---

As filed with the Securities and Exchange Commission on
April 13, 2012

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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 endedSeptember 30,
2011

OR

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

For the transition period from _____________ to
_____________

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)

30 St. Patrick St., Ste. 301, Toronto, Ontario, Canada M5T
3A3(Address of principal executive offices)

Andrew Patient, Tel. 416-593-3725 Fax 416-593-4434, 30 St.
Patrick St., Ste.301,Toronto Ontario, Canada M5T 3A3(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: At September 30, 2011, there were
8,028,377 common shares outstanding.

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

If this report is an annual or transition report, indicate by
check mark if the Registrant is not required to file reports pursuant to 13 or
15 (d) of the Securities Exchange Act of 1934. YES: [  
]      NO: [X]

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

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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: [X]     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
[   ]      Other [X]

Indicate by check mark which financial statement item the
Registrant has elected to follow. Item 17: [X]     Item
18:[   ]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES: [   ]     NO: [X]

2

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TABLE OF CONTENTS

|**PART I**    
|--------------
|              
|Item 1.       
|              
|Item 2.       
|              
|Item 3.       
|              
|Item 4.       
|              
|Item 4A.      
|              
|Item 5.       
|              
|Item 6.       
|              
|Item 7.       
|              
|Item 8.       
|              
|Item 9.       
|              
|Item 10.      
|              
|Item 11.      
|              
|Item 12.      
|              
|**PART II**   
|              
|Item 13.      
|              
|Item 14.      
|              
|Item 15.      
|              
|Item l6A      
|              
|Item l6B      
|              
|Item l6C      
|              
|Item 16D      
|              
|Item 16E      
|              
|Item 16F      
|              
|Item 16G      
|              
|Item 16H      
|              
|**PART III**  
|              
|Item 17.      
|              
|Item 18.      
|              
|Item 19.      
|              
|Signatures    
|              
|Certifications
|              
|Exhibit Index 

3

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Explanatory Notes

Merus Labs International Inc. (Merus, the Company we,
us, or our) was formed on December 19, 2011 by the amalgamation (the
Amalgamation) of Merus Labs International Inc. (Old Merus) and Envoy Capital
Group Inc. (Envoy). The Amalgamation occurred on December 19, 2011, which is
after Envoys year end. Thus, Merus is required to file this Annual Report on
Form 20-F (the Annual Report) for Envoys financial year ended September 30,
2011. Although this Annual Report includes descriptions of the Amalgamation and
the business of Merus after the closing of the Amalgamation, the financial
statements and information included by reference hereto are only those of Envoy
as of September 30, 2011.

All information contained in this Annual Report is as of
September 30, 2011, unless otherwise indicated. All references to Common Shares
are to the common shares of Merus.

About Forward-Looking Information

This Annual Report and the documents incorporated by reference
herein contain certain statements or disclosures that may constitute
forward-looking information or statements (collectively, forward-looking
information) under applicable securities laws. All statements and disclosures,
other than those of historical fact, which address activities, events, outcomes,
results or developments that management of Merus, as applicable, anticipates or
expects may or will occur in the future (in whole or in part) should be
considered forward-looking information. In some cases, forward-looking
information can be identified by terms such as forecast, future, may,
will, expect, anticipate, believe, could, potential, enable,
plan, continue, contemplate, pro forma or other comparable terminology.
Forward-looking information presented in such statements or disclosures may,
among other things include: sources of income; forecasts of sales and associated
expenditures, including general and administrative expenses, and the sources of
the financing thereof; expectations regarding the ability to raise capital;
movements in currency exchange rates; anticipated income taxes; Merus business
outlook; plans and objectives of management for future operations; forecast
business results; and anticipated financial performance.

Various assumptions or factors are typically applied in drawing
conclusions or making the forecasts or projections set out in forward-looking
information. Those assumptions and factors are based on information currently
available to Merus, including information obtained from third-party industry
analysts and other third party sources. In some instances, material assumptions
and factors are presented or discussed elsewhere in this Annual Report in
connection with the statements or disclosure containing the forward-looking
information.

You are cautioned that the following list of material factors
and assumptions is not exhaustive. The factors and assumptions include, but are
not limited to:

- no unforeseen changes in the legislative and operating framework for the
  business of Merus;
- a stable competitive environment; and

4

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- no significant event occurring outside the ordinary course of business
  such as a natural disaster or other calamity.

The forward-looking information in statements or disclosures in
this Annual Report is based (in whole or in part) upon factors which may cause
actual results, performance or achievements of Merus to differ materially from
those contemplated (whether expressly or by implication) in the forward-looking
information. Those factors are based on information currently available to Merus
including information obtained from third-party industry analysts and other
third party sources. Actual results or outcomes may differ materially from those
predicted by such statements or disclosures. While Merus does not know what
impact any of those differences may have, their business, results of operations,
financial condition and credit stability may be materially adversely affected.
Factors that could cause actual results or outcomes to differ materially from
the results expressed or implied by forward-looking information include, among
other things:

- the acceptance of the Companys products by provincial drug benefit
  formularies, hospital formularies and pharmacies, physicians and patients in
  the marketplace;
- the Companys ability to successfully market and sell its products;
- delays or setbacks with respect to clinical trials, governmental
  approvals, or manufacturing or commercial activities;
- the timing and unpredictability of regulatory actions;
- the patient health, legal, and commercial risks associated with patient
  adverse events or side effects resulting from the use of the Companys
  products;
- the ability to develop and commercialize new products effectively;
- unanticipated cash requirements to support current operations, to expand
  its business or for capital expenditures;
- the inability to adequately protect its key intellectual property rights;
- the loss of key management or scientific personnel;
- the activities of its competitors and specifically the commercialization
  of innovative or generic products that compete in the same category as the
  Companys products;
- regulatory, legal or other setbacks with respect to its operations or
  business;
- market conditions in the capital markets and the biopharmaceutical
  industry that make raising capital or consummating acquisitions difficult,
  expensive or both;
- enactment of new government laws, regulations, court decisions, regulatory
  interpretations or other initiatives that are adverse to the Company or its
  interests;
- the risk that the Company is not able to arrange sufficient,
  cost-effective financing to repay maturing debt and to fund expenditures,
  future operational activities and acquisitions, and other obligations; and
- the risks associated with legislative and regulatory developments that may
  affect costs, revenues, the speed and degree of competition entering the
  market, global capital markets activity and general economic conditions in
  geographic areas where the Company operates.

Merus is not obligated to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by applicable securities laws. Because of the risks,
uncertainties and assumptions contained herein, security holders should not place undue reliance on forward-looking statements
or disclosures. The foregoing statements expressly qualify any forward-looking
information contained herein.

5

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The reader is further cautioned that the preparation of
financial statements in accordance with Canadian GAAP or IFRS requires
management to make certain judgments and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses. These estimates may
change, having either a negative or positive effect on net earnings as further
information becomes available, and as the economic environment changes.

Merus cautions you that the above list of risk factors is not
exhaustive. Other factors which could cause actual results, performance or
achievements of Merus as applicable, to differ materially from those
contemplated (whether expressly or by implication) in the forward-looking
statements or other forward-looking information are disclosed in Merus publicly
filed disclosure documents, including those disclosed under Risk Factors in
this Annual Report.

Currency

Envoy presents its consolidated financial statements in Canadian
  dollars. In this annual report, except where otherwise indicated, all dollar
  amounts are expressed in Canadian dollars. References to $ are to
  Canadian dollars, references to U.S.$ are to United States dollars.
  See Selected Financial Data in Item 3 of this Form 20-F.

6

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PART I

Item 1: Identity of Directors, Senior Management and
Advisers

Not applicable.

Item 2: Offer Statistics and Expected
Timetable

Not applicable.

Item 3: Key Information

A. Selected Financial Data

The following tables sets forth selected financial data for
Envoy for the fiscal years indicated below and should be read in conjunction
with the more detailed audited consolidated financial statements and the related
notes thereto (the Consolidated Financial Statements) appearing under Item 17
in this Form 20-F and the discussion under Item 5 Operating and Financial
Review and Prospects herein. The selected consolidated financial data does not
include statements of operations data or balance sheet data of any acquired
operations prior to their respective acquisition effective dates. Envoys
historical results are not indicative of the results that may be expected for
any future period for Merus.

Statement of Operations Data

| | Fiscal Years Ended                                                          |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | --------------------------------------------------------------------------- | - | ------ | - | - | ------ | - | - | ------- | - | - | ------- | - | - | ----- | 
| | September 30                                                                |   | 2011   |   |   | 2010   |   |   | 2009    |   |   | 2008    |   |   | 2007  | 
| | (all amounts in thousands except                                            |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | per share data)                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | Net Revenue                                                                 | $ | 1,882  |   | $ | 1,113  |   | $ | 586     |   | $ | (4,255  | ) | $ | 5,148 | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | (Loss) Earnings From Continuing Operations                                  |   | (6,788 | ) |   | (4,332 | ) |   | (7,148  | ) |   | (10,158 | ) |   | 2,641 | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | (Loss) Earnings From Discontinued Operations                                |   | (679   | ) |   | 189    |   |   | (3,327  | ) |   | nil     |   |   | 375   | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | (Loss) Earnings From Continuing Operations
      Basic Earnings Per Share   |   | (0.85  | ) |   | (0.52  | ) |   | (0.84   | ) |   | (1.11   | ) |   | 0.20  | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | (Loss) Earnings From Continuing Operations
      Diluted Earnings Per Share |   | (0.85  | ) |   | (0.52  | ) |   | (0.84   | ) |   | (1.11   | ) |   | 0.20  | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | Net (Loss) Earnings                                                         |   | (7,467 | ) |   | (4,142 | ) |   | (10,476 | ) |   | (10,158 | ) |   | 3,017 | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | Net (Loss) Earnings Per Share Basic                                         |   | (0.93  | ) |   | (0.50  | ) |   | (1.22   | ) |   | (1.11   | ) |   | 0.23  | 
| |                                                                             |   |        |   |   |        |   |   |         |   |   |         |   |   |       | 
| | Net (Loss) Earnings Per Share Diluted                                       |   | (0.93  | ) |   | (0.50  | ) |   | (1.22   | ) |   | (1.11   | ) |   | 0.23  | 

7

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Reconciliation

The Consolidated Financial Statements have been prepared by
management in accordance with Canadian Generally Accepted Accounting Principles
(Canadian GAAP) which vary in certain significant respects from U.S. Generally
Accepted Accounting Principles (U.S. GAAP). Reconciliation to U.S. GAAP for
fiscal 2011 and 2010 is set forth in Note 19 to the Notes to the Consolidated
Financial Statements.

The following would be the adjustments under U.S. GAAP to the
information provided above as an increase (decrease) to: Net revenue 2011
($1,882), 2010 ($1,113), 2009 ($586), 2008 $4,255 and 2007 ($5,148); (Loss)
earnings from continuing operations 2011 ($51), 2010 ($137), 2009 ($283), 2008
$1,686 and 2007 ($1,136); (Loss) earnings from continuing operations earnings
per share basic 2011 $nil, 2010 ($0.02), 2009 ($0.04), 2008 $0.18 and 2007
($0.09); (Loss) earnings from continuing operations earnings per share diluted
2011 $nil, 2010 ($0.02), 2009 ($0.04), 2008 $0.18 and 2007 ($0.09); Net (loss)
earnings 2011 ($51), 2010 ($137), 2009 ($283), 2008 $4,490 and 2007 ($1,136);
and Net (loss) earnings per share basic 2011 $nil, 2010 ($0.02), 2009 ($0.04),
2008 $0.49 and 2007 ($0.09); Net (loss) earnings per share diluted 2011, $nil,
2010 ($0.02), 2009 ($0.04), 2008 $0.49 and 2007 ($0.09).

Balance Sheet Data

As at September 30
    
    2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007(all amounts in thousands)Current Assets
    $
    9,891
    
    $
    18,250
    
    $
    21,476
    
    $
    28,823
    
    $
    38,808Total Assets
    
    11,019
    
    
    19,570
    
    
    23,595
    
    
    36,482
    
    
    50,792Total Debt(1)
    
    -
    
    
    -
    
    
    -
    
    
    70
    
    
    157Shareholders Equity
    
    10,333
    
    
    16,861
    
    
    21,624
    
    
    32,159
    
    
    45,157(Deficit) Retained Earnings(2)
    
    (29,149
    )
    
    (21,682
    )
    
    (17,540
    )
    
    (7,064
    )
    
    3,094


|1 | Total debt includes both the current and long term
      portion of debt.                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | Retained earnings as of September 30, 2007 excludes the
      cumulative foreign currency translation adjustment of ($77). See Note 2(f)
      in the Notes to Consolidated Financial Statements of
  Envoy.

Reconciliation

As reflected in Note 19 to the Consolidated Financial
Statements, the net (loss) earnings from continuing operations for the fiscal
years ended September 30, 2011, 2010, 2009, 2008 and 2007 were ($6,839),
($4,469), ($7,432), ($10,276) and $32, respectively under U.S. GAAP. The net
(loss) earnings for the fiscal years ended September 30, 2011, 2010, 2009, 2008
and 2007 were $(7,518), ($4,279), ($10,759), ($5,668) and $1,777, respectively
under U.S. GAAP. The diluted net (loss) earnings per share for the years ended
September 30, 2011, 2010, 2009, 2008 and 2007 were ($0.93), ($0.52), ($1.26),
($0.62) and $0.14, respectively under U.S. GAAP.

8

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As reflected in Note 19 to the Consolidated Financial
Statements, the shareholders equity as at September 30, 2011, 2010, 2009, 2008
and 2007 was $10,332, $16,912, $21,813, $32,631, and $41,140, respectively under
U.S. GAAP. Total assets as of September 30, 2011, 2010 and 2009 under U.S. GAAP
would exclude fair value adjustments of $nil, $51 and $189, respectively. In
addition, total assets as of September 30, 2007 under U.S. GAAP would exclude
the unrealized gain on private equities of $1,147, exclude capitalized
incorporation costs of $66, and exclude cash held in escrow relating to the sale
of the UK operations of $2,803.

Dividends

Merus has never paid any dividends on its common shares and
does not anticipate that it will pay any cash dividends on its common shares in
the foreseeable future. Any decision to pay dividends in the future will be at
the discretion of Merus board of directors, after taking into account such
factors as Merus financial condition, operating results, current and
anticipated cash needs and plans for expansion.

Exchange Rates:

On April 6, the noon buying rate for Canadian dollars as
certified for customs purposes by the Federal Reserve was $1.00 U.S. to $0.9971.
The following table sets forth for the periods indicated certain information
regarding the exchange rates of Canadian dollars into U.S. currency. The rate of
exchange means the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve.

Fiscal Year Ended September 30,2011
      2010
      2009
      2008
      2007Average(1)
      0.9872
      $1.0465
      $1.1787
      $1.0101
      $1.0885


|1 | The Average rate means the average rates each period,
      calculated by using the average of the exchange rates on the last day of
      each month during the fiscal period.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the Month EndedFebruary
      January
      December
      November
      October
      September2012
      2012
      2011
      2011
      2011
      2011High
      $1.0028
      $1.0270
      $1.0396
      $1.0487
      $1.0605
      $1.0389Low
      $0.9895
      $1.0007
      $1.0096
      $1.0125
      $0.9932
      $0.9751


|B. | Capitalization and Indebtedness          
|-- | -----------------------------------------
|   |                                          
|   | Not applicable.                          
|   |                                          
|C. | Reasons for the Offer and Use of
Proceeds
|   |                                          
|   | Not applicable.                          

9

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|D. | Risk Factors
|-- | ------------

Risks Related to Merus Business and Industry

Ability to Implement  Merus Strategy to Grow the
Business

Merus has historically increased sales and net income through
strategic acquisitions, licensing and related internal growth initiatives
intended to develop marketing opportunities with respect to acquired product
lines. Merus strategy is focused on increasing sales and enhancing its
competitive standing and enabling it to promote and sell new products through
existing and new marketing and distribution channels. Since Merus engages in
limited proprietary research activity with respect to product development, it
relies heavily on purchasing product lines from other companies. Other
companies, many of which have substantially greater financial, marketing and
sales resources than Merus, may compete for the acquisition of products. Merus
may not be able to acquire rights to additional products on acceptable terms, if
at all, or be able to obtain future financing for acquisition on acceptable
terms, if at all. The inability to effect acquisitions of additional branded
products could limit the overall growth of the business. Furthermore, even if
Merus is able to obtain rights to pharmaceutical products, Merus may not
generate sales sufficient to create a profit or otherwise avoid a loss. For
example, the marketing strategy, distribution channels and levels of competition
with respect to acquired products may be different than those of Merus current
products, limiting its ability to compete favorably in those product categories.

Ability to Acquire License Rights to New Products

Merus depends on the acquisition of rights to products from other
companies as the primary source for new products. Risks in acquiring new
products include: a) the ability to locate new products that are attractive and
complement Merus business, and b) the price to acquire or obtain the license
for these products may be too costly to justify the acquisition. Merus also
faces competition from other pharmaceutical companies in acquiring rights to
products, which makes it more difficult to find attractive products on
acceptable terms.

The pharmaceutical industry is highly competitive and is
subject to rapid and significant technological change, which could render
technologies and products obsolete or uncompetitive.

Merus products will face competition from new pharmaceutical
and biotech products that treat some of the same diseases and conditions as
Merus products. Many of Merus competitors have greater financial resources and
selling and marketing capabilities. Merus will face further competition from
drug development companies that focus their efforts on developing and marketing
products that are similar in nature to its products, but that in some instances
offer improvements over Merus products, such as less frequent dosing, more
pleasant taste, new dosage formats and other novel approaches to improve
existing products. Merus competitors may succeed in developing technologies and
products that are more effective or less expensive to use than any that Merus
may license or acquire. These developments could render Merus products obsolete
or uncompetitive, which would have a material adverse effect on Merus business,
financial condition and operating results.

Recently, Optimer announced that Health Canada awarded Optimer
priority review for its product: DIFICID®. DIFICID® is another method for the
treatment of Clostridium difficile infection. Optimer asserts that DIFICID® has
a slightly lower recurrence rate than Vancocin®. If Optimer is able to demonstrate that DIFICID® is
preferable to Vancocin®, the business of Merus could be adversely affected.

10

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Core patent protection for Merus initial portfolio has
expired or will soon expire, which could result in significant competition from
generic products resulting in a significant reduction in sales.

The core patents protecting its products have expired or will
soon expire, which could result in significant competition from generic products
and could result in a significant reduction in sales. In order to continue to
obtain commercial benefits from Merus products, it will rely on product
manufacturing trade secrets, know-how and related non-patent intellectual
property. The effect of this patent expiration depends, among other things, upon
the nature of the market and the position of Merus products in the market from
time to time, the growth of the market, the complexities and economics of
manufacture of a competitive product and regulatory approval requirements of
generic drug laws. In the event that competition develops from generic products,
this competition could have a material adverse effect on its business, financial
condition and operating results.

The entrance into the market of a generic pharmaceutical
product may erode the branded products market share which may have a material
adverse effect on Merus business, financial condition and results of
operations. In December 2011, Health Canada granted a notice of compliance
(NOC) to Pharmaceutical Partners of Canada Inc. (PPC), which allows PPC the
authority to market their generic version of Vancocin capsules in the Canadian
market. Should a generic version of Vancocin commercially launch, the sales of
Vancocin may decline significantly.

Merus may be subject to product liability claims, which can
be expensive, difficult to defend and may result in large judgments or
settlements.

The administration of drugs to humans, whether in clinical
trials or after marketing clearance is obtained, can result in product liability
claims. Product liability claims can be expensive, difficult to defend and may
result in large judgments or settlements against Merus. In addition, third party
collaborators and licensees may not protect Merus from product liability claims.

Merus will maintain product liability insurance in connection
with the marketing of its products. Merus may not be able to obtain or maintain
adequate protection against potential liabilities arising from product sales. If
Merus is unable to obtain sufficient levels of insurance at acceptable cost or
otherwise protect against potential product liability claims Merus will be
exposed to product liability claims. A successful product liability claim in
excess of its insurance coverage could harm its financial condition, results of
operations and prevent or interfere with its product commercialization efforts.
In addition, any successful claim may prevent Merus from obtaining adequate
product liability insurance in the future on commercially desirable terms. Even
if a claim is not successful, defending such a claim may be time-consuming and
expensive.

11

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Unexpected Product Safety or Efficacy Concerns

Unexpected safety or efficacy concerns can arise with respect
  to marketed products, whether or not scientifically justified, leading to
  product recalls, withdrawals or declining sales, as well as product liability,
  consumer fraud and/or other claims.

Uncertainty can arise regarding the applicability of Merus
proprietary information.

Merus will rely on trade secrets, know-how and other
proprietary information as well as requiring employees, suppliers and other
third-party service providers to sign confidentiality agreements. However, these
confidentiality agreements may be breached, and Merus may not have adequate
remedies for such breaches. Others may independently develop substantially
equivalent proprietary information without infringing upon any proprietary
technology. Third parties may otherwise gain access to Merus proprietary
information and adopt it in a competitive manner. If a third party obtains
Merus proprietary information and adopts it in a competitive manner, it may
have a material effect on Merus business, financial condition and operating
results.

Merus may not be able to secure additional financing.

There can be no assurance that Merus will be able to raise the
additional funding that it needs to carry out its business objectives. The
development of Merus business depends upon prevailing capital market
conditions, Merus business performance and its ability to obtain financing
through joint ventures, debt financing, equity financing or other means. There
is no assurance that Merus will be successful in obtaining required financing as
and when needed or at all. If additional financing is raised by the issuance of
shares from treasury, control of Merus may change and shareholders may suffer
additional dilution.

Merus may not be ability to implement its business strategy.

The growth and expansion of Merus business will be heavily
dependent upon the successful implementation of its business strategy. There can
be no assurance that Merus will be successful in the implementation of its
business strategy.

Merus will rely on third parties to manufacture its
products.

Merus will not have the internal capability to manufacture
pharmaceutical products and will rely on third parties to manufacture its
products. Merus cannot be certain that manufacturing sources will continue to be
available or that it will be able to continue to outsource the manufacturing of
its products on reasonable or acceptable terms. In addition, outsourcing
manufacturing will expose Merus to a number of risks which are outside its
control, including: its suppliers may fail to comply with government mandated
current good manufacturing practices which include quality control and quality
assurance requirements, as well as the corresponding maintenance of records and
documentation and manufacture of products according to the specifications
contained in the applicable regulatory file resulting in mandated production
halts or limitations; or its suppliers may experience manufacturing quality,
control or yield issues which would require the supplier to halt or limit
production of its products.

If Merus encounters delays or difficulties with contract
manufacturers, packagers or distributors, sales of Merus products could be
delayed. If Merus changes the source or location of supply or modifies the
manufacturing process, regulatory authorities will require it to demonstrate that the product produced by the new source or
from the modified process is equivalent to the product used in any clinical
trials that were conducted. If Merus is unable to demonstrate this equivalence,
it will be unable to manufacture products from the new source or location of
supply, or use the modified process. Merus may incur substantial expenses in
order to ensure equivalence. This may negatively affect its business, financial
condition and operating results.

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If its supply of finished products is interrupted, Merus
ability to maintain inventory levels could suffer and future revenues could be
delayed.

Supply interruptions may occur and Merus inventory of finished
products may not always be adequate to satisfy demand. Numerous factors could
cause interruptions in the supply of Merus finished products, including failure
to have a third party supply chain validated in a timely manner, shortages in
raw material and packaging components required by its manufacturers, changes in
its sources for manufacturing or packaging, its failure to timely locate and
obtain replacement manufacturers as needed and conditions affecting the cost and
availability of raw materials. There can be no assurances that Merus other
products will not be interrupted in the future. This may have an adverse effect
on its business, financial results and operations.

Merus will rely on third parties to perform distribution,
logistics, regulatory and sales services for its products.

Merus will rely on third parties to provide distribution,
logistics, regulatory and sales services including warehousing of finished
product, accounts receivable management, billing, collection and record keeping.
If the third parties cease to be able to provide Merus with these services, or
do not provide these services in a timely or professional manner Merus may not
be able to successfully manage the product revenues or integrate new products
into its business, which may result in decreases in sales. Additionally, any
delay or interruption in the process or in payment could result in a delay
delivering product to its customers, which could have a material effect on
Merus business, financial condition and operating results.

The publication of negative results of studies or clinical
trials may adversely impact Merus products.

From time-to-time, studies or clinical trials on various
aspects of pharmaceutical products are conducted by academics or others,
including government agencies. The results of these studies or trials, when
published, may have a dramatic effect on the market for the pharmaceutical
product that is the subject of the study. The publication of negative results of
studies or clinical trials related to Merus products or the therapeutic areas
in which Merus products compete could adversely affect Merus sales, the
prescription trends for Merus products and the reputation of Merus products.
In the event of the publication of negative results of studies or clinical
trials related to Merus products or the therapeutic areas in which Merus
products compete, Merus business, financial condition, and operating results
could be materially adversely affected.

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Merus must successfully integrate any products that it has
acquired or will acquire in the future.

Merus will pursue additional products that could complement or
  expand its business. However, there can be no assurance that Merus will be able
  to identify appropriate acquisition candidates in the future. If an acquisition
  candidate is identified, there can be no assurance that Merus will be able to
  successfully negotiate the terms of any such acquisition, finance such
  acquisition or integrate such acquired product or business into its existing
  products and business. Furthermore, the negotiation of potential acquisitions
  and integration of acquired product lines could divert managements time and
  resources, and require significant resources to consummate. If Merus consummate
  one or more significant acquisitions through the issuance of shares, Merus
  shareholders could suffer significant dilution of their ownership interests.

Merus will depend on key managerial personnel for its
success.

Merus will be highly dependent upon qualified managerial
personnel. Its anticipated growth will require additional expertise and the
addition of new qualified personnel. There is intense competition for qualified
personnel in the pharmaceutical field. Therefore, Merus may not be able to
attract and retain the qualified personnel necessary for the development of its
business. The loss of the services of existing personnel, as well as the failure
to recruit additional key managerial personnel in a timely manner, would harm
its business development programs, and its ability to manage day-to-day
operations, attract collaboration partners, attract and retain other employees
and generate revenues. Merus will not maintain key person life insurance on any
of its employees.

Increases in sales may attract generic competition.

Merus expects its initial portfolio to continue to enjoy market
exclusivity due to a number of factors, including economic barriers to
competition. If sales of its initial portfolio were to increase substantially,
competitors may be more likely to develop generic formulations that compete
directly with Merus products. Increased generic competition would have a
material adverse effect on its business and financial results.

Merus business will be subject to limitations imposed by
government regulations.

In both, domestic and foreign markets, the formulation,
manufacturing, packaging, labelling, handling, distribution, importation,
exportation, licensing, sale and storage of its products are affected by
extensive laws, governmental regulations, administrative determinations, court
decisions and similar constraints which are beyond Merus control. Such laws,
regulations and other constraints may exist at all levels of government. There
can be no assurance that Merus will be in compliance with all of these laws,
regulations and other constraints. Failure to comply with these laws,
regulations and other constraints or new laws, regulations or constraints could
lead to the imposition of significant penalties or claims and could negatively
impact Merus business. In addition, the adoption of new laws, regulations or
other constraints or changes in the interpretations of such requirements may
result in significant compliance costs or lead Merus to discontinue product
sales and may have an adverse effect on the marketing of Merus products,
resulting in significant loss of sales.

In the United States, the FDA perceives any written or verbal
statement used to promote or sell a product that associates an unapproved
nutrient with a disease (whether written by Merus, the content of a testimonial
endorsement or contained within a scientific publication) to be evidence of intent to sell an unapproved new drug. If any
such evidence is found with respect to Merus products, the FDA may take adverse
action against Merus, ranging from a warning letter necessitating cessation of
use of the statement to injunctions against product sale, seizures of products
promoted with the statements, and civil and criminal prosecution of Merus
executives. Such actions could have a detrimental effect on sales.

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Policies Regarding Returns, Allowances and Chargebacks May
Reduce Revenues in Future Fiscal Periods

Merus establishes estimates of the impact that these policies
may have in subsequent periods. Merus cannot ensure that the reserves are
adequate or that actual product returns, allowances and chargebacks will not
exceed the estimates, which could have a material adverse effect on the results
of operations, financial condition, cash flows and the market price of Merus
securities.

Merus may be subject to the risks of foreign exchange rate
fluctuation.

Merus will be exposed to fluctuations of the Canadian dollar
against certain other currencies because it publishes its financial statements
in Canadian dollars, while a minor portion of its assets, liabilities, revenues
and costs are or will be denominated in other currencies, such as the euro and
the U.S. dollar. Exchange rates for currencies of the countries in which Merus
operates may fluctuate in relation to the Canadian dollar, and such
fluctuations, especially as between the Canadian dollar and the euro, may have a
material adverse effect on its earnings or assets when translating foreign
currency into Canadian dollars. In order to mitigate the risk, Merus uses
forward contracts and other derivative instruments to reduce its exposure to
foreign currency risk. Dependent on the nature, amount and timing of foreign
currency receipts and payments, Merus may from time to time enter into foreign
currency contracts. Accordingly, Merus may experience economic loss and a
negative impact on earnings solely as a result of foreign exchange rate
fluctuations, which include foreign currency devaluations against the Canadian
dollar. Merus does not typically carry currency convertibility risk
insurance.

Market rate fluctuations could adversely affect Merus
results of operations.

Merus will be subject to market risk through the risk of loss
of value in Merus portfolios resulting from changes in interest rates, foreign
exchange rates, credit spreads, and equity prices. Merus will be required to
mark to market its held-for-trading investments at the end of each reporting
period. This process could result in significant write-downs of Merus
investments over one or more reporting periods, particularly during periods of
overall market instability, which would have a significant unfavourable effect
on Merus financial position.

Merus may be unsuccessful in evaluating material risks
involved in completed and future investments.

Merus will regularly review investment opportunities and as
part of the review, conduct business, legal and financial due diligence with the
goal of identifying and evaluating material risks involved in any particular
transaction. Despite Merus efforts, it may be unsuccessful in ascertaining or
evaluating all such risks. As a result, it might not realize the intended
advantages of any given investment and may not identify all of the risks
relating to the investment. If Merus fails to realize the expected benefits from
one or more investments, or does not identify all of the risks associated with a particular
investment, Merus business, results of operations and financial condition could
be adversely affected.

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Merus may be subject to certain regulations that could
restrict Merus activities.

From time to time, governments, government agencies and
industry self- regulatory bodies in Canada, the United States, the European
Union and other countries in which Merus will operate have adopted statutes,
regulations and rulings that directly or indirectly affect the activities of
Merus and its future clients.

Risks Relating to Merus Common Shares

A decline in the price of the Common Shares could affect its
ability to raise further working capital and adversely impact its ability to
continue operations.

A prolonged decline in the price of the Common Shares could
result in a reduction in the liquidity of its Common Stock and a reduction in
its ability to raise capital. Because a significant portion of Merus operations
have been and will be financed through the sale of equity securities, a decline
in the price of its Common Shares could be especially detrimental to Merus
liquidity and its operations. Such reductions may force Merus to reallocate
funds from other planned uses and may have a significant negative effect on
Merus business plan and operations, including its ability to develop new
products and continue its current operations. If Merus stock price declines, it
can offer no assurance that Merus will be able to raise additional capital or
generate funds from operations sufficient to meet its obligations. If Merus is
unable to raise sufficient capital in the future, Merus may not be able to have
the resources to continue its normal operations.

Because it is unlikely that Merus will pay dividends in the
foreseeable future, stockholders may only benefit from owning Common Shares if
the value of the Common Shares appreciates.

Merus has never paid dividends on its Common Shares and it does
not intend to do so in the foreseeable future. Merus intends to retain any
future earnings to finance its growth. Accordingly, any potential investor who
anticipates the need for current dividends from his or her investment should not
purchase Common Shares.

Because Merus is a Canadian company, it may be difficult to
enforce liabilities against the Company based solely upon the federal securities
laws of the United States.

The Company is governed by the laws of British Columbia and its
principal executive offices are located in Toronto, Ontario and Vancouver,
British Columbia. Many of its directors, controlling persons and officers are
residents of Canada and a substantial portion of their assets and a majority of
Merus assets are located outside the United States. Consequently, it may be
difficult to enforce against Merus or any of its directors, controlling persons,
or officers, liabilities based solely upon the federal securities laws of the
United States.

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The Company believes that it was a Passive Foreign
Investment Company, which may have adverse tax consequences for the Companys
shareholders in the United States.

Under U.S. federal income tax laws, Merus believes that Envoy
  was a passive foreign investment company (PFIC) for the year ending September
  30, 2011, and that it has been a PFIC in prior years, which may have adverse tax
  consequences for Merus shareholders in the United States. U.S. shareholders are
  urged to read the section titled Certain United States Federal Income Tax
  Considerations in Item 10 of this Form 20-F and to consult their tax advisors
  concerning the U.S. federal income tax consequences of holding the common shares
  of a PFIC.

Item 4: Information on the Company

A.      History and Development of
the Company

Name

The Companys legal and commercial name is Merus Labs
International Inc.

Principal Office

The principal place of business of Merus is 30 St. Patrick St.,
Ste. 301, Toronto, Canada M5T 3A3. Merus may be reached by telephone at (416)
593-3725 or facsimile at (416) 593 4434. Merus registered office is located at
800-885 West Georgia Street, Vancouver, BC V6C 3H1; its head office is located
at Suite 2007. 1177 West Hastings Street, Vancouver, BC V6E 2K3; and its
telephone number is 604-805-7783. Merus website is www.meruslabs.com.
Information contained on Merus website does not constitute a part of this Form
20-F.

Corporate Information

Envoy was incorporated under the laws of the Province of
British Columbia, Canada as Potential Mines Ltd. in December 1973 and was
continued under the laws of the Province of Ontario, Canada in December 1997. At
the Companys annual general meeting held on March 30, 2007 the shareholders
voted to amend the corporations articles of incorporation by changing its name
to Envoy Capital Group Inc.

Old Merus was incorporated under the laws of the Province of
British Columbia on November 2, 2009 as a numbered company, 0865346 B.C. Ltd. On
January 22, 2010, Old Merus changed its name to Merus Labs International Inc. in
connection with a plan of arrangement with Range Gold Corp.

On December 19, 2011, pursuant to a plan of arrangement filed
with the British Columbia Corporate Registry, Old Merus and Envoy amalgamated to
form Merus.

The common shares in the capital of Merus (the Common
Shares) are publicly traded on the Toronto Stock Exchange (TSX)
under the symbol MSL and on NASDAQ under the symbol MSLI.

Important Events

Envoys business was to provide marketing, communications and
consumer and retail branding services for promoting clients products, services
and business messages utilizing such media as print, broadcast and the Internet. During the
year ended September 30, 2011, Envoy conducted its business through two
reportable operating segments: the Consumer and Retail Branding Group and the
Merchant Banking Group. In addition, Envoy had a Corporate Group which
provides certain administrative, accounting, financial, regulatory reporting and
legal functions. During 2011, Envoy made a decision to divest of its Consumer
and Retail Branding Group through the sale of its wholly-owned subsidiary, Watt
International Inc. (Watt). On September 30, 2011, Envoy announced that it had
completed the divestiture of Watt. The sale of Watt represented an important
step in managements ongoing plan to restructure the business through
divestiture of all non-merchant banking assets. The sale was arms length and
gross proceeds were $2,150,000. Effective upon the Amalgamation, Envoy ceased
its line of business and the business of Old Merus will be the business of Merus
going forward.

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Merus is focused on the acquisition and licensing of
prescription pharmaceutical products in the mature stage of the product life
cycle. Legacy products are those products that are no longer promoted, most
likely generecised (i.e. the trademark has becomes generic), considered
time-trusted medicines with known risk profiles and are at the steady state cash
flow stage of their life cycle.

On June 23, 2010, Merus Labs entered into a binding letter of
intent with Methapharm for the licensing, registration, and distribution of
specific pharmaceutical products and medical devices in Canada, on an exclusive
basis.

On July 5, 2010, Merus Labs entered into a formal agreement
with Methapharm for the licensing, registration, and distribution of specific
pharmaceutical products and medical devices in Canada, on an exclusive basis.
The deal includes a portfolio of advanced wound care products including
Hydrogel, ulcer wound, and composite multi-layered dressings, as well as,
anti-microbial silver Hydrogel dressings. The portfolio also includes
anti-fungal creams.

On September 17, 2010, Merus Labs entered into a definitive
agreement with Innocoll Pharmaceuticals Limited (Innocoll) to license
in, on an exclusive basis, 3 advanced wound care products for the Canadian
market. Furthermore, Innocoll agrees to grant to Merus Labs a right of first
refusal for all current pipeline advanced wound care products for the Canadian
Market.

On May 13, 2011, Merus Labs acquired all right, title and
interest in and to the pharmaceutical product Vancocin® (vancomycin
hydrochloride) capsules (Vancocin®), including the right to
manufacture, market and sell Vancocin® in Canada, from Iroko. Merus Lab acquired
Vancocin® for total consideration in line with an acquisition of a
pharmaceutical brand, which is typically divested at a price ranging from a
multiple of 2.5 to 3.5 times the net annual sales of the product.

Vancocin® capsules are indicated for the treatment of:

- Enterocolitiscaused by Staphylococcus aureus (including
  methicillin-resistant strains); and
- Antibiotic-associated pseudomembranous colitiscaused by Clostridium
  difficile.

On May 26, 2011, Old Merus announced that Health Canada has
approved its advanced wound care product Collacare®.

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On July 5, 2011, Old Merus announced it has entered into a
support services agreement (the Methapharm Agreement) with Methapharm.
Under the terms of the Methapharm Agreement, Methapharm has agreed to provide
Old Merus with $500,000 in working capital in consideration for:

(i) being
  appointed the exclusive provider of certain distribution services of Merus
  products in Canada; and

(ii) payment of certain fees based on net sales of
  Merus products, and service fees in line with market rates customary to such
  services.

The Methapharm Agreement is for a term of five years with
automatic renewal terms of two years until terminated.

On March 7, 2012, Merus announced that it has completed the
acquisition of the North American product rights for FACTIVE® (Gemifloxacin
Mesylate) tablets from Cornerstone Therapeutics Inc. ("Cornerstone").
Cornerstone recorded FACTIVE® 320mg tablet net sales of approximately US$6.3
million in the United States for 2011. Factive has not been commercialized in
Canada. Merus acquired FACTIVE® for total consideration, as a multiple of
product cash flow, fully paid at closing. Pursuant to the acquisition, Merus
acquired the license to the FACTIVE® trademark and patent, inventory on hand,
and certain related intellectual property and other information and materials
required to continue marketing the brand in the North American market. Merus has
also entered into a sales and promotion agreement for FACTIVE® with Vansen
Pharma Inc. ("Vansen") to market the product in the United States.

B.      Business Overview

Merus is a specialty pharmaceutical company that acquires
prescription medicines in the following categories:

- On patent but at maturity stage of product life cycle;
- Branded generics;
- Under promoted products;
- Niche market pharmaceuticals; and
- Products with annual sales below critical threshold for large pharma.

Once a product is acquired, our experienced team implements a
focused sales and marketing plan to promote the product with the goal of
increasing sales and market share.

Merus' corporate growth strategy is driven by a product
acquisition plan which employs an opportunistic approach to source product
acquisition candidates. This approach allows Merus to source pharmaceutical
products across broad therapeutic classes which provides access to acquisition
targets not available to other players and creates a diversified strategy.
Although Merus has a broad therapeutic focus, opportunities will be pursued if
the application of a dedicated small scale sales force can deliver incremental
product sales growth. The geographic focus will be the United States and Canada.

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The Merus corporate strategy results in a diversified product
portfolio approach. To manage such a product portfolio, a low cost operating
model has been implemented in which there is a light infrastructure footprint.
Merus has partnered with third party contract manufacturing and regulatory
service providers to leverage their expertise but still maintain maximum
flexibility for Merus.

Superior Business Model for Acquisition of Diversified
Legacy Products

Merus believes that its strategy in seeking to acquire legacy
products primarily for the purpose of generating a stream of stable revenues and
cash flow will provide Merus with the flexibility to consider a broad range of
acquisition targets from a variety of therapeutic areas. Therefore, the
potential number of product acquisition candidates may be much larger for Merus
than for its competitors. Management believes that Merus approach to product
acquisition and its return objectives provide Merus with a competitive advantage
in acquiring products as it can often purchase diversified bundles of products
from a single vendor. In contrast, Merus competitors, such as niche
pharmaceutical companies, are more likely to focus on individual product
acquisition within the same therapeutic area. As a result, certain vendors may
view Merus as a preferred purchasing candidate.

Predictable Cost Structure

Merus plans to establish a predictable cost structure by
relying on a small employee base and outsourcing more of the operational
functions associated with its business, including warehousing, distribution,
customer service, invoicing, collections, regulatory affairs, medical and drug
information, human resources and informational technology. Wherever possible,
Merus seeks to achieve cost controls by entering into contractual supply and/or
service agreements that dictate fixed or percentage fixed costs with annual
adjustments for inflation. In the case of its manufacturing supply agreements,
Merus cost of goods will be based on a fixed, per unit cost with annual
inflationary adjustments. Management believes the predictability, flexibility
and efficiency gained by contracting with established, experienced service
organizations will assist Merus in maintaining its margins and maximizing
distributable cash.

Partnership with Leading Service Providers

Related to the above, Merus plans to enter into outsourcing
relationships with leading providers of pharmaceutical contract services for
many of the operational functions associated with its business and intends to
pursue this strategy in the future.

Competitors of Merus

Competitors in the pharmaceutical market range from large
multinational pharmaceutical development corporations to small, single product
companies that may limit their activities to a particular therapeutic area or
region or territory. Competition also comes from generic companies, which
develop and commercialize formulations that are identical to marketed brands.
Merus expects to compete with a variety of drug companies.

With respect to its acquisition strategy, Merus expects to
compete principally with other pharmaceutical companies who seek to acquire
mature pharmaceutical products as part of their growth strategy. These
companies, however, typically focus on under-promoted products in specific
therapeutic niches that offer growth potential through synergistic sales and
marketing efforts. To Merus knowledge, few, if any, companies are currently
seeking to acquire legacy products solely for the purpose of generating a stream
of consistent cash flow.

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In addition, since Merus is not focused on specific therapeutic
classes, it will have the ability to purchase diversified products and product
bundles.

On November 3, 2011, Optimer Pharmaceuticals, Inc.
(Optimer) announced that Health Canada awarded Optimer priority review
for its product: DIFICID®. DIFICID® is another method for the treatment of
Clostridium difficile infection. Optimer asserts that DIFICID® has a slightly
lower recurrence rate than Vancocin®. The recent Infectious Diseases Society of
America guidelines (the IDSA Guidelines) indicate that a tapered and
pulsed regimen with Vancocin® is effective in reducing recurrence. The IDSA
Guidelines also recommend that Vancocin® be used as a first-line therapy in the
treatment of Clostridium difficile. If Optimer is able to demonstrate that
DIFICID® is preferable to Vancocin®, the business of Merus could be adversely
affected.

Anti-infective Franchise

The global market for anti-infective drugs, which mainly
includes antibacterials, antivirals, antifungals, and vaccines, is projected to
exceed $103 billion by the year 2015, according to a newly published report.
Antibacterials represent the largest segment of the anti-infectives market
globally. The global anti-infective market is forecast to expand at a compound
annual growth rate of 5.7% between 2008 and 2013.

The ten leading companies in the anti-infectives market
accounted for 53.8% (or $37.3 billion) of total revenues in 2007. The
competitive landscape remains highly fragmented, with market leaders Merck and
GSK controlling a combined market share of only 21.4% . Antibacterials accrued
sales of $36.3 billion in 2007, accounting for 52.3% of total anti-infective
market revenues.

Vancocin

In May 2011, Old Merus acquired Vancocin (vancomycin
hydrochloride) capsules from Iroko International LP. a subsidiary of Iroko
Pharmaceuticals, LLC. According to IMS Canada, Vancocin® 125mg and 250mg
capsules had combined total sales of approximately $7.8 million in 2010.
Vancomycin was first isolated by Eli Lilly. The original indication for
vancomycin was for the treatment of penicillin-resistant staphylococcus aureus.
One advantage that was quickly apparent is that staphylococci did not develop
significant resistance despite serial passage in culture media containing
vancomycin. The rapid development of penicillin resistance by staphylococci led
to the compounds being fast-tracked for approval by the US Food and Drug
Administration (FDA). Eli Lilly first marketed vancomycin hydrochloride under
the trade name Vancocin. Vancocin is a powerful antibiotic used to treat a
life-threatening disease resulting from the infection of Clostridium Difficile
(C. Difficile).

C. Difficile is on the increase with higher mortality and
severity. Due to the nature of the disease, intravenous (systemic) solutions are
regarded as ineffective. To be effective against C. Difficile, drugs must act
locally on the flora of the gastro intestinal track. Intravenous solutions by
definition do not act locally. Recent Clinical Practice Guidelines (Clinical
Practice Guidelines for Clostridium difficile Infection in Adults: 2010 Update
by the Society for Healthcare Epidemiology of America (SHEA) and the Infectious
Diseases Society of America (IDSA)) state that oral Vancocin should be used as
first line therapy in severe cases of C. Difficile. The guidelines state that
vancomycin is the drug of choice for an initial episode of severe C. Difficile.
The dosage is 125 mg orally four times per day for 1014 days. Vancomycin
administered orally (and per rectum, if ileus is present) is the regimen of
choice for the treatment of severe, complicated C. Difficile.

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Barriers to Entry

There are a number of important barriers to entry with regards
to Vancocin, which includes the following.

Quality of Vancomycin HCI Non-Sterile, USP

Vancomycin HCI Non-Sterile, USP (API) is a result of a
complex fermentation process, which requires significant know-how and
experience. The source of API is a critical factor. As well, the impurity
profile of the API has a direct impact on efficacy. In vitro
antibacterial effects, protein binding and pharmacokinetic properties were
similar between the generic vancomycin preparations and VAN-Lilly (or Vancocin).
However, in a staphylococcus aureus neutropenic mouse thigh infection model, the
antibacterial activity of the generic vancomycin preparations marketed between
2002 and November 2004, when Eli Lilly sold its brand name and production
secrets to several manufacturers worldwide, proved to be significantly inferior
to that of VAN-Lilly (or Vancocin). One generic could not even achieve
bacteriostasis, and others showed a pronounced Eagle effect, with paradoxical
bacterial growth at high antibiotic concentrations; VAN-Lilly (or Vancocin)
exhibited bactericidal activity over a broad concentration range. What they came
to learn is that vancomycin, specifically factor B, is really the active
product, and Eli Lilly was the one that originally had 92% purity in their
production line, with less than 4% of impurities, specifically crystalline
degradation products. It turns out that many of the generics vancomycin,
especially less expensive ones, have higher rates of impurities and lower
amounts of factor B.

Changes to Barriers to Entry

Although there are a number of barriers to entry, during the
quarter, 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. Merus intends to
vigorously pursue all avenues at its disposal to challenge the entry of any PPC
product. Should PPC, or any other entity, enter the market with a generic
product, this could have a material adverse effect on the business of Merus.
Further, should Health Canada change its methodology by which NOCs are granted,
particularly in connection with generic drugs, this could also have a material
adverse effect on the business of Merus.

Also, the future of Vancocin may be affected by new therapies
such as Fidaxomicin, a macrocyclic antibiotic, which may replace the use of
Vancocin. Fidaxomicin was found to be non-inferior to vancomycin against C.
Difficile in a phase III non-inferiority study reported in the February 3, 2011
issue of the New England Journal of Medicine. However, Fidaxomicin currently
sells at approximately ten times the price of Oral Vancocin.

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Factive

FACTIVE® is a fluoroquinolone antibiotic with the API
gemifloxacin mesylate. FACTIVE® is currently available in 320 mg, once daily
tablets packaged in five-day and seven-day dose packs. FACTIVE® is approved for
the treatment of acute bacterial exacerbation of chronic bronchitis, or ABECB,
and community-acquired pneumonia, or CAP, of mild to moderate severity, caused
by Streptococcus pneumoniae (including MDRSP), Haemophilus influenzae, Moraxella
catarrhalis, Mycoplasma pneumoniae, Chlamydia pneumoniae, or Klebsiella
pneumoniae. FACTIVE was launched in the United States in September 2004 and is
the only fluoroquinolone approved in the United States for the five-day
treatment of both ABECB and CAP.

We believe FACTIVE® is well positioned to meet the needs of
health care providers for the treatment of ABECB and CAP. FACTIVE® has
demonstrated high clinical cure rates in multiple prospective, randomized
clinical trials, rates that seem to resonate well with prescribers. FACTIVE® is
the only fluoroquinolone that has an indication for five-day treatment for both
CAP and ABECB.

FACTIVE® targets the infection site with high lung tissue
  penetration. In a clinical study, FACTIVE® produced a concentration in
  bronchoalveolar tissue which is 3,567 times the MIC90 requirement to eradicate
  Streptococcus pneumoniae in critical lung tissue, cells and fluids (bronchoalveolar
  macrophages, epithelial lining fluid and bronchial mucosa). In another clinical
  study of 310 patients with CAP, five-day treatment with FACTIVE® produced
  a 100% eradication of Streptococcus pneumoniae, 95.5% eradication of Haemophilus
  influenzae, 94.4% eradication of Chlamydia pneumoniae and 88.8% eradication
  of Mycoplasma pneumoniae. In a study of five-day treatment for ABECB, FACTIVE®
  demonstrated clinical success rate was 94% (247 of 264 patients). In a separate
  study, five-day treatment with FACTIVE for CAP produced a clinical success rate
  of 95% (230 of 242 patients). These findings are in line with longer treatment
  regimens of other fluoroquinolone antibiotics.

Wound Care Franchise

In September 2010, Merus entered into a definitive agreement
with Innocoll Pharmaceuticals Limited (Innocoll) to license in, on an
exclusive basis, three advanced wound care products for the Canadian market.

The worldwide advanced wound care market is estimated to be
approximately $5.5 billion in 2010. This market is expected to grow by
approximately 5.7% to 6% to 2013. There is a tremendous amount of innovation in
this market place. Most of the Companys product offerings in this segment will
be medical devices. The regulatory pathway for medical devices is much less
complex and less expensive, leading to much shorter time to revenues and
commercialization. Given the Companys reach with major hospitals in Canada,
wound care is a natural fit with its hospital specialty business.

As of the date of this Annual Report, the Company has not
launched any of its wound care products. The Companys entrance into this market
is focused on advanced woundcare devices. These are devices that are implantable
and contain collagen as the active ingredient. Collagen has a long history of
safe medical use and is a biodegradable substance. It has several other positive attributes that make it an excellent
biomaterial; these include its positive influence on wound healing, its
intrinsically low antigenicity and ability to be sterilized.

23

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With the Companys current portfolio of Collacare and Collexa,
the Company may compete in the following markets:

- Diabetic foot, chronic leg, and pressure ulcers;
- Moderate and severe burns; and
- Dehisced surgical wounds.

Collacare

Collacare is an advanced wound care device comprising a white
to off-white collagen matrix containing 2.8 mg/cm2 of renatured bovine collagen.
Collacare is used in the management of wounds and is highly conformable for a
variety of anatomical sites.

Collexa

Collexa is an advanced bilayer wound care device comprising a
layer of white collagen matrix containing 2.8 mg/cm2 of renatured bovine
collagen with a backing layer of off-white/cream absorbent polyurethane foam.
The collagen matrix layer aids in the wound management while the polyurethane
foam layer acts as a reservoir absorbing wound fluids. Collexa can absorb
greater than ten times its own weight in wound fluids. Collexa is highly
conformable for a variety of anatomical sites.

Collexa may be used for the management of wounds including:

- Diabetic, Venous, Pressure ulcers;
- Full thickness and partial thickness wounds;
- Traumatic, exuding, and dehisced surgical wounds;
- Abrasions; and
- 1st and 2nd degree burns.

On September 12, 2011, Health Canada approved Collexa for sale
in Canada.

Customers

Management expects that Merus will generally sell between 80%
and 90% of its products directly to three major wholesalers in Canada and United
States: AmerisourceBergen, McKesson Corporation and Matrix, which does business
as Shoppers Drug Mart. Management believes that it is common practice in Canada
and the United States for pharmacies to have multiple wholesale sources. Other
direct buyers include additional smaller wholesalers and distributors, in
addition to certain pharmacy chains and food stores that warehouse the products
internally. Additional key customer groups include the following:

- Physicians and allied health professionals including nurses, physician
  assistants and pharmacists: While physicians and allied health
  professionals are not themselves direct buyers of Merus products, they are
  the key decision-makers in terms of recommending or prescribing Merus
  products to patients. These healthcare providers  make prescribing decisions based on personal experience, influence of peers,
  medical/educational meetings/events, medical journals, and information obtained
  through various pharmaceutical-sponsored educational and promotional programs
  and sales representatives.

24

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- Patients and their families/caregivers: In the United States, patients
    have to bear a greater share of the cost of healthcare. Therefore, the industry
    has increasingly turned to promotional and educational initiatives that directly
    target patients and their families. Merus will generally not engage in activities
    that directly target patients, except for the provision of various product
    and disease-specific patient education materials that may be passed along
    to patients by physicians.
- Third-party payors such as managed care organizations and group purchasing
    organizations: Third party payors, like certain insurance companies
    and employers, make purchasing and reimbursement decisions based on a number
    of health outcomes and economic variables. Merus will not attempt to influence
    the historical level of reimbursement for its products.
- State and federal government health agencies: Certain federal government
    agencies like the Department of Veteran Affairs, the Department of Defence,
    prison systems and Indian Health Services may purchase pharmaceutical products
    directly from Merus or provide third-party reimbursement to those that do
    purchase Merus products. In addition, Medicaid programs at the individual
    state level may also reimburse patients in the purchase of Merus products.
    The historical utilization/reimbursement activity of Merus products
    for these government agencies has been low and Merus anticipates this to continue.
    However, the 2006 adoption of Part D prescription drug coverage for patients
    aged 65 and over may expand the potential market for certain legacy products.

C.Organizational Structure

As of March 28, 2012, Merus has four subsidiaries:



25

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D.      Property, Plants and
Equipment

Merus currently has offices in Toronto, Canada and Vancouver,
Canada. The terms of our leases are as follows:

Merus executive offices consist of approximately 1,600 square
feet located at 30 St. Patrick St., Ste. 301, Toronto, Ontario. These premises
have been leased pursuant to a lease with a term that commenced on April 1, 2009
and expires in March 2014 at a current annual rent of $52,200. The Company has
an option to terminate the lease on or after March 31, 2012, upon payment of a
penalty in the amount of $1,000 for each month remaining on the lease at the
time of cancellation.

Merus head office is located at Suite 2007. 1177 West Hastings
  Street, Vancouver, BC V6E 2K3; and its telephone number is 604-805-7783.

Item 4A: Unresolved Staff Comments

Not applicable.

Item 5: Operating and Financial Review and
Prospects

The following discussion should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
of Envoy and the Notes relating thereto, included as item 17 in this Annual
Report. The information contained in this Item 5 refers to Financial Statements
of Envoy, which are presented in Canadian dollars and are prepared in accordance
with Canadian GAAP.

Canadian GAAPdiffers in certain
significant respects from U.S. GAAP. Reconciliation to U.S. GAAP is set forth in
Note 19 of the Notes toConsolidated Financial Statements.
Historical results of operations, percentage relationships and any trends that
may be inferred there from are not necessarily indicative of the operating
results of any future period.

Overview

The Company presented as net revenue its gains or losses on
investments, as well as interest and dividend income. Securities transactions
were recorded on a trade-date basis. Changes in fair value of held-for-trading
investments were reflected in the consolidated statements of operations.
Dividend income was recorded on the ex-dividend date. Interest income was
recorded on an accrual basis.

Operating Expenses

Salaries and benefits, general and administrative expenses and
  occupancy costs represent the operating expenses. Salaries and benefits expenses
  include salaries, employee benefits, incentive compensation, contract labour
  and other payroll related costs, which were expensed as incurred. General and
  administrative costs included business development, office costs, technology,
  professional services and foreign exchange. Occupancy costs represented the
  costs of leasing and maintaining company premises.

26

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Tax Matters

With respect to the its 2011 fiscal year, Envoy had tax loss
carry forwards sufficient to cover its Canadian income tax liabilities and has
approximately $18.8 million in loss carry forwards. Details on income taxes are
set forth in Note 12 of the Notes to Consolidated Financial Statements.

A.      Operating Results

Net revenue from continuing operations for the year ended
September 30, 2011 was $1.9 million, compared to $1.1 million for the year ended
September 30, 2010, an increase of $0.8 million. The increase was due primarily
to improved market conditions during the first half of the fiscal year, along
with a conscious effort to reduce market exposure during the latter half of the
year.

Salaries expense for the year ended September 30, 2011 was $1.9
million, compared to $2.0 million in the year ended September 30, 2010, a
decrease of $0.1 million. The labour to net revenue ratio for the year ended
September 30, 2011 was 99.3%, compared to 175.4% in the year ended September 30,
2010. The improvement in the salary ratio was due to the restructuring of the
executive management team in February 2011.

General and administrative expenses for the year ended
September 30, 2011 were $0.6 million, compared to $0.9 million for the year
ended September 30, 2010, a decrease of $0.3 million or 29.5% . The primary
reason for the decrease was the closure of the Monaco office in fiscal 2011.

Occupancy costs were $0.1 million for the year ended September
30, 2011, and for the year ended September 30, 2010. The occupancy cost to net
revenue ratio was 4.2% for the year ended September 30, 2011 compared to 10.2%
for the year ended September 30, 2010, mainly due to the lower revenue base in
the prior year.

The Consolidated Financial Statements have been prepared by
management in accordance with generally accepted accounting principles in
Canada, which vary in certain significant respects from generally accepted
accounting principles in the United States. A description of the significant
differences, as applicable to Envoy, is included in note 19 to the Consolidated
Financial Statements.

27

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SELECTED ANNUAL INFORMATION

|                                   | Fiscal 2011    | Fiscal 2010    | Fiscal 2009    
|---------------------------------- | -------------- | -------------- | ---------------
|                                   |                |                |                
|Net revenue                        | $1.9 million   | $1.1 million   | $0.6 million   
|                                   |                |                |                
|Net (loss) earnings:               |                |                |                
|From continuing
      operations   | ($6.8) million | ($4.3) million | ($7.1) million 
|From
      discontinued operations | ($0.7) million | $0.2 million   | ($3.3) million 
|Total                              | ($7.5) million | ($4.1) million | ($10.4) million
|                                   |                |                |                
|Net (loss) earnings per share      |                |                |                
|Total                              |                |                |                
|Basic                              | ($0.93)        | ($0.50)        | ($1.22)        
|Diluted                            | ($0.93)        | ($0.50)        | ($1.22)        
|                                   |                |                |                
|From continuing operations         |                |                |                
|Basic                              | ($0.85)        | ($0.52)        | ($0.84)        
|Diluted                            | ($0.85)        | ($0.52)        | ($0.84)        
|                                   |                |                |                
|From discontinued operations       |                |                |                
|Basic                              | ($0.08)        | $0.02          | ($0.39)        
|Diluted                            | ($0.08)        | $0.02          | ($0.39)        

|As at:                                | Sep 30, 2011  | Sep 30, 2010  | Sep 30, 2009 
|------------------------------------- | ------------- | ------------- | -------------
|Total assets                          | $11.0 million | $19.6 million | $23.6 million
|Total long-term financial liabilities | $nil          | $nil          | $nil         
|Cash dividends
      declared         | $nil          | $nil          | $nil         

28

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FISCAL YEAR ENDED SEPTEMBER 30, 2011, COMPARED TO FISCAL
YEAR ENDED SEPTEMBER 30, 2010

On a consolidated basis, the net loss for the year ended
September 30, 2011 was $7.5 million compared to a net loss of $4.1 million for
the year ended September 30, 2010. On a fully diluted per share basis the net
loss for fiscal year 2011 was ($0.93) per share compared to ($0.50) in fiscal
2010.

Excluding discontinued operations and restructuring costs, the
net loss for the year ended September 30, 2011 was ($0.7) million, compared to a
net loss of ($1.9) million for the year ended September 30, 2010.

Merchant Banking Operations

Investment income from merchant banking activities includes
realized and unrealized gains and losses from Envoys investments plus interest
and dividend income earned during the period.

The Merchant Banking segment generated net investment gains of
approximately $1.9 million for the year ended September 30, 2011, compared to
net investment gains of $1.1 million for the year ended September 30, 2010.

For the first five months of the fiscal year, Envoy operated
much as it did for fiscal 2010, with most of its capital invested in a broad
range of equities, with capital allocations in both quantitative and qualitative
portfolios, as well as strategic derivatives designed to augment returns. The
portfolio did relatively well during this period, earning the majority of the
returns for the year. In February 2011, Envoy experienced a change in management
which coincided with a change in the investment market in general. As volatility
increased, equities suffered, erasing some of the gains. As a way of
diversifying the investments, in May 2011, Envoy advanced $1.9 million by way of
a short-term loan, and made an equity investment of a similar amount in a
private entity. For the latter portion of the fiscal year, equity returns were
relatively flat, despite the continued volatility.

For the year ended September 30, 2011 Envoy recognized gains
attributable to the sale of marketable securities or adjustments to market value
of $1.4 million. For the same period last year, Envoy recognized gains of $1.1
million. However, interest and dividend income for the fiscal year 2011 was $0.5
million, compared to less than $0.1 million last year. Interest income in the
current fiscal year was almost entierly due to the loan to Merus Labs, which
generated cash interest of almost $0.1 million as well as $0.4 million from
accretion of loan fees received in the form of shares and warrants. In 2010,
most of the portfolio capital was invested in equities as opposed to holding
cash.

For the year ended September 30, 2011, Envoy generated a return
of 11.1% compared to last year when Envoy generated a return of 5.4% on its
invested capital. In comparison to other widely-used benchmarks Envoy
outperformed for the year, as the Dow Jones Industrial Average gained just 1.2%
over Envoys fiscal year, while the S&P 500 and TSX indexes had losses of
(0.9%) and (6.0%), respectively.

29

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Operating expenses were comprised mainly of salaries and
benefits. Total operating expenses for the year ended September 30, 2011 were
approximately $2.6 million, compared to $3.0 million for the same period last
year. Of the current year amount, $0.9 million relates to stock based
compensation granted to the new management team in July 2011. Salaries and
benefits expenses, which make up the bulk of the operating costs, were reduced
significantly in the current year as a result of the executive restructuring
undertaken by Envoy in February 2011.

Income Taxes

Income tax expense for the year was nil. Envoy has existing tax
loss carryfowards which it has not capitalized as there can be no assurance that
value of such will be realized in future periods. Envoy increased its valuation
allowance to reflect future tax assets as nil.

Discontinued Operations

Discontinued operations represent the results of Watt, which
was owned by Envoy throughout the fiscal year. In connection with the change in
management in February 2011, the decision was made to divest of Envoys Consumer
and Retail Branding division. Envoy recognized a loss from discontinued
operations of ($0.3) million, or ($0.03) per share, for the year ended September
30, 2011, compared to income from discontinued operations of $0.2 million, or
$0.02 per share for the prior year. Envoy also recognized a loss on disposal of
discontinued operations in the current year of ($0.4) million, or ($0.05) per
share.

Net loss

Net loss from continuing operations for the year ended
September 30, 2011 was ($6.8) million, compared to a loss of ($4.3) million for
the year ended September 30, 2010. On a per share basis the net loss from
continuing operations in the current year was ($0.85) per share compared to
($0.52) last year.

The earnings per share calculations are based on basic and
fully diluted weighted average shares outstanding of 8,028,377 for both the
current and prior year.

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THREE MONTHS ENDED SEPTEMBER 30, 2011, COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2010

On a consolidated basis, the net loss for the fourth quarter of
fiscal 2011 was ($1.8) million, compared to net income of $0.4 million for the
fourth quarter of fiscal 2010. Excluding discontinued operations, the net loss
for the fourth quarter of fiscal 2011 was ($1.6) million, compared to net income
of $0.3 million for the same period last year.

Merchant Banking Operations

For the fourth quarter ended September 30, 2011 the merchant
banking segment experienced net investment losses of ($0.4) million, compared to
investment gains of $0.9 million in the same period last year. As financial
markets deteriorated considerably in the fourth quarter of fiscal 2011, Envoy
worked to minimize losses on its invested assets and protect capital.
Considerably less capital was invested in equities during the fourth quarter of
fiscal 2011 as compared to fiscal 2010, as Envoy looked to employ capital in
other investment vehicles.

Operating expenses for the Merchant Banking business were
comprised largely of salaries and benefits. Total operating expenses for the
fourth quarter of fiscal 2011 were approximately $1.2 million, compared to $0.6
million for the same period last year. Included in the current quarter is an
non-cash expense of approximately $0.9 million relating to stock options issued
to Envoys directors.

Income Taxes

The income tax expense for the period was nil. The reason for
the disparity from the substantively enacted tax rate of 28.5% was an adjustment
to the value of the future tax asset in order to reflect a nil value. The
current value of the future tax asset reflects managements assessment of those
timing differences and loss carryforwards which are more likely than not to be
used in future periods.

Net loss

Net loss from continuing operations for the three months ended
September 30, 2011 was ($1.6) million, compared to net income of $0.4 million
for the three months ended September 30, 2010. On a basic and fully diluted per
share basis the net loss from continuing operations in the current quarter was
($0.20) per share compared to net income from continuing operations of $0.04 in
the same quarter last year. The earnings per share calculations are based on
basic and fully diluted weighted average shares outstanding of 8,028,377 for the
both the current and prior year periods.

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3.      SUMMARY OF QUARTERLY
RESULTS

Q4 2011
    Q3 2011
    Q2 2011
    Q1 2011Net revenue
    ($0.39) million
    $0.36 million
    $0.34 million
    $1.57 millionNet earnings (loss):From continuing operations
    ($1.55) million
    $0.07 million
    ($6.27) million
    $0.96 millionIncluding discontinued operations
    ($1.76) million
    ($0.00) million
    ($6.43) million
    $0.72 millionNet earnings (loss) per share:From continuing
      operations:Basic
    ($0.20)
    $0.01
    ($0.77)
    $0.11Diluted
    ($0.20)
    $0.01
    ($0.77)
    $0.11Including discontinued
      operations:Basic
    ($0.22)
    ($0.00)
    ($0.80)
    $0.09Diluted
    ($0.22)
    ($0.00)
    ($0.80)
    $0.09


Q4 2010
    Q3 2010
    Q2 2010
    Q1 2010Net revenue
    $0.89 million
    ($1.19) million
    $1.48 million
    ($0.07) millionNet earnings (loss):From continuing operations
    $0.32 million
    ($1.75) million
    $0.68 million
    ($3.58) millionIncluding discontinued operations
    $0.43 million
    ($1.44) million
    $0.89 million
    ($4.02) millionNet earnings (loss) per share:From continuing
      operations:Basic
    $0.04
    ($0.22)
    $0.13
    ($0.42)Diluted
    $0.04
    ($0.22)
    $0.13
    ($0.42)Including discontinued
      operations:Basic
    $0.05
    ($0.18)
    $0.15
    ($0.47)Diluted
    $0.05
    ($0.18)
    $0.15
    ($0.47)


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RECONCILIATION TO U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES

Summary of material adjustments to net loss for the years ended
September 30, 2011, 2010 and 2009 required to conform to US GAAP. Detailed
information can be found in note 19 to the Financial Statements.

|                                                             |   | 2011       |   |   | 2010       |   |   | 2009        |  
|------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ----------- | -
|                                                             |   |            |   |   |            |   |   |             |  
|Net loss and comprehensive loss based on
      Canadian GAAP | $ | (7,467,048 | ) | $ | (4,142,492 | ) | $ | (10,475,810 | )
|Fair value
      adjustment on restricted securities         |   | (51,239    | ) |   | (137,465   | ) |   | (283,411    | )
|Net loss and comprehensive loss based on US GAAP             | $ | (7,518,287 | ) | $ | (4,279,957 | ) | $ | (10,759,221 | )

|                                                       |   | 2011       |   |   | 2010       |   |   | 2009       |  
|------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
|Net loss from continuing operations                    | $ | (6,838,847 | ) | $ | (4,469,722 | ) | $ | (7,431,784 | )
|Net (loss)
      earnings from discontinued operations | $ | (679,440   | ) | $ | 189,765    |   | $ | (3,327,437 | )

The following table sets forth the computation of basic and
diluted net loss per share:

|                                                                  |   | 2011  |   |   | 2010  |   |   | 2009  |  
|----------------------------------------------------------------- | - | ----- | - | - | ----- | - | - | ----- | -
|                                                                  |   |       |   |   |       |   |   |       |  
|Net loss per share:                                               |   |       |   |   |       |   |   |       |  
|Basic                                                             | $ | (0.93 | ) | $ | (0.52 | ) | $ | (1.26 | )
|Diluted                                                           |   | (0.93 | ) |   | (0.52 | ) |   | (1.26 | )
|Net loss per share from continuing operations:                    |   |       |   |   |       |   |   |       |  
|Basic                                                             | $ | (0.85 | ) | $ | (0.54 | ) | $ | (0.87 | )
|Diluted                                                           |   | (0.85 | ) |   | (0.54 | ) |   | (0.87 | )
|Net (loss) earnings per share from
      discontinued operations: |   |       |   |   |       |   |   |       |  
|Basic                                                             | $ | (0.08 | ) | $ | 0.02  |   | $ | (0.39 | )
|Diluted                                                           |   | (0.08 | ) |   | 0.02  |   |   | (0.39 | )

The calculation of diluted (loss) earnings per share used
income from continuing operations as the control number in determining whether
potential common shares are dilutive or antidilutive. Since Envoy experienced a
loss in fiscal 2011, 2010 and 2009 from continuing operations, all potential
common shares outstanding from dilutive securities are considered antidilutive
and are excluded from the calculation of diluted loss per share for that
year.

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The following adjustments are required in order to conform
total assets based on Canadian GAAP to total assets based on US GAAP:

|                                                     |   | 2011       |  |   | 2010       | 
|---------------------------------------------------- | - | ---------- |  | - | ---------- | 
|Total assets based on Canadian GAAP                  | $ | 11,018,851 |  | $ | 19,569,533 | 
|Fair value
      adjustment on restricted securities |   | -          |  |   | 51,239     | 
|Total assets based on US GAAP                        | $ | 11,018,851 |  | $ | 19,620,792 | 

The following adjustments are required in order to conform
shareholders equity based on Canadian GAAP to shareholders equity based on US
GAAP:

|                                                        |   | 2011       |  |   | 2010       | 
|------------------------------------------------------- | - | ---------- |  | - | ---------- | 
|Shareholders equity based on Canadian GAAP             | $ | 10,332,512 |  | $ | 16,861,384 | 
|Fair value
      adjustment on restricted securities    |   | -          |  |   | 51,239     | 
|Total Envoy shareholders equity based on
      US GAAP |   | 10,332,512 |  |   | 16,912,623 | 
|Non-controlling
      interest                          |   | -          |  |   | 7,242      | 
|Total equity based on US GAAP                           | $ | 10,332,512 |  | $ | 16,919,865 | 

LIQUIDITY AND CAPITAL RESOURCES

As at September 30, 2011, Envoy had working capital of $9.2
million, compared to September 30, 2010, when it had a working capital of $15.5
million. Included in working capital is an investment portfolio of marketable
securities, the current portion of which was $3.1 million at September 30, 2011
and $6.7 million at September 30, 2010. The principal reasons for the decrease
was an effort during the middle part of the year to become more diversified as
the market showed continued signs of volatility.

Approximately $2.5 million in cash was used by operations
during the year ended September 30, 2011, compared to $5.5 million used by
operations for the year ended September 30, 2010. The main uses of cash during
both the current year and prior year was the funding of operating losses,
including significant restructuring costs. Funds for these purposes were
generated through liquidation of investments.

In prior years, Envoy has used significant working capital to
repurchase shares of Envoy pursuant to the normal course issuer bid. In fiscal
2010, Envoy used approximately $0.6 million of cash for this purpose. No
purchases were made under the issuer bid in fiscal 2011.

Envoy paid down and then cancelled its operating line of credit
in fiscal 2011 to reduce finance costs, as it was seen as unnecessary. The
revolving credit facility was available up to a maximum of $1.0 million and
secured by a pledge of $2.0 million of Envoys investment portfolio. At
September 30, 2010, borrowings under the credit facility were $780,000. Despite
the current economic conditions, Envoy has access to significant liquid capital
resources and is not exposed to any investments with distressed credit.

During 2011, Envoy advanced $1.9 million by way of a loan
receivable. The loan term was six months and required monthly payments of
approximately $123,000 plus interest at 12%. The investment in a debt instrument
was viewed as a means of diversifying the portfolio while earning good interest returns. Monthly payments were received
by Envoy and the loan was paid in full in October 2011.

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TRANSACTIONS WITH RELATED PARTIES

In January, 2011 Envoy sold its approximate 21% interest in
Sereno Capital Corporation (Sereno), a Capital Pool Company. Members of
Envoys management group were also officers and directors of Sereno and
exercised significant influence. The investment in Sereno was accounted for
using the equity method.

During fiscal 2009, Envoy paid $7,500 (2008 - $215,000) for
legal services to a director of Envoy. In November 2008, this director became an
employee of Envoy.

In November, 2008, Envoy established a new subsidiary in the
principality of Monaco, Envoy Capital Group Monaco, S.A.M (Envoy Monaco). As
part of the local requirements of incorporation, the two directors of Envoy
Monaco, who are residents of Monaco, acquired a 0.1% share interest in Envoy
Monaco (total of 0.2%) at a cost of 5,000 Euros each. The Monaco office was
closed in 2011 the shares sold to the minority holders for $1.

These transactions were recorded at the exchange amount, being
the amount agreed to by the related parties, as the transactions were considered
to be in the ordinary course of business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The significant accounting policies used by Envoy in preparing
its Financial Statements are described in Note 2 to the Financial Statements and
should be read to ensure a proper understanding and evaluation of the estimates
and judgements made by management in preparing those Financial Statements.
Envoys Financial Statements are prepared in accordance with Canadian generally
accepted accounting principles. Envoy also prepared a reconciliation to United
States generally accepted accounting principles, which is included in Note 19 to
the Financial Statements.

Inherent in the application of some of these policies is the
judgment by management as to which of the various methods allowed under
generally accepted accounting principles is the most appropriate to apply in the
case of Envoy. As well, management must take appropriate estimates at the time
the Financial Statements are prepared.

Although all of the policies identified in Note 2 to the Financial
  Statements are important in understanding the Financial Statements, the policies
  discussed below are considered by management to be central to understanding
  the Financial Statements, because of the higher level of measurement uncertainties
  involved in their application.

Goodwill

Goodwill represents the price paid for acquisitions in excess
of the fair market value of net tangible and intangible assets acquired.
Goodwill is carried at cost, less impairment losses if any.

Envoy uses a two-step impairment test on an annual basis, or
when significant business changes have occurred that may have had an adverse
impact on the fair value of the goodwill.

35

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To determine whether impairment has occurred, the fair value of
the reporting unit is compared to its carrying amounts, including goodwill. When
the fair value is in excess of its carrying amount, the goodwill is not
considered to be impaired, and the second step of the impairment test is not
necessary.

When the carrying amount of the reporting unit as determined in
the first step exceeds the fair value, then the fair value of the goodwill is
determined in the same manner as followed on a business combination. An
impairment loss is recognized when the carrying amount of the goodwill of a
reporting unit exceeds its fair value. It is not reversed in the event that the
fair value subsequently increases.

Future Income Taxes

Envoy accounts for future income taxes using the asset and
liability method. Under this method, future income taxes are recognized at the
enacted or substantively enacted tax rate expected to be applicable at the date
of reversal for all significant temporary differences between the tax and
accounting bases of assets and liabilities and for certain tax carryforward
items. Future income tax assets are recognized only to the extent that, in the
opinion of management, it is more likely than not that the benefits from those
future income tax assets will be realized. Future income tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of the substantive enactment of the change.

Revenue Recognition  Merchant banking segment

Securities transactions are recorded on a trade-date basis.
Changes in fair value of held-for-trading investments are reflected in the
consolidated statements of operations. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.

Financial Instruments

Financial assets and financial liabilities are initially
recognized at fair value and their subsequent measurement is dependent on their
classification as described below. Their classification depends on the purpose
for which the financial instruments were acquired or issued, their
characteristics and Envoys designation of such instruments. The standards
require that all financial assets be classified either as held-for-trading
(HFT), available-for-sale (AFS), held-to-maturity (HTM), or loans and
receivables. The standards require that all financial assets, including all
derivatives, be measured at fair value with the exception of loans and
receivables, debt securities classified as HTM, and AFS financial assets that do
not have quoted market prices in an active market.

HFT financial assets are financial assets typically acquired
for resale prior to maturity. They are measured at fair value at the balance
sheet date. Interest and dividends earned, gains and losses realized on disposal
and unrealized gains and losses from market fluctuations are included in net
revenue for the period.

HTM financial assets are those non-derivative financial assets
with fixed or determinable payments and a fixed maturity, other than loans and
receivables that an entity has the positive intention and ability to hold to maturity. These financial
assets are measured at amortized cost.

36

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AFS financial assets are those non-derivative financial assets
that are designated as AFS, or that are not classified as loans and receivables,
HTM investments or HFT. AFS financial assets are carried at fair value with
unrealized gains and losses included in Other Comprehensive Income (OCI) until
realized when the cumulative gain or loss is recognized in net income.

Loans and receivables are accounted for at amortized cost using
the effective interest method. At each financial reporting period, Envoy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, Envoy
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.

| | (ii) | Privately-held investments:
| | ---- | ---------------------------

Securities in privately-held companies
designated as HFT or AFS are recorded at fair value based on objective evidence
including recent arms length transactions between knowledgeable, willing
parties. Such evidence might include significant subsequent equity financing by
an unrelated professional investor, discounted cash flow analysis, operational
results, forecasts and other developments since acquisition.

37

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Recent accounting pronouncements

Business combinations

In January 2009, the CICA published Section 1582, Business
Combinations to replace Section 1581. The new standard requires the acquiring
entity in a business combination to recognize most of the assets acquired and
liabilities assumed in the transaction at fair value including contingent assets
and liabilities, and recognize and measure the goodwill acquired in the business
combination or a gain from a bargain purchase. Acquisition-related costs are to
be expensed. This standard becomes effective January 1, 2011, and early adoption
is permitted. This new standard is expected to only have an impact on the
financial statements for any future acquisitions that will be made in periods
subsequent to the of date adoption.

Consolidated financial statements and non-controlling
interests

In January 2009, the CICA published Section 1601, Consolidated
Financial Statements, and Section 1602, Non-controlling Interests replacing
Section 1600. Section 1601 carries forward guidance from Section 1600 with the
exception of non-controlling interests, which are addressed in a separate
section. This standard requires Envoy to report non-controlling interests within
equity, separately from the equity of the owners of the parent, and transactions
between an entity and non-controlling interests as equity transactions. These
standards become effective January 1, 2011, and early adoption is permitted.
Envoy currently does not have any significant equity investment in other
entities and therefore the application of this new standard is not expected to
have any impact on the financial statements of Envoy.

International Financial Reporting Standards (IFRS)

The CICA incorporated IFRS into the CICA Handbook as a
replacement for current Canadian Generally Accepted Accounting Principles for
most publicly accountable enterprises effectively for fiscal years beginning on
or after January 1, 2011. Envoy thus will apply IFRS beginning October 1, 2011.
Envoy will require restatement for comparative purposes of amounts reported by
Envoy for the year ending September 30, 2011 and accordingly Envoy will need to
prepare an opening balance sheet, in accordance with IFRS, as at October 1,
2010. While Envoy has begun the adoption of IFRS for fiscal 2012, the
quantitative impact of the transition to IFRS has been determined to be
immaterial. Envoy completed a three-phase transition plan: initial diagnostic
assessment and scoping, in-depth analysis and assessment, and
implementation.

As at September 30, 2011, Envoy has substantially completed all
three phases of its transition plan and have identified the areas of impact on
Envoys financial reports: accounts receivable and net revenue from the consumer
and retail branding business, which are now reported as discontinued operations.
Envoy has determined that the financial impact of the transition to IFRS will be
minimal, however, Envoy anticipates a significant increase in disclosure
requirements under IFRS and such requirements are also being evaluated along
with the necessary system changes required to gather, process and review such
disclosure. Envoy does not anticipate any significant changes to its information
technology, internal controls over financial reporting, disclosure controls and
procedures or its business activities as a result of the conversion to IFRS.
Envoy will complete its transition plan during the first quarter of fiscal 2012.

38

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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2009, the FASB revised the authoritative guidance
for revenue recognition for arrangements with multiple deliverables. The new
guidance modifies the requirements for determining whether a deliverable can be
treated as a separate unit of accounting by removing the criteria that
verifiable and objective evidence of fair value exists for the undelivered
elements. In allocating transaction consideration among the deliverables, the
guidance also introduced the concept of using management's best estimate of a
stand along selling price as an alternate basis for allocation. Envoy adopted
this guidance in its first quarter of fiscal 2011. The adoption of these changes
did not have a material impact on Envoys consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update
No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820)
Fair Value Measurements and Disclosures (ASU 2010-06), to add additional
disclosures about the different classes of assets and liabilities measured at
fair value, the valuation techniques and inputs used, the activity in Level 3
fair value measurements, and the transfers between Levels 1, 2, and 3. This
standard was effective for Envoy in the first quarter of fiscal 2011 and the
adoption of these changes did not have a material impact on Envoys consolidated
financial statements.

In April 2010, the FASB issued Accounting Standards Update No.
2010-17, Revenue RecognitionMilestone Method (Topic 605)  Revenue Recognition
(ASU 2010-17). ASU 2010-17 provides guidance on defining the milestone and
determining when the use of the milestone method of revenue recognition for
research or development transactions is appropriate. It provides criteria for
evaluating if the milestone is substantive and clarifies that a vendor can
recognize consideration that is contingent upon achievement of a milestone as
revenue in the period in which the milestone is achieved, if the milestone meets
all the criteria to be considered substantive. ASU 2010-17 is effective for
Envoy in fiscal 2012 and should be applied prospectively. Early adoption is
permitted. Envoy is currently evaluating the impact of the adoption of this
standard on Envoys consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20 an accounting update
to provide guidance to enhance disclosures related to the credit quality of a
company's financing receivables portfolio and the associated allowance for
credit losses ("FASB ASC Topic 310"). Pursuant to this accounting update, a
company is required to provide a greater level of disaggregated information
about its allowance for credit loss with the objective of facilitating users'
evaluation of the nature of credit risk inherent in Envoy's portfolio of
financing receivables, how that risk is analyzed and assessed in arriving at the
allowance for credit losses, and the changes and reasons for those changes in
the allowance for credit losses. The adoption of such standard did not have a
material impact on Envoy's consolidated financial statements and
disclosures.

In December 2010, the FASB issued ASU 2010-28 an accounting
pronouncement related to intangibles - goodwill and other ("FASB ASC Topic
350"), which requires a company to consider whether there are any adverse
qualitative factors indicating that an impairment may exist in performing step 2
of the impairment test for reporting units with zero or negative carrying
amounts. The provisions for this pronouncement are effective for fiscal years,
and interim periods within those years, beginning after December 15, 2010, with
no early adoption. Envoy will adopt this pronouncement for our fiscal year
beginning October 1, 2011.

39

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The adoption of this pronouncement is not expected to have a
material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29 an accounting
pronouncement related to business combinations ("FASB ASC Topic 815"), which
specifies that if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of
the beginning of the comparable prior annual reporting period only. It also
expands the supplemental pro forma disclosures under Topic 805 to include a
description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the
reported pro forma revenue and earnings. The amendments in this Update are
effective prospectively for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2010. Early adoption is permitted. Envoy is currently
evaluating the impact of the adoption of this standard on Envoys consolidated
financial statements.

The FASB has issued Accounting Standards Update (ASU) No.
2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU
represents the converged guidance of the FASB and the IASB (the Boards) on fair
value measurement. The collective efforts of the Boards and their staffs,
reflected in ASU 2011-04, have resulted in common requirements for measuring
fair value and for disclosing information about fair value measurements,
including a consistent meaning of the term "fair value." The Boards have
concluded the common requirements will result in greater comparability of fair
value measurements presented and disclosed in financial statements prepared in
accordance with U.S. GAAP and IFRSs.

The FASB has issued Accounting Standards Update (ASU) No.
2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.
This ASU amends the FASB Accounting Standards Codification to allow an entity
the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of
net income along with total net income, each component of other comprehensive
income along with a total for other comprehensive income, and a total amount for
comprehensive income. ASU 2011-05 eliminates the option to present the
components of other comprehensive income as part of the statement of changes in
stockholders' equity. ASU 2011-05 should be applied retrospectively. The
amendments are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011.

The FASB has issued Accounting Standards Update (ASU) No.
2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for
Impairment. ASU 2011-08 is intended to simplify how entities, both public and
nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first
assess qualitative factors to determine whether it is "more likely than not"
that the fair value of reporting unit is less than its carrying amount as a
basis for determining whether it is necessary to perform the two-step goodwill
impairment test described in Topic 350, Intangibles-Goodwill and Other. The
more-likely-than-not threshold is defined as having a likelihood of more than
50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and
interim goodwill impairment tests performed as of a date before September 15,
2011, if an entity's financial statements for the most recent annual or interim
period have not yet been issued.

40

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

****Not applicable.

D.      Trend Information

****Not applicable.

E.      Off-Balance Sheet
Arrangements

****None.

F.      Commitments and Contractual
Commitments

Set out below is a summary of the amounts due and committed
under contractual cash obligations of Envoy at September 30, 2011:

|                                   |   | Total  |  |   | Due in
      year 1 |  |   | Due in
      year 2 |  |   | Due in
      year 3 | 
|---------------------------------- | - | ------ |  | - | ------------------- |  | - | ------------------- |  | - | ------------------- | 
|                                   |   |        |  |   |                     |  |   |                     |  |   |                     | 
|Operating leases                   | $ | 50,100 |  | $ | 50,100              |  | $ | -                   |  | $ | -                   | 
|Long term debt                     |   | -      |  |   | -                   |  |   | -                   |  |   | -                   | 
|Total contractual cash obligations | $ | 50,100 |  | $ | 50,100              |  | $ | -                   |  | $ | -                   | 

G.      Safe Harbor

See About Forward-Looking Statements in the introduction to
this Annual Report.

Item 6: Directors and Senior Management and Employees

**A.****Directors and Senior Management**

As of September 30, 2011, the directors of Envoy were as
follows:

Name Province/State Country ofResidence
      and Position(s)with Envoy
      Periods during whichIndividual has Servedas a Director or OfficerRobert Pollock Ontario, Canada President and CEO
      and Director
    February 10, 2011
       December 19, 2011Andrew Patient Ontario, Canada Chief Financial
      Officer
    October 1,
      2008(1) December 19, 2011Priscilla Cheung Ontario, Canada Secretary
    September 1, 2011
       December 19, 2011


41

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Name Province/State Country of Residence
      and Position(s) with Envoy
      Periods during which Individual has Served as a Director or OfficerJohn Campbell Ontario, Canada Director
    February 10, 2011 
      
    December 19, 2011Dave Guebert Alberta, Canada Director
    February 10, 2011 
      
    December 19, 2011Tim Sorensen Ontario, Canada Director
    February 10, 2011 
      
December 19, 2011


|(1) | On October 1, 2008, Mr. Patient was appointed as Chief
      Financial Officer of Envoy. Mr. Patient was appointed President of Envoy
      on December 31, 2009, a position he held until February 10, 2011, when he
      was reappointed Chief Financial Officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The current directors and officer of Merus are as follows:

Name Province/State Country of Residence
      and Position(s) with Merus(1)
      Periods during which
        Individual has Served as a Director or
      OfficerAhmad Doroudian Vancouver, BC Canada Chief
      Executive Officer and Director
    December 19, 2011
      PresentElie Farah Ontario, Canada President and Director
    January 12, 2012
       PresentAndrew Patient Ontario, Canada Chief Financial
      Officer
    December 19, 2011
       PresentMoira Ong British Columbia, Canada Vice President,
      Finance and Secretary
    December 19, 2011
       PresentAli Moghaddam Quebec, Canada Vice President
      Business Development & Commercial Operations
    December 19, 2011
       PresentDavid Guebert(2)(3)
      Ontario, Canada Director
    December 19, 2011
       PresentRobert Pollock(3)
      Ontario, Canada Director
    December 19, 2011
       Present


42

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Name Province/State Country of Residence
      and Position(s) with Merus(1)
      Periods during which Individual has Served as a Director or OfficerJoseph Rus(2)(3)
      Ontario, Canada Director
    December 19, 2011  
      PresentTimothy Sorensen(2)(3)
      Ontario, Canada Director
    December 19, 2011  
      Present


|(1) | Information has been furnished by the respective
      individuals.
|--- | -------------------------------------------------------------------
|(2) | Denotes a member of the Audit Committee of
  Merus.                
|(3) | Denotes an independent director.                                   

Ahmad Doroudian  President, Chief Executive Officer, and
Director

Dr. Doroudian was appointed as the President, Chief Executive
Officer and director of Merus on March 15, 2010. Since May 2009, Dr. Doroudian
has been the President, Chief Executive Officer and a director of Merus
subsidiary, Merus Labs Inc. He is also a director of Neurokine Pharmaceuticals
Inc., a private pharmaceutical company that develops new uses for existing
drugs, since April of 2007. He was the Chief Executive Officer of Neurokine
Pharmaceuticals Inc. from May 2009 to September 2011. He was the President of
Rayan Pharma Inc., an exporter of pharmaceuticals to Eastern Europe, from March
2003 to April 2007. From November 2003 to March 2004, Dr. Doroudian was the Vice
Chairman of the board of PanGeo Pharma Inc., a TSX listed company (now
PendoPharm, a division of Pharmascience Inc.) and he served as Chief Executive
Officer, Chairman and Director of PanGeo from April 1996 to November 2003. Dr.
Doroudian has been involved with early stage financing and management of private
and publicly listed companies since 1996. Dr. Doroudian holds a Bachelors Degree
in Biochemistry and a Masters Degree and Ph.D. in Biopharmaceutics from the
University of British Columbia. Dr. Doroudian is 49 years old and is a Canadian
citizen resident in Vancouver, British Columbia.

Elie Farah  President and Director

Mr. Farah was appointed as Merus President in January 2012.
  Mr. Farah previously headed the global mergers and acquisitions initiative with
  Boehringer Ingelheim GmbH, an international pharmaceutical company based in
  Germany. Mr. Farah executed and oversaw strategic transactions across Europe
  and the Americas while working at the North American holding company in Canada
  and subsequently at the global headquarters in Germany. Most recently, Mr. Farah
  was the President and CFO of Transition Therapeutics Inc. During his time at
  Transition Mr. Farah played an instrumental role in the company listing on NASDAQ,
  completing equity financings, managing and executing multiple company acquisitions
  as well as licensing agreements with large pharmaceutical companies. He holds
  an MBA and an MAcc in addition to the following designations; Chartered Financial
  Analyst (CFA) and Chartered Accountant (CA).

Andrew Patient  Chief Financial Officer

Mr. Patient began serving as the Companys Chief Financial
Officer in 2008. Mr. Patient joined Envoy in 2001, initially serving as
controller at Envoys former wholly-owned subsidiary, Watt International Inc. In February 2006, Mr.
Patient moved to the corporate head office in the role of Director of Finance,
responsible for all aspects of Envoys financial reporting. Prior to joining
Envoy, Mr. Patient spent six years at BDO Dunwoody LLP in Canada and five years
in financial roles at early stage technology companies in San Diego, California.
Mr. Patient was appointed President and Chief Executive Officer of Envoy on
December 22, 2009. Mr. Patient ceased to serve as President and Chief Executive
Officer of Envoy on February 10, 2011 and was reappointed as Envoys Chief
Financial Officer. Mr. Patient holds a Bachelor of Accounting degree from Brock
University and obtained his CA designation in 1995.

43

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Moira Ong  Vice President, Finance

Ms. Ong was appointed as Merus Chief Financial Officer on
March 30, 2010. Ms. Ong has more than 10 years experience in public accounting
and audit reporting. From 2005 until 2010, Ms. Ong was the senior manager at
Grant Thornton LLP in charge of completion of financial statements for Canadian
publicly listed companies in addition to serving as financial consultant for
Strategic Income Security Services from 2003 to 2005. Ms. Ong was an audit
manager in the Banking and Securities group at Deloitte & Touche LLP in New
York from 2000 to 2003 and served as the senior accountant for Grant Thornton
LLP from 1996 to 2000. Ms. Ong obtained her CA designation in 1999 and her CFA
designation in 2003.

Ali Moghaddam  Vice President Business Development &
Commercial Operations

Mr. Moghaddam was appointed as Vice President of Merus on March
1, 2011, he was appointed Merus director on March 15, 2010. Since May 21 2009
he has been a director of Merus Labs. Mr. Moghaddam was a general manager of
Corporation Bioheel Inc. (Canada)/Nuvovie Inc. (U.S.A.), a North American
specialty healthcare company focused on health and nutrition, which he joined in
2008. He was the President, Chief Executive Officer and founder of Arura Pharma
Inc., an integrated specialty healthcare company from 2005 to January 2008. Mr.
Moghaddam acted as the President and Chief Executive Officer of Chaichem
Pharmaceutical Inc., focusing on commercialization of the companys products in
the area of Oncology API, from 2002 to 2004. Before being appointed to these
positions, he acted as a senior director of corporate business development of
E-Z-EM Inc., a major manufacturer of contrast agents for gastrointestinal
radiology, subsequently acquired by Bracco Diagnostics, Inc. Mr. Moghaddam holds
a Bachelor of Commerce with Major in Finance & Marketing from Concordia
University. He also has a CMA designation of McGill University.

Robert S. Pollock  Director

Mr. Pollock is Director, President and Chief Executive Officer
of Primary Corp. (TSX: PYC), a natural resources lending company, and Director
and Chief Executive Officer of Primary Capital Inc., an exempt market dealer. He
served as Senior Vice President of Quest Capital Corp. from September 2003 to
October 2006. He was formerly Vice President  Investment Banking at Dundee
Securities Corporation and has 15 years of experience in the Canadian capital
markets with specific experience in merchant banking, institutional sales and
investment banking. Mr. Pollock holds an MBA from St. Marys University (1993)
and a BA from Queens University (1991).

Mr. Pollocks principal occupations during the five preceding
years are as follows: since February 10, 2011, he has been the Chief Executive
Officer and a Director of Envoy. Since August 2008, he has been the Director and
Chief Executive Officer of Primary Corp. and since July 2008 he has been
Director and Chief Executive Officer of Primary Capital Inc. From September 2003 to October 2006 he served as Senior Vice
President of Quest Capital Corp.

44

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David D. Guebert  Director

Mr. Guebert is a chartered accountant and certified public
accountant with over 30 years of experience in finance and accounting, 20 of
which were served as chief financial officer of public and private companies in
the resource and technology sectors. He is currently the Chief Financial Officer
of Primary Corp., a merchant banking company. He is also is the Chief Financial
Officer of Cell-Loc Location Technologies Inc., a wireless location technology
company. Mr. Guebert holds a B.Comm. from the University of Saskatchewan
(1979).

Mr. Gueberts principal occupations during the five preceding
years are as follows: Since 2007 he has been Chief Financial Officer of Primary
Corp. and since 2004 has been Chief Financial Officer of Cell-Loc Location
Technologies Inc. Since 2010 he has also been a director of Advitech Inc., a
biotech company.

Timothy G. Sorensen  Director

Mr. Sorensen is a Director and the President of Primary Capital
Inc., an exempt market dealer. He recently joined Primary Capital from Macquarie
Capital Markets Canada where he served as Divisional 7 Director Head of
Institutional Sales. Mr. Sorensen has over 14 years of capital markets
experience in institutional sales and equity analysis. He has a CFA designation
and holds an MBA (1996) and B.Comm (1995) both from the University of
Windsor.

Mr. Sorensens principal occupation during the five preceding
years is as follows: he has been President of Primary Capital Inc. since
November 2010. From January 2008 until September 2010, he was the Divisional
Director Head of Institutional Sales of Macquarie Capital Markets Canada and
prior to that, he was an institutional sales person from 2004 to 2008 with Orion
Financial Inc., which became Macquarie Group in 2007.

Joseph Rus  Director

Mr. Joseph Rus was appointed Director of Envoy on October 31,
2011. Prior to his appointment, Mr. Rus joined Shire Pharmaceuticals in 1999,
following 25 years of experience with two major Pharmaceutical Companies (Warner
Lambert & Hoffmann-la Roche) in both Canadian and Global assignments. In
2002, Mr. Rus returned to the U.K. as head of Shires International Operations
(all countries except the USA). Since that time Mr. Rus also served on Shires
Executive Committee as well as the Portfolio Review Committee. In 2006, Mr. Rus
was charged with the responsibility of establishing affiliates in the
increasingly important emerging markets, and by 2009 affiliates were open in
Brazil, Mexico, Argentina, Russia, Australia and Japan.

Mr. Rus is a Canadian citizen who received his education in
Romania and is a graduate of the Executive Marketing Program at the University
of Western Ontario in London, Ontario, as well as the International Program at
the Institute of Management and Development of the University of Lausanne in
Switzerland.

There are no arrangements or understandings between any
director or executive officer of Merus with major shareholders, customers or
others, pursuant to which he or she was selected as such. There are no family
relationships between any of the persons named above.

45

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B.      Compensation

The following table sets forth in, Canadian dollars all
compensation for the fiscal year ended September 30, 2011 paid to the principal
executive officer of Envoy, the principal financial officer of Envoy and the
three other most highly compensated officers who served as executive officers of
Envoy (the Named Executive Officers):

Annual Compensation
      Long-Term CompensationAwards
      PayoutsSecurities
      RestrictedUnder
      Shares orName and
      
      
      Other
      Option/SARs
      Restricted
      LTIP
      All OtherPrincipal
      Salary
      Bonus
      Annual
      Granted
      Share
      Payouts
      **Compensation**Position
      ($)
      ($)
      ($)
      (#)
      Units
      ($)
      ($)($)Robert Pollock,
      ---
      ---
      $8,000(1)
      150,000(2)
      ---
      ---
      ---President and ChiefExecutive OfficerAndrew Patient,
      $290,000
      ---
      $2,250(3)
      ---
      ---
      ---
      ---Chief Financial OfficerGeoffrey B. Genovese,
      $361,539(5)
      ---
      ---
      ---
      ---
      ---
      ---Former President andDirector, Envoy CapitalGroup Monaco S.A.M.(4)Patrick Rodmell,
      $328,000
      ---
      ---
      ---
      ---
      ---
      ---President and ChiefExecutive Officer, WattInternational Inc.Darlene Soper,
      $91,666
      ---
      $5,400(3)
      ---
      ---
      ---
      ---Former CorporateSecretary(6)


|1. | Amounts received in respect of directors fees.                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | On July 26, 2011, Mr. Pollock was granted 150,000 common
      share options, exercisable at $2.00 per share for a term of 5 years, in
      connection with his services as a director (see director compensation
      table).                         
|3. | Amounts received in respect of car allowances.                                                                                                                                                                                                           
|4. | The contract of Mr. Genovese was terminated as of
      February 9, 2011.                                                                                                                                                                                
|5. | The compensation of Mr. Genovese was paid in Euros.
      During fiscal 2011 until termination of his contract, the average rate of
      exchange for the conversion of one Euro into Canadian dollars was $1.3695
      (Cdn $1.00 equals Euro 0.7302).
|6. | The contract of Ms. Soper was terminated as of August 31,
      2011.                                                                                                                                                                                    

46

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The following table sets forth options granted under the Stock
Option Plan to the Named Executive Officers of the Company in the most recently
completed fiscal year and the value of unexercised options held by them as at
the most recent fiscal year:

Stock Options Awards During 2011 Fiscal Year

Number ofsecurities
    
    
    Number of options atunderlying
    
    
    FY-Endunexercised
    Option exercise
    
    Vested/Unvestedoptions
    price
    Option expiration dateName
    
    
    
    (#)(#)
    ($)Robert Pollock
    150,000
    2.00
    July 25, 2016
    150,000/nilAndrew Patient
    Nil
    Nil
    nil/nil
    nil/nilGeoffrey B. Genovese
    Nil
    Nil
    nil/nil
    nil/nilPatrick Rodmell
    Nil
    Nil
    nil/nil
    nil/nilDarlene Soper
    Nil
    Nil
    nil/nil
    nil/nil


The following table sets forth options exercised under the
Stock Option Plan to the Named Executive Officers of the Company in the most
recently completed fiscal year and the value of unexercised options held by them
as at the most recent fiscal year:

Stock Options Exercised During 2011
        Fiscal YearUnexercised Options
      Value of Unexercised InNumber of
      Aggregate
      at
      the Money Options atShares
      Value Realized
      FY-End Exercisable/
      FY-EndName
      Acquired on
      ($)
      Unexercisable
      Exercisable/UnexercisableExercise
      
      (#)
      ($)Robert Pollock
      Nil
      Nil
      150,000/nil
      nil/nilAndrew Patient
      Nil
      Nil
      nil/nil
      nil/nilGeoffrey B. Genovese
      Nil
      Nil
      nil/nil
      nil/nilPatrick Rodmell
      Nil
      Nil
      nil/nil
      nil/nilDarlene Soper
      Nil
      Nil
      nil/nil
      nil/nil


The Company does not provide any pension, retirement plan or
other remuneration to its directors or officers that constitutes an expense to
the Company.

Compensation of Directors:

All directors of the Company or any of its affiliates are
compensated for their services as directors and members of a committee through a
combination of monthly fees and share-based awards. Each director received a
monthly fee of $1,000. In addition, Directors are entitled to participate in the
Companys Stock Option Plan.

47

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Directors Compensation During
        2011 Fiscal YearShare-
      Option-Fees
      based
      based
      
      Option
      All otherearned
      awards
      awards
      Option exercise
      expiration
      compensationName
      ($)
      ($)
      (#)
      price
      Date
      ($)($)Robert Pollock(1)
      $8,000
      $nil
      150,000
      2.00
      July 25, 2016(2)
      $nilTim Sorensen
      $8,000
      $nil
      150,000
      2.00
      July 25, 2016(2)
      $nilDavid Guebert
      $8,000
      $nil
      150,000
      2.00
      July 25, 2016(2)
      $nilJohn Campbell
      $8,000
      $nil
      150,000
      2.00
      July 25, 2016(2)
      $nilDavid Parkes
      $8,000
      $nil
      nil
      n/a
      n/a
      $nilDavid Hull
      $8,000
      $nil
      nil
      n/a
      n/a
      $nilLinda Gilbert
      $8,000
      $nil
      nil
      n/a
      n/a
      $nil


|1. | Mr. Pollock received compensation as a director in lieu
      of compensation as an officer.
|-- | --------------------------------------------------------------------------------------------
|2. | All options vest immediately.                                                               

Directors and Officers Liability Insurance:

The Company maintains liability insurance for the benefit of
the directors and officers of the Company and its subsidiaries against liability
incurred by them in their respective capacities. The current annual policy limit
is $10,000,000. Under the policy, individual directors and officers are
reimbursed for losses incurred in their capacities as such, subject to a
deductible of $50,000 for securities or employment practices claims and no
deductible for all other claims. The deductible is the responsibility of the
Company. The Company paid the annual premium of $93,500.

C.      Board Practices

Corporate Governance:

The Company is subject to a variety of corporate governance
guidelines and requirements enacted by the CSA, The Nasdaq Capital Market
(Nasdaq) and by the SEC under its rules and those mandated by the United
States Sarbanes-Oxley Act of 2002. During the recent past, there were several
changes to the corporate governance and corporate governance disclosure
requirements applicable to the Company. Specifically, the Canadian Securities
Administrators introduced in final form National Instrument 58-101 -
Disclosureof Corporate Governance Practices(NI 58-101) and
National Policy 58-201 - Corporate Governance Guidelines(National
Policy 58-201), both of which came into force on June 30, 2005 and effectively
replaced the Corporate Governance Guidelines of the Toronto Stock Exchange.

The Company is required to disclose certain specified corporate
governance information under NI 58-101. The disclosure required addresses items
such as the constitution and independence of corporate boards, the functions to
be performed by boards and their committees, the orientation and education of
directors, ethical business conduct and compensation matters. Set out below is a
description of certain corporate governance practices of the Company, required
by NI 58-101.

48

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As new regulations come into effect, the Compensation and
Nominating and Corporate Governance Committee and the Companys Board of
Directors (the Board) will continue to review the Companys corporate
governance practices and make appropriate changes.

Board of Directors:

The articles of the Company provide that there shall be a Board
of not less than three or more than ten directors. There are currently three
independent directors on the Board. National Policy 58-201 recommends that
boards of directors of reporting issuers be composed of a majority of
independent directors (within the meaning of such term in NI 58-101).

The Board, on the recommendation of the Compensation and
Nominating and Corporate Governance Committee, is responsible for determining
whether or not each director is independent. To achieve this, the Board analyses
all of the relationships each director has with the Company and its subsidiaries
in light of the concept of independence in NI 58-101 and director independence
standards adopted by the Board. These standards are available in the Governance
section of the Companys website at www.meruslabs.com. In general, a director
who meets these standards and who does not otherwise have a material
relationship with the Company would be considered independent. Based on the
information provided by each director, and having considered the independence
standards mentioned above, the Board determined that three of the Companys six
directors are independent within the meaning of such term in NI 58-101.
Therefore, the Board is not composed of a majority of independent directors. The
Chairman of the Board is Joseph Rus.

The three independent directors are: David Guebert, Tim
Sorensen, and Joseph Rus. Three directors have a material relationship with the
Company and are therefore not independent. Mr. Ahmad Doroudian, the Companys
Chief Executive Officer, and Elie Farah, the Companys President is considered
to have a material relationship with the Company by virtue of their executive
officer positions. Mr. Robert Pollock is considered to have a material
relationship with the Company by virtue of his former executive officer
position.

Where appropriate, the directors meet without management
following Board meetings and at meetings of independent directors. The Board
also meets without the President and Chief Executive Officer when his
performance and compensation are being discussed. Since October 1, 2010, the
independent directors have not held any meetings without non-independent
directors present. Also, from October 1, 2010 to September 30, 2011, there were
five meetings of the Audit committee, one meeting of the Nominating and
Corporate Governance Committee and no meetings of the Compensation committee.

Between October 1, 2010 and September 30, 2011, inclusive, the
Board held 13 meetings. The attendance of the directors at such meetings was as
follows:

Director
      Board Meetings Attended(2)Geoff Genovese(1)
      3
      of
      3Linda Gilbert(1)
      3
      of
      3David Hull(1)
      3
      of
      3David Parkes(1)
      3
      of
      3Robert Pollock
      11
      of
      11


49

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David Guebert
    11
    of
    11Tim Sorensen
    11
    of
    11John Campbell
    11
    of
    11


|1. | Messrs. Genovese, Parkes, Hull and Ms. Gilbert resigned
      as Directors and member of the three Board Committees on February 10, 2011
      and were replaced as Directors and members of the three Board Committees
      by Messrs. Pollock, Guebert, Sorensen and Campbell.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | In addition, Messrs. Hull and Parkes and Ms. Gilbert
      attended 3 meetings the Audit Committee and 1 meetings of the Nominating
      and Corporate Governance Committee. Messrs. Guebert, Sorensen and Campbell
      attended 2 meetings of the Audit Committee            

Mandate of the Board:

The Board has adopted a Board Mandate, under the title Envoy
Capital Group Inc.  Corporate Governance Guidelines. A copy of this Board
Mandate is available in the Governance section of the Companys website at
www.meruslabs.com, and is incorporated by reference herein as Exhibit 11.3 to
this Form 20-F.

The Board has the responsibility for the overall stewardship of
the Company, establishing the overall policies and standards for the Company in
the operation of its businesses, and reviewing and approving the Companys
strategic plans. In addition, the Board monitors and assesses overall
performance and progress in meeting the Companys goals. Day-to-day management
is the responsibility of the President and Chief Executive Officer and senior
management.

In addition to the Boards statutory responsibilities under the
OBCA, the Boards stewardship responsibilities include the following: (a)
assessing the principal risks arising from or incidental to the business
activities of the Company; (b) appointing all senior executives of the Company
and, through the Compensation Committee of the Board, developing and
implementing the executive compensation policies and reviewing the performance
of the President and Chief Executive Officer with reference to the Companys
policies, stated budget and other objectives; (c) overseeing the Companys
policies regarding public communications, investor relations and shareholder
communications; and (d) monitoring and assessing, through the Audit Committee of
the Board, the scope, implementation and integrity of the Companys internal
information, audit and control systems.

Board Committees:

The directors have established the Audit Committee and the
Compensation Committee and Nominating and Corporate Governance Committee to
focus resources and expertise in certain areas of the Boards mandate.

(a) Audit Committee

The Audit Committee is comprised of three directors, David
Guebert (Chair), Tim Sorensen and Joseph Rus. All three members of the Audit
Committee are independent directors of the Company. Among other things, the
Audit Committee is responsible for reviewing the Companys annual and quarterly
consolidated financial statements and reporting to the Board in connection
therewith. On September 22, 2004 (amended on December 4, 2009), the Audit
Committee adopted a new Audit Committee Charter, which specifies the auditors
accountability to the Board and the authority and responsibilities of the Audit
Committee in compliance with National Instrument 52-110  Audit
Committees. A copy of the Audit Committee Charter is available in the
Governance section of the Companys website at www.meruslabs.com, and is
incorporated by reference herein as Exhibit 15.1 to this Form 20-F.

50

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(b) Compensation and Nominating and Corporate Governance
Committee

The Board has delegated to the Compensation and Nominating and
Corporate Governance Committee of the Board responsibility for co-coordinating
and managing the process of recruiting, interviewing and recommending candidates
to the Board; developing and recommending standards of performance of the Board
as a whole, its committees and individual directors; assessing the effectiveness
of the Board as a whole and its committees and the contribution of individual
directors; making recommendations to the Board regarding the composition of
committees of the Board; providing new directors with an orientation program
through a review of past Board materials and other public and private documents
concerning the Company; reviewing and making recommendations to the Board with
respect to developments in the area of corporate governance and the structure
and practices of the Board; reviewing and assessing compliance by the Company
with applicable corporate governance rules and guidelines established by
securities regulators and stock exchanges; nomination, evaluation and succession
of the executive officers of the Company; the administration of the Companys
Stock Option/Stock Appreciation Right Plan; and the review of executive
compensation disclosure. The Compensation and Nominating and Corporate
Governance Committee is comprised of three independent directors, Tim Sorensen
(Chair), David Guebert and Robert Pollock. A copy of the Compensation and
Nominating and Corporate Governance Committee Charter is available in the
Governance section of the Companys website at www.meruslabs.com, and is
incorporated by reference herein as Exhibit 15.2 to this Form 20-F.

Position Descriptions:

The Board has a broad responsibility for supervising the
management of the business and affairs of the Company. The Chairman of the Board
is responsible for establishing the Agenda for each Board meeting and ensuring
agenda items are dealt with. The Board has not found it necessary to develop
specific position descriptions for the Chair of Board committees. The Board is
currently of the view that the general mandates of committees on which such
directors may sit are sufficient to delineate the role and responsibilities of
the Chair of each committee.

The Companys articles state that the Chief Executive Officer
of the Company shall exercise general supervision over the affairs of the
Company. The Board has not found it necessary to develop a specific position
description for the Chief Executive Officer beyond this description.

Orientation and Continuing Education:

New directors are given the opportunity to individually meet
with members of senior management to improve their understanding of the
Companys business. All directors have regular access to senior management to
discuss board presentations and other matters of interest.

51

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The Company also gives directors a reference manual, which
contains information about the Companys history and current status, corporate
governance materials, its investments and its shareholders. This reference
manual is updated regularly. It includes the Companys Code of Business Conduct,
which also applies to the directors, as well as governance and responsibilities
of the Board and its committees, and a description of the duties and obligations
of directors. As part of its mandate, the Compensation and Nominating and
Corporate Governance Committee is also responsible for providing orientation and
continuing education for all board members, including reimbursing costs of
attending certain outside director education programs. During their regular
scheduled Board meetings, directors are given presentations on various aspects
of the Companys business.

Nomination of Directors:

The members of the Companys Compensation and Nominating and
Corporate Governance Committee are a majority of independent directors. The
Compensation and Nominating and Corporate Governance Committee has the
responsibility for assessing potential Board nominees, screening their
qualifications and making recommendations for approval by the Board of nominees
for election or appointment to the Board. To help achieve this task, the
Compensation and Nominating and Corporate Governance Committee develops
qualifications and criteria for the selection of directors.

The Board aims to have a sufficient range of skills, expertise
and experience to ensure that it can carry out its responsibilities effectively.
Directors are chosen for their ability to contribute to the broad range of
issues that the Board must deal with. The Board reviews each directors
contribution through the Compensation and Nominating and Corporate Governance
Committee and determines whether the Boards size allows it to function
efficiently and effectively. The Compensation and Nominating and Corporate
Governance Committee is mandated to review the size of the Board from time to
time and recommend changes in size when appropriate.

Each year, the Compensation and Nominating and Corporate
Governance Committee reviews how directors are compensated for serving on the
Board and its committees. It compares their compensation to that of similar
companies and recommends any changes to the Board. In 2004, the Board conducted
a review of the compensation of non-management directors. This was partly to
address the risks and responsibilities associated with being an effective
director. As a result, a new compensation arrangement was adopted for these
non-management directors, which came into effect on October 1, 2004. Subsequent
to the executive restructuring in 2011, the Companys new Board initiated a
revised compensation structure. Directors are paid a monthly stipend of $1,000,
along with participation in the Companys Stock Option Plan.

Other Board Committees:

The Board has not established any committees other than the
Audit Committee, and the Compensation Committee and Nominating and Corporate
Governance Committee.

Assessments:

As part of its charter, the Compensation and Nominating and
Corporate Governance Committee is required to survey every year all directors on
the effectiveness and performance of the Board and the Boards committees, as well as individual
directors. This is done primarily by distributing questionnaires to each
director and will often include individual interviews with the Chair of the
Compensation and Nominating and Corporate Governance Committee.

52

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The Companys Board Mandate states that the Compensation and
Nominating and Corporate Governance Committee will report to the Board annually
on the evaluation of the performance of the Board, each of its committees and
that of individual directors, based on the results of the directors annual
questionnaire.

Shareholder Communication:

The objective of the Companys shareholder communication policy
is to ensure open and timely exchange of information relating to the Companys
business, affairs and performance, subject to the requirements of applicable
securities legislation and other statutory and contractual obligations limiting
the disclosure of such information. Information material to the Companys
business is released through news wire services, the general media, telephone
conferences and shareholder mailings, thereby ensuring timely dissemination.
Additionally, individual queries, comments or suggestions can be made at any
time directly to the Companys secretarial department located at its head
office.

D.      Employees

As at February 29, 2012, Envoy had 2 employees based in
Toronto, Canada, 3 employees in Vancouver, Canada and 1 employee in Montreal,
Canada.

E.      Share Ownership

Options

Stock Option Plan

The Company has established a Stock Option Plan pursuant to
which options to purchase common shares may be granted to directors, officers,
employees or certain consultants to the Company or any of its subsidiaries, as
determined by the Board. The Plan authorizes the Board or the Compensation
Committee, as applicable, to grant options to purchase shares on the following
terms and conditions:

- the aggregate number of shares which may be issued pursuant to options
  granted under the Plan will not exceed that number which is equal to ten
  percent of the issued and outstanding shares from time to time;
- any increase in the issued and outstanding shares will result in an
  increase in the available number of shares issuable under the Plan, and any
  exercises of options will make new grants available under the Plan effectively
  resulting in a re-loading of the number of options available to grant under
  the Plan;
- no single participant in the Plan and his, her or its associates may be
  granted options which could result in the issuance of shares exceeding five
  percent of the issued and outstanding Common Shares, within a one year period, to such participant and
  his, her or its associates, in the aggregate;

53

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- the number of shares issuable to any single participant in the Plan pursuant
    to options, shall not exceed five percent of the issued and outstanding shares;
- the number of shares issuable to Insiders, at any time, under all share
    compensation arrangements, shall not exceed ten percent of the issued and
    outstanding shares;
- the exercise price of an option shall not be less than the closing price
    on the day prior to the date of grant of the option;
- options granted under the Plan will be granted for a term not to exceed
    ten years from the date of grant;
- in the event of the termination of a participants employment with
    for cause or as a result of the participants voluntary resignation prior
    to normal retirement, such participants options will terminate three
    months from the date of such termination, and in the event of the retirement,
    death, physical or mental disability or termination (other than for cause)
    by the Company, the participants options will terminate 12 months from
    the date employment ceased, provided in each case that no options will be
    extended past their term except as provided below;
- the Board or Compensation and Nominating and Corporate Governance Committee
    is entitled to extend the time during which a participant may exercise their
    options at its discretion provided that such extension does not extend past
    the maximum ten year term; and
- during a participants lifetime, an option may not be assigned or transferred
    except to a participants trust.

As at September 30, 2011 there are 600,000 outstanding options
to purchase common shares under the Stock Option Plan. The aggregate number of
common shares reserved for issuance to any one individual under the Stock Option
Plan may not exceed 10% of the issued and outstanding common shares.

The following table sets forth shares owned by the Named Executive
  Officers and Directors as of September 30, 2011:

Number of Common
    
    Percent ofIdentity of
      Person
    
    Shares Owned
    
    Outstanding ClassRobert Pollock
    
    1,200,000
    
    14.9%Andrew Patient
    
    32,000
    
    0.4%Timothy Sorensen
    
    325,000
    
    4.0%David Guebert
    
    40,000
    
    0.5%John Campbell
    
    100,000
    
    1.2%


54

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Item 7: Major Shareholders And Related Party
Transactions

A.      Major Shareholders

Ownership of Merus securities are recorded on the books of its
transfer agent in registered form, however the majority of such shares are
registered in the name of intermediaries such as brokerage firms and clearing
houses on behalf of their respective clients and in general Envoy does not have
knowledge of the beneficial owners thereof, except for the beneficial ownership
by officers and directors of Merus. Merus is not directly or indirectly owned or
controlled by another corporation or entity or by any foreign government.

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 share 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 

As of February 29, 2012, Merus had an authorized share capital
of unlimited common shares without par value, of which 24,388,323 common shares
were issued and outstanding.

As of February 29, 2012, Merus had 2,305,000 common share
options outstanding.

As of February 29, 2012, Merus had 4,501,807 outstanding common
share purchase warrants.

The following table sets forth certain information regarding
the ownership of outstanding common shares of Merus as of February 29, 2012 with
respect to each person known by Merus to be the beneficial owner or, in the case of Merus
directors or Executive Officers, the beneficial owner of more than 5% of Merus
outstanding common shares. As used in this table, beneficial ownership refers
to the sole or shared power to vote or direct the voting or to dispose or direct
the disposition of any security. A person is deemed to be the beneficial owner
of securities that can be acquired within 60 days from the date of this Form
20-F through the exercise of any option, warrant or right. Common shares subject
to options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. During
fiscal 2009, two of Envoys executives and directors acquired significant
positions in the common shares of the Company. On September 3, 2009, Geoffrey B.
Genovese filed Form 13D with the Securities and Exchange Commission indicating
ownership of 1,691,083 common shares, representing 19.8% of the total
outstanding. In addition, on September 8, 2009, former executive John H. Bailey
filed a Form 13D indicating that he owned 1,085,233 of the Companys common
shares, representing 12.7% of the total outstanding. On February 10, 2011, Mr.
Genovese sold 1,540,606 shares, representing approximately 19.12% of the
outstanding shares in a private transaction, the majority of which, 1,200,000
shares, were purchased by Robert Pollock. To the best of our knowledge, and with
the exception of the amalgamation transaction described above, no other
significant change in the percentage ownership of any major shareholder of the
Company has taken place during the past three years.

55

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Number ofIdentity of
    Common Shares
    Percent ofPerson or Group
    Beneficially Owned
    Outstanding ClassRobert Pollock
    2,878,298
    11.8%Pasquale DiCapo
    2,473,750
    10.1%


See also Item 6.E Share Ownership for information regarding
outstanding stock options to purchase common shares.

There are no arrangements known to us, the operation of which
may at a subsequent date result in a change in the control of our company.

B.      Related Party Transactions

In January, 2011 Envoy sold its approximate 21% interest in
Sereno Capital Corporation (Sereno), a Capital Pool Company. Members of
Envoys management group were also officers and directors of Sereno and
exercised significant influence. The investment in Sereno was accounted for
using the equity method.

During fiscal 2009, the Company paid $7,500 (2008 - $215,000)
for legal services to a director of the Company. In November 2008, this director
became an employee of the Company.

In November, 2008, the company established a new subsidiary in
the principality of Monaco, Envoy Capital Group Monaco, S.A.M (Envoy Monaco).
As part of the local requirements of incorporation, the two directors of Envoy
Monaco, who are residents of Monaco, acquired 56 a 0.1% share interest in Envoy Monaco (total of 0.2%) at a cost
of 5,000 Euros each. The Monaco office was closed in 2011 the shares sold to the
minority holders for $1.

56

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These transactions were recorded at the exchange amount, being
the amount agreed to by the related parties, as the transactions were considered
to be in the ordinary course of business.

Except as disclosed above, no director or executive officer,
and no relative or spouse of the foregoing persons (or relative of such spouse)
who has the same house as such person or is an executive officer or director of
any parent or subsidiary of Merus has, or during the last fiscal year of Envoy
had, any material interest, direct or indirect, in any transactions, or in any
proposed transaction, which in either such case has materially affected or will
materially affect Envoy.

There are no outstanding loans currently owed to Merus by any
director or executive officer.

Under the applicable Canadian provincial securities laws,
insiders (generally officers and directors of Merus and its subsidiaries) are
required to file individual insider reports of changes in their ownership in
Merus securities within 5 days from the day on which the change takes place.
Copies of such reports may be accessed by the public via the System for
Electronic Disclosures by Insiders at www.sedi.ca.

C.Interests of Experts and Counsel

****Not applicable.

Item 8: Financial Information

See Item 17 Financial Statements.

Item 9: The Offer and Listing

A.      Price History

Merus common shares are listed on the TSX under the symbol
MSL and on Nasdaq under the symbol MSLI. Prior to December 19, 2011, Envoys
common shares were listed for trading on the TSX under the symbol ECG and on
Nasdaq under the symbol ECGI. The common shares of Envoy began trading on
Nasdaq on June 6, 2000 and on the TSX on September 3, 1997. From March 1984
until September 2, 1997 Envoys shares traded on the Vancouver Stock
Exchange.

The following table sets forth the reported high and low sale
prices in Canadian dollars for the common shares on the TSX for the fiscal,
quarterly and monthly periods indicated for Envoy and Merus, as applicable.

57

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High
    LowFiscal 2007
    $ 4.71
    2.35Fiscal 2008
    3.24
    2.00Fiscal 2009
    2.34
    1.10Fiscal 2010
    1.55
    0.88Fiscal 2011
    2.10
    0.76High
    LowQuarterly 2011First Quarter
    1.05
    0.76Second Quarter
    1.89
    0.86Third Quarter
    2.05
    1.46Fourth Quarter
    2.10
    1.54Quarterly 2010First Quarter
    1.49
    1.09Second Quarter
    1.16
    0.90Third Quarter
    1.55
    0.94Fourth Quarter
    1.29
    0.88For the month endingFebruary 29, 2012
    2.14
    1.67January 31, 2012
    2.15
    1.97December 31, 2011
    2.10
    1.91November 30, 2011
    2.38
    1.95October 31, 2011
    2.14
    1.57September 30, 2011
    1.85
    1.63


58

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The following table sets forth the reported high and low sale
prices in U.S. dollars of trading for the common shares as reported on Nasdaq
for the fiscal, quarterly and monthly periods indicated.

High
    LowFiscal 2007
    US $4.07
    US $2.13Fiscal 2008
    3.39
    1.90Fiscal 2009
    2.09
    0.82Fiscal 2010
    1.50
    0.75Fiscal 2011
    2.18
    0.10High
    LowQuarterly 2011First Quarter
    1.03
    0.70Second Quarter
    1.89
    0.86Third Quarter
    2.18
    1.55Fourth Quarter
    2.15
    0.10Quarterly 2010First Quarter
    1.40
    1.02Second Quarter
    1.10
    0.86Third Quarter
    1.50
    0.80Fourth Quarter
    1.24
    0.75For the month endingFebruary 29, 2012
    2.10
    1.41January 31, 2012
    2.12
    1.90December 31, 2011
    2.08
    1.77November 30, 2011
    2.31
    1.82October 31, 2011
    2.04
    1.55September 30, 2011
    1.88
    1.59


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On February 29, 2012 the closing price of the common shares as
reported on the TSX was $1.67 and on NASDAQ was US$1.70.

B.      Plan of
Distribution

Not applicable.

C.      Markets

See above Item 9.A. Price History for disclosure on
Markets.

D.      Selling
Shareholders

Not applicable.

E.      Dilution

Not applicable.

F.      Expenses of the
Issue

Not applicable.

Item 10: Additional Information

A.      Share Capital

Not applicable.

B.      Memorandum and Articles of
Association

Our Articles and Notice of Articles are filed as an exhibit to
this Annual Report.

Our Articles do not contain a description of our objects and
purposes.

Our Articles do not restrict a directors power to (a) vote on
a proposal, arrangement or contract in which the director is materially
interested, (b) to vote compensation to themselves or any other members of their
body in the absence of an independent quorum, or (c) exercise borrowing powers.
Under our Articles, there is no mandatory retirement age for our directors and
our directors are not required to own securities of our company in order to
serve as directors.

Our authorized capital consists of an unlimited number of
common shares without par value and an unlimited number of preferred shares
without par value.

Holders of our common shares are entitled to vote at all
meetings of shareholders, receive any dividend declared by our companys board
of directors and, subject to the rights, privileges, restrictions and conditions
attaching to any other class of shares, receive the remaining property of our
company upon dissolution.

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Our Articles state that the rights attaching to our common
shares and preference shares may be altered, amended, repealed, suspended or
changed by the affirmative vote of the holders of not less than two-thirds of
our common and preference shares.

At each annual general meeting of our company, all of our
directors retire and the shareholders elect a new board of directors. Each
director holds office until our next annual general meeting, or until his office
is earlier vacated in accordance with our Articles or with the provisions of the
British Columbia Business Corporations Act. A director appointed or
elected to fill a vacancy on our board also holds office until our next annual
general meeting. Our Articles provide that our annual meetings of shareholders
must be held at such time in each calendar year and not more than 15 months
after the last annual general meeting and at such place as our board of
directors may from time to time determine.

Under our Articles, and subject to the special rights and
restrictions attached to the shares of any class or series of shares, the quorum
for the transaction of business at a meeting of our shareholders is two persons
who are present in person or by proxy who, in the aggregate, hold at least 5% of
the issued shares entitled to be voted at the meeting.

Our Articles state that our directors, the President, the
Secretary, and any lawyer or auditor of our company are entitled to attend any
meeting of our shareholders.

There are no provisions in our Articles that would have the
effect of delaying, deferring or preventing a change in control of our company,
and that would operate only with respect to a merger, acquisition or corporate
restructuring involving our company.

Our Articles do not contain any provisions governing the
ownership threshold above which shareholder ownership must be disclosed.
Securities legislation in Canada, however, requires that we disclose in our
annual general meeting proxy statement, holders who beneficially own more than
10% of our issued and outstanding shares, and United States Federal securities
laws require the disclosure in our annual report on Form 20-F of holders who own
more than 5% of our issued and outstanding shares.

C.      Material Contracts

With the exception of agreements entered into in the normal
course of business, the only agreements of any significance with regard to Merus
that have been entered into by Merus within the two years are the following:

- An Exclusive License and Distribution Agreement between Merus Labs and
  Innocoll Pharmaceuticals Limited dated September 17, 2010.
- An Asset Purchase Agreement between Merus Labs and Iroko International LP
  dated May 13, 2011.
- An Arrangement Agreement between Old Merus and Envoy dated November 10,
  2011.

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D.      Exchange Controls and Other
Limitations Affecting Security Holders

In general, there is no governmental law, decree or regulation
in Canada that restricts the export or import of capital, or that affects the
remittance of dividends, interest or other payments to a non-resident holder of
common shares of Merus, other than withholding tax requirement. See Item l0.E.
Taxation.

There is no limitation imposed by the laws of Canada, the laws
of Ontario or British Columbia or by the charter or other constituent documents
of Merus on the right of a non-resident to hold or vote common shares of Merus,
other than as provided in the Investment Canada Act (Canada) (the
Investment Act) . The following discussion summarizes the material provisions
of the Investment Act which relate to the acquisition by a non-resident of
common shares of Merus. This summary is not a substitute for independent advice
from an investors own advisor, and it does not take into account any future
statutory or regulatory amendments.

The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or an entity (corporate or
non-corporate) that is not a Canadian as defined in theInvestment Act
(a non-Canadian) , unless after review the minister responsible for the
Investment Act (the Minister) is satisfied that the investment is likely to be
of net benefit to Canada. An acquisition of control (as defined in the
Investment Act) of Merus by a non-Canadian, other than a WTO investor (as
defined in the Investment Act) at any time Merus is not controlled by a WTO
investor, is reviewable under the Investment Act if the value of the assets of
Merus is over $5,000,000 for a direct acquisition and over $50,000,000 for an
indirect acquisition or if an order for review is made by the Federal Cabinet on
the grounds that the investment relates to Canadian culture. Acquisition of
control (as defined by the Investment Act) of Merus by a WTO investor, or by a
non-Canadian at any time Merus is controlled by a WTO investor, is reviewable
under the Investment Act if the value of the assets of Merus exceeds the
threshold of $312,000,000 in 2011. There are also special provisions of the
Investment Act applicable to transactions that may be injurious to national
security.

Certain transactions relating to common shares of Merus would
be exempt from the Investment Act including:

(a) an acquisition of common shares of Merus by a person in the
ordinary course of that persons business as a trader or dealer in securities;

(b) an acquisition of control of Merus in connection with the
realization of security granted for a loan or other financial assistance and not
for a purpose related to the provision of the Investment Act;

(c) an acquisition of control of Merus by reason of an
amalgamation, merger, consolidation or corporate reorganization following; which
the ultimate direct or indirect control in fact of Merus through the ownership
of common shares, remained unchanged;

(d) an acquisition of voting interests by any person in the
ordinary course of a business carried on by that person that consists of
providing, in Canada, venture capital on terms and conditions not inconsistent
with such terms and conditions as may be fixed by the Minister; and

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(e) an acquisition of control of a Canadian business for the
purpose of facilitating its financing and not for any purpose related to the
provisions of the Investment Act on the condition that the acquirer divest
itself of control within two years after it is acquired or within such longer
period as is approved by the Minister.

E.      Taxation

Certain Canadian Federal Income Tax Considerations

The following discussion is intended to be a general summary of
certain material Canadian federal income tax considerations applicable to
holders of common shares described below and is not intended to be, nor should
it be construed to be, legal or tax advice to any particular person, and no
opinion or representation with respect to income tax considerations is hereby
given or made. It does not take into account the particular circumstances of any
investor and does not address considerations applicable to an investor to whom
special provisions of Canadian income tax law apply. Each person should consult
their own tax advisors with respect to the tax consequences of an investment in
the common shares in their own particular circumstances.

The following summary is based upon the current provisions of
the Income Tax Act (Canada) (the ITA), and the regulations thereunder and the
Canada- United States Income Tax Convention (1980) as amended (the
Convention), all proposed amendments to the ITA and the regulations thereunder
publicly announced by the Department of Finance, Canada prior to the date
hereof, and the current published administrative policies and assessing
practices of the Canada Revenue Agency. Except for the foregoing, this summary
does not take into account or anticipate any changes in the law or the
Convention or the administrative policies or assessing practices of the Canada
Revenue Agency whether by legislative, governmental or judicial action or
decision, and does not take into account or anticipate provincial, territorial
or foreign tax legislation or considerations, which may differ significantly
from the Canadian federal income tax considerations described herein.

The summary discusses the principal Canadian federal income tax
considerations under the ITA and the regulations thereunder generally applicable
to purchasers of common shares who at all times: (i) for purposes of the ITA,
are not, have not been and will not be or be deemed to be resident in Canada
while they held or hold common shares, deal at arms length with Merus, are not
affiliated with Merus, hold their common shares as capital property, do not use
or hold, and will not and will not be deemed to use or hold their common shares
in, or in the course of carrying on a business in Canada, and are not financial
institutions for the purposes of the mark-to-market rules; and (ii) for
purposes of the Convention, are residents of the U.S. and not residents of
Canada, are qualifying persons entitled to the benefits of the Convention, and
will not hold their common shares as part of the business property of, or so
that their common shares are effectively connected with, a permanent
establishment in Canada or in connection with a fixed base in Canada (a U.S.
Holder). Special rules, which are not discussed in this summary, may apply to a
U.S. Holder that is an insurer carrying on a business in Canada and elsewhere.

Amounts in respect of common shares paid or credited or deemed
to be paid or credited as, on account or in lieu of payment of, or in
satisfaction of, dividends to a U.S. Holder will generally be subject to
Canadian non-resident withholding tax. Such withholding tax is levied at a rate of 25%, which may be reduced pursuant to the terms of
the Convention. Under the Convention, the rate of Canadian non-resident
withholding tax on the gross amount of dividends beneficially owned by a U.S.
Holder is generally 15%. However, in certain circumstances, the rate of such
withholding is 5%.

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A U.S. Holder will not be subject to tax under the ITA in
respect of any disposition of common shares (other than a disposition to Envoy)
unless at the time of such disposition such common shares constitute taxable
Canadian property of the holder for purposes of the ITA. If the common shares
are listed on a designated stock exchange for the purposes of the ITA, such as
the TSX, at the time they are disposed of, they will generally not constitute
taxable Canadian property of the U.S. Holder at the time of disposition of
such shares unless at any time during the 60-month period immediately preceding
the disposition of the common shares, 25% or more of the issued shares of any
class or series of Envoy was owned by the U.S. Holder, by persons with whom the
U.S. Holder did not deal at arms length or by the U.S. Holder and persons with
whom the U.S. Holder did not deal at arms length. The common shares may also be
taxable Canadian property in certain other circumstances. Under the Convention,
gains derived by a U.S. Holder from the disposition of common shares will
generally not be taxable in Canada unless the value of the common shares is
derived principally from real property situated in Canada. If the common shares
are listed on a recognized stock exchange for the purposes of the ITA at the
time they are disposed of by a U.S. Holder, the U.S. Holder will generally not
be required to comply with the provisions of section 116 of the ITA, which
requires notification to be given to the Canada Revenue Agency when certain
property is disposed of.

Certain United States Federal Income Tax Considerations

The following is a general discussion of certain material
anticipated United States federal income tax considerations relevant to U.S.
Holders, defined below, of Envoys common shares who hold such shares as capital
assets (as defined in Section 1221 of the United States Internal Revenue Code of
1986, as amended (the Code)). This discussion is based on the Code, U.S.
Treasury regulations thereunder (the Treasury Regulations), administrative
rulings, and court decisions, all as in effect as of the date hereof and all of
which are subject to differing interpretations and may change at anytime
(possibly with retroactive effect). This discussion is intended to be a general
description of the United States federal income tax considerations material to a
purchase, ownership and a disposition of common shares. Readers are cautioned
that this discussion does not address all relevant tax consequences relating to
an investment in the common shares, nor does it take into account tax
consequences peculiar to persons subject to special provisions of United States
federal income tax law, such as financial institutions, tax-deferred accounts,
tax-exempt organizations, qualified retirements plans, real estate investment
trusts, regulated investment companies or brokers, dealers or traders in
securities, persons actually or constructively owning 10% or more of the voting
power of Envoys stock, persons that hold common shares through a partnership or
other pass through entity, or persons that hold common shares that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the United States dollar. Therefore, investors should consult a tax advisor
regarding the particular consequences of purchasing common shares.

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U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED
STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Except as otherwise described, this discussion applies to
investors that are (i) citizens or individual residents of the United States;
(ii) corporations (or other entities taxable as corporations), that are created
or organized in or under the laws of the United States, any state of the United
States or the District of Columbia; (iii) estates, the income of which is
subject to federal income taxation, regardless of its source; or (iv) trusts
(a), if a court within the United States is able to exercise primary supervision
over the administration of such trust and one or more United States persons as
described in Section 7701(a)(30) of the Code has the authority to control all
substantial decisions of such trust, or (b) that was in existence on August 20,
1996, was treated as a U.S. person under the code on the previous day and has a
valid election in effect under applicable Treasury Regulations to be treated as
a United States person (a U.S. Holder).

The United States federal income tax treatment of a holder of
common shares that is a partnership (or other entity taxable as a partnership
for United States federal tax purposes) generally will depend on the status of
the partner and the activities of the partnership. Partners in partnerships
holding common shares should consult their tax advisors about the United States
federal income tax consequences of the purchase, ownership and disposition of
common shares.

Passive Foreign Investment Company Rules

Special United States federal income tax rules apply to U.S.
Holders owning shares of a passive foreign investment company (a PFIC). A
non-United States corporation generally will be classified as a PFIC for United
States federal income tax purposes in any taxable year in which, after applying
relevant look-through rules with respect to the income and assets of
subsidiaries, either at least 75% of its gross income is passive income, (the
income test), or on average at least 50% of the gross value of its assets, as
determined on a quarterly average, is attributable to assets that produce
passive income or are held for the production of passive income (the asset
test). For this purpose, passive income generally includes, among other things,
dividends, interest, certain rents and royalties, and gains from the disposition
of passive assets. Envoy believes that it was a PFIC for the taxable year ended
September 30, 2010, and has been a PFIC in prior tax years. Depending on its
income, assets and activities, Envoy believes that it may be a PFIC in the
current taxable year and in subsequent taxable years.

If Envoy is classified as a PFIC for any taxable year during
which a U.S. Holder holds common shares, Envoy will continue to be treated as a
PFIC with respect to such U.S. holder in all succeeding years, regardless of
whether Envoy continues to meet the income test or asset test described above in
such succeeding years. However, under the Treasury Regulations, such U.S. Holder
will not be treated as holding stock in a PFIC, if in a subsequent taxable year
in which Envoy is not a PFIC, such holder elects to recognize any unrealized
gain in such common shares as of the last day of the last taxable year during
which Envoy qualified as a PFIC (a deemed sale election). Any gain so recognized will be
subject to the adverse ordinary income and any special interest charge
consequences described below. Any loss realized on the deemed sale is not
recognized.

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If a U.S. Holder holds common shares of Envoy in any year in
which it is classified as a PFIC, unless a U.S. Holder has a valid qualified
electing fund (QEF) election or a mark-to-market election, described below,
in effect with respect to the common shares, the following income tax
consequences will result to the U.S. Holder:

1. ****Distributions
with respect to Envoys common shares made by Envoy during the taxable year to a
U.S. Holder that are excess distributions (generally distributions that exceed
125% of the average amount of distributions in respect of such common shares
received during the preceding three years or, if shorter, during the U.S.
Holder's holding period prior to the distribution year) must be allocated
ratably to each day of the U.S. Holders holding period. The amounts allocated
to the current taxable year and to taxable years prior to the first year in
which Envoy was classified as a PFIC are included as ordinary income in a U.S.
Holders gross income for that year. The amount allocated to each other prior
taxable year is taxed as ordinary income at the highest tax rate in effect for
the U.S. Holder in that prior year and the tax is subject to an interest charge
at the rate applicable to deficiencies in income taxes (the special interest
charge), and

2.**** The entire
amount of any gain realized upon the sale or other disposition of Envoys common
shares will be treated as an excess distribution made in the year of sale or
other disposition and as a consequence will be treated as ordinary income and,
to the extent allocated to years prior to the year of sale or disposition, will
be subject to the interest charge described above. No portion of any excess
distribution will be eligible for the favorable 15% United States federal income
tax rate applicable to so-called qualified dividend income.

QEF Election

A U.S. Holder that owns common shares may elect to have Envoy
treated as a QEF, provided that Envoy provides such person with certain
information. A QEF election must be made by a U.S. Holder before the due date
(with regard to extensions) for such persons U.S. federal income tax return for
the taxable year for which the election is made and once made, is effective for
all subsequent taxable years ofsuch U.S. Holder unless revoked with the
consent of the IRS. A U.S. Holder that has a QEF election in effect with respect
to all years that such holder holds Envoys stock and that Envoy is a PFIC is
referred to herein as an Electing U.S. Holder. Envoy has made available to
U.S. Holders, and expects to continue to make available to U.S. Holders, in
accordance with applicable procedures, the annual information statement
currently required by the IRS, which will include information as to the
allocation of Envoys ordinary earnings and net capital gain among the common
shares and as to distributions on such common shares. Such statement may be used
by Electing U.S. Holders for purposes of complying with the reporting
requirements applicable to the QEF election.

An Electing U.S. Holders gain or loss on the sale or other
disposition of such common shares generally will be a capital gain or loss. Such
capital gain or loss generally will be long-term if such Electing U.S. Holder
held the common shares for more than one year at the time of the disposition.
For non-corporate U.S. Holders, long-term capital gain is generally subject to a
maximum federal income tax rate (currently imposed at a rate of
15%) for taxable years beginning on or before December 31, 2010 (and, possibly,
a higher rate thereafter).

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A U.S. Holder holding common shares with respect to which a QEF
election is not in effect for any taxable year in which Envoy is a PFIC may
avoid the adverse ordinary income and special interest charge consequences
(described above) upon any subsequent disposition of such common shares if such
person elects to recognize any unrealized gain in such common shares as of the
first day in the first year that the QEF election applies to such common shares
(a deemed sale election). Any gain so recognized, however, will be subject to
the adverse ordinary income and special interest charge consequences described
above.

In any year that Envoy is treated as a PFIC, an Electing U.S.
Holder will be required to include currently in gross income such U.S. Holders
pro rata share of Envoys annual ordinary earnings and annual net capital gains.
Such inclusion will be required whether or not such U.S. Holder owns common
shares for an entire year or at the end of Envoys taxable year. The amount so
includable will be determined without regard to the amount of cash
distributions, if any, received from Envoy. Electing U.S. Holders will be
required to pay United States federal income tax currently on such imputed
income, unless, as described below, an election is made to defer such payment.
The amount currently included in income will be treated as ordinary income to
the extent of the Electing U.S. Holders allocable share of Envoys ordinary
earnings and generally will be treated as long-term capital gain to the extent
of such U.S. Holders allocable share of Envoys net capital gains. Such net
capital gains ordinarily would be subject to a maximum 15% United States federal
income tax rate for taxable years beginning on or before December 31, 2010 (and,
possibly, a higher rate thereafter) in the case of non-corporate U.S. Holders,
unless Envoy elects to treat the entire amount of its net capital gain as
ordinary income. No portion of such ordinary earnings will be eligible for the
favorable 15% United States federal income tax rate applicable to so-called
qualified dividend income.

If an Electing U.S. Holder demonstrates to the satisfaction of
the IRS that amounts actually distributed to him have been previously included
in income as described above by such U.S. Holder or a previous U.S. Holder, such
distributions generally will not be taxable. An Electing U.S. Holders adjusted
tax basis in his common shares will be increased by any amounts currently
included in income under the QEF rules and will be decreased by any subsequent
distributions from Envoy that are treated as non-taxable distributions of
previously-included income (as described in the preceding sentence). For
purposes of determining the amounts includable in income by Electing U.S.
Holders, the tax bases of Envoys assets, and Envoys ordinary earnings and net
capital gains, will be computed on the basis of United States federal income tax
principles. Accordingly, it is anticipated that such tax bases and such ordinary
earnings and net capital gains may differ from the figures set forth in Envoys
financial statements.

An Electing U.S. Holder who sells his common shares prior to
the end of Envoys taxable year will be required to include in income, as of the
last day of Envoys taxable year, a portion of Envoys ordinary earnings and net
capital gains attributable on a pro rata basis to the period during which such
common shares were held during such taxable year. However, the amount of such
U.S. Holders taxable gain on the sale should be reduced, or the amount of his
taxable loss increased, by the amount of such income inclusion. If an Electing
U.S. Holder sells his common shares in a taxable year of such U.S. Holder ending
during Envoys then current taxable year, such U.S. Holder may nevertheless have to include
his proportionate share of Envoys ordinary earnings and net capital gains in
gross income for his taxable year which includes the last day of Envoys above
referred taxable year. While the matter is unclear, such U.S. Holder should be
able to claim a loss in his subsequent taxable year equal to the amount by which
such holders adjusted tax basis in the common shares would have increased to
reflect the imputed income under the QEF rules.

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An Electing U.S. Holder may elect to defer, until the
occurrence of certain events, payment of the United States federal income tax
attributable to amounts includable in income for which no current distributions
are received, but will be required to pay interest on the deferred tax computed
by using the statutory rate of interest applicable to an extension of time for
payment of tax.

Under temporary Treasury Regulations, an individual is required
to include in income a proportionate share of the investment expenses of certain
pass-through entities. It is not clear under such Treasury Regulations whether
a PFIC for which a QEF election is in effect may be treated as a pass-through
entity. If these provisions were to apply to Envoy, each individual Electing
U.S. Holder would be required to include in income an amount equal to a portion
of Envoys investment expenses and would be permitted an offsetting deduction
(if otherwise allowable under the Code) to the extent that the amount of such
expenses included in income, plus certain other miscellaneous itemized
deductions of such U.S. Holder, exceed 2% of such U.S. Holders adjusted gross
income.

Generally, a QEF election that is made with respect to Envoy
will remain in effect throughout an Electing U.S. Holders holding period for
Envoys shares, even if Envoy does not qualify as a PFIC in every taxable year
following the taxable year in which the election is made. In any year in which
Envoy is not treated as a PFIC, an Electing U.S. Holder will have the tax
consequences described below, under the heading, Ownership and Disposition of
Common Shares if Envoy is Not a PFIC.

Mark-to-Market Election

A U.S. Holder generally may make a mark-to-market election with
respect to shares of marketable stock of a PFIC. Under the Code and the
Treasury Regulations, the term marketable stock includes stock of a PFIC that
is regularly traded on a qualified exchange or other market. Because Envoys
common shares are traded on a qualified exchange or other market, a
market-to-market election will be available with respect to the common
shares.

As a result of a mark-to-market election, a U.S. Holder will
generally be required to report gain annually in an amount equal to the excess
of the fair market value of such common shares at the end of the taxable year
over the adjusted tax basis of such common shares at that time and will
generally be required to report loss annually in an amount equal to the excess
of the adjusted tax basis of such common shares at the end of the taxable year
over the fair market value of the common shares at that time, but only to the
extent of any net market-to market gains for prior years. Any gain under this
computation and any gain on an actual sale or other disposition of the common
shares will be treated as ordinary income. Any loss under this computation will
be treated as ordinary loss. Any loss on an actual sale or other disposition
will be treated as an ordinary loss to the extent of the prior net
mark-to-market gain and thereafter will be considered capital loss. Thus, a U.S. Holder
that makes a mark-to-market election will be taxed on appreciation with respect
to the U.S. Holders common shares even though such U.S. Holder has no
corresponding receipt of cash. In addition, unlike the case of a QEF election, a
U.S. Holder that has made a mark-to-market election generally cannot obtain any
favorably-taxed long-term capital gains with respect to the common shares. The
U.S. Holders adjusted tax basis in the common shares is adjusted for any gain
or loss taken into account under the mark-to-market election. Under the Treasury
Regulations, if a U.S. Holder has made a QEF election and subsequently makes a
mark-to-market election with respect to the same stock, the mark-to-market
election will automatically terminate the QEF election, and such U.S. Holder may
not make another QEF election with respect to the stock before the sixth taxable
year thereafter. Unless either (i) the mark-to-market election is made as of the
first taxable year in which Envoy is a PFIC during the U.S. Holders holding
period for the common shares, or (ii) a QEF election has been in effect with
respect to such U.S. holders common stock for all years in which Envoy was a
PFIC during such U.S. holders holding period, any mark-to-market gain for the
election year generally will be subject to the excess distribution rules
applicable to dispositions described above.

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U.S. Holders are urged to consult their tax advisors
concerning the United States federal income tax consequences of holding and
disposing of stock of a PFIC.

Ownership and Disposition of Common Shares if Envoy is Not a
PFIC

U.S. Holders who do not hold common shares during any taxable
year in which Envoy is classified as a PFIC will not be subject to the rules
described above, under the heading Passive Foreign Investment Company Rules.
Instead, such U.S. Holders will be required to include the gross amount of any
distribution on common shares (without reduction for Canadian tax withheld) in
their gross income as a taxable dividend, to the extent such distribution is
paid out of Envoys current or accumulated earnings and profits as determined
under United States federal income tax principles. U.S. Holders must include in
income an amount equal to the United States dollar value of such dividends on
the date of receipt, based on the exchange rate on such date. Provided that
Envoy is not treated as a PFIC, described above, during any year in which a U.S.
Holder holds Envoys common shares in the case of a non-corporate U.S. Holder,
including individuals, such dividends generally will be eligible for a maximum
rate of tax of 15% under current law for dividends received in a taxable year
beginning before January 1, 2011, provided certain conditions are satisfied. To
the extent that distributions paid by Envoy exceed Envoys current or
accumulated earnings and profits, they will be treated first as a return of
capital up to the U.S. Holders adjusted tax basis in the shares, and then as a
gain from the sale or exchange of the shares.

U.S. Holders will generally be entitled to a foreign tax
credit, or deduction, for United States federal income tax purposes, in an
amount equal to the Canadian tax withheld from a distribution on common shares.
For taxable years beginning on or before December 31, 2006, dividends paid by
Envoy generally will constitute foreign source passive income or financial
services income for foreign tax credit purposes. For taxable years beginning
after December 31, 2006, such dividends generally will be treated as passive
category income or general category income, for United States foreign tax
credit purposes. The Code applies various limitations on the amount of foreign
tax credit that may be claimed by a United States taxpayer. Because of the
complexity of those limitations, U.S. Holders should consult their own tax
advisors with respect to the amount of foreign taxes they may claim as a credit.

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Dividends paid by Envoy on the common shares will not generally
be eligible for the dividends received deductions.

A U.S. Holder that sells common shares will generally recognize
a gain or loss in an amount equal to the difference, if any, between the amount
realized on the sale and the U.S. Holders adjusted tax basis in the shares.
Unless Envoy is treated as a PFIC during any year in which the U.S. Holder holds
Envoys common shares (described above), any gain or loss recognized upon the
sale of shares held as capital assets will be a long-term or short-term capital
gain or loss, depending on whether the common shares have been held for more
than one year. Such gain or loss generally will be treated as United States
source income or loss for United States foreign tax credit purposes.

Backup Withholding and Information Reporting

United States backup withholding tax and information reporting
requirements generally apply to certain payments to certain non-corporate
holders of the common shares. Information reporting generally will apply to
payments of dividends on, and to proceeds from the sale or disposition of,
common shares by a payor within the United States to a U.S. Holder (if such
person is other than an exempt recipient, including a corporation, not a United
States person that provides an appropriate certification or certain other
persons).

A payor within the United States will be required to withhold
tax (currently imposed at a rate of 28%) on any payments made to a common
shareholder (if that common shareholder is not an exempt recipient) consisting
of dividends on, or proceeds from the sale or disposition of, the common shares,
if the selling common shareholder fails to timely furnish a correct taxpayer
identification number on IRS Form W-9 or otherwise fails to comply with, or
establish an exemption from, such backup withholding tax requirements. Moreover,
a payor or middleman may rely on a certification provided by a payee that is not
a United States person only if such payor or middleman does not have actual
knowledge or a reason to know that any information or certification stated in
such certificate is incorrect. Investors will be allowed a refund or a credit
equal to any amounts withheld under the United States backup withholding tax
rules against their United States federal income tax liability, provided that
they furnish the required information to the IRS.

F.      Dividend and Paying
Agents

Not applicable.

G.      Statement by Experts

Not applicable.

H.      Documents on Display

Any statement in this Annual Report about any of our contracts
or other documents is not necessarily complete. If the contract or document is
filed as an exhibit to this Annual Report, the contract or document is deemed to
modify our description. You must review the exhibits themselves for a complete
description of the contract or document.

70

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The Company is subject to the informational reporting
requirement of the Exchange Act and files reports and other information with the
SEC. You may examine all reports and other information filed by Envoy with the
SEC, including the documents that are exhibits to this Annual Report, without
charge, at the public reference facilities maintained by the SEC at 100 F
Street, N.E., Washington, D.C., 20549. For more information on the public
reference rooms, call the SEC at l.800.SEC.0330. Envoys reports and other
information filed with the SEC are also available to the public from commercial
document retrieval services and the website maintained by the SEC at
http://www.sec.gov.

I.      Subsidiary Information

Not applicable.

Item 11: Quantitative and Qualitative Disclosures about
  Market Risk

Except as described below, Merus does not have a material
position or exposure with respect to any market risk sensitive instruments (as
defined in Item 11 in Form 20-F).

The investment operations of Envoys business as at September
30, 2011 involved the purchase and sale of securities and, accordingly, the
majority of Envoys assets were comprised of financial instruments. The use of
financial instruments could expose Envoy to several risks, including market,
credit and liquidity risks. Apart from the risks listed below, management is of
the opinion that Envoy was not exposed to any other significant risks as at
September 30, 2011. A discussion of Envoys use of financial instruments and its
risk management as at September 30, 2011 is provided below.

(i)**** Liquidity risk

Liquidity risk is the risk that Envoy will have sufficient cash
resources to meet its financial obligations as they come due. Envoys liquidity
and operating results may be adversely affected if Envoy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 Envoy, or if the value of
Envoys investments declines, resulting in losses upon disposition.

Envoy generates cash flow from its financing activities and
proceeds from the disposition of its investments, in addition to interest and
dividend income earned on its investments. Envoy also held private equities
which have no immediate market and may be illiquid until one is created.
Investments in private equities tend to be relative small, typically comprising
less than 10% of available capital and Envoy had sufficient liquidity to fund
its obligations as they become due under normal operating conditions.

(ii)**** Market
risk:

Market risk is the risk that the fair value of, or future cash
flows from, Envoy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. Envoy was exposed to market risk in trading its investments
and unfavourable market conditions could result in dispositions of investments
at less than favourable prices.

71

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(iii) ****Currency
risk:

Envoy was subject to currency risk through its purchases of
inventory in US dollars and through product acquisitions denominated in foreign
currencies. As such, changes in the exchange rate affect the operating results
of Envoy. Dependent on the nature, amount and timing of foreign currency
payments, Envoy may from time to time enter into foreign currency contracts to
reduce its exposure to foreign currency risk. At September 30, 2011, Envoy had
no outstanding foreign exchange contracts, thus there is no liability associated
with these instruments at September 30, 2011. The gains and losses from foreign
currency contracts have been included in investment income for the period.

(iv) ****Credit
risk:

Certain of Envoys financial assets, including cash, short-term
investments and loans receivable were exposed to the risk of financial loss
occurring as a result of default of a counterparty on its obligations to Envoy.
Envoy may, from time to time, invest in debt obligations. Envoy was 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 Envoys earnings and liabilities. At September 30, 2011, Envoy
held no interest-bearing investments. Also, Envoy had no exposure to liabilities
which bore interest at rates fluctuating with the prime rate or overnight
lending rate. It is managements opinion that Envoy was not exposed to
significant interest rate risk.

Item 12: Description of Securities Other Than Equity Securities

Not applicable

PART II

Item 13: Defaults, Dividends Arrearages and
Delinquencies

A.There has been no
material default in the payment of principal, interest, a sinking or purchase
fund installment or any other material default relating to the indebtedness of
the Company its significant subsidiary.

B.There is no preferred
stock of the Company in its significant subsidiary and accordingly there has
been no material arrearage in the payment of dividends or any other material
delinquency not cured within 30 days, with respect to any class of preferred
stock of the Company or of its significant subsidiary.

Item 14: Material Modifications to the Rights of Security
  Holders and Use of Proceeds

A. ****There
have been no material modifications in the constituent instruments defining any
class of registered securities of the Company.

72

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B. There has been no
material limitation or qualification of the rights evidenced by any class of
registered securities of the Company by the issuance or modification of any
other class of securities of the Company.

C.There has been no
material withdrawal or substitution of assets securing any class of registered
securities of the Company.

D. ****Not
applicable.

E.Not applicable.

Item 15: Controls and Procedures

Envoy maintains disclosure controls and procedures that are
designed to ensure that the information required to be disclosed in Envoys
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. After evaluating the effectiveness of Envoys
disclosure controls and procedures (as defined in Exchange Act Rules l3a - 15(e)
and 15d- 15(e)) as of September 30, 2011, our Chief Executive Officer and Chief
Financial Officer have concluded that as of such date, Envoys disclosure
controls and procedure were effective.

There were no changes in our internal controls or in other
factors that could significantly affect these disclosure controls and procedures
during the 2011 fiscal year, including any significant deficiencies or material
weaknesses of internal controls that would require corrective action.

Management is responsible for establishing and maintaining
adequate internal control over financial reporting for Envoy. Management has
designed such internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Canadian GAAP,
and reconciled to US GAAP, as applicable.

Because of its inherent limitations, Envoys internal control
over financial reporting may not prevent or detect all possible misstatements or
frauds. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with policies or procedures may
deteriorate.

Management has assessed the effectiveness of Envoys internal
control over financial reporting and concluded that such internal control over
financial reporting is effective as of September 30, 2011.

This annual report does not include an attestation report of
our independent auditors regarding internal control over financial reporting.
Management's report was not subject to attestation by our independent auditors
pursuant to rules of the SEC that permit our Company to provide only
management's report in this annual report.

73

---

There were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any significant deficiencies or material
weaknesses of internal controls that would require corrective action.

Item 16A: Audit Committee Financial Expert

The Companys Board of Directors has determined that David
Guebert, an independent director of the Company, is an audit committee financial
expert. The Audit Committee has determined that all three members of the Audit
Committee are Financially Literate. Financially Literate means that a member
has the ability to read and understand a set of financial statements that
present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of the issues that can
reasonably be expected to be raised by the Companys financial statements. David
Guebert was determined to be Financially Literate based on his qualifications as
a Canadian Chartered Accountant and experience as the Chief Financial Officer of
a number of public companies where he was responsible for supervising the
preparation of financial statements of a similar breadth and complexity to the
Companys financial statements, where he was responsible for making judgments
and decisions related to accounting matters on behalf of management and where he
was accountable for internal controls and financial reporting procedures. Tim
Sorensen was determined to be Financially Literate based on his significant
experience as director of capital markets and institutional sales. Joseph Rus
was determined to be Financially Literate based on his experience in executive
positions over 25 years in the pharmacy industry. The particulars of each
members experience can be found in the biographies under Item 6A.

Item 16B: Code of Business Conduct

The Board has adopted a Code of Business Conduct (the Code).
All of the Companys employees, directors and officers must follow the Code,
which provides guidelines for ethical behaviour. A copy of the Code is available
in the Governance section of the Companys website at www.meruslabs.com, and is
incorporated by reference herein as Exhibit 11.1 to this Form 20-F.

The Code sets out in detail the principles and general business
tenets and ethics and compliance policies applicable to the Companys business
and activities. The Code addresses topics such as: honest and ethical conduct
and conflicts of interest; compliance with applicable laws and Company policies
and procedures; business integrity and fair dealing; public disclosure; use of
corporate property and opportunities; confidentiality; compliance with insider
trading and other legal requirements; and records and document retention.

The Board expects all employees at all levels of the companies
within its group, as well as officers, directors, customers, suppliers, vendors,
contractors and partners, to read, understand and comply with the Code. If any
employee is uncertain about a situation, the employee is expected to refer the
matter to a supervisor or Human Resources representative. All employees are also
expected to report in good faith any violations or potential violations of the
Code and to co-operate in internal investigations about a reported violation.
Supervisors are expected to answer employee questions about the Code or direct
them to the right source of information; provide timely advice and guidance to
employees on ethics and compliance concerns; handle all employee reports promptly and confidentially; encourage
employees to ask questions and get advice before they act; and report in good
faith any violations of the Code or situations that could result in violations
to the Companys Chief Financial Officer. In addition to employees and
supervisors responsibilities detailed above, senior management has the
responsibility to continuously promote ethical business conduct, in line with
the Companys values and general business principles.

74

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No material change report has been filed since October 1, 2007
that pertains to any conduct of a director or executive officer that constitutes
a departure from the Code.

In addition to the Code, the Company has also developed
procedures for the receipt, retention and treatment of complaints regarding
accounting, internal controls, auditing matters or evidence of an activity that
may constitute corporate fraud or violation of applicable law and for the
confidential and anonymous submission by employees of concerns regarding
questionable accounting or auditing matters. The complete Complaint Procedures
for Accounting and Auditing Matters is available in the Governance section of
the Companys website at www.meruslabs.com, and is incorporated by reference
herein as Exhibit 11.2 to this Form 20-F.

Directors and officers of the Company are required under the
OBCA to disclose any material interest in any material contract or transaction
with the Company and refrain from voting with respect thereof, subject to
certain exceptions.

Item 16C: Principal Accountant Fees and Services

|(a) | AUDIT FEESwere $95,000 in 2011 and $98,500 in
      2010. These fees include year end audit work, consents, reviews and
      assistance with regulatory filings.                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(b) | AUDIT-RELATED FEESwere $nil in 2011 and $nil in
      2010. These fees include assistance with due diligence and accounting
      research.                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | TAX FEESwere $42,500 in 2011 and $30,000 in 2010.
      These fees include tax compliance services and tax advice.                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(d) | ALL OTHER FEESwere $60,000 in 2011, and $50,000
      in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(e) | In accordance with the Companys Audit Committee Charter,
      the Audit Committee ensures the independent auditor submits a formal
      written statement delineating all relationships between the independent
      auditor and the Company and pre-approves all audit fees and non-audit
      services to be provided to the Company or any subsidiary by the
      independent auditor. All services provided to the Company after the
      adoption of the Audit Committee Charter were pre-approved by the Audit
      Committee.

Item 16D: Exemptions from the Listing Standards for Audit
Committees

None.

Item 16E: Purchases of Equity Securities by the Issuer
and Affiliated Purchasers

None.

75

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Item 16F: Change in Registrants Certifying
Accountant.

Saturna Group Chartered Accountants LLP has resigned as the
Companys auditor, effective February 27, 2012 at the request of the Company.
PricewaterhouseCoopers LLP has been appointed as the Companys auditor,
effective March 1, 2012. The resignation of Saturna Group Chartered Accountants
LLP and the appointment of PricewaterhouseCoopers LLP as the Companys auditor
have been considered and approved by the Companys Audit Committee and Board of
Directors. There were no reservations in Saturna Group Chartered Accountants
LLPs report on the Companys financial statements for the year ended May 31,
2011 or any subsequent period. There have been no reportable events within the
meaning assigned under subsection 4.11(1) of National Instrument 51-102.

Effective April 3, 2012, PricewaterhouseCoopers LLP resigned as
the Companys auditor at the request of the Company. Deloitte & Touche LLP
has been appointed as the Companys auditor, effective April 9, 2012. The
resignation of PricewaterhouseCoopers LLP and the appointment of Deloitte &
Touche LLP as the Companys auditor have been considered and approved by the
Companys Audit Committee and Board of Directors. PricewaterhouseCoopers LLPs
did not produce any report relating to financial statements of the Company,
however, in PricewaterhouseCoopers LLPs view, Old Merus should have been
treated as the accounting acquirer. In the Companys opinion, this difference of
opinion between the Company and PricewaterhouseCoopers LLP constituted a
disagreement as defined by subsection 4.11(1) of National Instrument 51-102
and, as a result, constitutes a reportable event. The Companys Audit Committee
did not have formal discussions with the former auditor, however, there were
discussions with the Audit Committee Chair regarding the disagreement. The
former auditor was authorized to respond fully to inquiries by the successor
auditor concerning the disagreement.

Item 16G. Corporate Governance.

The following is a summary of the significant ways in which the
Companys corporate governance practices differ from those required to be
followed by U.S. domestic issuers pursuant to NASDAQ Listing Rules.

The Companys Board of Directors is responsible for determining
whether or not each director is independent. In making this determination, the
Board has adopted the definition of "independence" as set forth in National
Instrument 58-101 Disclosure of Corporate Governance Standards. The Companys
Board of Directors has not adopted the director independence standards contained
in Rule 5605 of the NASDAQ Listing Rules.

Rule 5605(e)(1)(B) of the NASDAQ Listing Rules requires that
each member of a nominating committee be independent. Not every member of the
Companys Compensation and Nominating and Corporate Governance Committee is
independent. The Compensation and Nominating and Corporate Governance Committee
is currently comprised of two independent directors and one non-independent
director according to the definition of independence adopted by the Board.

76

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Rule 5605(d)(1)(B) of the NASDAQ Listing Rules requires that
each member of a compensation committee be independent. Not every member of the
Companys Compensation and Nominating and Corporate Governance Committee is
independent. The Compensation and Nominating and Corporate Governance Committee
is currently comprised of two independent directors and one non-independent
director according to the definition of independence adopted by the Board.

Rule 5620(c) of the NASDAQ Listing Rules requires that the
quorum for meetings of shareholders of a listed company be not less than 33 1/3%
of the issued and outstanding shares entitled to vote at a meeting of
shareholders. The Companys articles provide that a quorum for the transaction
of business at a shareholder meeting is two people who are, or who represent by
proxy, shareholders who, in the aggregate, hold at least 5% of the outstanding
shares of the Company carrying voting rights at the meeting.

Item 16H. Mine Safety Disclosure

None.

PART III

Item 17: Financial Statements

(a)        Envoy
Capital Group Inc.

(i)
    Auditors Report
      on the financial statements for the year ended September 30, 2011 and 2010
    F-1(ii)
    Consolidated
      Balance Sheets as at September 30, 2011 and 2010
    F-2(iii)
    Consolidated
      Statements of Operations for the years ended September 30, 2011, 2010 and
      2009
    F-3(iv)
    Consolidated
      Statements of Cash Flows for the years ended September 30, 2011, 2010 and
      2009
    F-4(v)
    Notes to
      Consolidated Financial Statements
    F-5


77

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Envoy Capital
Group Inc.:

We have audited the accompanying consolidated financial
statements of Envoy Capital Group Inc. and its subsidiaries, which comprise the
consolidated balance sheets as at September 30, 2011 and 2010, the consolidated
statements of shareholders equity for the years then ended, and the
consolidated statements of operations, comprehensive loss and cash flows for the
three years ended September 30, 2011, and a summary of significant accounting
policies and other explanatory information.

Managements Responsibility for the Consolidated Financial
StatementsManagement is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, 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 ResponsibilityOur 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.

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. In making those risk
assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. An audit also includes 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.

OpinionIn our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
Envoy Capital Group Inc. as at September 30, 2011 and 2010, and the results of
its operations and its cash flows for the three years ended September 30, 2011
in accordance with Canadian generally accepted accounting principles.

Emphasis of MatterWithout qualifying our opinion, we
draw attention to Note 19 in the consolidated financial statements which
provides a reconciliation of Canadian generally accepted accounting principles
to accounting standards generally accepted in the United States.



|December 13, 2011 except for Note 18 which is as of
      April 11, 2012 | Chartered Accountants      
|------------------------------------------------------------------------ | ---------------------------
|Toronto, Ontario                                                         | Licensed Public Accountants

| | ACCOUNTINGCONSULTINGTAX 701  85 RICHMOND STREET W, TORONTO, ON M5H 2C9
      1.877.251.2922 P: 416.596.1711 F: 416.596.7894
      mnp.ca
| | -------------------------------------------------------------------------------------------------------------------------------------------

F-1

---

|Envoy Capital
      Group Inc. 
|-------------------------------
|Consolidated Balance Sheets    
|(Expressed in Canadian dollars)

|As at:                                                |  |              |  |   | September 30 |   |   | September 30 |  
|----------------------------------------------------- |  | ------------ |  | - | ------------ | - | - | ------------ | -
|                                                      |  |              |  |   | 2011         |   |   | 2010         |  
|                                                      |  |              |  |   |              |   |   |              |  
|Assets                                                |  |              |  |   |              |   |   |              |  
|                                                      |  |              |  |   |              |   |   |              |  
|Current                                               |  |              |  |   |              |   |   |              |  
|Cash                                                  |  |              |  | $ | 5,059,650    |   | $ | 8,435,679    |  
|Investments held
      for trading                    |  | note
      3 |  |   | 3,134,137    |   |   | 6,721,128    |  
|Accounts receivable, net of
      allowance of $nil   |  |              |  |   | 78,978       |   |   | 11,170       |  
|Prepaid expenses                                      |  |              |  |   | 19,676       |   |   | 209,762      |  
|Loans receivable                                      |  | note 4       |  |   | 1,598,260    |   |   | -            |  
|Assets held for
      disposal                        |  | note 17      |  |   | -            |   |   | 2,873,110    |  
|                                                      |  |              |  |   | 9,890,701    |   |   | 18,250,849   |  
|                                                      |  |              |  |   |              |   |   |              |  
|Investments                                           |  | note 3       |  |   | -            |   |   | 141,006      |  
|Real estate                                           |  | note
      5 |  |   | 1,116,000    |   |   | 1,116,000    |  
|Property and equipment                                |  | note 6       |  |   | 12,150       |   |   | 61,698       |  
|                                                      |  |              |  | $ | 11,018,851   |   | $ | 19,569,553   |  
|                                                      |  |              |  |   |              |   |   |              |  
|Liabilities and Shareholders' Equity                  |  |              |  |   |              |   |   |              |  
|                                                      |  |              |  |   |              |   |   |              |  
|Current                                               |  |              |  |   |              |   |   |              |  
|Bank indebtedness                                     |  | note 7       |  | $ | -            |   | $ | 780,000      |  
|Accounts payable
      and accrued liabilities        |  |              |  |   | 686,339      |   |   | 435,807      |  
|Derivatives held for trading                          |  | note 8       |  |   | -            |   |   | 775,318      |  
|Liabilities
      related to assets held for disposal |  | note 17      |  |   | -            |   |   | 709,802      |  
|                                                      |  |              |  |   | 686,339      |   |   | 2,700,927    |  
|                                                      |  |              |  |   |              |   |   |              |  
|Minority interest                                     |  | note 9       |  |   | -            |   |   | 7,242        |  
|                                                      |  |              |  |   |              |   |   |              |  
|Shareholders' equity                                  |  |              |  |   |              |   |   |              |  
|Share capital                                         |  | note 10      |  |   | 8,762,524    |   |   | 8,762,524    |  
|Contributed surplus                                   |  | note 11      |  |   | 30,719,348   |   |   | 29,781,172   |  
|Deficit                                               |  |              |  |   | (29,149,360  | ) |   | (21,682,312  | )
|                                                      |  |              |  |   | 10,332,512   |   |   | 16,861,384   |  
|                                                      |  |              |  | $ | 11,018,851   |   | $ | 19,569,553   |  

Commitments and contingencies (note 13) Subsequent events
(note 18)

Approved on behalf of the Board:

(signed)
    (signed)Robert Pollock,
    Dave Guebert,Director
    Director


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

F-2

---

|Envoy Capital
      Group Inc.                                    
|------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive
      Loss
|(Expressed in Canadian dollars)                                   

|For the years
      ended:                                                    |  |         |           |   | September 30 |           |   | September 30 |           |   | September 30 |  
|----------------------------------------------------------------------------- |  | ------- | --------- | - | ------------ | --------- | - | ------------ | --------- | - | ------------ | -
|                                                                              |  |         |           |   | 2011         |           |   | 2010         |           |   | 2009         |  
|Net investment gains                                                          |  | note 3  |           | $ | 1,403,189    |           | $ | 1,066,919    |           |   | 333,372      |  
|Interest and dividend income                                                  |  | note 3  |           |   | 479,158      |           |   | 46,408       |           |   | 252,605      |  
|                                                                              |  |         |           |   | 1,882,347    |           |   | 1,113,327    |           |   | 585,977      |  
|Operating expenses:                                                           |  |         |           |   |              |           |   |              |           |   |              |  
|Salaries and
      benefits                                                   |  |         |           |   | 1,869,799    |           |   | 1,952,285    |           |   | 2,916,265    |  
|General and
      administrative                                              |  | note 5  |           |   | 638,764      |           |   | 905,013      |           |   | 1,008,462    |  
|Occupancy costs                                                               |  |         |           |   | 79,070       |           |   | 114,497      |           |   | 235,275      |  
|                                                                              |  |         |           |   | 2,587,633    |           |   | 2,971,795    |           |   | 4,160,002    |  
|Depreciation                                                                  |  |         |           |   | 17,062       |           |   | 30,371       |           |   | 271,863      |  
|Interest expense and financing costs                                          |  |         |           |   | 10,865       |           |   | 31,956       |           |   | 73,840       |  
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Goodwill impairment                                                           |  |         |           |   | -            |           |   | -            |           |   | 2,671,139    |  
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Restructuring expense                                                         |  | note 16 |           |   | 6,061,413    |           |   | 2,414,948    |           |   | -            |  
|                                                                              |  |         |           |   | 8,676,973    |           |   | 5,449,070    |           |   | 7,176,844    |  
|Loss before income taxes, minority interest and
      discontinued operations |  |         |           |   | (6,794,626   | )         |   | (4,335,743   | )         |   | (6,590,867   | )
|Income tax expense - current                                                  |  |         |           |   | -            |           |   | -            |           |   | -            |  
|-
      future                                                                |  | note 12 |           |   | -            |           |   | -            |           |   | 560,784      |  
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Loss before minority interest and discontinued
      operations               |  |         |           |   | (6,794,626   | )         |   | (4,335,743   | )         |   | (7,151,651   | )
|Minority interest                                                             |  | note 9  |           |   | (7,018       | )         |   | (3,486       | )         |   | (3,278       | )
|Loss from continuing operations                                               |  |         |           |   | (6,787,608   | )         |   | (4,332,257   | )         |   | (7,148,373   | )
|Loss on disposal of discontinued
      operations, net of income taxes        |  | note 17 |           |   | (396,471     | )         |   | -            |           |   | -            |  
|(Loss) earnings from discontinued operations, net of income
      taxes       |  | note 17 |           |   | (282,969     | )         |   | 189,765      |           |   | (3,327,437   | )
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Net loss and
      comprehensive loss                                         |  |         |           | $ | (7,467,048   | )         | $ | (4,142,492   | )         | $ | (10,475,810  | )
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Loss per share                                                                |  |         |           |   |              |           |   |              |           |   |              |  
|Basic                                                                         |  |         |           | $ | (0.93        | )         | $ | (0.50        | )         | $ | (1.22        | )
|Diluted                                                                       |  |         |           | $ | (0.93        | )         | $ | (0.50        | )         | $ | (1.22        | )
|Loss per share - continuing
      operations                                  |  |         |           |   |              |           |   |              |           |   |              |  
|Basic                                                                         |  |         |           | $ | (0.85        | )         | $ | (0.52        | )         | $ | (0.84        | )
|Diluted                                                                       |  |         |           | $ | (0.85        | )         | $ | (0.52        | )         | $ | (0.84        | )
|(Loss) earnings per share - discontinued operations                           |  |         |           |   |              |           |   |              |           |   |              |  
|Basic                                                                         |  |         |           | $ | (0.08        | )         | $ | 0.02         |           | $ | (0.39        | )
|Diluted                                                                       |  |         |           | $ | (0.08        | )         | $ | 0.02         |           | $ | (0.39        | )
|                                                                              |  |         |           |   |              |           |   |              |           |   |              |  
|Weighted average number of common shares
      outstanding - basic            |  |         | 8,028,377 |   |              | 8,233,519 |   |              | 8,558,466 |  
|Weighted average number of common shares outstanding -
      diluted          |  |         | 8,028,377 |   |              | 8,233,519 |   |              | 8,558,466 |  

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

F-3

---

|Envoy Capital
      Group Inc.       
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in Canadian dollars)      

|For the years
      ended:                                |   | September 30 |   |   | September 30 |   |   | September 30 |  
|--------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
|                                                          |   | 2011         |   |   | 2010         |   |   | 2009         |  
|Cash flows from operating activities:                     |   |              |   |   |              |   |   |              |  
|Net loss                                                  | $ | (7,467,048   | ) | $ | (4,142,492   | ) | $ | (10,475,810  | )
|Loss (earnings) from discontinued operations              |   | 282,969      |   |   | (189,765     | ) |   | 3,327,437    |  
|Items not involving cash:                                 |   |              |   |   |              |   |   |              |  
|Loss on disposal of discontinued
      operations         |   | 396,471      |   |   | -            |   |   | -            |  
|Depreciation                                              |   | 17,062       |   |   | 30,371       |   |   | 271,863      |  
|Minority interest                                         |   | (7,018       | ) |   | (3,486       | ) |   | (3,278       | )
|Impairment of
      real estate                           |   | -            |   |   | 134,100      |   |   | 297,933      |  
|Future income taxes                                       |   | -            |   |   | -            |   |   | 560,784      |  
|Goodwill
      impairment                                 |   | -            |   |   | -            |   |   | 2,671,139    |  
|Loss on disposal of property and
      equipment          |   | 32,486       |   |   | -            |   |   | -            |  
|Gain on sale of
      investment                          |   | (58,994      | ) |   | -            |   |   | -            |  
|Fair value adjustment of loan
      receivable            |   | 517,352      |   |   | -            |   |   | -            |  
|Accrued interest
      and loan fees                      |   | (408,945     | ) |   | -            |   |   | -            |  
|Stock based compensation                                  |   | 938,176      |   |   | -            |   |   | -            |  
|                                                          |   |              |   |   |              |   |   |              |  
|Net change in non-cash working capital balances:          |   |              |   |   |              |   |   |              |  
|Accounts
      receivable                                 |   | (67,808      | ) |   | (5,649       | ) |   | 155,042      |  
|Prepaid expenses                                          |   | 190,086      |   |   | 48,401       |   |   | (67,422      | )
|Investments held
      for trading                        |   | 3,586,991    |   |   | (1,566,132   | ) |   | 9,298,472    |  
|Accounts payable and accrued
      liabilities            |   | 250,532      |   |   | 91,584       |   |   | (592,437     | )
|Derivatives held
      for trading                        |   | (775,318     | ) |   | 106,841      |   |   | 668,477      |  
|Net cash provided by (used in) operating activities       |   | (2,573,006   | ) |   | (5,496,227   | ) |   | 6,112,200    |  
|Cash flows from financing
      activities:               |   |              |   |   |              |   |   |              |  
|Operating line of credit                                  |   | (780,000     | ) |   | 780,000      |   |   | -            |  
|Long term debt
      repayments                           |   | -            |   |   | -            |   |   | (69,599      | )
|Minority interest                                         |   | (224         | ) |   | (1,680       | ) |   | 15,686       |  
|Share buy back
      under normal course issuer bid       |   | -            |   |   | (620,158     | ) |   | (59,477      | )
|Net cash provided by (used in) financing activities       |   | (780,224     | ) |   | 158,162      |   |   | (113,390     | )
|Cash flows from investing
      activities:               |   |              |   |   |              |   |   |              |  
|Proceeds on sale of subsidiary,
      net                 |   | 1,647,463    |   |   | -            |   |   | -            |  
|Loans receivable                                          |   | (1,706,667   | ) |   | -            |   |   | 365,625      |  
|Purchase of property and
      equipment                  |   | -            |   |   | (2,357       | ) |   | (99,381      | )
|Investment in
      real estate                           |   | -            |   |   | -            |   |   | (8,441       | )
|Investments                                               |   | 200,000      |   |   | 49,337       |   |   | 9,657        |  
|Net cash provided by (used in) investing
      activities |   | 140,796      |   |   | 46,980       |   |   | 267,460      |  
|Net change in cash from continuing operations             |   | (3,212,434   | ) |   | (5,291,085   | ) |   | 6,266,270    |  

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

F-4

---

|Envoy Capital
      Group Inc.       
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in Canadian dollars)      

|For the years
      ended:                                        |   | September 30 |   |   | September 30 |   |   | September 30 |  
|----------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
|                                                                  |   | 2011         |   |   | 2010         |   |   | 2009         |  
|Cash flows from discontinued
      operations                     |   |              |   |   |              |   |   |              |  
|Net cash provided by (used in)
      operating activities         |   | (60,173      | ) |   | 72,994       |   |   | 3,111,783    |  
|Net cash
      provided by financing activities                   |   | 44,604       |   |   | 97,504       |   |   | -            |  
|Net cash used in investing
      activities                       |   | (146,096     | ) |   | (100,092     | ) |   | (23,154      | )
|Net change in cash from discontinued
      operations             |   | (161,665     | ) |   | 70,405       |   |   | 3,088,629    |  
|                                                                  |   |              |   |   |              |   |   |              |  
|Net change in cash                                                |   | (3,374,099   | ) |   | (5,220,680   | ) |   | 9,354,899    |  
|                                                                  |   |              |   |   |              |   |   |              |  
|Cash,beginning of year                                            |   | 8,435,679    |   |   | 13,206,423   |   |   | 4,576,771    |  
|Add: cash,beginning of year for the discontinued
      operations |   | 275,311      |   |   | 725,247      |   |   | -            |  
|Less: cash,end of year for the
      discontinued operations      |   | (277,241     | ) |   | (275,311     | ) |   | (725,247     | )
|                                                                  |   |              |   |   |              |   |   |              |  
|Cash,end of year                                                  | $ | 5,059,650    |   | $ | 8,435,679    |   | $ | 13,206,423   |  
|Supplemental cash flow information:                               |   |              |   |   |              |   |   |              |  
|Interest paid                                                     | $ | 20,139       |   | $ | 31,956       |   | $ | 50,660       |  
|Income taxes paid                                                 |   | -            |   |   | -            |   |   | -            |  

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

F-5

---

|Envoy Capital
      Group Inc.                
|----------------------------------------------
|Consolidated Statement of Shareholders' Equity
|(Expressed in Canadian dollars)               

|                                                                               |   |               |   |   |             |   |   |             |   |   | Total         |  
|------------------------------------------------------------------------------ | - | ------------- | - | - | ----------- | - | - | ----------- | - | - | ------------- | -
|                                                                               |   |               |   |   | Contributed |   |   |             |   |   | shareholders' |  
|                                                                               |   | Share capital |   |   | surplus     |   |   | Deficit     |   |   | equity        |  
|Balance, September **30,
      2009**                                          | $ | 9,340,990     |   | $ | 29,822,864  |   | $ | (17,539,820 | ) | $ | 21,624,034    |  
|Share repurchases pursuant to normal course issuer bid
      (notes 10 and 11) |   | (578,466      | ) |   | (41,692     | ) |   | -           |   |   | (620,158      | )
|Net loss for the year                                                          |   | -             |   |   | -           |   |   | (4,142,492  | ) |   | (4,142,492    | )
|Balance, September **30, 2010**                                                | $ | 8,762,524     |   | $ | 29,781,172  |   | $ | (21,682,312 | ) | $ | 16,861,384    |  
|Stock based compensation (note 10)                                             |   | -             |   |   | 938,176     |   |   | -           |   |   | 938,176       |  
|Net loss for the
      year                                                    |   | -             |   |   | -           |   |   | (7,467,048  | ) |   | (7,467,048    | )
|Balance, September **30, 2011**                                                | $ | 8,762,524     |   | $ | 30,719,348  |   | $ | (29,149,360 | ) | $ | 10,332,512    |  

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

F-6

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|1. | Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Envoy Capital Group Inc. and its subsidiaries (the
      Company), under the Business Corporations Act (Ontario), operated in
      Canada, the United States and Monaco during the year, providing merchant
      banking and consumer and retail branding services.                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles (Canadian GAAP), which vary in certain significant respects
      from generally accepted accounting principles in the United States (US
      GAAP). A reconciliation of the significant differences, as applicable to
      the Company, is included in note 19.

|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies
|   |                                
|   | (a)                            
|   |                                
|   |                                
|   |                                
|   |                                

| |                               |  | 2011              |  |  | 2010        |  |  | 2009              |  |  | Jurisdiction of | 
| | ----------------------------- |  | ----------------- |  |  | ----------- |  |  | ----------------- |  |  | --------------- | 
| | Company                       |  | %
      ownership |  |  | % ownership |  |  | %
      ownership |  |  | incorporation   | 
| |                               |  |                   |  |  |             |  |  |                   |  |  |                 | 
| | Envoy Capital Group           |  |                   |  |  |             |  |  |                   |  |  |                 | 
| | Monaco S.A.M.                 |  | -                 |  |  | 99.8        |  |  | 99.8              |  |  | Monaco          | 
| | Watt International Inc.       |  | -                 |  |  | 100.0       |  |  | 100.0             |  |  | Ontario         | 
| | Watt International (USA) Inc. |  | -                 |  |  | 100.0       |  |  | 100.0             |  |  | California      | 
| | 1632159 Ontario Ltd.          |  | -                 |  |  | 100.0       |  |  | 100.0             |  |  | Ontario         | 
| | ECG Properties Inc.           |  | 100.0             |  |  | 100.0       |  |  | 100.0             |  |  | Ontario         | 
| | Envoy Securities Corp.        |  | 100.0             |  |  | 100.0       |  |  | 100.0             |  |  | Ontario         | 
| | ECG Holdings (US)
      Inc.  |  | 100.0             |  |  | 100.0       |  |  | 100.0             |  |  | Delaware        | 

On September 30, 2011, the Company
sold its ownership in Watt International Inc. (Watt). As a result, Watts
operations for 2011, 2010 and 2009 have been presented as discontinued
operations and its assets and liabilities have been shown as held for disposal.
Previously, the Company was operating as two segments whereas it now currently
operates as one.

F-7

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------
|   |                                              
|   | (b)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (c)                                          
|   |                                              
|   |                                              

Asset
    Basis
    RateComputer equipment and software
    Declining balance and straight
      line
    30-50% or 3-4 yearsFurniture and equipment
    Declining balance and straight line
    20% or 5 yearsLeasehold improvements
    Straight line
    initial term of lease + 1 option period


| |     | The Company performs impairment testing on long-lived
      assets held for use whenever events or changes in circumstances indicate
      that the carrying value of an asset, or group of assets, may not be
      recoverable. Impairment losses are recognized when undiscounted future
      cash flows from its use and disposal are less than the assets' carrying
      amount. Impairment is measured as the amount by which the assets' carrying
      value exceeds its fair value. Any impairment is included in loss for the
      year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (d) | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Merchant Banking - continuing business:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Securities transactions are recorded on a trade-date
      basis. Changes in fair value of held-for-trading investments are reflected
      in the consolidated statements of operations. Dividend income is recorded
      on the ex-dividend date. Interest income is recorded on an accrual
      basis.                                                                                                                                                                                                                                          

F-8

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------

Consumer and retail branding -
discontinued business:

Net revenue for the Consumer and
Retail Branding segment represents compensation for services rendered, net of
any pass-through costs such as production costs incurred on behalf of clients in
acting as agent for them. In circumstances where the Company retains
subcontractors, such as architects or engineers, to perform services as an agent
to the Company, the revenue for such services is included in net revenue and the
cost of the subcontractors services is included in salaries and benefits
expense.

The Company recognized net revenue and
profits for Consumer and Retail Branding on the completed contract basis, and
accordingly revenue and profit were recognized only when the contract or
contract milestone was substantially complete. Anticipated losses were provided
for when the estimate of total costs on a project indicated a loss.

| | (e) | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Goodwill represents the price paid for acquisitions in
      excess of the fair market value of net tangible and intangible assets
      acquired. Goodwill is carried at cost, less impairment losses if
    any.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The Company uses a two-step impairment test on an annual
      basis, or when significant business changes have occurred that may have
      had an adverse impact on the fair value of the goodwill. To determine
      whether impairment has occurred, the fair value of the reporting unit to
      which goodwill has been attributed is compared to its carrying amount
      including goodwill. When the fair value is in excess of its carrying
      amount, the goodwill is not considered to be impaired, and the second step
      of the impairment test is not necessary.                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | When the carrying amount of the reporting unit as
      determined in the first step exceeds the fair value, then the fair value
      of the goodwill is determined in the same manner as followed in a business
      combination. An impairment loss is recognized when the carrying amount of
      the goodwill of a reporting unit exceeds its fair value. It is not
      reversed in the event that the fair value subsequently
increases.                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (f) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The financial statements of the Company's foreign
      subsidiaries are translated using the temporal method, whereby the
      monetary assets and liabilities of such foreign operations are translated
      at the exchange rate in effect at the balance sheet date. Non-monetary
      items are translated at historical rates, unless such items are carried at
      market, in which case they are translated at the exchange rate in effect
      at the balance sheet date. Revenue and expenses are translated at the
      average exchange rate for the year. Translation gains or losses are
      recognized in the results of operations for the
year.

F-9

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------
|   |                                              
|   | (g)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (h)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (i)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              

F-10

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------

The following is a summary of the
accounting model the Company has elected to apply to each of its significant
categories of financial instruments outstanding at September 30, 2011:

Cash
    Held-for-tradingInvestments held for trading
    Held-for-tradingAccounts receivable
    Loans and receivablesLoan receivable
    Loans and receivablesBank indebtedness
    Other financial liabilityAccounts payable and accrued liabilities
    Other financial liability


Held-for-Trading (HFT)

HFT financial assets are financial
assets typically acquired for resale prior to maturity. They are measured at
fair value at the balance sheet date. Interest and dividends earned and changes
in fair value are included in net earnings for the period.

Held-to-Maturity (HTM)

HTM financial assets are those
non-derivative financial assets with fixed or determinable payments and a fixed
maturity, other than loans and receivables that an entity has the positive
intention and ability to hold to maturity. These financial assets are measured
at amortized cost. The Company currently has no HTM investments.

Available-for-Sale (AFS)

AFS financial assets are those
non-derivative financial assets that are either designated as AFS, or that are
not classified as loans and receivables, HTM or HFT investments. AFS financial
assets are carried at fair value with unrealized gains and losses included in
Other Comprehensive Income (OCI) until realized when the cumulative gain or
loss is recognized in net income.

Loans and receivables

Loans and receivables are accounted
for at cost, less any allowances, using the effective interest rate method.

F-11

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------

Other financial liabilities

Other financial liabilities are
recorded at amortized cost, and include all liabilities, other than derivatives.

Transaction costs

Transaction costs are expensed in the
period incurred.

Determination of fair value

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.

(ii) Privately-held investments:

Securities in privately-held companies
designated as HFT or AFS are recorded at fair value based on objective evidence
including recent arms length transactions between knowledgeable, willing
parties. Such evidence might include significant subsequent equity financing by
an unrelated professional investor, discounted cash flow analysis, operational
results, forecasts and other developments since acquisition.

Investments in which the Company has a
significant influence are accounted for using the equity method.

F-12

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------

| | (j) | Comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Comprehensive income (loss) includes all changes in
      equity except those resulting from investments by owners and distribution
      to shareholders. Other comprehensive income (loss) is defined by revenue,
      expenses, gains and losses that are recognized in comprehensive income
      (loss), but excluded from net income (loss).                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (k) | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Business combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In January 2009, the CICA published Section 1582,
      Business Combinations to replace Section 1581. The new standard requires
      the acquiring entity in a business combination to recognize most of the
      assets acquired and liabilities assumed in the transaction at fair value
      including contingent assets and liabilities, and recognize and measure the
      goodwill acquired in the business combination or a gain from a bargain
      purchase. Acquisition-related costs are to be expensed. This standard
      became effective January 1, 2011. Adoption of these new standards had no
      material impact on the Company.                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Consolidated financial statements and non-controlling
      interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In January 2009, the CICA published Section 1601,
      Consolidated Financial Statements, and Section 1602, Non-controlling
      Interests replacing Section 1600. Section 1601 carries forward guidance
      from Section 1600 with the exception of non- controlling interests, which
      are addressed in a separate section. This standard requires the Company to
      report non-controlling interests within equity, separately from the equity
      of the owners of the parent, and transactions between an entity and
      non-controlling interests as equity transactions. These standards became
      effective January 1, 2011, and adoption of this new standard did not have
      any impact on the financial statements of the Company.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | International Financial Reporting Standards
    (IFRS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | IFRS is required to be adopted for most publicly
      accountable enterprises effectively for fiscal years beginning on or after
      January 1, 2011. The Company thus will apply IFRS in fiscal 2012. The
      Company will require restatement for comparative purposes of amounts
      reported by the Company for the year ending September 30, 2011 and
      accordingly the Company has prepared an opening balance sheet, in
      accordance with IFRS, as at October 1, 2010. The Company has begun the
      adoption of IFRS for fiscal 2012. The Company completed a three-phase
      transition plan: initial diagnostic assessment and scoping, in-depth
      analysis and assessment, and implementation.                                      

F-13

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|2. | Significant Accounting Policies
  (continued)
|-- | ---------------------------------------------

As at September 30, 2011, the Company
has completed substantially all of its transition plan and has identified the
areas of impact on the Companys financial reports: accounts receivable and net
revenue from the consumer and retail branding business. At this time, the
Company believes the financial impact of the transition to IFRS will be minimal.
However, the Company anticipates a significant increase in disclosure
requirements under IFRS and such requirements are also being evaluated along
with the necessary system changes required to gather, process and review such
disclosure. The Company does not anticipate any significant changes to its
information technology, internal controls over financial reporting, disclosure
controls and procedures or its business activities as a result of the conversion
to IFRS.

|   |            
|-- | -----------
|3. | Investments

| |                                    |   | 2011      |  |   | 2010      | 
| | ---------------------------------- | - | --------- |  | - | --------- | 
| | Investments held for trading       |   |           |  |   |           | 
| | Publicly-traded investments        |   |           |  |   |           | 
| | Equities                           | $ | 979,547   |  |   | 6,510,492 | 
| | Derivatives                        |   | 193,430   |  |   | 210,636   | 
| |                                    |   | 1,172,977 |  |   | 6,721,128 | 
| | Privately held investments         |   |           |  |   |           | 
| | Equities                           |   | 1,961,160 |  |   | -         | 
| | Total investments held for trading | $ | 3,134,137 |  | $ | 6,721,128 | 
| |                                    |   |           |  |   |           | 
| | Investments                        |   |           |  |   |           | 
| | Investment in capital pool company | $ | -         |  | $ | 141,006   | 
| | Total
      investments            | $ | -         |  | $ | 141,006   | 

As at September 30, 2011 the portfolio
of investments held for trading was invested in marketable securities, including
common shares and warrants, as well as investments in private entities that have
been designated as held for trading. The specific investments within the
portfolio vary depending on market conditions. Private entity investments are
valued at the last known trade price. This valuation was further supported by
the sale of a portion of the Companys private equity holdings subsequent to
year end. The investment portfolio, including interest and dividend income,
realized and unrealized investment gains and losses, earned $1,882,347 during
fiscal 2011 (2010 - $1,113,327, 2009 - $585,977), after deducting fees and
expenses.

F-14

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|3. | Investments (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | At September 30, 2010 Envoy owned approximately a 21%
      interest in Sereno Capital Corporation (Sereno), a Capital Pool Company.
      Members of Envoys management group were also officers and directors of
      Sereno and exercised significant influence. Accordingly, the investment in
      Sereno was accounted for using the equity method. In February 2011, Envoy
      sold its shares in Sereno at their original cost of $200,000 in a private
      transaction. Gains and losses from this investment in 2011, 2010 and 2009
      of $58,994, ($49,337) and ($9,657), respectively, were included in
      investment income.                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4. | Loans receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In May 2011, the Company advanced a loan in the principal
      amount of $1,850,000 to Merus Labs Inc. (Merus). The loan bears interest
      at 12%, compounded monthly, with payments of $123,333 plus accrued
      interest due on the last business day of each month. The loan matures
      November 10, 2011 and is secured by a promissory note, share pledge
      agreement and a general security agreement on the assets of
Merus                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In connection with the loan, the Company received 925,000
      units from Merus, each consisting of one common share of Merus and one
      share purchase warrant granting the Company the right to purchase each
      common share of Merus at a purchase price of $0.40, for a term of two
      years from the date of issuance of the warrant. The Company accounted for
      these units as loan fees totaling $517,352 by adjusting the yield on the
      loan based on the fair value of the units received on the date of the
      loan. The common shares were valued based on the closing share price of
      Merus of $0.37 on the date of the loan. The warrants were valued based on
      a Black-Scholes option valuation model, using an exercise price of $0.40,
      the closing share price of Merus of $0.37 on the date of the loan, a term
      of two years, volatility of 100%, a risk free rate of 2%, and a dividend
      yield of $nil.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The loan fees are amortized over the six month term of
      the loan and are recorded as interest income. $400,806 of interest related
      to these loan fees and $75,973 of cash interest was recorded in fiscal
      2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | At September 30, 2011, the loan receivable from Merus was
      valued at $1,248,260. On October 14, 2011, the loan was paid in full,
      including all accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Also, on September 30, 2011, the Company agreed to accept
      partial payment on the sale of Watt International Inc. in the form of a
      loan receivable in the amount of $350,000. The loan is non-interest
      bearing and due on demand. $200,000 of this amount was received on
      November 30, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-15

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|5. | Real estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company currently owns two properties in Toronto,
      which it had planned to develop for resale. Given market conditions, the
      Company made a decision not to develop the properties. The Company
      recorded an impairment loss of approximately $134,000 in fiscal 2010 and
      $298,000 in fiscal 2009, representing the difference between the carrying
      value at the time of impairment and the fair value. These impairment
      losses were included in general and administrative expenses. Book value of
      the properties approximates fair value, net of disposal costs.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|6. | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                 |   |         |  |   | Accumulated  |  |   | Net
      book | 
| | ------------------------------- | - | ------- |  | - | ------------ |  | - | -------------- | 
| | 2011                            |   | Cost    |  |   | depreciation |  |   | value          | 
| | Computer equipment and software | $ | 111,985 |  | $ | 111,985      |  | $ | -              | 
| | Leasehold improvements          |   | 24,300  |  |   | 12,150       |  |   | 12,150         | 
| |                                 | $ | 136,285 |  | $ | 124,135      |  | $ | 12,150         | 

| |                                 |   |         |  |   | Accumulated  |  |   | Net book | 
| | ------------------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | 2010                            |   | Cost    |  |   | depreciation |  |   | value    | 
| | Computer equipment and software | $ | 118,172 |  | $ | 111,734      |  | $ | 6,438    | 
| | Furniture and equipment         |   | 71,249  |  |   | 32,999       |  |   | 38,250   | 
| | Leasehold improvements          |   | 24,300  |  |   | 7,290        |  |   | 17,010   | 
| |                                 | $ | 213,721 |  | $ | 152,023      |  | $ | 61,698   | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|7. | Bank indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the year, the Company had access to a revolving
      demand credit facility of $1 million in order to manage day-to-day
      operating requirements. Amounts borrowed under the facility bore interest
      at the bank prime rate. Drawings under the credit facility were secured by
      $2 million of the Companys investment portfolio. Borrowings under the
      facility at September 30, 2010 were $780,000. This facility was cancelled
      by the Company in March 2011.

F-16

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|8.  | Derivatives held for trading                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As part of its investment strategy, the Company
      maintained a portfolio of derivative instruments consisting of various put
      options on large cap U.S. publicly-traded companies. The options were
      recorded at their fair value (2010 - $775,318), based on quoted market
      prices. At September 30, 2011, the Company held no put option positions or
      other derivative liabilities. Gains on losses on derivative instruments
      have been included in net investment gains for the period.                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|9.  | Minority interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In February 2011, the Company made a decision to close
      its foreign subsidiary, Envoy Capital Group Monaco S.A.M. (ECGM) and
      move all assets back to Canada (see note 16 Restructuring costs). As
      part of the local requirements of incorporation, a small interest in the
      subsidiary was owned by two directors of ECGM who were residents of
      Monaco. The ownership of 0.2% was reflected in the financial statements as
      minority interest. In April 2011, the Company sold its ownership in ECGM
      to the minority holders for $1. No gain or loss was recorded on the
      transaction.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10. | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | (a) | Authorized:
| | --- | -----------

Unlimited common shares without par
value.

| | Issued:                                                                                                     |  |                 |  |   |           |  |  |                 |   |   |           |  
| | ----------------------------------------------------------------------------------------------------------- |  | --------------- |  | - | --------- |  |  | --------------- | - | - | --------- | -
| |                                                                                                             |  | 2011            |  |   | 2010      | 
| |                                                                                                             |  | Number          |  |   |           |  |  | Number          |   |   |           |  
| |                                                                                                             |  | of
      shares |  |   | Amount    |  |  | of
      shares |   |   | Amount    |  
| |                                                                                                             |  |                 |  |   |           |  |  |                 |   |   |           |  
| | Balance, beginning of year                                                                                  |  | 8,028,377       |  | $ | 8,762,524 |  |  | 8,558,377       |   | $ | 9,340,990 |  
| |                                                                                                             |  |                 |  |   |           |  |  |                 |   |   |           |  
| | Common shares cancelled
          pursuant to repurchase of shares
          under normal course issuer bid |  | -               |  |   | -         |  |  | (530,000        | ) |   | (578,466  | )
| |                                                                                                             |  |                 |  |   |           |  |  |                 |   |   |           |  
| | Balance, end of year                                                                                        |  | 8,028,377       |  | $ | 8,762,524 |  |  | 8,028,377       |   | $ | 8,762,524 |  

F-17

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|10. | Share capital
(continued)
|--- | -------------------------

| | (b) | Repurchase of shares
| | --- | --------------------

On June 30, 2010, the Company received
notice of acceptance by the Toronto Stock Exchange (the TSX) of its Notice of
Intention to Make a Normal Course Issuer Bid (NCIB). Pursuant to the NCIB,
Envoy proposed to purchase from time to time over the next 12 months, if
considered advisable, up to an aggregate of 632,394 common shares, being 10% of
the public float. Purchases were approved to commence on July 6, 2010 and
conclude on the earlier of the date on which purchases under the NCIB have been
completed and July 5, 2011. No purchases were made under this issuer bid.

Pursuant to the NCIB which commenced
on May 1, 2009 and concluded on April 30, 2010, Envoy proposed to purchase up to
an aggregate of 682,723 common shares, being 10% of the public float. In fiscal
2010, the Company repurchased and cancelled 530,000 common shares under this
NCIB for cash consideration of $620,158.

Share repurchases were accounted for
as reductions in share capital. If the average price paid was more than the
average per share value of the outstanding common shares, it was recorded as a
reduction of contributed surplus.

| | (c) | Stock option plan
| | --- | -----------------

The Company has reserved 802,838
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 five
years. Once vested, options are exercisable at any time until expiry.

On July 26, 2011 the Company granted
its directors a total of 600,000 options at the exercise price of $2.00 per
share. These options vest immediately and expire on July 25, 2016.

The estimated fair value of the
options granted during fiscal 2011, using the Black-Scholes option pricing
model, was $938,176 which was expensed fully in the financial statements in
fiscal 2011 and has been included as part of contributed surplus in
Shareholders Equity.

F-18

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|10. | Share capital
(continued)
|--- | -------------------------

| | (d) | 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:

2011
    
    
    2010
    
    
    2009Risk-free interest rate
    
    2.0%
    
    
    N/A
    
    
    N/AVolatility factor of the future expected market price of
      the Company's common shares
    
    124%
    
    
    N/A
    
    
    N/AWeighted average expected life of the
      options
    
    5 years
    
    
    N/A
    
    
    N/AExpected dividends
    
    Nil
    
    
    N/A
    
    
    N/A


Details of the options are as follows:

WeightedaverageexerciseNumber
    
    
    price perof
      options
    
    
    shareOptions outstanding, September 30, 2010
    
    -
    
    
    -Options granted
    
    600,000
    
    
    2.00Options exercised
    
    -
    
    
    -Options cancelled
    
    -
    
    
    -Options
      outstanding, September 30, 2011
    
    600,000
    
    $
    2.00Options
      exercisable, September 30, 2011
    
    600,000
    
    $
    2.00


F-19

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|10. | Share capital (continued)
|--- | -------------------------

The range of exercise prices for
options outstanding and exercisable options at September 30, 2011 are as
follows:

Number
    Weighted Average
    NumberExercise Price
    Outstanding
    Contractual Life
    Exercisable$ 2.00
    600,000
    4.83
    600,000


|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | Contributed Surplus                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During fiscal 2010, pursuant to the Normal Course Issuer
      Bid described in Note 10(b), the Company repurchased and cancelled 530,000
      common shares at an average price of $1.17 per common share for total cash
      consideration of $620,158 including related expenses. As the average price
      paid was more than the average per share value of the outstanding common
      shares, $41,692 was recorded as a reduction of contributed
  surplus.

F-20

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|12. | Income taxes
|--- | ------------

Income tax expense for the years ended
September 30, 2011, 2010 and 2009 consists of:

| |         |   | 2011 |  |   | 2010 |  |   | 2009    | 
| | ------- | - | ---- |  | - | ---- |  | - | ------- | 
| |         |   |      |  |   |      |  |   |         | 
| | Current | $ | -    |  | $ | -    |  | $ | -       | 
| | Future  |   | -    |  |   | -    |  |   | 560,784 | 
| |         | $ | -    |  | $ | -    |  | $ | 560,784 | 

The income tax expense (recovery)
attributable to the loss differs from the amounts computed by applying the
Canadian statutory rates of 28.75% (2010  31.0%, 2009 -33.0%) to the loss
before income taxes and discontinued operations as a result of the following:

2011
    
    
    2010
    
    
    2009Income tax recovery at statutory rates
    $
    (2,147,032
    )
    $
    (1,284,173
    )
    $
    (2,358,963
    )Increase (decrease) in income taxes resulting
      from:Expenses (revenue) deducted (included) in
      the accounts that have no corresponding deduction (inclusion) for income
      taxes
    
    383,956
    
    
    44,047
    
    
    111,541Change in valuation allowance
    
    (697,636
    )
    
    (501,263
    )
    
    (302,145
    )Change in estimated timing of reversal of
      temporary differences
    
    36,482
    
    
    83,600
    
    
    94,909Expired non-capital losses
    
    1,046,032
    
    
    1,037,561
    
    
    -Write-off of goodwill
    
    -
    
    
    -
    
    
    1,454,453Tax rate differential between Canada and foreign
      jurisdiction
    
    1,398,362
    
    
    540,282
    
    
    540,800Other
    
    (20,164
    )
    
    79,946
    
    
    1,020,188$
    -
    
    $
    -
    
    $
    560,784


F-21

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|12. | Income taxes (continued)                                                                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                         
|    | The tax effects of temporary differences that give rise
      to significant portions of the future tax assets and liabilities at
      September 30, 2011 and 2010 are presented
below:

| |                                      |   | 2011      |  |   | 2010      | 
| | ------------------------------------ | - | --------- |  | - | --------- | 
| |                                      |   |           |  |   |           | 
| | Future tax assets:                   |   |           |  |   |           | 
| | Capital and non-capital
      losses | $ | 5,513,124 |  | $ | 6,216,740 | 
| | Other                                |   | 77,562    |  |   | 71,582    | 
| |                                      |   | 5,590,685 |  |   | 6,288,321 | 
| |                                      |   |           |  |   |           | 
| | Less valuation
      allowance       |   | 5,590,685 |  |   | 6,288,321 | 
| |                                      |   |           |  |   |           | 
| | Total net future tax assets          |   | -         |  |   | -         | 
| |                                      |   |           |  |   |           | 
| | Less current
      portion           |   | -         |  |   | -         | 
| |                                      | $ | -         |  | $ | -         | 

At September 30, 2011, the Company has
non-capital losses of approximately $18,807,000 available to reduce future
years' taxable income, which expire as follows:

| | 2014 | $ | 2,249,000  | 
| | ---- | - | ---------- | 
| | 2015 |   | 1,641,000  | 
| | 2027 |   | 1,411,000  | 
| | 2028 |   | 9,157,000  | 
| | 2029 |   | 2,176,000  | 
| | 2030 |   | 1,200,000  | 
| | 2031 |   | 973,000    | 
| |      | $ | 18,807,000 | 

The Company has realized net capital
losses of approximately $6,490,400 available for carry forward to be applied
against future taxable gains for Canadian tax purposes. The losses are available
for carry forward indefinitely.

No provision has been made in the
financial statements with respect to any potential future income tax assets
which may be associated with these capital losses.

F-22

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|13. | Commitments and contingencies                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                               
|    | The Company has entered into operating lease agreements
      for office premises and equipment with minimum annual lease payments to
      expiry as follows:

| | 2012 | $ | 50,100 | 
| | ---- | - | ------ | 

Rent expense under operating leases for
the year ended September 30, 2011 amounted to $82,486 (2010 - $99,033, 2009 -
$205,572).

|    |                                                                       
|--- | ----------------------------------------------------------------------
|14. | Management of capital                                                 
|    |                                                                       
|    | The Company includes the following in its definition of
      capital:

| |                                   |   | 2011        |   |   | 2010        |  
| | --------------------------------- | - | ----------- | - | - | ----------- | -
| |                                   |   |             |   |   |             |  
| | Shareholders equity comprised of |   |             |   |   |             |  
| | Share capital                     | $ | 8,762,524   |   | $ | 8,762,524   |  
| | Contributed surplus               |   | 30,719,348  |   |   | 29,781,172  |  
| | Deficit                           |   | (29,149,360 | ) |   | (21,682,312 | )
| |                                   | $ | 10,332,512  |   | $ | 16,861,384  |  

The Companys objectives when managing
capital are:

| | (a) | to allow the Company to respond to changes in economic
      and/or marketplace conditions by maintaining the Companys ability to
      purchase new investments;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                   
| | (b) | to give shareholders sustained growth in shareholder
      value by increasing shareholders equity;                                                              
| |     |                                                                                                                                                                   
| | (c) | to ensure that the Company maintains the level of capital
      necessary to meet the requirements of its bank; and                                               
| |     |                                                                                                                                                                   
| | (d) | to maintain a flexible capital structure which optimizes
      the cost of capital at acceptable levels of risk.                                                  

F-23

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|14. | Management of capital (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company manages its capital structure and makes
      adjustments to it in the 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company is not subject to any capital requirements
      imposed by a regulator or an external party. 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 daily basis. The Companys current capital
      resources are sufficient to discharge its liabilities in the normal course
      of business as they become due.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|15. | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Fair Value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Companys carrying value of cash, accounts
      receivable, investments held for trading, bank indebtedness, accounts
      payable and accrued liabilities approximate their fair values due to the
      immediate or short term maturity of these instruments.                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Carrying value and fair value of financial assets and
      liabilities are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                             |   |                |  |   | 2011       |  |   |                |  |   | 2010             | 
| | --------------------------- | - | -------------- |  | - | ---------- |  | - | -------------- |  | - | ---------------- | 
| | Classification              |   | Carrying value |  |   | Fair value |  |   | Carrying value |  |   | Fair
      value | 
| | Held-for-trading            | $ | 8,193,787      |  | $ | 8,193,787  |  | $ | 14,393,889     |  | $ | 14,393,889       | 
| | Loans and receivables       |   | 1,677,238      |  |   | 1,677,238  |  |   | 11,170         |  |   | 11,170           | 
| | Other financial liabilities |   | 686,339        |  |   | 686,339    |  |   | 1,228,207      |  |   | 1,228,207        | 

F-24

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|15. | Financial instruments (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | 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. In
      general, fair values determined by Level 1 inputs utilize quoted prices
      (unadjusted) in active markets for identical assets or liabilities. Fair
      values determined by Level 2 inputs utilize data points that are
      observable such as quoted prices, interest rates and yield curves. Fair
      values determined by 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, 2011, the Companys financial assets and
      liabilities would be classified as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                              |   |                    |  |   | Significant |  |   | Significant Other |  |   | Significant  | 
| | ---------------------------- | - | ------------------ |  | - | ----------- |  | - | ----------------- |  | - | ------------ | 
| |                              |   |                    |  |   | Observable  |  |   | Observable        |  |   | Unobservable | 
| |                              |   |                    |  |   | Inputs      |  |   | Inputs            |  |   | Inputs       | 
| |                              |   | September 30, 2011 |  |   | (Level 1)   |  |   | (Level 2)         |  |   | (Level 3)    | 
| | Assets:                      |   |                    |  |   |             |  |   |                   |  |   |              | 
| | Cash                         | $ | 5,059,650          |  | $ | 5,059,650   |  | $ | -                 |  | $ | -            | 
| | Investments held for trading |   | 3,134,137          |  |   | 979,547     |  |   | 2,154,590         |  |   | -            | 
| | Loans receivable             |   | 1,598,260          |  |   | -           |  |   | 1,598,260         |  |   | -            | 
| |                              | $ | 9,792,047          |  | $ | 6,039,197   |  | $ | 3,752,850         |  | $ | -            | 
| |                              |   |                    |  |   |             |  |   |                   |  |   |              | 
| | Liabilities:                 | $ | -                  |  | $ | -           |  | $ | -                 |  | $ | -            | 
| |                              | $ | -                  |  | $ | -           |  | $ | -                 |  | $ | -            | 

At September 30, 2010, the Companys
financial assets and liabilities would be classified as follows:

| |                                    |   |                    |  |   | Significant |  |   | Significant Other |  |   | Significant  | 
| | ---------------------------------- | - | ------------------ |  | - | ----------- |  | - | ----------------- |  | - | ------------ | 
| |                                    |   |                    |  |   | Observable  |  |   | Observable        |  |   | Unobservable | 
| |                                    |   |                    |  |   | Inputs      |  |   | Inputs            |  |   | Inputs       | 
| |                                    |   | September 30, 2010 |  |   | (Level 1)   |  |   | (Level 2)         |  |   | (Level 3)    | 
| | Assets:                            |   |                    |  |   |             |  |   |                   |  |   |              | 
| | Cash                               | $ | 8,435,679          |  | $ | 8,435,679   |  | $ | -                 |  | $ | -            | 
| | Investments held for trading       |   | 6,721,128          |  |   | 6,529,457   |  |   | 191,671           |  |   | -            | 
| | Investments                        |   | 141,006            |  |   | 141,006     |  |   | -                 |  |   | -            | 
| |                                    | $ | 15,297,813         |  | $ | 15,106,142  |  | $ | 191,671           |  | $ | -            | 
| |                                    |   |                    |  |   |             |  |   |                   |  |   |              | 
| | Liabilities:                       |   |                    |  |   |             |  |   |                   |  |   |              | 
| | Derivatives held
      for trading | $ | 775,318            |  | $ | 775,318     |  |   | -                 |  |   | -            | 
| |                                    | $ | 775,318            |  | $ | 775,318     |  | $ | -                 |  | $ | -            | 

F-25

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|15. | Financial instruments (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The investment operations of the Companys business
      involve the purchase and sale of securities and, accordingly, the majority
      of the Companys assets are currently 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-26

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|15. | Financial instruments
(continued)
|--- | ---------------------------------

The following table shows the
estimated sensitivity of the Companys after-tax net loss for the year ended
September 30, 2011 from a change in the closing price of the Companys
investments with all other variables held constant as at September 30, 2011:

| |                      |   | 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%                   | $ | 62,683                  |  | $ | (62,683                 | )
| | 4%                   |   | 125,365                 |  |   | (125,365                | )
| | 6%                   |   | 188,048                 |  |   | (188,048                | )
| | 8%                   |   | 250,731                 |  |   | (250,731                | )
| | 10%                  |   | 313,414                 |  |   | (313,414                | )

| | (iii) | Currency risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       | The Company is subject to currency risk through its
      activities in Europe and sales to foreign based clients. The Company
      invoices a substantial portion of its consumer branding customers in
      foreign currency and, as such, changes in the exchange rate affect the
      operating results of the Company. The Company uses forward contracts and
      other derivative instruments to reduce its exposure to foreign currency
      risk. Dependent on the nature, amount and timing of foreign currency
      receipts and payments, the Company may from time to time enter into
      foreign currency contracts. At September 30, 2011, the Company had no
      outstanding foreign exchange contracts, thus there is no liability
      associated with these instruments at September 30, 2011. The gains and
      losses from foreign currency contracts have been included in investment
      income for the period.

F-27

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|15. | Financial instruments
(continued)
|--- | ---------------------------------

The following assets and liabilities
were denominated in foreign currencies at September 30, 2011 (U.S. dollar
1.0482):

| |                                         |   | 2011    |  |   | 2010      |  
| | --------------------------------------- | - | ------- |  | - | --------- | -
| | Denominated in U.S. dollars             |   |         |  |   |           |  
| | Cash                                    | $ | 141,718 |  | $ | 4,238,259 |  
| | Investments held for trading            |   | 16,603  |  |   | 5,417,345 |  
| | Accounts
      receivable               |   | -       |  |   | 350,377   |  
| | Accounts payable                        |   | -       |  |   | (124,539  | )
| | Derivatives held
      for trading      |   | -       |  |   | (775,318  | )
| | Deferred revenue                        |   | -       |  |   | (24,968   | )
| | Net assets denominated in U.S. dollars  | $ | 158,321 |  | $ | 9,081,157 |  
| | Denominated in Danish kroner            |   |         |  |   |           |  
| | Investments held
      for trading      | $ | -       |  | $ | 61,080    |  
| | Net assets denominated in Danish kroner | $ | -       |  | $ | 61,080    |  
| | Denominated in euros                    |   |         |  |   |           |  
| | Cash                                    | $ | -       |  | $ | (34,668   | )
| | Accounts payable                        |   | -       |  |   | (40,892   | )
| | Net assets denominated in euros         | $ | -       |  | $ | (75,560   | )

The following table shows the
estimated sensitivity of the Companys after-tax net loss for the year ended
September 30, 2011 from a change in all foreign currencies with all other
variables held constant as at September 30, 2011:

| |                      |   | Change in net after-tax |  |   | Change in net after-tax |  
| | -------------------- | - | ----------------------- |  | - | ----------------------- | -
| | Percentage change in |   | loss from % increase    |  |   | loss from % decrease    |  
| | foreign currencies   |   | in foreign currency     |  |   | in foreign currency     |  
| | 2%                   | $ | 3,166                   |  | $ | (3,166                  | )
| | 4%                   |   | 6,333                   |  |   | (6,333                  | )
| | 6%                   |   | 9,499                   |  |   | (9,499                  | )
| | 8%                   |   | 12,666                  |  |   | (12,666                 | )
| | 10%                  |   | 15,832                  |  |   | (15,832                 | )

F-28

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|15. | Financial instruments (continued)
|--- | ---------------------------------
|    |                                  
|    | (iv)                             
|    |                                  
|    |                                  
|    |                                  
|    | (v)                              
|    |                                  
|    |                                  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16. | Restructuring expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On February 10, 2011, the Company announced that the
      independent members of its board of directors had approved the completion
      of a restructuring designed to significantly reduce the Companys
      corporate structure and associated costs. As part of the restructuring,
      the Company has transferred all of its assets in Envoy Capital Group
      Monaco S.A.M. to itself in Canada and going forward will operate its
      merchant banking business solely from its offices in Toronto,
    Ontario.  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The decision to complete the Restructuring was made to
      increase the Companys profitability over the long-term. The restructuring
      involved significant changes to executive management. To this effect, the
      Company recorded and paid a total of $6,061,413 in restructuring expenses
      in fiscal 2011 relating to severance $5,920,657 and office closure costs
      $140,756.                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As part of a previous restructuring of the Companys
      operations, in December 2009, the Company announced that its Board of
      Directors had made a decision to implement a restructuring plan at the
      executive level. The restructuring involved the downsizing of its
      executive management and the consolidation of certain financial reporting
      responsibilities. To this effect, the Company recorded and paid $2,414,948
      in restructuring expense in fiscal 2010 relating to severance
  costs.

F-29

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|17. | Assets held for sale and discontinued
      operations
|--- | ------------------------------------------------------

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. The disposition of Watt resulted in
a loss on disposal of discontinued operations, net of income taxes, of $396,471.

The balance sheet of Watt International
Inc. has been presented as assets held for disposal as follows:

| |                                                       |   | September 30 |  |   | September 30 | 
| | ----------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                       |   | 2011         |  |   | 2010         | 
| | Assets                                                |   |              |  |   |              | 
| | Accounts receivable                                   | $ | -            |  | $ | 2,074,304    | 
| | Prepaid expenses                                      |   | -            |  |   | 396,586      | 
| | Property and equipment                                |   | -            |  |   | 402,220      | 
| | Total assets held for disposal                        | $ | -            |  | $ | 2,873,110    | 
| | Liabilities                                           |   |              |  |   |              | 
| | Accounts payable and accrued
      liabilities        | $ | -            |  | $ | 519,342      | 
| | Deferred revenue                                      |   | -            |  |   | 92,956       | 
| | Current portion of capital
      lease obligations    |   | -            |  |   | 27,326       | 
| | Long term capital lease obligations                   |   | -            |  |   | 70,178       | 
| | Total liabilities related to assets held for disposal | $ | -            |  | $ | 709,802      | 

The results of Watt International Inc.
have been presented as discontinued operations as follows:

| |                                              |   | 2011      |   |   | 2010      |  |   | 2009       |  
| | -------------------------------------------- | - | --------- | - | - | --------- |  | - | ---------- | -
| |                                              |   |           |   |   |           |  |   |            |  
| | Net revenue                                  | $ | 7,809,688 |   | $ | 8,447,827 |  | $ | 11,732,473 |  
| |                                              |   |           |   |   |           |  |   |            |  
| | Operating expenses                           |   | 7,775,117 |   |   | 7,995,663 |  |   | 12,549,275 |  
| | Goodwill impairment                          |   | -         |   |   | -         |  |   | 1,736,295  |  
| | Interest expense                             |   | 13,884    |   |   | -         |  |   | -          |  
| | Depreciation                                 |   | 303,656   |   |   | 262,399   |  |   | 346,898    |  
| | Income tax expense                           |   | -         |   |   | -         |  |   | 427,442    |  
| | Earnings (loss) from discontinued operations |   | (282,969  | ) |   | 189,765   |  |   | (3,327,437 | )
| | Loss on sale of discontinued operations      |   | (396,471  | ) |   | -         |  |   | -          |  
| | Total                                        | $ | (679,440  | ) | $ | 189,765   |  | $ | (3,327,437 | )

Cash flows from discontinued operations
have been presented in the statement of cash flows.

F-30

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|18. | Subsequent events
|--- | -----------------

On October 10, 2011, the Company entered into a letter of
      intent with Merus pursuant to which both companies will amalgamate. This
      Plan of Arrangement for amalgamation was conditional upon receipt of all
      required approvals. Pursuant to the Arrangement, all of the outstanding
      common shares of Merus were to be exchanged on a 4:1 basis for common
      shares of the amalgamated company (Amalco) and all outstanding common
      shares of Envoy were to be exchanged on a 1:1 basis for common shares of
      Amalco. Upon completion of the Arrangement, the existing shareholders of
      Envoy would, in the aggregate, hold approximately 51% of the issued and
      outstanding common shares of Amalco on a non-diluted basis and the
      existing shareholders of Merus would hold approximately 49% of the issued
and outstanding shares on a non- diluted basis.

On November 10, 2011, the Company entered into a
      definitive agreement with Merus with respect to the above merger, and on
      November 24, 2011, the Company advanced Merus US$6,500,000 in
      contemplation of the merger and the requirement of Merus to fund a license
      payment due November 30, 2011 for US$9 million. The loan had a term of one
      year and bore interest at 12% and was secured by a general security
      agreement on the assets of Merus and a pledge of shares. The loan was to
be extinguished upon completion of the merger.

On December 19, 2011, the Company and Merus completed the
      transaction and amalgamated to form Amalco. Amalco will continue under the
name Merus Labs International Inc.

F-31

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles
|--- | ------------------------------------------------------------------------------

These consolidated financial statements
have been prepared in accordance with Canadian GAAP. Set out below are the
material adjustments to net loss for the years ended September 30, 2011, 2010
and 2009 required to conform to US GAAP.

| |                                                              |   | 2011       |   |   | 2010       |   |   | 2009        |  
| | ------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ----------- | -
| | Net loss and comprehensive loss based on
      Canadian GAAP | $ | (7,467,048 | ) | $ | (4,142,492 | ) | $ | (10,475,810 | )
| | Fair value
      adjustment on restricted securities (c)     |   | (51,239    | ) |   | (137,465   | ) |   | (283,411    | )
| | Net loss and comprehensive loss based on US GAAP             | $ | (7,518,287 | ) | $ | (4,279,957 | ) | $ | (10,759,221 | )

| |                                                        |   | 2011       |   |   | 2010       |   |   | 2009       |  
| | ------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Net loss from continuing operations                    | $ | (6,838,847 | ) | $ | (4,469,722 | ) | $ | (7,431,784 | )
| | Net (loss)
      earnings from discontinued operations | $ | (679,440   | ) | $ | 189,765    |   | $ | (3,327,437 | )

| |                                                        |   | 2011       |   |   | 2010       |   |   | 2009        |  
| | ------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ----------- | -
| | Net loss and comprehensive loss
      attributable to: |   |            |   |   |            |   |   |             |  
| | Envoy shareholders                                     | $ | (7,511,269 | ) | $ | (4,276,471 | ) | $ | (10,755,943 | )
| | Non-controlling interest                               | $ | (7,018     | ) | $ | (3,486     | ) | $ | (3,278      | )

| |                                                               |   | 2011       |   |   | 2010       |   |   | 2009       |  
| | ------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Net (loss) earnings attributable to Envoy
      shareholders: |   |            |   |   |            |   |   |            |  
| | Continuing operations                                         | $ | (6,831,829 | ) | $ | (4,466,236 | ) | $ | (7,428,506 | )
| | Discontinued operations                                       | $ | (679,440   | ) | $ | 189,765    |   | $ | (3,327,437 | )

F-32

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

The following table sets forth the
computation of basic and diluted net loss per share under US GAAP:

| |                                                                   |   | 2011  |   |   | 2010  |   |   | 2009  |  
| | ----------------------------------------------------------------- | - | ----- | - | - | ----- | - | - | ----- | -
| | Net loss per share:                                               |   |       |   |   |       |   |   |       |  
| | Basic                                                             | $ | (0.93 | ) | $ | (0.52 | ) | $ | (1.26 | )
| | Diluted                                                           |   | (0.93 | ) |   | (0.52 | ) |   | (1.26 | )
| | Net loss per share from continuing operations:                    |   |       |   |   |       |   |   |       |  
| | Basic                                                             | $ | (0.85 | ) | $ | (0.54 | ) | $ | (0.87 | )
| | Diluted                                                           |   | (0.85 | ) |   | (0.54 | ) |   | (0.87 | )
| | Net earnings (loss) per share from
      discontinued operations: |   |       |   |   |       |   |   |       |  
| | Basic                                                             | $ | (0.08 | ) | $ | 0.02  |   | $ | (0.39 | )
| | Diluted                                                           |   | (0.08 | ) |   | 0.02  |   |   | (0.39 | )

The calculation of diluted (loss)
earnings per share used income from continuing operations as the control
number in determining whether potential common shares are dilutive or
antidilutive. Since the Company experienced a loss in fiscal 2011, 2010 and 2009
from continuing operations, all potential common shares outstanding from
dilutive securities are considered antidilutive and are excluded from the
calculation of diluted loss per share for that year.

The following adjustments are required
in order to conform total assets based on Canadian GAAP to total assets based on
US GAAP:

| |                                                          |   | 2011       |  |   | 2010       | 
| | -------------------------------------------------------- | - | ---------- |  | - | ---------- | 
| | Total assets based on Canadian GAAP                      | $ | 11,018,851 |  | $ | 19,569,553 | 
| | Fair value
      adjustment on restricted securities (c) |   | -          |  |   | 51,239     | 
| | Total assets based on US GAAP                            | $ | 11,018,851 |  | $ | 19,620,792 | 

F-33

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                             
|    | The following adjustments are required in order to
      conform shareholders equity based on Canadian GAAP to shareholders
      equity based on US GAAP:

| |                                                          |   | 2011       |  |   | 2010       | 
| | -------------------------------------------------------- | - | ---------- |  | - | ---------- | 
| | Shareholders equity based on Canadian GAAP              | $ | 10,332,512 |  | $ | 16,861,384 | 
| | Fair value
      adjustment on restricted securities (c) |   | -          |  |   | 51,239     | 
| | Total Envoy shareholders equity based on
      US GAAP  |   | 10,332,512 |  |   | 16,912,623 | 
| | Non-controlling
      interest                           |   | -          |  |   | 7,242      | 
| | Total equity based on US GAAP                            | $ | 10,332,512 |  | $ | 16,919,865 | 

Summary of accounting policy
differences:

The areas of material difference
between Canadian and US GAAP and their impact on the consolidated financial
statements of the Company are set out below:

| | (a) | Reduction of capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In 2007, the share capital of the Company was reduced by
      $40,266,401 pursuant to a special resolution of its shareholders and was
      applied against the deficit. Also, in 1997, the share capital of the
      Company was reduced by $9,886,961 pursuant to a special resolution of its
      shareholders and was applied against the deficit. These reductions in
      capital are not permitted under US GAAP. While the adjustments have no
      impact on shareholders' equity, under US GAAP, share capital and deficit
      would be increased by $50,153,362 as at September 30, 2011 and
  2010.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Under US GAAP, net investment gains and interest and
      dividend income would be included as investment earnings (as
      non-operating) in the consolidated statement of operations.                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (c) | Investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | As at September 30, 2011, the Company has categorized
      certain investments as held-for trading for Canadian GAAP purposes which
      requires that these investments be accounted for at fair value with
      changes in fair value through the Statement of
  Operations.                                                                                                                                                                                                                                                                                                                                      

F-34

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

| |     | The Company has held investments in entities which had
      escrow restrictions imposed by the exchange on which the shares were
      listed. Under Canadian GAAP the Company recorded these shares at fair
      value which was determined using valuation techniques to reflect the
      restriction on these securities. Under US GAAP, those shares which will be
      released from escrow in less than twelve months are recorded at the quoted
      market price at the balance sheet date and those shares which will be
      released from escrow in greater than twelve months are recorded at cost.
      The result was a combined US GAAP net income differences totalling
      ($51,239), ($137,465) and ($283,411) in fiscal 2011, 2010 and 2009,
      respectively, and a difference in total assets at September 30, 2010 and
      September 30, 2009 of $51,239 and $188,704, respectively.                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (d) | Consolidated statements of cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Under US GAAP, the gain on investment under the equity
      method in 2011 of $58,994 (2010  loss of $49,337, 2009  loss of $9,657)
      would be included as a non-cash add back to operating activities as
      opposed to cash flows from investing activities. Under US GAAP, net cash
      from operating activities would be lower by $58,994 and net cash from
      investing activities would be higher by the same amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (e) | Accounting for Uncertainty in Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Financial Accounting Standards Board (FASB) issued
      an interpretation, effective for fiscal years beginning after December 15,
      2006, which clarifies the accounting for uncertainty in income taxes
      recognized in an enterprises financial statements. This interpretation
      prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in the Companys tax returns. It also provides
      guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The majority of
      the Companys tax positions still under potential exposure of tax
      authority review relate to Canadian taxes. Canadian tax returns are
      statute barred after three years from the assessment date. The Company has
      assessed the Companys tax positions and has determined that it is more
      likely than not that all tax positions taken will be sustained upon
      examination based on the technical merits of the
  positions.

F-35

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

| | (f) | Recent accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In September 2009, the FASB revised the authoritative
      guidance for revenue recognition for arrangements with multiple
      deliverables. The new guidance modifies the requirements for determining
      whether a deliverable can be treated as a separate unit of accounting by
      removing the criteria that verifiable and objective evidence of fair value
      exists for the undelivered elements. In allocating transaction
      consideration among the deliverables, the guidance also introduced the
      concept of using management's best estimate of a stand along selling price
      as an alternate basis for allocation. The Company adopted this guidance in
      its first quarter of fiscal 2011. The adoption of these changes did not
      have a material impact on the Companys consolidated financial
      statements.                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In January 2010, the FASB issued Accounting Standards
      Update No. 2010-06, Improving Disclosures about Fair Value Measurements
      (Topic 820) Fair Value Measurements and Disclosures (ASU 2010-06), to add
      additional disclosures about the different classes of assets and
      liabilities measured at fair value, the valuation techniques and inputs
      used, the activity in Level 3 fair value measurements, and the transfers
      between Levels 1, 2, and 3. This standard was effective for the Company in
      the first quarter of fiscal 2011 and the adoption of these changes did not
      have a material impact on the Companys consolidated financial
      statements.                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In April 2010, the FASB issued Accounting Standards
      Update No. 2010-17, Revenue RecognitionMilestone Method (Topic 605) 
      Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance on
      defining the milestone and determining when the use of the milestone
      method of revenue recognition for research or development transactions is
      appropriate. It provides criteria for evaluating if the milestone is
      substantive and clarifies that a vendor can recognize consideration that
      is contingent upon achievement of a milestone as revenue in the period in
      which the milestone is achieved, if the milestone meets all the criteria
      to be considered substantive. ASU 2010-17 is effective for the Company in
      fiscal 2012 and should be applied prospectively. Early adoption is
      permitted. The company is currently evaluating the impact of the adoption
      of this standard on the Company`s consolidated financial
  statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In July 2010, the FASB issued ASU 2010-20 an accounting
      update to provide guidance to enhance disclosures related to the credit
      quality of a company's financing receivables portfolio and the associated
      allowance for credit losses ("FASB ASC Topic 310"). Pursuant to this
      accounting update, a company is required to provide a greater level of
      disaggregated information about its allowance for credit loss with the
      objective of facilitating users' evaluation of the nature of credit risk
      inherent in the company's portfolio of financing receivables, how
    that                                                                                                                                                                                                                                                                                                                                                                                          

F-36

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

risk is analyzed and assessed in
arriving at the allowance for credit losses, and the changes and reasons for
those changes in the allowance for credit losses. The adoption of such standard
did not have a material impact on the Company's consolidated financial
statements and disclosures.

In December 2010, the FASB issued ASU
2010-28 an accounting pronouncement related to intangibles - goodwill and other
("FASB ASC Topic 350"), which requires a company to consider whether there are
any adverse qualitative factors indicating that an impairment may exist in
performing step 2 of the impairment test for reporting units with zero or
negative carrying amounts. The provisions for this pronouncement are effective
for fiscal years, and interim periods within those years, beginning after
December 15, 2010, with no early adoption. The Company will adopt this
pronouncement for our fiscal year beginning October 1, 2011. The adoption of
this pronouncement is not expected to have a material impact on our consolidated
financial statements.

In December 2010, the FASB issued ASU
2010-29 an accounting pronouncement related to business combinations ("FASB ASC
Topic 815"), which specifies that if a public entity presents comparative
financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual
reporting period only. It also expands the supplemental pro forma disclosures
under Topic 805 to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. The
amendments in this Update are effective prospectively for business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. Early adoption is
permitted. The company is currently evaluating the impact of the adoption of
this standard on the Company`s consolidated financial statements.

The FASB has issued Accounting
Standards Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditor's
Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The
ASU clarifies which loan modifications constitute troubled debt restructurings.
It is intended to assist creditors in determining whether a modification of the
terms of a receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss and for
disclosure of troubled debt restructurings. The new guidance is effective for
interim and annual periods beginning on or after June 15, 2011, and applies
retrospectively to restructurings occurring on or after the beginning of the
fiscal year of adoption.

F-37

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

The FASB has issued Accounting
Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860):
Reconsideration of Effective Control for Repurchase Agreements. The ASU is
intended to improve financial reporting of repurchase agreements ("repos") and
other agreements that both entitle and obligate a transferor to repurchase or
redeem financial assets before their maturity. The guidance in the ASU is
effective for the first interim or annual period beginning on or after December
15, 2011. The guidance should be applied prospectively to transactions or
modifications of existing transactions that occur on or after the effective
date. Early adoption is not permitted.

The FASB has issued Accounting
Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB
and the IASB (the Boards) on fair value measurement. The collective efforts of
the Boards and their staffs, reflected in ASU 2011-04, have resulted in common
requirements for measuring fair value and for disclosing information about fair
value measurements, including a consistent meaning of the term "fair value." The
Boards have concluded the common requirements will result in greater
comparability of fair value measurements presented and disclosed in financial
statements prepared in accordance with U.S. GAAP and IFRSs.

The FASB has issued Accounting
Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income. This ASU amends the FASB Accounting
Standards Codification? (Codification) to allow an entity the option to present
the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement
of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along
with total net income, each component of other comprehensive income along with a
total for other comprehensive income, and a total amount for comprehensive
income. ASU 2011-05 eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders'
equity. ASU 2011-05 should be applied retrospectively. The amendments are
effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011.

The FASB has issued Accounting
Standards Update (ASU) No. 2011-08, Intangibles-Goodwill and Other (Topic 350):
Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how
entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08

permits an entity to first assess qualitative factors to determine whether it is
"more likely than not" that the fair value of a

F-38

---

|Envoy Capital
      Group Inc.                             
|-----------------------------------------------------------
|Notes to Consolidated Financial Statements                 
|(Expressed in Canadian dollars)                            
|For the years
      ended September 30, 2011, 2010 and 2009

|19. | Reconciliation to United States generally accepted
      accounting principles (continued)
|--- | ------------------------------------------------------------------------------------------

reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform
the two-step goodwill impairment test described in Topic 350,
Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as
having a likelihood of more than 50%. ASU 2011-08 is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. Early adoption is permitted, including for annual and interim
goodwill impairment tests performed as of a date before September 15, 2011, if
an entity's financial statements for the most recent annual or interim period
have not yet been issued or, for nonpublic entities, have not yet been made
available for issuance.

|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|20. | Comparative figures                                                                                                                             
|    |                                                                                                                                                 
|    | Certain comparative figures have been reclassified to
      conform to the consolidated financial statement presentation adopted for
      2011.

F-39

---

Item 18: Financial Statements

The Company has elected to provide financial statements
pursuant to Item 17.

Item 19: Exhibits

EXHIBIT INDEX

|Exhibit No. | Description                                                                                                                      
|----------- | ---------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                  
|1.1         | Articles of Incorporation of Merus Labs International Inc.                                                                       
|1.2*        | Notice of Articles of Merus Labs International Inc.                                                                              
|4.1**       | An Exclusive License and Distribution Agreement between Merus Labs and Innocoll Pharmaceuticals Limited dated September 17, 2010.
|4.2**       | An Asset Purchase Agreement between Merus Labs and Iroko International LP dated May 13, 2011.                                    
|4.3**       | An Arrangement Agreement between Old Merus and Envoy dated November 10, 2011.                                                    
|8.1         | List of Significant Subsidiaries (contained in Item 4.C hereof)                                                                  
|11.1***     | Code of Business Conduct                                                                                                         
|11.2***     | Complaint Procedures for Accounting and Auditing Matters                                                                         
|11.3***     | Board Mandate                                                                                                                    
|12.1        | Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                   
|12.2        | Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                   
|13.1        | Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                          
|15.1***     | Audit Committee Charter                                                                                                          
|15.2***     | Compensation and Nominating and Corporate Governance Committee                                                                   
|17          | Financial
    Statements                                                                                                         

_______________________________

|*   | Incorporated by reference to the Company’s Report of Foreign Private Issuer on Form 6-K filed on December 21, 2011
|--- | ------------------------------------------------------------------------------------------------------------------
|**  | Incorporated by reference to the Company’s Report by Foreign Private Issuer on Form 6-K filed on April 16, 2012   
|*** | Incorporated by reference to the Company’s Annual Report on Form 20-F, filed on December 29, 2005.                

78

---

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 on its behalf.

|      |                | MERUS LABS INTERNATIONAL INC. 
|----- | -------------- | ------------------------------
|      |                |                               
|Date: | April 16, 2012 | /s/ AHMAD DOROUDIAN           
|      |                |                               
|      |                | Name: Ahmad Doroudian         
|      |                | Title: Chief Executive Officer

79

---