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1

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934or [X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the fiscal year ended: May 31, 2006or[ 
 ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934or 
  [   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-31092

MEDICURE INC.(Exact name
of registrant as specified in its charter)

Canada(Jurisdiction of incorporation or
organization)

4 - 1200 Waverley Street, Winnipeg, Manitoba, Canada R3T
0P4(Address of principal executive offices)

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, 2006 the registrant had 96,046,465 common
shares issued and outstanding

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

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

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2

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.**Yes******X**No  ______**

Indicate by check mark whether 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**X   
**Non-Accelerated Filer ______**

Indicate by check mark which financial statement item the
registrant has elected to follow:**Item
17**X     
**Item 18   No  ______**

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).**Yes  ______  No**X

As of May 31, 2006, the rate for Canadian dollars was US $0.9079
for Cdn $1.00.

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3

TABLE OF CONTENTS

|**GLOSSARY**                                                             | 5                                                         
|------------------------------------------------------------------------ | ----------------------------------------------------------
|**FORWARD LOOKING STATEMENTS**                                           | 6                                                         
|**PART
      I**                                                         | 6                                                         
|**ITEM 1 - IDENTITY OF
      DIRECTORS, SENIOR MANAGEMENT AND ADVISERS** | 6                                                         
|A.                                                                       | Directors and Senior Management                           
|B.                                                                       | Advisers                                                  
|C.                                                                       | Auditors                                                  
|**ITEM 2 - OFFER STATISTICS
      AND EXPECTED TIMETABLE**               | 6                                                         
|**ITEM 3 - KEY INFORMATION**                                             | 6                                                         
|A.                                                                       | Selected Financial Data                                   
|B.                                                                       | Capitalization and Indebtedness                           
|C.                                                                       | Reasons for the Offer and Use of Proceeds                 
|D.                                                                       | Risk Factors                                              
|**ITEM 4 - INFORMATION
      ON THE COMPANY**                            | 19                                                        
|A.                                                                       | History and Development
      of the Company              
|B.                                                                       | Business Overview                                         
|C.                                                                       | Organizational Structure                                  
|D.                                                                       | Property, Plants and Equipment                            
|**ITEM 4A - UNRESOLVED STAFF COMMENTS**                                  | 30                                                        
|**ITEM 5 - OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS**          | 30                                                        
|A.                                                                       | Operating Results                                         
|B.                                                                       | Liquidity and Capital Resources                           
|C.                                                                       | Research and Development,
      Patents and Licenses, etc.
|D.                                                                       | Trend Information                                         
|E.                                                                       | Off-balance Sheet Arrangements                            
|F.                                                                       | Contractual Obligations                                   
|**ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**                  | 41                                                        
|A.                                                                       | Directors and Senior Management                           
|B.                                                                       | Compensation                                              
|C.                                                                       | Board Practises.                                          
|D.                                                                       | Employees                                                 
|E.                                                                       | Share Ownership                                           
|**ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**           | 55                                                        
|A.                                                                       | Major Shareholders                                        
|B.                                                                       | Related Party Transactions                                
|C.                                                                       | Interests of Experts and Counsel                          
|**ITEM 8 - FINANCIAL INFORMATION**                                       | 56                                                        
|A.                                                                       | Consolidated Statements and Other Financial Information   
|B.                                                                       | Significant Changes                                       
|**ITEM 9 - THE OFFERING AND LISTING**                                    | 57                                                        
|A.                                                                       | Offer and Listing Details                                 
|B.                                                                       | Markets                                                   
|**ITEM 10 - ADDITIONAL INFORMATION**                                     | 58                                                        
|A.                                                                       | Share Capital                                             
|B.                                                                       | Memorandum and Articles of Association                    
|C.                                                                       | Material Contracts                                        
|D.                                                                       | Exchange Controls                                         
|E.                                                                       | Taxation                                                  
|F.                                                                       | Dividends and Paying Agents                               
|G.                                                                       | Statement by Experts                                      
|H.                                                                       | Documents on Display                                      
|I.                                                                       | Subsidiary Information                                    

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4

|**ITEM 11 -
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET** RISK                        | 72
|----------------------------------------------------------------------------------------------------- | --
|ITEM 12 - DESCRIPTION OF SECURITIES
      OTHER THAN EQUITY SECURITIES                                | 73
|PART II                                                                                               | 73
|ITEM 13 - DEFAULTS, DIVIDEND
      ARREARAGES AND DELINQUENCIES                                       | 73
|**ITEM 14 -
      MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS** AND
      USE OF PROCEED | 73
|ITEM 15 - CONTROLS AND PROCEDURES                                                                     | 73
|ITEM 16 -
      RESERVED                                                                              | 73
|ITEM 16A. AUDIT COMMITTEE FINANCIAL
      EXPERT                                                      | 73
|ITEM 16B. CODE OF
      ETHICS                                                                        | 74
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES
      AND SERVICES                                                | 74
|**ITEM 16D.
      EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT**
      **COMMITTEES**              | 74
|**ITEM 16E. PURCHASES OF EQUITY
      SECURITIES BY THE ISSUER AND AFFILIATED**
      **PURCHASERS**  | 74
|PART III                                                                                              | 75
|ITEM 17 - FINANCIAL STATEMENTS                                                                        | 75
|ITEM 18 - FINANCIAL
      STATEMENTS                                                                  | 97
|ITEM 19 - EXHIBITS                                                                                    | 97

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5

GLOSSARY OF TERMS

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

"angina"means chest pain;

"angioplasty"means the surgical repair of a blood
vessel;

"anti-hypertensive"means blood pressure reducing;

"arrhythmia" means irregular heart rhythm;

"bioavailabilitymeans the degree to which a drug or
other substance becomes available to the target in the body after
administration;

"Computer Aided Drug Design" means a method for design
of new therapeutic molecules using computer generated models of the drug and its
molecular target;

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

"GCP"means Good Clinical Practices;

"GLP"means Good Laboratory Practice;

"GMP" means Good Manufacturing Practice;

"IND" means Investigative New Drug application to a
regulatory authority for first human testing of a new drug;

"in-vitro" means test tube;

"in-vivo" means live animal;

"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;

"NDS" means New Drug Submission, which is a request made
to the HPB for commencement of product sales and marketing;

"NSAID" means non-steroidal anti-inflammatory drugs;

"pharmacodynamics" means the fundamental processes
through which a drug(s) exerts its effects on living organisms;

"pharmacokinetics" means the uptake, biotransformation,
distribution, metabolism and elimination of a drug(s) by the body, including
both total amounts and tissue and organ concentrations;

"reperfusion" means the resumption of blood flow;

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

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6

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
Corporations actual results 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
Corporation. For this purpose, any statements contained in the annual report
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
may, except, believe, anticipate, intend, could, estimate, or
continue, or the negative or other variations of comparable terminology, are
intended to identify forward-looking statements.

As used in this annual report, the Corporation or Company
refers to Medicure Inc., the company resulting from the amalgamation of
Medicure Inc. and Lariat Capital Inc., Medicure refers to Medicure Inc.
prior to its amalgamation with Lariat Capital Inc. and Lariat refers to Lariat
Capital Inc. prior to its amalgamation with Medicure Inc. Unless otherwise
indicated, all references to dollar amounts in this annual report are to
Canadian dollars.

Additional information about the Corporation may be found at
www.sedar.com.

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 Corporation as at May 31,
2006 and 2005 and for the fiscal years ended May 31, 2006, and 2005 and 2004 was
extracted from the audited consolidated financial statements of the Corporation
included in this annual 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 17
- 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. The selected financial data as at May 31, 2004,
2003 and 2002 and for the fiscal years ended May 31, 2003 and 2002 was extracted
from the audited financial statements of the Corporation not included in this
annual report. Reference is made to Note 10 of the consolidated financial
statements of the Corporation included herein for a discussion of the material
measurement differences between Canadian GAAP and U.S. GAAP, and their effect on
the Corporations financial statements. Except where otherwise indicated, all
amounts are presented in accordance with Canadian GAAP.

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7

To date, the Corporation has not generated sufficient cash flow
from operations to fund ongoing operational requirements and cash commitments.
The Corporation has financed its operations principally through the sale of its
equity securities. While the Corporation believes it has sufficient capital and
liquidity to finance current operations, nevertheless, its ability to continue
operations is dependent on the ability of the Corporation to obtain additional
financing. See Item 3 - Key Information - D. Risk Factors. Based on the
Corporations current plans, the Corporations available working capital will be
sufficient into the first quarter of fiscal 2008.

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

Balance Sheet
    
    May 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,Data
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(as at period
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $end)Current Assets
    
    35,841,573
    
    
    8,658,888
    
    
    21,342,820
    
    
    4,465,048
    
    
    8,783,318Capital Assets
    
    50,663
    
    
    81,002
    
    
    66,202
    
    
    67,497
    
    
    84,571Intangible Assets
    
    2,921,841
    
    
    1,332,969
    
    
    976,690
    
    
    763,464
    
    
    508,902Total Assets
    
    38,814,077
    
    
    10,072,859
    
    
    22,385,712
    
    
    5,296,009
    
    
    9,376,791Total Liabilities
    
    1,644,339
    
    
    2,732,754
    
    
    817,575
    
    
    353,908
    
    
    389,663Net Assets
    
    37,169,738
    
    
    7,340,105
    
    
    21,568,137
    
    
    4,942,101
    
    
    8,987,128Capital Stock and
    
    83,297,304
    
    
    40,860,597
    
    
    40,222,719
    
    
    17,607,597
    
    
    17,458,936ContributedSurplusDeficitAccumulatedDuring theDevelopment Stage
    
    (46,127,566
    )
    
    (33,520,492
    )
    
    (18,654,582
    )
    
    (12,665,496
    )
    
    (8,471,808
    )Statement ofOperations(for the fiscal yearended on)Gross Revenue
    
    299,737
    
    
    394,784
    
    
    445,461
    
    
    241,281
    
    
    183,912Loss fromContinuingOperations
    
    (12,607,074
    )
    
    (14,865,910
    )
    
    (5,989,086
    )
    
    (4,193,688
    )
    
    (3,875,087
    )Net Loss for the
    
    (12,607,074
    )
    
    (14,865,910
    )
    
    (5,989,086
    )
    
    (4,193,688
    )
    
    (3,875,087
    )PeriodBasic and Diluted
    
    (0.17
    )
    
    (0.22
    )
    
    (0.11
    )
    
    (0.11
    )
    
    (0.14
    )Loss per ShareWeighted-AverageNumber ofCommon Shares
    
    75,144,764
    
    
    66,717,715
    
    
    55,738,716
    
    
    37,118,889
    
    
    27,900,412Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )


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

Balance Sheet Data
    
      May 31,
    
    
      May 31,
    
    
      May 31,
    
    
      May 31,
    
    
      May 31,2006
    
    
      2005
    
    
      2004
    
    
      2003
    
    
      2002(as at Period end)
    
      $
    
    
      $
    
    
      $
    
    
      $
    
    
      $Current Assets
    
      35,841,573
    
    
      8,658,888
    
    
      21,342,820
    
    
      4,465,048
    
    
      8,783,318Capital Assets
    
      50,663
    
    
      60,859
    
    
      41,472
    
    
      37,050
    
    
      47,087Intangible Assets
    
      -
    
    
      -
    
    
      -
    
    
      -
    
    
      -Total Assets
    
      35,892,236
    
    
      8,719,747
    
    
      21,384,292
    
    
      4,502,098
    
    
      8,830,405Total Liabilities
    
      1,644,339
    
    
      2,732,754
    
    
      817,575
    
    
      353,908
    
    
      389,663


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8

Net Assets
    
      34,247,897
    
    
      5,986,993
    
    
      20,566,717
    
    
      4,148,190
    
    
      8,440,742Capital Stock and
    
      99,542,138
    
    
      57,105,431
    
    
      56,459,161
    
    
      33,818,449
    
    
      32,855,388Contributed SurplusDeficit AccumulatedDuring theDevelopment Stage
    
      (65,294,241
    )
    
      (51,118,438
    )
    
      (35,892,444
    )
    
      (29,670,259
    )
    
      (24,414,646
    )Statement ofOperationsGross Revenue
    
      299,737
    
    
      394,784
    
    
      445,461
    
    
      241,281
    
    
      183,912Loss from ContinuingOperations
    
      (14,175,800
    )
    
      (15,225,994
    )
    
      (6,222,185
    )
    
      (5,255,613
    )
    
      (4,319,237
    )Net Loss for the
    
      (14,175,800
    )
    
      (15,225,994
    )
    
      (6,222,185
    )
    
      (5,255,613
    )
    
      (4,319,237
    )PeriodBasic and Diluted
    
      (0.19
    )
    
      (0.23
    )
    
      (0.11
    )
    
      (0.14
    )
    
      (0.15
    )Loss per ShareWeighted-AverageNumber ofCommon Shares
    
      75,144,764
    
    
      66,717,715
    
    
      55,738,716
    
    
      37,118,889
    
    
      27,900,412Outstanding
    
      
    
    
      
    
    
      
    
    
      
    
    
      (1
    )


Note 1: Includes 1,280,000 Class A common shares outstanding.
On March 1, 2003 all of the Corporations issued and outstanding Class A common
shares  totalling 1,280,000 shares  were converted into common shares of the
Corporation on the basis of one common share for each Class A common shares in
accordance with the Corporations Articles of Continuance. Prior to the
conversion, the Class A common shares were identical in all respects to the
common shares, except that the holders were eligible for the Manitoba Equity Tax
Credit until February 28, 2003.

Comparability of Data

On November 22, 1999, Lariat acquired all of the issued and
outstanding common shares of Medicure in consideration for the issuance of
9,500,000 common shares of Lariat. As control of Lariat passed to the former
shareholders of Medicure resulting in a reverse acquisition, Medicure is deemed
to be the acquirer for accounting purposes. Accordingly, the net assets of
Medicure are included in the balance sheet at their book values and the deemed
acquisition of Lariat is accounted for by the purchase method with the net
assets of Lariat recorded at their fair value at the date of acquisition.

The selected financial data for the fiscal years ended May 31,
2006, 2005, 2004, 2003 and 2002 includes the operations of Medicure
International Inc., a Barbados corporation (Medicure International),
commencing June 1, 2000. The selected financial data for the year ended May 31,
2002 includes the operations of Medicure commencing September 1, 1999 combined
with the activities of Lariat beginning on November 22, 1999, the effective date
of the reverse takeover.

Dividends

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

Exchange Rates

Unless otherwise indicated, all reference to dollar amounts are
to Canadian dollars. The following table sets out the exchange rates for one
Canadian dollar expressed in terms of one U.S. dollar for the periods indicated.
Rates of exchange are obtained from the Bank of Canada and believed by 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.

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9

May 31, 2006
    May 31, 2005
    May 31, 2004
    May 31, 2003
    May 31, 2002Period End
    0.9079
    0.7967
    0.7335
    0.7307
    0.6545Average
    0.8588
    0.7978
    0.7453
    0.6569
    0.6380


June
    May
    April
    March
    February
    January2006
    2006
    2006
    2006
    2006
    2006High forMonth(1)
    0.9122
    0.9134
    0.8959
    0.8850
    0.8809
    0.8794Low forMonth(1)
    0.8857
    0.8869
    0.8496
    0.8513
    0.8610
    0.8479


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

As of June 30, 2006, the exchange rate to convert one Canadian
dollar into the U.S. dollar was 0.8959.

B. Capitalization and Indebtedness

Not applicable

C. Reasons for the Offer and Use of Proceeds

Not applicable

D. Risk Factors

The Corporations business entails significant risks. In
addition to the usual risks associated with a business, the following is a
general description of certain significant risk factors which are applicable to
the Corporation.

We are a development stage company and we expect to continue
to incur substantial losses and may never achieve profitability, which in turn
may harm our future operating performance and may cause the market price of our
stock to decline.

With the exception of Aggrastat® (see Item 4(B)), the
Corporation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 Corporation has incurred net losses every year since
inception in 1997 and as of May 31, 2006, had an accumulated deficit of
$46,127,566. The Corporation incurred net losses of $12,607,074 for the year
ended May 31, 2006, $14,865,910 for the year ended May 31, 2005, $5,989,086 for
the year ended May 31, 2004, $4,193,688 for the year ended May 31, 2003 and
$3,875,087 for the year ended May 31, 2002. The Corporation anticipates that its
losses will not only continue for the foreseeable future but will increase
significantly principally from expenditures relating to its research and
development efforts and clinical trials. The long-term profitability of the
Corporations operations is uncertain, and may never occur, and will be directly
related to the success of its research and development activities which depend
on numerous factors, including the following:

|a) | the success of the Corporations research and development
      activities, including the Corporations drug discovery, preclinical and
      clinical development programs;                
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b) | obtaining Canadian and United States regulatory approvals
      to market MC-1 and MC-4232, the Corporations lead products;                                                                
|c) | the ability to contract for the manufacture of the
      Corporations products according to schedule and within budget, given that
      it has no experience in large scale
manufacturing;

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10

|d) | the ability to successfully prosecute and defend our
      patents and other intellectual property further to an overall commercially
      viable patent and intellectual property strategy; and                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|e) | the ability to successfully market the Corporations
      products including the Corporations launch of Aggrastat® Injection
      (tirofiban hydrochloride), given that it has no experience in
      marketing;

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

The Corporation may never receive regulatory approval in
Canada, the United States or abroad for any of our products developed.
Therefore, the Corporation may not be able to sell any therapeutic products
developed.

The Corporations failure to obtain necessary regulatory
approvals to fully market our current and future therapeutic products in one or
more significant markets may adversely affect our business, financial condition
and results of operations. The procedure 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 Corporations
products are currently in the research and development stages (see Item 4(B)).
The Corporation may never have another commercially viable drug product approved
for marketing. To obtain regulatory approvals for the Corporations products and
to achieve commercial success, human clinical trials must demonstrate that the
products are safe for human use and that they show efficacy. Even the
Corporations most clinically advanced product, MC-1, has not entered critical
Phase III clinical trials. Unsatisfactory results obtained from a particular
study or clinical trial relating to one or more of the Corporations products
may cause the Corporation to reduce or abandon its commitment to that
program.

If the Corporation fails to successfully complete its clinical
trials, the Corporation will not obtain approval from the Canadian Therapeutic
Products Directorate, formerly the Canadian Health Protection Branch (TPD), or
from the U.S. Food and Drug Administration (FDA), to market our leading
product, MC-1 or our second clinical candidate, MC-4232. Regulatory approvals
also may be subject to conditions that could limit the market for MC-1 or
MC-4232 or make either product or both products more difficult or expensive to
sell than anticipated. Also, regulatory approvals may be revoked at any time,
including the Corporations failure to comply with regulatory requirements or
poor performance of MC-1 or MC-4232 in terms of safety and effectiveness.

The Corporations business, financial condition and results of
operations may be adversely affected if the Corporation fails to obtain
regulatory approvals in Canada, the United States and abroad to market and sell
MC-1 or MC-4232 or any current or future drug products, including any
limitations imposed on the marketing of such products.

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

The Corporation has a contract with CanAm Bioresearch Inc.
(CanAm) and Clinical Development Research Institute Inc. (CDRI) to perform
for it a significant amount of our research and development activities. Because
of the specialized scientific nature of the Corporations business, the loss of
services of CanAm or CDRI may require the Corporation to attract and retain
replacement qualified scientific, technical and management personnel.
Competition in the biotechnology industry for such personnel is intense and the
Corporation may not be able to hire or retain a sufficient number of qualified
personnel, which may compromise the pace and success of the Corporations
research and development activities.

Also, certain of the Corporations management personnel are
officers and/or directors of other companies, some publicly-traded, and will
only devote part of their time to the Corporation. The Corporation does not have
key person insurance in effect in the event of a loss of any management,
scientific or other key personnel. The loss of any such personnel could pose
serious challenges for the Corporation.

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11

The Corporation faces substantial technological competition
from many biotechnology 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 Corporation 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
Corporation. Small companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
biotechnology companies. Developments by other companies may adversely affect
the competitiveness of the Corporations products or technologies or the
commitment of the Corporations 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 Corporations competitors may use different technologies or
approaches to develop products similar to the products which the Corporation 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 Corporation obtains approval of its products. The Corporation may not be
able to successfully compete with its competitors or their products and, if the
Corporation is unable to do so, its business, financial condition and results of
operations may suffer.

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

The success of the Corporation 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
clinical and preclinical products. These relationships will be crucial to the
Corporations intention to license to or contract with larger, international
pharmaceutical companies the manufacturing, marketing, sales and distribution of
any products it may commercialize for production. To date, the Corporation has
not entered into any such arrangements and may never be able to establish such
arrangements on favourable terms. 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 with respect to
certain products may negatively impact the Corporation's ability to
commercialize those products and adversely affect the Corporations business,
financial condition and results of operations.

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

The Corporation may fail to obtain acceptable prices or
appropriate reimbursement for its products and the Corporations 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, drug companies, medical supply companies,
and companies, such as the Corporation, that plan to offer various products in
the United States and other countries in the future. The Corporation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 Corporations ability to have its
products and related treatments and therapies eligible for Medicare or private
insurance reimbursement will be 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

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12

the Corporations products and related treatments, the
Corporations ability to commercialize its products would be adversely affected.
There can be no assurance that the Corporation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 payors are
increasingly challenging the price of medical products and services.

If purchasers or users of the Corporation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 Corporations products and related treatments are approved for
reimbursement by Medicare and private insurers, of which there can be no
assurance, the amount of reimbursement may be reduced at times, or even
eliminated. This would have a material adverse effect on the Corporations
business, financial condition, and results of operations.

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.

Substantial cash payments may be required under the terms of
our borrowings upon an event of default or change of control. Such cash payments
may leave us with little or no working capital in our business or make us
insolvent.

In August, 2006, we entered into a term loan financing facility
totalling approximately US$15.84 million with a syndicate of lenders, led by
Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services
Inc., and including Silicon Valley Bank and Oxford Finance Corporation (the
Credit Facility). Under the Credit Facility, our lenders may require that the
principal amount of the Credit Facility or that all or a portion of such
principal amount be repaid in cash upon the occurrence of various events of
default (subject to certain cure periods), including but not limited to:

- the failure to pay principal, fees and/or interest due under the Credit
  Facility;
- the suspension of our common shares from trading on the TSX and Amex;
- the issuance of any judgments or orders against us for the payment of money
  (not paid or fully covered by insurance) in an aggregate amount in excess of
  US$375,000;
- any material default under any indebtedness of ours in an aggregate
  principal exceeding US$375,000;
- any breach of any term of the credit and security agreement under which the
  Credit Facility was extended;
- a default under any guarantee of the Credit Facility;
- an unpermitted payment by any obligor under the Credit Facility on account
  of any debt that has been subordinated to the Credit Facility;
- the occurrence of any fact, event or circumstance that could reasonably be
  expected to result in a material adverse effect; and
- breach of certain financial covenants (including a requirement that a
  minimum additional working capital is required to be raised by the Corporation
  by March 31, 2007 through a collaborative partnership or equity issuance),
  including financial covenants the lenders deem the Corporation likely to fail
  under the Credit Facility for the next succeeding financial reporting period.

Upon the occurrence and during the continuance of an event of
default, the interest rate on the Credit Facility will be increased by 1.5% .
The lenders under the Credit Facility may also require all or a portion

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13

of the Credit Facility be redeemed in cash upon a change of
control. We have not established a sinking fund for payment of the Credit
Facility, nor do we anticipate doing so.

Our substantial debt could impair our financial condition.
We are highly leveraged and have substantial debt service obligations.

As of August 10, 2006, we had approximately US$15.84 million of
principal indebtedness outstanding under the Credit Facility that bears interest
at a floating rate. This substantial indebtedness could have important
consequences for us. For example, it could:

- increase our vulnerability to general adverse economic and industry
  conditions;
- impair our ability to obtain additional financing in the future for working
  capital needs, capital expenditures or general corporate purposes;
- require us to dedicate a significant portion of our existing cash and
  proceeds from any future financing transactions to the payment of principal
  and interest on our debt, which would reduce the funds available for our
  operations;
- limit our flexibility in planning for, or reacting to, changes in the
  business and the industry in which we operate; and
- place us at a competitive disadvantage compared to our competitors that
  have less debt.

Despite current indebtedness levels and the terms of the
Credit Facility, we may still be able to incur substantially more debt. This
could further exacerbate the risks associated with our substantial
leverage.

Despite current indebtedness levels and the terms of the Credit
Facility, we may still be able to incur substantial additional indebtedness in
the future. Under the Credit Facility, we are permitted to incur, among other
types of indebtedness, indebtedness that is subordinate to the Credit Facility.
If new debt is added to our current debt levels, the related risks that we now
face could increase.

The Corporation does not have manufacturing or marketing
experience and may never be able to successfully manufacture or market its
products.

The Corporation has no experience in large-scale manufacturing
and in marketing its products and may never be able to successfully manufacture
and market its products. If the TPD or FDA approves MC-1, MC-4232 or any other
of the Corporations products, it intends to contract with and rely on third
parties to manufacture, market and sell its products. Accordingly, the quality,
timing and ultimately the commercial success of such products may be outside the
Corporations control. Failure of or delay by a third party manufacturer of the
Corporations products to comply with good manufacturing practices or similar
quality control regulations or satisfy regulatory inspections may have a
material adverse effect on the Corporations future prospects. Failure of or
delay by a third party in the marketing or selling of the Corporations products
likewise may have a material adverse effect on the Corporations future
prospects.

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

The sale and use of products under development by the
Corporation, and the conduct of clinical studies involving human subjects, may
entail product and professional liability risks, which are inherent in the
testing, production, marketing and sale of new drugs to humans. While the
Corporation has taken, and will continue to take, what it believes are
appropriate precautions, there can be no assurance that the Corporation will
avoid significant liability exposure. Although the Corporation 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 Corporation. The
obligation to pay any product liability

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14

claim or recall a product may have a material adverse effect on
the business, financial condition and future prospects of the Corporation. In
addition, even if a product liability claim is not successful, adverse publicity
and time and expense of defending such a claim may significantly interfere with
the Corporations business.

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

The success of the Corporation will depend partly on its
ability to obtain and protect its patents and protect its proprietary rights in
unpatented trade secrets.

The Corporation owns or jointly owns 18 United States patents
as at May 31, 2006. The Corporation has additional pending United States patent
applications. The Corporation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 Corporation in the future may not be
patentable.

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 Corporation 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 Corporations patents.
Litigation may be commenced by the Corporation to prevent infringement of its
patents. Litigation may also commence against the Corporation to challenge the
Corporations 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 Corporation'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 Corporation may be significant
in which case the Corporations 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.

Disclosure and use of the Corporation'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
Corporation with adequate protection if they are not honoured, others
independently develop equivalent technology, disputes arise concerning the
ownership of intellectual property or the Corporation's 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
Corporation, disputes may also arise as to the rights to related or resulting
know-how or inventions.

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

The success of the Corporation will depend partly on its
ability to operate without infringing upon the patents and other proprietary
rights of third parties. The Corporation is not currently aware that any of its
products or processes infringe the proprietary rights of third parties. However,
despite the best efforts of the Corporation, it 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 Corporations financial condition and
results of operations, even if the Corporation prevails. If it does not prevail,
the Corporation may be required to stop the infringing activity or enter into a
royalty or licensing agreement, in addition to any damages the Corporation may
have to pay. The Corporation may not be able to obtain such a license or the
terms of the royalty or license may be burdensome for the Corporation, which may
significantly impair the Corporations ability to market its products and
adversely affect its business, financial condition and results of
operations.

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

Biotechnology, medical device, and pharmaceutical companies
operate in a high-risk regulatory environment. The TPD, FDA, and other 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 Corporation is or may become subject to various federal,
provincial, state and local laws, regulations and recommendations. The
Corporation 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 Corporation fails to comply with these
regulations, the Corporation may be fined or suffer other consequences that
could materially affect its business, financial condition or results of
operations.

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

The Corporation does not currently have the required clinical
data and results to successfully market its clinical and preclinical product
candidates in any jurisdiction; future clinical or preclinical results may be
negative or insufficient to allow the Corporation to successfully market any of
its product candidates; and obtaining needed data and results may take longer
than planned, and may not be obtained at all.

Even if the Corporations product candidates are approved for
sale, they may not be successful in the marketplace. Market acceptance of any of
the Corporations products will depend on a number of factors, including
demonstration of clinical effectiveness and safety; the potential advantages of
its 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 Corporations products, even if they prove to be safe and effective
and are approved for marketing by the TPD, the FDA and other regulatory
authorities. The Corporation estimates that it may take up to three years or
longer before our initial products may be sold commercially. If the
Corporations products do not gain market acceptance among physicians, patients,
and others in the medical community, the Corporations ability to generate
significant revenues from its products would be limited.

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

The Corporation sets goals for and make public statements
regarding timing of the accomplishment of objectives material to its success,
such as the commencement and completion of clinical trials, anticipated
regulatory approval dates, and time of product launch. The actual timing of
these events can vary dramatically due to factors such as delays or failures in
the Corporation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 Corporation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 our products. If the Corporation 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 the
Corporations common shares could decline.

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

Although the Corporation does not currently manufacture
commercial quantities of its products, we produce limited quantities of such
products for the Corporations clinical trials. The Corporations research and
development processes involve the controlled storage, use, and disposal of
hazardous materials and hazardous biological materials. The Corporation is
subject to laws and regulations governing the use, manufacture, storage,
handling, and disposal of such materials and certain waste products. Although
the Corporation 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
Corporation could be held liable for any damages that result, and any such
liability could exceed its resources. There can be no assurance that the
Corporation 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 Corporation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 Corporations operations and its financial
position.

The Corporation 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 Corporation
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, there can be no assurance that compliance with
environmental regulation or obligations imposed thereunder will not have a
material adverse effect on the Corporation in the future.

The Corporation will need to raise additional capital
through the sale of its securities, resulting in dilution to its existing
shareholders. Such funds may not be available, adversely affecting the
Corporations operations.

The Corporation has not to date generated any revenues from
sales. The timing of generation of any sales is uncertain. The Corporation has
limited financial resources and has financed its operations through the sale of
securities, primarily common shares. The Corporation has significant on-going
cash expenses and no ability to generate cash from operations. To meet its
on-going cash needs the Corporation will need to continue its reliance on the
sale of such securities for future financing, resulting in dilution to existing
shareholders. The Corporation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, 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 Corporation will consider contract fees, 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 Corporation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 ability of the
Corporation to arrange such financing in the future will depend in part upon the
prevailing capital market conditions as well as the business performance of the
Corporation. If the Corporations capital resources are exhausted and adequate
funds are not available, it 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 the Corporation to relinquish rights to certain of its
technologies or products.

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

As of May 31, 2006, the Corporation had 96,046,465 common
shares issued and outstanding. A further 3,300,028 common shares are issuable
upon exercise of outstanding stock options and another 6,706,860 common shares
are issuable upon exercise of share purchase warrants, all of which may be
exercised in the future resulting in dilution to the Corporations shareholders.
The Corporations stock option plan allows for the issuance of stock options to
purchase up to a maximum of 7,200,000 of the common shares issued and
outstanding as of May 31, 2006. Under the plan the Corporation is able to grant
an additional 2,954,667 share options as at May 31, 2006. The common shares to
be issued upon exercise of the outstanding options and warrants will be freely
tradable and not subject to any hold period when issued.

Sales of substantial amounts of the Corporation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 Corporations common shares may experience extreme price
and volume volatility which may result in losses to the shareholders of the
Corporation.

On May 31, 2006, the Corporations common shares closed at a
price of $1.70 (US$1.59 on the Amex). For the period from June 1, 2005 to May
31, 2006, the high and low trading prices of the Corporations common shares on
the TSX were $2.37 and $0.83, respectively, with a total trading volume of
71,417,100 shares. For the period from June 1, 2005 to May 31, 2006, the high
and low trading prices of the Corporations common shares on the Amex were
US$2.07 and US$0.66, respectively, with a total trading volume of
21,498,300.

Daily trading volume on the TSX in the Corporations common
  stock for the period from June 1, 2005 to May 31, 2006 has fluctuated, with
  a high of 4,283,000 shares and a low of 12,300 shares, averaging approximately
  283,401 shares. Daily trading volume on the Amex in the Corporations common
  stock for the period from June 1, 2005 to May 31, 2006 has fluctuated with a
  high of 3,207,600 and a low of nil, averaging approximately 85,311. Accordingly,
  the trading price of the Corporations common stock may be subject to wide
  fluctuations in response to a variety of factors including announcement of material
  events by the Corporation such as the status of required regulatory approvals
  for the Corporations products, competition by new products or new innovations,
  fluctuations in the operating results of the Corporation, general and industry-specific
  economic conditions and developments pertaining to patent and proprietary rights.
  The trading price of the Corporation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 by securities
  analysts;
- new or existing products or services or technological innovations by the
  Corporation 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;
- results of, and developments in, the Corporations research and development
  efforts, including results and adequacy of, and developments in, its clinical
  trials and applications for regulatory approval;

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- additions or departures of key personnel;
- sales of the Corporations common shares, including by holders of the notes
  on conversion or repayment by the Corporation in common shares;
- economic and other external factors or disasters or crises;
- limited daily trading volume; and
- developments regarding the Corporation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.
In addition, because of the limited public float, there may be limited liquidity
for the Corporations common shares. It is expected that such fluctuations in
price and limited liquidity will continue in the foreseeable future which may
make it difficult for a shareholder to sell shares at a price equal to or above
the price at which the shares were purchased.

There may not be an active, liquid market for the
Corporations common shares.

There is no guarantee that an active trading market for the
Corporations common shares will be maintained on Amex or the TSX. Investors may
not be able to sell their shares quickly or at the latest market price if
trading in the Corporations common shares is not active.

If there are substantial sales of the Corporations common
shares, the market price of the common shares could decline.

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

We may be unable to meet our obligations under our
outstanding Credit Facility.

As of August 10, 2006, the Corporation had approximately
US$15.84 million of principal indebtedness outstanding under the Credit
Facility, which bears interest at one-month LIBOR plus 6.5 percent per annum.
The term of the Credit Facility is over 42 months, with interest due and payable
at commencement of the loan payable on the first day of the month. Commencing in
June 2007, principal is payable monthly on a straight-line amortization schedule
over 33 consecutive monthly instalments. There is no guarantee that the
Corporation will have adequate resources to meet these obligations on a timely
basis.

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

Since incorporation, the Corporation has not paid any cash or
other dividends on its common stock 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 Corporation will need to achieve profitability prior
to any dividends being declared, which may never happen.

The Corporation is likely to be classified as a passive
foreign investment company for United States income tax purposes, which could
have significant and adverse tax consequences to United States holders of its
common shares.

The Corporation was a passive foreign investment company
(PFIC) in the 2005 taxable year and the Corporation believes there is a
significant likelihood that it will be classified as a PFIC in the 2006

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taxable year and possibly in subsequent years. Our
classification as a PFIC could have significant and adverse tax consequences for
United States holders of the Corporations common shares. It may be possible for
United States holders of the Corporations common shares to mitigate these
consequences by making a so-called qualified electing fund election. (See
Taxation below.)

The Corporation has adopted a shareholder rights
plan.

The Corporation has adopted a shareholder rights plan. The
provisions of such plan could make it more difficult for a third party to
acquire a majority of the Corporations outstanding common shares, the effect of
which may be to deprive its shareholders of a control premium that might
otherwise be realized in connection with an acquisition of the common
shares.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Lariat was incorporated by Certificate of Incorporation issued
pursuant to the provisions of the Business Corporations Act (Alberta) on
June 3, 1997. On February 11, 1999, by Certificate of Amendment and Registration
of Restated Articles, the Articles of Lariat were amended to remove the private
company restriction. Lariat was formed as a Junior Capital Pool company, as
defined by, and under the rules of the Alberta Stock Exchange with the expressed
intent of acquiring a project or company through a reverse take over. With the
exception of this intent and the associated search for potential acquisitions,
Lariat had no substantial prior business activities.

Medicure was incorporated by Certificate of Incorporation
issued pursuant to the provisions of The Corporations Act (Manitoba) on
September 15, 1997. Medicure was continued from Manitoba to Alberta by
Certificate of Continuance issued pursuant to the provisions of the Business
Corporations Act(Alberta) on December 3, 1999. On December 22, 1999,
Medicure and Lariat were amalgamated by Certificate of Amalgamation issued
pursuant to the provisions of the Business Corporations Act (Alberta) as
Medicure Inc. The Corporation was continued from Alberta to the federal
jurisdiction by Certificate of Continuance issued pursuant to the provisions of
the Canada Business Corporations Acton February 23, 2000.

Medicure was formed as a private Manitoba company to advance
the discoveries of Dr. Naranjan Dhalla of the University of Manitoba. Dr. Dhalla
and Dr. Albert Friesen were the principal owners of the corporation as first
formed, together with certain other individuals who contributed to the project.
The first order of business was the completion of a licensing agreement to
acquire the technology rights from the University of Manitoba, which owned the
technology by virtue of the fact that it was invented by employees of the
University. From that date until the merger with Lariat, the Corporation's
primary focus was on the preclinical testing and development of the lead
product, identified as MC-1. In 1998 other research involving synthesis and
testing of other potential therapeutics was commenced through a research
contract with the University of Manitoba. Various business activities were
conducted in support of these primary research projects including but not
limited to; (1) the application for and approval of government sponsored
research awards, (2) the search for alternative sources of investment capital to
fund operations, and (3) the ongoing search for other potential therapeutics.
Business and administrative functions were handled by Genesys Venture Inc., a
consulting corporation, that at the time, was owned entirely by Dr. Friesen.
Operations and research, until the merger, were primarily funded by Dr. Friesen,
with assistance from government grants. On November 22, 1999 Medicure was
acquired by Lariat by way of a reverse takeover as Lariats Major Transaction
as a Junior Capital Pool company within the meaning of the Alberta Securities
Commission Rule 46-501, the Alberta Securities Commission Companion Policy
46-501CP and The Alberta Stock Exchange Circular 7. Pursuant to the terms of the
Major Transaction, Lariat acquired all of the issued and outstanding shares of
Medicure in exchange for 9,500,000 shares of Lariat, at a deemed price for
securities regulatory purposes only of $0.20 per share for aggregate deemed
value of $1,900,000. The Major Transaction was negotiated entirely at arms
length. As a result of the share exchange, control of Lariat passed to the
former shareholders of Medicure. This type of transaction is commonly referred
to as a reverse takeover. Under reverse takeover accounting, for financial
reporting purposes, the Corporation is considered to be a continuation of the
operations formerly carried on by Medicure.

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20

The Corporation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. The Corporations head office is
located at 4-1200 Waverley Street, Winnipeg, Manitoba, Canada, R3T 0P4.

The MC-1 technology was originally licensed to Genesys Pharma
Inc. by the University of Manitoba, on August 18, 1997. Genesys Pharma Inc.,
which had made a small investment on some preliminary research, transferred the
technology without cost, except for costs designated in the license, to Medicure
Inc. on September 26, 1997. On August 30, 1999 Medicure Inc. completed a new
license agreement with the University of Manitoba in order to slightly modify
the terms of the original license agreement transferred from Genesys Pharma
Inc., and to have the documentation properly prepared in the Corporations own
name.

On June 1, 2000 the Corporation licensed the world-wide
development and marketing rights (except for Canada) for MC-1, the Corporations
lead product, to the Corporations wholly owned subsidiary, Medicure
International Inc.. Medicure International Inc. then entered into a development
agreement with CanAm to perform research and development on 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 agreement have agreed that the
aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over
the term of the agreement. CanAm is a private Canadian company owned by Marcus
Enns, a former employee of the Corporation and Peter de Visser, a former
director of the Corporation. Peter de Visser resigned as a director of the
Corporation in December 2001.

On July 2, 2004, Medicure International Inc. also entered into
a development agreement with CDRI to perform clinical development on 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 agreement have agreed that
the aggregate amount of all invoiced expenditures shall not exceed $30,000,000
over the term of the agreement. CDRI is a private Canadian company owned by Jim
Charlton, a former employee of the Corporation.

In August 2006, the Corporation 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 plus inventory. To finance the acquisition, the Company entered
into the Credit Facility totaling US$15.84 million with a syndicate of lenders,
led by Merrill Lynch Capital, a division of Merrill Lynch Business Financial
Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation.
The term of the Credit Facility is over 42 months, with interest due and payable
at commencement of the loan payable on the first day of the month at one-month
LIBOR plus 6.5 percent per annum. Commencing in June 2007, principal is payable
monthly on a straight-line amortization schedule over 33 consecutive monthly
installments. The Credit Facility is secured by a security interest in all
existing and after-acquired assets of the Company including intellectual
property.

Since its amalgamation, the Corporation, directly and through
certain research contracts, has been engaged in the research and development of
human therapeutic drugs for cardiovascular disease. In certain instances,
therapeutics developed by the Corporation may also provide benefit for other
diseases. The Corporations lead product, MC-1, is based upon scientific
discoveries led by Dr. Naranjan S. Dhalla of The Institute of Cardiovascular
Sciences and the Department of Physiology, of the Faculty of Medicine, the
University of Manitoba in Winnipeg, Manitoba, Canada. The Corporations focus is
on the clinical development and commercialization of MC-1 for treatment of
cardiovascular disease and on the discovery and development of other
cardiovascular therapeutics. There is currently an aggregate of 39 full time
scientific researchers and support staff who are retained as employees by CanAm
and CDRI who are performing the Corporations scientific research pursuant to
the development agreements.

B. Business Overview

Plan of Operation

The Corporation is a biopharmaceutical company focused on the
discovery and development of therapeutics for various large-market, unmet
cardiovascular needs.

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21

The following table summarizes our clinical product candidates,
their therapeutic focus and their stage of development.

Product Candidate
    Therapeutic focus
    Stage of DevelopmentMC-1
    Coronary Artery
      Bypass
    Phase II completeGraft SurgeryMC-1
    Acute Coronary
      Syndrome
    Phase II complete*MC-1
    Stroke
    Phase I completeMC-4232
    Diabetes/Hypertension
    Phase II completeMC-4262
    Metabolic Syndrome/Hypertension
    Phase I complete


* Completed MEND-1 angioplasty study, but intend to develop for
related indication of ACS.

In August 2006, the Corporation 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). Aggrastat® was not being actively promoted at the time of
acquisition. The Corporation plans to launch product sales and marketing
efforts, with a targeted, dedicated cardiovascular sales force and medical
science liaison organization in the first half of fiscal 2007.
Aggrastat® is complimentary to the Corporations cardiovascular
strategy and provides the Corporation with a presence in the marketplace.

The Corporations research and development program is currently
focused on the clinical development of the Corporations lead clinical products,
MC-1 and MC-4232, and the discovery and development of other drug candidates.

MC-1, the Corporations lead product, is being developed as a
treatment to reduce injury from blockages of blood to the heart (i.e. myocardial
ischemia, associated with heart attacks, angina and arrhythmia) and the brain
(i.e. ischemic stroke) and to prevent injury from ischemic reperfusion injury.
Ischemic reperfusion injury occurs when blood flow to an organ is suddenly
resumed following a stoppage, as occurs during medical procedures such as heart
surgery. The results from the Phase II MEND-1 and MEND-CABG studies demonstrated
the cardioprotective effects and safety of MC-1 in high-risk patients undergoing
angioplasty and bypass surgery, respectively.

In parallel to the development of MC-1 and MC-4232, the
Corporation has a drug discovery program the objective of which is to discover
and in-license new drug candidates for advancement into clinical development and
commercialization for unmet cardiovascular market needs. One element of the
program involves the synthesis and evaluation of compounds that are structurally
related to MC-1. The Corporation has already produced several groups of
candidate compounds using this approach and plans to build a pipeline of
additional preclinical products over the next several years. Certain of the
Corporations new compounds have shown positive effects inin vitro and
in vivo efficacy studies and are currently being studied further to
evaluate their commercial potential. Some patents have been issued for these
compounds and additional patent applications have been, and are expected to be
filed for all novel candidate compounds, to the extent commercially and
reasonably possible, protecting their composition of matter and use in a
treatment of targeted cardiovascular and related diseases.

The Corporation is also evaluating other cardiovascular drug
candidates for potential license with the objective of further broadening its
product and patent portfolio.

The Corporation anticipates that no substantial material
acquisition of equipment or facilities will take place in the coming year.

It is the Corporations intention to actively search for a
partnership with a large pharmaceutical company. Such a partnership would
conceivably provide funding for Phase III clinical trials, add experience to the
product development process and bring in overall marketing expertise. While the
Corporation has had

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22

informal discussions with potential partners, no formal
agreement, or letter of intent, has been entered into by the Corporation as of
the date hereof.

Potential Products in Development Stage

As previously stated, one of the Corporations primary focuses
is the clinical development and commercialization of its lead products, MC-1 and
MC-4232.

The Corporation's lead product, MC-1, is a small molecule
therapeutic that has a broad range of potential applications from treatment of
acute cardiovascular events (such as ACS, CABG and heart attacks), to chronic
conditions (such as hypertension and metabolic syndrome). MC-1 is a
cardioprotective drug that in both preclinical and clinical studies has shown
potential for treating various forms of CV diseases and stroke. MC-1 stands to
be a major first-to-market product in a new class of drug.

The Corporation announced positive results from a MEND-1 Phase
II clinical study in January 2003. The MEND-1 trial was a proof of principle
study to establish the efficacy and safety of the Corporations lead compound,
MC-1 as a cardioprotective treatment to reduce damage to the heart associated
with acute ischemic and reperfusion injury. The trial enrolled a total of 60
high-risk patients undergoing percutaneous coronary intervention (PCI), and was
conducted at four medical centres in Canada and the USA.

The primary endpoint, peri-procedural infarct size (as
determined by area under the curve (AUC) of CK-MB within 24 hours following
initiation of elective PCI) was significantly reduced by approximately 33% in
the MC-1 treatment group. The results from the MEND-1 study provided the
Corporation with the necessary positive data to proceed with larger, Phase II
trial in Coronary Artery Bypass Graft (CABG) procedures.

The MEND-CABG study was a Phase II placebo controlled,
double-blinded study of MC-1, designed to evaluate the potential of the
Corporation's lead drug in reducing ischemic damage resulting from coronary
artery bypass graft (CABG) procedures. The trial was conducted at 42 cardiac
centres throughout Canada and the US and is managed by Montreal Heart Institute
and Duke Clinical Research Institute (DCRI) and enrolled 901 patients. The
Corporation reported positive top-line results up to post-operative day (POD) 30
in December 2005. The results showed that the 250 mg dose of MC-1 had a
statistically significant reduction in the composite of events driven by a 46.9%
reduction in non-fatal heart attacks (peak CK-MB ?????100ng/ml). Patients were
also followed up to POD 90, which was 60 days after their last drug treatment.
The treatment effect at POD 30 with MC-1 was maintained throughout the follow up
period. The safety analysis from MEND-CABG also demonstrated MC-1 was safe and
well tolerated.The Corporation plans on initiating the Phase III
MEND-CABG II study in the first half of fiscal 2007.

Additional preclinical studies with MC-1 also suggest its
potential value in treatment of stroke. During 2002, preclinical studies were
carried out under the direction of Dr. Ashfaq Shuaib, Director of the Division
of Neurology at the WC Mackenzie Health Sciences Centre of the University of
Alberta. MC-1 reduced infarct size (damaged region) in the brain and preserved
neurological function in an animal model. Preliminary studies also indicate that
beneficial effects may even be obtained with treatment several hours after the
onset of ischemia. A combination of MC-1 and TPA was also shown to be an
effective treatment. There was no indication that MC-1 alone increased the
incidence of hemorrhage, suggesting it would be a safe treatment for stroke
patients. Medicure plans further research on stroke, hypertension and other
potential uses.

Medicure's first combination product is MC-4232, a drug that
combines the cardio-protective benefit of MC-1 with the ACE Inhibitor,
lisinopril, for the treatment of patients with co-existing diabetes and
hypertension and related cardiovascular problems. The co-existing conditions of
diabetes and hypertension present a major increase in risk of cardiovascular
complications, including coronary artery disease, peripheral artery disease,
retinopathy, nephropathy and stroke. In addition to cardioprotection, this
product has also demonstrated potential to provide further blood pressure
lowering effects, reduction in glycated hemoglobin (HbA1c), the primary measure
of blood glucose control and reduction in triglyceride levels.

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23

In September 2005, the Corporation announced positive results
from the Phase II MATCHED study. The MATCHED (MC-1 and ACE Therapeutic
Combination for Hypertensive Diabetics) study evaluated MC-1 alone and in
combination with an lisinopril encompassing 120 patients with co-existing
diabetes and hypertension. MATCHED was a randomized, parallel group, cross-over,
double-blind, placebo-controlled comparison of 100, 300 or 1000 mg of MC-1 alone
and in combination with 20 mg of lisinopril. The results demonstrated the
positive clinical effects of MC-4232 on important primary and secondary blood
pressure and metabolic endpoints. The Corporation plans on initiating further
clinical studies as a result of these positive results.

The Corporation has also initiated the development program for
its second combination product, MC-4262, a drug combining MC-1 and an
Angiotensin Receptor Blocker (ARB), one of the world's ten largest
pharmaceutical drug classes by revenue. The patented new product, is being
developed for use in the treatment of hypertension in patients whose condition
is complicated with metabolic syndrome resulting in increased cardiovascular
risk.

While MC-1 and MC-4232 development proceeds, the Corporation is
seeking to develop or acquire additional cardiovascular therapeutics with
commercial potential to meet a market need. The Corporations objective is to
establish a pipeline of novel cardiovascular therapeutics to ensure the
Corporations long-term growth and security. The Corporation is taking a
two-pronged approach to this effort, combining the efforts of a drug discovery
program with strategic licensing of promising new compounds from other research
groups.

The Corporations drug discovery program has produced several
families of new compounds that have shown promising effects in in vitro
and/or in vivo studies. From these compounds, the Corporation has thus
far identified certain candidates, as having potential for further development.
These compounds, the chemical identities of which are being held confidential
while patents are pending, will undergo further in vitro analysis and
in vivo animal testing on disease models and for bioavailability.

According to the American Heart Association,
cardiovascular disease is the most prevalent serious disease in the United
States, affecting approximately 71.3 million people.1According to
the American Heart Association, approximately one in three Americans have
some form of cardiovascular disease. In 2003, cardiovascular disease was the
underlying or contributing causein 58% of all deaths in the United
States.2

The Corporation is focusing its initial drug discovery and
development efforts on meeting unmet needs in the cardiovascular and stroke
market. The Corporation is advancing its lead product, MC-1, through clinical
testing with the intention of commercializing it for treatment of (1) ischemic
reperfusion injury (associated with common procedures such as angioplasty and
coronary bypass surgery and stroke); and (2) myocardial ischemia, including
heart attacks, angina and other related disorders.

The Corporation has various compounds currently in early stage
research screening. Compounds developed by the chemistry group will be advanced
through the following steps based on their successful advancement through early
stage screening; (1) in vitro screening, (2) in vivo screening in appropriate
disease model, (3) in vivo toxicity screening, (4) dose response confirmation of
efficacy testing in vivo, (5) preclinical, GLP toxicity and pharmacokinetics
testing, (6) Phase I human testing, (7) Phase II human, (8) Phase III human, and
(9) Filing of NDA in United States and NDS in Canada to request the right to
commercialize. At the present time the most advanced product is in stage 4 of
this testing continuum, but no estimate can be made as to when a certain product
may advance to the human clinical testing stage.

As at May 31, 2006, the Corporation had 18 issued United States
patents: United States Patent No. 5,504,090, United States Patent No. 5,733,916,
United States Patent No. 6,001,842, United States Patent No. 6,051,587, United
States Patent No. 6,043,259, United States Patent No. 6,339,085, United States
Patent No. 6,417,204, United States Patent No. 6,489,345, United States Patent
No. 6,548,519, United

________________________________________1American Heart Association,Heart Disease and Stroke Statistics
- 2006 Update.

2Health Canada,Heart Disease and Stroke
in Canada, 1997, Chapter 2.1.

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24

States Patent No. 6,586,414, United States Patent No.
6,605,612, United States Patent No. 6,677,356, United States Patent No.
6,667,315, United States Patent No. 6,780,997, United States Patent No.
6,861,439, United States Patent No. 6,867,215, United States Patent No.
6,890,943 and United States Patent No. 6,897,228.

Competitors Current Products

There are numerous products on the market for treatment of
cardiovascular disorders, most of which are marketed by large pharmaceutical
companies.

It is recognized that cardiovascular treatments have been of
great benefit in reducing mortality and morbidity from a range of conditions.
The existing cardiovascular drugs can be categorized into several main drug
classes, as distinguished by their mechanism of action. Some of the primary drug
classes include: ACE Inhibitors (2003 US sales estimated at US$2.8 billion),
Angiotensin II Inhibitors (2003 US sales estimated US$2.1 billion), oral
anti-platelets (2003 US sales estimated US$2.4 billion), Beta-Blockers (2003 US
sales estimated at US$1.6 billion), and Calcium Channel Blockers (2003 US sales
estimated at US$4.4 billion), each class has particular benefits as well as an
array of alternative products.3Cross-use of drugs between different
types of cardiovascular disease categories makes it difficult to differentiate
sales by the more specific market segment (such as for myocardial infarction,
ischemic reperfusion injury, etc.).

Despite the development of various effective products,
pharmaceutical companies carefully monitor developments in the field and
continually attempt to bring in new major products. This is in part driven by
the rise of generic products that substantially reduce profit margins for
products as they come off patent. Competition is most intense in cardiovascular
markets like hypertension where there are many treatment options. Large
pharmaceutical companies are most interested in finding new treatment options
for inadequately treated conditions such as those targeted by the Corporation.

Despite the number of cardiovascular products, the Corporation
has identified certain remaining unmet therapy needs for certain forms of
cardiovascular disease. For example, physicians recognize the current lack of
effective products for reducing ischemic reperfusion injury. This is a very real
clinical problem and a significant market is available for a product that would
effectively protect against this injury that results from a variety of surgical
procedures. Similarly, although current treatments are in many cases able to
restore blood flow to the heart muscle following a heart attack (myocardial
ischemia), there remains a need for products that reduce the amount of damage
and scarring that results from the blockage. Other large cardiovascular markets
targeted by the Corporation that require improved therapeutics are stroke and
certain forms of hypertension.

Ischemic stroke is damage to the brain caused by a sudden
reduction in blood supply, most often due to blood clots lodging in major
arteries of the brain. Stroke ranks as the third leading cause of death in North
America, behind diseases of the heart and cancer. It is also a leading cause, of
long term disability in the U.S.

To date, the only FDA approved stroke therapeutic is tissue
plasminogen activator (TPA), a treatment that helps dissolve arterial
obstructions. Unfortunately, TPA is typically available to less than 10% of
stroke patients due to the increased risk of hemorrhage and the narrow
therapeutic time frame during which the drug can be applied.

Competitors Products in Development

As there remains unmet needs for treatment of certain forms of
cardiovascular disease and stroke, management of the Corporation believes there
is room for an increased number of novel research products.

________________________________________3Sales
estimates provided by IMS Health Data, 2003.

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25

The Pharmaceutical Researchers and Manufacturers of
America have identified 146 separate products in development for heart
disease and stroke in their 2005 Survey: Medicines in Development for Heart
Disease and Stroke. A large proportion of products in development are
modifications of existing therapeutic classes or new indications for drugs
already on the market.

The Corporations clinical trials for MC-1 focus on ischemia
and ischemic reperfusion injury for cardiovascular diseases and will also focus
on stroke. The following tables provide an overview of many of the competitors
products in development pertaining to Percutaneous Coronary Intervention (PCI)
or angioplasty, CABG, ACS and stroke:

PCI: Products in Development4

Product Name
      Sponsor
      Development StatusCangrelor
      The Medicines Company
      Phase IIIDX9065a
      Daiichi Pharmaceutical
      Phase IISCH 530348
      Schering-Plough
      Phase II


CABG: Products in Development5

Product Name
      Sponsor
      Development
        StatusAngiomax ® (bivalirudin)
      The Medicines Company
      Phase IIIDX-88
      Dyax
      Phase I/II completedIntegrilin ® (eptifibatide)
      Schering-Plough / 
        Millennium Pharmaceuticals
      Phase IIMLN2222
      Millennium Pharmaceuticals 
        / XOMA
      Phase ITP-10
      AVANT 
        Immunotherapeutics
      Phase II


ACS: Products in Development6

Product Name
      Sponsor
      Development
        StatusAngiomax ® (bivalirudin)
      The Medicines Company
      Phase IIIArixtra ® (fondaparanix)
      GlaxoSmithKline
      Phase IIIAZD6140
      AstraZeneca
      Phase IIICangrelor
      The Medicines Company
      Phase IIDX9065a
      Daiichi Pharmaceutical
      Phase IIPrasugrel
      Eli Lilly / Sankyo Pharma
      Phase IIIRanexa  (Ranolazine)
      CV Therapeutics
      Phase IIIrNAPc2
      Nuvelo
      Phase IISR123781
      Sanofi-Aventis
      Phase IIbVT-111
      Viron Therapeutics
      Phase IIVX-702
      Vertex Pharmaceuticals
      Phase IIVytorin ® (ezetimibe / simvastatin)
      Schering-Plough / Merck
      Phase IIIXRP0673 (otamixaban)
      Sanofi-Aventis
      Phase II


________________________________________4Pharmaceutical Researchers and Manufacturers of America, Survey:
New Medicines in Development for Heart Disease and Stroke 2005;
company websites.

5Pharmaceutical Researchers and Manufacturers of
America, Survey: New Medicines in Development for Heart Disease
and Stroke 2005; company websites.

6Pharmaceutical Researchers and Manufacturers of
America, Survey: New Medicines in Development for Heart Disease
and Stroke 2005; company websites.

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26

Stroke: Products in Development7

Product Name
      Sponsor
      Development
        Status234551
      GlaxoSmithKline / Shionogi USA
      Phase I737004 / S-0139
      GlaxoSmithKline / Shionogi USA
      Phase IDabigatran etexilate
      Boehringer Ingelheim
      Phase IIIDesmoteplase
      Forest Laboratories / Paion
      Phase II/IIILJP 1082
      La Jolla Pharmaceutical
      Phase I/IIONO-2506
      Merck / ONO Pharma USA
      Phase IIReoPro ® (abciximab)
      Centocor / Eli Lilly
      Phase IIIViprinex  (ancrod)
      Neurobiological Technologies
      Phase III


Some of the products set forth above have the advantage of
being further along in development than the Corporations products. However,
market share for new products depends primarily upon the relative strengths of a
product in areas such as safety, effectiveness, cost, and dose form.

It is noted that cardiovascular drugs are often prescribed
together and therefore products do not necessarily compete for use on an
individual patient. MC-1s use in many indications is expected to be as adjunct
therapy, that is, it will be given together with other therapeutics.
Historically, the challenge of competing with earlier products has not acted as
a significant barrier to entry for new products, provided that the new product
has some advantage relative to earlier products.

The Corporations second clinical candidate, MC-4232, is being
developed for the treatment of diabetic patients with hypertension. The
co-existing conditions of diabetes and hypertension present a major increase in
risk of cardiovascular complications, including coronary artery disease,
peripheral artery disease, retinopathy, nephropathy and stroke. To date, only
one combination product has been developed to address both hypertension and a
metabolic function. This product is Caduet ®, a combination of the calcium
channel blocker Norvasc ® and the statin Lipitor ®. Caduet ® was approved in
2004. The Pharmaceutical Research and Manufacturers of America Survey of New
Medicines in Development for Heart Disease and Stroke 2005 does not identify any
other products in development that are taking this approach. While Caduet ®
targets hypertension and lipid lowering (primarily LDL cholesterol lowering), it
does not address specific metabolic dysfunctions (such as elevated HbA1C) faced
by the diabetic population.

The market for management of high blood pressure is one of the
largest in the pharmaceutical industry but is also one of the most competitive.
Approximately 50 million Americans are affected by hypertension (American
Heart Association). Decision Resources expects hypertension drug
global sales to reach US $22 billion by 2008. The following table presents a
list of competitors products on the market pertaining to hypertension.

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR
HYPERTENSION8

Product
      Company
      Type of DrugAccupril ® (quinapril hydrochloride)
      Pfizer
      ACE inhibitorAceon ® (perindopril erbumine)
      Solvay Pharmaceuticals
      ACE InhibitorAltace ® (ramipril)
      Monarch (King)
      ACE InhibitorCapoten ® (captopril)
      Par Pharmaceuticals
      ACE inhibitorLotensin ® (benazepril hydorchloride)
      Novartis
      ACE inhibitorMavik ® (trandolopril)
      Abbott Laboratories
      ACE inhibitorMonopril ® (fosinopril sodium)
      Bristol-Myers Squibb
      ACE inhibitorVasotec ® (enalapril maleate)
      Merck
      ACE inhibitor


________________________________________7Pharmaceutical Researchers and Manufacturers of America, Survey:
New Medicines in Development for Heart Disease and Stroke 2005;
company websites.

8 Company websites.

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27

Product
      Company
      Type of DrugZestril ® (lisinopril)
      AstraZeneca
      ACE inhibitorAtacand ® (candesartan cilexetil)
      AstraZeneca
      ARBAvapro ® (irbesartan)
      Bristol-Myers Squibb
      ARBBenicar ® (olmesartan medoxomil)
      Forest Laboratories
      ARBCozaar ® (losartan potassium)
      Merck
      ARBDiovan ® (valsartan)
      Novartis
      ARBMicardis ® (telmisartan)
      Boehringer Ingelheim
      ARBTeveten ® (eprosartan mesylate)
      Biovail
      ARBCorgard ® (nadolol)
      King Pharmaceuticals
      Beta blockerInderal ® (propranolol hydrochloride)
      AstraZeneca
      Beta blockerLopressor ® (metoprolol tartrate)
      Novartis
      Beta blockerSectral ® (acebutolol hydrochloride)
      Dr. Reddys Laboratories
      Beta blockerTenormin ® (atenolol)
      AstraZeneca
      Beta blockerToprol-XL ® (metoprolol succinate)
      AstraZeneca
      Beta blockerCovera-HS ® (verapamil hydrochloride)
      Pfizer
      Calcium channel blockerNorvasc ® (amlodipine besylate)
      Pfizer
      Calcium channel blockerPlendil ® (felodipine)
      AstraZeneca
      Calcium channel blockerProcardia ® (nifedipine)
      Pfizer
      Calcium channel blockerSular ® (nisoldipine)
      First Horizon
      Calcium channel blockerTiazac ® (diltiazem hydrochloride)
      Forest Laboratories
      Calcium channel blockerVerelan ® (verapamil hydrochloride)
      Elan Pharmaceuticals
      Calcium channel blockerThalitone ® (chlorthalidone)
      King Pharmaceuticals
      DiureticAldactone ® (spironolactone)
      Pfizer
      Diuretic / antihypertensiveAldactazide ® (spironolactone; hydrochlorothiazide)
      Pfizer
      Diuretic / antihypertensiveLexxel ® (enalapril maleate; felodipine)
      AstraZeneca
      Calcium channel blocker / ACE inhibitorLotrel ® (amlodipine; benazepril)
      Novartis
      Calcium channel blocker / ACE inhibitorTarka ® (trandolapril; verapamil hydrochloride)
      Abbott Laboratories
      Calcium channel blocker / ACE inhibitorAccuretic ® (quinapril HCl; hydrochlorothiazide)
      Pfizer
      ACE inhibitor / diureticLotensin HCT ® (benazepril hydrochloride; hydrochlorothiazide)
      Novartis
      ACE inhibitor / diureticMonopril HCT ® (fosinopril sodium; hydrochlorothiazide)
      Bristol-Myers Squibb
      ACE inhibitor / diureticZestoretic ® (lisinopril; hydrochlorothiazide)
      AstraZeneca
      ACE inhibitor / diureticAvalide ® (irbesartan; hydrochlorothiazide)
      Bristol-Myers Squibb
      ARB / diureticBenicar HCT ® (olmesartan medoxomil; hydrochlorothiazide)
      Forest Laboratories
      ARB / diureticDiovan HCT ® (valsartan; hydrochlorothiazide)
      Novartis
      ARB / diureticHyzaar ® (losartan potassium; hydrochlorothiazide)
      Merck
      ARB / diureticTeveten HCT ® (eprosartan mesylate)
      Biovail
      ARB / diureticCorzide ® (nadolol; bendroflumethiazide)
      King Pharmaceuticals
      Beta blocker / diureticLopressor HCT ® (metoprolol tartrate; hydrochlorothiazide)
      Novartis
      Beta blocker / diureticTenoretic ® (atenolol; chlorthalidone)
      AstraZeneca
      Beta blocker / diuretic


The market for oral diabetic drugs was $5 billion in the US for
2002 (IMS Health Data, Diabetes Therapy Report, 2004). This is the
largest drug class within the diabetic market, and had the highest compound
annual growth rate between 1998 and 2002.

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STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR TYPE 2
DIABETES9

Product
      Company
      Type of DrugGlucophage ® (metformin hydrochloride)
      Bristol-Myers Squibb
      BiguanideRiomet ® (liquid metformin hydrochloride)
      Ranbaxy Laboratories
      BiguanideStarlix ® (nateglinide)
      Novartis
      MeglitinidePrandin ® (repaglinide)
      Novo Nordisk
      MeglitinideAmaryl ® (glimepiride)
      Sanofi-Aventis
      SulfonylureaGlucotrol ® (glipizide)
      Pfizer
      SulfonylureaDiabinese ® (chlorpropamide)
      Pfizer
      SulfonylureaOrinase ® (tolbutamide)
      Pfizer
      SulfonylureaGlynase PresTab ® (micronized glyburide)
      Pfizer
      SulfonylureaActos ® (pioglitazone hydrochloride)
      Takeda Pharmaceuticals / Eli Lilly
      ThiazolidinedioneAvandia ® (rosiglitazone maleate)
      GlaxoSmithKline
      ThiazolidinedionePrecose ® (acarbose)
      Bayer
      Alpha-glucosidase inhibitorGlyset ® (miglitol)
      Bayer
      Alpha-glucosidase inhibitorByetta ® (exenatide)
      Amylin / Eli Lilly
      Incretin mimeticSymlin ® (pramlintide acetate)
      Amylin
      Amylin analogGlucovance ® (metformin hydrochloride; glyburide)
      Bristol-Myers Squibb
      Biguanide / sulfonylureaMetaglip ® (metformin hydrochloride; glipizide)
      Bristol-Myers Squibb
      Biguanide / sulfonylureaAvandamet ® (metformin hydrochloride; rosiglitazone
        maleate)
      GlaxoSmithKline
      Biguanide / thiazolidinedione


The market for drugs to manage hypertriglyceridemia includes
fibric acid derivatives (total US sales of $0.7 billion in 2003), statins (total
US sales of $13.7 billion in 2003), and niacin (total US sales of $0.3 billion
in 2003) (IMS Health Data).

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR
HYPERTRIGLYCERIDEMIA10

Product
      Company
      Type of DrugTriCor ® (fenofibrate)
      Abbott Laboratories
      Fibric acid derivativeLopid ® (gemfibrozil)
      Pfizer
      Fibric acid derivativeLipitor ® (atorvastatin calcium)
      Pfizer
      StatinZocor ® (simvastatin)
      Merck
      StatinCrestor ® (rosuvastatin calcium)
      AstraZeneca
      StatinNiaspan ® (niacin)
      KOS Pharmaceuticals
      Niacin


The Corporation has recently purchased the U.S. sales and
marketing rights to Aggrastat® Injection (tirofiban hydrochloride). Aggrastat®
is a GP IIb/IIIa receptor antagonist which is approved for ACS. Recent figures
indicate that U.S. sales of Aggrastat® Injection in the 12 months to May 2006
were $10.8 million (IMS Health Data). Other products currently on the
market for the management of ACS are outlined in the table below:

________________________________________9American Diabetes Association, Position Statement: Standards of
Medical Care in Diabetes, 2005; company websites.

10American Association of Clinical
Endocrinologists, Medical Guidelines for Clinical Practice for the
Diagnosis and Treatment of Dyslipidemia and Prevention of Atherogenesis,
2000.

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29

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR
ACS11

Product
      Company
      Type of DrugNitroglycerin
      Pfizer
      Anti-ischemicLopressor ® (metoprolol tartrate)
      Novartis
      Beta-blockerInderal ® (propanolol hydrocholride)
      AstraZeneca
      Beta-blockerTenormin ® (atenolol)
      AstraZeneca
      Beta-blockerCovera-HS ® (verapamil hydrochloride)
      Pfizer
      Calcium channel blockerAspirin (acetylsalicylic acid)
      Bayer
      AntiplateletPlavix ® (clopidogrel bisulfate)
      Bristol-Myers Squibb / Sanofi-Synthelabo
      ADP receptor antagonistTiclid ® (ticlopidine hydrochloride)
      Roche
      ADP receptor antagonistLovenox ® (enoxaparin sodium)
      Sanofi-Aventis
      AnticoagulantFragmin ® (dalteparin sodium)
      Pfizer
      AnticoagulantIntegrilin ® (eptifibatide)
      Schering-Plough / Millenium Pharmaceuticals
      GP IIb/IIIa receptor antagonistReoPro ® (abciximab)
      Centocor / Eli Lilly
      GP IIb/IIIa receptor antagonist


Due to new product developments and potential clinical and
preclinical findings, the above tables may not be inclusive of all competitors
products.

Competitive Strategy and Position

As stated, the Corporation is primarily focusing on developing
MC-1 for myocardial ischemia and reperfusion injury. The Corporation is focusing
initially on these markets because of preclinical and clinical evidence
supporting the products efficacy in these applications and, therefore, these
applications have high potential for showing MC-1s clinical benefit. The
clinical need for a product with this activity will also be considered by
regulatory authorities (principally the FDA and also the TPD). Although MC-1
shows potential for treatment of other cardiovascular diseases, these uses are
not being addressed as a first priority due to factors including the cost of
clinical trials and the more intense competitive nature of these markets.

It is the Corporations intention to secure a partnership with
a large pharmaceutical company. Such a partnership would provide funding for
clinical development, add experience to the product development process and
provide market positioning expertise. While the Corporation has had informal
discussions with potential partners in this regard, no formal agreement or
letter of intent has been entered into by the Corporation as of the date
hereof.

C. Organizational Structure

Medicure International Inc., a wholly owned subsidiary of the
Corporation, 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
Corporation, 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.

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,

________________________________________11American College of Cardiology/American Heart Association,
Guideline Update for the Management of Patients with Unstable Angina
and Non-ST-Segment Elevation Myocardial Infarction, 2002.

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30

2005. American Cardio Therapeutics Inc.s registered office is
2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.

Medicure Europe Limited, a wholly owned subsidiary of the
Corporation, was incorporated pursuant to the laws of the United Kingdom, on May
19, 2006. Medicure Europe Limiteds registered office is located at City House,
126-130 Hills Road, Cambridge, CB2 1RY.

As at May 31, 2006, Medicure Pharma Inc., American Cardio
Therapeutics Inc. and Medicure Europe Limited were involved in no material
transactions.

The following diagram illustrates the relationship between the
Corporation its subsidiaries:



D. Property, Plants and Equipment

Office Space

The Corporation has use of approximately 4,000 square feet of
office space provided by Waverley Business and Science Centre Inc. as part of
its business services contract. The office is located in Winnipeg, Manitoba.

Research Facilities

CanAm leases 10,700 square feet of office and laboratory space
at a facility in Winnipeg, Manitoba. Biological, chemistry, and analytical
research for the Corporation take place at that facility.

ITEM 4A. UNRESOLVED STAFF COMMENTS

The Corporation is an accelerated filer as defined in Rule
12b-2 under the Securities Exchange Act of 1934. There are no written
comments which have been provided by the staff of the Securities Exchange
Commission regarding the Corporation's periodic reports under that Act during
the fiscal year ended May 31, 2006 and there are no unresolved comments as of
the date of the filing of this Annual Report with the Commission.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

This section contains forward-looking statements involving
risks and uncertainties. The Corporation'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 3 - Key
Information - D. Risk Factors. The following discussion of the financial
condition, changes in financial conditions and results of operations of the
Corporation for the years ended May 31, 2006, May 31, 2005 and May 31, 2004
should be read in conjunction with the consolidated financial statements of the
Corporation. The Corporations consolidated financial statements are presented
in Canadian dollars and have been prepared in accordance with Canadian generally
accepted accounting principles (GAAP) included under Item 17 to this annual
report. Material differences between Canadian and U.S. GAAP, as applicable to
the Corporation, are set forth in note 10 to the consolidated financial
statements of the Corporation included herein.

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31

Critical Accounting Estimates

The Corporations consolidated financial statements are
prepared in accordance with Canadian generally accepted accounting principles
(Canadian GAAP). A reconciliation of amounts to present in accordance with
United States generally accepted accounting principles (US GAAP) is described
in note 10 to the audited consolidated financial statements for the year ended
May 31, 2006. These accounting principles require management to make certain
estimates and assumptions. Management believes that the estimates and
assumptions upon which the Corporation 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 research and development, the assessment of net recoverable
value of intangible assets, and stock-based compensation.

Research and development costsAll 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 stringent criteria for cost deferral and amortization. The
Corporation assesses whether these costs have met the relevant criteria for
deferral and amortization at each reporting date. No development costs have been
deferred to date.

Intangible assetsCosts 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 its economic life, if shorter. The cost of servicing the Corporations
patents is expensed as incurred. Technology licenses, which include licenses and
rights to technologies, are initially recorded at fair value based on
consideration paid and amortized on a straight-line basis over the estimated
useful life of the underlying technologies. 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 Corporation expects to derive from the
costs incurred to date and the ongoing development plans. Management has
reviewed the carrying value of its intangible assets and no adjustment was made
to the capitalized costs.

Refundable investment tax creditsThe Corporation
incurs research and development expenditures, which are eligible for refundable
investment tax credits. The investment tax credits are based on management's
estimates of amounts to be recovered. As the investment tax credits are subject
to audit by the taxation authorities, the actual amounts received may vary
materially from the estimate recognized. Any adjustments to amounts accrued are
recognized as determinable.

Stock-based compensationThe Corporation has a stock
option plan for its directors, management, consultants, and employees.
Compensation expense is recorded for stock options issued to employees and non
employees using the fair value method. The Corporation must calculate the fair
value of stock options issued and amortize the fair value to stock compensation
expense over the vesting period, and adjust the amortization for stock option
forfeitures and cancellations. The Corporation uses the Black-Scholes model to
calculate the fair value of stock options issued 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 options are issued. The Corporation
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 Corporations stock price and external factors, as further stock
options are issued and as adjustments are made to previous calculations for
unvested stock option forfeitures and cancellations.

The stock-based compensation recorded by the Corporation is a
critical accounting estimate because of the value of compensation recorded, the
volume of the Corporations stock option activity, and the many assumptions that
are required to be made to calculate the compensation expense. The Black-Scholes

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32

model is not the only permitted model to calculate the 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. The Corporation recorded stock compensation
expense in fiscal 2006 of $745,570 (2005 - $504,878; 2004 - $386,048).

A. Operating Results

General

The Corporation has concentrated primarily on research and
development and has yet to and may never derive any revenues from its general
operations. The Corporation 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 development stage company in a highly
competitive industry, characterized by frequent new product introductions. The
Corporation has historically incurred net losses and anticipates that such
losses will increase as it continues its development and clinical trials and
eventually seeks regulatory approval for the sale of its products.

The Corporation believes it has sufficient funds on hand to
commence Phase III clinical trials involving MC-1. As discussed in Note 1 of the
consolidated financial statements of the Corporation, however, the Corporations
ability to continue as a going concern is dependent on its ability to obtain
sufficient funds to conduct the remainder of its clinical trials and to
successfully commercialize its products. Failure to obtain further financing may
require the Corporation to reduce substantially or eliminate expenditures for
research and development, testing including further clinical trials, and
production and marketing of its proposed products. Based on the Corporations
current plans, the Corporations available working capital will be sufficient
into the first quarter of fiscal 2008.

Year Ended May 31, 2006 Compared to the Year Ended May 31,
2005

Interest and other income for fiscal 2006 totaled $300,000 as
compared to $395,000 for fiscal 2005. Interest and other income in fiscal 2006
is lower than fiscal 2005 due to lower average cash and cash equivalents
balance. The Corporation anticipates that investment income will continue to
fluctuate in relation to cash and short term investment balances and interest
yields.

Research and development expenditures decreased to $10,219,000
in fiscal 2006 as compared to $13,564,000 for fiscal 2005 and represent 80% of
the Corporations total expenditures in fiscal 2006. As expected, research and
development expenditures were lower as compared to the same periods in fiscal
2005 due to the completion of the Phase II trial attributed to MC-1, called
MEND-CABG and the Phase II MATCHED study with MC-4232 during fiscal 2006.

The MEND-CABG study was a Phase II placebo controlled,
double-blinded study of MC-1, designed to evaluate the potential of the
Corporation's lead drug in reducing ischemic damage resulting from CABG
procedures. The trial was conducted at 42 cardiac centres throughout Canada and
the US and is managed by Montreal Heart Institute and Duke Clinical Research
Institute (DCRI) and enrolled 901 patients. The Corporation reported positive
top-line results up to post-operative day (POD) 30 in December 2005. Patients
were also followed up to POD 90, which was 60 days after their last drug
treatment. The treatment effect at POD 30 with MC-1 was maintained throughout
the follow up period. The safety analysis from MEND-CABG also demonstrated MC-1
was safe and well tolerated.

The Corporation expects to initiate a single confirmatory Phase
III study in patients undergoing CABG procedures in the first half of fiscal
2007. The Corporation plans to conduct the trial at over 120 cardiac centres
throughout North America and Europe and will be managed by Duke Clinical
Research Institute (DCRI) and Montreal Heart Institute and will enroll up to
3,000 patients. For the year ended May 31, 2006, total expenditures for the
MEND-CABG program were $6,116,000 as compared to $9,388,000 in fiscal 2005.

The MATCHED (MC-1 and ACE Therapeutic Combination for
Hypertensive Diabetics) study evaluated MC-1 alone and in combination with an
ACE inhibitor encompassing 120 patients with co-existing diabetes and
hypertension. The study was designed as a Phase II trial to determine the
optimal dose and

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33

endpoint for Phase III development of MC-4232. MATCHED was a
randomized, parallel group, crossover, double-blind, placebo-controlled
comparison of 100, 300 or 1000 mg of MC-1 alone and in combination with 20 mg of
lisinopril. The results demonstrated the positive clinical effects of MC-4232 on
important primary and secondary blood pressure and metabolic endpoints.

For the year ended May 31, 2006, total expenditures for the
MATCHED program were $1,768,000 as compared to $1,928,000 in fiscal 2005.

Research and development expenses are expected to increase
significantly in fiscal 2007 as compared to fiscal 2006. This increase in
expenditures is expected to result from the initiation of the Phase III
MEND-CABG study in the first half of fiscal 2007.

General and administrative expenses include salaries and
related costs for those employees not directly involved in research and
development, but are required to support ongoing business development and
corporate stewardship activities. The balance also includes professional fees
such as legal, audit, investor and public relations and business development
activities. General and administration expenses totaled $2,858,000 for the year
ended May 31, 2006, as compared to $2,256,000 for the year ended May 31, 2005.
The overall increase in costs during the fiscal year ended May 31, 2006 as
compared to the same period in fiscal 2005 is primarily driven by increased
business development and investor relations activities, professional fees and
stock-based compensation expense. The Corporation expects higher levels of
general and administrative expenditures in the fiscal year ending May 31, 2007
as compared to the same period in fiscal 2006.

Refundable investment tax credits for fiscal 2006 totaled
$478,000 as compared to $553,000 for fiscal 2005. As Medicure is a public
company, the federal investment tax credits (ITCs) for qualified Scientific
Research and Experimental Development (SR&ED) expenditures are not
refundable and are calculated at a rate of 20%. These ITCs can be applied to
reduce future income taxes payable with a ten-year carry forward period. Certain
eligible SR&ED expenditures incurred in Quebec qualify for Quebec refundable
tax credits and are earned on payments made in Quebec for SR&ED labour,
SR&ED contracts and to prescribed research centres.

The recording of refundable ITCs is solely related to research
and development spending in Quebec, which are eligible for refundable tax
credits. The majority of the qualifying expenditures related to the MEND-CABG
study. The refundable ITCs recorded are based on managements estimate of
amounts expected to be recovered and are subject to audit by taxation
authorities. These amounts have been recorded as a recovery in expenses in the
statement of operations.

Foreign exchange loss for fiscal 2006 totaled $200,000 as
compared to a gain of $64,000 for fiscal 2005. The foreign exchange loss for
fiscal year 2006 is primarily a result of the weakening of the U.S. dollar
relative to the Canadian dollar during this period. While the functional
currency of the Corporation is the Canadian dollar, the Corporation is holding
U.S. dollars in anticipation of the U.S. dollar denominated clinical trial costs
incurred as a result of the MEND-CABG study.

For the year ended May 31, 2006, the Corporation recorded a
consolidated net loss of $12,607,000 or $0.17 per share compared to a
consolidated net loss of $14,866,000 or $0.22 per share for the year ended May
31, 2005. As discussed above, the consolidated net loss resulted mainly from the
Corporations ongoing clinical development programs. The Corporation expects to
incur a loss next year as it continues to invest in product research and
development.

The weighted average number of common shares outstanding used
to calculate basic and diluted loss per share increased to 75,144,764 for the
year ended May 31, 2006 from 66,717,715 for the year ended May 31, 2005.

Year Ended May 31, 2005 Compared to the Year Ended May 31,
2004

Interest and other income for fiscal 2005 totaled $395,000 as
compared to $445,000 for fiscal 2004. Interest and other income in fiscal 2005
is slightly higher than fiscal 2004. Interest and other income in fiscal 2005 is
lower than fiscal 2004 due to lower average cash and cash equivalents balance.
The

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34

Corporation anticipates that investment income will continue to
fluctuate in relation to cash and short term investment balances and interest
yields.

Research and development expenditures increased to $13,564,000
in fiscal 2005 as compared to $4,435,000 for fiscal 2004 and represent 89% of
the Corporations total expenditures in fiscal 2005. As expected, research and
development expenditures were higher as compared to the same periods in fiscal
2004 due to the ongoing Phase II/III Coronary Artery Bypass Graft (CABG) trial
attributed to MC-1, called MEND-CABG and the Phase II MATCHED study with
MC-4232.

The Corporations 900 patient, MEND-CABG trial reached full
enrollment in July 2005. The MEND-CABG study is a Phase II/III placebo
controlled, double-blinded study of MC-1, designed to evaluate the potential of
the Corporation's lead drug in reducing ischemic damage resulting from CABG
procedures. The Phase II portion of the trial is being conducted at
approximately 40 cardiac centres throughout Canada and the US and is managed by
Montreal Heart Institute and Duke Clinical Research Institute (DCRI). The
study's primary efficacy parameter is the reduction in combined incidence of
cardiovascular and cerebrovascular death, non-fatal myocardial infarction (heart
attack) and non-fatal cerebral infarction (stroke), up to and including 30 days
following CABG surgery. For the year ended May 31, 2005, total expenditures for
the MEND-CABG trial were $8,788,000 as compared to $1,352,000 in fiscal 2004.
The costs increased in direct relation to the increase in the number of clinical
sites initiated in the study and the associated increase in the number of
patients enrolled.

The Corporation will compile and analyze all efficacy and
safety endpoints up to postoperative day 30 (POD 30), and plans on reporting
these results in the fall of 2005. The secondary endpoint of postoperative day
90 (POD 90) will follow shortly thereafter.

The initiation of the MEND-CABG trial was based on the Phase
II, MEND-1 trial, managed by Duke Clinical Research Institute, which showed that
the Corporation's lead product, MC-1, reduces ischemic heart damage following
angioplasty as determined by the release of the amount of the marker cardiac
enzyme, CK-MB. The trial enrolled a total of 60 high-risk patients undergoing
percutaneous coronary intervention (PCI), and was conducted at four medical
centres in Canada and the USA.

The increase in research and development expenditures was also
due to the clinical development program of MC-4232, a combination of MC-1 and an
ACE Inhibitor. As part of the Phase II/III clinical development program of
MC-4232, the Corporation is conducting the Phase II MATCHED study. The MATCHED
study will evaluate MC-1 alone and in combination with an ACE inhibitor
encompassing up to 120 patients with co-existing diabetes and hypertension. This
study will assess effects on a variety of important parameters in diabetic
hypertensive patients, including blood pressure and metabolic function. For the
year ended May 31, 2005, total expenditures for the MATCHED trial were
$1,731,000 as compared to $12,000 in fiscal 2004.

General and administrative expenses include salaries and
related costs for those employees not directly involved in research and
development, but are required to support ongoing business development and
corporate stewardship activities. The balance also includes professional fees
such as legal, audit, investor and public relations and business development
activities. General and administration expenses totaled $2,256,000 for the year
ended May 31, 2005, as compared to $1,958,000 for the year ended May 31, 2004.
The overall increase in costs during the fiscal year ended May 31, 2005 as
compared to the same period in fiscal 2004 is primarily driven by increased
business development and investor relations activities, professional fees and
stock-based compensation expense.

Foreign exchange gain for fiscal 2005 totaled $64,000 as
compared to nil for fiscal 2005. The increase in the foreign exchange gain for
the year ended May 31, 2005 is primarily a result of the strengthening of the
U.S. dollar relative to the Canadian dollar during this period. While the
functional currency of the Corporation is the Canadian dollar, the Corporation
is holding U.S. dollars in anticipation of the significant U.S. dollar
denominated clinical trial costs incurred as a result of the MEND-CABG
study.

Refundable investment tax credits for fiscal 2005 totaled
$553,000 as compared to nil for fiscal 2004. As Medicure is a public company,
the federal investment tax credits (ITCs) for qualified Scientific Research
and Experimental Development (SR&ED) expenditures are not refundable and
are calculated

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35

at a rate of 20%. These ITCs can be applied to reduce future
income taxes payable with a ten-year carry forward period. Certain eligible
SR&ED expenditures incurred in Quebec qualify for Quebec refundable tax
credits and are earned on payments made in Quebec for SR&ED labour,
SR&ED contracts and to prescribed research centres.

The recording of refundable ITCs is solely related to research
and development spending in Quebec, which are eligible for refundable tax
credits. The majority of the qualifying expenditures related to the MEND-CABG
study. The refundable ITCs recorded are based on managements estimate of
amounts expected to be recovered and are subject to audit by taxation
authorities. These amounts have been recorded as a reduction of research and
development expenditures.

For the year ended May 31, 2005, the Corporation recorded a
consolidated net loss of $14,866,000 or $0.22 per share compared to a
consolidated net loss of $5,989,000 or $0.11 per share for the year ended May
31, 2004. As stated above, these results of operations were mainly attributable
to the Corporations clinical development program and the increased business
development activity required to support the program. The Corporation expects to
incur a loss next year as it continues to invest in product research and
development.

The weighted average number of common shares outstanding used
to calculate basic and diluted loss per share increased to 66,717,715 for the
year ended May 31, 2005 from 55,738,716 for the year ended May 31, 2004.

B. Liquidity and Capital Resources

Since inception, the Corporation has financed its operations
from public and private sales of equity, the exercise of warrants and stock
options, interest income on funds available for investment and government grants
and tax credits.

Cash used in operating activities for fiscal 2006 was
$12,678,000, compared to $12,068,000 for fiscal 2005. Cash used in operating
activities was composed of net loss, add-backs or adjustments not involving cash
and a net change in non-cash working items, and amortization of prepaid
expenses.

Cash provided by financing activities in fiscal 2006 was
$41,252,000, compared to $133,000 in fiscal 2005. The main sources of cash in
fiscal 2006 were net proceeds from public and private placement financings of
$40,957,000, compared to $nil in fiscal 2005.

On August 19, 2005, the Corporation raised net proceeds of
$4,139,000 through a private placement. The placement resulted in the issuance
to investors of 5,205,500 common shares and warrants to purchase an additional
2,602,750 common shares. The purchase price of the common shares was $0.90 per
share, and the warrants are exercisable for a period of five years at an
exercise price of $1.18 per share.

On January 4, 2006, the Corporation raised net proceeds of
$10,858,000 through a public offering. A total of 7,750,000 common shares of the
Corporation were issued at $1.55 per share.

On May 9, 2006, the Corporation raised net proceeds of
$25,960,000 through a private placement. The Corporation issued 16,000,000
common shares at a price of US$1.60, together with warrants, to purchase
4,000,000 additional common shares. The warrants have a five-year term and an
exercise price of US$2.10.

The Corporation also raised $252,000 from the exercise of stock
options in fiscal 2006, compared to $133,000 in fiscal 2005.

Cash used in investing activities in fiscal 2006 was
$1,244,000, compared to $429,000 in fiscal 2005. The increase of $815,000 was
mainly due to an increase in patent costs and intangible assets.

As at May 31, 2006, the Corporation had cash and cash
equivalents totaling $34,920,000 compared with $7,591,000 at the previous
year-end.

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36

These funds are committed to short-term investments and as a
result management does not believe that the fair value of these investments
would be adversely impacted to any significant degree by a fluctuation in market
interest rates. The total number of common shares issued and outstanding at May
31, 2006 was 96,046,465 as compared to 66,826,660 at May 31, 2005.

The main purpose of Phase III trials is to obtain definitive
statistical evidence of the efficacy and safety of MC-1 and MC-4232 in order to
support an application to the TPD and FDA for commercial approval.

If either MC-1 or MC-4232 is approved for marketing by the TPD
and FDA, there will then potentially be follow-up studies (called Phase IV
trials) that may need to be completed while the drug is being marketed, in order
to adjust or extend product claims. It is not possible to estimate the scope and
size of any such studies that may be required.

While MC-1 and MC-4232 progress through clinical trials, the
Corporation will continue the drug development process. This process begins with
initial product screening which should produce preliminary candidates for
preclinical research. MC-5422 and MC-45308 are such candidates that have moved
into the preclinical research stage. Once a drug candidate reaches this stage,
it can cost in excess of $1,000,000 to advance it to the clinical trial stage.
Ongoing research and development to find preliminary candidates currently costs
the Corporation in excess of $1,000,000 per year.

Besides public or private financings, the other major
financings are planned to be through up front and milestone payments from a
large pharmaceutical company that has partnered with the Corporation for
clinical development and or marketing of the lead compound.

When additional funds are required, potential sources of
financing include strategic relationships and public or private sales of the
Corporations common shares. The Corporation does not have any committed sources
of financing at this time and it is uncertain whether additional funding will be
available when the need arises on terms that will be acceptable to the
Corporation. If funds are raised by selling additional common shares, or other
securities convertible into common shares, the ownership interests of the
Corporations existing shareholders will be diluted. If the Corporation is
unable to obtain financing when required, the Corporation would not be able to
carry out its business plan, including further clinical trials of MC-1 and
MC-4232. The Corporation would have to significantly limit its operations and
business, and its financial condition and results of operations would be
materially harmed.

At May 31, 2006, the Corporation had net working capital of
$34,197,234 compared to net working capital of $5,926,134 at May 31, 2005.
During the period ended August 10, 2006, a total of 55,000 stock options were
exercised for proceeds of $47,000.

At May 31, 2005, the Corporation had net working capital of
$5,926,134 compared to net working capital of $20,525,245 at May 31, 2004.
During the period ended August 19, 2005, no additional stock options were
exercised.

The Corporation had no long-term debt as of May 31, 2006.
Subsequent to May 31, 2006, the Corporation entered into the Credit Facility
totalling US$15.84 million with a syndicate of lenders, led by Merrill Lynch
Capital, a division of Merrill Lynch Business Financial Services Inc., and
including Silicon Valley Bank and Oxford Finance Corporation. The term of the
Credit Facility is over 42 months, with interest accruing at one-month LIBOR
plus 6.5 percent per annum. Commencing in June 2007, principal is payable
monthly on a straight-line amortization schedule over 33 consecutive monthly
installments. The Credit Facility is secured by a security interest in all
existing and after-acquired assets of the Corporation including intellectual
property.

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

Research and Development

Drug development and design begins with an idea, or theoretical
concept for treating a given disorder. The idea is advanced through the drug
design process, resulting in preliminary candidates that have theoretical
potential. Candidates are improved to achieve the optimal effectiveness with
limited toxicity.

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37

Following preclinical testing, products with the greatest
potential become lead candidates and are advanced into clinical trials (human
testing) with the intent of having them receive regulatory approval for
marketing.

The Corporation has demonstrated the effectiveness of MC-1 in
preclinical in vivo models of cardiovascular disease and Phase I and
Phase II clinical trials. Additional preclinical studies may also be performed
in order to evaluate other potential uses of MC-1 and to gather other data as
may be necessary to support future clinical objectives.

In vitro and in vivo laboratory experiments to
date have been used to study MC-1 therapeutic activity in myocardial ischemia,
ischemic reperfusion injury, and hypertension. These experiments involved
internationally recognized models (including coronary artery ligation,
Langendorff, reperfusion and hypertensive rat models), and analysis techniques
(such as electrocardiogram and hemodynamic measurements, and electron
microscopy). In vivo studies involve oral and/or intravenous
administration of the drug dose.

While MC-1s development proceeds, novel chemical compounds
will be synthesized or in-licensed and entered into further testing to evaluate
their commercial potential. As previously set forth, the Corporations drug
discovery program is pursuing medicinal chemistry strategies with the objective
of maximizing the probability of commercial potential. Novel chemical compounds
are screened for commercial viability prior to advancement into preclinical
testing. These studies are to determine bioavailability/distribution, safety and
efficacy (on both in vitro and in vivo models).

For the period from inception on September 15, 1997 to May 31,
2006, the Corporation has expended approximately $36,579,000 net of government
assistance and investment tax credits, which aggregate approximately $1,482,000,
on the research and development of MC-1, MC-4232 and other compounds.

Patents and Licenses

The Corporation has been issued 18 patents from the United
States Patent Office providing protection for certain uses of MC-1 and related
compounds in treatment of cardiovascular disease. The Corporation has also filed
24 additional applications in the United States plus corresponding patent
applications in other jurisdictions. The Corporation will continue to file
patents to extend protection of MC-1 and for new compounds in development. The
18 patents issued to the Corporation are as follows:

Patent Number
    Issue Date
    Title5,504,090
    April 2, 1996
    Compositions and methods for the
      prevention and treatment of ischemia-reperfusion organ injury5,733,916
    March 31, 1998
    Prevention and treatment of
      ischemia- reperfusion and endotoxin-related injury using adenosine and
      purino receptor antagonists6,001,842
    December 14, 1999
    Compositions and methods for use
      in ischemia- reperfusion and endotoxin-related tissue injury6,043,259
    March 28, 2000
    Treatment of Cardiovascular and
      Related Pathologies6,051,587
    April 18, 2000
    Treatment of Age Related
      Hypertension6,339,085
    January 15, 2002
    Prodrugs of MC16,417,204
    July 9, 2002
    5-AZA Analogues6,489,345
    December 2, 2003
    Treatment of Diabetes and Related
      Pathologies6,548,519
    April 15, 2003
    5-AZA Analogues6,586,414
    July 1, 2003
    Methods of Treating Stroke6,605,612
    August 12, 2003
    Mimics of MC16,677,356
    January 13, 2004
    Combination6,667,315
    December 23, 2003
    Mimics of MC16,780,997
    August 24, 2004
    Cardioprotective Phosphonates and
      Malonates6,861,439
    March 1, 2005
    Treatment of Cerebrovascular
      Disease


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38

6,867,215
    March 15, 2005
    Cardioprotective Phosphonates and
      Malonates6,890,943
    May 10, 2005
    Pyridoxal Analogues and Methods
      of Treatment6,897,228
    May 24, 2005
    Pyridoxine and Pyridoxal
      Analogues: Cardiovascular Therapeutics


Patents 5,504,090, 5,733,916 and 6,001,842 are sublicensed by
the Corporation from ENDACEA, Inc. ENDACEA, Inc. has the right to sublicense the
Sublicensed Patents to the Corporation in accordance with an agreement with the
Trustees at the University of Pennsylvania. Pursuant to a Sublicense Agreement
dated April 11, 2006, ENDACEA sublicensed the exclusive worldwide use of the
patents to the Corporation. Pursuant to the Sublicense Agreement, the
Corporation has agreed to pay ENDACEA, Inc. a royalty payment on Net Sales of
Sublicensed Products sold worldwide. The Sublicense Agreement commenced on April
11, 2006.

Patents 6,043,259, 6,051,587 and 6,339,085 are jointly owned by
the Corporation and the University of Manitoba. Pursuant to a Licence Agreement
dated August 18, 1997, an Assignment Agreement dated September 26, 1997, and an
ensuing new License Agreement dated August 30, 1999 (the Licence Agreement)
the University of Manitoba licensed the exclusive worldwide use of the patents
and the MC-1 technology to the Corporation. Pursuant to the License Agreement,
the Corporation has agreed to pay the University of Manitoba a royalty payment
of 3% of net sales from any cardiovascular product derived from the MC-1
technology. The License Agreement commenced on August 30, 1999 and shall
terminate:

| | (i)  | if a patent or patents are obtained prior to
      commercialization of a Licensed Product (as defined therein), on the
      expiration date of the last to expire of any patents covered by the Patent
      Rights (as defined therein); and
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                
| | (ii) | if a patent is not obtained prior to commercialization of
      a Licensed Product (as defined therein), on August 30,
  2009.                                                                                                                 

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

The 24 pending United States patent applications, including
those filed with the United States Patent Office as either regular or
provisional applications, are owned by the Corporation by virtue of their
inventorship by employees of the Corporation and, subsequent to June 1, 2000, by
CanAm Bioresearch Inc.

Much of the work, including some of the research methods, that
is important to the success of the Corporation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
Corporation 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 Corporation 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

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39

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).

On June 1, 2000 the Corporation 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 Corporation 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 and CDRI on July 2, 2004 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 development agreements is to expire on the completion
of all research and development activities by CanAm and CDRI, and the written
acknowledgment by CanAm, CDRI and Medicure International Inc. that no further
research projects will be undertaken (see Item 6 - Directors, Senior Management
and Employees - A. Directors and Senior Management)

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 or CDRI with at least 30 days prior written notice of its
intention to terminate, or by CanAm or CDRI 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
Corporation is to be kept confidential except in specific circumstances.

D. Trend Information

The Corporation is not aware of any trends, uncertainties,
demands, commitments or events which are reasonably likely to have a material
effect upon the Corporation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.

E. Off-balance Sheet Arrangements

As part of the Corporations ongoing business, it does not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities or SPE, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As of May 31, 2006, the
Corporation was not involved in any unconsolidated SPE transactions.

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40

F. Contractual Obligations

The following tables set forth the Corporations contractual
obligations as of May 31, 2006:

Total
    Less than 1 year
    1-3 yearsOperating Lease Obligations
    33,198
    33,198
    -Purchase Obligations*
    3,700,225
    3,700,225
    -Other Long-term Obligations
    66,000
    66,000
    -Total
    3,799,423
    3,799,423
    -


* The timing of expenditures and payments for research and
development obligations is largely at the discretion of the Corporation and the
agreements may be terminated at any time provided thirty (30) days notice is
provided. The development agreements are described in more detail below.

The Corporation and its wholly-owned subsidiary, Medicure
International Inc. have ongoing research and development agreements with third
parties in the ordinary course of business. The agreements include the research
and development of MC-1 and its related compounds. During the year ended May 31,
2006, the Corporation incurred an aggregate of $8,428,000 (2005 - $8,985,000) in
expenditures under these agreements which is included in research and
development expenses in the statement of operations. As at May 31, 2006, the
Corporation is committed to fund a further $66,000 related to clinical research
agreements with clinical research organizations (CROs) and clinical sites. The
contracts with the CROs are payable over the terms of the trials and the 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. The Corporation is also liable for the payment of
certain pass through costs. As part of these trials, the Corporation also
entered into agreements with the clinical sites participating in the trials.
These agreements require payments over the course of the study based on various
activities being completed by the site, such as patient visits and various
testing and measurement activities required per the study protocol. A
significant portion of the amounts due to the sites for these activities is not
payable until after the completion of the trial. This holdback results in a
significant accrual of trial-related expenses during the course of the study, as
the expense is recognized for accounting purposes but the cash payment is not
made until after the trial is completed. In addition, the Corporation has
committed to fund a further $3,700,000 in research and development activities
under two development agreements with contract research organizations. The
timing of expenditures and payments is largely at the discretion of the
Corporation and the agreements may be terminated at any time provided thirty
(30) days notice is provided. Subsequent to May 31, 2006, the Corporation
amended development agreements with third parties such that a further
$35,000,000 was committed to research and development expenditures. The
commitment is not included in the table above.

The Corporation periodically enters into research agreements
with third parties that include indemnification provisions customary in the
industry. These guarantees generally require the Corporation 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
Corporation. In some cases, the 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
Corporation from making a reasonable estimate of the maximum potential amount it
could be required to pay. Historically, the Corporation 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.

The Corporation has granted royalties to third parties based on
future commercial sales of MC-1, aggregating up to 4.75% on net sales. To date,
no royalties are due and/or payable.

No dividends have been declared or paid on any shares of the
Corporation since its incorporation. There can be no assurance that the
Corporation will ever declare any dividends on any of its shares, or if

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declared, what the dividend amounts will be or whether such
dividends, once declared, will continue for any future period.

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 Corporation including a brief biography of each are as follows:

Dr. Albert D. Friesen, Winnipeg, Manitoba, Canada -
Director, President, 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. Dr. Friesen previously served as a
senior executive of other publicly-traded companies, including a position as
President of Viventia Biotech Inc. (formerly Novopharm Biotech Inc.) In addition
to his role with the Corporation, 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 Corporation through A.D. Friesen
Enterprises Ltd., his private consulting corporation. Dr. Friesen devotes
substantially all of his time to the Corporation.

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

Arnold Naimark, M.D., F.R.C.P. (C), F.R.S.C. has had a
distinguished career within medicine and higher education. Dr. Naimark is
currently Director of the University of Manitoba Centre for the Advancement of
Medicine, founding Chair of the Canadian Health Services Research Foundation and
of the Canadian Biotechnology Advisory Committee, a Director of Inspiraplex and
of the Robarts Research Institute and is a member of the Research Council of the
Canadian Institute for Advanced Research. Dr. Naimark served as Head of the
Department of Physiology and later as Dean of the Faculty of Medicine at the
University of Manitoba, following which he served as the Universitys President
and Vice-Chancellor (15 years). Dr. Naimark has served on many committees and
boards, in such positions as a Director of the Canadian Imperial Bank of
Commerce, Chair of the International Review Panel for the Medical Research
Council of Canada and President of the Association of Universities and Colleges
of Canada. Dr. Naimark has also received several honourary degrees and awards,
including the Order of Canada.

Gerald P. McDole, Mississuaga, 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.

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

Mr. Quick currently serves on the Board of Directors for
Reckson Associates, 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.

Kishore Kapoor, Winnipeg, Manitoba, Canada, CA 
Director

Mr. Kapoor is a Corporate Director. He is presently a director
of Manitoba Telecom Services Inc., a public company listed on the Toronto Stock
Exchange. From November 2003 to June 2005, Mr. Kapoor was Executive
Vice-President Corporate Development of Loring Ward International Ltd., which
was formed to hold the U.S. operations of Assante Corporation. As one of the
founders of Assante Corporation, Mr. Kapoor was its Executive Vice-President
Corporate Development from March 1994 to November 2003. Prior to founding
Assante Corporation, Mr. Kapoor was a tax partner with KPMG LLP. In his 14 years
with KPMG LLP, he specialized in offering clients advice on tax, corporate
finance, mergers and acquisitions, and development of corporate strategy in a
wide range of industries, including those in the biotechnology sector.

Moray W. Merchant, MBA - Vice-President, Business and Market
Development

Moray Merchant received his MBA in Pharmaceutical Marketing
from Saint Josephs University in Philadelphia and holds a Bachelors Degree in
Business Administration from the University of New Brunswick. Mr. Merchant has
over 20 years of industry experience leading the strategic planning, sales and
marketing of pharmaceutical products. For 18 years he held several positions
with DuPont Pharma in Canada managing the sales and marketing of their
cardiovascular products, directing business development activities and
establishing and leading their generics business. Beginning in 2001, he held the
positions of Vice President, Sales and Vice President of Marketing for aaiPharma
Inc., a U.S. based specialty pharmaceutical company. In these roles he was
responsible for building the sales and marketing organizations and leading the
promotion of their acquired portfolio of pharmaceutical products. Mr. Merchant
holds the responsibility for identifying partnering opportunities, leading the
strategic planning process and overseeing the commercialization of the
Corporations cardiovascular products.

Dawson Reimer, MAES - Vice-President, Operations

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 Corporation'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 Corporation at its inception and has been directly employed by
the Corporation since 2001. Mr. Reimer is a son-in-law of Dr. Albert D. Friesen,
Director, President, Chairman and Chief Executive Officer.

Derek G. Reimer, CA - Chief Financial Officer and
Secretary

Derek Reimer came to the Corporation from Deloitte & Touche
LLP where he most recently served as a Senior Manager in the Assurance and
Advisory Services group. In this role, Mr. Reimer dealt mainly with major
corporate clients, including several TSX 100 companies, providing advice
regarding complex accounting, regulatory, and compliance issues. His previous
experience includes several years providing international accounting services to
clients exclusively in the financial services industry. Mr. Reimer is a

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Chartered Accountant who also holds a Bachelor of Commerce
(Hons.) degree in accounting from the University of Manitoba. Mr. Reimer is
responsible for managing financial systems, programs and processes to ensure the
successful accomplishment of the Corporations business objectives.

Mr. Jan-Ake Westin - Vice-President, Clinical
Development

Mr. Westin has worked as a managing director at two of Canadas
leading CROs: i3 Research and Innovus. In this capacity he has overseen the
management of numerous large cardiovascular clinical trials. Mr. Westin spent
over 20 years with Astra Pharma Inc., holding such positions as International
Clinical Research Manager and Senior Clinical Research Scientist. Mr. Westin
served in senior leadership positions with Pharmacia & Upjohn Inc. and
Pfizer/Pharmacia Corporation, where he served as Director of Clinical Operations
and as Director of Clinical Outsourcing, respectively. Mr. Westin received his
M.Sc. (Social Pharmacy) from the University of Uppsala in Sweden. Mr. Westin
provides his services through CDRI Inc, which conducts clinical development for
Medicure through a dedicated development contract.

Dr. Charles Gluchowski  Vice-President, Research &
Development

Dr. Gluchowski received his PhD. in organic chemistry from
Texas A&M University. Dr. Gluchowski has been active in the life sciences
industry for over 20 years, including extensive experience in both executive and
senior scientific positions. His experience includes serving as President and
Chief Scientific Officer at Ceretek, a drug discovery company focused on
developing novel therapeutics targeting Lipid G-Protein Coupled Receptors
(L-GPCRs). He also served as Director of Chemistry at Synaptic Pharmaceutical
Corp. where he founded the Chemistry Department and led several drug discovery
and development project teams including a Benign Prostatic Hyperplasia project
in collaboration with Merck

& Co., Inc. He began his professional career at Allergan,
Inc. where he initiated medicinal chemistry programs that led to the discovery
and development of Alphagan® and Lumigan® for the treatment of glaucoma. The
combined total sales for Alphagan® and Lumigan® in 2005 exceeded USD$400
million. He is the sole or co-inventor on over 75 patents issued in the U.S, and
has published over 45 peer-reviewed articles and book chapters. Dr. Gluchowski
provides his services to the Corporations research and development activities
through a consulting contract with CanAm Bioresearch Inc.

Business Management

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

Moray W. Merchant, MBA - Vice-President, Business and Market
Development: Mr. Merchant holds the responsibility for identifying
partnering opportunities, leading the strategic planning process and overseeing
the commercialization of the Corporations cardiovascular products. (see
Directors and Senior Management under this item).

Dawson Reimer - Vice-President, Operations:Mr. Reimer
holds the responsibility of managing the internal operations and functional
areas which include project management and strategic planning. (See Directors
and Senior Management under this item)

Derek G. Reimer, CA - Chief Financial Officer and
Secretary: Mr. Reimer participates in the Corporations financial management
and accounting practices (see Directors and Senior Management under this
item).

Heather Hlady  Director, Sales and Marketing

Heather Hlady received her B. Sc. in Chemistry from the
University of Alberta. Ms. Hlady has over 14 years of pharmaceutical management,
sales and marketing experience. Ms. Hlady has spent her career with Jouveinal,
Pfizer and most recently, Biovail. Her experience with Jouveinal brought a
portfolio of eight different products, including the launch of two products to
the market. In 1997, she moved to Pfizer Canada where she was a District Manager
for the cardiovascular portfolio. In her role as District

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44

Manager, she managed the sales and performance of the
cardiovascular product budgets, marketing and promotion, and was involved in the
launch of two products to the market. Ms. Hlady holds the responsibility for the
launch of the sales and marketing teams for Aggrastat® in the US, the branding
and marketing of Medicure as a company, and for creating a dynamic and strategic
plan for the extension of the product line.

Scientific Management

Dr. Naranjan S. Dhalla - Chief Scientific Officer

Dr. Dhalla participates in the scientific management of the
Corporation under the title Chief Scientific Officer. The principal inventor of
MC-1, Dr. Dhalla recently retired as Distinguished Professor and Director,
Institute of Cardiovascular Sciences, St. Boniface General Hospital Research
Centre, Faculty of Medicine, University of Manitoba. Dr. Dhalla is an
internationally recognized cardiovascular researcher who has received 59 honours
and awards including the Research Achievement Award of the Canadian
Cardiovascular Society, The Upjohn Award of the Pharmacological Society of
Canada, Honorary Professorship at several universities, the Order of the Buffalo
Hunt from the Province of Manitoba, and the Order of Canada. Professionally, Dr.
Dhalla has been actively promoting the scientific basis of cardiology for over
25 years.

Dr. Dhalla has served in senior positions such as Secretary
General (17 years) and President (3 years) of the International Society for
Heart Research, Editor-in-Chief (11 years) of the international journal
Molecular and Cellular Biochemistry and is currently serving on the
editorial boards of 11 other international journals. Since 1996, Dr. Dhalla has
served as Executive Director of the International Academy of Cardiovascular
Sciences. Dr. Dhalla has published 500 papers and 350 abstracts as well as
edited or authored 31 books in the area of heart research. Dr. Dhalla has
provided his services to the Corporation's research and development activities
through a consulting contract with CanAm Bioresearch Inc.

Mr. Jan-Ake Westin - Vice-President, Clinical
Development

Mr. Westin will be responsible for the design and management of
clinical studies for Medicures lead compound, MC-1, and for the clinical
aspects of other business development and research projects. Mr. Westin provides
his services to the Corporation's research and development activities through a
consulting contract with CDRI Inc. (see Directors and Senior Management under
this item).

Dr. Charles Gluchowski  Vice-President, Research &
Development

Dr. Gluchowski will be responsible for the preclinical
development for Medicures lead preclinical compounds, including, MC-45302 and
MC-5422, and for other research projects. Dr. Gluchowski provides his services
to the Corporations research and development activities through a consulting
contract with CanAm Bioresearch Inc. (see Directors and Senior Management
under this item).

Dr. Ahmad Khalil  Medical Director

Dr. Khalil received his MD from the Medical Academy IP in
Plovdiv, Bulgaria in 1986, and his M.Sc degree (1993) and PhD (1997) from The
University of Montreal. He has excellent basic research experience in the areas
of in vivo antithrombotic treatment and ischemia reperfusion, as well as
therapeutic approaches to coronary artery bypass graft surgery, much of which
was done during his tenure as researcher and lecturer at the renowned Montreal
Heart Institute. In addition, Dr. Khalil has experience as a practicing surgeon
in Europe and has presented at numerous cardiovascular conventions and published
extensively.

Dr. Jim Diakur - Director of Chemistry

Dr. Diakur is an experienced medicinal chemist who was
previously employed as Research Assistant Professor at the Noujaim Institute for
Pharmaceutical Research in the Faculty of Pharmacy, University of Alberta. At
the institute, Dr. Diakurs group was focused on the development of
carbohydrate-based

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45

pharmaceuticals for diabetes, cancer and inflammation and on
carbohydrate-based drug carriers for targeted drug delivery. He also has over
ten years of industrial research and management experience in the field of
chemistry with Chembiomed Inc. and Biomira Inc. Among other achievements, Dr.
Diakur managed a team of scientists responsible for the preclinical development
of injectable carbohydrate-based immunotherapeutic agents. Dr. Diakur is
employed by CanAm Bioresearch Inc. and works on the Corporations research and
development pursuant to the Development Agreement.

Dr. Deborah Douglas  Director of Physiology

Dr. Douglas received her Ph.D. in Animal Science from McGill
University, focusing on molecular biology related research. Her post-doctoral
experience involved cell biology research at the Institute of Cell Biology,
University of Manitoba, and the Jack Bell Research Centre, Vancouver General
Hospital, University of British Columbia. Dr. Douglas developed in vitroand in vivo models to screen for human diseases as Chief of Compound
Screening for Alviva Biopharmaceutical Inc. Dr. Douglas provides her
services to Medicure through an employment agreement with CanAm Bioresearch
Inc.

Dr. Marjorie Zettler  Director of Scientific
Affairs

Dr. Zettler received her Ph.D. in Physiology from the
University of Manitoba. Her research, which was carried out in the Division of
Stroke and Vascular Disease at the St. Boniface Research Centre, focused on
mechanisms of cardiovascular disease progression. Dr. Zettler has authored
several peer-reviewed papers and is the recipient of numerous research awards.
Dr. Zettler provides her services to Medicure through an employment agreement
with CDRI Inc.

Dr. Paul Armstrong - Clinical Consultant

Dr. Armstrong, Chair of the Advisory Board, is Professor in the
Department of Medicine, University of Alberta in Edmonton. Dr. Armstrong is an
internationally recognized cardiologist and clinical investigator with extensive
expertise in the design and conduct of clinical trials focused on acute ischemic
syndromes and congestive heart failure. Dr. Armstrong has published widely and
served as a senior advisor to major organizations and industry. Since June 1,
2000, Dr. Armstrong provides services to the Corporations research and
development activities through a consulting contract with CDRI Inc.

Scientific Advisory Board

The Corporation has established a Scientific Advisory Board to
ensure continued and proper review of research activities and work plans. The
members of the Scientific Advisory Board and a brief biography of each are as
follows:

Dr. Paul Armstrong - Chairperson

Dr. Armstrong, Chair of the Scientific Advisory Board, is
Professor in the Department of Medicine, University of Alberta in Edmonton. Dr.
Armstrong is an internationally recognized cardiologist and clinical
investigator with extensive expertise in the design and conduct of clinical
trials focused on acute ischemic syndromes and congestive heart failure. Dr.
Armstrong has published widely and served as a senior advisor to major
organizations and industry.

Dr. Stephen Hanessian

Dr. Hanessian is Professor, Department of Chemistry, University
of Montreal. Dr. Hanessian is one of North Americas most renowned medicinal
chemists with considerable experience in industry collaboration for the
discovery of new pharmaceuticals.

Dr. Morris Karmazyn

Dr. Karmazyn is a Professor in the Department of Pharmacology
and Toxicology at the University of Western Ontario in London, Ontario. Dr.
Karmazyn is internationally recognized and has received

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46

numerous distinctions for his research in the field of
myocardial ischemia and ischemic reperfusion injury.

Dr. John McNeill

Dr. McNeill is Professor and Dean Emeritus, Division of
Pharmacology and Toxicology, Faculty of Pharmaceutical Sciences at the
University of British Columbia in Vancouver. The recipient of numerous awards
and distinctions, Dr. McNeills research is centered on the biochemical
mechanism action of drugs on the heart.

Dr. Eldon Smith

Dr. Smith is a Professor at the University of Calgary Medical
School in Alberta, where his past positions include Dean of the Faculty of
Medicine, Head of the Department of Medicine and Head of the Division of
Cardiology. A distinguished clinician and research scientist, Dr. Smith has
considerable industry experience having served on the boards of several
well-recognized companies.

Dr. Pierre Theroux

Dr. Theroux is Professor of Medicine at the University of
Montreal and Chief of the Coronary Care Unit at the Montreal Heart Institute.
Dr. Therouxs innovative work is widely recognized and he has contributed
extensively to the development of new treatments for acute ischemic heart
disease.

Dr. Jeffrey Weitz

Dr. Weitz is Professor of Medicine and Haematology at McMaster
University in Hamilton where he has contributed extensively to understanding the
role of thrombosis and its treatment in cardiovascular disease. Dr. Weitz also
brings a wealth of expertise in academic-industrial collaboration and
development of new products.

Dr. Trevor Hassell

Dr. Hassell is Adjunct Professor of Medicine at the University
of the West Indies, Barbados, and Consultant Physician and Cardiologist at the
Queen Elizabeth Hospital, also in Barbados. He is President-Elect of the
Inter-American Heart Foundation, former President of the Caribbean Cardiac
Society and founder, President and member of the Board of Directors of the Heart
Foundation of Barbados.

Dr. A. Michael Lincoff

Dr. Lincoff is an interventional cardiologist in the Cleveland
Clinic Department of Cardiovascular Medicine and a staff cardiologist in the
Joseph J. Jacobs Center for Thrombosis and Vascular Biology, Department of
Molecular Cardiology at the Cleveland Clinic Research Institute. Dr. Lincoffs
specialty interests focus on high-risk and complex coronary angioplasty,
preventing restenosis, treating acute coronary syndromes and acute myocardial
infarction, and developing antithrombotic therapy during coronary
intervention.

B. Compensation

No compensation of any kind was paid to the directors and
executive officers of the Corporation during the year ended May 31, 2006, except
as follows:

On October 1, 2001, a compensation agreement was entered into
between the Corporation and A.D. Friesen Enterprises Ltd., a corporation owned
by Dr. Friesen and subsequently amended on October 1, 2003 and October 1, 2005.
For the year ended May 31, 2006, the Corporation paid A.D. Friesen Enterprises
Ltd., $191,667 in consulting compensation. Dr. Friesen is also eligible for an
annual bonus, if certain objectives of the Corporation are met, as determined by
the Board of Directors.

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47

Moray Merchant serves the Corporation as Vice President, Market
and Business Development and received a salary of $158,333 payable in equal
semi-monthly instalments in fiscal 2006.

Dawson Reimer serves the Corporation as Vice President,
Operations and received a salary of $84,167 payable in equal semi-monthly
instalments in fiscal 2006.

Derek G. Reimer serves the Corporation as Chief Financial
Officer and Secretary and received a salary of of $108,333 payable in equal
semi-monthly installments in fiscal 2006.

During the year ended May 31, 2006, the Corporation paid
directors a total of Nil (Year ended May 31, 2005: Nil; Year ended May 31, 2004:
Nil; Year ended May 31, 2003: Nil; Year ended May 31, 2002: Nil) for consulting
fees.

Additionally, the Corporation provides its directors $1,500 for
each quarterly board meeting they personally attend ($750 via telephone), and
$750 for each quarterly executive compensation, nominating and corporate
governance committee meeting or audit and finance committee meeting they attend.
The Corporation does not provide any cash compensation for its directors who are
also officers of the Corporation for their services as directors.

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

C. Board Practices

The Board of Directors presently consists of five directors.
Three directors were at the Corporations annual and special meeting of the
shareholders held on October 25, 2005. Each director holds office until the next
annual general meeting of the Corporation or until his successor is elected or
appointed, unless his office is earlier vacated in accordance with the Articles
of the Corporation, or with the provisions of the Canada Business
Corporations Act. Dr. Albert D. Friesen has served as a director of the
Corporation since September 1997. Dr. Arnold Naimark has served as a director of
the Corporation since March 2000, Dr. William A. Cochrane has served as a
director of the Corporation since October 2000 and resigned as of June 28, 2006.
Gerald McDole has served as a director of the Corporation since January 2004. On
June 29, 2005, James G. Umlah resigned as a member of its board of directors due
to increasing business commitments. Peter Quick was appointed on November 29,
2005 and Kishore Kapoor was appointed on June 28, 2006, subject to regulatory
approval.

Pursuant to Section 171 of the Canada Business Corporations
Act (the Act), the Corporation is required to have an Audit
Committee. As at the date hereof, the members of the Audit and Finance Committee
is comprised of four independent directors: Kishore Kapoor (Chair), Dr. Arnold
Naimark, Gerald McDole and Peter Quick. The relevant experience of each member
is described above. (See Item 6. Directors, Senior Management and 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.

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

The charter of the Audit and Finance Committee is reproduced
below and can be found on our website at www.medicure.com.

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48

AUDIT AND FINANCE COMMITTEE CHARTER

GENERAL FUNCTIONS, AUTHORITY, AND ROLE

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

The Audit and Finance 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
Corporation, 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 special legal, accounting, or other consultants to advise
it, and may request any officer or employee of the Corporation, 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 Corporation, its auditors and its legal advisors.

The Corporation's independent auditor is ultimately accountable
to the Board of Directors and to the Audit and Finance Committee, who, as
representatives of the Corporation'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 Audit and Finance Committee must maintain free and open
communication between the Corporation's independent auditors, Board of Directors
and Corporation 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.

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
Corporation's financial statements are complete, accurate, and in accordance
with generally accepted accounting principles. 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 Corporation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 of Directors, with such
affirmation disclosed in the Corporation's annual Information Circular.

The Board will elect, by a majority vote, one member as
chairperson.

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

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49

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 Corporation, and may not be an affiliated person
of the Corporation 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, 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.

Charter Evaluation

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 anonymously inform the Audit and Finance Committee regarding any
concerns about the Corporation's accounting, internal accounting controls or
auditing matters. The procedure shall include responding to and the retention
of, any such complaints.

Legal Responsibilities

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

INDEPENDENT AUDITOR

Nominations

Nominate annually the independent auditor to be proposed for
shareholder approval.

Compensation and Evaluation

Approve the compensation of the independent auditor, evaluate
the performance of the independent auditor and, if so determined by the
Committee, replace the independent auditor.

Approval in Advance of Related Party Transactions

Pre-approval of all related party transactions, which are
transactions or loans between the Corporation and a related party involving
goods, services, or tangible or intangible assets that are (1) material to the
Corporation or the related 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 Corporation, a company controlled by any
of those parties or a family member of any of those parties.

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50

Engagement Procedures for Audit and Non-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 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 SEC or any securities exchange
on which the Corporation'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 Corporation;

Financial information systems design and implementation consulting
  services;

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

Actuarial services;

Internal audit outsourcing services;

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

Ensure that no individual who is, or in the past 3 years has
been, affiliated with or employed by a present or former auditor of the
Corporation or an affiliate, is hired by the Corporation as a senior officer
until at least 3 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 Corporation, 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 Corporation, 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.

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51

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 Corporation's accounts.

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, as the same
may be modified or supplemented from time to time.

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

The Corporation's audited and unaudited financial statements
  and related notes;

The Corporation's MD&A and news releases related to financial
  results;

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-GAAP 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 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 Corporation's annual report.

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52

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 Corporation's 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 Corporation.

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 principles that have been discussed with management, and review and
discuss any significant changes in the accounting policies of the Corporation
and industry accounting and regulatory financial reporting proposals that may
have a significant impact on the Corporation's financial 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 Corporation'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
Corporation's financial statements or accounting policies.

Review with the Corporation's General Counsel legal matters
that may have a material impact on the financial statements, the Corporation'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
Corporation's financial statements.

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

RISK ASSESSMENT

Meet periodically with management to review the Corporation'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
Corporation's Corporate Treasury Policy.

ADOPTION OF CHARTER

This charter was originally adopted by the Board of Directors
on August 23, 2004 and is reviewed and amended as necessary on an annual
basis.

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53

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

The Committee has developed a policy to govern the
Corporation'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
Corporation'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 Corporation. 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 our website at
www.medicure.com.

D. Employees

In addition to the individuals disclosed in Section A.
Directors and Senior Management of this item, CanAm and CDRI have a combined
staff of 39 research scientists, technicians and staff dedicated solely to the
Corporations research and development activities.

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, 2006.

|Title of Class | Identity of Person or Group    | Amount Owned | Percentage of Class
|-------------- | ------------------------------ | ------------ | -------------------
|               |                                |              |                    
|Common shares  | Dr. Albert D.
      Friesen(1) | 7,662,099(1) | 7.98%              
|Common shares  | Dr. Arnold Naimark             | Nil          | Nil                
|Common shares  | Gerald P. McDole               | 10,000       | 0.01%              
|Common shares  | Peter Quick                    | Nil          | Nil                
|Common shares  | Kishore Kapoor                 | Nil          | Nil                
|Common shares  | Derek G. Reimer                | 29,500       | 0.03%              
|Common shares  | Moray Merchant                 | Nil          | Nil                
|Common shares  | Dawson Reimer                  | 199,735      | 0.20%              
|Common shares  | Jan-Ake Westin                 | Nil          | Nil                
|Common shares  | Dr. Charles Gluchowski         | Nil          | Nil                

|1) | Dr. Albert Friesen holds 427,900 shares personally or in
      an RRSP, a Canadian individual retirement plan. The rest of the shares are
      held by ADF Family Holding Corp., a private company wholly- owned by Dr.
      Friesen, his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited
      Partnership Fund (the Fund). Dr. Friesen is the CEO of the
  Fund.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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54

Incentive Stock Options

The following table discloses the stock options beneficially
held by the aforementioned persons, as of May 31, 2006. The stock options are
for shares of Common Stock of the Corporation.

Name of Person
      Number of Shares
      Subject to Issuance
      Exercise Price per
      Share
      Expiry DateDr. Albert D. Friesen
    100,000 150,000
    $1.63 $1.65
    January 5, 2009 December 6,
      2015Dr. Arnold Naimark
    100,000 50,000 35,000
    $1.10 $1.10 $1.65
    December 15, 2007 August 12,
      2008 December 6, 2015Gerald P. McDole
    100,000 75,000
    $1.63 $1.65
    January 16, 2009 December 6,
      2015Peter Quick
    100,000
    $1.65
    December 6, 2015Kishore Kapoor
    Nil
    N/A
    N/ADerek G. Reimer
    90,000 30,000 45,000
    $0.80 $1.63 $1.65
    February 4, 2007 January 5,
      2009 December 6, 2015Moray Merchant
    100,000 100,000 25,000
    $1.65 $1.12 $1.65
    September 22, 2008 August
      23, 2009 December 6, 2015Dawson Reimer
    20,000 30,000 65,000
    $1.10 $1.63 $1.65
    August 12, 2008 January 5,
      2009 December 6, 2015Jan-Ake Westin
    Nil
    N/A
    N/ADr. Charles Gluchowski
    Nil
    N/A
    N/A


The Corporation 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. Each option entitles the holder
thereof to purchase one (1) Common Share of the Corporation 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
Corporations Common Shares are listed for trading.

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 Corporation
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 7,200,000 of the
issued and outstanding Common Shares. In addition, the aggregate number of
shares reserved for issuance to any one person shall not exceed five percent
(5%) 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.

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55

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

A. Major Shareholders

As of May 31, 2006, the following table sets forth the
beneficial ownership of the Corporation's common shares by each person known by
the Corporation to own beneficially more than 5% of the issued and outstanding
common shares of the Corporation. 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 Corporation, has
been furnished by the respective nominees individually. CDS & Company,
Toronto, Ontario is a brokerage clearing house that owns 74,214,997 (77.3%) of
common shares of the Corporation on behalf of beneficial owners. The Corporation
does not know the majority of the ultimate beneficial owners of these common
shares.

|Title of Class | Identity of Person or Group                      | Amount Owned | Percentage of Class
|-------------- | ------------------------------------------------ | ------------ | -------------------
|               |                                                  |              |                    
|Common shares  | Dr. Albert D.
      Friesen(2)Winnipeg, Manitoba | 7,662,099(1) | 7.98%              

Notes:

|(1) | Amount of shares as of May 31, 2006.                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Dr. Albert Friesen holds 427,900 shares personally or in
      an RRSP. The rest of the shares are held by ADF Family Holding Corp., a
      private company wholly-owned by Dr. Friesen, his wife Mrs. Leona M.
      Friesen, and CentreStone Ventures Limited Partnership Fund (the Fund).
      Dr. Friesen is the CEO of the Fund.

As of July 19, 2006, there were 1,170 shareholders of record in
the United States holding a total of 14,964,840 common shares of the
Corporation.

To the best of the Corporation'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, 2006, the total number of issued and outstanding
common shares of the Corporation beneficially owned by the directors and
executive officers of the Corporation as a group was 7,901,334 (or 8.23% of
common shares).

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

B. Related Party Transactions

Other than as set forth below, management of the Corporation is
not aware of any material interest, direct or indirect, of any director or
officer of the Corporation, any person beneficially owning, directly or
indirectly, more than 10% of the Corporations voting securities, or any
associate or affiliate of any such person in any transaction within the last
three years or in any proposed transaction which in either case has materially
affected or will materially affect the Corporation or its subsidiaries.

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
installments. 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. 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. During the year ended May 31,
2006, the Corporation paid a total of $191,667 to A.D. Friesen Enterprises Ltd.
During the year ended May 31, 2005, the Corporation paid a total of $175,000 to
A.D. Friesen Enterprises Ltd. For the year ended May 31, 2004, the Corporation
paid a total of $166,667 to A.D. Friesen Enterprises Ltd.

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56

Dr. Friesen, a director, the Chairman, the President and the
Chief Executive Officer of the Corporation also owns a leasing company, Waverley
Business and Science Centre Inc. which entered into a lease with the Corporation
as of March 1, 2002. The lease agreement was subsequently amended on March 15,
2005. Pursuant to this agreement, the Corporation leases approximately 4,000
square feet of office space from Waverley Business and Science Centre Inc. for
minimum annual rental payments of $44,264, with additional overhead payable
under the lease dependant on usage. During fiscal 2006, $25,763 was paid in
excess of minimum rental payments for overhead costs. The agreement is for a
five year term, expiring on February 28, 2007.

Dr. Naranjan Dhalla, the Chief Scientific Officer of the
Corporation, is the principal scientist responsible for discovering the
cardiovascular benefits of MC-1. He is also a significant shareholder of the
Corporation. As an employee of the University of Manitoba he will receive 25% of
any royalties the university may receive in respect to the License Agreement. In
addition, Dr. Dhalla entered into a consulting agreement with the Corporation
effective January 18, 1998 wherein Dr. Dhalla agreed to perform certain
consulting services to the Corporation and which contract remains in effect as
at the date hereof. The Corporation is currently paying Dr. Dhalla $40,000 per
annum for these services through a contract with CanAm Bioresearch Inc.

C. Interests of Experts and Counsel

Not applicable

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements or Other Financial
Information

Financial Statements

Attached hereto are the consolidated financial statements of
the Corporation for the years ended May 31, 2006, 2005 and 2004. The
consolidated financial statements including related notes are accompanied by the
report of our 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 Corporations financial position or profitability. There are no
legal proceedings to which the Corporation is a party, nor to the best of the
knowledge of the Corporations management are any legal proceedings
contemplated.

Dividend Policy

The Corporation 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 Corporation will determine if and when dividends should be
declared and paid in the future based upon the Corporations financial position
at the relevant time. All of the Corporations Shares are entitled to an equal
share of any dividends declared and paid.

B. Significant Changes

Since May 31, 2006, the date of the most recent financial
statements, no significant changes have occurred with the exception of the
following:

In August 2006, the Corporation acquired the rights to
Aggrastat® Injection (tirofiban hydrochloride) in the United States and its
territories (Puerto Rico, Virgin Islands, and Guam) for total cash consideration
of US$19 million plus inventory from MGI Pharma Inc. Aggrastat®, a glycoprotein
(GP) IIb/IIIa inhibitor, is used for the treatment of acute coronary syndrome
(ACS) including unstable angina and non-Q-wave myocardial infarction. To finance
the acquisition, the Corporation entered into Credit Facility totaling

---

57

US$15.84 million with a syndicate of lenders, led by Merrill
Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and
including Silicon Valley Bank and Oxford Finance Corporation. The term of the
Credit Facility is over 42 months, with interest due and payable at commencement
of the loan payable on the first day of the month at one-month LIBOR plus 6.5
percent per annum. Commencing in June 2007, principal is payable monthly on a
straight-line amortization schedule over 33 consecutive monthly installments.
The Credit Facility is secured by a security interest in all existing and
after-acquired assets of the Corporation including intellectual property.

ITEM 9. THE OFFERING AND LISTING

A. Offer and Listing Details

The Corporation's common shares are listed and traded on The
Toronto Stock Exchange (TSX) under the symbol MPH and The American Stock
Exchange (Amex) under the symbol MCU. The historical trading data for the
common shares of the Corporation on the above-mentioned exchanges is set out
below.

TSX
    TSX
    Amex (1)
    Amex (1)Fiscal Period/Year Ended
    High ($)
    Low ($)
    High
    Low($US)
    ($US)May 31, 2006
    2.37
    0.83
    2.07
    0.66May 31, 2005
    1.87
    0.65
    1.37
    0.57Fiscal Quarter EndedMay 31, 2006
    2.37
    1.52
    2.07
    1.41February 28, 2006
    1.85
    1.32
    1.70
    1.15November 30, 2005
    1.44
    0.85
    1.17
    0.72August 31, 2005
    1.20
    0.83
    0.95
    0.66May 31, 2005
    1.20
    0.65
    0.95
    0.57February 28, 2005
    1.09
    0.78
    0.89
    0.62November 30, 2004
    1.24
    0.80
    1.00
    0.65August 31, 2004
    1.82
    1.10
    1.37
    0.85May 31, 2004
    2.73
    1.42
    2.06
    1.10February 29, 2004
    2.85
    1.19
    2.14
    1.60November 30, 2003
    1.84
    1.20
    N/A
    N/AAugust 31, 2003
    1.39
    0.73
    N/A
    N/AMonthJune 2006
    1.79
    1.27
    1.60
    1.20May 2006
    2.06
    1.52
    1.87
    1.41April 2006
    2.19
    1.76
    1.91
    1.55March 2006
    2.37
    1.70
    2.07
    1.47February 2006
    1.79
    1.54
    1.57
    1.34January 2006
    1.83
    1.40
    1.58
    1.20


Note:

|(1) | The Corporation commenced trading on the American Stock
      Exchange on February 17, 2004.
|--- | --------------------------------------------------------------------------------------------

B. Markets

The Corporation's common shares were listed on The Canadian
Venture Exchange under the symbol MPH, from November 29, 1999 to March 14,
2002. The common shares and Class A common shares commenced trading on the
Toronto Stock Exchange on March 15, 2002 and on the American Stock Exchange on
February 17, 2004. On March 1, 2003 all of the issued and outstanding Class A
common

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58

shares  totalling 1,280,000 shares  were converted into
common shares of the Corporation on the basis of one common share for each Class
A common shares in accordance with the Corporations Articles of Continuance.
The Class A common shares were identical in all respects to the common shares,
except that the holders were eligible for the Manitoba Equity Tax Credit until
February 28, 2003.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable

B. Memorandum and Articles of Association

1. Objects and Purposes of the Corporation

The Memorandum of the Corporation places no restrictions upon
the Corporations objects and purposes.

2. Directors

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

Section 4.14 of By-Law No.1 of the Corporation (the By-Law)
provides that a director shall not be disqualified by reason of his office from
contracting with the Corporation or a subsidiary thereof. Subject to the
provisions of the Canada Business Corporations Act(the Act), a
director shall not by reason only of his office be accountable to the
Corporation 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 Corporation and shall have been approved by
the directors or shareholders of the Corporation 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 Corporation 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 Corporation;                                                                                                                                                         
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ii)  | issue, reissue, sell or pledge debt obligations of the
      Corporation, including bonds, debentures, notes or other evidences of
      indebtedness or guarantees, whether secured or unsecured;       
|iii) | subject to section 44 of the Act, give a guarantee on
      behalf of the Corporation 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 Corporation, owned or
      subsequently acquired, to secure any obligation of the Corporation.

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

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

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59

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

3. Shares

The Articles of the Corporation provide that the Corporation 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 Corporation 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 Corporation. Subject to the rights,
privileges, restrictions and conditions attached to any other class of shares of
the Corporation, 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
Corporation and are entitled to share equally in the remaining property of the
Corporation upon liquidation, dissolution or winding-up of the Corporation.

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 Corporation, whether
voluntary or involuntary, or any other return of capital or distribution of the
assets of the Corporation 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 Corporation 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 Corporation 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.

4. Rights of Shareholders

Under the Act, shareholders of the Corporation are entitled to
examine, during its usual business hours, the Corporation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 Corporation may obtain a list of
shareholders upon payment of a reasonable fee and sending an affidavit to the
Corporation 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 Corporation, an offer to acquire
shares of the Corporation or any other matter relating to the affairs of the
Corporation.

Under the Act, shareholders of the Corporation may apply to a
court having jurisdiction directing an investigation to be made of the
Corporation. If it appears to the court that the formation, business or affairs
of the Corporation 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 Corporation.

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60

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 75% of the votes cast.

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

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 50 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 Corporation 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 By-Law or other constituent document of the
Corporation.

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61

7. Change in Control of Corporation

No provision of the Corporations articles of association,
charter or By-Law would have the effect of delaying, deferring, or preventing a
change in control of the Corporation, and operate only with respect to a merger,
acquisition or corporate restructuring of the Corporation or any of its
subsidiaries.

8. Ownership Threshold

The Manitoba and Ontario Securities 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 Ontario
Securities 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 10 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.

C. Material Contracts

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

| | a) | Development Agreement between Medicure International Inc.
      and Clinical Development Research Institute Inc. (CDRI) dated July 2,
      2004, wherein CDRI agreed to conduct research and development activities
      for Medicure International.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Amendment to Employment Agreement dated April 5, 2005
      between A.D. Friesen Enterprises Ltd. and the Corporation.                                                                                                                                
| | c) | Amendment to Employment Agreement dated April 5, 2005
      between Moray Merchant and the Corporation.                                                                                                                                               
| | d) | Amendment to Employment Agreement dated April 5, 2005
      between Dawson Reimer and the Corporation.                                                                                                                                                
| | e) | Amendment to Employment Agreement dated April 5, 2005
      between Derek Reimer and the Corporation.                                                                                                                                                 
| | f) | Amendment dated July 8, 2005 to the Development Agreement
      between Medicure International Inc. and CanAm Bioresearch Inc.                                                                                                                        
| | g) | Amendment to Employment Agreement dated October 1, 2005
      between A.D. Friesen Enterprises Ltd. and the Corporation.                                                                                                                              
| | h) | Amendment to Development Agreement dated June 1, 2000
      between CanAm Bioresearch Inc. and Medicure International Inc. dated July
      4, 2006.                                                                                                  
| | i) | Amendment to Development Agreement dated July 2, 2004
      between Medicure International Inc. and Clinical Development Research
      Institute Inc. dated July 4, 2006.                                                                            
| | j) | Amended Stock Option Plan approved October 25,
    2005.                                                                                                                                                                                              

D. Exchange Controls

There is no law or government decree of 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

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62

Shares, other than withholding tax requirements. See "Item 7
Taxation."

There is no limitation imposed by Canadian law or by the
articles or other charter documents of the Corporation on the right of a
non-resident to hold or vote the Common Shares or the Class A common shares of
the Corporation, other than as provided in the Investment Canada Act, as amended
(the "Investment Act").

The Investment Act generally prohibits implementation of a
reviewable 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 Act 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 Corporation 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 Corporation
and the value of the assets of the Corporation equalled or exceeded $184
million, the threshold established for 1999, as indicated on the financial
statements of the Corporation 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 Corporation 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
Corporation and the value of the assets were $5.0 million or more, as indicated
on the financial statements of the Corporation 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 Corporation for the purposes of the Investment Act if he,
she or it acquired a majority of the Common Shares of the Corporation or
acquired all or substantially all of the assets used in conjunction with the
Corporation's business. The acquisition of less than a majority, but one-third
or more of the Common Shares of the Corporation, would be presumed to be an
acquisition of control of the Corporation unless it could be established that
the Corporation was not controlled in fact by the acquirer through the ownership
of the Common Shares.

The Investment Act would not apply to certain transactions in
relation to Common Shares of the Corporation, including:

| | (a) | an acquisition of Common Shares of the Corporation by any
      person if the acquisition were made in the ordinary course of that
      person's business as a trader or dealer in securities;                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                       
| | (b) | an acquisition of control of the Corporation in
      connection with the realization of security granted for a loan or other
      financial assistance and not for any purpose related to the provisions of
      the Investment Act; and                                                           
| |     |                                                                                                                                                                                                                                                                                                       
| | (c) | an acquisition of control of the Corporation by reason of
      an amalgamation, merger, consolidation or corporate reorganization
      following which the ultimate direct or indirect control in fact of the
      Corporation, through the ownership of voting interests, remains
      unchanged.

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63

E. Taxation

U.S. Federal Income Tax Consequences

The following is a summary of certain 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
acquired pursuant to this prospectus.

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 tax advisor regarding the U.S. federal income, U.S. state
and local, and foreign tax consequences of the acquisition, ownership, and
disposition of Common Shares.

No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the IRS) has been requested, or will be obtained,
regarding the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares. This summary is not binding on the
IRS, and the IRS is not precluded from taking a position that is different from,
and contrary to, the positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of
the positions taken in this summary.

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 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 case, as in effect and available, as of the date of this
prospectus. 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.

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., any state in the
U.S., or 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 tax advisor regarding the U.S. federal
income, U.S. state and local, and foreign tax

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consequences (including the potential application of and
operation of any income 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; or (i) U.S. Holders that own (directly, indirectly, or constructively) 10%
or more of the total combined voting power of all classes of shares of the
Corporation entitled to vote. U.S. Holders that are subject to special
provisions under the Code, including U.S. Holders described immediately above,
should consult their own tax advisors regarding the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common
Shares.

If an entity that is classified as a partnership for U.S.
federal income tax purposes holds Common Shares, the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Shares to
such partnership and the partners of such partnership generally will depend on
the activities of the partnership and the status of such partners. Partners of
entities that are classified as partnerships for U.S. federal income tax
purposes should consult their own tax advisors regarding the U.S. federal income
tax consequences of the acquisition, ownership, and disposition of Common
Shares.

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 tax advisor 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.

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

Distributions on Common Shares

General Taxation of Distributions

Subject to the passive foreign investment company rules
discussed below, 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 Corporation.
To the extent that a distribution exceeds the current and accumulated earnings
and profits of the Corporation, 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 Disposition of Common Shares below).

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Reduced Tax Rates for Certain Dividends

For taxable years beginning before January 1, 2009, a dividend
paid by the Corporation generally will be taxed at the preferential tax rates
applicable to long-term capital gains if (a) the Corporation 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 Corporation generally will be a qualified foreign
corporation under Section 1(h)(11) of the Code (a QFC) if (a) the Corporation
is incorporated in a possession of the U.S., (b) the Corporation is eligible for
the benefits of the Canada-U.S. Tax Convention, or (c) the Common Shares are
readily tradable on an established securities market in the U.S. However, even
if the Corporation satisfies one or more of such requirements, the Corporation
will not be treated as a QFC if the Corporation is a passive foreign investment
company (as defined below) for the taxable year during which the Corporation
pays a dividend or for the preceding taxable year. In 2003, the U.S. Department
of the Treasury (the Treasury) and the IRS announced that they intended to
issue Treasury Regulations providing procedures for a foreign corporation to
certify that it is a QFC. Although these Treasury Regulations have not yet been
issued, the Treasury and the IRS have confirmed their intention to issue these
Treasury Regulations. It is expected that these Treasury Regulations will
obligate persons required to file information returns to report a dividend paid
by a foreign corporation as a dividend from a QFC if the foreign corporation
has, among other things, certified under penalties of perjury that the foreign
corporation was not a passive foreign investment company for the taxable year
during which the foreign corporation paid the dividend or for the preceding
taxable year.

As discussed below, the Corporation expects that it will be a
passive foreign investment company for its current taxable year, and the
Corporation expects that it will be a passive foreign investment company for
one or more subsequent taxable years. (See Additional Rules that May Apply to
U.S. HoldersPassive Foreign Investment Corporation below). Accordingly, the
Corporation does not expect to be a QFC for its current taxable year, and the
Corporation may not be a QFC for subsequent taxable years.

If the Corporation is not a QFC, a dividend paid by the
Corporation 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 tax
advisor regarding the dividend rules.

Distributions Paid in Foreign Currency

The amount of a distribution received on the Common Shares 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 received 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 summary, and a U.S. Holder that is a corporation should
consult its own tax advisor 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

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property received and (b) such U.S. Holders adjusted tax basis
in the Common Shares sold or otherwise disposed of. Subject to the passive
foreign investment company rules discussed below, 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.

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.

Foreign Tax Credit

A U.S. Holder that pays (whether directly or through
withholding) Canadian income tax with respect to dividends received 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 taxable year.

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 (including passive income, high
withholding tax interest, financial services income, general income, and
certain other categories of income). 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 foreign tax credit rules.
Dividends received on the Common Shares generally will be treated as foreign
source and generally will be categorized as passive income or, in the case of
certain U.S. Holders, financial services income for purposes of applying the
foreign tax credit rules. However, for taxable years beginning after December
31, 2006, the foreign tax credit limitation categories are reduced to passive
category income and general category income (and the other categories of
income, including financial services income, are eliminated). The foreign tax
credit rules are complex, and each U.S. Holder should consult its own tax
advisor 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 tax advisor regarding the information reporting and backup
withholding tax rules.

Additional Rules that May Apply to U.S. Holders

If the Corporation 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 a U.S. Holder of the acquisition,
ownership, and disposition of Common Shares.

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Passive Foreign Investment Company

The Corporation generally will be a passive foreign investment
company under Section 1297(a) of the Code (a PFIC) if, for a taxable year,
(a) 75% or more of the gross income of the Corporation for such taxable year is
passive income or (b) on average, 50% or more of the assets held by the
Corporation 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 Corporation is not publicly traded and
either is a controlled 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.

For purposes of the PFIC income test and asset test described
above, if the Corporation owns, directly or indirectly, 25% or more of the total
value of the outstanding shares of another foreign corporation, the Corporation
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
Corporation 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.

The Corporation expects that it will be a PFIC for its current
taxable year, and the Corporation expects that it will be a PFIC for one or more
subsequent taxable years. The determination of whether the Corporation 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 various interpretations. In
addition, whether the Corporation will be a PFIC for its current taxable and
each subsequent taxable year depends on the assets and income of the Corporation
over the course of each such taxable year and, as a result, cannot be predicted
with certainty as of the date of this prospectus. Accordingly, there can be no
assurance that the IRS will not challenge the determination made by the
Corporation concerning its PFIC status or that the Corporation will not be a
PFIC for any taxable year.

Default PFIC Rules Under Section 1291 of the Code

If the Corporation 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 Corporation 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.

A Non-Electing U.S. Holder will be subject to the rules of
Section 1291 of the Code with respect to (a) any gain recognized on the sale or
other taxable disposition of Common Shares and (b) any excess distribution
received on the Common Shares. A distribution generally will be an excess
distribution to the extent that such distribution (together with all other
distributions received in the current taxable year) exceeds 125% of the average
distributions received during the three preceding taxable years (or during a
U.S. Holders holding period for the Common Shares, if shorter).

Under Section 1291 of the Code, any gain recognized on the sale
or other taxable disposition of Common Shares, and any excess distribution
received 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 (other than
years prior to the first taxable year of the Corporation beginning after
December 31, 1986 for which the Corporation was not a PFIC) will be subject to
U.S. federal income tax at the highest tax rate 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. Such a Non-Electing
U.S. Holder that is not a corporation must treat any such interest paid as
personal interest, which is not deductible. The amount of any such gain or
excess distribution allocated to the current year of such Non-Electing U.S.
Holders

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holding period for the Common Shares will be treated as
ordinary income in the current year, and no interest charge will be incurred
with respect to the resulting tax liability for the current year.

If the Corporation is a PFIC for any taxable year during which
a Non-Electing U.S. Holder holds Common Shares, the Corporation will continue to
be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless
of whether the Corporation ceases to be a PFIC in one or more subsequent taxable
years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by
electing to recognize gain (which will be taxed under the rules of Section 1291
of the Code discussed above) as if such Common Shares were sold on the last day
of the last taxable year for which the Corporation was a PFIC.

QEF Election

The procedure for making a QEF Election, and the U.S. federal
income tax consequences of making a QEF Election, will depend on whether such
QEF Election is timely. A QEF Election generally will be timely if it is made
for the first year in a U.S. Holders holding period for the Common Shares in
which the Corporation is a PFIC. In this case, a U.S. Holder may make a timely
QEF Election by filing the appropriate QEF Election documents with such U.S.
Holders U.S. federal income tax return for such first year. However, if the
Corporation was a PFIC in a prior year in a U.S. Holders holding period for the
Common Shares, then in order to be treated as making a timely QEF Election,
such U.S. Holder must elect to recognize gain (which will be taxed under the
rules of Section 1291 of the Code discussed above) as if the Common Shares were
sold on the qualification date for an amount equal to the fair market value of
the Common Shares on the qualification date. The qualification date is the
first day of the first taxable year in which the Corporation was a QEF with
respect to such U.S. Holder. In addition, under very limited circumstances, a
U.S. Holder may make a retroactive QEF Election if such U.S. Holder failed to
file the QEF Election documents in a timely manner.

A QEF Election will apply to the taxable year for which such
QEF Election is made and to all subsequent taxable years, unless such QEF
Election is invalidated or terminated or the IRS consents to revocation of such
QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent taxable
year, the Corporation ceases to be a PFIC, the QEF Election will remain in
effect (although it will not be applicable) during those taxable years in which
the Corporation is not a PFIC. Accordingly, if the Corporation becomes a PFIC in
another subsequent taxable year, the QEF Election will be effective and the U.S.
Holder will be subject to the QEF rules described above during any such
subsequent taxable year in which the Corporation qualifies as a PFIC. In
addition, the QEF Election will remain in effect (although it will not be
applicable) with respect to a U.S. Holder even after such U.S. Holder disposes
of all of such U.S. Holders direct and indirect interest in the Common Shares.
Accordingly, if such U.S. Holder reacquires an interest in the Corporation, such
U.S. Holder will be subject to the QEF rules described above for each taxable
year in which the Corporation is a PFIC.

A U.S. Holder that makes a timely QEF Election generally will
not be subject to the rules of Section 1291 of the Code discussed above. For
example, a U.S. Holder that makes a timely QEF Election generally will recognize
capital gain or loss on the sale or other taxable disposition of Common
Shares.

However, for each taxable year in which the Corporation is a
PFIC, a U.S. Holder that makes a QEF Election 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 Corporation, which will be taxed as long-term capital gain to such U.S.
Holder, and (b) and the ordinary earnings of the Corporation, which will be
taxed as ordinary income to such U.S. Holder. Generally, net capital gain is
the excess of (a) net long-term capital gain over (b) net short-term capital
loss, and ordinary earnings are the excess of (a) earnings and profits over
(b) net capital gain. 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
Corporation is a PFIC, regardless of whether such amounts are actually
distributed to such U.S. Holder by the Corporation. However, a U.S. Holder that
makes a QEF Election may, subject to certain limitations, elect to defer payment
of current U.S. federal income tax on such amounts, subject to an interest
charge. If such U.S. Holder is not a corporation, any such interest paid will be
treated as personal interest, which is not deductible.

A U.S. Holder that makes a QEF Election generally (a) may
receive a tax-free distribution from the Corporation to the extent that such
distribution represents earnings and profits of the Corporation that

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were previously included in income by the U.S. Holder because
of such QEF Election and (b) will adjust such U.S. Holders tax basis in the
Common Shares to reflect the amount included in income or allowed as a tax-free
distribution because of such QEF Election.

The Corporation currently intends to provide, for each taxable
year that the Corporation is a PFIC, each U.S. Holder that has made a QEF
Election with (a) a PFIC Annual Information Statement as described in Treasury
Regulation Section 1.1295 -1(g) and (b) all additional information that such
U.S. Holder is required to obtain in connection with maintaining such QEF
Election. Each U.S. Holder should consult its own tax advisor regarding the
availability of, and procedure for making, a QEF Election.

Mark-to-Market Election

A U.S. Holder may make a Mark-to-Market Election only if the
Common Shares are marketable stock. The Common Shares generally will be
marketable stock if the Common Shares are regularly traded on a qualified
exchange or other market. For this purpose, a qualified exchange or other
market includes (a) a national securities exchange that is registered with the
Securities and Exchange Commission, (b) the national market system established
pursuant to section 11A of the Securities and Exchange Act of 1934 (the
Exchange Act), or (c) a foreign securities exchange that is regulated or
supervised by a governmental authority of the country in which the market is
located, provided that (i) such foreign exchange has trading volume, listing,
financial disclosure, surveillance, and other requirements designed to prevent
fraudulent and manipulative acts and practices, remove impediments to and
perfect the mechanism of a free, open, fair, and orderly market, and protect
investors (and the laws of the country in which the foreign exchange is located
and the rules of the foreign exchange ensure that such requirements are actually
enforced) and (ii) the rules of such foreign exchange effectively promote active
trading of listed stocks. If the Common Shares are traded on such a qualified
exchange or other market, the Common Shares generally will be regularly traded
for any calendar year during which the Common Shares are traded, other than in
de minimis quantities, on at least 15 days during each calendar quarter.

A Mark-to-Market Election applies to the taxable year in which
such Mark-to-Market Election is made and to each subsequent taxable year, unless
the Common Shares cease to be marketable stock or the IRS consents to
revocation of such election. Each U.S. Holder should consult its own tax advisor
regarding the availability of, and procedure for making, a Mark-to-Market
Election.

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.
However, if a U.S. Holder makes a Mark-to-Market Election after the beginning of
such U.S. Holders holding period for the Common Shares and such U.S. Holder has
not made a timely QEF Election, the rules of Section 1291 of the Code discussed
above will apply to certain dispositions of, and distributions on, the Common
Shares.

A U.S. Holder that makes a Mark-to-Market Election will include
in ordinary income, for each taxable year in which the Corporation 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 adjusted
tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market
Election will be allowed a deduction in an amount equal to the lesser of (a) the
excess, if any, of (i) such U.S. Holders adjusted tax basis in the Common
Shares over (ii) the fair market value of such Common Shares as of the close of
such taxable year or (b) the excess, if any, of (i) the amount included in
ordinary income because of such Mark-to-Market Election for prior taxable years
over (ii) the amount allowed as a deduction because of such Mark-to-Market
Election for prior taxable years.

A U.S. Holder that makes a Mark-to-Market Election generally
will adjust such U.S. Holders tax basis in the Common Shares to reflect the
amount included in gross income or allowed as a deduction because of such
Mark-to-Market Election. In addition, upon a sale or other taxable disposition
of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will
recognize ordinary income or loss (not to exceed the excess, if any, of (a) the
amount included in ordinary income because of such Mark-to-Market Election for
prior taxable years over (b) the amount allowed as a deduction because of such
Mark-to-Market Election for prior taxable years).

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Other PFIC Rules

Under Section 1291(f) of the Code, the IRS has issued proposed
Treasury Regulations that, subject to certain exceptions, would cause a U.S.
Holder that had not made a timely QEF Election to recognize gain (but not loss)
upon certain transfers of Common Shares that would otherwise be tax-deferred
(such as gifts and exchanges pursuant to tax-deferred reorganizations under
Section 368 of the Code). However, the specific U.S. federal income tax
consequences to a U.S. Holder may vary based on the manner in which Common
Shares are transferred.

Certain additional adverse rules will apply with respect to a
U.S. Holder if the Corporation is a PFIC, regardless of whether such U.S. Holder
makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S.
Holder that uses Common Shares as security for a loan will, except as may be
provided in Treasury Regulations, be treated as having made a taxable
disposition of such Common Shares.

The PFIC rules are complex, and each U.S. Holder should consult
its own tax advisor 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 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
in Canada, deals at arms length and is not affiliated with us for the purpose
of the Tax Act, holds the Common Shares as capital property and does not 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 the Canada -
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 Customs and 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 U.S. or of any other jurisdiction
outside Canada.

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.

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.

---

71

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 us 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 our voting stock 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, provided
that the shares do not 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 prescribed
stock exchange (which currently includes the TSX and Amex) 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 all such persons has not owned
25% or more of the issued shares of any series or class of our 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 Corporation, who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax 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
Corporation, to whom such shares are capital property, and to whom such shares
are not "taxable Canadian property" (as defined in the Canadian Tax Act). This
summary does not apply to a non-resident insurer.

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

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") 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

---

72

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 Corporation 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 Corporation 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
Corporation at any time within five years preceding the particular time.

A holder of shares of the Corporation 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 Corporation, 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 Corporation.

F. Dividends and Paying Agents

Not applicable

G. Statement by Experts

Not applicable

H. Documents on Display

The documents described herein may be inspected at the head
office of Corporation at 4  1200 Waverley Street, Winnipeg, Manitoba, Canada
R3T 0P4, during normal business hours.

I. Subsidiary Information

Not applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

INTEREST RATE RISK

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

---

73

Due to the short-term nature of these investments, the
Corporation believes there is no material exposure to interest rate risk arising
from such investments and accordingly, no quantitative tabular disclosure is
required.

As disclosed above, subsequent to year-end the Corporation
incurred significant debt in connection with its acquisition of the rights of
Aggrastat® in the United States and its territories. As this debt bears interest
at a fluctuating rate, the Corporation is now exposed to interest rate risk.

FOREIGN EXCHANGE RISK

The Corporations primary currency of operations is the
Canadian dollar. However, the Corporation has expenditures and holds investments
denominated in a foreign currency. In fiscal 2006, it is estimated that
approximately 15% of the Corporations expenditures were denominated in a
foreign currency. To date the Corporation 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.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not applicable

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES

Not applicable

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

Not applicable

ITEM 15. CONTROLS AND PROCEDURES

The Corporation carried out an evaluation, under the
supervision and with the participation of the Corporation's management,
including the Corporation's chief executive officer and its chief financial
officer, of the effectiveness of the design and operation of the Corporation's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Corporation's chief executive officer and its chief
financial officer concluded that the Corporation's disclosure controls and
procedures as of a date that is within 90 days of the date of filing of this
Form 20-F are effective in alerting, on a timely basis, material information
relating to the Corporation that is to be publicly disclosed.

There have been no changes in the Corporation's internal
controls over financial reporting identified in connection with the evaluation
described in the preceding paragraph that occurred during the period covered by
this annual report that has materially affected, or is reasonably likely to
materially affect, the Corporation's internal controls over financial
reporting.

ITEM 16. RESERVED

Not applicable

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As of May 31, 2006, Dr. William A. Cochrane, a non-employee
director, was a member of the audit committee of the Corporation. Dr. Cochrane
resigned from the audit committee on June 28, 2006 and Mr. Kishore Kapoor, a
non-employee director, was appointed to the committee on June 28, 2006. The
board of directors of the Corporation has determined that both Dr. Cochrane and
Mr. Kapoor (i) qualify as an

---

74

audit committee financial expert pursuant to Items 16A(b) and
(c) of Form 20-F and (ii) are independent as defined by Rule 121A of the Amex
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 Corporation adopted a written Code of
Business Conduct and Ethics (Code of Ethics) that applies to the Corporation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
Corporations employees live up to high ethical standards. A copy of the Code of
Ethics is maintained on the Corporations website at www.medicure.com.

The Corporation intends to disclose any amendment to or waiver
from any provision in the 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
Corporations Internet website.

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 fees
    2006
    2005$54,835
    $26,240


Audit fees consist of fees paid for the audit of the
Corporations annual financial statements.

(b) Audit-related fees
    2006
    2005$64,542
    $ -


Audit-related fees consist of fees paid for the review of the
Corporations interim financial statements and for services associated with the
issuance of prospectuses.

(c) Tax fees -No compensation was paid to KPMG for tax
compliance, tax advice and tax planning in fiscal 2006 or 2005.

(d) All other fees
    2006
    2005$71,292
    $13,200


All other fees consist of fees paid for translation services
and assistance with Sarbanes-Oxley compliance planning.

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

Not applicable

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

Not applicable

---

75

PART III

ITEM 17. FINANCIAL STATEMENTS

The consolidated financial statements were prepared in
accordance with Canadian GAAP 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 10 of the notes to the consolidated financial statements.

The consolidated financial statements are in the following
order:

| | 1. | Report of Independent Registered
        Public Accounting Firm;                                   
| | -- | ---------------------------------------------------------------------------------------------------
| | 2. | Consolidated Balance Sheets;                                                                       
| | 3. | Consolidated Statements of Operations
        and Deficit Accumulated During the Development Stage;
| | 4. | Consolidated Statements of Cash Flows;
        and                                                 
| | 5. | Notes to Consolidated Financial Statements.                                                        

---

76









Consolidated Financial Statements
of

MEDICURE
INC.(A Development Stage Enterprise)

Years ended May 31, 2006, 2005 and
2004

---

77

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Directors of Medicure Inc.

We have audited the consolidated balance sheets of Medicure
Inc. (a Development Stage Enterprise) as at May 31, 2006 and 2005 and the
consolidated statements of operations and deficit accumulated during the
development stage and cash flows for each of the years in the three year period
ended May 31, 2006 and for the period cumulative from inception on September 15,
1997 to May 31, 2006. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our audit opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of the
company as at May 31, 2006 and 2005 and the results of its operations and its
cash flows for each of the years in the three year period ended May 31, 2006 and
for the period cumulative from inception on September 15, 1997 to May 31, 2006,
in conformity with Canadian generally accepted accounting principles.

As discussed in note 2(f) to the consolidated financial
statements, the company changed its method of accounting for stock-based
compensation in fiscal 2004.

Canadian generally accepted accounting principles vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Information relating to the nature and effect of
such differences is presented in note 10 to the consolidated financial
statements.

(signed) KPMG LLP

Chartered Accountants

Winnipeg, Canada

June 30, 2006, except as to note 11, which is
     as of August 9, 2006

---

78

MEDICURE INC.(A Development
Stage Enterprise)

Consolidated Balance Sheets (Expressed in Canadian
dollars)

|                                                       |   | May 31,     |   |   | May 31,     |  
|------------------------------------------------------ | - | ----------- | - | - | ----------- | -
|                                                       |   | 2006        |   |   | 2005        |  
|                                                       |   |             |   |   |             |  
|                                                       |   |             |   |   |             |  
|Assets                                                 |   |             |   |   |             |  
|                                                       |   |             |   |   |             |  
|Current assets:                                        |   |             |   |   |             |  
|Cash and cash equivalents                              | $ | 34,920,433  |   | $ | 7,590,918   |  
|Accounts
      receivable                              |   | 458,424     |   |   | 469,766     |  
|Research advance (note 7)                              |   | 200,000     |   |   | 200,000     |  
|Prepaid expenses                                       |   | 262,716     |   |   | 398,204     |  
|                                                       |   | 35,841,573  |   |   | 8,658,888   |  
|                                                       |   |             |   |   |             |  
|Property and equipment (note 3)                        |   | 50,663      |   |   | 81,002      |  
|                                                       |   |             |   |   |             |  
|Intangible assets
      (note 4)                       |   | 2,921,841   |   |   | 1,332,969   |  
|                                                       |   |             |   |   |             |  
|                                                       | $ | 38,814,077  |   | $ | 10,072,859  |  
|                                                       |   |             |   |   |             |  
|                                                       |   |             |   |   |             |  
|Liabilities and Shareholders'
      Equity             |   |             |   |   |             |  
|                                                       |   |             |   |   |             |  
|Current liabilities:                                   |   |             |   |   |             |  
|Accounts payable and
      accrued liabilities         | $ | 1,644,339   |   | $ | 2,732,754   |  
|                                                       |   |             |   |   |             |  
|Shareholders equity:                                  |   |             |   |   |             |  
|Capital
      stock (note 5):                          |   |             |   |   |             |  
|Authorized:                                            |   |             |   |   |             |  
|Unlimited
      number of common voting shares         |   |             |   |   |             |  
|Unlimited number of class
      A common voting shares |   |             |   |   |             |  
|Unlimited
      number of preferred shares             |   |             |   |   |             |  
|Issued:                                                |   |             |   |   |             |  
|96,046,465
      common voting shares                  |   |             |   |   |             |  
|(2005 - 66,826,660)                                    |   | 81,226,634  |   |   | 39,864,296  |  
|Contributed surplus [note 5(c)]                        |   | 2,070,670   |   |   | 996,301     |  
|Deficit accumulated during the development stage       |   | (46,127,566 | ) |   | (33,520,492 | )
|                                                       |   | 37,169,738  |   |   | 7,340,105   |  
|                                                       |   |             |   |   |             |  
|Nature of operations (note 1)                          |   |             |   |   |             |  
|Commitments and contingency (note 7)                   |   |             |   |   |             |  
|Subsequent events (notes 7 and 11)                     |   |             |   |   |             |  
|                                                       |   |             |   |   |             |  
|                                                       | $ | 38,814,077  |   | $ | 10,072,859  |  

See accompanying notes to consolidated financial
statements.

---

79

MEDICURE INC.(A Development
Stage Enterprise)

Consolidated Statements of Operations and Deficit Accumulated
During the Development Stage (Expressed in Canadian dollars)

|                                 |   |             |   |   |             |   |   |             |   |   | Cumulative from    |  
|-------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ------------------ | -
|                                 |   |             |   |   |             |   |   |             |   |   | inception on       |  
|                                 |   | Year ended  |   |   | Year ended  |   |   | Year ended  |   |   | September 15,      |  
|                                 |   | May 31,     |   |   | May 31,     |   |   | May 31,     |   |   | 1997 to            |  
|                                 |   | 2006        |   |   | 2005        |   |   | 2004        |   |   | May 31,
      2006 |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Revenue:                         |   |             |   |   |             |   |   |             |   |   |                    |  
|Interest and other income        | $ | 299,737     |   | $ | 394,784     |   | $ | 445,461     |   | $ | 1,782,541          |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Expenses:                        |   |             |   |   |             |   |   |             |   |   |                    |  
|General
      and administrative |   | 2,858,443   |   |   | 2,256,499   |   |   | 1,958,222   |   |   | 10,867,414         |  
|Research and                     |   |             |   |   |             |   |   |             |   |   |                    |  
|development (note 7)             |   | 10,219,025  |   |   | 13,564,069  |   |   | 4,435,320   |   |   | 38,060,645         |  
|Research and development
      - |   |             |   |   |             |   |   |             |   |   |                    |  
|government assistance            |   |            |   |   |            |   |   |            |   |   | (261,741           | )
|Research and development
      - |   |             |   |   |             |   |   |             |   |   |                    |  
|investment tax credits           |   | (478,473    | ) |   | (553,335    | ) |   |            |   |   | (1,220,120         | )
|Amortization                     |   | 107,379     |   |   | 57,874      |   |   | 41,005      |   |   | 327,885            |  
|                                 |   | 12,706,374  |   |   | 15,325,107  |   |   | 6,434,547   |   |   | 47,774,083         |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Other expenses (income):         |   |             |   |   |             |   |   |             |   |   |                    |  
|Foreign exchange loss (gain)     |   | 200,437     |   |   | (64,413     | ) |   |            |   |   | 136,024            |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Loss for the period              |   | (12,607,074 | ) |   | (14,865,910 | ) |   | (5,989,086  | ) |   | (46,127,566        | )
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Deficit accumulated during the   |   |             |   |   |             |   |   |             |   |   |                    |  
|development stage,               |   |             |   |   |             |   |   |             |   |   |                    |  
|beginning of period              |   | (33,520,492 | ) |   | (18,654,582 | ) |   | (12,665,496 | ) |   |                   |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Deficit accumulated during       |   |             |   |   |             |   |   |             |   |   |                    |  
|the development stage,           |   |             |   |   |             |   |   |             |   |   |                    |  
|end
      of period              | $ | (46,127,566 | ) | $ | (33,520,492 | ) | $ | (18,654,582 | ) | $ | (46,127,566        | )
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Basic and diluted loss per       |   |             |   |   |             |   |   |             |   |   |                    |  
|share                            | $ | (0.17       | ) | $ | (0.22       | ) | $ | (0.11       | ) |   |                    |  
|                                 |   |             |   |   |             |   |   |             |   |   |                    |  
|Weighted average number of       |   |             |   |   |             |   |   |             |   |   |                    |  
|common shares used in computing  |   |             |   |   |             |   |   |             |   |   |                    |  
|basic and diluted loss per share |   | 75,144,764  |   |   | 66,717,715  |   |   | 55,738,716  |   |   |                    |  

See accompanying notes to consolidated financial
statements.

---

80

MEDICURE INC.(A Development
Stage Enterprise)

Consolidated Statements of Cash Flows (Expressed in
Canadian dollars)

|                                           |   |             |   |   |             |   |   |            |   |   | Cumulative from |  
|------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ---------- | - | - | --------------- | -
|                                           |   |             |   |   |             |   |   |            |   |   | inception on    |  
|                                           |   | Year ended  |   |   | Year ended  |   |   | Year ended |   |   | September 15,   |  
|                                           |   | May 31,     |   |   | May 31,     |   |   | May 31,    |   |   | 1997 to         |  
|                                           |   | 2006        |   |   | 2005        |   |   | 2004       |   |   | May 31, 2006    |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Cash provided by (used in):                |   |             |   |   |             |   |   |            |   |   |                 |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Operating activities:                      |   |             |   |   |             |   |   |            |   |   |                 |  
|Loss for
      the period                  | $ | (12,607,074 | ) | $ | (14,865,910 | ) | $ | (5,989,086 | ) | $ | (46,127,566     | )
|Adjustments for:                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Amortization of property and               |   |             |   |   |             |   |   |            |   |   |                 |  
|equipment and
      intangible             |   |             |   |   |             |   |   |            |   |   |                 |  
|assets                                     |   | 107,379     |   |   | 57,874      |   |   | 41,005     |   |   | 327,885         |  
|Write-off of property and equipment        |   | 17,212      |   |   |            |   |   |           |   |   | 17,212          |  
|Stock-based compensation                   |   | 745,570     |   |   | 504,878     |   |   | 386,048    |   |   | 1,741,871       |  
|Change in the following:                   |   |             |   |   |             |   |   |            |   |   |                 |  
|Accounts receivable                        |   | 11,342      |   |   | (191,669    | ) |   | (198,553   | ) |   | (433,778        | )
|Prepaid expenses                           |   | 135,488     |   |   | 512,133     |   |   | (855,289   | ) |   | (262,716        | )
|Research advance                           |   |            |   |   |            |   |   |           |   |   | (200,000        | )
|Investment tax credit receivable           |   |            |   |   |            |   |   |           |   |   | 35,770          |  
|Accounts payable and                       |   |             |   |   |             |   |   |            |   |   |                 |  
|accrued liabilities                        |   | (1,088,415  | ) |   | 1,915,179   |   |   | 463,667    |   |   | 1,620,030       |  
|                                           |   | (12,678,498 | ) |   | (12,067,515 | ) |   | (6,152,208 | ) |   | (43,281,292     | )
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Investing activities:                      |   |             |   |   |             |   |   |            |   |   |                 |  
|Acquisition of property and equipment      |   | (19,671     | ) |   | (42,796     | ) |   | (21,731    | ) |   | (219,320        | )
|Cash of
      acquired business at         |   |             |   |   |             |   |   |            |   |   |                 |  
|acquisition                                |   |            |   |   |            |   |   |           |   |   | 727,005         |  
|Intangible assets                          |   | (1,224,223  | ) |   | (386,157    | ) |   | (231,205   | ) |   | (2,638,443      | )
|                                           |   | (1,243,894  | ) |   | (428,953    | ) |   | (252,936   | ) |   | (2,130,758      | )
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Financing activities:                      |   |             |   |   |             |   |   |            |   |   |                 |  
|Issuance of
      common shares,           |   |             |   |   |             |   |   |            |   |   |                 |  
|net of share issue costs                   |   | 41,251,907  |   |   | 133,000     |   |   | 22,229,074 |   |   | 79,633,819      |  
|Change in due to related
      parties     |   |            |   |   |            |   |   |           |   |   | 698,664         |  
|                                           |   | 41,251,907  |   |   | 133,000     |   |   | 22,229,074 |   |   | 80,332,483      |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Increase (decrease) in cash
      and cash |   |             |   |   |             |   |   |            |   |   |                 |  
|equivalents                                |   | 27,329,515  |   |   | (12,363,468 | ) |   | 15,823,930 |   |   | 34,920,433      |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Cash and cash equivalents, beginning       |   |             |   |   |             |   |   |            |   |   |                 |  
|of period                                  |   | 7,590,918   |   |   | 19,954,386  |   |   | 4,130,456  |   |   |                |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Cash and cash equivalents,
      end of    |   |             |   |   |             |   |   |            |   |   |                 |  
|period                                     | $ | 34,920,433  |   | $ | 7,590,918   |   | $ | 19,954,386 |   | $ | 34,920,433      |  
|                                           |   |             |   |   |             |   |   |            |   |   |                 |  
|Non-cash transactions:                     |   |             |   |   |             |   |   |            |   |   |                 |  
|Interest paid during the period            | $ |            |   | $ |            |   | $ |           |   | $ | 10,306          |  
|Value
      assigned to shares issued      |   |             |   |   |             |   |   |            |   |   |                 |  
|as consideration for acquisition           |   |             |   |   |             |   |   |            |   |   |                 |  
|of Medicure, net of cash acquired          |   |             |   |   |             |   |   |            |   |   |                 |  
|of $727,005                                |   |            |   |   |            |   |   |           |   |   | 755,379         |  
|Value
      assigned to stock options      |   |             |   |   |             |   |   |            |   |   |                 |  
|granted as consideration for               |   |             |   |   |             |   |   |            |   |   |                 |  
|acquisition of intellectual property       |   |             |   |   |             |   |   |            |   |   |                 |  
|from third party (note 4)                  |   | 439,230     |   |   |            |   |   |           |   |   | 439,230         |  
|Value
      assigned to placement agents  |   |             |   |   |             |   |   |            |   |   |                 |  
|stock-based compensation related           |   |             |   |   |             |   |   |            |   |   |                 |  
|to August
      19, 2005 private placement |   |             |   |   |             |   |   |            |   |   |                 |  
|[note 5(b)]                                |   | 42,758      |   |   |            |   |   |           |   |   | 42,758          |  

See accompanying notes to consolidated financial
statements.

---

81

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|1. | Nature of operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The company is engaged in the discovery and development
      of cardiovascular therapeutics and is currently in the research and
      development phase of its lead products, MC-1 and MC-4232. To date, the
      company has no products currently in commercial production or use.
      Accordingly, the company is considered to be a development stage
      enterprise for accounting purposes. Since September 15, 1997, the date of
      inception of the company through to May 31, 2006, the company has expended
      approximately $36,579,000 net of government assistance and investment tax
      credits, which aggregate approximately $1,482,000, on the research and
      development of MC-1, MC-4232 and other compounds.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | To date, the company has financed its cash requirements
      primarily through share issuances, investment tax credits, government
      grants and interest income. The success of the company is dependent on its
      ability to obtain sufficient funds to conduct its clinical trials and to
      successfully commercialize its products. Subsequent to May 31, 2006, the
      company acquired the rights to AGGRASTAT® Injection (tirofiban
      hydrochloride) in the United States and its territories (Puerto Rico,
      Virgin Islands, and Guam) as disclosed in note 11.                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

---

82

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------
|   |                                               
|   | (c)                                           
|   |                                               
|   |                                               

| | Asset                  | Basis               | Annual Rate
| | ---------------------- | ------------------- | -----------
| |                        |                     |            
| | Computer equipment     | Straight-line       | 25%        
| | Office equipment       | Diminishing balance | 20%        
| | Scientific equipment   | Diminishing balance | 20%        
| | Leasehold improvements | Straight-line       | 20%        

| | (d) | 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. Technology licenses, which include licenses and
      rights to technologies, are initially recorded at fair value based on
      consideration paid and amortized on a straight-line basis over the
      estimated useful life of the underlying technologies.             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (e) | Impairment of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | On a regular basis, management reviews the valuation of
      long-lived assets, which includes property and equipment and intangible
      assets, taking into consideration any events and circumstances which may
      impact recoverable value. Section 3063 of the CICA Handbook, Impairment
      of Long-Lived Assets,prescribes rigorous principles for the
      recognition, measurement and disclosure of any impairment of long-lived
      assets. Management has reviewed the carrying value of the long-lived
      assets using this guidance and determined no impairment currently
      exists.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (f) | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The company has a stock option plan [note 5(d)] 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 [note
  5(d)].                                                                                                                                                                                                                                                                                                                     

---

83

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------
|   |                                               
|   | (g)                                           
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   |                                               
|   | (h)                                           
|   |                                               
|   |                                               
|   |                                               
|   | (i)                                           
|   |                                               
|   |                                               

---

84

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|2. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------
|   |                                               
|   | (j)                                           
|   |                                               
|   |                                               
|   |                                               
|   | (k)                                           
|   |                                               
|   |                                               
|   |                                               
|   | (l)                                           
|   |                                               
|   |                                               
|   |                                               
|3. | Property and
equipment:                       

| |                        |   |         |  |   | Accumulated  |  |   | Net book | 
| | ---------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | May
      31, 2006     |   | Cost    |  |   | amortization |  |   | value    | 
| |                        |   |         |  |   |              |  |   |          | 
| | Computer equipment     | $ | 91,629  |  | $ | 76,156       |  | $ | 15,473   | 
| | Office equipment       |   | 43,199  |  |   | 14,303       |  |   | 28,896   | 
| | Leasehold improvements |   | 20,671  |  |   | 14,377       |  |   | 6,294    | 
| |                        |   |         |  |   |              |  |   |          | 
| |                        | $ | 155,499 |  | $ | 104,836      |  | $ | 50,663   | 

---

85

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|3. | Property and equipment
  (continued):
|-- | -------------------------------------

| |                              |   |         |  |   | Accumulated  |  |   | Net book | 
| | ---------------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | May 31, 2005                 |   | Cost    |  |   | amortization |  |   | value    | 
| |                              |   |         |  |   |              |  |   |          | 
| | Computer equipment           | $ | 75,737  |  | $ | 56,332       |  | $ | 19,405   | 
| | Office equipment             |   | 41,398  |  |   | 8,048        |  |   | 33,350   | 
| | Scientific equipment         |   | 63,822  |  |   | 43,679       |  |   | 20,143   | 
| | Leasehold
      improvements |   | 18,693  |  |   | 10,589       |  |   | 8,104    | 
| |                              |   |         |  |   |              |  |   |          | 
| |                              | $ | 199,650 |  | $ | 118,648      |  | $ | 81,002   | 

|4. | Intangible assets:
|-- | ------------------

| |                    |   |           |  |   | Accumulated  |  |   | Net book  | 
| | ------------------ | - | --------- |  | - | ------------ |  | - | --------- | 
| | May 31, 2006       |   | Cost      |  |   | amortization |  |   | value     | 
| | Technology license | $ | 1,162,780 |  | $ | 29,470       |  | $ | 1,133,310 | 
| | Patents            |   | 1,935,502 |  |   | 146,971      |  |   | 1,788,531 | 
| |                    | $ | 3,098,282 |  | $ | 176,441      |  | $ | 2,921,841 | 
| |                    |   |           |  |   |              |  |   |           | 
| |                    |   |           |  |   | Accumulated  |  |   | Net book  | 
| | May 31, 2005       |   | Cost      |  |   | amortization |  |   | value     | 
| | Patents            | $ | 1,434,828 |  | $ | 101,859      |  | $ | 1,332,969 | 

|   | During the year ended May 31, 2006, the company acquired
      several U.S. and European patents from a third party for purinoceptor
      antagonists and adenosine receptor antagonists for the treatment of
      ischemic reperfusion injury pursuant to a sub-licensing agreement. Terms
      of the agreement included a cash fee of US$500,000, stock options having
      an estimated fair value at the date of grant of $439,230 and a royalty on
      future sales of products claimed in the licensed patents.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|5. | 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.

---

86

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|5. | Capital stock
(continued):
|-- | --------------------------

| | (b) | Shares issued and outstanding are as
  follows:
| | --- | -----------------------------------------------

| |                                                      |  | Number of shares |  |   | Amount     | 
| | ---------------------------------------------------- |  | ---------------- |  | - | ---------- | 
| |                                                      |  |                  |  |   |            | 
| | Common shares:                                       |  |                  |  |   |            | 
| |                                                      |  |                  |  |   |            | 
| | Balance at May 31, 2003                              |  | 38,509,864       |  | $ | 17,502,222 | 
| |                                                      |  |                  |  |   |            | 
| | Private placement for cash on
      June 26, 2003    |  |                  |  |   |            | 
| | net of share issue costs of
      $608,960           |  | 8,997,632        |  |   | 7,039,408  | 
| | Exercise of warrants for cash                        |  | 18,464,164       |  |   | 14,692,251 | 
| | Exercise of options for cash                         |  | 675,000          |  |   | 497,415    | 
| | Balance at May 31, 2004                              |  | 66,646,660       |  |   | 39,731,296 | 
| |                                                      |  |                  |  |   |            | 
| | Exercise of options for cash                         |  | 180,000          |  |   | 133,000    | 
| | Balance at May 31, 2005                              |  | 66,826,660       |  |   | 39,864,296 | 
| |                                                      |  |                  |  |   |            | 
| | Private placement for cash on August 19,
      2005, |  |                  |  |   |            | 
| | net of share
      issue costs of $545,544           |  | 5,205,500        |  |   | 4,139,406  | 
| | Public offering for cash on January 4, 2006,         |  |                  |  |   |            | 
| | net of share
      issue costs of $1,154,850         |  | 7,750,000        |  |   | 10,857,650 | 
| | Private placement for cash on May 9, 2006            |  |                  |  |   |            | 
| | net of share
      issue costs of $2,373,792         |  | 16,000,000       |  |   | 25,959,800 | 
| | Exercise of options for cash                         |  | 264,305          |  |   | 405,482    | 
| |                                                      |  |                  |  |   |            | 
| | Balance at May 31, 2006                              |  | 96,046,465       |  | $ | 81,226,634 | 

| |     | Share issue costs include non-cash charges of $42,758
      related to placement agents warrants granted as compensation for the
      August 19, 2005 private placement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                           
| | (c) | Contributed surplus:                                                                                                                                                      

| |                                                  |   |           |  
| | ------------------------------------------------ | - | --------- | -
| | Balance, May 31, 2003                            | $ | 105,375   |  
| |                                                  |   |           |  
| | Options granted                                  |   | 386,048   |  
| | Balance, May 31, 2004                            |   | 491,423   |  
| |                                                  |   |           |  
| | Options granted                                  |   | 504,878   |  
| | Balance, May 31, 2005                            |   | 996,301   |  
| |                                                  |   |           |  
| | Options granted                                  |   | 1,184,800 |  
| | Placement agents warrants granted               |   | 42,758    |  
| | Options exercised - transferred to capital stock |   | (153,189  | )
| |                                                  |   |           |  
| | Balance, May 31, 2006                            | $ | 2,070,670 |  

---

87

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|5. | Capital stock (continued):
|-- | --------------------------
|   |                           
|   | (d)                       
|   |                           
|   |                           
|   |                           
|   |                           

2006
      
      
      2005
      
      
      2004Weighted
      
      
      
      
      Weighted
      
      
      
      
      Weightedaverage
      
      
      
      
      average
      
      
      
      
      averageShares
      
      exercise price
      
      
      Shares
      
      exercise price
      
      
      Shares
      
      exercise priceBalance, beginningof year
      
      2,372,333
      
      $  1.17
      
      
      2,307,033
      
      $  1.11
      
      
      2,137,033
      
      $  0.85Granted
      
      1,308,000
      
      1.76
      
      
      1,075,000
      
      1.18
      
      
      935,000
      
      1.44Exercised
      
      (264,305
      )
      0.96
      
      
      (180,000
      )
      0.74
      
      
      (675,000
      )
      0.74Cancelled or expired
      
      (116,000
      )
      1.32
      
      
      (829,700
      )
      1.10
      
      
      (90,000
      )
      1.18Balance, end of year
      
      3,300,028
      
      $  1.41
      
      
      2,372,333
      
      $  1.17
      
      
      2,307,033
      
      $  1.11Options exercisable,end of year
      
      1,709,685
      
      
      
      
      977,334
      
      
      
      
      1,327,032


| |                                                | 2006    |  | 2005    |  | 2004    | 
| | ---------------------------------------------- | ------- |  | ------- |  | ------- | 
| |                                                |         |  |         |  |         | 
| | Weighted average fair value per unit of        |         |  |         |  |         | 
| | options granted during the year at             |         |  |         |  |         | 
| | market value on grant date                     | $  1.27 |  | $  0.49 |  | $  0.92 | 
| | Weighted average fair value per unit of        |         |  |         |  |         | 
| | options granted during the year
      at above |         |  |         |  |         | 
| | market value on grant date                     | 0.34    |  | 0.41    |  |        | 

The table above includes 355,000 (2005
- 170,000; 2004 - 275,000) options granted to employees, of which $138,010 was
charged to contributed surplus in fiscal 2006 (2005 -$36,763; 2004 -
$97,790).

---

88

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|5. | Capital stock (continued):
|-- | --------------------------

Options outstanding at May 31, 2006
consist of the following:

Range of
    
    Weighted
      average
    Options
      outstandingexercise
    Number
    remaining
    weighted average
    Numberprices
    outstanding
    contractual life
    exercise price
    exercisable$    0.75 - 1.95
    3,050,028
    4.9 years
    $    1.31
    1,709,6852.20 - 2.75
    250,000
    4.1
      years
    2.53
    3,300,028
    
    $    1.41
    1,709,685


The compensation expense related to
stock options granted under the stock option plan during fiscal 2006 aggregated
$745,570 (2005 - $504,878; 2004 - $386,048). The compensation expense was
determined based on the fair value of the options at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

| |                         |  | 2006      |  |  | 2005      |  |  | 2004      | 
| | ----------------------- |  | --------- |  |  | --------- |  |  | --------- | 
| |                         |  |           |  |  |           |  |  |           | 
| | Expected option life    |  | 7.0 years |  |  | 4.0 years |  |  | 5.0 years | 
| | Risk-free interest rate |  | 4.05%     |  |  | 3.61%     |  |  | 3.89%     | 
| | Dividend yield          |  |          |  |  |          |  |  |          | 
| | Expected volatility     |  | 72.70%    |  |  | 70.57%    |  |  | 77.30%    | 
| |                         |  |           |  |  |           |  |  |           | 

| |     | The cost of stock-based payments that are fully vested
      and non-forfeitable at the grant date is measured and recognized at that
      date. For awards that vest at the end of the vesting period, compensation
      cost is recognized on a straight-line basis over the vesting period. For
      awards that vest on a graded basis, compensation cost is recognized on a
      pro rata basis over the vesting period from the date of issuance. The
      company recognizes the effect of forfeitures on unvested options as they
      occur.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (e) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                         |  |           |  |   | Exercise        |  |  |         |  |  | Granted      |  |  |         |  |  | Granted      |    |  |           | 
| | ----------------------- |  | --------- |  | - | --------------- |  |  | ------- |  |  | ------------ |  |  | ------- |  |  | ------------ | -- |  | --------- | 
| | Issued                  |  | Original  |  |   | price           |  |  | May 31, |  |  | (Exercised)  |  |  | May 31, |  |  | (Exercised)  |    |  | May 31,   | 
| | (Expiry date)           |  | granted   |  |   | per
      share |  |  | 2004    |  |  | (Cancelled)* |  |  | 2005    |  |  | (Cancelled)* |    |  | 2006      | 
| |                         |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 
| | Private placements:     |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 
| | 629,834 units           |  | 629,834   |  | $ | 1.00            |  |  | 502,403 |  |  |             |  |  | 502,403 |  |  | (502,403     | )* |  |          | 
| | (June 26, 2005)         |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 
| | 104,110 units           |  | 104,110   |  |   | 1.18            |  |  |        |  |  |             |  |  |        |  |  | 104,110      |    |  | 104,110   | 
| | (August 19,
      2008) |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 
| | 2,602,750 units         |  | 2,602,750 |  |   | 1.18            |  |  |        |  |  |             |  |  |        |  |  | 2,602,750    |    |  | 2,602,750 | 
| | (August 19,
      2010) |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 
| | 4,000,000 units         |  | 4,000,000 |  |   | US 2.10         |  |  |        |  |  |             |  |  |        |  |  | 4,000,000    |    |  | 4,000,000 | 
| | (May 9, 2011)           |  |           |  |   |                 |  |  |         |  |  |              |  |  |         |  |  |              |    |  |           | 

---

89

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|5. | Capital stock (continued):
|-- | --------------------------

The warrants were all issued together
with common shares either under prospectus offerings or private placements with
the fair value of the consideration received under the offerings allocated to
the common shares issued.

|6. | Income taxes:                                                                                  
|-- | -----------------------------------------------------------------------------------------------
|   |                                                                                                
|   | Significant components of the companys future tax assets
      and liabilities are as follows:

| |                                                    |   | 2006       |   |   | 2005       |  
| | -------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                    |   |            |   |   |            |  
| | Future tax assets:                                 |   |            |   |   |            |  
| | Research and development
      expenses deductible |   |            |   |   |            |  
| | in future periods for income tax purposes          | $ | 1,486,000  |   | $ | 1,572,000  |  
| | Investment tax credits                             |   | 991,000    |   |   | 1,002,000  |  
| | Share issue
      costs                            |   | 1,215,000  |   |   | 234,000    |  
| | Operating losses carried forward                   |   | 2,818,000  |   |   | 1,340,000  |  
| | Other                                              |   | 91,000     |   |   | 110,000    |  
| |                                                    |   | 6,601,000  |   |   | 4,258,000  |  
| |                                                    |   |            |   |   |            |  
| | Less valuation allowance                           |   | (6,601,000 | ) |   | (4,258,000 | )
| |                                                    |   |            |   |   |            |  
| |                                                    | $ |           |   | $ |           |  

The reconciliation of the Canadian
statutory rate to the income tax provision is as follows:

| |                                                    |   | 2006       |   |   | 2005       |   |   | 2004       |  
| | -------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                    |   |            |   |   |            |   |   |            |  
| | Loss for the year:                                 |   |            |   |   |            |   |   |            |  
| | Canadian                                           | $ | 2,951,941  |   | $ | 1,796,998  |   | $ | 1,633,921  |  
| | Foreign                                            |   | 9,655,133  |   |   | 13,068,912 |   |   | 4,355,165  |  
| |                                                    |   |            |   |   |            |   |   |            |  
| |                                                    | $ | 12,607,074 |   | $ | 14,865,910 |   | $ | 5,989,086  |  
| |                                                    |   |            |   |   |            |   |   |            |  
| | Canadian federal and provincial income
      taxes |   |            |   |   |            |   |   |            |  
| | recovery at 35% (2005 - 37.1%; 2004 -              |   |            |   |   |            |   |   |            |  
| | 37.1%)                                             | $ | 4,412,000  |   | $ | 5,518,000  |   | $ | 2,223,000  |  
| | Foreign tax rate differential                      |   | (3,138,000 | ) |   | (4,524,000 | ) |   | (1,508,000 | )
| | Permanent differences                              |   | (265,000   | ) |   | (196,000   | ) |   | (150,000   | )
| | Change in statutory rates                          |   | (46,000    | ) |   | (68,000    | ) |   | (284,000   | )
| | Valuation allowance                                |   | (1,157,000 | ) |   | (730,000   | ) |   | (281,000   | )
| | Other                                              |   | 194,000    |   |   |           |   |   |           |  
| |                                                    |   |            |   |   |            |   |   |            |  
| |                                                    | $ |           |   | $ |           |   | $ |           |  

---

90

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|6. | Income taxes (continued):                                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                          
|   | The foreign tax rate differential is the difference
        between the Canadian federal and provincial statutory income tax rate
        and the tax rate (2.5 percent) in Barbados that is applicable to losses
        incurred by its wholly-owned subsidiary, Medicure International Inc.           
|   |                                                                                                                                                                                                                                                                                                          
|   | At May 31, 2006, the company has Canadian
        and Foreign unutilized operating losses carried forward for income tax
        purposes of $5,498,135 and $35,746,132, respectively. These losses are
        available to be applied against taxable income of future years up to fiscal
        2016.
|   |                                                                                                                                                                                                                                                                                                          
|7. | Commitments and contingency:                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                          
|   | (a)                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                          

---

91

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|7. | Commitments and contingency
  (continued):
|-- | ------------------------------------------

| |     | 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The company has granted royalties to third parties based
      on future commercial sales of MC-1, aggregating up to 4.75 percent on net
      sales. To date, no royalties are due and/or payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (b) | The company leases its premises under an operating lease.
      Minimum annual rental payments to the end of the lease term are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |      |   |        | 
| | ---- | - | ------ | 
| | 2007 | $ | 33,198 | 
| |      |   |        | 

The annual lease payments are
exclusive of maintenance, property taxes, insurance and other operating
costs.

|8. | Related party transactions:                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                         
|   | During the year ended May 31, 2006, the company paid
      companies controlled by a director, a total of $267,569 (2005 - $243,548;
      2004 - $228,794) for office rent, property and equipment, supplies and
      consulting fees.
|   |                                                                                                                                                                                                                                         
|   | These transactions are measured at the exchange amount
      which is the amount of consideration established and agreed to by the
      related parties.                                                                               

---

92

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|9.  | Financial instruments:                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                             
|    | The fair values of cash and cash equivalents, accounts
      receivable, research advance and accounts payable and accrued liabilities
      approximate their carrying values due to their short term to
    maturity.                                                     
|    |                                                                                                                                                                                                                                                                             
|10. | Reconciliation of generally accepted accounting
      principles:                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                             
|    | The company prepares its consolidated financial
      statements in accordance with Canadian GAAP, the measurement principles of
      which, as applied in these consolidated financial statements, conform in
      all material respects to U.S. GAAP, except as follows:
|    |                                                                                                                                                                                                                                                                             
|    | (a)                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                             

---

93

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|10. | Reconciliation of generally accepted accounting principles (continued):
|--- | -----------------------------------------------------------------------
|    |                                                                        
|    | (c)                                                                    
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    | (d)                                                                    
|    |                                                                        
|    |                                                                        

---

94

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|10. | Reconciliation of generally accepted accounting principles (continued):
|--- | -----------------------------------------------------------------------
|    |                                                                        
|    | (e)                                                                    
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        

---

95

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|10. | Reconciliation of generally accepted accounting
      principles (continued):
|--- | -----------------------------------------------------------------------------
|    |                                                                              
|    | (f)                                                                          
|    |                                                                              
|    |                                                                              

| |                                      |   |             |   |   |             |   |   |            |   |                    | Cumulative from       |  
| | ------------------------------------ | - | ----------- | - | - | ----------- | - | - | ---------- | - | ------------------ | --------------------- | -
| |                                      |   | Year ended  |   |   | Year ended  |   |   | Year ended |   |                    | inception on          |  
| |                                      |   | May 31,     |   |   | May 31,     |   |   | May 31,    |   | September 15, 1997 |                      
| |                                      |   | 2006        |   |   | 2005        |   |   | 2004       |   |                    | to May
      31, 2006 |  
| |                                      |   |             |   |   |             |   |   |            |   |                    |                       |  
| | Loss for the period, Canadian        |   |             |   |   |             |   |   |            |   |                    |                       |  
| | GAAP                                 | $ | (12,607,074 | ) | $ | (14,865,910 | ) | $ | (5,989,086 | ) | $                  | (46,127,566           | )
| | Adjustments for the following:       |   |             |   |   |             |   |   |            |   |                    |                       |  
| | Stock-based compensation (c)         |   |            |   |   | (8,392      | ) |   | (25,588    | ) |                    | (1,203,880            | )
| | Intangible assets (a)                |   | (1,663,453  | ) |   | (386,157    | ) |   | (231,205   | ) |                    | (3,077,733            | )
| | Amortization of intangible           |   |             |   |   |             |   |   |            |   |                    |                       |  
| | assets
      (a)                     |   | 74,582      |   |   | 29,878      |   |   | 17,979     |   |                    | 176,441               |  
| | Scientific equipment (b)             |   | 17,212      |   |   |            |   |   |           |   |                    | (46,610               | )
| | Amortization of scientific           |   |             |   |   |             |   |   |            |   |                    |                       |  
| | equipment (b)                        |   | 2,933       |   |   | 4,587       |   |   | 5,715      |   |                    | 46,610                |  
| | Escrowed common share                |   |             |   |   |             |   |   |            |   |                    |                       |  
| | compensation
      (d)               |   |            |   |   |            |   |   |           |   |                    | (15,061,500           | )
| |                                      |   |             |   |   |             |   |   |            |   |                    |                       |  
| | Loss for the period,
      U.S. GAAP | $ | (14,175,800 | ) | $ | (15,225,994 | ) | $ | (6,222,185 | ) | $                  | (65,294,238           | )
| |                                      |   |             |   |   |             |   |   |            |   |                    |                       |  
| | Basic and diluted loss per share,    |   |             |   |   |             |   |   |            |   |                    |                       |  
| | U.S. GAAP                            | $ | (0.19       | ) | $ | (0.23       | ) | $ | (0.11      | ) |                    |                       |  
| | Weighted average number of           |   |             |   |   |             |   |   |            |   |                    |                       |  
| | common shares outstanding            |   | 75,144,764  |   |   | 66,717,715  |   |   | 55,738,716 |   |                    |                       |  

The impact of the measurement
differences to U.S. GAAP on the consolidated statements of cash flows are as
follows:

| |                      |   |             |   |   |             |   |   |            |   |                    | Cumulative from |  
| | -------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | - | ------------------ | --------------- | -
| |                      |   | Year ended  |   |   | Year ended  |   |   | Year ended |   |                    | inception on    |  
| |                      |   | May 31,     |   |   | May 31,     |   |   | May 31,    |   | September 15, 1997 |                
| |                      |   | 2006        |   |   | 2005        |   |   | 2004       |   |                    | to May 31, 2006 |  
| |                      |   |             |   |   |             |   |   |            |   |                    |                 |  
| | Operating activities | $ | (13,902,721 | ) | $ | (12,453,672 | ) | $ | (6,383,413 | ) | $                  | (45,983,617     | )
| | Investing activities |   | (19,671     | ) |   | (42,796     | ) |   | (21,731    | ) |                    | 571,567         |  
| |                      |   |             |   |   |             |   |   |            |   |                    |                 |  

---

96

|MEDICURE INC.                             
|------------------------------------------
|(A Development Stage Enterprise)          
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in Canadian dollars)           
|                                          
|Years ended May 31, 2006, 2005 and 2004   
|                                          

|10. | Reconciliation of generally accepted accounting
      principles (continued):
|--- | -----------------------------------------------------------------------------

The impact of the measurement
differences to U.S. GAAP described above would result in consolidated balance
sheet items as follows:

| |                                                  |   | 2006        |   |   | 2005        |  
| | ------------------------------------------------ | - | ----------- | - | - | ----------- | -
| |                                                  |   |             |   |   |             |  
| | Property and equipment                           | $ | 50,663      |   | $ | 60,859      |  
| | Capital stock and contributed surplus            |   | 99,542,138  |   |   | 57,105,431  |  
| | Deficit accumulated during the development stage |   | (65,294,238 | ) |   | (51,118,438 | )

|11. | Subsequent event:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In August 2006, the company acquired the rights to
      AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and
      its territories (Puerto Rico, Virgin Islands, and Guam) for total cash
      consideration of US$19 million plus inventory from MGI Pharma Inc. The
      transaction provides the company with an immediately marketable product to
      develop distribution channels in the United States marketplace. The
      company has secured US$15.84 million in a term loan facility with various
      lenders and financed the transaction through a combination of the facility
      and cash on hand. The term of the loan facility is over 42 months, with
      interest due and payable at commencement of the loan payable on the first
      day of the month at one-month LIBOR plus 6.5 percent per annum. Commencing
      in June 2007, principal is payable monthly on a straight-line amortization
      schedule over 33 consecutive monthly instalments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|12. | Comparative figures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The comparative financial statements have been
      reclassified from statements previously presented to conform to the
      presentation of the current year financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

97

Other Schedules

Information required pursuant to Schedule 21.12 -04 of
Regulation S-X has been disclosed on page 5. 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

The exhibits are in the following order:

| | 1. | Articles of Incorporation and Bylaws:
| | -- | -------------------------------------
| |    |                                      
| |    | i)                                   
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    |                                      
| |    | ii)                                  
| |    |                                      
| | 4. | Material Contracts and Agreements:   
| |    |                                      
| |    | a)                                   
| |    |                                      
| |    | b)                                   
| |    |                                      
| |    | c)                                   
| |    |                                      
| |    | d)                                   
| |    |                                      
| |    | e)                                   
| |    |                                      
| |    | f)                                   
| |    |                                      
| |    | g)                                   
| |    |                                      
| |    | h)                                   

---

98

| |     | i)                  | Amendment dated March 1, 2002 to the Development Agreement
        between Medicure International Inc. and CanAm Bioresearch Inc [5];                                                                                                                          
| | --- | ------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                     |                                                                                                                                                                                                                                                                
| |     | j)                  | Amendment dated August 7, 2003 to the Development Agreement
        between Medicure International Inc. and CanAm Bioresearch Inc [3];                                                                                                                         
| |     |                     |                                                                                                                                                                                                                                                                
| |     | k)                  | Amendment to the Consulting Services Agreement dated
        October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Corporation
        whereby consulting services will be provided to the Corporation by Dr.
        Albert D. Friesen [4];           
| |     |                     |                                                                                                                                                                                                                                                                
| |     | l)                  | Employment Agreement with Dawson Reimer dated October
        1, 2001 [4];                                                                                                                                                                                     
| |     |                     |                                                                                                                                                                                                                                                                
| |     | m)                  | Development Agreement between Medicure International
        Inc. and Clinical Development Research Institute Inc.(CDRI) dated July
        2, 2004, wherein CDRI agreed to conduct research and development activities
        for Medicure International [4];
| |     |                     |                                                                                                                                                                                                                                                                
| |     | n)                  | Amendment to Employment Agreement dated April 5, 2005
        between A.D. Friesen Enterprises Ltd. and the Corporation [5];                                                                                                                                   
| |     |                     |                                                                                                                                                                                                                                                                
| |     | o)                  | Amendment to Employment Agreement dated April 5, 2005
        between Moray Merchant and the Corporation [5];                                                                                                                                                  
| |     |                     |                                                                                                                                                                                                                                                                
| |     | p)                  | Amendment to Employment Agreement dated April 5, 2005
        between Dawson Reimer and the Corporation [5];                                                                                                                                                   
| |     |                     |                                                                                                                                                                                                                                                                
| |     | q)                  | Amendment to Employment Agreement dated April 5, 2005
        between Derek Reimer and the Corporation [5];                                                                                                                                                    
| |     |                     |                                                                                                                                                                                                                                                                
| |     | r)                  | Amendment dated July 8, 2005 to the Development Agreement
        between Medicure International Inc. and CanAm Bioresearch Inc [5];                                                                                                                           
| |     |                     |                                                                                                                                                                                                                                                                
| |     | s)                  | Amendment to Employment Agreement
        dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Corporation
        **;                                                                                                                          
| |     |                     |                                                                                                                                                                                                                                                                
| |     | t)                  | Amendment to Development Agreement
        dated July 2, 2004 between Medicure International Inc. and Clinical Development
        Research Institute Inc. dated July 4, 2006 **;                                                                              
| |     |                     |                                                                                                                                                                                                                                                                
| |     | u)                  | Amendment to Development Agreement
        dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International
        Inc. dated July 4, 2006 **;                                                                                                    
| |     |                     |                                                                                                                                                                                                                                                                
| |     | v)                  | Amended Stock Option Plan approved
        October 25, 2005 **.                                                                                                                                                                                                
| |     |                     |                                                                                                                                                                                                                                                                
| | 11. | Code of Ethics [4].
| |     |                     |                                                                                                                                                                                                                                                                
| | 12. | a)                  | Certification of CEO pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002 **.                                                                                                                                                                       
| |     |                     |                                                                                                                                                                                                                                                                
| |     | b)                  | Certification of CFO pursuant
        to Section 302 of the Sarbanes-Oxley Act of 2002 **.                                                                                                                                                                     
| |     |                     |                                                                                                                                                                                                                                                                
| | 13. | a)                  | 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 Corporations Form 20-F registration statement filed on January
      30, 2001.                                                                                                           
| |     |                     |                                                                                                                                                                                                                                                                
| |     | [2]                 | Herein incorporated by reference as previously included in
      the Corporations Form 20-F annual report filed on December 31, 2002.                                                                                                                         

---

99

| | [3] | Herein incorporated by reference as previously included
      in the Corporations Form 20-F annual report filed on October 20, 2003.  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                        
| | [4] | Herein incorporated by reference as previously included
      in the Corporations Form 20-F annual report filed on September 15, 2004.
| |     |                                                                                                                                        
| | [5] | Herein incorporated by reference as previously included
      in the Corporations Form 20-F annual report filed on August 19, 2005.   

** Filed Herewith

---

100

SIGNATURE PAGE

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Corporation certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 10, 2006

ON BEHALF OF THE CORPORATION, MEDICURE INC.

per:

|Albert D. Friesen,
      Ph.D. | 
|------------------------------ | 
|Chairman, President & CEO      | 

---