---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F/AAmendment No. 1 to
Form 20-F

[   ] Registration statement pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934

OR

[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended September 30, 2013

OR

[   ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934

OR

[   ] Shell company report pursuant to Section 13 or
15 (d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report_____________

Commission file number 000-30082

MERUS LABS INTERNATIONAL
INC.(Exact name of Registrant as specified in its
charter)

____________________________________________________(Translation
of Registrants name into English)

British Columbia, Canada(Jurisdiction
of incorporation or organization)

100 Wellington St. West, Ste. 2110, Toronto, Ontario,
Canada M5K 1H1(Address of principal executive offices)

Andrew Patient, Tel. 416-593-3725 Fax
416-593-4434,100 Wellington St. West, Ste. 2110, P.O. Box 151,
Toronto Ontario, Canada M5K 1H1(Name, Telephone, Email
and/or Facsimile number and Address of Company Contact Person)

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

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

COMMON SHARES(Title of Class)

The Nasdaq Capital Market(Name of
each exchange on which registered)

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.

NONE(Title of Class)

---

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: As at September 30, 2013, there were
38,391,512 commonshares outstanding.

Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.[ 
 ] YES     [X] NO

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. [X]
YES     [   ] NO

Note  Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.

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. [X] YES   
 [   ] NO

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted (Not applicable) pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). [   ] YES     [   ] NO

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non accelerated filer:

Large accelerated filer [   ]
    Accelerated filer [   ]
    Non-accelerated filer [X]


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

U.S. GAAP [   ]
    International Financial Reporting Standards as
      issued by the International Accounting Standards Board [X]
    Other [   ]


If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow. [   ] Item 17    
[   ] Item 18

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     [X] NO

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. [   ] YES   
 [   ] NO

---

EXPLANATORY NOTE

Merus Labs International Inc. (the Registrant) is
filing this amendment to Form 20-F in order to amend its annual report on Form
20-F for the year ended September 30, 2013 originally filed with the Securities
and Exchange Commission on December 31, 2013 (the Original Form 20-F)
in order to include Item 17 the audited financial statements of the Registrant
for the years ended September 30, 2013, 2012 and 2011 and the auditors report
thereon (the Audited Financial Statements). The Audited Financial
Statements were inadvertently not included with the Original Form 20-F.

No other amendments are being made to the Original Form
20-F.

---

PART III

Item 17: Financial Statements

The audited financial statements of the Company for the years
ended September 30, 2013, 2012 and 2011 are presented as follows.

(i)
    Auditors
      Report
    F-1(ii)
    Consolidated
      Balance Sheets as at September 30, 2013 and 2012
    F-3(iii)
    Consolidated
      Statements of Operations for the years ended September 30, 2013, 2012 and
      2011
    F-4(iv)
    Consolidated
      Statements of Comprehensive Income (Loss) for the years ended September
      30, 2013, 2012 and 2011
    F-5(v)
    Consolidated
      Statements of Cash Flows for the years ended September 30, 2013, 2012 and
      2011
    F-6(vi)
    Consolidated
      Statements of Changes in Equity for the years ended September 30, 2013,
      2012 and 2011
    F-8(vii)
    Notes
      to Consolidated Financial Statements
    F-9


4

---

|                   | Deloitte LLP
|------------------ | ------------
|5140 Yonge Street 
|Suite 1700        
|Toronto ON M2N 6L7
|Canada            
|                  
|Tel: 416-601-6150 
|Fax: 416-601-6151 
|www.deloitte.ca   

Report of Independent Registered
Public Accounting Firm

To the Board of Directors and Shareholders ofMerus Labs
International Inc.

We have audited the accompanying consolidated financial
statements of Merus Labs International Inc. (the Company), which comprise the
consolidated balance sheets as at September 30, 2013 and September 30, 2012 and
the consolidated statement of operations, consolidated statements of
comprehensive income (loss), consolidated statements of changes in equity and
the consolidated statements of cash flows for each of the years in the
three-year period ended September 30, 2013, and a summary of significant
accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditor's Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.

---

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Merus Labs
International Inc. as at September 30, 2013 and September 30, 2012, and its
financial performance and its cash flows for each of the years in the three-year
period ended September 30, 2013 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.

Chartered Professional Accountants, Chartered
AccountantsLicensed Public AccountantsDecember 30,
2013Toronto, Canada

---

|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Balance Sheets          
|(Expressed in
      Canadian dollars)

|As at:                                         |  |            |  |   | September 30 |   |   | September 30 |  
|---------------------------------------------- |  | ---------- |  | - | ------------ | - | - | ------------ | -
|                                               |  |            |  |   | 2013         |   |   | 2012         |  
|Assets                                         |  |            |  |   |              |   |   |              |  
|Current assets                                 |  |            |  |   |              |   |   |              |  
|Cash and cash
      equivalents                |  |            |  | $ | 8,084,367    |   | $ | 3,462,919    |  
|Short-term investments                         |  | note 4     |  |   | 104,807      |   |   | 1,273,936    |  
|Trade and other
      receivables              |  | note 5     |  |   | 7,048,104    |   |   | 4,917,455    |  
|Inventories                                    |  | note 6     |  |   | 1,168,933    |   |   | 2,179,612    |  
|Loans receivable                               |  | note 7     |  |   | 166,909      |   |   | 737,400      |  
|Prepaid expenses                               |  |            |  |   | 127,409      |   |   | 488,266      |  
|                                               |  |            |  |   | 16,700,529   |   |   | 13,059,588   |  
|Non-current assets                             |  |            |  |   |              |   |   |              |  
|Property and equipment                         |  |            |  |   | 11,291       |   |   | 11,069       |  
|Intangible assets                              |  | notes 3, 9 |  |   | 70,328,140   |   |   | 79,307,879   |  
|Total assets                                   |  |            |  | $ | 87,039,960   |   | $ | 92,378,536   |  
|                                               |  |            |  |   |              |   |   |              |  
|Liabilities and Equity                         |  |            |  |   |              |   |   |              |  
|Current liabilities                            |  |            |  |   |              |   |   |              |  
|Accounts payable and
      accrued liabilities |  |            |  |   | 4,177,960    |   |   | 1,607,040    |  
|Income taxes payable                           |  |            |  |   | 594,344      |   |   | -            |  
|Derivative liabilities                         |  | note 10    |  |   | -            |   |   | 336,700      |  
|Provisions                                     |  | note 11    |  |   | 190,701      |   |   | 697,480      |  
|Long term debt due
      within one year       |  | note 12    |  |   | 8,116,260    |   |   | 31,926,688   |  
|                                               |  |            |  |   | 13,079,265   |   |   | 34,567,908   |  
|Non-current liabilities                        |  |            |  |   |              |   |   |              |  
|Provisions                                     |  | note 11    |  |   | 92,572       |   |   | 386,704      |  
|Long term debt                                 |  | note 12    |  |   | 29,949,502   |   |   | 22,160,142   |  
|Total liabilities                              |  |            |  |   | 43,121,339   |   |   | 57,114,754   |  
|                                               |  |            |  |   |              |   |   |              |  
|Equity                                         |  |            |  |   |              |   |   |              |  
|Share capital                                  |  | note 13    |  |   | 56,014,232   |   |   | 51,639,478   |  
|Equity reserve                                 |  | note 14    |  |   | 33,881,330   |   |   | 31,468,434   |  
|Warrants reserve                               |  | note 14    |  |   | -            |   |   | 1,427,175    |  
|Convertible debt - equity component            |  | note 12    |  |   | 1,313,550    |   |   | -            |  
|Accumulated deficit                            |  |            |  |   | (52,972,037  | ) |   | (49,869,908  | )
|Accumulated other comprehensive income         |  | note 15    |  |   | 5,681,546    |   |   | 598,603      |  
|Total equity                                   |  |            |  |   | 43,918,621   |   |   | 35,263,782   |  
|Total
      liabilities and equity             |  |            |  | $ | 87,039,960   |   | $ | 92,378,536   |  

Approved on behalf of the Board:

(signed)
    (signed)Tim Sorensen,
    Dave Guebert,Director
    Director


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

---

|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Operations
|(Expressed in
      Canadian dollars)

|                                                                      |  |                  |  |   | Years ended September 30 |  
|--------------------------------------------------------------------- |  | ---------------- |  | - | ------------------------ | -
|                                                                      |  |                  |  |   | 2013                     |  
|Revenues                                                              |  | note 2           |  | $ | 28,385,968               |  
|Cost of goods sold                                                    |  |                  |  |   | 2,451,191                |  
|Gross margin                                                          |  |                  |  |   | 25,934,777               |  
|                                                                      |  |                  |  |   |                          |  
|Operating expenses:                                                   |  |                  |  |   |                          |  
|Sales and marketing                                                   |  |                  |  |   | 1,165,353                |  
|General and
      administrative                                      |  |                  |  |   | 6,396,971                |  
|Acquisition costs                                                     |  | note 3           |  |   | -                        |  
|Amortization of
      intangible assets                               |  | note 9           |  |   | 11,254,497               |  
|Depreciation                                                          |  |                  |  |   | 2,826                    |  
|Intangible assets and
      goodwill impairment charge                |  | note 9           |  |   | -                        |  
|Foreign exchange losses (gains)                                       |  |                  |  |   | 1,608,563                |  
|Restructuring costs                                                   |  |                  |  |   | -                        |  
|                                                                      |  |                  |  |   | 20,428,210               |  
|                                                                      |  |                  |  |   |                          |  
|Operating income (loss)                                               |  |                  |  |   | 5,506,567                |  
|                                                                      |  |                  |  |   |                          |  
|Interest expense                                                      |  |                  |  |   | 5,462,466                |  
|Investment expense (income) and impairment                            |  | notes 4,
      7 |  |   | 1,216,406                |  
|                                                                      |  |                  |  |   |                          |  
|Loss before income taxes                                              |  |                  |  |   | (1,172,305               | )
|                                                                      |  |                  |  |   |                          |  
|Income tax expense - current                                          |  | note 18          |  |   | 557,518                  |  
|-
      deferred                                                      |  | note 18          |  |   | -                        |  
|                                                                      |  |                  |  |   |                          |  
|Loss from continuing operations                                       |  |                  |  |   | (1,729,823               | )
|                                                                      |  |                  |  |   |                          |  
|(Loss) income from discontinued operations, net of income
      taxes |  | note 19          |  |   | (1,372,306               | )
|                                                                      |  |                  |  |   |                          |  
|Net loss for the year                                                 |  |                  |  | $ | (3,102,129               | )
|                                                                      |  |                  |  |   |                          |  
|Attributable to:                                                      |  |                  |  |   |                          |  
|Owners of the Company                                                 |  |                  |  | $ | (3,102,129               | )
|Non-controlling interest                                              |  |                  |  |   | -                        |  
|                                                                      |  |                  |  | $ | (3,102,129               | )
|                                                                      |  |                  |  |   |                          |  
|Loss per share                                                        |  | note 20          |  |   |                          |  
|Basic                                                                 |  |                  |  | $ | (0.09                    | )
|Diluted                                                               |  |                  |  | $ | (0.09                    | )
|                                                                      |  |                  |  |   |                          |  
|Loss per share - continuing
      operations                          |  |                  |  |   |                          |  
|Basic                                                                 |  |                  |  | $ | (0.05                    | )
|Diluted                                                               |  |                  |  | $ | (0.05                    | )
|                                                                      |  |                  |  |   |                          |  
|(Loss) earnings per share - discontinued
      operations             |  |                  |  |   |                          |  
|Basic                                                                 |  |                  |  | $ | (0.04                    | )
|Diluted                                                               |  |                  |  | $ | (0.04                    | )
|                                                                      |  |                  |  |   |                          |  
|Weighted average number of common shares
      outstanding - basic    |  |                  |  |   | 33,151,593               |  
|Weighted
      average number of common shares outstanding - diluted  |  |                  |  |   | 33,151,593               |  

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

---

|Merus Labs
      International Inc.                         
|------------------------------------------------------------
|Consolidated Statements of Comprehensive Income
      (Loss)
|(Expressed in
      Canadian dollars)                       

|                                                               |   | Years ended September 30 |  
|-------------------------------------------------------------- | - | ------------------------ | -
|                                                               |   | 2013                     |  
|                                                               |   |                          |  
|Net loss for the year                                          | $ | (3,102,129               | )
|                                                               |   |                          |  
|Other comprehensive income                                     |   |                          |  
|Items that may be reclassified to income:                      |   |                          |  
|Currency translation
      differences (net of tax of $20,429) |   | 5,082,943                |  
|                                                               |   |                          |  
|Other comprehensive income for the
      year                  |   | 5,082,943                |  
|                                                               |   |                          |  
|Total comprehensive income (loss)                              | $ | 1,980,814                |  
|                                                               |   |                          |  
|Attributable to:                                               |   |                          |  
|Owners of the Company                                          | $ | 1,980,814                |  
|Non-controlling
      interest                                 |   |                          |  
|                                                               | $ | 1,980,814                |  

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

---

|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in
      Canadian dollars)

|                                                                 |   | Years ended September 30 |  
|---------------------------------------------------------------- | - | ------------------------ | -
|                                                                 |   | 2013                     |  
|                                                                 |   |                          |  
|Operating activities                                             |   |                          |  
|                                                                 |   |                          |  
|Net loss for the year                                            | $ | (3,102,129               | )
|                                                                 |   |                          |  
|less: loss (income) from discontinued
      operations (note 19) |   | 1,372,306                |  
|                                                                 |   |                          |  
|Items not involving cash:                                        |   |                          |  
|Amortization of intangible assets                                |   | 11,254,497               |  
|Depreciation                                                     |   | 2,826                    |  
|Gain on sale of real estate (note 8)                             |   | -                        |  
|Impairment of
      intangible assets and goodwill               |   | -                        |  
|Unrealized gains on foreign exchange                             |   | (900,759                 | )
|Fair value adjustment
      of loan receivable (note 7)          |   | -                        |  
|Deferred tax liability                                           |   | -                        |  
|Loss on disposal of
      property and equipment                 |   | 7,290                    |  
|Share-based compensation                                         |   | 993,049                  |  
|Writedown of
      investments                                   |   | 1,230,947                |  
|Change in fair value of derivative
      liabilities             |   | (355,811                 | )
|                                                                 |   |                          |  
|Net change in non-cash working capital balances:                 |   |                          |  
|Accrued interest and
      loan fees                             |   | 132,799                  |  
|Increase (decrease) in provisions                                |   | 680                      |  
|Trade and other
      receivables                                |   | (2,788,626               | )
|Prepaid expenses                                                 |   | 360,857                  |  
|Inventories                                                      |   | (64,377                  | )
|Accounts payable and accrued
      liabilities                   |   | 2,726,803                |  
|Income taxes payable                                             |   | 594,344                  |  
|Net cash provided by (used in) operating activities              |   | 11,464,696               |  
|Financing activities                                             |   |                          |  
|Repayment of operating line of credit                            |   | -                        |  
|Non-controlling
      interest                                   |   | -                        |  
|Payment to Old Merus                                             |   | -                        |  
|Proceeds from debt
      issuance, net of issuance costs         |   | 39,379,312               |  
|Repayment of long-term debt                                      |   | (54,219,629              | )
|Private placement
      proceeds                                 |   | 4,364,626                |  
|Proceeds from prospectus offering                                |   | -                        |  
|Proceeds from exercise
      of stock options                    |   | 2,800                    |  
|Proceeds from exercise of stock
      warrants                   |   | -                        |  
|Net cash (used in) provided by financing
      activities        |   | (10,472,891              | )

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

---

|Merus Labs
      International Inc.  
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in
      Canadian dollars)

|                                                          |   | Years ended September 30 |  
|--------------------------------------------------------- | - | ------------------------ | -
|                                                          |   | 2013                     |  
|                                                          |   |                          |  
|Investing activities:                                     |   |                          |  
|Acquisition of Factive                                    |   | -                        |  
|Disposal of Factive                                       |   | 2,127,506                |  
|Acquisition of Enablex                                    |   | -                        |  
|Short-term investments                                    |   | -                        |  
|Loan receivable
      advances                            |   | -                        |  
|Loan receivable repayments                                |   | -                        |  
|Purchase of property
      and equipment                  |   | (10,000                  | )
|Proceeds from sale of subsidiary, net                     |   | -                        |  
|Proceeds from sale of
      real estate (note 8)          |   | -                        |  
|Cash acquired in amalgamation                             |   | -                        |  
|Net cash provided by (used in) investing
      activities |   | 2,117,506                |  
|                                                          |   |                          |  
|Net change in cash from continuing
      operations       |   | 3,109,311                |  
|                                                          |   |                          |  
|Cash flows from discontinued
      operations             |   |                          |  
|Net cash provided by (used in)
      operating activities |   | 1,021,363                |  
|Net cash provided by
      (used in) investing activities |   | 490,774                  |  
|                                                          |   |                          |  
|Net change in cash from discontinued
      operations     |   | 1,512,137                |  
|                                                          |   |                          |  
|Net change in cash and cash
      equivalents             |   | 4,621,448                |  
|                                                          |   |                          |  
|Cash and cash equivalents,beginning
      of year         |   | 3,462,919                |  
|                                                          |   |                          |  
|Cash and cash equivalents,end of year                     | $ | 8,084,367                |  
|                                                          |   |                          |  
|Supplemental cash flow information:                       |   |                          |  
|Interest paid                                             | $ | 5,329,667                |  
|Income taxes paid                                         | $ | -                        |  

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

---

|Merus Labs
      International Inc.         
|--------------------------------------------
|Consolidated Statements of Changes in Equity
|(Expressed in
      Canadian dollars)       

AccumulatedConvertible
    
    
    
    
    
    other
    
    
    Non-Warrants
    
    
    debt - equity
    
    
    **Accumulated**
    
    
    comprehensive
    
    
    **controlling**Share capital
    
    
    **Equity reserve**
    
    
    reserve
    
    
    component
    
    
    deficit
    
    
    income (AOCI)
    
    
    interest
    
    
    Total equityBalance, October 1,
      2010
    $
    8,762,524
    
    $
    29,781,172
    
    $
    -
    
    $
    -
    
    $
    (21,595,424
    )
    $
    -
    
    $
    7,242
    
    $
    16,955,514Share-based compensation
      (note 13)
    
    -
    
    
    938,176
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    938,176Net loss and comprehensive
      loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (7,553,936
    )
    
    -
    
    
    (7,018
    )
    
    (7,560,954
    )Foreign currency revaluation
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (224
    )
    
    (224
    )Balance, September 30,
      2011
    $
    8,762,524
    
    $
    30,719,348
    
    $
    -
    
    $
    -
    
    $
    (29,149,360
    )
    $
    -
    
    $
    -
    
    $
    10,332,512Share-based compensation
      (note 13)
    
    -
    
    
    2,214,421
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,214,421Private placement (note 13)
    
    7,945,633
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    7,945,633Issuance of securities
      pursuant to amalgamation (notes 3, 13)
    
    23,501,892
    
    
    337,223
    
    
    1,521,743
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    25,360,858Issuance of shares pursuant
      to acquisition (note 13)
    
    1,486,558
    
    
    (1,486,558
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Exercise of stock options
      (note 13)
    
    395,000
    
    
    (316,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    79,000Exercise of warrants (note
      14)
    
    341,160
    
    
    -
    
    
    (94,568
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    246,592Prospectus offering (note 13)
    
    9,206,711
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    9,206,711Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (20,720,548
    )
    
    -
    
    
    -
    
    
    (20,720,548
    )Other comprehensive income (note 15)
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    598,603
    
    
    -
    
    
    598,603Balance, September 30,
      2012
    $
    51,639,478
    
    $
    31,468,434
    
    $
    1,427,175
    
    $
    -
    
    $
    (49,869,908
    )
    $
    598,603
    
    $
    -
    
    $
    35,263,782Share-based compensation
      (note 13)
    
    -
    
    
    993,049
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    993,049Exercise of stock options
      (note 13)
    
    10,128
    
    
    (7,328
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,800Expiry of warrants (note 14)
    
    -
    
    
    1,427,175
    
    
    (1,427,175
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Private placement (note 9)
    
    4,364,626
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,364,626Issuance of convertible debt
      (note 12)
    
    -
    
    
    -
    
    
    -
    
    
    1,313,550
    
    
    
    
    
    
    
    
    -
    
    
    1,313,550Net loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,102,129
    )
    
    -
    
    
    -
    
    
    (3,102,129
    )Other comprehensive income (note 15)
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    5,082,943
    
    
    -
    
    
    5,082,943Balance, September 30, 2013
    $
    56,014,232
    
    $
    33,881,330
    
    $
    -
    
    $
    1,313,550
    
    $
    (52,972,037
    )
    $
    5,681,546
    
    $
    -
    
    $
    43,918,621


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

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|1. | Presentation of Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Merus Labs International Inc., incorporated under the
      Business Corporations Act (British Columbia) and its subsidiaries (the
      Company), operate in Canada and Europe. The head office of the Company
      is 100 Wellington St. West, Ste. 2110, Toronto, Ontario M5K 1H1. The
      Company is a specialty pharmaceutical company engaged in the acquisition
      and licensing of branded prescription pharmaceutical products.                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Basis of Preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | These consolidated annual financial statements of the
      Company have been prepared in accordance with International Financial
      Reporting Standards as issued by the International Accounting Standards
      Board (IASB) (IFRS) for financial statements. The consolidated annual
      financial statements have been prepared on a historical cost basis, except
      for items that are required to be accounted for at fair value. The
      policies set out below have been consistently applied to all the periods
      presented.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The consolidated financial statements were authorized for
      issue by the Companys Board of Directors on December 27, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Subsidiaries of the Company as at
September 30, 2013 and September 30, 2012 are as follows:

| |                           | September 30      | September 30      |                
| | ------------------------- | ----------------- | ----------------- | ---------------
| |                           | 2013              | 2012              | Jurisdiction of
| | Company                   | %
      ownership | %
      ownership | incorporation  
| |                           |                   |                   |                
| | Merus Labs Luxco S.a r.l. | 100.0             | 100.0             | Luxembourg     
| | Merus Labs Netherlands BV | 100.0             | 100.0             | Netherlands    
| | ECG Properties Inc.       | 100.0             | 100.0             | Ontario        
| | Envoy Securities Corp.    | 100.0             | 100.0             | Ontario        
| | ECG Holdings (US) Inc.    | 100.0             | 100.0             | Delaware       
| | Orbis Pharma Inc.         | 100.0             | 100.0             | Ontario        

| |     | From December 19, 2011 through September 30, 2012 the
      Company owned 100% of Merus Labs Inc. which was subsequently amalgamated
      with the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | Accounting judgements, estimates, and uncertainties
      Critical judgements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The following are the critical judgements, apart from
      those involving estimations (see below), that have been made in the
      process of applying the Company's accounting policies and that have the
      most significant effect on the amounts recognised in the consolidated
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Acquisition accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Management exercised judgement in determining the
      accounting treatment for the amalgamation transaction of Envoy and Old
      Merus as described in note 3. In addition, judgement was exercised in
      determining that the product acquisitions of Factive and Enablex, as
      described in Note 3, was a business combination accounted for under the
      acquisition method of accounting and an asset acquisition, respectively.
      Management considered the guidance and definitions per IFRS 3 in making
      this determination. These transactions have been recorded in the
      consolidated financial statements based on managements assessment of fair
      value for the acquired assets and liabilities.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Functional currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Management has exercised judgement in selecting the
      functional currency of each of the entities that it consolidates based on
      the primary economic environment in which the entity operates and in
      reference to the various indicators as provided by IAS 21  The effects
      of changes in foreign exchange rates. The consolidated financial
      statements of the Company are presented in Canadian dollars (CAD), which
      is the parent Companys functional and presentation
  currency.                                                                                                                                                                                                                   

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Use of estimates

In preparation of the Companys
consolidated financial statements in accordance with IFRS, management is
required to make estimates and assumptions that affect the reported amount of
assets, liabilities, and the disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
used in the Companys consolidated financial statements and such differences
could be material. Significant estimates include:

| |  | the allowance for doubtful
      accounts;                                                             
| | - | -------------------------------------------------------------------------------------------------------
| |  | the allowance for inventory
      obsolescence;                                                        
| |  | estimate for product returns;                                                                          
| |  | allocation of the purchase price
  and estimates of fair value for the acquired assets and liabilities;
| |  | the estimated useful lives of
      property and equipment and intangible assets;                      
| |  | impairment of financial and
      non-financial assets;                                                
| |  | the valuation of deferred tax
      assets and liabilities;                                            
| |  | the valuation of warrants and
      share-based compensation expense; and                              
| |  | the valuation of the equity
      component of convertible debt                                        
| |  | the valuation of non-cash
      consideration received on the sale of Factive                          

Significant estimates

The following are the key assumptions
concerning the future, and other key sources of estimation uncertainty at the
end of the reporting period, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year:

(i) Allowance for doubtful accounts

The Company reviews its sales and
accounts receivable aging and determines the balance for the allowance for
doubtful accounts. The Company has minimal overdue accounts and has determined
that no allowance for doubtful accounts is required as at September 30,
2013.

(ii) Inventory obsolescence

The Company reviews the net realizable
value of its inventory. The Company has recorded a write-down of $104,477
relating to inventory that management has determined is no longer saleable as at
September 30, 2013. The Company has determined that there are adequate sales to
support the carrying amount for all other inventory as at September 30, 2013. In
addition, management reviews specific product and industry experience with
returns in assessing if a write-down is required.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

(iii) Estimated product returns

Revenue from product sales is
recognized net of estimated sales discounts, credits, returns, rebates and
allowances. The Companys return policy is limited to damaged or expired
product. The return allowance is determined based on an analysis of the
historical rate of returns, industry return data, and current market conditions,
which is applied directly against sales.

(iv) Allocation of the purchase price
and estimates of fair value for the acquired assets and liabilities

The Company as part of its business
combinations and product acquisitions performs a preliminary assessment of the
fair value of all assets and liabilities acquired based on all current available
information. As part of the measurement period to finalize the purchase price
allocation, management updates the estimated fair values as information becomes
available, support from third party market data becomes available, and where
necessary, third party independent valuations are obtained. Management is
ultimately responsible for concluding on the allocation of purchase price and
estimates of fair value for the acquired assets and liabilities.

(v) Impairment of financial and
non-financial assets

Financial Assets

The Company assesses at each balance
sheet date whether there is objective evidence that a financial asset or group
of financial assets is impaired.

If there is objective evidence that an
impairment loss has occurred on an unquoted or not actively traded equity
instrument that is not carried at fair value (because its fair value cannot be
reliably measured), the amount of the loss is measured as the difference between
the assets carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return for a similar financial asset
and is recognized in profit or loss for the period. Reversals of impairment
losses on assets carried at cost are not permitted.

For financial assets carried at
amortized cost, the amount of the loss is measured as the difference between the
assets carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the
financial assets original effective interest rate (i.e. the effective interest
rate computed at initial recognition).

Objective evidence of impairment of
financial assets carried at amortized cost exists if the counterparty is
experiencing significant financial difficulty, there is a breach of contract,
concessions are granted to the counterparty that would not normally be granted,
or it is probable the counterparty will enter into bankruptcy or a financial
reorganization.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Non-Financial Assets

Determining whether goodwill is
impaired requires an estimation of the recoverable amount of the cash generating
units (CGUs) or groups of CGUs to which goodwill has been allocated. The
determination of recoverable amount requires the Company to estimate the future
cash flows expected to arise from these CGUs and a suitable discount rate in
order to calculate the recoverable amount of the CGUs. If the recoverable amount
of the CGUs is less than its carrying amount, an impairment loss is
recorded.

During the second and third quarters
of 2013, the Companys market capitalization was less than the total net assets
of the Company and as such, the Company was required to assess its intangible
assets for impairment. The Company carried out a review of the recoverable
amount of the assets of each of its cash generating units (CGUs), which are
defined at the product line level (Vancocin, Enablex and Factive. The carrying
values of the CGUs at each impairment evaluation date, as well as at September,
30, 2013 are included below:

| |                    |   | Enablex |  |   | Vancocin |  |   | Factive | 
| | ------------------ | - | ------- |  | - | -------- |  | - | ------- | 
| |                    |   |         |  |   |          |  |   |         | 
| | March 31, 2013     | $ | 60,930  |  | $ | 11,148   |  | $ | 3,294   | 
| | June 30, 2013      |   | 61,479  |  |   | 10,694   |  |   | 3,082   | 
| | September 30, 2013 |   | 60,093  |  |   | 10,235   |  |   | N/A     | 

The recoverable amount was calculated
based on the CGUs fair value less costs to sell, determined using a discounted
cash flow model. The assumptions in the discounted cash flow model that have the
greatest estimation uncertainty include forecasted revenue and the discount rate
which was based on the factors specific to each CGU, including risks inherent in
the discounted cash flow models. The rates applied were as follows:

Vancocin
    20%Enablex
    20%Factive
    35%


As a result of the review, the Company
concluded that an impairment loss was not required in respect of the intangible
assets.

At the end of each reporting period,
the Company reviews property, plant and equipment and intangible assets for
indicators of impairment. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment
loss, if any. Where it is not possible to estimate the recoverable amount of an
individual asset, the assets are then grouped together into a CGU and a
recoverable amount is estimated for that CGU.

(vi)   Useful lives of
property, equipment and intangible assets

The Company reviews the estimated
useful lives of property, equipment and intangible assets at the end of each
year, with the effect of any changes in estimates being accounted for on a
prospective basis.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Depreciation on property, equipment,
and intangible assets is calculated using the straight-line method to allocate
their cost to their residual values over their estimated useful lives, as
follows:


    Furniture, fittings and equipment
    3  5 years
    Leasehold improvements
    Over the term of the lease
    Product rights
    2  10 years
    Product patents
  Remaining economic life of patent


During the year ended September 30,
2013, the useful lives were considered reasonable.

(vii)  Valuation of deferred tax
assets and liabilities

The Company estimates the probability
that taxable profits will be available against deductible temporary differences
can be utilized and thus give rise to deferred tax assets. The Company has
reviewed the expected profitability and determined that no deferred tax asset
should be recognized at this time.

(viii)  Valuation of warrants and
share-based compensation expense

The Company estimates the fair value
of warrants and share options issued for employment services based on the Black
Scholes option-pricing model for warrants and share options with a service
condition. These methods of valuation were applied to the equity transactions
during the year.

(ix)    Valuation of
the equity component of convertible debt

The Company estimates the fair value
of convertible debt by first estimating the liability component of the
instrument based on a discounted cash flow model. The fair value of the equity
component of the instrument is then determined as the difference between the
fair value of the liability component and the fair value of the instrument at
inception.

(x)    Valuation of
non-cash consideration received on the sale of Factive

Proceeds from the sale of Factive
(note 19) consisted of non-cash consideration of convertible debentures and
shares. Management was required to make significant estimates in order to
determine the fair value of the non-cash consideration at the transaction date
due to the limited objective information available at that date. The significant
estimates included in the calculation are as follows:

| |  | Management estimated the likelihood of repayment of the
      convertible debenture based on working capital levels and short-term
      commitments and determined there was significant uncertainty of collection                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management estimated the net realizable value of the
      shares received based on the limited trading history and determined that
      given the large number of shares and low trading volumes, there was
      significant uncertainty as to whether the shares could be sold on a timely
      basis.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (c) | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company classifies all financial instruments as
      either fair value through profit or loss (FVTPL), available-for-sale
      (AFS), held-to-maturity (HTM), loans and receivables or other
      financial liabilities. Financial instruments are required to be measured
      at fair value on initial recognition. Measurement in subsequent periods
      depends on the financial instruments classification. Financial
      instruments classified as FVTPL are measured at fair value with unrealized
      gains and losses recognized in the results of operations. AFS instruments
      are measured at fair value with unrealized gains and losses recognized in
      other comprehensive income. HTM instruments, loans and receivables, and
      other financial liabilities are measured at amortized cost. Transaction
      costs for FVTPL financial instruments are expensed as incurred, whereas
      transaction costs for AFS, HTM, and other financial liability instruments
      are capitalized upon initial recognition of the instrument.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company has classified its financial instruments as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | Cash and cash equivalents                | Loans and receivables            
| | ---------------------------------------- | ---------------------------------
| | Publicly-traded investments              | Fair value through profit or loss
| | Privately-held investments               | Available-for-sale at cost       
| | Trade and other receivables              | Loans and receivables            
| | Loans receivable                         | Loans and receivables            
| | Bank indebtedness                        | Other financial liability        
| | Accounts payable and accrued liabilities | Other financial liability        
| | Derivative liabilities                   | Fair value through profit or loss
| | Long term debt                           | Other financial liability        

At each financial reporting period,
the Companys management estimates the fair value of investments based on the
criteria below and reflects such valuations in the consolidated financial
statements.

(i) Publicly-traded investments:

Securities which are traded on a
recognized securities exchange and for which no sales restrictions apply are
recorded at fair values based on quoted market prices at the consolidated
balance sheet dates or the closing price on the last day the security traded if
there were no trades at the consolidated balance sheet dates.

Securities which are traded on a
recognized securities exchange but which are escrowed or otherwise restricted as
to sale or transfer may be recorded at amounts discounted from market value. In
determining whether a discount is appropriate for such investments, the Company
considers the nature and length of the restriction, the business risk of the
investee company, its stage of development, market potential, relative trading
volume and price volatility and any other factors that may be relevant to the
ongoing and realizable value of the investments.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |     | (ii) Privately-held investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Securities in privately-held companies that are not
      considered equity investments are recorded at fair value upon acquisition
      and subsequently measured at their initial cost less impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | (iii) Other financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Other financial liabilities (including debt and trade and
      other payables) are initially recorded at fair value less transaction
      costs and subsequently measured at amortized costs using the effective
      interest method. The effective interest method is a method of calculating
      the amortized cost of a financial liability and of allocating interest
      expense over the relevant period. The effective interest rate is the rate
      that exactly discounts estimated future cash payments (including all fees
      and points paid or received that form an integral part of the effective
      interest rate, transaction cost and other premiums or discounts) through
      the expected life of the financial liability, or (where appropriate) a
      shorter period, to the net carrying amount on initial
  recognition.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | Derivative financial instruments and hedging
      activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Derivatives are initially recognized at fair value on the
      date a derivative contract is entered into and are subsequently
      re-measured at their fair value. The method of recognizing the resulting
      gain or loss depends on whether the derivative is designated as a hedging
      instrument, and if so, the nature of the item being hedged. The Company
      designates certain derivatives as one of the
following:                                                                                                                                                                                                                                                                                                                                                                                                                          

| | i)   | Hedges of the fair value of recognized assets or
      liabilities or a firm commitment (fair value hedge);                                            
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii)  | Hedges of a particular risk associated with a recognized
      asset or liability or a highly probable forecast transaction (cash flow
      hedge); or
| | iii) | Hedges of a net investment in a foreign operation (net
      investment hedge).                                                                        

The effective portion of changes in
the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to
the ineffective portion is recognized immediately in the statement of
operations.

Amounts accumulated in equity are
reclassified to profit or loss in the periods when the hedged item affects
profit or loss.

When a hedging instrument expires or
is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is
recognized when the forecast transaction is ultimately recognized in the
statement of operations. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the statement of operations within foreign exchange (gains)
losses.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |     | The Company has not designated any of its derivatives as
      hedges as at September 30, 2013 and 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (e) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Cash includes demand deposits with financial institutions
      of $8,054,367 and $3,174,863, at September 30, 2013 and 2012,
      respectively. Cash equivalents consist of short-term, highly liquid
      investments purchased with original maturities of three months or less and
      were $30,000 and $288,056, at September 30, 2013 and 2012, respectively.
      Interest earned on cash and cash equivalents was $375 and $21,977, for the
      years ended September 30, 2013 and 2012, respectively.                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (f) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Inventories are comprised of raw materials,
      work-in-progress and finished goods of pharmaceutical product and are
      recorded at the lower of cost and net realizable value on a first-in
      first-out basis. Costs are comprised of raw materials (active
      pharmaceutical ingredient), conversion costs (contract manufacturing), and
      batch-specific stability testing. Net realizable value is the estimated
      selling price in the ordinary course of business less estimated costs of
      completion and applicable selling expenses. The Company writes down
      inventory to its estimated net realizable value based upon assumptions
      about future and market conditions when necessary.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (g) | Trade and other receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Trade and other receivables are stated at their amortized
      cost and are non-interest bearing and unsecured. Management conducts a
      periodic review of the collectability of trade receivables. The Company
      records an allowance for doubtful accounts if any uncertainty exists with
      respect to the recoverability of certain amounts based on historical
      experience or economic climate.                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (h) | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Intangible assets include all costs incurred to acquire
      licensing and distribution agreements, product rights and patents.
      Intangible assets are recorded at cost and amortized on a straight-line
      basis over their estimated useful life of 2 to 10 years. Management has
      estimated the useful life based on industry data of similar products and
      patents. The Company conducts an annual assessment of the residual
      balances, useful lives and depreciation methods being used for intangible
      assets and any changes arising from the assessment are applied by the
      Company prospectively.                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (i) | Business combinations and goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Business combinations are accounted for using the
      acquisition method. The cost of an acquisition is measured as the
      aggregate of the consideration transferred, measured at the acquisition
      date fair value. Acquisition costs incurred are expensed and included in
      acquisition costs.                                                                                                                                                                                                                                                                                                                                                                                                                     

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |     | Goodwill represents the price paid for acquisitions in
      excess of the fair market value of net tangible and identifiable
      intangible assets acquired. Goodwill is carried at cost, less impairment
      losses if any. Goodwill is tested for impairment at the end of each fiscal
      year or if events or changes in circumstances indicate a potential
      impairment. Determining whether goodwill is impaired requires an
      estimation of the recoverable amount of the cash generating units (CGUs)
      to which goodwill has been allocated.                                                                                                                                                                                                                                              
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | For the purpose of impairment testing, goodwill acquired
      in a business combination is allocated to each of the CGUs, or groups of
      CGUs, that is expected to benefit from the synergies of the combination.
      Each unit or group of units to which the goodwill is allocated represents
      the lowest level within the entity at which the goodwill is monitored for
      internal management purposes.                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (j) | Impairment of non-financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | At the end of each reporting period, the Company reviews
      the carrying amounts of its property and equipment, intangible assets and
      goodwill to determine whether there is an indication that those assets
      have suffered an impairment loss. If any such indication exists, the
      recoverable amount of the asset is estimated in order to determine the
      extent of the impairment loss. In addition, goodwill, intangible assets
      with indefinite useful lives and intangible assets not yet available for
      use, if any, are tested for impairment annually.                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | An impairment loss is recognized when the carrying amount
      of an asset, or its CGU, exceeds its recoverable amount. A CGU is the
      smallest identifiable group of assets that generates cash inflows that are
      largely independent of the cash inflows from other assets or groups of
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The recoverable amount is the greater of the assets or
      CGUs fair value less costs to sell (FVLCTS) and value in use (VIU).
      In assessing VIU, the estimated future cash flows are discounted to their
      present value using a pre-tax discount rate that reflects current market
      assessments of the time value of money and the risks specific to the asset
      or CGU. In determining FVLCTS, a post-tax discounted cash flow model is
      used. For an asset that does not generate largely independent cash
      inflows, the recoverable amount is determined for the CGU to which the
      asset belongs. If the recoverable amount of the asset or CGU is less than
      its carrying amount, an impairment loss is recognized immediately in the
      statement of operations.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Other than goodwill, where an impairment loss
      subsequently reverses, the carrying amount of the asset is increased to
      the revised estimate of its recoverable amount to the extent that the
      increased carrying amount does not exceed the carrying amount that would
      have been determined had no impairment loss been recognized for the asset
      in prior years. Goodwill impairment losses are not
  reversed.                                                                                                                                                                                                                                                                                                                                                                             

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (k) | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Provisions are recorded when a present legal or
      constructive obligation exists as a result of past events where it is
      probable that an outflow of resources embodying economic benefits will be
      required to settle the obligation, and a reliable estimate of the amount
      of the obligation can be made.                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The amount recognized as a provision is the best estimate
      of the consideration required to settle the present obligation at the
      balance sheet date, taking into account the risks and uncertainties
      surrounding the obligation. Where a provision is measured using the cash
      flows estimated to settle the present obligation, its carrying amount is
      the present value of those cash flows. When some or all of the economic
      benefits required to settle a provision are expected to be recovered from
      a third party, the receivable is recognized as an asset if it is virtually
      certain that reimbursement will be received and the amount receivable can
      be measured reliably.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (l) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Provision for income taxes consists of current and
      deferred income tax expense. Tax is recognized in the statement of
      operations, except to the extent that it relates to items recognized in
      other comprehensive income or directly in equity. In this case, the tax is
      also recognized in other comprehensive income or directly in equity,
      respectively.                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Current income tax expense is the expected tax payable on
      the taxable income for the year, using tax rates enacted or substantively
      enacted at period end in the countries where the Company and its
      subsidiaries operate and generate taxable income, adjusted for amendments
      to tax payable with regards to previous years.                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Deferred income tax is recognized, using the liability
      method, on temporary differences between the carrying amounts of assets
      and liabilities on the balance sheet and their corresponding tax values,
      using the enacted or substantively enacted, as applicable, income tax
      rates at each balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Deferred tax assets also result from unused losses and
      other deductions carried forward. An assessment of the probability that a
      deferred tax asset will be recovered is made prior to any deferred tax
      asset being recognized. The valuation of deferred tax assets is reviewed
      on a quarterly basis and adjusted, if necessary, to reflect the estimated
      realizable amount.                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Deferred income tax assets and liabilities are offset
      when there is a legally enforceable right to offset current tax assets
      against current tax liabilities and when the deferred income tax assets
      and liabilities relate to income taxes levied by the same taxation
      authority on either the same taxable entity or different taxable entities
      where there is an intention to settle the balances on a net
  basis.                                                                                                                                                                                                                                                                                    

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (m) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (i) Functional and presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Items included in the financial statements of each of the
      Companys entities are measured using the currency of the primary economic
      environment in which the entity operates (the functional currency). The
      consolidated financial statements of the Company are presented in Canadian
      dollars (CAD), which is the parent Companys functional and presentation
      currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (ii) Transactions and balances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Foreign currency transactions are initiated by the
      Companys entities at their respective functional currency using the
      exchange rates prevailing at the date of the transaction. At each balance
      sheet date, monetary assets and liabilities are translated using the
      period-end foreign exchange rate. Non-monetary items that are measured in
      terms of historical cost in a foreign currency are translated using
      exchange rates as at the dates of the initial transactions. Non-monetary
      items measured at fair value in a foreign currency are translated using
      the exchange rates at the date when acquired. All gains and losses on
      translation of these foreign currency transactions are included in the
      statement of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (iii) Companys subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | On consolidation the assets and liabilities of foreign
      operations are translated into CAD at the rate of exchange prevailing at
      the reporting date and their statement of operations are translated at the
      average exchange rates prevailing during the period. The exchange
      differences arising on translation for consolidation are recognized in
      other comprehensive income. On disposal of a foreign operation, the
      component of other comprehensive income relating to that particular
      foreign operation is recognized in the consolidated statement of
      income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (n) | Revenue recognition and estimated product
  returns                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Revenue from product sales, including shipments to
      distributors, is recognized when the Company has transferred to the
      customer the significant risks and benefits of ownership or future
      obligations with respect to the product, it is probable that the economic
      benefits associated with the transaction will flow to the Company and the
      amount of revenue can be measured reliably. Revenue from product sales is
      recognized net of estimated sales discounts, credits, returns, rebates and
      allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | In connection with its acquisition of Enablex (note 3),
      the Company entered into a transition services and supply agreement with
      the vendor (Novartis Pharma AG, or Novartis) to facilitate the seamless
      and efficient transfer of the product to the Company. The agreement
      required that Novartis continue to manufacture, distribute, and promote
      the product until the Company obtained the necessary marketing
      authorizations to allow it to take over these functions as principal.
      Novartis provided the Company with a monthly reconciliation of revenues, cost of goods, and marketing
      and selling expenses for which the Company then billed Novartis for the
      net amount receivable. The Company relied on the financial information
      provided by Novartis to estimate the amounts due under this agreement.
      Based on the terms of this arrangement and the guidance per IAS 18
      regarding agency relationships, for the period of this arrangement the
      Company recorded revenues relating to Enablex on a net basis in the
      statement of operations, net of cost of goods and marketing and selling
      expenses. During April and May 2013, substantially all marketing
      authorizations for Enablex were transferred and the Company began selling
      directly to third parties, incurred the inventory risk and took over all
      other responsibilities for purchase and sale of the product. As a result,
      management determined the Company was acting as the principal in the sales
      of Enablex as opposed to an agent. As such, revenues for sales of Enablex
      made by the Company acting as principal were accounted for on a gross
      basis, in the same manner as its other products as described
  above.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |     | The Companys return policy is limited to damaged or
      expired product. The return allowance is determined based on analysis of
      the historical rate of returns and current market conditions, which is
      applied directly against sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (o) | Share-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | From time to time, the Company grants options to
      directors, officers, employees and non- employees to purchase common
      shares. The Company accounts for its stock options using the fair-value
      method. Share-based payments, equal to the fair value of the options on
      the date of grant, are recognized in operations, with an offsetting credit
      to equity reserves, for stock options granted to employees, officers and
      directors over the period during which the related options vest.
      Share-based payments are recognized in operations, with an offsetting
      credit to equity reserves, for options granted to non-employees based on
      the fair value of the services received. Consideration paid upon exercise
      of stock options, along with the applicable amount of equity reserves, is
      credited to share capital.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (p) | Comprehensive income or loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Comprehensive income or loss is the change in net assets
      arising from transactions and other events and circumstances from
      non-owner sources, and comprises net income or loss and other
      comprehensive income or loss. Financial assets that are classified as
      available for sale will have revaluation gains and losses included in
      other comprehensive income or loss until the asset is removed from the
      balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (q) | Basic and diluted net earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Basic earnings per share are computed using the weighted
      average number of common shares outstanding during the period. The
      treasury stock method is used to compute the dilutive effect of equity
      instruments. Stock options, share purchase warrants, and other equity
      instruments are dilutive when the average market price of the common
      shares during the period exceeds the exercise price of the options,
      warrants and other equity instruments. The diluted earnings per share is
      equal to the basic earnings per share if the effects of the outstanding
      options and warrants are anti-dilutive.                                                                                                                                                                                                                                

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (r) | Related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Parties are considered to be related if one party has the
      ability, directly or indirectly, to control the other party or exercise
      significant influence over the other party in making financial and
      operating decisions. Parties are also considered to be related if they are
      subject to common control. Related parties may be individuals or corporate
      entities. A transaction is considered to be a related party transaction
      when there is a transfer of resources or obligations between related
      parties.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (s) | Changes in accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | During the year ended September 30, 2013 the following
      new or amended standards were issued and are effective for annual periods
      beginning on or after January 1, 2013 (October 1, 2013 for the Company),
      unless otherwise noted.                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Accounting standards implemented in fiscal
  2013:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |  | IAS 1 Presentation of Financial Statements: Amendments to
      IAS 1 change the disclosure of items presented in other comprehensive
      income. IAS 1 requires the presentation of items in other comprehensive
      income as two separate groups based on whether or not those items will be
      recycled to profit or loss in the future. The amendment affected
      presentation only and had no impact on the Companys financial position or
      results of operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future changes in accounting
standards:

| |  | IFRS 7 Disclosures: Offsetting Financial Assets and
      Financial Liabilities: Amendments to IFRS 7 These amendments require an
      entity to disclose information about rights to set-off and related
      arrangements (e.g., collateral agreements). The disclosures provide users
      with information that is useful in evaluating the effect of netting
      arrangements on an entitys financial position. The new disclosures are
      required for all recognized financial instruments that are set off in
      accordance with IAS 32 Financial Instruments: Presentation. The
      disclosures also apply to recognized financial instruments that are
      subject to an enforceable master netting arrangement or similar agreement,
      irrespective of whether they are set off in accordance with IAS 32. These
      amendments are not expected to significantly impact the Companys
      financial position or results of operations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | IAS 27 Separate Financial Statements: IAS 27 outlines the
      accounting principles to be applied with regards to investments in
      subsidiaries, joint ventures and associates when an entity elects or is
      required by local regulations to present separate, non- consolidated,
      financial statements. The previous standard was titled IAS 27 Consolidated
      and Separate Financial Statements. These amendments are not expected to
  impact the Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | IAS 28 Investments in Associates and Joint Ventures: IAS
      28 outlines the accounting treatment and corresponding application of the
      equity method of accounting in investments in associates and joint
      ventures. The previous standard was titled IAS 28 Investments in Associates. These amendments
      are not expected to impact the Companys financial position or results of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |  | IFRS 10 Consolidated Financial Statements: IFRS 10
      outlines the principles for the presentation and preparation of
      consolidated financial statements. IFRS 10 is not expected to impact the
      Companys financial position or results of operations.                                                                                                                                                                                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | IFRS 11 Joint Arrangements: IFRS 11 defines the two types
      of joint arrangements (joint operations and joint ventures) and outlines
      how to determine the type of joint arrangement entered into and the
      principles for accounting for each type of joint arrangement. IFRS 11 is
      not expected to impact the Companys financial position or results of
      operations.                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | IFRS 12 Disclosure of Interests in Other Entities: IFRS
      12 outlines the disclosures required in order to provide users of
      financial statements with the information necessary to evaluate an
      entitys interest in other entities, the corresponding risks related to
      those interests and the effects of those interests on the entitys
      financial position, financial performance and cash flows. These new
      disclosures are not expected to impact the Companys financial position or
      results of operations
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | IFRS 13 Fair Value Measurement: IFRS 13 defines fair
      value, summarizes the methods of determining fair value and outlines the
      required fair value disclosures. IFRS 13 is utilized when another IFRS
      standard requires or allows fair value measurements or disclosures about
      fair value measurements. IFRS 13 is not expected to significantly impact
      the Companys financial position or results of operations.                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | IFRS 7 Financial Instruments: Disclosures: The IASB
      published new disclosures requirements jointly with the Financial
      Accounting Standards Board (FASB) that enable users of the financial
      statements to better compare financial statements prepared in accordance
      with IFRS and US GAAP. The Company is currently assessing the impact of
      this standard.                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   | All of the above standards are effective for the Company
      on October 1, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | IFRS 9 Financial Instruments. IFRS 9 will replace IAS 39,
      Financial Instruments Recognition and Measurements, on classification and
      measurement of financial assets and financial liabilities. The mandatory
      effective date of IFRS 9 is for fiscal years beginning on or after January
      1, 2015. The Company is currently assessing the impact of this standard.                                                                                                                                                              

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|3. | Acquisitions                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Business Combinations                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Amalgamation                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On December 19, 2011, the Company and Merus Labs
      International Inc. (Old Merus) amalgamated and formed a new entity under
      the name Merus Labs International Inc. The securities of the two companies
      that were issued and outstanding immediately before the Amalgamation were
      converted into securities of the Company as follows:                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (a) the common shares of Old Merus were exchanged for
      common shares of the Company on                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | the basis of one common share of the Company for every
      four common shares of Old Merus. Stock options and share purchase warrants
      were exchanged on the same basis. The exercise price and all other terms
      and conditions for all options and warrants issued by the Company remained
      the same as the original Old Merus options and warrants.                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (b) the issued and outstanding common shares held by
      shareholders before the Amalgamation were exchanged for common shares of
      the Company on the basis of one common share of the Company for every one
      share previously held. Stock options were exchanged at the same ratio. All
      terms and conditions of the stock options and share purchase warrants
      remain unchanged.
|   |                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Amalgamation resulted in the Company issuing common
      shares, stock options, and share purchase warrants to Old Merus
      shareholders, option holders, and warrant holders as
  follows:                                                                                                                                                                                                     

| |                         |  | Old
      Merus  |  |  | Issued     | 
| | ----------------------- |  | ---------------- |  |  | ---------- | 
| |                         |  | Outstanding      |  |  | by the     | 
| |                         |  | Pre-Amalgamation |  |  | Company    | 
| |                         |  |                  |  |  |            | 
| | Common shares           |  | 47,003,784       |  |  | 11,750,946 | 
| | Stock options           |  | 910,000          |  |  | 227,500    | 
| | Share purchase warrants |  | 9,614,230        |  |  | 2,403,557  | 

Bringing together the financial
experience and capital of the Company combined with the sales and growth
potential of Old Merus were perceived as beneficial to both parties. In
determining which entity was the acquirer and which was the acquiree, management
considered a number of factors including share ownership of the combined entity,
the existence of minority control groups, board control and the ability to elect
its members, the ability to direct finance and operating policies and the
composition of senior management and the relevant size of each entitys assets
in reaching the conclusion that the Company was the acquirer.

The Amalgamation was accounted for
using the acquisition method, with the Company as the acquirer, whereby all the
Old Merus assets acquired and liabilities assumed were recorded at fair value.
The common shares exchanged were valued using the market rate at the time of
amalgamation, while the stock options and warrants were valued using the
Black-Scholes pricing model.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The purchase price allocation is
summarized as follows:

| | Purchase price consideration          |   |            | 
| | ------------------------------------- | - | ---------- | 
| |                                       |   |            | 
| | Common shares issued                  | $ | 23,501,892 | 
| | Stock options issued                  |   | 337,223    | 
| | Share purchase warrants issued        |   | 1,521,743  | 
| |                                       |   |            | 
| | Fair value of net assets acquired     |   | 25,360,858 | 
| |                                       |   |            | 
| | Fair value of investment in Old Merus |   | 671,134    | 
| |                                       |   |            | 
| | Total purchase price consideration    | $ | 26,031,992 | 

The Company stock options granted and
warrants issued in exchange for the Old Merus options and warrants were assigned
a fair value based on the following weighted average assumptions used in the
Black-Scholes option pricing model:

| |                                 |  | Options    |  |  | Warrants   | 
| | ------------------------------- |  | ---------- |  |  | ---------- | 
| |                                 |  |            |  |  |            | 
| | Risk-free interest rate         |  | 1.0%       |  |  | 1.0%       | 
| |                                 |  |            |  |  |            | 
| | Expected share price volatility |  | 86%        |  |  | 86%        | 
| |                                 |  |            |  |  |            | 
| | Weighted average expected life  |  | 0.66 years |  |  | 1.28 years | 
| |                                 |  |            |  |  |            | 
| | Forfeiture rate                 |  | 0%         |  |  | 0%         | 
| |                                 |  |            |  |  |            | 
| | Expected dividends              |  | Nil        |  |  | Nil        | 

Costs incurred to complete the
amalgamation were approximately $455,000. In addition, the Company recorded a
gain of $108,641 in investment income on the shares of Old Merus held prior to
the amalgamation in order to recognize the increase in value of its holdings.
The gain was recorded as investment income in the period. Goodwill recorded on
acquisition, representing intangible assets which do not qualify for separate
recognition, is not deductible for income tax purposes.

The fair value of the acquired
identifiable net assets was allocated as follows:

| | Cash                                                  | $ | 980,539     |  
| | ----------------------------------------------------- | - | ----------- | -
| | Trade and other receivables, net of allowance of $nil |   | 1,830,902   |  
| | Inventories                                           |   | 708,335     |  
| | Prepaid expenses                                      |   | 1,873       |  
| | Intangible assets                                     |   | 19,510,423  |  
| | Goodwill                                              |   | 16,676,097  |  
| | Accounts payable and accrued liabilities              |   | (547,813    | )
| | Due to related party                                  |   | (2,000      | )
| | Income taxes payable                                  |   | (534,249    | )
| | Long term debt                                        |   | (11,226,005 | )
| | Deferred income taxes                                 |   | (1,366,110  | )
| | Net assets
      acquired                             | $ | 26,031,992  |  

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The results for the year ended
September 30, 2012 included the operations of Old Merus from December 20, 2011,
the first day after amalgamation, to September 30, 2012. The financial
information in the table below summarizes selected results of operations on a
pro-forma basis as if the Company had acquired Old Merus as of October 1, 2011.
The pro-forma presentation is for information purposes only and does not purport
to represent what the Companys results would have been had the acquisition
occurred at the beginning of the period, or to project the Companys results of
operations for any future period.

| |                                     |   |                     |   |   | Old
      Merus       |   |   | Pro-forma    |  
| | ----------------------------------- | - | ------------------- | - | - | --------------------- | - | - | ------------ | -
| | (Unaudited)                         |   | As reported in      |   |   | results from          |   |   | Statement of |  
| |                                     |   | the Statement       |   |   | October 1, 2011       |   |   | Operations   |  
| |                                     |   | of
      Operations |   |   | to
      amalgamation |   |   | fiscal 2012  |  
| |                                     |   |                     |   |   |                       |   |   |              |  
| | Revenues                            | $ | 9,257,843           |   | $ | 2,483,176             |   | $ | 11,741,019   |  
| | Cost of goods sold                  |   | 867,123             |   |   | 306,202               |   |   | 1,173,325    |  
| | Gross margin                        |   | 8,390,720           |   |   | 2,176,974             |   |   | 10,567,694   |  
| |                                     |   |                     |   |   |                       |   |   |              |  
| | Operating expenses:                 |   |                     |   |   |                       |   |   |              |  
| | Sales and marketing                 |   | 281,272             |   |   | 66,711                |   |   | 347,983      |  
| | General and administrative          |   | 4,896,095           |   |   | 165,745               |   |   | 5,061,840    |  
| | Acquisition costs                   |   | 518,819             |   |   | -                     |   |   | 518,819      |  
| |                                     |   | 5,696,186           |   |   | 232,456               |   |   | 5,928,642    |  
| | Earnings before depreciation,       |   |                     |   |   |                       |   |   |              |  
| | amortization, interest expense and  |   |                     |   |   |                       |   |   |              |  
| | investment income                   |   | 2,694,534           |   |   | 1,944,518             |   |   | 4,639,052    |  
| |                                     |   |                     |   |   |                       |   |   |              |  
| | Amortization of intangible assets   |   | 3,855,604           |   |   | 299,970               |   |   | 4,155,574    |  
| | Depreciation                        |   | 5,015               |   |   | -                     |   |   | 5,015        |  
| | Interest expense                    |   | 1,466,151           |   |   | 64,961                |   |   | 1,531,112    |  
| | Foreign exchange (gains) losses     |   | (1,825,206          | ) |   | -                     |   |   | (1,825,206   | )
| | Investment income                   |   | (467,001            | ) |   | (2,892                | ) |   | (469,893     | )
| | Impairment charge                   |   | 22,208,721          |   |   | -                     |   |   | 22,208,721   |  
| |                                     |   |                     |   |   |                       |   |   |              |  
| | Earnings (loss) before income taxes |   | (22,548,750         | ) |   | 1,582,479             |   |   | (20,966,271  | )

Factive

On March 7, 2012, the Company completed
the acquisition of the North American product rights for Factive (Gemifloxacin
Mesylate) tablets from Cornerstone Therapeutics Inc. (Cornerstone). The
Company acquired the license to the Factive product rights and patent, inventory
on hand, and certain related intellectual property and other information and
materials for total consideration of US$3,979,000, fully paid at closing. This
transaction was accounted for as a business combination under the acquisition
method of accounting.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Costs incurred to complete the
acquisition were approximately $63,000, which were expensed in the current
period. The fair value of the acquired identifiable assets and liabilities was
allocated as follows:

| | Inventories               | $ | 1,149,350  |  
| | ------------------------- | - | ---------- | -
| | Product returns liability |   | (1,118,422 | )
| | Deferred tax liability    |   | (242,648   | )
| | Product rights            |   | 3,036,004  |  
| | Patent                    |   | 1,145,360  |  
| | Net assets
      acquired | $ | 3,969,644  |  

The Company has not provided pro-forma
information with respect to the operations of Factive as determining such
information is impracticable. Costs relating to operation of the business by the
seller were not segregated in sufficient detail in order to accurately determine
product profitability. This product was divested on August 26, 2013, see note
19.

Product Acquisitions
Enablex

On July 11, 2012, the Company announced
that it had acquired the Canadian and European rights (excluding France, Spain
and Italy) to manufacture, market, and sell the branded prescription medicine
product Emselex®/Enablex® (Enablex or darifenacin) extended release
tablets.

Pursuant to the acquisition, Merus
acquired the Emselex®/Enablex® product rights and patent, certain related
intellectual property, and other information and materials required to continue
marketing the brand in the territories acquired. Total consideration for the
product acquisition was US$63,000,000 in the form of US$43,000,000 cash and a
US$20,000,000 vendor take back note (VTB Note) due July 11, 2013.
US$35,000,000 of the upfront cash payment was funded through a US$55,000,000
debt facility from a private lender, with the remainder funded from cash on
hand. The VTB Note was guaranteed by the aforementioned debt facility and
management utilized the unused balance of the debt facility to repay the VTB
Note at maturity. The transaction was accounted for as an asset acquisition.

Costs incurred to complete the
acquisition were approximately $431,000, which were capitalized to the cost of
the assets acquired. The fair value of the acquired identifiable net assets was
$64,233,646 (US$63,000,000), which was allocated between the intangible assets
acquired (product rights and patent). The fair value of the acquired
identifiable net assets was allocated as follows:

| | Product rights            | $ | 45,293,991 | 
| | ------------------------- | - | ---------- | 
| | Patent                    |   | 19,370,500 | 
| |                           |   |            | 
| | Net assets
      acquired | $ | 64,664,491 | 

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|4. | Short-term investments
|-- | ----------------------

| |                                      |   | September 30 |  |   | September 30 | 
| | ------------------------------------ | - | ------------ |  | - | ------------ | 
| |                                      |   | 2013         |  |   | 2012         | 
| | Short-term investments               |   |              |  |   |              | 
| | Publicly-traded investments Equities | $ | 104,807      |  | $ | 11,936       | 
| |                                      |   | 104,807      |  |   | 11,936       | 
| | Privately held investments           |   |              |  |   |              | 
| | Equities (note 22(b))                |   | -            |  |   | 1,262,000    | 
| | Total short-term investments         | $ | 104,807      |  | $ | 1,273,936    | 

|   | As at September 30, 2013 the portfolio of short-term
      investments was invested in marketable securities, including common shares
      as well as an investment in a private entity. The marketable securities
      have been classified as held for trading and recorded at FVTPL. The
      investment in a private entity is recorded at a nil value, representing
      cost less impairment charges. During the year ended September 30, 2013,
      the Company recognized impairment charges of approximately $1,262,000 on
      its privately held investment. The charges were recorded as investment
      expenses in the financial statements. The impairment assessment was based
      on evidence of other financing transactions undertaken by the investee as
      well as detailed financial information from the investee itself. For the
      year ended September 30, 2013, the investment portfolio, including
      interest and dividend income, realized and unrealized investment gains and
      losses, earned $31,053 (September 30, 2012: $244,424), after deducting
      fees and expenses.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | Trade and other
receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                       |   | September 30 |  |   | September 30 | 
| | ------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                       |   | 2013         |  |   | 2012         | 
| | Trade receivables                     | $ | 6,683,674    |  | $ | 4,555,705    | 
| | Less: provision for doubtful accounts |   | -            |  |   | -            | 
| | Trade receivables  net               |   | 6,683,674    |  |   | 4,555,705    | 
| |                                       |   |              |  |   |              | 
| | Other receivables                     |   | 364,430      |  |   | 361,750      | 
| | Trade and other
      receivables     | $ | 7,048,104    |  | $ | 4,917,455    | 

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The aging analysis of trade receivables
is as follows:

| |                              |   | September 30 |  |   | September 30 | 
| | ---------------------------- | - | ------------ |  | - | ------------ | 
| |                              |   | 2013         |  |   | 2012         | 
| | Current                      | $ | 6,248,681    |  | $ | 4,035,826    | 
| | 1 to 30 days overdue         |   | 250,867      |  |   | 352,757      | 
| | 31 to 60 days overdue        |   | 62,152       |  |   | 15,812       | 
| | 61 to 90 days overdue        |   | 339          |  |   | 53,856       | 
| | Greater than 90 days overdue |   | 121,635      |  |   | 97,454       | 
| |                              |   |              |  |   |              | 
| | Total trade receivables      | $ | 6,683,674    |  | $ | 4,555,705    | 

|   | The Companys customer base is primarily comprised of
      large domestic, national, and multinational pharmaceutical distribution
      companies.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                     
|6. | Inventories                                                                                                                                         

| |                   |   | September 30 |  |   | September 30 | 
| | ----------------- | - | ------------ |  | - | ------------ | 
| |                   |   | 2013         |  |   | 2012         | 
| | Raw materials     | $ | 467,499      |  | $ | 1,014,973    | 
| | Work-in-progress  |   | 91,125       |  |   | -            | 
| | Finished goods    |   | 610,309      |  |   | 1,164,639    | 
| |                   |   |              |  |   |              | 
| | Total inventories | $ | 1,168,933    |  | $ | 2,179,612    | 

|   | The amount of inventories expensed in cost of goods sold
      during the year amounted to $2,200,168 (2012: $753,659, 2011: nil). During
      the year, the Company recorded inventory impairments of $104,477
      (2012:$21,000, 2011: nil)
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                 
|7. | Loans receivable                                                                                                                                                                                                                                

| |                              |   | September 30 |  |   | September 30 | 
| | ---------------------------- | - | ------------ |  | - | ------------ | 
| |                              |   | 2013         |  |   | 2012         | 
| |                              |   |              |  |   |              | 
| | Loans receivable  Vansen    | $ | 166,909      |  | $ | 737,400      | 
| | Total loans
      receivable | $ | 166,909      |  | $ | 737,400      | 

On March 7, 2012, the Company entered
into a sales and promotion agreement for Factive with Vansen Pharma Inc.
(Vansen) to market the product in the United States. As part of this
arrangement, the Company agreed to provide Vansen with a short-term loan in the
amount of US$1,000,000 for working capital purposes. The original loan was due
within twelve months with monthly payments of US$83,333 beginning July 1, 2012,
plus a lump sum payment of US$333,333 due March 1, 2013. During the second
quarter of fiscal 2013, the Company agreed to extend the terms of the remaining
US$500,000 balance. The revised terms called for eight monthly payments of US$35,000 from May to December 2013, with a lump sum payment of US$220,000 due December 31, 2013.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Effective August 26, 2013, in
connection with the sale of Factive (Note 19), the Company entered into two new
loan agreements with Vansen; one representing part of the sale proceeds, the
other being a renegotiation of the original loan from March 2012. The first new
loan has a principal value of US$800,000, is non-interest bearing and scheduled
to be repaid in four installments of US$200,000, due February 28, May 31, August
31 and November 30, 2014. The second new loan has a principal value of
US$280,000 and represents the remaining balance of the original loan under
similar repayment terms of US$35,000 per month starting September 1, 2013, with
a lump sum payment of US$140,000 due December 31, 2013. Both new loans are
unsecured, but contain a right of conversion at the holder's option into common
shares of Vansen for any overdue installments based on 95% of the 20-day moving
average price of the shares. The fair value of the loans were determined to be
US$162,000, collectively based on the information available at the date of sale
as well as information received subsequent to August 26, 2013 and after the
balance sheet date. Management assessed the fair value of the loans based on a
number of factors and determined that given the deterioration in Vansens
financial condition and their dependence on raising additional financing, the
value of the loans should be discounted accordingly.

In May 2011, the Company advanced a
loan in the principal amount of $1,850,000 to Old Merus, a then unrelated
entity. In connection with the loan, the Company received certain equity
compensation which it accounted for as loan fees by adjusting the yield on the
loan.

The loan fees, valued at $517,352, were
amortized using the effective interest method over the six month term of the
loan and recorded as interest income. During fiscal 2012, $116,546 (2011:
$400,806) of interest related to these loan fees and $5,427 (2011: $75,973) of
cash interest was recorded. On October 14, 2011, the loan was paid in full,
including all accrued interest.

On November 25, 2011, the Company
advanced another loan to Old Merus in the amount of US$6,500,000, for purposes
of making the second installment on the purchase of Vancocin. The term of the
loan was six months, bearing interest at 12% per annum, and was eliminated upon
the amalgamation of the Company with Old Merus in December 2011. Interest of
$58,359 was recorded during fiscal 2012 related to this loan.

On September 30, 2011, the Company
agreed to accept partial payment on the sale of Watt International Inc. (Note
19) in the form of a loan receivable in the amount of $350,000. The loan was
non-interest bearing and due on demand. Payment was received in full on January
18, 2012.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|8. | Real estate held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company previously owned two properties in Toronto,
      which it had planned to develop for use. Given market conditions, the
      Company made a decision not to develop the properties and subsequently
      offered the properties for sale. In late 2011, the Company entered into an
      agreement to sell the properties. Book value of the properties
      approximated fair value, net of disposal costs. On February 27, 2012, the
      Company completed the sale of the properties for net proceeds of
      approximately $1,136,238, realizing a gain of $20,238, which is included
      in investment income.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|9. | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Continuity of intangible assets for the year ended
      September 30, 2013 was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Licensing
    
    
    Product
    
    
    Patents
    
    
    Goodwill
    
    
    Totaland
    
    
    RightsDistributionCost at September 30, 2012
    $
    122,020
    
    $
    68,298,401
    
    $
    20,766,160
    
    $
    16,676,097
    
    $
    105,862,678Product divestitures
    
    -
    
    
    (3,029,782
    )
    
    (1,142,725
    )
    
    -
    
    
    (4,172,507
    )Foreign exchange differences
    
    -
    
    
    4,622,125
    
    
    1,976,930
    
    
    -
    
    
    6,599,055Cost at September 30, 2013
    $
    122,020
    
    $
    69,890,744
    
    $
    21,600,365
    
    $
    16,676,097
    
    $
    108,289,226Accumulated Amortization at September 30,
      2012
    $
    122,020
    
    $
    8,625,444
    
    $
    1,131,238
    
    $
    16,676,097
    
    $
    26,554,799Amortization charge
    
    -
    
    
    6,658,156
    
    
    4,596,341
    
    
    -
    
    
    11,254,497Product divestitures
    
    -
    
    
    (284,930
    )
    
    (184,311
    )
    
    -
    
    
    (469,241
    )Foreign exchange
      differences
    
    -
    
    
    321,004
    
    
    300,027
    
    
    -
    
    
    621,031Accumulated Amortization at September 30,
      2013
    $
    122,020
    
    $
    15,319,674
    
    $
    5,843,295
    
    $
    16,676,097
    
    $
    37,961,086Carrying amount at September 30, 2012
    $
    -
    
    $
    59,672,957
    
    $
    19,634,922
    
    $
    -
    
    $
    79,307,879Carrying amount
      at September 30, 2013
    $
    -
    
    $
    54,571,070
    
    $
    15,757,070
    
    $
    -
    
    $
    70,328,140


---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Continuity of intangible assets for the
year ended September 30, 2012 was as follows:

Licensing
    
    
    Product
    
    
    Patents
    
    
    Goodwill
    
    
    Totaland
    
    
    RightsDistributionCost at September 30, 2011
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Acquired through amalgamation (note 3)
    
    122,020
    
    
    19,388,403
    
    
    -
    
    
    16,676,097
    
    
    36,186,520Product acquisitions
    
    -
    
    
    48,318,627
    
    
    20,513,225
    
    
    -
    
    
    68,831,852Foreign exchange
      differences
    
    -
    
    
    591,371
    
    
    252,935
    
    
    -
    
    
    844,306Cost at
      September 30, 2012
    $
    122,020
    
    $
    68,298,401
    
    $
    20,766,160
    
    $
    16,676,097
    
    $
    105,862,678Accumulated Amortization at September 30, 2011
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Amortization charge
    
    24,957
    
    
    3,174,456
    
    
    1,125,432
    
    
    -
    
    
    4,324,845Impairment charge
    
    97,063
    
    
    5,435,561
    
    
    -
    
    
    16,676,097
    
    
    22,208,721Foreign exchange differences
    
    -
    
    
    15,427
    
    
    5,806
    
    
    -
    
    
    21,233Accumulated
      Amortization at September 30, 2012
    $
    122,020
    
    $
    8,625,444
    
    $
    1,131,238
    
    $
    16,676,097
    
    $
    26,554,799Carrying amount at
      September 30, 2011
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Carrying amount at September 30, 2012
    $
    -
    
    $
    59,672,957
    
    $
    19,634,922
    
    $
    -
    
    $
    79,307,879


Amortization charges for intangible
assets for 2012 include $469,241 related to discontinued operations (Note 19)

Licensing and Distribution

As part of the amalgamation transaction
disclosed in Note 3, the Company acquired an exclusive licensing and
distribution agreement to import, distribute and sell products of Innocoll
Pharmaceuticals Inc.

The Company has limited visibility with
respect to the sales of this product line due to the slower than expected
product marketing authorization of a key product in the portfolio and a
refocusing of management priorities. Based on this, management believes the
recoverable amount of the licensing and distribution agreements to be nil and
therefore the value of the agreements was reduced to nil through the recognition
of an impairment charge of 97,063 in fiscal 2012 against this intangible asset.

Vancocin  Product Rights

The product rights provides the Company
with the rights to manufacture, market and sell Vancocin Oral 125 mg and 250 mg
capsules in the Canadian market. In accordance with the asset purchase agreement
between Old Merus and Iroko International LP (Iroko), the final payment for
the acquisition of the product rights was paid on February 28, 2012.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|    | Although there are a number of barriers to entry, in
      December 2011, Health Canada granted a notice of compliance (NOC) to
      Pharmaceutical Partners of Canada Inc. (PPC), which grants PPC the
      authority to market their generic version of Vancocin capsules in the
      Canadian market. In July 2012, PPC confirmed that it would market a
      generic Vancomycin capsule product. The Company viewed this announcement
      as an indicator for impairment with respect to its Vancocin product rights
      intangible asset. The recoverable amount of the product rights was
      determined based on FVLCTS calculations using a discounted cash flow
      analysis. These calculations used post-tax cash flow projections covering
      a five-year period based on managements best estimate of the impact of
      the generic entrant at September 30, 2012. Cash flows beyond the five-year
      period were extrapolated using an estimated rate of decline of -13.0%. A
      post-tax discount rate of 20.0% was applied. Based on this analysis, the
      carrying amount of the Vancocin product rights was reduced to its
      recoverable amount through recognition of an impairment charge in fiscal
      2012 of $5,435,561 against the product rights.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Goodwill  Impairment Test                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Goodwill was recognized on amalgamation of the Company
      with Old Merus. In connection with the impairment of the Vancocin product
      rights at September 30, 2012, as discussed above, management tested the
      Companys goodwill for impairment. The recoverable amount of the CGU to
      which goodwill had been allocated was determined based on FVLCTS
      calculations using a discounted cash flow analysis. These calculations
      used post-tax cash flow projections based on financial budgets covering a
      five-year period that reflect managements best estimate. Cash-flows
      beyond the five-year period were extrapolated using an estimated rate of
      decline of -13.0%. A post-tax discount rate of 20.0% was applied. Based on
      this analysis, the carrying amount of goodwill was reduced to its
      recoverable amount through recognition of an impairment charge in fiscal
      2012 of $16,676,097 against the goodwill.                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10. | Derivative liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                    |   | September 30 |  |   | September 30 | 
| | ---------------------------------- | - | ------------ |  | - | ------------ | 
| |                                    |   | 2013         |  |   | 2012         | 
| | Liabilities:                       |   |              |  |   |              | 
| | Forward foreign exchange contracts | $ | -            |  | $ | 336,700      | 
| |                                    |   |              |  |   |              | 
| | Total                              | $ | -            |  | $ | 336,700      | 

In connection with its European
operations of Enablex, the Company uses foreign currency contracts in order to
partially hedge the risk associated with its Euro currency source revenue. At
September 30, 2013, the Company had forward foreign exchange contracts
outstanding with a notional principal amount of $9,843,967 (2012: $8,527,400).
The fair value of these contracts at September 30, 2013 was $19,111 and was
included in trade and other receivables. For the period ended September 30,
2013, losses of $382,059 (2012: $373,800, 2011: nil) were recognized in foreign
exchange (gains) losses in the statement of operations in connection with these
contracts.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|11. | Provisions
|--- | ----------

| |                                         |   | Year
    ended September 30 |  
| | --------------------------------------- | - | --------------------------- | -
| |                                         |   | 2013                        |  
| | Balance at beginning of year            | $ | 1,084,184                   |  
| | Additions from business combinations    |   | -                           |  
| | Charges                                 |   | 2,819,120                   |  
| | Utilization                             |   | (2,438,657                  | )
| | Product divestitures                    |   | (1,181,374                  | )
| | Balance at end of year                  |   | 283,273                     |  
| | Less: current portion of provisions     |   | 190,701                     |  
| | Non-current
      portion of provisions | $ | 92,572                      |  

The Companys provisions are comprised
of the following product-related liabilities:

Product Returns Liability:

The Company accepts all product returns
relating to North American product sales. Management estimates the fair value of
the product returns liability by taking into consideration the amount of units
previously sold, returns experience to date, and changes in the marketplace.

Coupons Liability:

With respect to the Companys sales of
Factive in the United States, the Company provided for a coupon program that
subsidized the insurance cost of the product to the patient.

Rebates Liability:

With respect to the Companys sales of
Factive in the United States, the Company provided for certain state and federal
Medicare and Medicaid rebates.

Certain comparative period amounts
(September 2012: $353,187) related to product returns, coupons and rebates
previously included in accounts payable and accrued liabilities were
reclassified to be included in provisions to conform to the current period
presentation. This reclassification had no impact on the prior year opening
balance sheet as no provisions existed at that time.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|12. | Long-term debt
|--- | --------------

| |                                                                                     |   | September 30 |  |   | September 30 | 
| | ----------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                                     |   | 2013         |  |   | 2012         | 
| | Current                                                                             |   |              |  |   |              | 
| | Senior secured facility, net of unamortized
      transaction costs of $283,740 (a) | $ | 8,116,260    |  | $ | -            | 
| | Convertible debenture (b)                                                           |   | -            |  |   | -            | 
| | Enablex debt facility (c)                                                           |   | -            |  |   | 12,122,563   | 
| | Enablex VTB note (d)                                                                |   | -            |  |   | 19,664,000   | 
| | Support services agreement (e)                                                      |   | -            |  |   | 140,125      | 
| | Total                                                                               | $ | 8,116,260    |  | $ | 31,926,688   | 
| |                                                                                     |   |              |  |   |              | 
| | Non-Current                                                                         |   |              |  |   |              | 
| | Senior secured facility, net of unamortized
      transaction costs of $285,298 (a) | $ | 21,314,702   |  | $ | -            | 
| | Convertible debenture, net of unamortized transaction costs
      of $1,365,200 (b) |   | 8,634,800    |  |   | -            | 
| | Enablex debt facility (c)                                                           |   | -            |  |   | 21,972,205   | 
| | Support services
      agreement (e)                                                |   | -            |  |   | 187,937      | 
| | Total                                                                               | $ | 29,949,502   |  | $ | 22,160,142   | 

(a) Senior secured facility:

On September 24, 2013, the Company
entered into a new senior secured debt facility with a syndicate of Canadian
chartered banks. The new facility, in combination with the convertible debenture
described below, refinanced the Company's existing debt at a lower rate and
extended term. The new facility matures September 30, 2016 and provides for a
$30 million term loan, currently at prime plus 3.0%, with monthly payments of
principal and interest. Principal payments are $700,000 per month for the first
24 months, increasing to $1,100,000 per month for the final 12 months. The
facility also provides for up to $2 million on a revolving line of credit, based
on eligible accounts receivable. The facility is secured by all assets of the
Company and contains affirmative and negative covenants including compliance
with laws and restrictions on additional debt, as well as financial covenants
such as debt to earnings and fixed charge coverage ratios. The Company was in
compliance with all covenants of the senior secured facility as at September 30,
2013. Finance costs of $569,038 were capitalized to the loan balance and will be
amortized over the term of the loan.

(b) Convertible debenture:

In connection with the refinancing
described above, the Company issued convertible debentures with a principal
value of $10,000,000 to two investment funds. The debentures have a term of five
years, maturing September 20, 2018, with interest at 8.0%, payable quarterly.
The principal amount of the debentures are convertible at the option of the
holder into common shares at a fixed rate of $1.50 per common share, with an
option for the Company to force conversion if its common shares trade at, or
above, $2.30 per share for 20 consecutive days. In the event of conversion into
common shares, any accrued but unpaid interest is converted at the market price on the date of conversion. As required by accounting rules, management has bifurcated the fair value of the convertible debenture into a liability component and an equity component, based on first determining the fair value of the liability with the remainder being the equity value. Based on these calculations, management has determined the equity component to be $1,313,550, which has been included as part of equity in the financial statements. Finance costs of $51,650 were capitalized to the debentures, allocated between the liability and equity component. Both the equity component and the finance costs have been deducted from the liability on initial recognition and will be accreted over the term of the instrument.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

(c) Enablex debt facility:

On July 10, 2012, in connection with
the acquisition of Enablex, the Company entered into a credit agreement
(Enablex Debt Facility) of up to US$55,000,000 with a third-party lender.
US$35,000,000 of this amount was drawn down upon acquisition of the asset with a
further US$20,000,000 guaranteed through a letter of credit facility. The loan
bore interest at 13.5% per annum, with monthly interest payments and periodic
principal repayments until maturity on March 31, 2015. The Enablex Debt Facility
contained customary affirmative covenants, including compliance with laws and
contractual obligations and payment of taxes. The facility also contained
customary negative covenants, including restrictions on the incurrence of
indebtedness, the granting of liens, making restricted payments and investments,
entering into affiliate transactions and transferring assets. The Company was
also required by the terms of the credit agreement to comply with customary
financial covenants, which were not applicable until March 31, 2013. Finance
costs of $359,314 were capitalized to the loan balance and amortized over the
term of the loan. This loan was extinguished upon funding of the new facility as
discussed in note 12(a) and (b).

(d) Enablex VTB note:

In connection with the acquisition of
Enablex, part of the consideration included a US$20,000,000 vendor take back
note (VTB Note), which was due on July 11, 2013. On that date, the VTB Note
was repaid through an additional draw on the Enablex Debt Facility, discussed
above. The VTB Note bore no interest and was guaranteed by the Enablex Debt
Facility. This loan was extinguished upon funding of the new facility as
discussed in note 12(a) and (b).

(e) Support services agreement:

In connection with its support services
agreement with a distribution services provider, the distribution services
provider provided the Company with loan of $500,000 to be used for working
capital purposes and in consideration for being the Companys exclusive provider
of certain distribution services for the Companys products in Canada. Payments
were made based on net sales of Vancocin. The agreement was for a five year term
with automatic renewal terms of two years until terminated. For the year ended
September 30, 2012, the Company repaid $171,938. On September 24, 2013, the
Company extinguished the remaining balance of $273,481 as part of its
refinancing under the Senior secured facility discussed above. This loan was
extinguished upon funding of the new facility as discussed in note 12(a) and
(b).

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|13. | Share capital
|--- | -------------

(a) Authorized:

Unlimited common shares without par
value. Issued:

| |                                                           |  |                    |  |   | Year
      ended   |  |  |                 |  |   | Year
      ended | 
| | --------------------------------------------------------- |  | ------------------ |  | - | ------------------ |  |  | --------------- |  | - | ---------------- | 
| |                                                           |  | September 30, 2013 |  |   | September 30, 2012 | 
| |                                                           |  | Number             |  |   |                    |  |  | Number          |  |   |                  | 
| |                                                           |  | of
      shares    |  |   | Amount             |  |  | of
      shares |  |   | Amount           | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Balance, beginning of year                                |  | 30,708,478         |  | $ | 51,639,478         |  |  | 8,028,377       |  | $ | 8,762,524        | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to private
      placement  |  | 7,678,034          |  |   | 4,364,626          |  |  | 4,196,500       |  |   | 7,945,633        | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to
      amalgamation       |  | -                  |  |   | -                  |  |  | 11,750,946      |  |   | 23,501,892       | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to
      acquisition        |  | -                  |  |   | -                  |  |  | 825,035         |  |   | 1,486,558        | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to options
      exercised  |  | 5,000              |  |   | 10,128             |  |  | 197,500         |  |   | 395,000          | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to warrants
      exercised |  | -                  |  |   | -                  |  |  | 154,120         |  |   | 341,160          | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Common shares issued pursuant to prospectus offering      |  | -                  |  |   | -                  |  |  | 5,556,000       |  |   | 9,206,711        | 
| |                                                           |  |                    |  |   |                    |  |  |                 |  |   |                  | 
| | Balance, end of year                                      |  | 38,391,512         |  | $ | 56,014,232         |  |  | 30,708,478      |  | $ | 51,639,478       | 

(b) Private placements

On June 7, 2013, the Company completed
a private placement of 7,678,034 shares at a price of $0.60 per share for gross
proceeds of $4,606,820. Proceeds were used for debt repayment and general
corporate purposes. Costs of the offering were approximately $242,000.

On December 19, 2011, the Company
completed a private placement consisting of 4,196,500 units (Unit) at a price
of $2.00. Each Unit consists of one common share of the Company and one half of
one warrant, which entitles the holder to purchase an additional common share of
the Company at an exercise price of $3.00 at any time for a period of 36 months.
The Company may accelerate the term to 30 days if the share price exceeds $4.00
for 20 consecutive trading days. In connection with the private placement, the
Company also issued 197,700 warrants as a finders fee. Each of these warrants
entitles its holders to purchase one Unit until December 2, 2014 at an exercise
price of $2.00 per Unit. Costs of the offering were approximately $447,000.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

(c) Amalgamation

On December 19, 2011, the Company
entered into a plan of arrangement whereby it amalgamated with Merus Labs
International Inc. (Old Merus). Pursuant to the Arrangement, all of the
outstanding common shares of Old Merus were exchanged on a 4:1 basis for common
shares of the Company. Holders of options and warrants of Old Merus received
options and warrants to purchase shares of the Company on the same terms and
conditions after adjustment for the foregoing share exchange ratio. In
connection with the amalgamation, the Company issued 11,750,946 common shares,
227,500 common share options and 2,403,557 common share warrants (see note 3).

(d) Acquisition

On January 6, 2012, the Company
acquired 51% of Orbis Pharma Inc. (Orbis), a development stage pharmaceutical
company. The arrangement involved the issuance of 300,000 shares which are
released over a 3 year period. The Company was also obligated to purchase the
remaining 49%, based on the achievement of certain milestones, through the
issuance of additional common shares. Upon closing of the Enablex transaction,
the Company issued an additional 525,035 shares in connection with the purchase
of the remaining 49% of Orbis. The Company determined Orbis did not meet the
definition of a business for accounting purposes and thus was not accounted for
as a business combination. The estimated fair value of the shares issued was
$1,486,558, of which $660,874 (2012: $609,906) was recognized in general and
administrative expenses during fiscal 2013. The balance of these shares will be
recognized over the remaining escrow period.

(e) Prospectus offering

On May 4, 2012, the Company announced a
bought deal common share financing with a syndicate of underwriters, pursuant to
which the Company sold 5,556,000 common shares at a price of $1.80 per share.
The arrangement closed on May 29, 2012. Costs of the offering were approximately
$794,000.

(f) Stock option plan

The Company has reserved 3,839,151
common shares under a 10% rolling reloading stock option plan. Under the plan,
the options are exercisable for one common share and the exercise price of the
option must equal the market price of the underlying share at the grant date.
The options have vesting periods ranging from the date of grant up to three
years. Once vested, options are exercisable at any time until expiry.

On October 31, 2011 the Company granted
one of its directors 150,000 options at the exercise price of $2.00 per share.
One third of the options vest immediately with one-third vesting on each of the
next two anniversaries, and expire on October 31, 2016.

In January 2012, the Company granted a
total of 1,440,000 options to officers of the Company in connection with their
employment agreements. 600,000 options were granted with an exercise price of
$2.05 per share and the remaining 840,000 with an exercise price of $2.02.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Of the 1,440,000 options granted,
840,000 of the options vested immediately, with the remaining 600,000 options
vesting as follows: 200,000 in January 2013, 200,000 in January 2014 and 200,000
in January 2015. All of the options have a term of five years.

In September 2012, the Company granted
100,000 options to an officer of the Company in connection with their employment
agreement. The options were granted with an exercise price of $1.52 per share,
with 25,000 options vesting immediately and 25,000 on each of the next three
anniversaries.

In January 2013, the Company granted
50,000 options to an officer of the Company as incentive compensation. The
options have a five year term and were granted with an exercise price of $1.19
per share, with all options vesting on the first anniversary date of the grant.

In February 2013, 5,000 options
previously granted were exercised by a former director of the Company at $0.56
per share for proceeds of $2,800.

In May 2013, the Company granted 25,000
options to an employee of the Company as incentive compensation. The options
have a five year term and were granted with an exercise price of $0.51 per
share, with one third vesting immediately and one third vesting on each of the
next two anniversary dates.

In July 2013, the Company granted
150,000 options to a new director. The options have a term of five years,
vesting immediately, with an exercise price of $0.91 per share.

The estimated fair value of the options
granted during the twelve months of fiscal 2013, using the Black-Scholes option
pricing model, was $132,080 (2012: $2,138,973). $332,175 was expensed in the
financial statements during the twelve months ending September 30, 2013 (2012:
$1,604,515) relating to current and prior period grants, and has been included
in equity as equity reserves. The remaining expense will be recognized over the
balance of the vesting periods.

(g) Stock option details

The fair value of each option granted
was estimated on the date of the grant using the Black-Scholes fair value option
pricing model with the following assumptions:

| |                                                     | Year
      ended September 30
| | --------------------------------------------------- | -----------------------------
| |                                                     | 2013                         
| |                                                     |                              
| | Weighted-average fair value of options              | $0.59                        
| |                                                     |                              
| | Risk-free interest rate                             | 2.0%                         
| |                                                     |                              
| | Volatility of the Company's common shares           | 80%                          
| |                                                     |                              
| | Weighted average expected life of the
      options | 5 years                      
| |                                                     |                              
| | Forfeiture rate                                     | 0%                           
| |                                                     |                              
| | Expected dividends                                  | Nil                          

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

Volatility was determined based on
daily observations of the historical stock price over a period consistent with
the expected life of the options at the date of grant.

Details of the options are as follows:

| |                                                  |  | Number
      of |   |   | Weighted
      average | 
| | ------------------------------------------------ |  | --------------- | - | - | ---------------------- | 
| |                                                  |  | options         |   |   | price
      per share  | 
| |                                                  |  |                 |   |   |                        | 
| | Options outstanding, September 30, 2011          |  | 600,000         |   | $ | 2.00                   | 
| | Options issued pursuant to amalgamation (note 3) |  | 227,500         |   |   | 0.69                   | 
| | Options granted                                  |  | 1,690,000       |   |   | 2.00                   | 
| | Options exercised                                |  | (197,500        | ) |   | 0.40                   | 
| | Options outstanding, September 30, 2012          |  | 2,320,000       |   | $ | 2.01                   | 
| | Options granted                                  |  | 225,000         |   |   | 0.93                   | 
| | Options exercised                                |  | (5,000          | ) |   | 0.56                   | 
| | Options expired                                  |  | (25,000         | ) |   | 3.00                   | 
| | Options forfeited                                |  | (50,000         | ) |   | 2.00                   | 
| |                                                  |  |                 |   |   |                        | 
| | Options outstanding, September 30, 2013          |  | 2,465,000       |   | $ | 1.90                   | 

The range of exercise prices for
outstanding and exercisable options at September 30, 2013 are as follows:

Number
    Weighted Average
    NumberExercise Price
    Outstanding
    Contractual Life
    Exercisable$ 0.51
    25,000
    4.62
    8,333$ 0.91
    150,000
    4.77
    150,000$ 1.19
    50,000
    4.27
    -$ 1.52
    100,000
    3.95
    50,000$ 2.00
    700,000
    2.87
    700,000$ 2.02
    840,000
    3.30
    740,000$ 2.05
    600,000
    3.27
    300,0002,465,000
    
    1,948,333


---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|14. | Equity reserves and warrants reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Pursuant to the amalgamation in December 2011, the
      Company issued 227,500 stock options and 2,403,557 warrants in exchange
      for the existing issued and outstanding warrants of Old Merus. The fair
      value of these options and warrants was calculated using the Black-Scholes
      model to be $337,223 for the options and $1,521,743 for the warrants.
      These amounts were accounted for as equity reserves and warrants reserve,
      respectively. Assumptions used to value these warrants are disclosed in
      note 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On December 19, 2011, the Company completed a private
      placement consisting of 4,196,500 Units at a price of $2.00. Each Unit
      consisted of one common share of the Company and one half of one warrant,
      which entitles the holder to purchase an additional common share of the
      Company at an exercise price of $3.00 at any time for a period of 36
      months. The Company may accelerate the term to 30 days if the share price
      exceeds $4.00 for 20 consecutive trading days. In allocating the fair
      value of the proceeds between the common shares and these half warrants,
      it was determined that the fair value of the common shares was more
      reliably measurable and since the common shares of the Company were
      trading at $2.00 per share on December 19, 2011, the entire value of the
      proceeds was allocated to the shares. In addition, the Company also issued
      197,700 warrants as a finders fee. The fair value of these warrants was
      deemed to be of nominal value.

| |                                               |  | Number
      of |   |   | Weighted
      average | 
| | --------------------------------------------- |  | --------------- | - | - | ---------------------- | 
| |                                               |  | warrants        |   |   | exercise price         | 
| | Balance, September 30, 2011                   |  | -               |   | $ | -                      | 
| | Warrants issued pursuant to private placement |  | 2,295,950       |   |   | 3.00                   | 
| | Warrants issued pursuant to amalgamation      |  | 2,403,557       |   |   | 2.34                   | 
| | Warrants exercised                            |  | (154,120        | ) |   | 1.60                   | 
| | Warrants expired                              |  | (68,000         | ) |   | 1.60                   | 
| | Balance, September 30, 2012                   |  | 4,477,387       |   | $ | 2.70                   | 
| | Warrants expired                              |  | (2,181,437      | ) |   | 2.48                   | 
| | Balance, September
      30, 2013             |  | 2,295,950       |   | $ | 2.91                   | 

The following share purchase warrants
were outstanding at September 30, 2013:

Exercise Price
    Number
    Weighted AverageOutstanding
    Contractual Life$ 2.00
    197,700
    1.22$ 3.00
    2,098,250
    1.222,295,950


---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|15. | Accumulated other comprehensive
  income
|--- | ----------------------------------------

| |                                                         |   | Translation |  |   | Total     | 
| | ------------------------------------------------------- | - | ----------- |  | - | --------- | 
| |                                                         |   |             |  |   |           | 
| | At September 30, 2011                                   | $ | -           |  | $ | -         | 
| | Currency translation differences                        |   | 598,603     |  |   | 598,603   | 
| |                                                         |   |             |  |   |           | 
| | At September 30, 2012                                   |   | 598,603     |  |   | 598,603   | 
| | Currency translation differences, net of tax of $20,429 |   | 5,082,943   |  |   | 5,082,943 | 
| |                                                         |   |             |  |   |           | 
| | At September 30, 2013                                   | $ | 5,681,546   |  | $ | 5,681,546 | 

|16. | Commitments                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                               
|    | (a) Operating lease commitments                                                                                                                                               
|    |                                                                                                                                                                               
|    | The Company has entered into non-cancellable operating
      lease agreements for office premises and equipment with minimum annual
      lease payments to expiry as follows:

September 30
    
    
    September 302013
    
    
    2012Less than 1 year
    $
    143,750
    
    $
    61,5941 to 2 years
    
    128,265
    
    
    25,4082 to 3 years
    
    105,576
    
    
    22,6893 to 4 years
    
    105,576
    
    
    -4 to 5 years
    
    26,394
    
    
    -Thereafter
    
    -
    
    
    -Total
    $
    509,561
    
    $
    109,691


Lease expense recognized during the
period was $219,693 (2012: $71,714, 2011: $74,236), which has been included in
general and administrative expenses in the statements of operations.

(b) Revenue based commitments

Pursuant to the Companys exclusive
licensing and distribution agreement with Innocoll, the Company is subject to
licensing fees based on a percentage of sales of the products. As at September
30, 2013, the Company is not obligated for any licensing fees as it has not
launched the sale of the products.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|17. | Related party transactions                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                       
|    | At September 30, 2013, there were no amounts owing to or
      from related parties. The remuneration of directors and other members of
      key management personnel are as follows:

| |                                               |   |           |  |   | Year
      ended September 30 | 
| | --------------------------------------------- | - | --------- |  | - | ----------------------------- | 
| |                                               |   | 2013      |  |   | 2012                          | 
| |                                               |   |           |  |   |                               | 
| | Salaries                                      | $ | 1,627,662 |  | $ | 968,751                       | 
| | Share based compensation                      |   | 993,049   |  |   | 2,214,421                     | 
| | Termination payments related to restructuring |   | -         |  |   | -                             | 
| |                                               | $ | 2,620,711 |  | $ | 3,183,172                     | 

|18. | Income taxes                                                                                         
|--- | -----------------------------------------------------------------------------------------------------
|    |                                                                                                      
|    | The major components of income tax expense for the years
      ended September 30, 2013 and 2012 are:

| |                                                               |   |         |  |   | Year
      ended September 30 |  
| | ------------------------------------------------------------- | - | ------- |  | - | ----------------------------- | -
| | Income tax
      recognized in profit or loss                 |   | 2013    |  |   | 2012                          |  
| | Current tax                                                   |   |         |  |   |                               |  
| | Current period tax expense                                    | $ | 454,426 |  | $ | -                             |  
| | Adjustments recognized for current tax of
      prior periods |   | 103,092 |  |   | -                             |  
| |                                                               |   |         |  |   |                               |  
| | Deferred tax:                                                 |   |         |  |   |                               |  
| | Recognition of
      opening unrecognized deferred tax assets |   | -       |  |   | (1,608,758                    | )
| | Provision for income taxes                                    | $ | 557,518 |  | $ | (1,608,758                    | )

A reconciliation between income tax
expense and the product of accounting income multiplied by Canadas domestic tax
rate (26.46% for Merus) for the years ended September 30, 2013 and 2012 is as
follows:

| |                                                                                                            |   |            |   |   | Year
      ended September 30 |  
| | ---------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ----------------------------- | -
| |                                                                                                            |   | 2013       |   |   | 2012                          |  
| | Loss from continuing operations
      before income taxes and non-controlling interest                     | $ | (1,172,305 | ) | $ | (22,548,750                   | )
| |                                                                                                            |   |            |   |   |                               |  
| | Income tax expense (benefit) at the
      statutory income tax rate of 26.46% (2012: 25.01%, 2011: 28.75%) |   | (310,192   | ) |   | (5,639,442                    | )
| | Impairment losses on goodwill that is not tax deductible                                                   |   | -          |   |   | 4,170,692                     |  
| | Utilization or expiry of previously
      unrecognized tax losses                                          |   | -          |   |   | (643,862                      | )
| | Non-deductible expenses for tax purposes                                                                   |   | 542,732    |   |   | 455,021                       |  

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | Deductible temporary differences and unused
      tax losses not recognized, including impact of change in rate |   | 2,095,830  |   |   | 48,833     |   |   | (183,837  | )
| | --------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | --------- | -
| | Effect of income taxes recorded at rates different from the
      Canadian tax rate                             |   | (1,857,547 | ) |   | -          |   |   | 1,398,362 |  
| | Other differences                                                                                               |   | 86,695     |   |   | -          |   |   | 6,578     |  
| |                                                                                                                 |   |            |   |   |            |   |   |           |  
| | Tax expense (recovery)                                                                                          | $ | 557,518    |   | $ | (1,608,758 | ) | $ | -         |  

The difference in statutory tax rate is
due to changes in provincial rates and differences in allocation of revenue
between jurisdictions.

In 2012, deferred tax liabilities of
$1,608,758 were recorded as part of business combinations as discussed in Note
3. Deferred tax assets of $1,608,758 were recognized since the taxable temporary
differences giving rise to the above mentioned deferred tax liability were of
the appropriate character and reverse in the appropriate carryforward period.
The benefit of the recognition of deferred tax assets is recorded to profit or
loss from continuing operations in accordance with IAS 12.

As at September 30, 2013, approximately
$511,993 (2012: $471,978) of deferred tax liabilities relating to differences
between the carrying value and fair value of debt have been recognized and are
offset by recognized deferred tax assets of the same amount relating to debt
financing costs. The Company offsets tax assets and liabilities if and only if
it has a legally enforceable right to offset current tax assets and current tax
liabilities and the deferred tax assets and deferred tax liabilities relate to
income taxes levied by the same tax authorities.

The following is an analysis of
deferred tax assets, which are currently not being recognized in the
consolidated balance sheets:

| |                                                        |   | Year
      ended September 30 | 
| | ------------------------------------------------------ | - | ----------------------------- | 
| |                                                        |   | 2013                          | 
| | Unrecognized deferred tax assets in
      relation to: |   |                               | 
| | Unused capital and non-capital losses                  | $ | 7,012,290                     | 
| | Capital and Intangible assets                          |   | 832,044                       | 
| | Undeducted share and debt issuance costs               |   | 356,764                       | 
| |                                                        |   |                               | 
| |                                                        | $ | 8,201,098                     | 

The aggregate amount of temporary
differences associated with investments in subsidiaries, branches and associates
and interests in joint arrangements, for which deferred tax liabilities have not
been recognized is approximately $2,418,000.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The Company has unused non-capital tax
losses that may be applied against future taxable income for Canadian federal
and provincial income tax purposes, which expire between 2014 and 2033 as
follows:

| | Non-capital losses |   | Federal and provincial | 
| | ------------------ | - | ---------------------- | 
| | Expires in         |   |                        | 
| | 2014               | $ | 1,424,000              | 
| | 2015               |   | 1,641,000              | 
| | 2027 to 2029       |   | 12,744,000             | 
| | 2030 to 2033       |   | 5,573,000              | 
| | Total              | $ | 21,382,000             | 

|    | The Company has realized net capital losses of
      approximately $12,411,000 available for carry forward to be applied
      against future taxable capital gains for Canadian tax purposes. These
      losses are available for carry forward indefinitely. The Company has not
      recognized any potential deferred income tax assets that may be associated
      with these non-capital and net capital losses.                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|19. | Discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On August 26, 2013, the Company divested its North
      American product rights for Factive (Gemifloxacin Mesylate) tablets to
      Vansen Pharma. Proceeds from the disposition included US$2,200,000 cash, a
      note receivable for US$800,000, plus 3 million shares of Vansen. Expenses
      of US$261,860 were incurred on the sale. The disposition of Factive
      resulted in a loss on disposal, net of income taxes, of
$522,271.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The results of Factive were as
follows:                                                                                                                                                                                                                                                                                                                                                                                                           

| |                                              |   |            |   |   | Year
      ended September 30 | 
| | -------------------------------------------- | - | ---------- | - | - | ----------------------------- | 
| |                                              |   | 2013       |   |   | 2012                          | 
| | Revenue                                      | $ | 1,145,742  |   | $ | 1,088,284                     | 
| | Cost of goods sold                           |   | 569,024    |   |   | 247,223                       | 
| | Gross margin                                 |   | 576,718    |   |   | 841,061                       | 
| |                                              |   |            |   |   |                               | 
| | Sales and marketing                          |   | 218,863    |   |   | -                             | 
| | General and administrative                   |   | 456,370    |   |   | 152,376                       | 
| | Amortization of intangible assets            |   | 751,520    |   |   | 469,241                       | 
| | (Loss) earnings from discontinued operations |   | (850,035   | ) |   | 219,444                       | 
| | Loss on sale of discontinued operations      |   | (522,271   | ) |   | -                             | 
| | Net (loss) income                            | $ | (1,372,306 | ) | $ | 219,444                       | 

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

On September 30, 2011, the Company
completed the sale of its wholly-owned subsidiary, Watt International Inc. Gross
proceeds from the sale were $2,150,000, consisting of $1,800,000 cash paid on
closing and a loan receivable for $350,000 due on demand with no specific term,
which the Company received in full in January 2012. The disposition of Watt
resulted in a loss on disposal of discontinued operations, net of income taxes,
of $547,375.

The results of Watt International Inc.
were as follows:

| |                                         |   |      |  |   | Year
      ended September 30 | 
| | --------------------------------------- | - | ---- |  | - | ----------------------------- | 
| |                                         |   | 2013 |  |   | 2012                          | 
| | Net revenue                             | $ | -    |  | $ | -                             | 
| | Operating expenses                      |   | -    |  |   | -                             | 
| | Interest expense                        |   | -    |  |   | -                             | 
| | Depreciation                            |   | -    |  |   | -                             | 
| |                                         |   |      |  |   |                               | 
| | Loss from discontinued operations       |   |      |  |   | - -                           | 
| | Loss on sale of discontinued operations |   | -    |  |   | -                             | 
| | Net loss                                | $ | -    |  | $ | -                             | 

|20. | Earnings per share                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                      
|    | (a) Basic                                                                                                                                                                                            
|    |                                                                                                                                                                                                      
|    | Basic earnings per share is calculated by dividing the
      profit attributable to equity holders of the Company by the weighted
      average number of ordinary shares in issue during the
  year.

| |                                                                                               |   |            |   |   | Year
      ended September 30 |   |   |            |  
| | --------------------------------------------------------------------------------------------- | - | ---------- | - | - | ----------------------------- | - | - | ---------- | -
| |                                                                                               |   | 2013       |   |   | 2012                          |   |   | 2011       |  
| | Loss attributable to equity holders of the
      Company                                      | $ | (1,729,823 | ) | $ | (20,939,992                   | ) | $ | (6,787,608 | )
| | Loss (profit) from
      discontinued operation attributable to equity holders of the Company |   | (1,372,306 | ) |   | 219,444                       |   |   | (766,328   | )
| |                                                                                               |   |            |   |   |                               |   |   |            |  
| | Total                                                                                         | $ | (3,102,129 | ) | $ | (20,720,548                   | ) | $ | (7,553,936 | )
| | Weighted average number of ordinary shares in issue                                           |   | 33,151,593 |   |   | 22,929,402                    |   |   | 8,028,377  |  

(b) Diluted

Diluted earnings per share is
calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The
Company has two categories of dilutive potential ordinary shares: warrants and
stock options. As the Company recorded a net loss for the periods ended
September 30, 2013, 2012 and 2011, these items were considered anti-dilutive and have therefore been excluded from the calculation of diluted earnings per share.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |                                                                                               |   |            |   |   | Year
      ended September 30 |  
| | --------------------------------------------------------------------------------------------- | - | ---------- | - | - | ----------------------------- | -
| |                                                                                               |   | 2013       |   |   | 2012                          |  
| | Loss (profit)                                                                                 |   |            |   |   |                               |  
| | Loss attributable to equity holders of the
      Company                                      | $ | (1,729,823 | ) | $ | (20,939,992                   | )
| | Profit (loss) from
      discontinued operation attributable to equity holders of the Company |   | (1,372,306 | ) |   | 219,444                       |  
| |                                                                                               |   |            |   |   |                               |  
| | Total                                                                                         | $ | (3,102,129 | ) | $ | (20,720,548                   | )
| | Weighted average number of ordinary shares in issue                                           |   | 33,151,593 |   |   | 22,929,402                    |  
| |                                                                                               |   |            |   |   |                               |  
| | Weighted average number of ordinary shares for diluted
      earnings per share               |   | 33,151,593 |   |   | 22,929,402                    |  

|21. | Management of capital                                                 
|--- | ----------------------------------------------------------------------
|    |                                                                       
|    | The Company includes the following in its definition of
      capital:

| |                                           |   | September 30 |   |   | September 30 |  
| | ----------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                           |   | 2013         |   |   | 2012         |  
| |                                           |   |              |   |   |              |  
| | Debt comprised of:                        |   |              |   |   |              |  
| | Senior secured facility                   | $ | 29,430,962   |   | $ | -            |  
| | Convertible debenture                     |   | 8,634,800    |   |   | -            |  
| | Enablex debt facility                     |   | -            |   |   | 34,094,768   |  
| | Enablex VTB note                          |   | -            |   |   | 19,664,000   |  
| | Support services agreement                |   | -            |   |   | 328,062      |  
| | Equity comprised of:                      |   |              |   |   |              |  
| | Share capital                             | $ | 56,014,232   |   | $ | 51,639,478   |  
| | Equity reserve                            |   | 33,881,330   |   |   | 31,468,434   |  
| | Warrants reserve                          |   | -            |   |   | 1,427,175    |  
| | Convertible debt -
      equity component |   | 1,313,550    |   |   | -            |  
| | Deficit and AOCI                          |   | (47,290,491  | ) |   | (49,271,305  | )
| |                                           | $ | 81,984,383   |   | $ | 89,350,612   |  

The Companys objectives when managing
capital are:

| | (a) | to allow the Company to respond to changes in economic
      and/or marketplace conditions;         
| | --- | ----------------------------------------------------------------------------------------------------
| |     |                                                                                                     
| | (b) | to give shareholders sustained growth in shareholder
      value by increasing shareholders equity;

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (c) | to ensure that the Company maintains the level of capital
      necessary to meet the requirements of its long-term debt;
| | --- | -------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                          
| | (d) | to comply with financial covenants required under its
      debt facilities; and                                         
| |     |                                                                                                                          
| | (e) | to maintain a flexible capital structure which optimizes
      the cost of capital at acceptable levels of risk          

The Company manages its capital
structure and makes adjustments to it in light of changes in economic conditions
and the risk characteristics of its underlying assets. The Company maintains or
adjusts its capital level to enable it to meet its objectives by:

| | (a) | raising capital through equity financings;                      
| | --- | ----------------------------------------------------------------
| |     |                                                                 
| | (b) | utilizing leverage in the form of third party debt;
      and   
| |     |                                                                 
| | (c) | realizing proceeds from the disposition of its
      investments

|    | The Company is not subject to any capital requirements
      imposed by a regulator. The Company is subject to certain capital
      requirements and negative covenants with respect to its Senior Secured
      Facility (refer to note 12). There were no changes in the Companys
      approach to capital management during the year. To date, the Company has
      not declared any cash dividends to its shareholders as part of its capital
      management program. The Companys management is responsible for the
      management of capital and monitors the Companys use of various forms of
      leverage on a regular basis.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|22. | Financial instruments and financial risk
      management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | a) Fair Value Estimation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Companys carrying value of cash, short-term
      investments, trade and other receivables, loan receivable and accounts
      payable and accrued liabilities approximate their fair values due to the
      immediate or short term maturity of these instruments. The fair value of
      long-term liabilities is not materially different than its carrying value
      due to the recent issuance of these liabilities.                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Carrying value and fair value of financial assets and
      liabilities are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                            |   |                |  |   | **September 30, 2013** | 
| | ------------------------------------------ | - | -------------- |  | - | ---------------------- | 
| | Classification                             |   | Carrying value |  |   | Fair value             | 
| |                                            |   |                |  |   |                        | 
| | Financial assets at FVTPL                  |   |                |  |   |                        | 
| | - Short-term investments                   | $ | 104,807        |  | $ | 104,807                | 
| | Loans and receivables                      |   |                |  |   |                        | 
| | - Cash                                     |   | 8,084,367      |  |   | 8,084,367              | 
| | - Trade and other receivables              |   | 7,048,104      |  |   | 7,048,104              | 
| | - Loans receivable                         |   | 166,909        |  |   | 166,909                | 
| | Other financial liabilities                |   |                |  |   |                        | 
| | - Accounts payable and accrued liabilities |   | 4,177,960      |  |   | 4,177,960              | 
| | -
      Long term debt                     |   | 38,065,762     |  |   | 38,679,630             | 

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| |                                                   |   | September 30, 2012 | 
| | ------------------------------------------------- | - | ------------------ | 
| | Classification                                    |   | Carrying value     | 
| |                                                   |   |                    | 
| | Financial assets at FVTPL                         |   |                    | 
| | - Short-term investments                          | $ | 11,936             | 
| | Loans and receivables                             |   |                    | 
| | - Cash                                            |   | 3,462,919          | 
| | - Trade and other receivables                     |   | 4,917,455          | 
| | - Loans receivable                                |   | 737,400            | 
| | Other financial liabilities                       |   |                    | 
| | - Accounts payable and accrued liabilities        |   | 1,607,040          | 
| | - Long term debt                                  |   | 54,086,830         | 
| | Derivative financial liabilities used for hedging |   | 336,700            | 

The Company is required to present
information about its financial assets and liabilities with respect to the
hierarchy of the valuation techniques the Company utilized to determine fair
value. The different levels have been defined as follows:

| | - | Level 1 inputs utilize quoted prices (unadjusted) in
      active markets for identical assets or liabilities                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Level 2 inputs utilize data points that are observable
      such as quoted prices, interest rates and yield curves                                                                   
| | - | Level 3 inputs are unobservable data points for the asset
      or liability, and includes situations where there is little, if any,
      market activity for the asset or liability.

At September 30, 2013, the Companys
financial assets and liabilities would be classified as follows:

| |                              |   |                        |  |   | Significant |   |   | Significant Other |   |   | Significant  |  
| | ---------------------------- | - | ---------------------- |  | - | ----------- | - | - | ----------------- | - | - | ------------ | -
| |                              |   |                        |  |   | Observable  |   |   | Observable        |   |   | Unobservable |  
| |                              |   |                        |  |   | Inputs      |   |   | Inputs            |   |   | Inputs       |  
| |                              |   | **September 30, 2013** |  |   | (Level 1    | ) |   | (Level 2          | ) |   | (Level 3     | )
| |                              |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Assets:                      |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Short-term
      investments | $ | 104,807                |  | $ | 42,989      |   | $ | -                 |   | $ | 61,818       |  
| |                              | $ | 104,807                |  | $ | 42,989      |   | $ | -                 |   | $ | 61,818       |  
| |                              |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Liabilities:                 |   |                        |  |   |             |   |   |                   |   |   |              |  
| |                              | $ | -                      |  | $ | -           |   | $ | -                 |   | $ | -            |  
| |                              | $ | -                      |  | $ | -           |   | $ | -                 |   | $ | -            |  

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

At September 30, 2012, the Companys
financial assets and liabilities would be classified as follows:

| |                              |   |                        |  |   | Significant |   |   | Significant Other |   |   | Significant  |  
| | ---------------------------- | - | ---------------------- |  | - | ----------- | - | - | ----------------- | - | - | ------------ | -
| |                              |   |                        |  |   | Observable  |   |   | Observable        |   |   | Unobservable |  
| |                              |   |                        |  |   | Inputs      |   |   | Inputs            |   |   | Inputs       |  
| |                              |   | **September 30, 2012** |  |   | (Level 1    | ) |   | (Level 2          | ) |   | (Level 3     | )
| |                              |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Assets:                      |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Short-term
      investments | $ | 11,936                 |  | $ | 11,936      |   | $ | -                 |   | $ | -            |  
| |                              | $ | 11,936                 |  | $ | 11,936      |   | $ | -                 |   | $ | -            |  
| |                              |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Liabilities:                 |   |                        |  |   |             |   |   |                   |   |   |              |  
| | Derivative
      liabilities | $ | 336,700                |  | $ | -           |   | $ | 336,700           |   | $ | -            |  
| |                              | $ | 336,700                |  | $ | -           |   | $ | 336,700           |   | $ | -            |  

The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet
date. A market is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service, or
regulatory agency, and those prices represent actual and regularly occurring
market transactions on an arms length basis.

The fair value of financial instruments
that are not traded in an active market (for example, over-the-counter
derivatives) is determined by using valuation techniques. These valuation
techniques maximize the use of observable market data where it is available and
rely as little as possible on entity specific estimates. If all significant
inputs required to fair value an instrument are observable, the instrument is
included in Level 2.

If one or more significant inputs are
not based on observable market data, the instrument is included in Level 3.

b) Reclassification of Financial
Instruments

Until December 19, 2011, a major
component of the Companys strategy revolved around investment operations. On
December 19, 2011, in conjunction with the Companys amalgamation with Old Merus
to become a specialty pharmaceutical company that acquires, sells, and
distributes prescription medicine products, the Company no longer holds certain
investments for the purpose of selling or repurchasing them in the near term. As
a result of this change, the Company has reclassified its privately-held
investments from FVTPL to AFS measured at cost during the period. The amount
reclassified at December 19, 2011 was $1,262,000.

c) Financial Risk Factors

Until December 19, 2011, a major
component of the Companys strategy revolved around investment operations. The
Companys business involved the purchase and sale of securities and,
accordingly, the majority of the Companys assets were comprised of financial instruments. The use of financial instruments can expose the Company to several risks, including market, credit and liquidity risks. Apart from the risks listed below, management is of the opinion that they are not exposed to any other significant risks. A discussion of the Companys use of financial instruments and its risk management is provided below.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

| | (i) | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Liquidity risk is the risk that the Company will have
      sufficient cash resources to meet its financial obligations as they come
      due. The Companys liquidity and operating results may be adversely
      affected if the Companys access to the capital markets is hindered,
      whether as a result of a downturn in stock market conditions generally or
      related to matters specific to the Company, or if the value of the
      Companys investments declines, resulting in losses upon disposition. In
      order to mitigate this risk, the Company maintains a sufficient cash
      balance in order to satisfy short-term liabilities as they come due and
      actively pursues raising capital through various public and private
      financing mechanisms to satisfy longer term needs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The table below analyzes the Companys non-derivative
      financial liabilities into relevant maturity groupings based on the
      remaining period at the balance sheet date to the contractual maturity
      date. The amounts disclosed in the table are the contractual undiscounted
      cash flows and do not include capitalized transaction
  costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                          |   |            |  |   |           |  |   | Year
      ended September 30 | 
| | ---------------------------------------- | - | ---------- |  | - | --------- |  | - | ----------------------------- | 
| | At September
      30, 2013              |   | 2014       |  |   | 2015      |  |   | 2016                          | 
| | Debt                                     | $ | 8,400,000  |  | $ | 8,400,000 |  | $ | 13,200,000                    | 
| | Accounts payable and accrued liabilities |   | 4,177,960  |  |   | -         |  |   | -                             | 
| | Income taxes payable                     |   | 594,344    |  |   | -         |  |   | -                             | 
| | Total                                    | $ | 13,172,304 |  | $ | 8,400,000 |  | $ | 13,200,000                    | 

| |                                          |   |            |  |   |            |  |   | Year
      ended September 30 | 
| | ---------------------------------------- | - | ---------- |  | - | ---------- |  | - | ----------------------------- | 
| | At September
      30, 2012              |   | 2013       |  |   | 2014       |  |   | 2015                          | 
| | Debt                                     | $ | 32,094,125 |  | $ | 10,019,937 |  | $ | 12,290,000                    | 
| | Accounts payable and accrued liabilities |   | 1,960,227  |  |   | -          |  |   | -                             | 
| | Derivative liabilities                   |   | 336,700    |  |   | -          |  |   | -                             | 
| | Total                                    | $ | 34,391,052 |  | $ | 10,019,937 |  | $ | 12,290,000                    | 

| | (ii) | Market risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | Market risk is the risk that the fair value of, or future
      cash flows from, the Companys financial instruments will significantly
      fluctuate because of changes in market prices. The value of the financial
      instruments can be affected by changes in interest rates, foreign exchange
      rates, and equity and commodity prices. The Company is exposed to market
      risk in trading its investments and unfavourable market conditions could
      result in dispositions of investments at less than favourable
    prices.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The following table shows the
estimated sensitivity of the Companys after-tax net loss for the period ended
September 30, 2013 from a change in the closing price of the Companys
investments with all other variables held constant as at September 30, 2013:

| |                      | Change
      in net after-tax | Change
      in net after-tax
| | -------------------- | ----------------------------- | -----------------------------
| | Percentage change in | loss from % increase          | loss from % decrease         
| | closing price        | in
      closing price        | in
      closing price       
| |                      |                               |                              
| | 2%                   | $         
      831          | $         (831)              
| | 4%                   | 1,662                         | (1,662)                      
| | 6%                   | 2,492                         | (2,492)                      
| | 8%                   | 3,323                         | (3,323)                      
| | 10%                  | 4,154                         | (4,154)                      

| | (iii) | Currency risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company is subject to currency risk through its sales
      of products denominated in foreign currencies, purchases of inventory in
      US dollars and product acquisitions denominated in foreign currencies.. As
      such, changes in the exchange rate affect the operating results of the
      Company. Dependent on the nature, amount and timing of foreign currency
      receipts and payments, the Company may from time to time enter into
      foreign currency derivative contracts to reduce its exposure to foreign
      currency risk as discussed in note 10.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The following financial assets and liabilities were
      denominated in foreign currencies at September 30, 2013 (U.S. dollar
      1.0303, Euro 1.3920) and September 30, 2012:                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                          |   | September 30 |   |   | September 30 |  
| | ---------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                          |   | 2013         |   |   | 2012         |  
| | Denominated in U.S. dollars              |   |              |   |   |              |  
| | Cash                                     | $ | 5,865,221    |   | $ | 197,308      |  
| | Trade and other receivables              |   | 972,313      |   |   | 3,064,751    |  
| | Loans receivable                         |   | 166,909      |   |   | 737,400      |  
| | Accounts payable and accrued liabilities |   | (80,294      | ) |   | (744,573     | )
| | Debt                                     |   | -            |   |   | (54,076,000  | )
| |                                          |   |              |   |   |              |  
| | Net assets denominated in U.S. dollars   | $ | 6,924,149    |   | $ | (50,821,114  | )
| |                                          |   |              |   |   |              |  
| | Denominated in Euros                     |   |              |   |   |              |  
| | Cash                                     | $ | 578,484      |   | $ | 144,624      |  
| | Trade and other receivables              |   | 4,953,268    |   |   | -            |  
| | Accounts payable and accrued liabilities |   | (2,980,091   | ) |   | -            |  
| | Income taxes payable                     |   | (594,344     | ) |   | (435,721     | )
| | Net assets denominated in Euros          | $ | 1,957,317    |   | $ | (291,097     | )
| |                                          |   |              |   |   |              |  

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

The following table shows the
estimated sensitivity of the Companys total comprehensive loss for the year
ended September 30, 2013 from a change in foreign currencies with all other
variables held constant as at September 30, 2013:

| |                      |   | Change
      in net after-tax |  |   | Change
      in net after-tax |  
| | -------------------- | - | ----------------------------- |  | - | ----------------------------- | -
| | Percentage change in |   | loss from % increase          |  |   | loss from % decrease          |  
| | foreign currencies   |   | in
      foreign currencies   |  |   | in
      foreign currencies   |  
| |                      |   |                               |  |   |                               |  
| | 2%                   | $ | 177,629                       |  | $ | (177,629                      | )
| | 4%                   |   | 355,259                       |  |   | (355,259                      | )
| | 6%                   |   | 532,888                       |  |   | (532,888                      | )
| | 8%                   |   | 710,517                       |  |   | (710,517                      | )
| | 10%                  |   | 888,146                       |  |   | (888,146                      | )

| | (iv) | Credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Certain of the Companys financial assets, including
      cash, short-term investments and loans receivable are exposed to the risk
      of financial loss occurring as a result of default of a counterparty on
      its obligations to the Company. The Company may, from time to time, invest
      in debt obligations. The Company is also exposed, in the normal course of
      business, to credit risk from customer receivables. These amounts are
      continually monitored by management for collectability, and, in general,
      are lower risk as they are typically due from large institutions or
      multinational distributors.                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Interest risk is the impact that changes in interest
      rates could have on the Companys earnings and liabilities. The Company is
      exposed to variable interest rates as a result of its senior secured debt,
      which currently bears interest at bank prime plus 3.0%. The Company is
      able to manage this exposure through facilities under its credit agreement
      which allow the Company to convert the interest charge to a fixed rate,
      either through converting to Bankers' Acceptance notes on a short-term
      basis or through interest rate swaps over the remaining term of the loan.
      As a result of this flexibility, it is managements opinion that the
      Company is not exposed to significant interest rate risk. At September 30,
      2013, the Company held no interest-bearing
investments.

---

|Merus Labs
      International Inc.                        
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2013, 2012 and 2011

|23. | Segment information                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                               
|    | The Company operates in a single reportable segment
      focused on acquiring, in-licensing, marketing and distributing
      pharmaceutical products in Canada and internationally. The Company carries
      out business principally in Canada and Europe.
|    |                                                                                                                                                                                                                                                               
|    | Revenues by geographic region are detailed as
    follows:                                                                                                                                                                                                    

| |               |   |            |  |   | Year
      ended September 30 | 
| | ------------- | - | ---------- |  | - | ----------------------------- | 
| |               |   | 2013       |  |   | 2012                          | 
| | Canada        | $ | 8,983,681  |  | $ | 6,905,932                     | 
| | International |   | 19,402,287 |  |   | 2,351,911                     | 
| |               | $ | 28,385,968 |  | $ | 9,257,843                     | 

The only country, other than Canada,
from which the Company derived more than 10% of its revenues in either 2013 or
2012 was Germany. Revenues in Germany of $7,395,851 in 2013 (2012: $188,538) are
included in International in the table above.

Long-term assets by geographic region
are comprised of product rights and patents and property and equipment, detailed
as follows:

| |               |   | September 30 |  |   | September 30 | 
| | ------------- | - | ------------ |  | - | ------------ | 
| |               |   | 2013         |  |   | 2012         | 
| | Canada        | $ | 10,242,846   |  | $ | 15,772,896   | 
| | International |   | 60,096,585   |  |   | 63,546,052   | 
| |               | $ | 70,339,431   |  | $ | 79,318,948   | 

---

Item 19: Exhibits

EXHIBIT INDEX

Exhibit No.
    Description1.1
    Articles dated December 19, 2011 (Incorporated by
      reference to our Report of Foreign Private Issuer on Form 6-K filed on
      December 21, 2011)1.2
    Notice of Articles of Merus Labs International Inc. dated
      October 1, 2012 (Incorporated by reference to our Annual Report on Form
      20-F, filed on January 2, 2013)1.3
    Certificate of Amalgamation dated October 1, 2012
      (Incorporated by reference to our Annual Report on Form 20-F, filed on
      January 2, 2013)4.1
    Exclusive License and Distribution Agreement between
      Merus Labs and Innocoll Pharmaceuticals Limited dated September 17, 2010
      (Incorporated by reference to our Report by Foreign Private Issuer on Form
      6-K filed on April 16, 2012)4.2
    Asset Purchase Agreement between Merus Labs and Iroko
      International LP dated May 13, 2011 (Incorporated by reference to our
    Report by Foreign Private Issuer on Form 6-K filed on April 16, 2012)4.3
    Arrangement Agreement between Old Merus and Envoy dated
      November 10, 2011 (Incorporated by reference to our Report by Foreign
      Private Issuer on Form 6-K filed on April 16, 2012)4.4
    Asset Purchase Agreement between Novartis Pharma AG and
      Merus Labs Luxco SARL dated July 11, 2012 (portions of the exhibit have
      been omitted pursuant to a request for confidential treatment)
      (Incorporated by reference to our Annual Report on Form 20-F, filed on
      January 2, 2013, as amended)4.5
    Credit Agreement among Merus Labs International Inc.,
      Merus Labs Luxco S.A.R.L., Merus Labs Inc., ECG Holdings Inc., Merus Labs
      Netherlands B.V. and PDL BioPharma, Inc. dated July 10, 2012 (portions
      of the exhibit have been omitted pursuant to a request for confidential
      treatment) (Incorporated by reference to our Annual Report on Form
      20-F, filed on January 2, 2013, as amended)4.6
    Credit Agreement among Merus Labs International Inc.,
      Bank of Montreal and Royal Bank of Canada dated September 20, 2013
      (Incorporated by reference to our Report by Foreign Private Issuer on Form
      6-K filed on September 20, 2013)4.7
    Form of Convertible Debenture dated September 20, 2013
      (Incorporated by reference to our Annual Report on Form 20-F filed on
      December 31, 2013)4.8
    2011 Incentive Stock Option Plan (Incorporated by
      reference to our Annual Report on Form 20-F filed on December 31, 2013)8.1
    Subsidiaries (contained in Item 4.A hereof)11.1
    Code of Business Conduct (Incorporated by reference to
      our Annual Report on Form 20-F, filed on December 29, 2005)11.2
    Complaint Procedures for Accounting and Auditing Matters
      (Incorporated by reference to our Annual Report on Form 20-F, filed on
      December 29, 2005)11.3
    Board Mandate (Incorporated by reference to our Annual
      Report on Form 20-F, filed on December 29, 2005)12.1*
    Certification of Chief Executive Officer Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002


5

---

12.2*
    Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200213.1*
    Certifications of Chief Executive Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200213.2*
    Certifications of Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200215.1
    Audit Committee Charter (Incorporated by reference to our
      Annual Report on Form 20-F, filed on December 29, 2005)15.2
    Compensation Committee Charter (Incorporated by reference
      to our Annual Report on Form 20-F, filed on December 29, 2005)15.3
    Nominating and Corporate Governance Committee Charter
      (Incorporated by reference to our Annual Report on Form 20-F, filed on
      December 29, 2005)16.1
    Letter dated February 27, 2012 from Saturna Group
      Chartered Accountants LLP has re change in certifying accountant
      (Incorporated by reference to our Report by Foreign Private Issuer on Form
      6- K filed on April 20, 2012)16.2
    Letter dated April 3, 2012 from PricewaterhouseCoopers
      LLP re change in certifying accountant (Incorporated by reference to our
    Report by Foreign Private Issuer on Form 6-K filed on April 20, 2012)


* Filed as an exhibit to this Amendment No. 1 to Form 20-F

6

---

SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Annual Report, as amended, on its behalf.

|                      | MERUS LABS INTERNATIONAL INC.               
|--------------------- | --------------------------------------------
|                      |                                             
|                      |                                             
|Date: January 7, 2014 | /s/ ELIE FARAH                              
|                      | Name:       Elie
      Farah                
|                      | Title:         Chief
      Executive Officer

7

---