 2 is effective for the Company as of June 1, 2010 and is applicable to stock options and grants that are exposed to certain financial risks, including credit risk, liquidityunvested at that date.  The transition rules in IFRS 1 and market risk.

    IFRS 2 as applied by the Company result in the following:
    ·  (a)

    Credit risk:

    Credit risk is the risk of financial lossShare options prior to the Company if a partner or counterparty to a financial instrument fails to meet its contractual obligationNovember 7, 2002 are not taken into account for IFRS 2; and arises principally from the Company's cash and cash equivalents, and accounts receivable. The carrying amounts of the financial assets represents the maximum credit exposure.

    The Company limits its exposure to credit risk on cash and cash equivalents by placing these financial instruments with high-credit quality financial institutions.

    The Company is subject to a concentration of credit risk related to its accounts receivable as amounts are owing primarily from three customers. At May 31, 2011, the outstanding accounts receivable were within normal payment terms and the Company had recorded no allowance for doubtful accounts.

    (b)

    Liquidity risk:

    Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities and to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due and to fund future operations.

    The majority of the Company's accounts payable and accrued liabilities are due within the current operating period. For long-term debt repayments see Note 8.

    On July 18, 2011, the Company settled its long-term as described in Note 16.

    - F-18-



    MEDICURE INC.·  
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011,From June 1, 2010, all share options and 2009

    13.

    Financial instruments (continued):

    (c)

    Market risk:

    Market risk is the risk that changes in market prices, such as foreign currency and interest rates, will affect the Company's earnings or the value of the financial instruments held.

    (i)

    Currency risk:

    Currency exchange rate risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of the change in foreign exchange rates. The Company is exposed to currency risks primarily due to its U.S. dollar denominated cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities accrued interest on long-term debt and long-term debt. The Company has not entered into any forward foreign exchange contracts.

    The Company is exposed to U.S. dollar currency risk through the following U.S. denominated financial assets and liabilities:


     (Expressed in USD $) May 31, 2011  May 31, 2010 
            
     Cash and cash equivalents$ 694,351 $ 256,883 
     Accounts receivable 362,235  344,406 
     Accounts payable and accrued liabilities (673,066) (972,472)
     Accrued interest on long-term debt (8,123,015) (5,227,817)
     Long term debt (25,000,000) (25,000,000)
            
      $ (32,739,495)$ (30,599,000)

    Based on the above net exposures as at May 31, 2011, assuming that all other variables remain constant, a 5 percent appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a corresponding decrease or increase of approximately $1,600,000 (May 31, 2010 - $1,600,000, May 31, 2009 - $1,500,000) in the Company's net loss.

    (ii)

    Interest rate risk:

    Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

    The Company is exposed to interest rate risk arising primarily from fluctuations in interest rates on its cash and cash equivalents.

    An increase in 100 basis points in interest rates during the year ended May 31, 2011, with all other variables held constant, would have decreased the net loss by approximately $2,900 (May 31, 2010 - $2,300, May 31, 2009 - $13,000). The Birmingham debt has been excluded due to the nature of the interestshare-based payments as described in Note 8.

    - F-19-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    14.

    Management of capital:

    The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern (note 1) and to provide capital to pursue the development and commercialization of its products.

    In the management of capital, the Company includes cash and cash equivalents, long-term debt, capital stock, stock options, warrants and contributed surplus.

    The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issuances, granting of stock options, the issue of debt or by undertaking other activities as deemed appropriate under the specific circumstance. The Company's overall strategy with respect to capital risk management remains unchanged for the year ended May 31, 2011.

    15.

    Segmented information:

    The Company operates in one business segment, the biopharmaceutical industry. Substantially all of the Company's assets and operations are located in three locations; Canada, the United States and Barbados. During the year ended May 31, 2011, 100 percent of product revenues were generated from sales of AGGRASTAT®in the United States, which was to seven customers. Customer A accounted for 32 percent, Customer B accounted for 31 percent, Customer C accounted for 26 percent, and the remaining four customers accounted for 11 percent of revenues.

    Property and equipment and intangible assets are located in the following countries:


       May 31, 2011  May 31, 2010 
            
     Canada$ 32,218 $ 40,871 
     Barbados 3,284,196  4,397,819 
     United States 32,868  44,944 

    16.

    Subsequent events:

    (a)

    Sale of inventory:

    On July 6, 2011, the Company entered into an agreement with Iroko Cardio, LLC ("Iroko") to advance AGGRASTAT®in each of Medicure and Iroko's respective territories. Iroko owns rights to AGGRASTAT®outside of the Company's territory. Under the terms of the agreement, the Company transferred to Iroko AGGRASTAT®drug substance from inventory on hand and the rights to purchase additional quantities from a third party. In turn, Iroko paid Medicure International Inc. US$1,059,000 on July 6, 2011 and will pay an additional US$850,000 on or before November 1, 2011, subject to certain conditions. In addition, Iroko made available to the Company certain analytical methods for testing of AGGRASTAT®drug product and provided the Company the option to obtain certain data used by Iroko to obtain changes to the approved use of AGGRASTAT®in Europe. If the Company exercises its option to obtain the data and is successful in getting changes to the approved use of AGGRASTAT®in the United States, Iroko will be entitled to receive a royalty of up to US$3,500,000 on future AGGRASTAT®sales based on a percentage of sales.

    - F-20-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    16.

    Subsequent events (continued):

    (b)

    Debt settlement and related transactions:

    On July 18, 2011, the Company settled the long-term debt (note 8) in exchange for; i) $4,750,000 in cash; ii) 32,640,043 common shares of the Company; and iii) a royalty on future AGGRASTAT®sales until 2023. The royalty is based on four percent of the first $2,000,000 of quarterly AGGRASTAT®sales and increases on sales exceeding that amount.

    In addition, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program, to assist in the settlement of the long-term debt. The loan bears interest annually at the crown company borrowing rate and matures on July 1, 2016. The loan is payable interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. The loan is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 20,000,000 common shares of the Company in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument (MI) 61-101. Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.

    Additionally, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually.

    (c)

    Stock options:

    On July 18, 2011, the Company issued 12,542,000 stock options to employees and consultants of the Company, including the Chief Executive Officer and Chief Operating Officer, at an exercise price of $0.10 per common share. The options vested immediately and expire after ten years.

    17.

    Reconciliation of generally accepted accounting principles:

    The Company prepares its consolidated financial statementsexpensed in accordance with Canadian GAAP, the measurement principles of which, as appliedpolicy stated in these consolidated financial statements, conform in all material respects with U.S. GAAP except as follows:

    (a)

    Intangible assets:

    Under Canadian GAAP,Note 3 to the patent costs and acquired technologies which relate to products which are subject to research and development activities and have not yet received regulatory approval are included as an asset on the balance sheet. Under U.S. GAAP, amounts paid for intangible assets used solely in research and development activities with no alternative future use should be expensed as incurred. As a result of this difference in treatment, under U.S. GAAP, certain patent costs and acquired technologies would have been recorded as a component of research and development expense in the year of incurrence.

    The effect of this difference is that for the year ended MayAugust 31, 2011 research and development expense would have increased by $42,327 (May 31, 2010 - $139,601 and May 31, 2009 - $234,990). Under U.S. GAAP, the related reduction in amortization expense is $44,741 for the year ended May 31, 2011 (May 31, 2010 - $65,153 and May 31, 2009 - $61,821). During the year ended May 31, 2011, the Company wrote-down its patent asset related to research and development activities by $280,235 (May 31, 2010 - $765,294 and May 31, 2009 - $1,755,955). This asset was expensed previously under U.S. GAAP, resulting in an adjustment to decrease net loss of $280,235 (May 31, 2010 - $765,294 and May 31, 2009 - $1,755,955).

    condensed consolidated interim financial statements.

    - F-21-

    131

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    19. Transition to IFRS (continued):
    (a) Transition elections (continued):
    Estimates
    Hindsight is not used to create or revise estimates. The estimates previously made by the Company under Canadian GAAP were not revised for application of IFRS.
    (b) Reconciliation of Deficiency as Previously Reported Under Canadian GAAP to IFRS
    As at June 1, 2010              
        CDN  Transition       
     Ref  GAAP  Adjustments  Reclasses  IFRS 
                   
    Assets              
    Current assets:              
    Cash   $371,262  $-  $-  $371,262 
    Accounts receivable    390,923   -   -   390,923 
    Inventories    550,975   -   -   550,975 
    Prepaid expenses    176,280   -   -   176,280 
    Total current assets    1,489,440   -   -   1,489,440 
                       
    Non-current assets                  
    Property and equipment    68,752   -   -   68,752 
    Intangible assets    4,414,882   -   -   4,414,882 
    Total non-current assets    4,483,634   -   -   4,483,634 
    Total assets   $5,973,074  $-  $-  $5,973,074 
                       
    Liabilities and Deficiency                  
    Current liabilities:                  
    Accounts payable and accrued liabilities1  $1,320,185  $37,971  $-  $1,358,156 
    Accrued interest on long-term debt    5,469,343   -   -   5,469,343 
    Current portion of long-term debt    24,140,199   -   -   24,140,199 
    Total current liabilities    30,929,727   37,971   -   30,967,698 
                       
    Deficiency:                  
    Share capital    116,014,623   -   -   116,014,623 
    Contributed surplus    4,044,810   -   -   4,044,810 
    Warrants1   9,065,720   (9,065,720)  -   - 
    Deficit1   (154,081,806)  9,027,749   -   (145,054,057)
    Total deficiency    (24,956,653)  (37,971)  -   (24,994,624)
    Total liabilities and deficiency   $5,973,074  $-  $-  $5,973,074 
    132


    MEDICURE INC.
    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    19. Transition to IFRS (continued):
    (b) Reconciliation of Deficiency as Previously Reported Under Canadian GAAP to IFRS (continued)
    As at May 31, 2011               
         CDN  Transition       
      Ref  GAAP  Adjustments  Reclasses  IFRS 
                    
    Assets               
    Current assets:               
    Cash    $750,184  $-  $-  $750,184 
    Accounts receivable     365,490   -   -   365,490 
    Inventories  2   460,886   (11,012)  -   449,874 
    Prepaid expenses  2   248,065   (9,603)  -   238,462 
    Total current assets      1,824,625   (20,615)  -   1,804,010 
                         
    Non-current assets                    
    Property and equipment  2   50,996   (4,054)  -   46,942 
    Intangible assets      3,298,286   -   -   3,298,286 
    Total non-current assets      3,349,282   (4,054)  -   3,345,228 
    Total assets     $5,173,907  $(24,669) $-  $5,149,238 
                         
    Liabilities and Deficiency                    
    Current liabilities:                    
    Accounts payable and accrued liabilities  1  $1,729,517  $10,597  $-  $1,740,114 
    Accrued interest on long-term debt      7,869,577   -   -   7,869,577 
    Current portion of long-term debt      22,468,518   -   -   22,468,518 
    Total current liabilities      32,067,612   10,597   -   32,078,209 
                         
    Deficiency:                    
    Share capital      116,014,623   -   -   116,014,623 
    Contributed surplus  1   8,177,365   (4,055,498)  -   4,121,867 
    Warrants  1   5,010,222   (5,010,222)  -   - 
    Accumulated other comprehensive income  2   -   (376,630)  -   (376,630)
    Deficit  1, 2   (156,095,915)  9,407,084   -   (146,688,831)
    Total deficiency      (26,893,705)  (35,266)  -   (26,928,971)
    Total liabilities and deficiency     $5,173,907  $(24,669) $-  $5,149,238 
    133


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    19. Transition to IFRS (continued):
    (b) Reconciliation of Equity as Previously Reported Under Canadian GAAP to IFRS (continued)
    1. Warrants
    IFRS requires warrants with an exercise price denominated in a currency other than the entity’s functional currency to be treated as a liability measured at fair value. Changes in fair value are to be recorded in the consolidated statement of net income (loss) and comprehensive income (loss).
    At June 1, 2010, the warrants had a fair value of $37,971, which was recorded within accounts payable and accrued liabilities.  Within equity, warrants decreased by $9,065,720, and deficit decreased by $9,027,749.
    At May 31, 2011, the warrants had a fair value of $10,597, which was recorded within accounts payable and accrued liabilities.  Within equity, warrants decreased by $5,010,222, contributed surplus decreased by $4,055,498 and deficit decreased by $9,055,123.
    2. Functional currency
    IFRS requires the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    17.

    Reconciliation of generally accepted accounting principles (continued):

    (b)

    Warrants

    On June 1, 2009, the Company adopted the currently effective provisions of the Accounting Standards Codification (ASC) 815, Derivatives and Hedging, Subtopic 40. As a result of the adoption of ASC 815, the Company reclassified its issued warrants out of equity classification to a liability classification and the warrants are marked-to-market each period with changes in fair value going through the statement of operations. The consensus is effective for fiscal years and interim periods beginning after December 15, 2008. The consensus was applied to outstanding instruments as of the beginning of the fiscal year in which the Standard was adopted as a cumulative effect adjustment to the opening balance of retained earnings for that fiscal year. The effect of this difference is that the fair value of warrants equal to $107,322 as at June 1, 2009 was classified as a liability with the related $8,958,398 adjustment to fair value on adoption recorded as a decrease to opening deficit as at that date.

    The effect of this difference is that for the year ended May 31, 2011, change in fair value of warrants would have decreased $27,374 (May 31, 2010 - $69,351 and May 31, 2009 - nil).

    (c)

    Change in accounting policies

    In December 2009, the FASB issued ASU 2009-17, "Consolidations (Topic 810), Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (formerly SFAS 167, "Amendments to FASB Interpretation No. 46(R)")," which amends the consolidation guidance for variable interest entities (VIE). The changes include the elimination of the exemption for qualifying special purpose entities and a new approach for determining who should consolidate a VIE. In addition, changes to when it is necessary to reassess who should consolidate a VIE have also been made. On June 1, 2010, the Company adopted the currently effective provisions of ASU 2009-17. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

    In January 2010, the FASB issued ASU 2010-06, "Fair Value Measurements and Disclosures (Topic 810) Improving Disclosures About Fair Value Measurements." This ASU provides further disclosure requirements for recurring and non-recurring fair value measurements. These disclosure requirements include transfers in and out of Level 1 and 2 and additional information relating to activity in Level 3 fair value measurements. The ASU also provides clarification on the level of disaggregation for disclosure of fair value measurement. The new disclosures and clarifications are effective for interim and annual periods beginning after December 15, 2009, except for disclosures about activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.

    - F-22-



    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    17.

    Reconciliation of generally accepted accounting principles (continued):


    (d)

    Summary:

    The impact of the measurement differences to U.S. GAAP on the consolidated statements of operations and deficit are as follows::


       2011  2010  2009 
               
     Loss for the period, Canadian GAAP$ (2,014,109)$ (5,532,506)$ (13,315,827)
     Adjustments for the following:         
          Intangible assets (42,387) (139,601) (234,990)
          Amortization of intangible assets 44,741  65,153  61,821 
          Impairment of intangible assets 280,235  765,294  1,755,955 
          Change in fair value of warrants 27,374  69,351  - 
               
      $ (1,704,146)$ (4,772,309)$ (11,733,041)
               
     Basic and diluted loss per share, U.S. GAAP$ (0.01)$ (0.04)$ (0.09)
     Weighted average number of common shares 130,307,552  130,307,552  130,307,552 

    The impact of fluctuations in foreign currency exchange rates relating to the measurementCompany's U.S. dollar subsidiaries and any foreign currency effects on the translation of these subsidiary's financial statements to be recorded as a separate component of equity and other comprehensive income (loss). Under Canadian GAAP, the Company treated a subsidiary as an integrated foreign operation with translation differences recorded as part of profit and loss.  The result of the transition to U.S.IFRS is as follows:

    At June 1, 2010, translation differences were insignificant and no adjustments were made.
    At May 31, 2011, translation differences resulted in a decrease in inventory by $11,012, a decrease in prepaid expenses by $9,603, a decrease in property and equipment by $4,054, cumulative translation adjustments of ($376,630) and a decrease in the deficit by $351,961.
    134

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    19. Transition to IFRS (continued):
    (c) Reconciliation of Comprehensive Income (Loss) as Previously Reported Under Canadian GAAP wouldto IFRS
    For the year ended May 31, 2011               
         CDN  Transition       
      Ref  GAAP  Adjustments  Reclasses  IFRS 
                    
    Revenue               
    Product sales, net     3,628,274   -   -   3,628,274 
                        
    Expenses:                   
    Cost of goods sold, excluding depreciation  2   673,522   -   839,725   1,513,247 
    Selling, general and administrative  2   2,818,159   -   15,058   2,833,217 
    Research and development  2   204,690   -   319,198   523,888 
    Write-down of fixed and intangible assets  2   280,235   -   (280,235)  - 
    Amortization  2   898,931   -   (898,931)  - 
    Operating loss      (1,247,263)  -   5,185   (1,242,078)
                         
    Finance expenses (income):                    
    Finance income      (473)  -   -   (473)
    Finance expense  1, 2   3,122,364   (27,374)  5,185   3,100,175 
    Foreign exchange gain, net  3   (2,355,045)  (351,961)  -   (2,707,006)
    Net finance costs      766,846   (379,335)  5,185   392,696 
                         
    Net loss for the year      (2,014,109)  379,335   -   (1,634,774)
                         
    Foreign currency translation differences                    
         for foreign operations  3   -   (376,630)  -   (376,630)
    Total comprehensive loss for the year      (2,014,109)  2,705   -   (2,011,404)
    Basic and diluted loss per share for the year      (0.02)  -   -   (0.01)
    135

    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (expressed in Canadian dollars)

    19. Transition to IFRS (continued):
    (c) Reconciliation of Comprehensive Income (Loss) as Previously Reported Under Canadian GAAP to IFRS (continued)
    1. Warrants
    IFRS requires warrants with an exercise price denominated in a currency other than the entity’s functional currency to be treated as a liability measured at fair value. Changes in fair value are to be recorded in the consolidated statement of loss and comprehensive loss.
    As a result of applying this change finance expense has decreased by $27,374 for the year ended May 31, 2011.
    2. Presentation of Statement of Loss and Comprehensive Loss
    Under Canadian GAAP, the statement of loss and comprehensive loss was presented using a combination of function and nature of expenses.  The Company has elected to present expenses in the consolidated statements of cash flow itemsloss and comprehensive loss by function under IFRS.
    For the year ended May 31, 2011, the following reclassifications were made:
    ·  
    $839,725 of amortization relating to AGGRASTAT® intangible assets was reclassified from amortization to cost of goods sold.
    ·  $38,963 of amortization relating to intangible assets was reclassified from amortization to research and development.
    ·  $20,243 of amortization relating to fixed assets was reclassified from amortization to selling, general and administration.
    ·  $280,235 of write-downs of intangible assets was reclassified from write-down of fixed and intangible assets to research and development.
    ·  $5,185 of bank charges was reclassified from selling, general and administrative to interest expense.
    3. Functional currency
    IFRS requires the impact of fluctuations in foreign currency exchange rates relating to the Company's U.S. dollar subsidiary and any foreign currency effects on the translation of this subsidiary's financial statements to be recorded as a separate component of equity and other comprehensive income (loss). Under Canadian GAAP, the Company treated this subsidiary as an integrated foreign operation with translation differences recorded as part of profit and loss.  The result of the transition to IFRS is as follows:

       2011  2010  2009 
               
     Operating activities$ 435,152 $ (1,592,410)$ (10,653,129)
     Investing activities (2,487) (2,230) (3,552)
     Financing activities -  -  - 

    For the year ended May 31, 2011, translation differences resulted in a net increase in foreign exchange gains of $351,961 and translation adjustments recorded in other comprehensive loss of ($376,630).
    (d) Reconciliation of Statement of Cash Flows as Previously Reported Under Canadian GAAP to IFRS
    There are no material differences between the statement of cashflows presented under IFRS and the statement of cash flows presented under previous Canadian GAAP.  The impact ofreconciling items between Canadian GAAP and IFRS presentation have no material effect on the measurement differences to U.S. GAAP described above would result in the consolidated balance sheet items as follows:

       May 31, 2011  May 31, 2010 
            
     Deferred debt issue expenses$ 1,751,482 $ 2,014,801 
     Long-term debt 24,220,000  26,155,000 
     Warrant liability 10,597  37,971 
     Intangible assets 3,011,909  3,845,916 
     Capital stock and contributed surplus 136,381,144  136,304,087 
     Deficit (163,571,823) (161,867,677)

    - F-23-

    cash flows generated.
    136


    MEDICURE INC.
    Notes to the Consolidated Financial Statements
    (Expressed in Canadian dollars)
    Years ended May 31, 2011, 2010 and 2009

    17.

    Reconciliation of generally accepted accounting principles (continued):

    (e)

    Recent accounting pronouncements:

    The following accounting standards were issued recently by the FASB. The Company is currently evaluating the impact of these new standards on its consolidated financial statements.

    Multiple-Deliverable Arrangements

    In October 2009, the FASB provided amendments to the criteria for separating consideration in multiple-deliverable arrangements, established a selling price hierarchy for determining the selling price of a deliverable, and eliminated the residual method of allocation of consideration by requiring that the arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. FASB also requires expanded disclosures related to multiple-deliverable revenue arrangements, including information about the significant judgments made and changes to those judgments, as well as how the application of the relative selling-price method affects the timing and amount of revenue recognition. These amendments will be effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010.

    Revenue Recognition for Research and Development Transactions

    In April 2010, the FASB published guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and non-substantive milestones that should be evaluated individually. The amendments are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.

    Stock Compensation

    In April 2010, the FASB issued ASU No. 2010-13, Stock Compensation. ASU 2010-13 amends FASB ASC Topic 718, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades-a consensus of the FASB Emerging Issues Task Force, to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after December 15, 2010. Early adoption is permitted.

    Business Combinations

    In December 2010, the FASB issued ASU No. 2010-29, Business Combinations, which amends ASC 805, Disclosure of Supplementary Pro Forma Information for Business Combinations. This amendment requires that a public corporation that enters into business combinations that are material on an individual or aggregate basis disclose certain pro forma information for the current and the immediately preceding fiscal year. This amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to such business combination or business combinations. This amendment is effective prospectively for business combinations consummated on or after the first annual reporting period beginning on or after December 15, 2010. Early application is permitted.

    Fair Value Measurements

    In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS, to provide largely identical guidance about fair value measurement and disclosure requirements for IFRS and US GAAP. These standards complete a major joint project of the FASB and International Accounting Standards Board (IASB) to improve and converge IFRS and US GAAP. The new standards do not extend the use of fair value but rather provide guidance about how fair value should be determined where it already is required or permitted under IFRS or US GAAP. This amendment is effective prospectively for interim and annual reporting periods beginning after December 15, 2011.

    - F-24-


    79

    Other Schedules

    Information required pursuant to Schedule 21.12 -04 of Regulation S-X has been disclosed on page 6.See Item 3A – Selected Financial Information.

    Information required pursuant to Schedule 21.12 -09 of Regulation S-X is not applicable.

    ITEM 18. FINANCIAL STATEMENTS

    Not applicable.

    ITEM 19. EXHIBITS


            Number         Exhibit

    1.             Articles of Incorporation and Bylaws:

    1.1           Medicure’s Articles of Incorporation dated September 15, 1997 [1];
    1.2           Lariat’s Articles of Incorporation dated June 3, 1997 [1];
    NumberExhibit
    1.Articles of Incorporation and Bylaws:
    1.1Medicure’s Articles of Incorporation dated September 15, 1997 [1];
    1.2

    Lariat’s Articles of Incorporation dated June 3, 1997 [1];

     1.3

    Medicure’s Certificate of Continuance from Manitoba to Alberta dated December 3, 1999 [1];

    1.4

    Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1];

    1.4           Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1];
     1.5

    Medicure’s Certificate of Continuance from Alberta to Canada dated February 23, 2000[1]2000 [1];

     1.6

    Amended Certificate of Continuance and Articles of Continuance dated February 20, 2003 [3];

    1.7

    Bylaws [5];

    1.8

    Bylaw No. 2 **

    1.7           Bylaws [5];
    1.8           Bylaw No. 2 **
    1.9           Bylaw No. 1A

     4.

    Material Contracts and Agreements:


     4.1

    Transfer Agency Agreement between Montreal Trust Company of Canada and the Company dated as of January 26, 2000, whereby Montreal Trust Company of Canada agreed to act as transfer agent and registrar with respect to the Shares [1];


     4.2

    Medicure International Licensing Agreement between the Company and Medicure International Inc. dated June 1, 2000, wherein the Company granted Medicure International, Inc. a license with regard to certain intellectual property [1];


     4.3

    Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. dated June 1, 2000, wherein CanAm Bioresearch Inc. agreed to conduct research and development activities for Medicure International, Inc. [1];


     4.4

    Amendment to the Consulting Services Agreement dated February 1, 2002 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [2];


     4.5

    Stock Option Plan approved February 4, 2002 [3];


     4.5

    Amendment dated March 1, 2002 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5];



    80

     4.7

    Amendment dated August 7, 2003 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [3];


     4.8

    Amendment to the Consulting Services Agreement dated October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [4];


     4.9

    Employment Agreement with Dawson Reimer dated October 1, 2001 [4];


    137

     4.10

    Amendment to Employment Agreement dated April 5, 2005 between A.D. Friesen Enterprises Ltd. and the Company [5];


     4.11

    Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Company [5];


     4.12

    Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Company [5];


     4.13

    Amendment dated July 8, 2005 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5];


     4.14

    Amendment to Employment Agreement dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Company [6];


     4.15

    Amendment to Development Agreement dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International, Inc. dated July 4, 2006 [6];


     4.16

    Amended Stock Option Plan approved October 25, 2005 [6];


     4.17

    Amendment to Employment Agreement dated October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Company [7];


     4.18

    Amended License Agreement between Medicure and the University of Manitoba dated November 24, 2006, originally dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [7];


     4.19

    Amendment to Employment Agreement dated October 1, 2007 between A.D. Friesen Enterprises Ltd. and the Company [8];


     4.20

    Amended Stock Option Plan approved October 2, 2007 as filed on October 9, 2007 Form S-8 #333-146574


     4.21

    Employment Agreement with Dwayne Henley June 10, 2008 [8]


     4.22

    Debt financing agreement between Birmingham Associates Ltd. and the Company dated September 17, 2007 [8].


     4.23

    Business and administration services agreement between Genesys Venture Inc. and the Company dated October 1, 2010.



    81

     4.24

    Master services agreement between GVI Clinical Development Solutions Inc. and the Company dated June 9, 2009.


     4.25

    Debt settlement agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011.


     4.26

    Royalty and guarantee agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011.


    138

     4.27

    Business and administration services agreement between Genesys Venture Inc. and the Company dated January 1, 2012.

     11.

    Code of Ethics [4].


     12.1

    12.1

    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.


     12.2

    12.2

    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.


     13.1

    13.1

    Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **.

    [1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001.

    [2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002.

    [3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003.

    [4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004.

    [5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 19, 2005.

    [6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 10, 2006.

    [7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 22, 2007.

    [8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2008.

    [9] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 2, 2009.

    [10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2010.

    23.1

    Consent of Independent Registered Pubic Accounting Firm **


    [1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001.

    [2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002.

    [3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003.

    [4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004.

    [5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 19, 2005.

    [6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 10, 2006.

    [7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 22, 2007.

    [8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2008.

    [9] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 2, 2009.

    [10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2010.

    [11] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2011.


    23.1           Consent of Independent Registered Pubic Accounting Firm **

    ** Filed Herewith

    139

    82

    SIGNATURE PAGE



    Pursuant to the requirements of Section 12 of theSecurities Exchange Act of 1934,the Company certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual reportAnnual Report to be signed on its behalf by the undersigned, thereunto duly authorized.



    Dated: September 28, 2011

    17, 2012



    ON BEHALF OF THE CORPORATION,
    MEDICURE INC.


    per:


    /s/ Albert Friesen

    Albert D. Friesen, Ph.D.
    Chairman, & CEO






    140


    EXHIBIT 12.1 – CERTIFICATION OF CEO PURSUANT TO SECTION 302
    141

    CERTIFICATION

    I, Albert D. Friesen, certify that:

         1. I have reviewed this Annual Report on Form 20-F of Medicure Inc.;

         2. Based on my knowledge, this 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 report;

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

         4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-(15)(f)) for the company and have:

    (a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

    (b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

    (c)  Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

    (d)  Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

         5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

    (a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and

    (b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.


    Date:  September 17, 2012                                                                /s/ Albert Friesen
    -----------------------------------
    Chief Executive Officer
    (Principal Executive Officer)

    142



    EXHIBIT 12.2 – CERTIFICATION OF CFO PURSUANT TO SECTION 302
    143

    CERTIFICATION

    I, James F. Kinley, certify that:

         1. I have reviewed this Annual Report on Form 20-F of Medicure Inc.;

         2. Based on my knowledge, this 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 report;

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

         4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-(15)(f)) for the company and have:

    (e)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

    (f)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

    (g)  Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

    (h)  Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

         5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

    (c)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and

    (d)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.


    Date:  September 17, 2012                                                                /s/ James Kinley
    -----------------------------------
    Chief Financial Officer
    (Principal Financial Officer)

    144

    EXHIBIT 13.1 – CERTIFICATION OF CEO AND CFO


    145


    CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND
    PRINCIPAL FINANCIAL OFFICER
    PURSUANT TO 18 U.S.C. SECTION 1350,
    AS ADOPTED PURSUANT TO
    SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

    Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Medicure Inc. (the  “Company”), does hereby certify with respect to the Annual Report of the Company on Form 20-F for the year ended May 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Form 20-F”), that, to the best of his knowledge:

         (1) the Form 20-F fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2) the information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

    Date:  September 17, 2012                                                                /s/ Albert Friesen
    ----------------------------------------------------
    Albert D. Friesen Ph D., Chief Executive Officer
    (Principal Executive Officer)


    Date:  September 17, 2012                                                                /s/ James Kinley
    ----------------------------------------------------
    James F. Kinley CA, Chief Financial Officer
    (Principal Financial Officer)
    A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


    146




    EXHIBIT 23.1 – CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


    147

    Consent of Independent Registered Public Accounting Firm

    The Board of Directors
    Medicure Inc.

    We consent to the incorporation by reference in the registration statement (File No. 333- 146574)  on Form S-8 of Medicure Inc., of our report dated September 14, 2012, with respect to the consolidated statements of financial position of Medicure Inc. as of May 31, 2012 and 2011 and June 1, 2010, and the related consolidated statements of net income (loss) and comprehensive income (loss), changes in deficiency and cash flows for each of the years in the two-year period ended May 31, 2012 which report appears in the May 31, 2012 Annual Report on Form 20-F of Medicure Inc.

    Our report dated September 14,  2012 contains an explanatory paragraph that states that the Company has experienced operating losses and has accumulated a deficit of $123,303,052 that raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


    /s/ KPMG LLP
    Chartered Accountants

    September 17, 2012
    Winnipeg, Canada
    148