	LOW	HIGH
August 2012	0.9938	1.0139
September 2012	1.0099	1.0299
October 2012	0.9996	1.0243
November 2012	0.9972	1.0074
December 2012	1.0048	1.0162
January 2013 (through January 29, 2013)	0.9923	1.0164

November 2010 0.9833 0.9902
December 2010 0.9890 0.9950
January 2011 1.0026 1.0089
February 2011 1.0096 1.0153
March 2011 1.0209 1.0270
April 2011 1.0406 1.0470

- 3 -

The exchange rates are based upon the noon buying rate as quoted by The Bank of Canada. At ~~May 27, 2011,~~January 29, 2013, the exchange rate for one Canadian dollar expressed in terms of one U.S. dollar, as quoted by The Bank of Canada at 4 p.m. Eastern Time, equaled ~~$1.0234.~~$1.0024.

Capitalization and Indebtedness

Not Applicable.

Reasons for the Offer and Use of Proceeds

Not Applicable.

D.	Risk Factors

The risks and uncertainties described below are those that we currently believe may materially affect us. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that affect us. If any of the following risks actually occurs, our business, operating results or financial condition could be materially adversely affected.

~~RISKS RELATING TO OUR BUSINESS~~

Prospects for companies in the pharmaceutical industry generally may be regarded as uncertain given the research and development nature of the industry and uncertainty regarding the prospects of successfully commercializing product candidates and, accordingly, investments in companies such as ours should be regarded as very speculative. An investor should carefully consider the risks and uncertainties described below, as well as other information contained in this annual report. The list of risks and uncertainties described below is not an exhaustive list. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any one or more of the following risks occur, our business, financial condition and results of operations could be seriously harmed. Further, if we fail to meet the expectations of the public market in any given period, the market price of our common shares could decline. If any of the following risks actually occurs, our business, operating results, or financial condition could be materially adversely affected.

Our activities entail significant risks. In addition to the usual risks associated with a business, the following is a general description of certain significant risk factors which may be applicable to us.

Risks related to our Company

WeOur business is capital intensive and requires significant investment to conduct research and development, clinical and regulatory activities necessary to bring our products to market, which capital may ~~require additional funds~~not be available in ~~our business that may be difficult to obtain when needed~~amounts or on terms acceptable to ~~us.~~us, if at all.

As of November 30, 2010, we had a cash balance of $0.8 million. On February 1, 2011, we completed a private offering of 4,800,000 units of the Company, each Unit consisting of one common share, a five-year warrant to purchase one-half of a common share at an exercise price of $2.50 per whole share and a two-year warrant to purchase one-half of a common share at an exercise price of $2.50 per whole share, for gross proceeds of $12,000,000. As of February 28, 2011, we had a cash balance of $10.5 million. We anticipate our burn rate, namely cash flows used in operating activities excluding financing expense, will be approximately $3.9 million during the

~~-3-~~

remainder of fiscal 2011. Depending on the progress of ongoing partnering initiatives, the Company may elect to increase or reduce expenses associated with its current development plan. In the future, we will requireOur business requires substantial capital investment in order ~~to continue~~ to conduct the research and development, clinical and regulatory activities necessary to bring our products to market and to establish commercial manufacturing, marketing and sales ~~capabilities~~capabilities. As of November 30, 2012, we had a cash balance of $0.5 million. As of December 31, 2012, our cash balance was $0.1 million.

In order for us to continue operations at existing levels, we expect that ~~may~~for at least the next twelve months we will require significant additional capital. While we expect to satisfy our operating cash requirements over the next twelve months from cash on hand, collection of anticipated revenues resulting from future commercialization activities, development agreements or marketing license agreements, through managing operating expense levels, using funds from senior management through the convertible debenture described elsewhere herein, equity and/or debt financings, and/or new strategic partnership agreements funding some or all costs of development, there can be ~~difficult or impossible~~no assurance that we will be able to obtain ~~when needed or~~any such capital on terms ~~acceptable~~or in amounts sufficient to ~~us.~~

~~In order to secure future financing, if it is even available, it is likely that we would need to sell additional common shares~~meet our needs or ~~financial instruments that are exchangeable for~~at all. The availability of equity or ~~convertible into common shares and/or enter into development, distribution and/or licensing relationships. Any future~~ debt financing ~~arrangements~~will be affected by, among other things, the results of our research and development, our ability to obtain regulatory approvals, the market acceptance of our products, the state of the capital markets generally, strategic alliance agreements, and other relevant commercial considerations. In addition, if we ~~enter into~~raise additional funds by issuing equity securities, our then existing security holders will likely experience dilution, and the incurring of indebtedness would ~~likely contain restrictive~~result in increased debt service obligations and could require us to agree to operating and financial covenants that would ~~impose significant operating and financial restrictions on us.~~

~~Our~~restrict our operations. In the event that we do not obtain additional capital over the next twelve months, there may be substantial doubt about our ability to ~~obtain funding will depend~~continue as a going concern and realize our assets and pay our liabilities as they become due. Any failure by the Company to raise additional funds on terms favorable to the Company, or at all, may require the Company to significantly change or curtail our current or planned operations in ~~part upon prevailing capital market conditions~~order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in our not taking advantage of business performance. Any additional financing may not be obtained at favourable terms, if at all. Any future equity financing may also be dilutive to existing shareholders. If we cannot obtain adequate funding on reasonable terms, we may terminateopportunities, in the termination or delay of clinical trials for one or more of our product candidates, ~~curtail significant~~in curtailment of our product development programs ~~that are~~ designed to identify new product candidates, ~~and/~~in the sale or ~~sell or assign~~assignment of rights to our technologies, products or product candidates, and/or our inability to file abbreviated new drug applications (“ANDAs”) or new drug applications (“NDAs”) at all or in time to competitively market our products or product candidates.

- 4 -

Delays, suspensions and terminations in our preclinical studies and clinical trials could result in increased costs to us and delay our ability to generate product revenues.

The commencement of clinical trials can be delayed for a variety of reasons, including delays in:

·	demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;

·	reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;

·	manufacturing sufficient quantities of a drug candidate;

·	obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site; and

·	patient enrollment.

Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of factors, including:

·	the number of patients that participate in the trial;

·	the length of time required to enroll suitable subjects;

·	the duration of patient follow-up;

·	the number of clinical sites included in the trial;

·	changes in regulatory requirements or regulatory delays or clinical holds requiring suspension or termination of the trials;

·	delays, suspensions or termination of clinical trials due to the institutional review board overseeing the study at a particular site;

·	failure to conduct clinical trials in accordance with regulatory requirements;

·	unforeseen safety issues, including serious adverse events or side effects experienced by participants; and

·	inability to manufacture, through third party manufacturers, adequate supplies of the product candidate being tested.

Based on results at any stage of product development, we may decide to repeat or redesign preclinical studies or clinical trials, conduct entirely new studies or discontinue development of products for one or all indications. In addition, our products may not demonstrate sufficient safety and efficacy in pending or any future preclinical testing or clinical trials to obtain the requisite regulatory approvals. Even if such approvals are obtained for our products, they may not be accepted in the market as a viable alternative to other products already approved or pending approvals.

If we experience delays, suspensions or terminations in a preclinical study or clinical trial, the commercial prospects for our products will be harmed, and our ability to generate product revenues will be delayed or we may never be able to generate such revenues.

- 5 -

We have a history of ~~losses.~~operating losses, which may continue in the foreseeable future.

We have incurred net losses from ~~2002 (when Intellipharmaceutics Ltd., our predecessor company, commenced operations)~~inception through November 30, ~~2010 and continue to incur losses. As at November 30, 2010, we~~2012 had an accumulated deficit of ~~$19.1 million. For the year ended November 30, 2010 we had a loss~~$30.1 million as of ~~$5.8 million. Our~~such date and have incurred additional losses for the fiscal periods ended November 30, 2009 and December 31, 2008, 2007 and 2006 were $1.8 million, $3.8 million, $1.3 million and $1.3 million, respectively. These historical financial losses and our continued losses and financial condition could make it more difficult for us to obtain financing in the future or could reduce the value the market places on our common shares.

since such date. As we engage in the development of products in our pipeline, we will continue to incur further losses. There can be no assurance that we will ever be able to achieve or sustain profitability or positive cash flow. Our ultimate success will depend on whether our drug formulations receive the approval of the ~~U.S.~~United States Food and Drug Administration (“FDA”) or other applicable regulatory agencies ~~needed to commercially market them~~ and if we ~~will be~~are able to successfully market approved products. We cannot be certain that we will be able to receive FDA approval for any of our drug formulations, or ~~if we do,~~ that we will reach the level of sales and revenues necessary to achieve and sustain profitability.

~~We are dependent on~~Loss of key ~~personnel.~~scientists and failure to attract qualified personnel could limit our growth and negatively impact our operations.

We are dependent upon the scientific expertise of Dr. Isa Odidi, our Chairman and Chief Executive Officer, and Dr. Amina Odidi, our President and Chief Operating Officer. Although we ~~now employ, and will in the future expect to continue to~~ employ other qualified scientists, ~~we are substantially dependent upon the efforts of~~ Drs. Isa and Amina Odidi ~~as they~~ are our only employees ~~who have~~with the knowledge and ~~know-how relating to the development of controlled-release products that we believe is~~experience necessary for us to continue development of controlled-release products. We do not maintain key-person life insurance on any of our ~~products.~~

officers or employees. Although we have employment agreements with key members of our management team, each of our employees may terminate his or her employment at any time. The success of our business depends, in large part, on our continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel, on our ability to successfully integrate ~~large numbers of~~many new employees, ~~into our corporate culture,~~ and on our ability to develop and maintain important relationships with leading research and medical institutions and key distributors. ~~Competition for these types~~If we lose the services of our executive officers or other qualified personnel ~~and relationships is intense, and the failure~~or are unable to ~~obtain~~attract and retain ~~such personnel~~qualified individuals to fill these roles or develop key relationships, our business, financial condition and results of operations could ~~have material adverse consequences.~~be materially adversely affected.

Our intellectual property may not provide meaningful protection for our product candidates.

We hold certain U.S., Canadian and foreign patents and have pending applications for additional ~~patents.~~patents outstanding. We intend to continue to seek patent protection for, or maintain as trade secrets, all of ~~the~~our commercially promising drug delivery platforms and ~~technologies that we have discovered, developed or acquired that we believe may be commercially promising.~~

~~-4-~~

technologies. Our success depends, in part, on our ~~ability,~~ and our collaborative partners’ ability to obtain and maintain patent protection for new product candidates, maintain trade secret protection and operate without infringing the proprietary rights of third parties. ~~As with most pharmaceutical companies, our patent position is highly uncertain and involves complex legal and factual questions.~~ Without patent and other similar protection, other companies could offer substantially identical products ~~for sale~~ without incurring ~~the~~ sizeable development costs ~~that we have incurred. Our~~which could diminish our ability to recover ~~these expenditures~~expenses of and realize profits upon the sale of products could be diminished. The process of obtaining patents can be time-consuming and expensive, with no certainty of success. Even if we spend the necessary time and money, a patent may not be issued or it may insufficiently protect the technology it was intended to protect. We can never be certain that we were first to develop the technology or that we were the first to file a patent application for the particular technology because of the time that elapses between patent filing and publication, and because publications in the scientific or patent literature lag behind actual discoveries.on our developed products. If our pending patent applications are not approved, ~~for any reason,~~ or if we are unable to ~~receive patent protection~~obtain patents for additional ~~proprietary~~developed technologies, ~~that we develop,~~ the ~~degree of~~ future protection for our ~~proprietary technology~~technologies will remain uncertain. Furthermore, third parties may independently develop similar or alternative technologies, duplicate some or all of our technologies, design around our patented technologies or challenge our issued patents. Such third parties may have filed patent applications, or hold issued patents, relating to products or processes competitive with those we are ~~developing. The patents of our competitors may impair~~developing or otherwise restricting our ability to do business in a particular area. ~~Our success will depend, in part, on our ability~~If we are unable to obtain patents or otherwise protect our trade secrets ~~and~~or other ~~proprietary information~~intellectual property and operate without infringing on the proprietary rights of ~~others.~~others, our business, financial condition and results of operations could be materially adversely affected.

We may be subject to intellectual property claims that could be costly and could disrupt our business.

Third parties may claim we have infringed their patents, trademarks, copyrights or other rights. We may be unsuccessful in defending against such claims, which could result in the inability to protect our intellectual property rights or in substantial damages, fines or other penalties. The resolution of a claim could also require us to change how we do business or enter into burdensome royalty or license agreements. Insurance coverage may not be adequate to cover every claim that third parties could assert against us. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management’s time and disruptions in our business. Any of these claims could also harm our reputation.

- 6 -

We rely on maintaining as trade secrets our competitively sensitive know-how and other information. Intentional or unintentional disclosure of this information could impair our competitive position.

As to many technical aspects of our business, we have concluded that competitively sensitive information is either not patentable or that for competitive reasons it is not commercially advantageous to seek patent protection. In these circumstances, we seek to protect this know-how and other proprietary information by maintaining it in confidence as a trade secret. To maintain the confidentiality of our trade secrets, we generally enter into agreements that contain confidentiality provisions with our employees, consultants, collaborators, contract manufacturers and advisors upon commencement of their relationships with us. These provisions generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. We may not have these arrangements in place in all circumstances, and the confidentiality provisions in our favour may be breached. We may not become aware of, or have adequate remedies in the event of, any such breach. In addition, in some situations, the confidentiality provisions in our favour may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, contract manufacturers or advisors have previous employment or consulting relationships. To the extent that our employees, consultants, collaborators, contract manufacturers or advisors use trade secrets or know-how owned by others in their work for us, disputes may arise as to the ownership of relative inventions. Also, others may independently develop substantially equivalent trade secrets, processes and know-how, and competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business. The disclosure of our trade secrets could impair our competitive position. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information.

We operate in a highly litigious environment.

~~The cost~~From time to time, we are subject to legal proceedings. As of ~~commencing or defending litigation, if necessary, could be significant and could significantly drain our limited financial resources and disrupt our business operations. While there~~the date of this annual report, the Company is nonot aware of any material litigation pending or threatened against us ~~(other~~other than as described under Item ~~8.A), litigation~~8.A. below. Litigation to which we are, or may be, ~~subjected~~subject could relate to, among other things, our patent and other intellectual property rights, or such rights of others, business or licensing arrangements with other persons, product liability ~~and~~or financing activities. Such litigation could include an injunction against the manufacture or sale of ~~a product~~one or more of our products or potential ~~product~~products or a significant monetary judgment, including a possible punitive damages award, or a judgment that certain of our patent or other intellectual property rights are invalid or unenforceable or infringe the intellectual property rights of others. If such litigation is commenced, our business, results of operations, financial condition and cash flows could be materially adversely affected.

There has been substantial litigation in the pharmaceutical industry concerning the manufacture, use and sale of new products that are the subject of conflicting patent rights. When we file an ~~abbreviated new drug application (“~~ANDA”) for a bioequivalent version of a drug, we may, in some circumstances, be required to certify to the FDA that any patent which has been listed with the FDA as covering the branded product has expired, the date any such patent will expire, or that any such patent is invalid or will not be infringed by the manufacture, sale or use of the new drug for which the application is submitted. Approval of an ANDA is not effective until each listed patent expires, unless the applicant certifies that the patents at issue are not infringed or are invalid and so notifies the patent holder and the holder of the branded product. A patent holder may challenge a notice of non-infringement or invalidity by suing for patent infringement within 45 days of receiving notice. Such a challenge ~~would prevent~~prevents FDA approval for a period which ends 30 months after the receipt of notice, or sooner if an appropriate court rules that the patent is invalid or not infringed. From time to time, in the ordinary course of business, we face and have faced such challenges and may continue to do so in the future.

Brand-name pharmaceutical manufacturers routinely bring patent infringement litigation against ANDA applicants seeking FDA approval to manufacture and market generic forms of their branded products. We are routinely subject to patent litigation that can delay or prevent our commercialization of products, force us to incur substantial expense to defend, and expose us to substantial liability.

~~We have a reliance on key proprietary information.~~

We rely on trade secrets, know-how and other proprietary information as well as requiring our employees and other vendors and suppliers to sign confidentiality agreements. However, these confidentiality agreements may be breached, and they 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 our proprietary information and adopt it in a competitive manner.

~~-5-~~- 7 -

We cannot ensure the availability of raw materials.

Certain raw materials ~~which may be~~ necessary for the development and subsequent commercial ~~manufacturing~~manufacture of our product candidates may be proprietary products of other companies. WeWhile we attempt to manage the risk associated with such proprietary raw materials, by the imposition of contractual provisions in supply contracts that we believe are favourable to us, by management of inventories and by the continued search for alternative authorized suppliers of such materials or their equivalents. If this fails,if our efforts fail, or if there is a material shortage, contamination, and/or recall of such materials, the resulting scarcity could adversely affect our ability to develop or manufacture our product candidates. In addition, many third party suppliers are subject to governmental regulation and, accordingly, we are dependent on the regulatory compliance of, as well as on the strength, enforceability and terms of our various contracts with, these third party suppliers.

~~The~~Further, the FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials ~~were~~are unavailable from a specified supplier, ~~or if~~ the supplier does not give us access to its technical information ~~in respect of~~for our application or the supplier ~~was~~is not in compliance with FDA or other applicable requirements, ~~the~~ FDA approval of ~~a new~~the supplier could delay the manufacture of the drug involved. ~~As a result, there is no guarantee we will always have timely and sufficient access to a required raw material or other product.~~ Any inability to obtain raw materials on a timely basis, or any significant price increases which cannot be passed on to customers, could have a material adverse effect on our business, results of operations, financial condition and cash ~~flows could be materially adversely affected.~~

Many third-party suppliers are subject to governmental regulation and, accordingly, we are dependent on the regulatory compliance of these third parties. We also depend on the strength, enforceability and terms of our various contracts with our third-party suppliers.flows.

Our product candidates may not be successfully developed or commercialized.

Successful development of our products is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Products that appear promising in research or early phases of development may fail to reach later stages of development or the market for several reasons including:

for ANDA candidates, bioequivalence studies results may not meet regulatory requirements or guidelines for the demonstration of bioequivalence;

for ~~new drug application (“~~NDA”) candidates, a product may not demonstrate acceptable large-scale clinical trial results, even though it demonstrated positive preclinical or initial clinical trial results;

for NDA candidates, a product may not be effective in treating a specified condition or illness;

a product may have harmful side effects on humans;

products may fail to receive the necessary regulatory approvals from the FDA or other regulatory bodies, or there may be delays in receiving such approvals. Among other things, such delays may be caused by slow enrolment in clinical studies, extended lengths of time to achieve study endpoints, additional time requirements for data analysis, discussions with the FDA, FDA requests for additional preclinical or clinical data, or unexpected safety, efficacy or manufacturing issues;approvals;

difficulties may be encountered in formulating products, scaling up manufacturing processes or in getting approval for manufacturing;

manufacturing costs, pricing or reimbursement issues, other competitive therapeutics, or other commercial factors may make the product uneconomical; and

the proprietary rights of others, and their competing products and technologies, may prevent the product from being developed or commercialized.

~~For both ANDA and NDA products,~~Further, success in preclinical and early clinical trials does not ensure that large-scale clinical trials will be ~~successful. As well, for ANDA candidates,~~successful, nor does success in preliminary studies ~~does not~~for ANDA candidates ensure that bioequivalence studies will be successful. Results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete bioequivalence studies or clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict.

~~-6-~~

As a result, there can be no assurance that any of our products currently in development will ever be successfully commercialized.

Near term ~~revenues depend~~revenue depends significantly on the success of our ~~lead~~first filed ANDA (“lead”) product, our once daily dexmethylphenidate XR ~~generic.~~generic, regulatory approval for which has yet to be received.

We have invested a significant time and effort in the development of our lead product, our once daily generic dexmethylphenidate ~~XR generic. It~~XR. Although it remains our most advanced product, it has not yet received regulatory approval, ~~although it remains our most advanced product. There~~and there can be no assurance ~~that this product~~as to when or if such regulatory approval will ~~receive regulatory approval.~~be received. We ~~anticipate that~~depend significantly on the actions of our development partner Par Pharmaceutical, Inc. (“Par”) in the prosecution, regulatory approval and commercialization of our generic dexmethylphenidate XR product. Our near term ~~our~~ ability to generate significant ~~revenues~~revenue will depend ~~in part on the~~upon receipt of regulatory approval and successful commercialization of this product in the United States, where the branded Focalin XR® product is in the market. Although we have several other products in our pipeline, they are at earlier stages of development.

We depend significantly on the actions of our development partner, Par Pharmaceutical Inc. (“Par” or “Par Pharmaceutical”), in the prosecution to regulatory approval and commercialization of our once daily dexmethylphenidate XR generic.

- 8 -

Two applications for approval to commercialize our once daily dexmethylphenidate XR generic have been filed and are pending before the FDA. We depend significantly on the actions of our development partner Par in the prosecution and regulatory approval and commercialization of our once daily dexmethylphenidate XR generic.

Our significant expenditures on research and development may not lead to successful product introductions.

We conduct research and development primarily to enable us to manufacture and market pharmaceuticals in accordance with FDA regulations. ~~We are required to obtain FDA approval before marketing our drug products. The FDA approval process is rigorous, time consuming and costly.~~ Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. As we continue to develop new products, our research expenses will likely increase. We are required to obtain FDA approval before marketing our drug products and the approval process is costly and time consuming. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of FDA approved new ~~pharmaceuticals that have been approved by the FDA.~~

Factors affecting our R&D expenses include, but are not limited to, the number of, and the outcomes of, bioavailability/bioequivalence studies currently being conducted by us and/or our collaborators. For example, our R&D expenses may increase based on the number of bioavailability/bioequivalence studies or clinical trials being conducted by us and/or our collaborators during a certain period.pharmaceuticals.

We may not have the ability to develop or license, or otherwise acquire, and introduce new products on a timely basis.

Product development is inherently risky, especially for new drugs for which safety and efficacy have not been established and the market is not yet proven. Likewise, product licensing involves inherent risks including uncertainties due to matters that may affect the achievement of milestones, as well as the possibility of contractual disagreements with regard to terms such as license scope or termination rights. The development and commercialization process, particularly with regard to new drugs, also requires substantial time, effort and financial resources. The process of obtaining FDA or other regulatory approval to manufacture and market new and generic pharmaceutical products is rigorous, time consuming, costly and largely unpredictable. We, or a partner, may not be successful in obtaining FDA or other required regulatory approval or in commercializing any of the products that we are ~~currently~~ developing or ~~licensing or any future products.~~licensing.

We may not achieve our projected development goals in the time frames we announce and expect.

We set goals ~~for and make public statements~~ regarding ~~our~~the expected timing of meeting ~~the~~certain corporate objectives, ~~material to our success,~~ such as the commencement and completion of clinical trials, anticipated regulatory approval and product launch dates. From time to time, we may make certain public statements regarding these goals. The actual timing of these ~~forward looking~~ events can vary dramatically due to, ~~factors such as availability of~~among other things, insufficient funding, delays or failures in our clinical trials or bioequivalence studies, the ~~need to develop additional data required by regulators as a condition of approval, the~~ uncertainties inherent in the regulatory

~~-7-~~

approval process, such as requests for additional information, delays in achieving manufacturing or marketing arrangements necessary to commercialize our product candidates and failure by our collaborators, marketing and distribution partners, suppliers and other third parties ~~with whom we have contractual arrangements,~~ to fulfill ~~in whole or in part, their~~ contractual ~~obligations towards us.~~obligations.

Our products may not achieve expected levels of market ~~acceptance.~~acceptance, thereby limiting our potential to generate revenue.

Even if we are able to obtain regulatory approvals for our proposed products, the success of those products will be dependent upon market acceptance. Levels of market acceptance for any products to be marketed by us could be affected by several factors, including:

the availability of alternative products from competitors;

the prices of our products relative to those of our competitors;

the timing of our market entry;

the ability to market our products effectively at the retail level; and

the acceptance of our products by government and private formularies.

- 9 -

Some of these factors are not within our control, and our proposed products may not achieve levels of market acceptance anticipated by us. Additionally, continuing and increasingly sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others which can call into question the utilization, safety and efficacy of products we are currently developing or may develop in the future. These studies could also impact a future product after it has been marketed. In some cases, studies have resulted, and may in the future result, in the discontinuance of product marketing or requirement of other risk management programs such as the need for a patient registry. The failure of our product candidates, once approved, to achieve market acceptance would limit our ability to generate revenue and would adversely affect our results of operations.

~~We do not have experience~~The risks and uncertainties inherent in conducting clinical trials ~~and submitting NDAs.~~

With respect to products that we develop that are not generic equivalents of existing brand-name drugs and thus do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical trials that these products are safe and effective for use. We have only limited experience in conducting and supervising clinical trials. The process of completing clinical trials and preparing an NDA may take several years and requires substantial resources. Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA grants approval, we cannot predict the timing of any approval. There are substantial filing fees for NDAs that are not refundable if FDA approval is not obtained.

~~There is no assurance that our expenses related to NDAs and clinical trials will lead to the development of brand-name drugs that will generate revenues in the future. Delays~~could delay or ~~failure in~~prevent the development and commercialization of our own branded products, which could have a material adverse effect on our results of operations, liquidity, financial condition, and ~~financial condition.~~

~~We face risks and uncertainties inherent in conducting clinical trials.~~growth prospects.

There are a number of risks and uncertainties associated with clinical ~~trials.~~trials, which may be exacerbated by our relatively limited experience in conducting and supervising clinical trials and preparing NDAs. The results of initial clinical trials may not be indicative of results that would be obtained from large scale testing. Clinical trials are often conducted with patients having advanced stages of disease and, as a result, during the course of treatment these patients can die or suffer adverse medical effects for reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects experienced by the patients may cause delay of approval of our product or a limited application of an approved product. Moreover, our clinical trials may not demonstrate sufficient safety and efficacy to obtain FDA approval.

Failure can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired safety or efficacy despite having progressed successfully through earlier clinical testing. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical

~~-8-~~

trials, even in advanced clinical trials after showing positive results in earlier clinical trials. In the future, the completion of clinical trials for our product candidates may be delayed or halted for many reasons, ~~including:~~including those relating to the following:

delays in patient ~~enrolment,~~enrollment, and variability in the number and types of patients available for clinical trials;

regulators or institutional review boards may not allow us to commence or continue a clinical trial;

our inability, or the inability of our partners, to manufacture or obtain from third parties materials sufficient to complete our clinical trials;

delays or failures in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial sites;

risks associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product candidate is effective;

difficulty in maintaining contact with patients after treatment commences, resulting in incomplete data;

poor effectiveness of product candidates during clinical trials;

safety issues, including adverse events associated with product candidates;

the failure of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons;

governmental or regulatory delays or changes in regulatory requirements, policy and guidelines; and

varying interpretation of data by the FDA or other applicable foreign regulatory agencies.

- 10 -

In addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development by other companies which may delay the enrolment in or initiation of our clinical trials. Many of these companies have significantly more resources than we do.

The FDA or other foreign regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates would prevent or delay the commercialization of our product candidates. There iscan be no assurance our expenses related to clinical trials will lead to the development of brand-name drugs which will generate revenues in the near future. Delays or failure in the development and commercialization of our own branded products could have a material adverse effect on our results of operations, liquidity, financial condition, and our growth prospects.

We rely on third parties to conduct clinical ~~trials.~~trials for our product candidates, and if they do not properly and successfully perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product candidates.

~~Although we may~~We design ~~or have control in the design of~~ the clinical trials for our product candidates, webut rely on contract research organizations and other third parties to assist itus in managing, monitoring and otherwise carrying out these trials, including with respect to site selection, contract negotiation and data management. We do not control these third parties and, as a result, they may not treat our clinical studies as their highest priority, or in the manner in which we would prefer, which could result in delays.

~~Moreover, although~~ Although we rely on third parties to conduct our clinical trials, we are responsible for confirming that each of our clinical trials is conducted in accordance with our general investigational plan and protocol. ~~In addition,~~Moreover, the FDA and ~~other similar~~foreign regulatory agencies ~~outside the United States~~ require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. The FDA enforces good clinical practices through periodic inspections of trial sponsors, principal investigators and trial sites. If we, our contract research organizations or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA ~~or other regulatory agencies~~ may require us to perform additional clinical trials before approving our marketing applications. There can be no assurance that, upon inspection, the FDA ~~or such other agencies~~ will determine that any of our clinical trials comply

~~-9-~~

with good clinical practices. In addition, our clinical trials must be conducted ~~using products~~with product manufactured under the FDA’s current Good Manufacturing Practices (“cGMP”), regulations. Our failure, or the failure of our contract manufacturers, if any are involved in the process, to comply with these regulations may require us to repeat clinical trials, which would delay ~~and increase the cost of~~ the regulatory approval process.

If third parties do not successfully carry out their duties under their agreements with us; if the quality or accuracy of the data they obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements; or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, such clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product ~~candidates.~~candidates, which could have a material adverse effect on our results of operations, financial condition and growth prospects.

Competition in our industry is intense, and developments by other companies could render our product candidates obsolete.

~~The pharmaceutical industry is highly competitive and any~~Many of our competitors, including medical technology, ~~companies,~~ pharmaceutical or biotechnology and other companies, universities, government agencies, or research organizations, have substantially greater financial and technical resources and production and marketing capabilities than we have. They also may ~~also~~ have greater experience in conducting bioequivalence studies, preclinical testing and clinical trials of pharmaceutical products, ~~and~~ obtaining FDA and other regulatory ~~approvals.~~approvals, and ultimately commercializing any approved products. Therefore, our competitors may succeed in developing and commercializing technologies and products that are more effective than the drug delivery ~~technology~~technologies we are developing or that will cause our ~~technology~~technologies or products to become obsolete or ~~less competitively effective,~~non-competitive, and in obtaining FDA approval for products faster than we could. These developments could render our products obsolete and ~~less competitively effective,~~uncompetitive, which would have a material adverse effect on our business, financial condition and results of operations. Even if we commence commercial sales of our products, we will be competing against the greater manufacturing efficiency and marketing capabilities of our competitors, areas in which we have limited or no experience.

~~In the past, we have relied on, and expect to continue to~~

- 11 -

We rely on collaborative arrangements with third parties ~~who~~that provide manufacturing and/or marketing support for some or all of our product candidates. Even if we find a potential partner, we may not be able to negotiate an arrangement on favourable terms or achieve results that we consider satisfactory. In addition, such arrangements can be terminated under certain conditions and do not assure a product’s success. We also face ~~and will continue to face,~~ intense competition ~~from other companies~~ for collaboration arrangements with other pharmaceutical and biotechnology companies.

Although we believe that our ownership of patents for some of our drug delivery products will limit direct competition with these products, we must also compete with established existing products and other promising technologies and other products and delivery alternatives that may be more effective than our products and proposed products. In addition, we may not be able to compete effectively with other commercially available products or drug delivery technologies.

We have not received regulatory approval for any product that uses our drug delivery technologies.

Our drug delivery technologies can be quite complex, with many different components. The development required to take a technology from its earliest stages to its incorporation in a product that is sold commercially can take many years and cost a substantial amount of money. Significant technical challenges are common as products incorporating our technologies progress through development, particularly in the first product candidate incorporating a new technology.

Our ~~Rexista~~TMRexista™ product for an abuse-deterrent form of oxycodone is one such new technology. No product employing our abuse deterrent technology has received regulatory approval. In addition, any particular technology such as our abuse-deterrent technology may not perform in the same manner when used with different therapeutic agents, and therefore this technology may not prove to be as useful or valuable as originally thought, resulting in additional development ~~work and expenditures.~~work.

If our efforts do not repeatedly lead to successful development of product candidates, we may not be able to grow our pipeline or to enter into agreements with marketing and distribution partners or collaborators that are

~~-10-~~

willing to distribute or develop our product candidates. Delays or unanticipated increases in costs of development at any stage, or failure to solve a technical challenge, could adversely affect our operating results.

If ~~third-party~~contract manufacturers ~~of our product ingredients or products~~ fail to devote sufficient time and resources to our concerns, or if their performance is substandard, the commercialization of our products could be delayed or prevented, and this may result in higher costs or deprive us of potential product revenues.

~~Although we manufacture clinical trial supplies in-house, we~~We rely on ~~third parties~~contract manufacturers for ~~the manufacturing of~~ certain components and ingredients of our clinical trial materials, ~~and in particular, the~~such as active pharmaceutical ~~ingredients. In addition, while we have the equipment~~ingredients (“APIs”), and ~~ability to manufacture drugs to a certain extent on a commercial scale,~~ we may rely on ~~third parties~~such manufacturers for commercial ~~scale manufacturing.~~sales purposes as well. Our reliance on contract manufacturers in these respects will expose us to ~~the following~~several risks ~~any of~~ which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product ~~revenues:~~revenues, including:

~~Contract manufacturers can encounter difficulties~~Difficulties in achieving volume production, quality control and quality assurance, or technology transfer, as well as with shortages of qualified ~~personnel. Accordingly, a manufacturer might not be able to manufacture sufficient quantities to meet our clinical trial needs or to commercialize our products.~~personnel;

Contract manufacturers are required to undergo a satisfactory cGMP inspection prior to regulatory approval and are obliged to operate in accordance with the cGMP regulations of the FDA regulations and those of other jurisdictions we may manufacture in or apply for approval for some of our products. These regulations govern manufacturing processes, stability testing, record keeping and quality standards. AnyThe failure ~~of these contract manufacturers~~ to establish and follow cGMP ~~or other similar applicable regulations~~ and to document ~~their~~ adherence to such practices may lead to significant delays in the availability of material for clinical studies, may delay or prevent filing or approval of marketing applications for our products or result in sanctions being imposed on us.practices;

For some or all of our current product candidates and possibly for any future products, we may initially rely on a single or a limited number of contract manufacturers. Changing these or future manufacturers may be difficult and the number of potential manufacturers is limited. Changing manufacturers generally requires re-validation of theThe need to revalidate manufacturing processes and procedures in accordance with FDA and other ~~applicable national~~nationally mandated cGMPs and ~~may require~~potential prior regulatory approval. It may be difficult or impossible for us to quickly find replacement manufacturers on acceptable terms, if at all. Such re-validation may be costly and time-consuming and we could suffer important delaysapproval upon a change in ~~advancing our product candidates in clinical trials or in supplying the commercial market with our products.~~contract manufacturers;

~~With respect~~Failure to any of our products that we may market, our ability to reach full commercial scale manufacturing depends upon the ability of our own plant or a designated commercial scale contract manufacturer to be approved under such cGMP. Reaching full commercial scale has a direct impact on our overall costs of goods, which, in turn, directly affects our operating margins. Any delay in obtaining cGMP approval beyond the time we anticipate may have a negative impact on our operating margins and other financial results, as well as our ability to adequately supply the market with our product.

~~Our contract manufacturers may not~~ perform as agreed or ~~may not~~to remain in the contract manufacturing business for the time required to produce, store and distribute our products ~~successfully.~~successfully;

·	The potential for an untimely termination or non-renewal of contracts; and

- 12 -

~~Our~~The potential for us to be in breach of our collaboration and marketing and distribution arrangements with third parties for the failure of our contract manufacturers ~~may terminate or not renew our agreements based on~~to perform their ~~own priorities and such actions could be both costly and inconvenient for~~obligations to us.

~~Drug~~In addition, drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and ~~by applicable~~corresponding state and foreign agencies ~~in other nations~~ to ensure strict compliance with cGMP and other government regulations. While we may audit the performance of third-party contractors, we will not have complete control over ~~our third-party manufacturers’~~their compliance with these regulations and standards. Failure by either our third-party manufacturers or by us to comply with applicable regulations could result in sanctions being imposed on us, including fines,

~~-11-~~

injunctions, civil penalties, failure of ~~the government~~applicable regulatory authorities to grant review of submissions or market approval of drugs, delays, suspension or withdrawal of approvals, product seizures or recalls, operating restrictions, facility closures and criminal prosecutions, any of which could harm our business.

~~Under~~We are subject to currency rate fluctuations that may impact our ~~collaboration~~financial results.

A large majority of our expenses are payable in Canadian dollars and our financial results are reported in U.S. dollars. There may be instances where we have net foreign currency exposure. Any fluctuations in exchange rates will impact our financial results.

We have limited sales, marketing and distribution experience.

We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that, if required, we would be able to establish sales, marketing, and distribution capabilities or make arrangements with ~~third-party manufacturers,~~our collaborators, licensees, or others to perform such activities or that such efforts would be successful. If we ~~may commit~~fail to ~~supply these~~establish successful marketing and sales capabilities or to make arrangements with third parties, ~~with product. In~~our business, financial condition and results of operations will be materially adversely affected.

Our significant shareholders will have the ~~event~~ability to exercise significant influence over certain corporate actions.

Our principal shareholders, Drs. Amina and Isa Odidi, our President and Chief Operating Officer and our Chairman and Chief Executive Officer, respectively, and Odidi Holdings Inc., a privately-held company controlled by Drs. Amina and Isa Odidi, owned in the aggregate approximately 33.5% of our issued and outstanding common shares as of the date of this annual report (and collectively beneficially owned in the aggregate approximately 40.8% of our common shares, including common shares issuable upon the exercise of outstanding options and the conversion of the convertible debenture held by Drs. Amina and Isa Odidi that we are ~~unable to fulfill such obligations as~~exercisable or convertible within 60 days of the date hereof). As a result, the principal shareholders will have the ability to exercise significant influence over all matters submitted to our shareholders for approval whether subject to approval by a majority of ~~a failure~~holders of our ~~contract manufacturers, we may be in breach~~common shares or subject to a class vote or special resolution requiring the approval of 66⅔% of the votes cast by holders of our ~~obligations under those arrangements.~~common shares, in person or by proxy.

Our effective tax rate may vary.

Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, future levels of research and development spending, the availability of tax credit programs for the reimbursement of all or a significant proportion of research and development spending, and changes in overall levels of pre-tax earnings. At present, we qualify in Canada for certain research tax credits for qualified scientific research and experimental development pertaining to our drug delivery technologies and drug products in research stages. If Canadian tax laws relating to research tax credits were substantially negatively altered or eliminated, or if a substantial portion of our claims for tax credits were denied by the relevant taxing authorities, pursuant to an audit or otherwise, it would have a material adverse effect upon our financial results.

- 13 -

Risks related to our Industry

~~Competition from generic~~Generic drug manufacturers will increase competition for certain products and may reduce our expected royalties.

Because part of our product development strategy involves the novel reformulation of existing drugs with active ingredients that are off-patent, our products are likely to face competition from generic versions of such drugs. Regulatory approval for generic drugs may be obtained without investing in costly and ~~time-consuming~~time consuming clinical trials. Because of substantially reduced development costs, manufacturers of generic drugs are often able to charge much lower prices for their products than the original developer of a new product. If we face competition from manufacturers of generic drugs on products we may commercialize, such as our once-daily ~~Rexista abuse-deterrent~~Rexista™ oxycodone product, the prices at which such products are sold and the revenues we ~~expect to~~may receive ~~may~~could be reduced.

Market acceptance of our products will be limited if users of our products are unable to obtain adequate reimbursement from third-party payers.

Government health administration authorities, private health insurers and other organizations generally provide reimbursement for products like ours, and our commercial success will depend in part on whether appropriate reimbursement levels for the cost of our products and related treatments are obtained from government authorities, private health insurers and other organizations, such as health maintenance organizations and managed care organizations. Even if we succeed in bringing any of our products to market, third-party payers may not provide reimbursement in whole or in part for their use.

A trend in the United States healthcare industry and elsewhere is cost containment. We expect recent changes in the Medicare program, such as were included in the Health Care and Education Reconciliation Act of 2010, and increasing emphasis on managed care to continue to put pressure on pharmaceutical product pricing.

Significant uncertainty exists as to the reimbursement status of newly approved ~~healthcare~~health care products. Some of our product candidates, such as our once-daily ~~Rexista~~Rexista™ abuse-deterrent oxycodone product, are intended to replace or alter existing therapies or procedures. These third-party payers may conclude that our products are less safe, less effective or less economical than those existing therapies or procedures. Therefore, third-party payers may not approve our products for reimbursement. We may be required to make substantial pricing concessions in order to gain access to the formularies of large managed-care organizations. If third party payers do not approve our products for reimbursement or fail to reimburse them adequately, sales will suffer as some physicians or their patients may opt for a competing product that is approved for reimbursement or is adequately reimbursed. Even if third-party payers make reimbursement available, these payers’ reimbursement policies may adversely affect our ability and our potential marketing and distribution partners’ ability to sell our products on a profitable basis.

We are subject to significant costs and uncertainties related to compliance with the extensive regulations that govern the manufacturing, ~~labelling,~~labeling, distribution, and promotion of pharmaceutical products as well as environmental, safety and health regulations.

Governmental authorities in the United States and Canada regulate the research and development, testing and safety of pharmaceutical products. The regulations applicable to our existing and future products may change. Regulations require extensive clinical trials and other testing and government review and final approval before we can market our products. The cost of complying with government regulation can be substantial and may exceed our available resources, causing delay or cancellation of our product introductions.

~~-12-~~

Some abbreviated application procedures for controlled-release drugs and other products, including those related to our ANDA filings, or to the ANDA filings of unrelated third parties in respect of drugs similar to or chemically related to those of our ANDA filings, are or may become the subject of petitions filed by brand-name drug manufacturers or other ANDA filers seeking changes from the FDA in the interpretation of the statutory approval requirements for particular drugs as part of their strategy to thwart or advance generic competition. We cannot predict whether the FDA will make any changes to its interpretation of the requirements applicable to our ANDA ~~application~~applications as a result of these petitions, or whether unforeseen delays will occur in our ANDA filings while the FDA considers such petitions or changes or otherwise, or the effect that any changes may have on us. Any such changes in FDA interpretation of the statutes or regulations, or any legislated changes in the statutes or regulations, may make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus may materially harm our business and financial results.

- 14 -

Any failure or delay in obtaining regulatory approvals could make it so that we are unable to market any products we develop and therefore adversely affect our business, results of operations, financial condition and cash flows. Even if approved in the United States or Canada, regulatory authorities in other countries must approve a product prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer than in the United States or Canada, which could cause the introduction of our products in other countries to be cancelled or materially delayed.

The manufacturing, distribution, processing, formulation, packaging, ~~labelling~~labeling and advertising of our products are subject to extensive regulation by federal agencies, including in the United States, the FDA, Drug Enforcement Administration, Federal Trade Commission, Consumer Product Safety Commission and Environmental Protection Agency, among others. We are also subject to state and local laws, regulations and agencies. Compliance with these regulations requires substantial expenditures of time, money and effort in such areas as production and quality control to ensure full technical compliance. Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of NDAs or ANDAs, enforcement actions, injunctions and civil or criminal prosecution.

Environmental laws have changed in recent years and we may become subject to stricter environmental standards in the future and face larger capital expenditures in order to comply with environmental laws. We are subject to extensive federal, state, provincial and local environmental laws and regulations which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in, or result from, our operations. We are also subject periodically to environmental compliance reviews by environmental, safety, and health regulatory agencies and to potential liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities. We cannot accurately predict the outcome or timing of future expenditures that we may be required to make in order to comply with the federal, state, local and ~~local~~provincial environmental, safety, and health laws and regulations that are applicable to our operations and facilities.

We are subject to product liability costs for which we may not have or be able to obtain adequate insurance coverage.

The testing and marketing of pharmaceutical products entails an inherent risk of product liability. Liability exposures for pharmaceutical products can be extremely large and pose a material risk. In some instances, we may be or may become contractually obligated to indemnify third parties for such liability. Our business may be materially and adversely affected by a successful product liability claim or claims in excess of any insurance coverage that we may have. Further, even if claims are not successful, the costs of defending such claims and potential adverse publicity could be harmful to our business.

While we currently have, and in some cases are contractually obligated to maintain, insurance for our business, property and our products as they are administered in bioavailability/bioequivalence studies, first and third party insurance is increasingly costly and narrow in scope. Therefore, we may be unable to meet such contractual obligations or we may be required to assume more risk in the future. If we are subject to third party claims or suffer a loss or damage in excess of our insurance coverage, we may be required to bear that risk in excess of our insurance limits. Furthermore, any first or third party claims made on our insurance policy may impact our ability to obtain or maintain insurance coverage at reasonable costs or at all in the future.

Our products involve the use of hazardous materials and waste, and as a result we are exposed to potential liability claims and to costs associated with complying with laws regulating hazardous waste.

Our research and development activities involve the use of hazardous materials, including chemicals, and are subject to Canadian federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. It is possible that accidental injury or contamination from these materials may occur. In the event of an accident, we could be held liable for any damages, which could exceed our available financial resources. Further, we may not be able to maintain insurance to cover these costs on acceptable terms, or at all. In addition, we may be required to incur significant costs to comply with environmental laws and regulations in the future.

~~We are subject to environmental laws and regulations.~~

We may incur substantial costs to comply with environmental laws and regulations. In addition, we may encounter currently unknown environmental problems or conditions. We are subject to extensive federal, state, provincial and local environmental laws and regulations which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in, or result from, our operations. Environmental laws or regulations (or their interpretation) may become more stringent in the future.

~~We are subject to currency rate fluctuations.~~

A large majority of our expenses are payable in Canadian dollars and our financial statements are reported in U.S. dollars. There may be instances where we have net foreign currency exposure. Any fluctuations in exchange rates will impact our reported financial results.

~~We are subject to product liability costs for which we may not have or be able to obtain adequate insurance coverage.~~

~~-13-~~- 15 -

While we currently have, and in some cases are contractually obligated to maintain, insurance for our business, property and our products as they are administered in bioavailability/bioequivalence studies, first- and third-party insurance is increasingly costly and narrow in scope. Therefore, we may be unable to meet such contractual obligations or we may be required to assume more risk in the future. If we are subject to third-party claims or suffer a loss or damage in excess of our insurance coverage, we may be required to bear that risk in excess of our insurance limits. Furthermore, any first or third-party claims made on our insurance policy may impact our ability to obtain or maintain insurance coverage at reasonable costs or at all in the future.

~~We have limited sales, marketing and distribution experience.~~

We have limited experience in the sales, marketing, and distribution of pharmaceutical products. There can be no assurance that, if required, we would be able to establish sales, marketing, and distribution capabilities or make arrangements with our collaborators, licensees, or others to perform such activities or that such efforts would be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties, our business, financial condition and results of operations will be materially adversely affected.

~~Our significant shareholders will have the ability to substantially influence certain corporate actions.~~

Our principal shareholder, Odidi Holdings Inc., is a privately-held company controlled by Drs. Amina and Isa Odidi, and owned approximately 54.99% of our issued and outstanding shares as at November 30, 2010. Subsequent to the $12,000,000 financing which closed on February 1, 2011, Odidi Holdings Inc. continued to be our largest shareholder, owning approximately 38.03% of our issued and outstanding shares. The transaction had no material effect on control of the Company since no new control person (within the meaning of securities legislation) was created as a result of the transaction. As a result, the principal shareholder will have substantial influence over matters submitted to our shareholders for approval that are not subject to a class vote or special resolution requiring the approval of 66⅔% of the votes cast by holders of our shares, in person or by proxy. The principal shareholder will have the ability to substantially influence matters submitted to our shareholders requiring approval of the majority of holders of our shares including the election and removal of directors.

Our operations may be adversely affected by risks associated with international business.

We may be subject to certain risks that are inherent in an international ~~business. These include:~~business, including:

varying regulatory restrictions on sales of our products to certain markets and unexpected changes in regulatory requirements;

tariffs, customs, duties, and other trade barriers;

difficulties in managing foreign operations and foreign distribution partners;

longer payment cycles and problems in collecting accounts receivable;

~~fluctuations in currency exchange rates;~~

political risks;

foreign exchange controls that may restrict or prohibit repatriation of funds;

export and import restrictions or prohibitions, and delays from customs brokers or government agencies;

seasonal reductions in business activity in certain parts of the world; and

potentially adverse tax consequences.

~~-14-~~

Depending on the countries involved, any or all of the foregoing factors could materially harm our business, financial condition and results of operations.

~~Our effective tax rate may vary.~~

Various internal and external factors may have favourable or unfavourable effects on our future effective tax rate. These factors include but are not limited to changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, future levels of research and development spending, the availability of tax credit programs for the reimbursement of all or a significant proportion of research and development spending, and changes in overall levels of pre-tax earnings. Our corporate structure was designed in part to allow us to qualify for certain substantial tax credits in Canada. In particular, at present, we take advantage of favourable tax treatment in Canada for certain research work pertaining to our drug delivery technologies and drug products in research stages. If those Canadian tax laws as pertain to such research were substantially negatively altered or eliminated, or if our applications for tax credits are refused, it would have a material adverse effect upon our financial results.

Risks related to our Common Shares

Our share price has been highly volatile and our shares could suffer a further decline in value.

The trading price of our common shares has been highly volatile and could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

sales ~~or other issuances~~ of our common shares, including any sales made in connection with future financings;

announcements regarding new or existing corporate ~~partnerships;~~relationships or arrangements;

announcements by us of significant acquisitions, joint ventures, or capital commitments;

actual or anticipated period-to-period fluctuations in financial results;

clinical and regulatory development regarding our product candidates;

litigation or threat of litigation;

failure to achieve, or changes in, financial estimates by securities analysts;

comments or opinions by securities analysts or members of the medical community;

announcements regarding new or existing products or services or technological innovations by us or our competitors;

conditions or trends in the pharmaceutical and biotechnology industries;

additions or departures of key personnel or directors;

economic and other external factors or disasters or crises;

limited daily trading volume; and

developments regarding our patents or other intellectual property or that of our competitors.

Our shares have in the past experienced, and may continue to experience, significant volume and price volatility. This volatility could reduce the future market price of our shares, regardless of our operating performance. In addition, both the volume and the trading price of our shares could change significantly over short periods of time in response to, among other things, actual or anticipated variations in quarterly operating results, announcements by us, and/or changes in national or regional economic conditions, making it more difficult for our shares to be sold at a favourable price or at all.

In addition, the stock market in general and the market for drug development companies in particular have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been significant volatility in the market prices of securities of

~~-15-~~

~~pharmaceutical and biotechnology~~ life science companies. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities, and the diversion of management’s attention and resources.

~~We may not achieve projected development goals~~

- 16 -

A large number of our common shares could be sold in the ~~time frames announced and expected.~~market in the near future, which could depress our stock price.

~~From time to time, we may set goals for and make public statements regarding timing~~As of the ~~accomplishment~~date of ~~objectives material to our success. The actual timing of these events can vary dramatically due to~~this annual report, we had approximately 17.9 million common shares outstanding. In addition, a number of factors such as delays or failures in clinical trials or bioequivalence studies, the uncertainties inherent in the regulatory approval process, and delays in achieving product development, manufacturing, or marketing milestones necessary to commercialize products. There can be no assurance that any clinical trials or bioequivalence studies that are necessary for regulatory approvals will be completed, that we will make regulatory submissions, or receive regulatory approvals. If we fail to achieve one or more milestones, the pricesubstantial portion of our shares ~~could decline.~~are currently freely trading without restriction under the Securities Act of 1933, as amended (“U.S. Securities Act”), having been registered for resale or held by their holders for over one year and are eligible for sale under Rule 144.

NoOur shareholders who received shares under the IPC Arrangement Agreement (as defined in Item 4.A) who were not deemed “affiliates” of either Vasogen, IPC Ltd., or us prior to the IPC Arrangement Agreement were able to resell the common shares that they received without restriction under the U.S. Securities Act. The common shares received by an “affiliate” after the IPC Arrangement Agreement or who were “affiliates” of either Vasogen, IPC Ltd., or us prior to the IPC Arrangement Agreement are subject to certain restrictions on resale under Rule 144.

As of the date of this annual report, there are currently common shares issuable upon the exercise of outstanding options and warrants and the conversion of the outstanding convertible debenture for an aggregate of approximately 8.3 million common shares. To the extent any of our options and warrants are exercised and the convertible debenture is converted, a shareholder’s percentage ownership will be diluted and our stock price could be further adversely affected. Moreover, as the underlying shares are sold, the market price could drop significantly if the holders of these restricted shares sell them or if the market perceives that the holders intend to sell these shares.

We have no history or foreseeable prospect of paying cash dividends.

We have not paid any cash dividends on our common shares and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Dividend payments in the future may also be limited by ~~other~~ loan agreements or covenants contained in other securities ~~which~~ we may issue. Any future determination to pay cash dividends will be at the discretion of our board of directors and depend on our financial condition, results of operations, capital and legal requirements and such other factors as our board of directors deems relevant.

There may not be an active, liquid market for our common shares.

There is no guarantee that an active trading market for our common shares will be maintained on the NASDAQ Capital Market (“NASDAQ”), or the Toronto Stock Exchange (“TSX”) ~~or elsewhere.~~. Investors may not be able to sell their shares quickly or at the latest market price if trading in our common shares is not ~~active or if our shares cease to trade on a recognized securities exchange.~~active.

Future issuances of our shares ~~including pursuant to warrants outstanding,~~ could adversely affect the trading price of our common shares and could result in substantial dilution to shareholders.

We may need to issue substantial amounts of our common shares in the future. To the extent that the market price of our common shares declines, we will need to issue an increasing number of common shares per dollar of equity investment. In addition to our common shares issuable in connection with the exercise of our ~~outstanding~~ warrants, our employees, and directors will hold rights to acquire substantial amounts of our common shares. In order to obtain future financing if required, it is likely that we will issue additional common shares or financial instruments that are exchangeable for or convertible into common shares. In addition, warrants to purchase 4,896,000 common shares representing approximately a 24% interest in the Company, after their exercise, were issued in connection with the February 2011 private placement, most of which are exercisable at $2.50 per share, could result in substantial dilution of existing shareholders and cause our share price to decline. Also, in order to provide incentives to employees and induce prospective employees and consultants to work for us, we may offer and issue options to purchase common shares and/or rights exchangeable for or convertible into common shares. Future issuances of shares could result in substantial dilution to shareholders. Capital raising activities, if available, and dilution associated with such activities could cause our share price to decline. In addition, the existence of common share purchase warrants may encourage short selling by market participants. Also, in order to provide incentives to current employees and directors and induce prospective employees and consultants to work for us, we have historically granted options and deferred share units (“~~DSU~~DSUs”), and intend to continue to do so or offer and issue ~~options and DSUs to purchase common shares and/or~~other rights exchangeable for or convertible into common shares. Future issuances of shares could result in substantial dilution to all our shareholders. Capital raising activities and dilution associated with such activities could cause our share price to decline.

- 17 -

We may in the future issue preference shares which could adversely affect the rights of holders of our common shares and the value of such shares.

~~-16-~~

Our board of directors has the ability to authorize the issue of an unlimited number of preference shares in series, and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the holders of our common shares.

Although we have no preference shares issued and outstanding, preference shares issued in the future could adversely affect the rights and interests of holders of our common shares.

~~If there are substantial sales of our common shares, the market price of our common shares could decline.~~

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

Our common shares may not continue to be listed on the TSX.

~~Our failure~~Failure to maintain the applicable continued listing requirements of the TSX could result in our common shares being delisted from the TSX. The TSX will normally consider the delisting of securities if, in the opinion of the exchange, it appears that the public distribution, price, or trading activity of the securities has been so reduced as to make further dealings in the securities on TSX unwarranted. Specifically, participating securities may be delisted from the TSX if, among other things, the market value of an issuer’s securities is less than C$3,000,000 over any period of 30 consecutive trading days. In such circumstances, the TSX may place an issuer under a delisting review pursuant to which the issuer would be reviewed under the TSX’s remedial review process and typically be granted 120 days to comply with all requirements for continued listing. If the market price of our common shares declines ~~below applicable exchange minimums~~further or we are unable to maintain other listing requirements, the TSX could commence a remedial review process that could lead to the delisting of our common shares from the TSX. Further, if we complete a sale, merger, acquisition, or alternative strategic transaction, we will have to consider if the continued listing of our common shares on the TSX is appropriate, or possible.

If our common shares are no longer listed on the TSX, they may be eligible for listing on the TSX Venture Exchange. In the event that we are not able to maintain a listing for our common shares on the TSX or the TSX Venture Exchange, it may be extremely difficult or impossible for shareholders to sell their common shares in Canada. Moreover, if we are delisted ~~and~~from the TSX, but obtain a substitute listing for our common shares on the TSX Venture Exchange, our common shares will likely have less liquidity and more price volatility than experienced on the TSX.

Shareholders may not be able to sell their common shares on any such substitute exchange in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our common shares are delisted from the TSX, the price of our common shares is likely to decline. ~~In addition, a decline in the price of our common shares will impair our ability to obtain financing in the future.~~

Our common shares may not continue to be listed on NASDAQ.

~~Our failure~~Failure to meet the applicable quantitative and/or qualitative ~~listing~~ maintenance requirements of NASDAQ could result in our common shares being delisted from the NASDAQ Capital Market. For continued listing, NASDAQ requires, among other things, that listed securities maintain a minimum bid price of not less than $1.00 per ~~share (the “Minimum Bid Price Rule”).~~share. If the bid price falls below the $1.00 minimum for more than 30 consecutive trading days, an issuer will typically have 180 days to satisfy the $1.00 minimum bid price, which must be maintained for a period of at least ten trading days in order to regain compliance.

If ~~our common shares~~we are ~~no longer listed on~~delisted from the NASDAQ ~~whether as a result of a failure to meet the Minimum Bid Price Rule or otherwise,~~Capital Market, our common shares may be eligible for trading on an over-the-counter market in the United States. In the event that we doare not able to obtain a listing on another U.S. stock exchange or quotation service for our common shares, it may be extremely difficult or impossible for shareholders to sell their common shares in the United States. Moreover, if ~~our common shares cease to be listed on~~we are delisted from the NASDAQ ~~and we~~Capital Market, but obtain a substitute listing for our common shares in the United States, it will likely be on a market with less liquidity, and therefore potentially more price volatility, than the NASDAQ Capital Market. Shareholders may not be able to sell their common shares on any such substitute U.S. market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our common shares are delisted from NASDAQ, the price of our common shares is likely to decline. In addition, a decline in the price of our common shares will impair our ability to obtain financing in the future.

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Our shares are listed for trading in the United States and may become subject to the SEC’s penny stock rules.

~~-17-~~

Transactions in securities that are traded in the United States ~~that are not traded on NASDAQ or on other securities exchange~~ by companies with net tangible assets of $5,000,000 or less and a market price per share of less than $5.00 that are not traded on NASDAQ or on other securities exchanges may be subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended (“U.S. Exchange Act”). Under these rules, broker-dealers who recommend such securities to persons other than institutional ~~investors:~~investors must:

~~must~~ make a special written suitability determination for the purchaser;

receive the purchaser’s written agreement to a transaction prior to sale;

provide the purchaser with risk disclosure documents which identify risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and

obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.

As a result of these requirements, if our common shares are at such time subject to the “penny stock” rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in these shares in the United States may be significantly limited. Accordingly, the market price of the shares may be depressed, and investors may find it more difficult to sell the shares.

As a foreign private issuer in the United States, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer.

As a foreign private issuer under U.S. securities laws we are not required to comply with all the periodic disclosure requirements of the U.S. Exchange Act applicable to domestic United States companies and therefore the publicly available information about us may be different or more limited than if we were a United States domestic issuer. In addition, our officers, directors, and principal shareholders are exempt from the “real time” reporting and ‘‘short swing’’ profit recovery provisions of Section 16 of the U.S. Exchange Act and the rules thereunder. Although under Canadian rules, our officers, directors and principal shareholders are generally required to file on SEDI (www.sedi.ca) reports of transactions involving our common shares within five calendar days of such transaction, our shareholders may not know when our officers, directors and principal shareholders purchase or sell our common shares as timely as they would if we were a United States domestic issuer.

We are exposed to risks if we are unable to comply with laws and future changes to laws affecting public companies, including the Sarbanes-Oxley Act of 2002, and also to increased costs associated with complying with such laws.

Any future changes to the laws and regulations affecting public companies, as well as compliance with existing provisions of the Sarbanes-Oxley Act of 2002 ~~(‘‘SOX’’~~(“SOX”) in the United States and ~~the other~~ applicable Canadian securities laws, ~~and~~ regulations, ~~and related~~ rules and policies, may cause us to incur increased costs ~~based on the implications of new rules~~to comply with such laws and ~~responses to new requirements.~~requirements, including, among others, hiring additional personnel and increased legal, accounting and advisory fees. Delays or a failure to comply with the new laws, rules and regulations could result in enforcement actions, the assessment of other penalties and civil suits. ~~New~~The new laws and regulations may ~~make it more expensive for us~~increase potential costs to be borne under indemnities provided by ~~the Company~~us to our officers and directors and may make it more difficult ~~for us~~ to obtain certain types of insurance, including liability insurance for directors and ~~officers. As~~officers; as such, we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult ~~for us~~ to attract and retain qualified persons to serve on our board of directors, or as executive officers.

We may be required to hire additional personnel and utilize additional outside legal, accounting and advisory services, all of which could cause our general and administrative costs to increase beyond what we currently have planned. We cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

~~The Company is~~

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We are required annually to review and report ~~annually~~ on the effectiveness of ~~its~~our internal control over financial reporting in accordance ~~with SOX section 404 and~~ Multilateral Instrument 52-109 – Certification of

~~-18-~~

Disclosure in Issuer’s Annual and Interim Filings of the Canadian Securities Administrators. The results of this review are reported in ~~this~~our Annual Report on Form 20-F ~~Annual Report~~ and in our ~~Management’s~~Management Discussion and Analysis.

Management’s review is designed to provide reasonable, ~~assurance,~~ not absolute, assurance that all material weaknesses ~~existing within the Company’s~~in our internal controls are identified. Material weaknesses represent deficiencies ~~existing~~ in ~~the Company’s~~our internal controls that may not prevent or detect a misstatement occurring which could have a material adverse effect on ~~the~~our quarterly or annual financial ~~statements of the Company.~~statements. In addition, ~~management cannot ensure~~there can be no assurance that ~~the~~any remedial actions ~~being taken by the Company~~we take to address any material weaknesses identified will be successful, nor can ~~management ensure~~there be any assurance that no further material weaknesses will not be identified ~~within its internal controls over financial reporting~~ in future years.

~~If the Company fails~~ Material errors, omissions or misrepresentations in our disclosures that occur as a result of our failure to maintain effective internal ~~controls~~control over ~~its~~ financial reporting ~~there is the possibility of errors or omissions occurring or misrepresentations in the Company’s disclosures which~~ could have a material adverse effect on ~~the Company’s~~our business, ~~its~~ financial ~~statements,~~condition, results of operations, and the value of ~~the Company’s~~our common shares.

We may be classified as a “passive foreign investment company” or “PFIC” for U.S. income tax purposes, which could have significant and adverse tax consequences to U.S. investors.

The possible classification of our company as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes could have significant and adverse tax consequences for U.S. holders of our common ~~shares.~~shares and preference shares (collectively, “shares”). It may be possible for U.S. holders of ~~common~~ shares to mitigate certain of these consequences by making an election to treat us as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Internal Revenue Code of 1986, as amended (the “Code”), (a “Mark-to-Market Election”). A non-U.S. corporation generally will be a PFIC if, for a taxable year (a) 75% or more of the gross income of such corporation for such taxable year consists of specified types of passive income or (b) on average, 50% or more of the assets held by such corporation either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if such non-U.S. corporation is not publicly traded and either is a “controlled foreign corporation” under Section 957(a) of the ~~Internal Revenue~~ Code, ~~of 1986, as amended (the “Code”),~~ or makes an election to determine whether it is a PFIC based on the adjusted ~~bases~~basis of the assets).

The determination of whether we are, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to various interpretations. In addition, whether we will be a PFIC for the current taxable year and each subsequent taxable year depends on our assets and income over the course of each such taxable year and, as a result, cannot be predicted with certainty. Absent one of the elections described above, if we are a PFIC for any taxable year during which a U.S. holder holds our ~~ordinary~~ shares, we generally will continue to be treated as a PFIC regardless of whether we cease to meet the PFIC tests in one or more subsequent years. Accordingly, no assurance can be given that we will not constitute a PFIC in the current (or any future) tax year or that the Internal Revenue Service (the “IRS”) will not challenge any determination made by us concerning our PFIC status.

If we are a PFIC, the U.S. federal income tax consequences to a U.S. holder of the ownership and disposition of our shares will depend on whether such U.S. holder makes a QEF or Mark-to-Market Election. ~~Under recently passed legislation, unless~~Unless otherwise provided by the ~~Internal Revenue Service,~~IRS, a U.S. holder of our shares ~~during any year in which we are a PFIC must~~is generally required to file an informational return annually to report its ownership interest in the PFIC during any year in which we are a PFIC.

The foregoing does not purport to be a complete enumeration or explanation of the tax risks involved in an investment in our company. Prospective investors should read this entire annual report and consult with their own legal, tax and financial advisors before deciding to invest in our company.

It may be difficult to obtain and enforce judgments against us because of our Canadian residency.

We are governed by the laws of Canada. Most of our directors and officers are residents of Canada or other jurisdictions outside of the United States and all or a substantial portion of our assets and the assets of such persons may be located outside of the United States. As a result, it may be difficult for shareholders to effect service of process upon us or such persons within the United States or to realize in the United States on judgments of courts of the United States predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States. In addition, there is doubt as to the enforceability in Canada of liabilities predicated solely upon U.S.

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federal securities law against us, our directors, controlling persons and officers who are not residents of the United States, in original actions or in actions for enforcements of judgments of U.S. courts.

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Item 4.~~4. Information on the Company~~

Information on the Company

A.	History and Development of the Company

The Company was incorporated under the Canada Business Corporations Act by certificate and articles of arrangement dated October 22, 2009.

Our registered principal office is located at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2. Our telephone number is (416) 798-3001 and our facsimile number is (416) 798-3007.

On October 19, 2009, the shareholders of ~~Intellipharmaceutics Ltd. (“~~IPC Ltd.”) and Vasogen Inc. (“Vasogen”) approved the court approved plan of arrangement and merger (the “IPC Arrangement Agreement”) that resulted in the October 22, 2009 combination of IPC Ltd. and Intellipharmaceutics Corp. with 7231971 Canada Inc., a new Vasogen company that acquired substantially all of the assets and certain liabilities of Vasogen, including the proceeds from its non-dilutive financing transaction with Cervus LP (“Cervus”) as described further below (the “IPC Arrangement Transaction”). The completion of the IPC Arrangement Transaction on October 22, 2009, resulted in a new publicly-traded company, Intellipharmaceutics International Inc., incorporated under the laws of Canada, and whose common shares are traded on the TSX and NASDAQ. IPC Ltd. shareholders were issued approximately 86% of the outstanding common shares of Intellipharmaceutics and Vasogen’s shareholders were issued approximately 14% of the outstanding common shares of Intellipharmaceutics.

Separately, Vasogen entered into an arrangement agreement with Cervus, ~~LP (“Cervus”),~~ an Alberta based limited partnership that resulted in Vasogen being reorganized prior to completion of the arrangement transaction with IPC Ltd. and provided gross proceeds to Vasogen of approximately C$7.5 million in non-dilutive capital.

As a result of the transaction we selected a November 30 year end, which resulted in the Company having an eleven month fiscal period in 2009. All comparable information is that of the accounting predecessor company, IPC Ltd., which had a December 31 year end.

For the ~~year~~years ended November 30, ~~2010, the eleven month period ended November 30, 2009,~~2012, 2011 and ~~the year ended December 31, 2008,~~2010, we spent a total of ~~$4,533,310, $1,554,859~~$5,992,417, $5,125,608, and ~~$419,187,~~$4,533,310, respectively, on research and development. Over the past three fiscal years and up to January 31, 2013, we have raised approximately ~~$11,334,855~~$18,500,000 in gross proceeds from the issuance of equity ~~securities to investors.~~and convertible debt securities. Our common shares are listed on the TSX under the symbol “I” and on ~~the~~ NASDAQ under the symbol “IPCI”.

During the last and current financial year, we have not been aware of any indications of public takeover offers by third parties in respect of the Company’s shares or by the Company in respect of other companies’ shares.

For additional information on key events, see Item 4.B below.

B.	~~Business Overview~~

~~Our Strategy~~

We believe that our Hypermatrix™ technology is a unique and validated multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a wide range of existing and new pharmaceuticals. We believe the flexibility of this technology allows us to develop complex drug delivery solutions within a rapid timeframe.

We apply our technologies to the development of both existing and new pharmaceuticals across a range of therapeutic classes. The flexibility and the competitive advantage of the Hypermatrix™ technology allow us to focus our development activities in two areas; difficult-to-produce controlled-release generic drugs, which follow an ANDA regulatory path; and improved current therapies through controlled release, which follow an NDA 505(b)(2) regulatory path.

~~-20-~~

We operate in a market created by the expiration of drug product patents, challengeable patents and drug product exclusivity periods. There are three ways that we employ our controlled-release technologies, which represent opportunities for us to license our technologies and products:

For existing controlled-release (once-a-day) products covered by patents about to expire or already expired, we can formulate generic products, which are bioequivalent to the branded products. Such products can be licensed to and sold by distributors of generic products. Our scientists have previously developed several drugs which have been commercialized in the United States by their former employer/client. The regulatory pathway for this approach requires an abbreviated new drug application (“~~ANDA”).~~Business Overview

For branded immediate-release (multiple-times-per-day) drugs, we can formulate improved replacement products, typically by developing new, patentable, controlled-release once-a-day drugs. These drugs can be licensed to and sold by the pharmaceutical company that made the original immediate-release product. This protects against revenue erosion in the brand by providing a clinically attractive patented product that competes favorably with the generic immediate-release competition that arises on expiry of the original patent(s). The regulatory pathway for this approach requires new drug applications (“~~NDA”) via 505(b)(2) application which both accelerates development timelines and reduces costs in comparison to regular new drug applications for new chemical entities.~~

Our technologies are also focused on the development of abuse-deterrent pain medications. The growing abuse and diversion of prescription “painkillers”, specifically opioid analgesics, is well documented and is a major health and social concern. We believe that our technologies and know-how are uniquely suited to developing abuse-deterrent pain medications.

~~We believe we are well-positioned to execute our strategic plan due to our current financial position and expertise in drug delivery, product development, regulatory affairs and manufacturing.~~

~~PRODUCTS AND MARKETS~~

Our Drug Delivery ~~Technology~~

Our Hypermatrix™ technology platform is at the core of a family of drug delivery technologies that underlie our development and marketing programs. Hypermatrix™ technologies are based upon the active drug ingredient (“~~drug active~~”), and an integral part of, a homogeneous (uniform) core and/or coatings consisting of one or more polymers that affect the release rates of drugs. Our technology allows for the intelligent and efficient design of drugs through the precise manipulation of a number of key variables. This allows us to respond to varying drug attributes and patient requirements, producing a desired controlled-release effect in a timely and cost effective manner.

We develop both new and generic controlled-release pharmaceutical products and we typically license these developed products for commercialization. At present, no such licensed product has been commercialized. Controlled-release means releasing a drug into the bloodstream or a target site in the body, over an extended period of time or at predetermined times. Controlled drug delivery can be both safer and more effective than conventional immediate-release tablets and capsules in administering drugs.

Our business focus has been to apply our proprietary controlled-release technologies to existing drugs. The release technologies, and the excipients utilized in them, were designed and chosen to be compatible with, and to orally deliver, a wide range of small-molecule active pharmaceutical ingredients (“~~API~~”). At present, those technologies have been applied in the laboratory and/or in bioavailability/bioequivalence studies in humans to orally administer small molecule drugs including those used in the treatment of cardiovascular, central nervous system, gastrointestinal, pain, diabetes and other significant indications.

We apply our proprietary technology to development activities in two ways: (1) developing improved controlled-release (once-a-day) versions of existing immediate-release branded drugs (requiring NDAs), and (2) developing and commercializing generic drugs that are bioequivalent to existing controlled-release branded products

~~-21-~~

(requiring ANDAs). An ANDA must show that, when taken orally in bioequivalence studies conditions, levels of the active ingredient as measured in the bloodstream are the same for the generic product as for the branded product, within tolerances set by the FDA.

Our proposed products target the niche market created by the expiration of drug product patents and drug product exclusivity periods, for which we believe we will generally have the following three opportunities to license our technologies and products:

For existing controlled-release (once-a-day) products covered by patents about to expire or already expired, we can seek to formulate generic products which are bioequivalent to the branded products. Our scientists have done so previously for several drug products, on a private contract basis with third-party companies that cannot be disclosed because of confidentiality obligations of our scientists under their prior development agreements. Such products may be licensed to and sold by distributors of generic products.

For branded immediate-release (multiple-times-per-day) products, we can seek to formulate improved replacement products, typically by developing a new, patentable, controlled-release (once-a-day) product. Such products may be licensed to and sold by the pharmaceutical company that made the original immediate-release product, thereby protecting the pharmaceutical company against revenue loss in the brand by providing a clinically attractive patented product that is expected to compete favourably with the generic immediate-release competition that arises on expiry of the original patent(s).

Technologies

Our scientists have developed drug delivery technology systems, based on the Hypermatrix™ platform, that facilitate controlled-release delivery of a wide range of pharmaceuticals. ~~We have branded these technology systems collectively as the Drug Delivery Engine™.~~ These systems include several core technologies, which enable us to flexibly respond to ~~varying~~a wide range of drug attributes and patient requirements, producing a desired controlled-release effect. In our opinion, these systems offer superior performance to traditional drug delivery systems, while retaining simplicity and cost effectiveness associated with their manufacture for the reasons described below:

Our delivery technologies offer competitive development times. They have demonstrated themselves suited to the delivery of a wide range of small molecule drugs. They are robust in that the predicted delivery results have been repeatedly substantiated by actual bioavailability/bioequivalence studies. They were developed by our chief scientists, who have substantial experience in applying them successfully to the delivery of small drug molecules under existing development contracts and in support of our pipeline. For these reasons, we believe that our development times are relatively short and competitive.

Our delivery technologies offer competitive development costs, because the technologies use only readily available, low-cost ingredients already acceptable to regulatory authorities such as the FDA, and because development times are short, we believe in the opinion of management our development costs are low when compared to our competitors.

Large pharmaceutical companies may license our improved products for life-cycle management and franchise extension of their branded products as they come off patent. Our management believes that, with impending loss of branded product revenues, a new generic version of that product such as we develop, which offers the advantage of once-a-day dosing, should be attractive to a large pharmaceutical company facing revenue loss in a patented branded-product franchise.

Manufacturers and distributors of generic drugs may license our technologies and products. Because our development times are, in our opinion comparatively short and cost-effective, our generic once-a-day products represent a cost-effective opportunity for generic distributors to add valuable generic products to their portfolios.

~~We are currently focusing our efforts on the following areas:~~

~~-22-~~

· Obtaining regulatory approval, including for (i) generic, controlled-release pharmaceutical products (ANDAs), and (ii) new controlled-release pharmaceutical products (NDAs) which are reformulations of existing successful immediate release products.

In May 2007, we filed an ANDA with the FDA for 5mg, 10mg, 15mg and 20mg strengths of generic Focalin XR® developed in collaboration with partner, Par Pharmaceutical and intended for the U.S. market. In August 2007, the application was accepted by the FDA as being complete and in condition for further review. In December 2010, we filed an ANDA for the 30mg strength of generic Focalin XR®, which is not partnered.

~~In May 2010, our ANDA filing for generic Effexor XR® was accepted by the FDA for review.~~

~~In June 2010, our ANDA filing for generic Protonix® was accepted by the FDA for review.~~

~~In October 2010, our ANDA filing for generic Glucophage® XR was accepted by the FDA for review.~~

~~In February 2011, our ANDA filing for generic Seroquel XR® was accepted by the FDA for review.~~

~~The ANDA review process generally takes at least two years and often longer, and there can be no assurance that the FDA will approve the product for commercial launch in the USA.~~

~~Commercial exploitation of these products either by license and the collection of royalties, or through the manufacture of tablets and capsules using our developed formulations.~~

Development of new products and increasing the number of licensing agreements with other pharmaceutical companies beyond those already in place, including collaborating in contract research and development, joint ventures and other drug development and commercialization projects.

We intend to collaborate in the development and/or marketing of products with partners, when we believe that such collaboration may enhance the outcome of the project. We also plan to seek additional collaborations as a means of developing additional products. We believe that our business strategy enables us to reduce our risk by (a) having a diverse product portfolio that includes both branded and generic products in various therapeutic categories, and (b) building collaborations and establishing licensing agreements with companies with greater resources thereby allowing us to share costs of development and to improve cash-flow. There can be no assurance that we will be able to enter into additional collaborations or that such arrangements will be beneficial.

Our scientists have developed proprietary controlled-release drug delivery technologies based on the Hypermatrix™ platform, branded Drug Delivery Engine™. These technologies consist of drug delivery systems that facilitate timed release delivery of a wide range of pharmaceuticals. Our Drug Delivery Engine™ technologies have been ~~used~~incorporated in drugs manufactured and sold by major pharmaceutical companies.

~~One~~

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This group of ~~our Drug Delivery Engine™ technologies, our Hypermatrix™ technologies~~drug delivery technology systems are based upon the drug active ingredient (“drug active”) being imbedded in, and an integral part of, a homogeneous (uniform), core and/or coatings consisting of one or more polymers which affect the release rates of drugs, other excipients (compounds other than the drug active), such as for instance lubricants which control handling properties of the matrix during fabrication, and the drug active itself. The Hypermatrix™ technologies are the core of our current ~~marketing~~product development efforts and the technologies underlying our existing development agreements.

Our platform of Hypermatrix™ drug delivery technologies include, but are not limited to, ~~Intellifoam™~~IntelliFoam™, IntelliGITransporter™, IntelliMatrix™, IntelliOsmotics™, IntelliPaste™, IntelliPellets™, and IntelliShuttle™. Some of their key attributes are described below.

These technologies provide a broad range of release profiles, taking into account the physical and chemical characteristics of a drug product, the therapeutic use of the particular drug, and the optimal site for release of the

~~-23-~~

~~active pharmaceutical ingredient~~ API in the gastrointestinal tract (“GIT”). At present those technologies have been applied in the laboratory and/or in bioavailability/bioequivalence studies in man to such orally administered small molecule drugs as are used in the treatment of neurological, cardiovascular, ~~central nervous system, gastrointestinal,~~GIT, diabetes, pain ~~diabetes~~ and other significant ~~disorders.~~indications.

The Hypermatrix™ Family of ~~Drug Delivery Engine™~~ Technologies

~~Intellifoam™~~IntelliFoam™

The ~~Intellifoam™~~IntelliFoam™ technology is based on the drug active being embedded in, but separate from a syntactic foam substrate, the properties of which are used to modulate the release of the drug active. The drug actives are embedded in a resin polymer matrix.

IntelliGITransporter™

The IntelliGITransporter™ technology consists of an active drug immobilized in a homogeneous (uniform) matrix structure. A precise choice of mix ratios, polymers, and other ingredients imparts characteristics which protect the drug composition from mechanical degradation due to digestion, and/or from chemical degradation in the acidic stomach environment, and ensures that this technology allows control of release as well as releasing the medication at certain parts of the stomach or intestines without significant food effects or unintentional premature release of the entire drug dose. We believe that this technology is most useful for drug molecules with characteristics such as very low or very high potency, opiate analgesics (pain medications derived from the chemical compounds found in opium), or susceptibility to acid degradation. It is also useful for products where a zero-order (constant rate over time, independent of the amount of drug available for dissolution) release profile is desirable.

IntelliMatrix™

The IntelliMatrix™ technology is a proprietary blend of several polymers. Depending on the constituents of the blend and the manner in which these interact, the use of the blend with a drug allows the drug to be released at predetermined rates, while imparting protective characteristics to both the drug and the GIT. This is most useful for drugs which require precisely controlled ~~first order~~first-order release profiles, where the amount released with time is dependent on one component like the amount of drug available for dissolution.

IntelliOsmotics™

The IntelliOsmotics™ technology is based upon the inclusion of multiple populations of polymers with distinct chemical bonding characteristics. These set up a complex matrix of hydrophilic (water attracting) and hydrophobic (water repelling) domains. When the tablet or bead is in an aqueous environment, like gastric contents, a “mixture” of water-soluble polymer and drug core is surrounded by gel layer(s) of water-insoluble polymer. Osmotic pressure drives the drug out when solvent passes through the gel layer while the polymer molecules remain. This permits control of the rate of release of the drug active by the variation of polymer ratios. This technology is most useful for drug molecules which require precisely controlled pseudo-first-order release profiles, where the rate of release is proportional to the amount available for dissolution as well as being proportional to one other component; however the effect of the amount of drug is overriding, so that the rate appears ~~first order.~~first-order. This type of release control can be useful when attempting to match difficult profiles for generic formulation.

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IntelliPaste™

The IntelliPaste™ technology is comprised of blends of multiple polymers, oils, excipients and drug active(s) which result in a paste-in-a-capsule dosage form. The physical attributes of the paste include that it is thixotropic, pseudoplastic and non-Newtonian or, in layman’s terms, like toothpaste. Typically, it is formulated as having very low solubility in water or oil, and low solubility in alcohol. These characteristics enable the resulting drug product to have tamper-deterrent properties, and to resist dissolution in even high concentrations of alcohol. As a result, IntelliPaste™ is the Company’s preferred delivery technology for the controlled delivery of opiates, narcotics and other central nervous system (“~~CNS~~”) drug products which are susceptible to unlawful diversion or abuse.

~~-24-~~

IntelliPellets™

The IntelliPellets™ technology consists of one or more type (population) of granule, bead, pellet, or tablet in a holding chamber or reservoir, such as a hard gelatin capsule. Each type (population) may be uniquely different from the other in the manner or rate it releases the drug. Our IntelliPellets™ technology is designed to control, prolong, delay or modify the release of drugs. It is particularly useful for the delivery of multiple drugs, for delayed, timed, pulsed or for chronotherapeutic drug delivery, designed to mimic our internal clocks for therapeutic optimization (the drug is delivered in the right amount for the patient at the right time). This technology is most useful for the delivery of multiple-drug cocktails, or in situations where the timing of a single dose or the sequencing of multiple doses of the same drug is important.

IntelliShuttle™

The IntelliShuttle™ technology provides for drug release past the stomach, such as for drugs required for action beyond the stomach, for drugs which could be destroyed by the stomach environment, or for drugs which could harm the stomach itself. This technology “shuttles” the drug past the stomach to be released at predetermined times or sites where appropriate for optimum therapeutic effect. This technology is most useful for acid labile drug molecules (drugs that are destroyed in acid environment), such as the proton pump inhibitors, of which well-known omeprazole (Prilosec) and lansoprazole (Prevacid) are examples, or for drug molecules which may harm the stomach, of which the well-known aspirin is an example.

Each of the above-noted proprietary technologies ~~has been~~was fully developed and is ready for application to ~~potential product candidates.~~client drug delivery requirements from the date of our inception. Each of them has been utilized and applied to client drug delivery requirements under our existing and previous development contracts; in several instances more than one technology has been applied to a single drug development. We continue to ~~market~~develop all of our existing technologies and to conduct the necessary research to develop new products and technologies. To date, none of the development contracts has proceeded to the point of commercialization, and therefore we have not yet seen our proprietary technologies utilized in products sold to consumers.

Our Strategy

We believe that our Hypermatrix™ technologies are a multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a wide range of existing and new pharmaceuticals. We believe that the flexibility of these technologies allow us to develop complex drug delivery solutions within a rapid timeframe. Based on our technologies, we have a pipeline of product candidates in various stages of development, including eight ANDAs filed with the FDA in therapeutic areas that include neurology, cardiovascular, GIT, diabetes and pain. Certain, but not all, of the products in our pipeline may be developed from time to time for third parties pursuant to drug development agreements with those third parties, under which our development partner generally pays certain of the expenses of development, sometimes makes certain milestone payments to us and receives a share of revenues or profits if the drug is developed successfully to completion, the control of which is generally in the discretion of our drug development partner. At this time, there is one such product in multiple strengths being developed in cooperation with a development partner.

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The Hypermatrix™ technologies are applied to the development of both existing and new pharmaceuticals across a range of therapeutic classes. The competitive advantages of these technologies allow us to focus our development activities in two areas; difficult-to-develop controlled-release generic drugs, which follow an ANDA regulatory path; and improved current therapies through controlled release, which follow a NDA 505(b)(2) regulatory path.

The market we operate in is created by the expiration of drug product patents, challengeable patents and drug product exclusivity periods. There are three ways that we employ our controlled-release technologies, which we believe represent substantial opportunities for us to commercialize on our own or develop products or out-license our technologies and products:

For existing controlled-release (once-a-day) products whose APIs are covered by drug molecule patents about to expire or already expired, or whose formulations are covered by patents about to expire, already expired or which we believe we do not infringe, we can seek to formulate generic products which are bioequivalent to the branded products. Our scientists have demonstrated a successful track record with such products, having previously developed several drug products which have been commercialized in the United States by their former employer/clients. The regulatory pathway for this approach requires ANDAs for the United States and corresponding pathways for other jurisdictions.

For branded immediate-release (multiple-times-per-day) drugs, we can formulate improved replacement products, typically by developing new, potentially patentable, controlled-release once-a-day drugs. Among other out-licensing opportunities, these drugs can be licensed to and sold by the pharmaceutical company that made the original immediate-release product. This can potentially protect against revenue erosion in the brand by providing a clinically attractive patented product that competes favorably with the generic immediate-release competition that arises on expiry of the original patent(s). The regulatory pathway for this approach requires NDAs via a 505(b)(2) application for the U.S. or corresponding pathways for other jurisdictions where applicable. The 505(b)(2) pathway (which relies in part upon the approving agency’s findings for a previously approved drug) both accelerates development timelines and reduces costs in comparison to NDAs for new chemical entities.

Some of our technologies are also focused on the development of abuse-deterrent pain medications. The growing abuse and diversion of prescription “painkillers”, specifically opioid analgesics, is well documented and is a major health and social concern. We believe that our technologies and know-how are aptly suited to developing abuse-deterrent pain medications. The regulatory pathway for this approach requires NDAs via a 505(b)(2) application for the U.S. or corresponding pathways for other jurisdictions where applicable.

We intend to collaborate in the development and/or marketing of one or more products with partners, when we believe that such collaboration may enhance the outcome of the project. We also plan to seek additional collaborations as a means of developing additional products. We believe that our business strategy enables us to reduce our risk by (a) having a diverse product portfolio that includes both branded and generic products in various therapeutic categories, and (b) building collaborations and establishing licensing agreements with companies with greater resources thereby allowing us to share costs of development and to improve cash-flow. There can be no assurance that we will be able to enter into additional collaborations or, if we do, that such arrangements will be beneficial.

Our Products

The table below shows the present status of our ANDA and NDA product candidates that have been disclosed publicly.

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Generic name	Brand	Indication	Stage of Development	Regulatory Pathway	Rights
Dexmethylphenidate hydrochloride extended-release capsules	Focalin XR®	Attention-deficit hyperactivity disorder	~~Application~~ANDA application for commercialization approval for 6 strengths under review by ~~the~~ FDA ~~for 5mg, 10mg, 15mg, 20mg strength~~ ~~ANDA for 30mg dosage strength filed as an amendment~~	ANDA	Intellipharmaceutics and Par ~~Pharmaceutical~~
Venlafaxine hydrochloride extended-release capsules	Effexor XR®	Depression	~~Application~~ANDA application for commercialization approval for 3 strengths under review by ~~the~~ FDA	ANDA	Intellipharmaceutics
Pantoprazole sodium ~~delayed-release capsules~~delayed- release tablets	Protonix®	Conditions associated with gastroesophageal reflux disease	~~Application~~ANDA application for commercialization approval for 2 strengths under review by ~~the~~ FDA	ANDA	Intellipharmaceutics
Metformin hydrochloride extended-release ~~capsules~~ tablets	Glucophage®XR	Management of type 2 diabetes	~~Application~~ANDA application for commercialization approval for 2 strengths under review by ~~the~~ FDA	ANDA	Intellipharmaceutics
Quetiapine fumarate extended-release tablets	Seroquel XR®	Schizophrenia, bipolar disorder ~~and~~& major depressive disorder	~~Application~~ANDA application for commercialization approval for 5 strengths under review by FDA	ANDA	Intellipharmaceutics
Lamotrigine extended-release tablets	Lamictal® XR™	Anti-convulsant for epilepsy	ANDA application for commercialization approval for 4 strengths under review by FDA	ANDA	Intellipharmaceutics
Levetiracetam extended-release tablets	Keppra XR®	Partial onset seizures for epilepsy	ANDA application for commercialization for 2 strengths under review by FDA	ANDA	Intellipharmaceutics

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Desvenlafaxine extended-release tablets	Pristiq®	Depression	ANDA application for commercialization approval for 2 strengths filed with the FDA	ANDA	Intellipharmaceutics
Carvedilol phosphate ~~extended-release~~extended- release capsules	Coreg CR®	Heart failure, hypertension	Late-stage development	ANDA	Intellipharmaceutics
Oxycodone hydrochloride controlled-release capsules	N/A	Pain	~~Early-stage development~~Phase I clinical trial	NDA 505(b)(2)	Intellipharmaceutics
Pregabalin extended-release capsules	Lyrica®	Neuropathic pain	Phase I clinical trial	NDA 505(b)(2)	Intellipharmaceutics

We typically select products for development that we ~~intend to license~~anticipate could achieve FDA approval for commercial sales several years in the future. However, the length of time necessary to bring a product to the point where wethe product can ~~license the product~~be commercialized can vary significantly and depends on, among other things, the availability of funding, design and formulation challenges, safety or efficacy, patent issues ~~and regulatory approval~~ associated with the ~~product.~~product, and FDA review times.

ANDA Product Candidates

Dexmethylphenidate Hydrochloride – Generic Focalin XR® (a registered trademark of the brand manufacturer)

In 2005, we entered into a license and commercialization arrangement with Par for the development of a generic version of Focalin XR®. ~~Under the arrangement, we are responsible for all laboratory development costs and Par is responsible for bioequivalence costs, API costs, scale up / stability costs and marketing. Par is also~~

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~~responsible for costs associated with litigation. This includes~~Our dexmethylphenidate hydrochloride extended-release capsules are a ~~ten year profit-sharing agreement with Par which commences with the commercial launch~~generic version of the ~~product.~~marketed drug Focalin ~~XR contains dexmethylphenidate~~XR®. Dexmethylphenidate hydrochloride, ~~and~~a Schedule II restricted product in the United States, is ~~used~~indicated for the treatment of ~~Attention Deficit Hyperactivity Disorder~~attention deficit hyperactivity disorder (“~~ADHD”~~ADHD”). According to ~~Wolters Kluwer Health,~~Source Healthcare Analytics, sales for the 12 months ended December 2012 of Focalin XR® in the U.S. were approximately ~~$480~~$614 million (TRx MBS Dollars, which represents projected new and refilled prescriptions representing a standardized dollar metric based on manufacturer’s published catalog or list prices to wholesalers, and does not represent actual transaction prices and does not include prompt pay or other discounts, rebates or reductions in ~~2010.~~price).

Effective May 2007, we filed an ANDA for our generic ~~Dexmethylphenidate XR,~~version of Focalin XR® with the FDA. In the period since our filing, we have filed a number of amendments to the application, some of which were at the request of the FDA. ~~Our ANDA application remains under review,~~

Intellipharmaceutics and ~~there can be no assurance when, or if at all, the FDA will approve the product for sale~~Par, together with five complainants in patent litigation in the ~~U.S market.~~

~~In 2010, we announced that we~~District Courts for New Jersey and our licensee and development partner, Par, received confirmation that the patent litigation concerning our generic of Focalin XR® expired without regulatory intervention, and that the parties stipulated to a dismissal of the litigation. The parties, Intellipharmaceutics, Par, NovartisDelaware (Novartis Pharmaceuticals Corporation, Novartis Pharma AG, Celgene Corporation, Elan Corporation, ~~PLC~~plc and Elan Pharma International ~~Ltd., have also~~Ltd) stipulated to the dismissal of that litigation and, in 2010, entered into settlement and license agreements ~~in conjunction~~ with the ~~settlements~~Company and with Par in respect of ~~the litigation concerning the Company’s generic drug~~our ANDA application ~~currently under review with~~to the FDA for ~~the~~ 5, 10, 15 and 20 mg strengths of dexmethylphenidate hydrochloride.

~~We expect that marketing of~~ Subject to FDA approval, we may market these generic versions of ~~these products will commence no sooner than~~ the ~~fourth quarter of 2012.~~product in the U.S. We have a ten year profit-sharing agreement with Par for the sale of dexmethylphenidate hydrochloride XRextended-release capsules in the U.S., which commences with the commercial launch of the product by Par.

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In December 2010, we filed an amendment to the ANDA ~~for~~to include the 30 mg strength of dexmethylphenidate hydrochloride extended-release capsules. The application was filed as an amendment to the ANDA previously filed for the other strengths of the drug. Our ANDA application remains under review, and there can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S market.

~~On March 29, 2011, we announced that the Company had become aware that~~ Elan Corporation, plc and Elan Pharma International Ltd., ~~had~~ filed a Complaint against Intellipharmaceutics Corp., ~~Intellipharmaceutics~~IPC Ltd., and Par ~~Pharmaceutical, Inc.~~ for alleged patent infringement in the United States District Court for the District of Delaware, relating to Intellipharmaceutics’ generic version of 30 mg ~~strength of dexmethylphenidate hydrochloride. On April 5, 2011, we also announced that the Company had become aware that,~~Focalin XR®. Separately, Celgene Corporation, Novartis Pharmaceuticals Corporation and Novartis Pharma AG, ~~had~~ filed a Complaint against Intellipharmaceutics Corp. for alleged patent infringement in the United States District Court for the District of New Jersey, relating to Intellipharmaceutics’ generic version of 30 mg Focalin XR®. In July 2012, the parties stipulated to a full and final dismissal of the pending patent litigation in the states of New Jersey and Delaware.

In February 2012, we filed an amendment to the ANDA for a generic version of Focalin XR® to include the 40 mg strength of dexmethylphenidate ~~hydrochloride.~~hydrochloride extended-release capsules. Celgene Corporation, Novartis Pharmaceuticals Corporation, and Novartis Pharma AG, filed a Complaint against Intellipharmaceutics Corp. for alleged patent infringement in the United States District Court for the District of New Jersey. Also, Alkermes Pharma Ireland Limited (successor in title to Elan Pharma International Limited) filed a Complaint against Intellipharmaceutics Corp. and Intellipharmaceutics Ltd., in June 29, 2012, for alleged patent infringement in the United States District Court for the District of Delaware. Both Complaints are in relation to Intellipharmaceutics’ generic version of 40 mg Focalin XR®. Both of these actions have been stayed on the consent of all parties pending settlement discussions. In view of the previous ~~settlement~~settlements related to the ~~four~~five dosage strengths ~~we believe~~of the same drug product, the Company believes it is reasonable to expect that the litigation relating to the 3040 mg strength could also be settled on terms satisfactory to ~~us,~~the Company, although no assurance can be provided to this effect. Lawsuits such as these are an ordinary and expected part of the process of obtaining approval to commercialize a generic drug product in the United States. ~~The Company~~Intellipharmaceutics remains confident that its generic version of 3040 mg Focalin ~~XR ®~~XR® does not in any event infringe the patents in issue.

On August 18, 2011, we announced that we had added the development and commercialization of additional strengths of generic Focalin XR® to the existing license and commercialization arrangement with Par for the U.S. market. This includes the 30 and 40 mg strengths.

Our ANDA application for all of the above strengths remains under review, and there can be no assurance when, or if at all, the FDA will approve the various dosages of the product for sale in the U.S. market.

Venlafaxine Hydrochloride – Generic Effexor XR® (a registered trademark of the brand manufacturer)

~~Another product in our generics pipeline is~~Our venlafaxine hydrochloride extended-release capsules are a generic version of the marketed drug Effexor XR®. ~~Effexor XR®, an extended-release capsule for oral administration,~~Venlafaxine hydrochloride is indicated for the treatment of symptoms of depressive disorders. According to ~~Wolters Kluwer Health,~~Source Healthcare Analytics, sales of venlafaxine hydrochloride extended-release capsules in the U.S. were approximately ~~$2.7 billion in 2010.~~$815 million (TRx MBS Dollars) for the 12 months ended December 2012.

~~In January 2010, we had our~~Our ANDA ~~for generic venlafaxine hydrochloride accepted by the FDA. The application~~in respect of this product is ~~currently~~ under ~~review. There~~review; there can be no assurance when, or if at all, the FDA will approve the product for sale in the ~~U.S~~U.S. market.

Wyeth LLC, ~~(“Wyeth”),~~ a wholly owned subsidiary of Pfizer Inc., had filed a ~~lawsuit~~Complaint for patent infringement against ~~the Company~~us in the United States District Court for the District of Delaware and for the Southern District of New York, relating to ~~Intellipharmaceutics'~~our generic version of Effexor XR® ~~(venlafaxine hydrochloride extended- release)~~ capsules. ~~Wyeth served~~On June 21, 2011, the Company ~~with~~announced that the ~~Complaint in the Southern District of New York on August 31, 2010, and~~patent infringement litigation was settled, granting the Company ~~filed its Answer and Counterclaim in response~~a non-exclusive license to the ~~Complaint on or about December~~

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~~17, 2010. Wyeth did not proceed with~~patents in suit that will permit the ~~Complaint in Delaware. In or about December 2010, both parties began and continue~~Company to ~~explore other alternatives.~~

~~Lawsuits such as these are an ordinary and expected part of the process of obtaining approval to commercialize~~launch a generic ~~drug product in the United States. The Company remains confident that Intellipharmaceutics’ generic versions~~version of Effexor XR® ~~do not in any event infringe the patents asserted~~ in the ~~above-noted lawsuit. The Company believes~~U.S. following FDA approval of this product. There can be no assurance that ~~there is no likelihood that the Company~~such approval will be ~~required to pay any damages or other penalty to Wyeth in connection with the resolution of this litigation in its reasonably anticipated course.~~granted.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Pantoprazole ~~sodium~~Sodium – Generic Protonix® (a registered trademark of the brand manufacturer)

~~A third product in our generics pipeline is delayed release~~Our pantoprazole sodium delayed-release tablets are a generic version of the marketed drug Protonix®. ~~Protonix®~~Pantoprazole sodium inhibits gastric acid secretion and is ~~prescribed~~indicated for the short-term treatment of conditions such as stomach ulcers associated with gastroesophageal reflux disease, as well as the long term treatment of pathological hypersecretory conditions including Zollinger-Ellison syndrome. According to ~~Wolters Kluwer Health,~~Source Healthcare Analytics, sales of pantoprazole sodium delayed-release tablets in the ~~U.S.~~United States were approximately ~~$2.4 billion in 2010.~~$674 million (TRx MBS Dollars) for the 12 months ended December 2012.

~~In June 2010, we had our~~

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An ANDA ~~for generic pantoprazole sodium accepted by~~has been filed with the ~~FDA. The~~FDA, and the application is under review. ~~There can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S market.~~

~~On December 22, 2010 we informed the FDA that we had~~The brand owner did not ~~received notification, as provided for under the Hatch-Waxman Act, of any~~initiate patent infringement ~~proceeding by the brand owner, Wyeth Pharmaceuticals, Inc., a wholly-owned subsidiary of Pfizer, Inc., for our application to market a generic of Protonix®.~~litigation. There are no unexpired patents associated with this product. As a result, we will not be subject to the automatic 30-month stay of FDA approval to market the product and we will be in a position to market our product in the United States upon FDA approval. There can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S. market.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Metformin ~~hydrochloride~~Hydrochloride – Generic Glucophage® XR (a registered trademark of the brand manufacturer)

~~A fourth product in our generics pipeline is Metformin~~Our metformin hydrochloride extended-release ~~capsules. It is~~tablets are a generic version of the marketed drug Glucophage® XR. ~~Glucophage~~Metformin hydrochloride is an oral antihyperglycemia drug ~~used in~~indicated for the management of type 2 diabetes. According to ~~Wolters Kluwer Health,~~Source Healthcare Analytics, sales of metformin hydrochloride extended-release tablets in the ~~U.S. of Glucophage®XR~~United States were approximately ~~$390~~$388 million ~~in 2010.~~(TRx MBS Dollars) for the 12 months ended December 2012.

~~In August 2010 we had our~~An ANDA ~~for generic Metformin hydrochloride accepted by~~has been filed with the ~~FDA. The~~FDA, and the application is under review. The brand owner did not initiate patent infringement litigation. As a result, we will not be subject to the automatic 30-month stay of FDA approval to market the product and we will be in a position to market our product in the United States upon FDA approval. There can be no assurance when, or if at all, the FDA will approve the product for sale in the ~~U.S~~U.S. market.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Quetiapine ~~fumarate~~Fumarate – Generic Seroquel XR® (a registered trademark of the brand manufacturer)

~~A fifth product in our generics pipeline is~~Our quetiapine fumarate extended-release ~~capsules. It is~~tablets are a generic version of the marketed drug Seroquel XR®. Quetiapine fumarate is an oral psychotropic agent indicated for the treatment of schizophrenia, bipolar disorder, and major depressive disorder. According to ~~Wolters Kluwer Health,~~Source Healthcare Analytics, sales ~~in the U.S.~~ of Seroquel XR® in the United States were approximately ~~$800 million in 2010.~~$1.1 billion (TRx MBS Dollars) for the 12 months ended December 2012.

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~~In February 2011, we had our~~The ANDA ~~for generic Seroquel XR® accepted by the FDA. The~~ application is under ~~review. There~~review and there can be no assurance when, or if at all, the FDA will accept our application for further review or approve the product for sale in the ~~U.S~~U.S. market.

On or about May ~~26,~~25, 2011, ~~we announced that the Company had become aware that~~ AstraZeneca Pharmaceuticals LP and AstraZeneca UK Limited (together ~~“AstraZeneca”~~“AstraZeneca”), the owners of the rights in the United States in Seroquel XR®, tablets, filed a lawsuit for patent infringement against the Company in the United States District Court for the District of New Jersey, relating to Intellipharmaceutics' generic version of the 150, 200, 300 and 400 mg dosage forms of Seroquel XR® ~~(quetiapine fumarate extended-release) tablets. AstraZeneca served~~. The Company filed a motion to contest New Jersey as a proper forum for the litigation. That motion was successful, and the litigation against the Company ~~with~~in the ~~Complaint in~~United States District Court for the District of New Jersey was dismissed on ~~May 25, 2011. As at~~February 15, 2012.

On or about June 30, 2011, the same AstraZeneca entities also filed a substantially identical lawsuit for patent infringement against the Company in the United States District Court for the Southern District of New York. On or about April 11, 2012, the same AstraZeneca entities filed a lawsuit for patent infringement against the Company in the United States District Court for the Southern District of New York, relating to Intellipharmaceutics' generic version of the 50 mg dosage form of Seroquel XR®. On July 30, 2012, and pursuant to the settlement, AstraZeneca and the Company filed proposed Consent Judgments in the District Court for the Southern District of New York to conclude the litigation, subject to other regulatory review. There was no further regulatory comment or action, and the settlement is now final. The settlement provides, in part, that the Company is permitted to launch its generic versions of the 50, 150, 200, 300 and 400 mg strengths of Seroquel XR® on November 1, 2016, or earlier in certain circumstances, subject only to prior FDA approval of the Company's ANDA for those strengths. All other terms of the settlement are confidential. The Company's actual launch may also be subject to a six month statutory delay relating to a prior filer of a generic equivalent of the branded product, such delay to commence from the first date of commercialization by the prior filer.

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We are exploring licensing agreement opportunities or other possibilities for this ~~document,~~product. While we believe that a licensing agreement is possible, there can be no ~~further actions have been taken. Lawsuits such as these are an ordinary and expected part~~assurance that one can be secured.

Lamotrigine – Generic Lamictal® XR™(a registered trademark of the ~~process~~brand manufacturer)

Our lamotrigine extended-release tablets are a generic version of ~~obtaining~~the marketed drug Lamictal®XR™. Lamotrigine is an oral anticonvulsant drug used in the treatment of epilepsy. According to Source Healthcare Analytics, sales of Lamictal®XR™ in the United States were approximately $279 million (TRx MBS Dollars) for the 12 months ended December 2012.

An ANDA has been filed with the FDA, and the application is under review. The brand owner did not initiate patent infringement litigation. There are no unexpired patents associated with this product. As a result, we will not be subject to the automatic 30-month stay of FDA approval to ~~commercialize~~market the product and we will be in a ~~generic drug~~position to market our product in the United ~~States. The Company remains confident that Intellipharmaceutics’ generic versions of Seroquel XR® do not in any event infringe~~States upon FDA approval. There can be no assurance when, or if at all, the ~~patents asserted~~FDA will approve the product for sale in the ~~above-noted lawsuit.~~U.S. market.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Levetiracetam – Generic Keppra XR® (a registered trademark of the brand manufacturer)

Our levetiracetam extended-release tablets are a generic version of the marketed drug Keppra XR®. Levetiracetam is an oral antiepileptic drug used in the treatment of partial onset seizures in patients with epilepsy. According to Source Healthcare Analytics, sales of levetiracetam extended-release tablets in the United States were approximately $145 million (TRx MBS Dollars) for the 12 months ended December 2012.

An ANDA has been filed with the FDA, and the application is under review. There can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S. market.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Desvenlafaxine – Generic Pristiq® (a registered trademark of the brand manufacturer)

Our desvenlafaxine extended-release tablets are a generic version of the marketed drug Pristiq®. Desvenlafaxine is a selective serotonin and norepinephrine reuptake inhibitor indicated for the treatment of major depressive disorder. According to Source Healthcare Analytics, sales of Pristiq® in the United States were approximately $640 million (TRx MBS Dollars) for the 12 months ended December 2012.

An ANDA has been filed with the FDA. There can be no assurance when, or if at all, the FDA will approve the product for sale in the U.S. market.

We are exploring licensing agreement opportunities or other possibilities for this product. While we believe that a licensing agreement is possible, there can be no assurance that one can be secured.

Carvedilol Phosphate – Generic Coreg CR®(a (a registered trademark of the brand manufacturer)

~~Another product in our generics pipeline is~~Our carvedilol phosphate ~~controlled release capsules. It is~~controlled-release capsules, in development, are intended to be a generic version of the marketed drug Coreg CR®. ~~Coreg CR®~~Carvedilol phosphate is ~~available for once-a-day administration as controlled-release oral capsules. It is used~~indicated for the treatment of hypertension and heart failure. According to Source Healthcare Analytics, sales of Coreg CR® in the United States were approximately $282 million (TRx MBS Dollars) for the 12 months ended December 2012.

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This product is currently in ~~late-stage~~late stage development. We are exploring licensing agreement opportunities or other possibilities for this product. There iscan be no assurance that an ANDA will be filed, or if filed, that an approval to market can be obtained, or if approved, that a licensing agreement can be ~~secured.~~secured to market the product.

Rexista™ ~~oxycodone~~Oxycodone (~~oxycodone hydrochloride)~~Oxycodone Hydrochloride)

~~Our lead~~One of our non-generic product under development is Rexista™ oxycodone hydrochloride, intended as an abuse- and alcohol-deterrent controlled-release oral formulation of oxycodone hydrochloride for the relief of pain. Rexista™ ~~oxycodone~~ is a unique dosage form designed to be a deterrent to some of the well-documented abuses associated with some currently marketed controlled-release oxycodone products. This includes abuse of these drugs by nasal inhalation when crushed or powdered, ~~and,~~or by injection when combined with solvents. Rexista™ oxycodone is also designed to resist release of the entire dose when consumed with alcohol, a significant problem with some opioid drugs. ~~In 2009, OxyContin® (oxycodone hydrochloride controlled-release tablets) had estimated U.S.~~According to Source Healthcare Analytics, sales of OxyContin® in the United States were approximately ~~$2.6 billion.~~$2.4 billion (TRx MBS Dollars) for the 12 months ended December 2012. OxyContin® currently represents ~~89%~~99% of the $3$2.4 billion (TRx MBS Dollars) oxycodone ~~delayed release market in the United States.~~sustained-release market.

In ~~February 2009,~~July 2012, the FDA ~~announced that it plans to implement~~approved a new Risk Evaluation and Mitigation Strategy (“REMS”) requirement for all extended-release and long-acting opioid ~~analgesics.~~medications. The new safety measures requires companies to make education programs available to prescribers based on an FDA Blueprint, make available FDA-approved patient education materials on the safe use of these drugs, and perform periodic assessments of the implementation of the REMS and the success of the program in meeting its goals. By March 1, 2013, the first education programs are expected to be offered to prescribers. Also in April 2011, a mandatory training program on responsible opioid prescribing practices was endorsed by the U.S. Government. We believe that the REMS will ultimately drive prescribing of newer tamper-deterrent ~~extended release~~extended-release opioids. Several “tamper-deterrent” formulations of oral opioid analgesics are being developed by other companies. We believe that the FDA’s ~~move to restrict prescribing of extended-release~~ opioid ~~analgesics~~REMS should benefit tamper-deterrent products.

We believe that we can leverage our core ~~competence~~competencies in drug delivery and formulation for the development of products targeted towards tamper-deterrent opioid analgesics used in pain management. The advantage of our strategy for development of NDA drugs is that our products can, if approved for sale, enjoy a sales exclusivity period. Furthermore, ~~we believe~~ it ismay be possible to establish and defend the intellectual property surrounding our tamper-deterrent opioid analgesic products.

We have completed ~~proof~~a proof-of-concept Phase I clinical study of ~~concept pilot~~Rexista™ oxycodone, which yielded positive results. We have also concluded a pre-Investigational New Drug (“pre-IND”) meeting with a panel of the FDA’s Center for Drug Evaluation and Research clarifying the Rexista™ oxycodone development plan. Finally, we have completed clinical batch manufacturing of Rexista™ oxycodone, and initiated Phase I studies of Rexista™ ~~oxycodone plan to complete manufacture of clinical batches of Rexista™ oxycodone for use~~oxycodone. Preliminary Phase I data from this trial is expected in ~~phase I clinical trials that we plan to initiate in fiscal 2011. We also plan to initiate discussions with the FDA on the clinical development plan for Rexista™ oxycodone.~~early 2013. There can be no assurance that ~~the~~this and additional clinical trials will meet ~~the expected outcomes or that we will be able to successfully produce scaled up batches for use in clinical trials or~~our expectations, that we will be successful in submitting ana NDA ~~505 (b)~~505(b)(2) ~~filing.~~filing with the FDA, that the FDA will approve this product candidate for sale in the U.S. market, or that it will ever be successfully commercialized.

There can be no assurance as to whether or when the FDA will approve any Intellipharmaceutics' application.

Pregabalin (Pregabalin Extended-Release)

Another Intellipharmaceutics non-generic controlled-release product is pregabalin extended-release capsules. Pregabalin is indicated for the management of neuropathic pain associated with diabetic peripheral neuropathy, postherpetic neuralgia, spinal cord injury and fibromyalgia. There is no controlled-release formulation on the market at this time. A controlled-release version of pregabalin should reduce the number of doses patients take, potentially improving patient compliance, and therefore potentially improving clinical outcomes. According to Source Healthcare Analytics, U.S. sales for the 12 months ended December 2012 for Lyrica® (pregabalin capsules) were approximately $2.0 billion (TRx MBS Dollars).

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The company successfully completed an initial Phase I clinical trial of a controlled-release pregabalin formulation. This was the first bioavailability study of our controlled-release pregabalin versus Lyrica® (immediate release pregabalin). The study was carried out in 14 subjects. The results showed that our 150 mg pregabalin once-a-day dosage was comparable in bioavailability to Lyrica® 50 mg three-times-a-day dosage. We plan to initiate additional Phase I clinical trials in 2013. There can be no assurance that additional clinical trials will meet our expectations, that we will be successful in submitting a NDA 505(b)(2) filing with the FDA, that the FDA will approve this product candidate for sale in the U.S. market, or that it will ever be successfully commercialized.

There can be no assurance as to whether or when the FDA will approve any Intellipharmaceutics' application.

COMPETITIVE ENVIRONMENT

We are engaged in a business characterized by extensive research efforts, rapid technological developments and intense competition. Our competitors include medical technology, pharmaceutical, biotechnology and other companies, universities and research institutions. All of these competitors currently engage in, have engaged in or may engage in the future, in ~~the~~ development, manufacturing, marketing and commercialization of new pharmaceuticals and existing pharmaceuticals, some of which may compete with our ~~present or future~~ product candidates.

Our drug delivery technologies ~~will~~may compete with existing drug delivery technologies, as well as new drug delivery technologies that may be developed or commercialized in the future. Any of these drugs and drug delivery technologies may receive government approval or gain market acceptance more rapidly than our product candidates. As a result, our product candidates may become ~~non-competitive~~noncompetitive or obsolete.

We believe that our ability to successfully compete will depend on, among other things, the efficacy, safety and reliability of our product candidates, the timing and scope of regulatory approval, the speed at which we develop product candidates, our ability to manufacture and sell commercial quantities of a product to the market, product acceptance by physicians and other professional healthcare providers, the quality and breadth of our ~~technology,~~technologies, the skills of our employees and our ability to recruit and retain skilled employees, the protection of our intellectual property, and the availability of substantial capital resources to fund development and commercialization activities.

MANUFACTURING

We have internal manufacturing capabilities consisting of Current Good Laboratory Practices (“cGLP”) research laboratories and a cGMP manufacturing plant for solid oral dosage forms at our 30 Worcester Road facility in Toronto. Raw materials used in manufacturing our products are available from a number of commercial sources and the prices for such raw materials are generally not particularly volatile.

INTELLECTUAL PROPERTY

Proprietary rights are an important aspect of our business. These include know-how, trade secrets and patents. Know-how and trade secrets are protected by internal company policies and operating procedures, and where necessary, by contractual provisions with development partners and suppliers. We also seek patent protection for inventive advances which form the bases of our drug delivery technologies. With respect to particular products, we may seek patent protection on the commercial composition, ~~the~~our methods of production and ~~the intended uses of drug products~~our uses, to prevent the unauthorized marketing and sale of competitive products.

Patents which relate to and protect various aspects of our ~~HyperMatrix~~Hypermatrix™ family of drug delivery technologies include the following United States and Canadian patents which have been issued to us:

- 31 -

Country	Issue ~~No.~~Date	Issue ~~Date~~No.	Title
~~U.S.A.~~U.S.A	~~6,652,882~~Mar 15, 2011	~~November 25, 2003~~7,906,143	Controlled Release ~~Formulation Containing Bupropion~~Pharmaceutical Delivery Device and Process of Preparation Thereof
~~U.S.A.~~U.S.A	~~6,296,876~~Dec 28, 2010	~~October 2, 2001~~7,858,119	~~Pharmaceutical Formulations for Acid Labile Substances~~Extended Release Pharmaceuticals
~~U.S.A.~~U.S.A	~~6,607,751~~Aug 15, 2006	~~August 19, 2003~~7,090,867	Novel Controlled Release Delivery Device for Pharmaceutical Agents Incorporating Microbial Polysaccharide Gum
~~U.S.A.~~U.S.A	~~6,479,075~~	~~November 12, 2002~~	~~Pharmaceutical Formulations for Acid Labile Substances~~

~~-30-~~

~~U.S.A.~~	~~7,858,119~~	~~December 28, 2010~~	~~Extended Release Pharmaceuticals~~
~~U.S.A.~~Oct 5, 2004	6,800,668	~~October 5, 2004~~	Syntactic Deformable Foam Compositions and Methods for Making
~~U.S.A.~~U.S.A	~~7,090,867~~Nov 25, 2003	~~August 15, 2006~~6,652,882	Controlled Release Formulation Containing Bupropion
U.S.A	Aug 19, 2003	6,607,751	Novel Controlled Release Delivery Device for Pharmaceutical Agents Incorporating Microbial Polysaccharide Gum
~~U.S.A.~~U.S.A	~~7,906,143~~Nov 12, 2002	~~February 22, 2011~~6,479,075	~~Controlled Release~~ Pharmaceutical ~~Delivery Device And Process For Preparation Thereof~~Formulations for Acid Labile Substances
U.S.A	Oct 2, 2001	6,296,876	Pharmaceutical Formulations for Acid Labile Substances
Canada	~~2,435,276~~Jun 19, 2012	~~March~~2,626,558	Pharmaceutical Composition Having Reduced Abuse Potential
Canada	Sep 25, 2012	2,529,984	Oral Multi-Functional Pharmaceutical Capsule Preparations Of Proton Pump Inhibitors
Canada	Feb 22, 2011	2,459,857	Combinatorial Type Controlled Release Drug Delivery Device
Canada	Mar 15, 2005	2,435,276	Syntactic Deformable Foam Compositions and Methods for Making
~~Canada~~	~~2,459,857~~	~~March 15, 2011~~	~~Combinatorial Type Controlled Release Drug Delivery Device~~

In addition to these issued patents, we have several U.S. patent applications, and corresponding foreign applications pending, including Patent Cooperation Treaty (“~~PCT”)-national~~- national stage processing and entry applications, relating to various aspects of our HyperMatrix drug delivery technologies, including methods and compositions for coating of tablets and beads, compositions incorporating disintegrants to assist in controlled release, compositions incorporating multiple drug actives, and compositions directed to classes of drug actives designed as therapies for specific indications and compositions intended to enhance deterrence of ~~wilful~~willful abuse of narcotic compositions.

REGULATORY REQUIREMENTS

We focus on the development of both branded drug products (which require NDAs) and generic drug products (which require ANDAs). The research and development, manufacture and marketing of controlled-release pharmaceuticals are subject to regulation by U.S., Canadian and other governmental authorities and agencies. Such national agencies and other federal, state, provincial and local entities regulate the testing, manufacturing, safety and promotion of our products. The regulations applicable to our products may change as the currently limited number of approved controlled-release products increases and regulators acquire additional experience in this area.

United States Regulation

New Drug Application

We will be required by the FDA to comply with NDA procedures for our branded products prior to commencement of marketing ~~these products in the United States~~ by us or our licensees. New drug compounds and new formulations for existing drug compounds which cannot be filed as ANDAs are subject to NDA procedures. These procedures include (a) preclinical laboratory and animal toxicology tests; (b) scaling and testing of production batches; (c) submission of an Investigational New Drug Application (“IND”), and subsequent approval is required before any human clinical trials can commence; (d) adequate and well controlled replicate human clinical trials to establish the safety and efficacy of the drug for its intended indication; (e) the submission of an NDA to the FDA; and (f) FDA approval of an NDA prior to any commercial sale or shipment of the product, including pre-approval and post-approval inspections of our manufacturing and testing facilities. If all of this data in the product application is owned by the applicant, the FDA will issue its approval without regard to patent rights that might be infringed or exclusivity periods that would affect the FDA’s ability to grant an approval if the application relied

~~-31-~~

upon data which the applicant did not own. We intend to generate all data necessary to support FDA approval of the applications we file.

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Preclinical laboratory and animal toxicology tests may have to be performed to assess the safety and potential efficacy of the product. The results of these preclinical tests, together with information regarding the methods of manufacture of the products and quality control testing, are then submitted to the FDA as part of an IND requesting authorization to initiate human clinical trials. Once the IND notice period has expired, clinical trials may be initiated, unless an FDA hold on clinical trials has been issued.

Clinical trials involve the administration of a pharmaceutical product to individuals under the supervision of qualified medical investigators who are experienced in conducting studies under “Good Clinical Practice” guidelines. Clinical studies are conducted in accordance with protocols that detail the objectives of a study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA and to an Institutional Review Board prior to the commencement of each clinical trial. Clinical studies are typically conducted in three sequential phases, which may overlap. In Phase I, the initial introduction of the product into human subjects, the compound is tested for absorption, safety, dosage, tolerance, metabolic interaction, distribution, and excretion. Phase II involves studies in a limited patient population with the disease to be treated to (1) determine the efficacy of the product for specific targeted indications, (2) determine optimal dosage and (3) identify possible adverse effects and safety risks. In the event Phase II evaluations demonstrate that a pharmaceutical product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken to further evaluate clinical efficacy of the product and to further test its safety within an expanded patient population at geographically dispersed clinical study sites. Periodic reports on the clinical investigations are required.

We, or the FDA, may suspend clinical trials at any time if either party believes the clinical subjects are being exposed to unacceptable health risks. The results of the product development, analytical laboratory studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercialization of a pharmaceutical product.

Abbreviated New Drug Application

In certain cases, where the objective is to develop a generic version of an approved product already on the market in controlled-release dosages, an ANDA may be filed in lieu of filing an NDA. Under the ANDA procedure, the FDA waives the requirement to submit complete reports of preclinical and clinical studies of safety and efficacy and instead requires the submission of bioequivalency data, ~~demonstrating~~that is, demonstration that the generic drug produces the same effect in the body as its brand-name counterpart and has the same pharmacokinetic profile, or change in blood concentration over time. The ANDA procedure is available to us for a generic version of a drug product approved by the FDA. In certain cases, an ANDA applicant may submit a suitability petition to the FDA requesting permission to submit an ANDA for a drug product that differs from a previously approved reference drug product (the “Listed Drug”) when the change is one authorized by statute. Permitted variations from the Listed Drug include changes in: (1) route of administration, (2) dosage form, (3) strength and (4) one of the active ingredients of the Listed Drug when the Listed Drug is a combination product. The FDA must approve the petition before the ANDA may be submitted. An applicant is not permitted to petition for any other kinds of changes from Listed Drugs. The information in a suitability petition must demonstrate that the change from the Listed Drug requested for the proposed drug product may be adequately evaluated for approval without data from investigations to show the proposed drug product’s safety or effectiveness. The advantages of an ANDA over an NDA include reduced research and development costs associated with bringing a product to market, and generally a shorter review and approval time at the FDA.

Patent Certification and Exclusivity Issues

ANDAs are required to include certifications with respect to any third party patents that claim the Listed Drug or that claim a use for the Listed Drug for which the applicant is seeking approval. If applicable third party patents are in effect and this information has been submitted to the FDA, the FDA must delay approval of the ANDA until the patents expire. If the applicant believes it will not infringe the patents, it can make a patent certification to the holder of patents on the drug for which a generic drug approval is being sought, which may result in patent infringement litigation which could delay the FDA approval of the ANDA for up to 30 months. If the drug product covered by an ANDA were to be found by a court to infringe another company’s patents, approval of the

~~-32-~~

ANDA could be delayed until the patents expire. Under the Food Drug and Cosmetic Act (“FDC”), the first filer of an ANDA with a “non-infringement” certification is entitled to receive 180 days of market exclusivity. Subsequent filers of generic products would be entitled to market their approved product six months after the earlier of ~~six months after~~ the first commercial marketing of the first filer’s generic product or a successful defense of a patent infringement suit.

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The 180-day exclusivity period can be forfeited if the first applicant withdraws its application or the FDA considers the application to have been withdrawn, the first ~~application~~applicant amends or withdraws Paragraph IV Certification for all patents qualifying for 180 day exclusivity, or ~~failure of~~ the first applicant fails to obtain tentative approval within 30 months after the date filed unless, ~~such~~ failure is due to a change in review requirements. The preservation of the 180 day exclusivity period related to the first-to-file status of a drug not approved within 30 months after the date filed, generally requires that an application be made to the FDA for extension of the time period where the delay has been due to a change in the review requirements for the drug. The approval of the continued first-to-file status in such circumstances is subject to the discretion of the FDA. There can be no assurance that the FDA would accede to such a request if made.

Patent expiration refers to expiry of U.S. patents (inclusive of any extensions) on drug compounds, formulations and uses. Patents outside the United States may differ from those in the United States. Under U.S. law, the expiration of a patent on a drug compound does not create a right to make, use or sell that compound. There may be additional patents relating to a person’s proposed manufacture, use or sale of a product that could potentially prohibit such person’s proposed commercialization of a drug compound.

The FDC contains non-patent market exclusivity provisions that offer additional protection to pioneer drug products and are independent of any patent coverage that might also apply. Exclusivity refers to the fact that the effective date of approval of a potential competitor’s ANDA to copy the pioneer drug may be delayed or, in certain cases, an ANDA may not be submitted until the exclusivity period expires. Five years of exclusivity are granted to the first approval of a “new chemical entity”. Three years of exclusivity may apply to products which are not new chemical entities, but for which new clinical investigations are essential to the approval. For example, a new indication for use, or a new dosage strength of a previously approved product, may be entitled to exclusivity, but only with respect to that indication or dosage strength. Exclusivity only offers protection against a competitor entering the market via the ANDA route, and does not operate against a competitor that generates all of its own data and submits a full NDA.

If applicable regulatory criteria are not satisfied, the FDA may deny approval of an NDA or an ANDA or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA may require further testing and surveillance programs to monitor the pharmaceutical product that has been commercialized. Non-compliance with applicable requirements can result in additional penalties, including product seizures, injunction actions and criminal prosecutions.

Canadian Regulation

The requirements for selling pharmaceutical drugs in Canada are substantially similar to those of the United States described above.

Investigational New Drug Application

Before conducting clinical trials of a new drug in Canada, we must submit a Clinical Trial Application (“CTA”) to the Therapeutic Products Directorate (“TPD”). This application includes information about the proposed trial, the methods of manufacture of the drug and controls, preclinical laboratory and animal toxicology tests on the safety and potential efficacy of the drug, and information on any previously executed clinical trials with the new drug. If, within 30 days of receiving the application, the TPD does not notify us that our application is unsatisfactory, we may proceed with clinical trials of the drug. The phases of clinical trials are the same as those described above under “United States Regulation – New Drug Application”.

~~-33-~~

New Drug Submission

Before selling a new drug in Canada, we must submit a New Drug Submission (“NDS”) or Supplemental New Drug Submission (“sNDS”) to the TPD and receive a Notice of Compliance (“NOC”) from the TPD to sell the drug. The submission includes information describing the new drug, including its proper name, the proposed name under which the new drug will be sold, a quantitative list of ingredients in the new drug, the methods of manufacturing, processing, and packaging the new drug, the controls applicable to these operations, the tests conducted to establish the safety of the new drug, the tests to be applied to control the potency, purity, stability and safety of the new drug, the results of bio-pharmaceutics and clinical trials as appropriate, the intended indications for which the new drug may be prescribed and the effectiveness of the new drug when used as intended. The TPD reviews the NDS or sNDS. If the submission meets the requirements of Canada’s Food and Drugs Act and Regulations, the TPD will issue an NOC for the new drug.

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Where the TPD has already approved a drug for sale in controlled-release dosages, we may seek approval from the TPD to sell an equivalent generic drug through an Abbreviated New Drug Submission (“ANDS”). In certain cases, the TPD does not require the manufacturer of a proposed drug that is claimed to be equivalent to a drug that has already been approved for sale and marketed, to conduct clinical trials; instead, the manufacturer must satisfy the TPD that the drug is bioequivalent to the drug that has already been approved and marketed.

The TPD may deny approval or may require additional testing of a proposed new drug if applicable regulatory criteria are not met. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Contravention of Canada’s Food and Drugs Act and Regulations can result in fines and other sanctions, including product seizures and criminal prosecutions.

Proposals have recently been made that, if implemented, would significantly change Canada’s drug approval system. In general, the recommendations emphasize the need for efficiency in Canadian drug review. Proposals include establishment of a separate agency for drug regulation and modeling the approval system on those found in European Union countries. There is no assurance, however, that such changes will be implemented or, if implemented, ~~the changes~~ will expedite the approval of new drugs.

The Canadian government has regulations which can prohibit the issuance of an NOC for a patented medicine to a generic competitor, provided that the patentee or an exclusive licensee has filed a list of its Canadian patents covering that medicine with the Minister of Health and Welfare. After submitting the list, the patentee or an exclusive licensee can commence a proceeding to obtain an order of prohibition directed to the Minister prohibiting him or her from issuing an NOC. The minister may be prohibited from issuing an NOC permitting the importation or sale of a patented medicine to a generic competitor until patents on the medicine expire or the waiver of infringement and/or validity of the patent(s) in question is resolved by litigation in the manner set out in such regulations. There may be additional patents relating to a company’s proposed manufacture, use or sale of a product that could potentially prohibit such company’s proposed commercialization of a drug compound.

Certain provincial regulatory authorities in Canada have the ability to determine whether the consumers of a drug sold within such province will be reimbursed by a provincial government health plan for that drug by listing drugs on formularies. The listing or non-listing of a drug on provincial formularies may affect the prices of drugs sold within provinces and the volume of drugs sold within provinces.

Additional Regulatory Considerations

Sales of our products by our licensees outside the United States and Canada will be subject to regulatory requirements governing the testing, registration and marketing of pharmaceuticals, which vary widely from country to country.

Under the U.S. Generic Drug Enforcement Act, ANDA applicants (including officers, directors and employees) who are convicted of a crime involving dishonest or fraudulent activity (even outside the FDA regulatory context) are subject to debarment. Debarment is disqualification from submitting or participating in the submission of future ANDAs for a period of years or permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse to accept ANDAs from any company which employs or uses the services of a debarred individual. We do not believe that we receive any services from any debarred person.

~~-34-~~

In addition to the regulatory approval process, pharmaceutical companies are subject to regulations under provincial, state and federal law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and future local, provincial, state, federal and foreign regulations, including possible future regulations of the pharmaceutical industry. We believe that we are in compliance in all material respects with such regulations as are currently in effect.

- 35 -

Before medicinal products can be distributed commercially, a submission providing detailed information must be reviewed and approved by the applicable government or agency in the jurisdiction in which the product is to be marketed. The regulatory review and approval process varies from country to country.

C.	Organizational Structure

The following chart shows the corporate relationship structure of Intellipharmaceutics and its ~~four~~three wholly-owned subsidiaries, including jurisdictions of incorporation, as at ~~May 27, 2011.~~January 31, 2013.

~~Notes:~~

~~(1)~~

~~The Company owns 64.3% of the common shares of IPC Corp. directly and 35.7% of such shares indirectly through the wholly-owned IPC Ltd.~~

D.	Property, Plant and Equipment

~~On October 1, 2004,~~For eight years, we ~~entered into a 5-year lease agreement for~~have occupied a 25,000 square foot facility at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2, that we lease at a present rental rate of approximately ~~$100,000~~$89,000 per year. The lease ~~was most recently~~has been renewed to November 30, ~~2012.~~2013, with an option to extend the lease on comparable terms for five additional years. We use our facilities as a laboratory, office space, and cGMP scale-up and small to medium-scale manufacturing.

In ~~the second quarter of~~ 2006, we completed renovation and construction of our administrative facilities and cGLP research laboratories and construction of a cGMP manufacturing plant for solid oral dosage forms at our 30 Worcester Road facility in Toronto. The cost of the build-out and equipping of our administrative, laboratory and manufacturing facility was approximately $1,685,000, ~~including~~with approximately $810,000 for plant and $950,000 for equipment. The facility now consists of approximately 4,900 sq. ft. for administrative space, 4,300 sq. ft. for research and development (“R&D”), 9,200 sq. ft. for manufacturing, and 3,000 sq. ft. for warehousing.

~~-35-~~

We continually monitor our facility requirements in the context of our needs and we expect these requirements to change commensurately with our activities.

Item 4A.

Unresolved Staff Comments~~5. Operating and Financial Review and Prospects~~

None.

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Item 5.

Operating and Financial Review and Prospects

The following discussion and analysis should be read in conjunction with the audited annual consolidated financial statements of the Company and notes thereto. See “Item 18. Financial ~~Statements”~~Statements.” The consolidated financial statements have been prepared in accordance with USU.S. GAAP. All amounts are expressed in United States dollars unless otherwise noted. Annual references are to the Company’s fiscal years, which ended on November 30, ~~2010~~2012, 2011 and ~~2009, and December 31, 2008.~~2010.

A.	Operating Results

Our results of operations have fluctuated significantly from period to period in the past and are likely to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the timing of approvals to market our ~~products~~product candidates in various jurisdictions and any resulting product sales, the timing and amount of payments received pursuant to our current and future collaborations with ~~third-parties,~~third parties, and the progress and timing of expenditures related to our research, development and commercialization efforts. Due to these fluctuations, we presently believe that the period-to-period comparisons of our operating results are not a reliable indication of our future performance.

The following are selected financial data for the ~~year~~years ended November 30, ~~2010, the eleven month period ended November 30, 2009~~2012, 2011 and ~~the year ended December 31, 2008.~~2010.

	For periods ended									Dollar and Percentage change
	November 30 2010			November 30 2009			December 31 2008			2010 vs 2009					2009 vs 2008					For years ended									Dollar and Percentage change
	(12 Months)			(11 Months)			(12 Months)			2010 vs 2009					2009 vs 2008					November 30, 2012			November 30, 2011			November 30, 2010			2012 vs 2011					2011 vs 2010
Revenue
Research and Development	$	1,459,385		$	630,179		$	1,277,704		$	829,206		132	%	$	(647,525	)	-51	%
Research and development																				$	107,091		$	501,814		$	1,459,385		$	(394,723	)	-79	%	$	(957,571	)	-66	%
Expenses
Cost of revenue		-			382,597			1,885,790			(382,597	)	-100	%		(1,503,193	)	-80	%
Research and development		4,533,310			1,554,859			419,187			2,978,451		192	%		1,135,672		271	%		5,992,417			5,125,608			4,533,310			866,809		17	%		592,298		13	%
Selling , general and administrative		2,699,204			975,197			1,365,461			1,724,007		177	%		(390,264	)	-29	%		3,672,313			2,925,454			2,699,204			746,859		26	%		226,250		8	%
Depreciation		242,778			344,768			574,851			(101,990	)	-30	%		(230,083	)	-40	%		452,303			227,456			242,778			224,847		99	%		(15,322	)	-6	%
Write-down of long-lived assets		36,481			-			-			36,481		-			-		-
Write-down on long lived assets																					107,123			-			36,481			107,123		N/A			(36,481	)	-100	%
		7,511,773			3,257,421			4,245,289			4,254,352		131	%		(987,868	)	-23	%		10,224,156			8,278,518			7,511,773			1,945,638		24	%		766,745		10	%

Loss before the undernoted		(6,052.388	)		(2,627,242	)		(2,967,585	)		(3,425,146	)	130	%		340,343		-12	%
Loss from operations																					(10,117,065	)		(7,776,704	)		(6,052.388	)		(2,340,361	)	30	%		(1,724,316	)	28	%

Fair value adjustment of warrants		223,782			286,983			-			(63,201	)	-22	%		286,983		-
Fair value adjustment of derivative liability																					3,841,233			5,346,878			223,782			(1,505,645	)	-28	%		5,123,096		2289	%
Financing expense																					-			(2,357,732	)		-			2,357,732		-100	%		(2,357,732	)	N/A
Net foreign exchange gain (loss)		138,949			587,642			(817,407	)		(448,693	)	-76	%		1,405,049		-172	%		181,682			(70,036	)		138,949			251,718		-359	%		(208,985	)	-150	%
Interest income		27,001			1,822			95,282			25,179		1382	%		(93,460	)	-98	%		20,691			60,790			27,001			(40,099	)	-66	%		33,789		125	%
Interest expense		(98,435	)		(87,940	)		(75,464	)		(10,495	)	12	%		(12,476	)	17	%		(63,406	)		(83,473	)		(98,435	)		20,067		-24	%		14,962		-15	%
Loss for the period	$	(5,761,091	)	$	(1,838,735	)	$	(3,765,174	)	$	(3,922,356	)	213	%	$	1,926,439		-51	%
Loss																				$	(6,136,865	)	$	(4,880,277	)	$	(5,761,091	)	$	(1,256,588	)	26	%	$	880,814		-15	%
Loss per common share, basic and diluted																				$	(0.36	)	$	(0.33	)	$	(0.53	)	$	(0.03	)	9	%	$	0.20		-38	%

C.	Other Securities

~~-76-~~

Not applicable.

D.	American Depositary Shares

Not applicable.

PART II~~II.~~.

Item 13.

~~Item~~ ~~13.~~ Defaults, Dividend Arrearages and Delinquencies

There have been no material defaults in the payment of any principal or interest owing. Neither the Company nor its subsidiaries has any preferred shares outstanding.

Item 14.

Material Modifications ~~14. Material Modifications~~ to the Rights of Security Holders and Use of Proceeds

There has been no material modification of the instruments defining the rights of holders of any class of registered securities. There has been no withdrawal or substitution of assets securing any class of registered securities.

Item 15.

~~Item~~ ~~15.~~ Controls and Procedures

Internal Control Over Financial Reporting

The management of our Company is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting using the Internal Control-Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission.

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Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of November 30, ~~2010.~~2012. Management has not identified any material weaknesses in the Company’s internal control over financial reporting as of November 30, ~~2010.~~2012.

Changes In Internal Control Over Financial Reporting

There were no changes made to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Specifically, there were no changes in accounting functions, board or related committees and charters, or auditors; no functions, controls or financial reporting processes of any constituent entities were adopted as Intellipharmaceutics’ functions, controls and financial processes; no other significant business processes were implemented; and no consultants assisting management in the assessment and documentation of internal controls were engaged.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Vice President Finance and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as at November 30, ~~2010.~~2012. Disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports it files or submits under securities legislation is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and reported to management, including the Company’s Chief Executive Officer and Vice President Finance and Chief Financial Officer, as appropriate, to allow required disclosures to be made in a timely fashion. Based on that

~~-77-~~

evaluation, management has concluded that these disclosure controls and procedures were effective as at November 30, ~~2010.~~2012.

Attestation of Internal Control Over Financial Reporting

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting for the Company. As the Company is a non-accelerated filer, management's report is not subject to attestation by our independent registered public accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act of ~~2002.~~2002

Item 16A.

~~Item~~ ~~16A.~~

Audit Committee Financial Expert.

Our Audit Committee is comprised of Kenneth Keirstead, Bahadur Madhani and Dr. Eldon Smith, each of whom is considered independent and financially literate (as such terms are defined under National Instrument 52-110 – Audit Committee). The members of the Audit Committee have selected a Chair from amongst themselves, being Mr. Madhani.

Under the SEC rules implementing the Sarbanes-Oxley Act of 2002, Canadian issuers filing reports in the United States must disclose whether their audit committees have at least one “audit committee financial expert”. Additionally, under NASDAQ Listing Rule 5605(c)~~(3)~~(2)(A), ~~the~~ NASDAQ requires that one member of the audit committee ~~be financially sophisticated, meaning that they must~~ have “past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer, or other senior officer with financial oversight responsibilities.” The Board has determined that Mr. Madhani qualifies as an Audit Committee financial expert under the SEC rules and as financially sophisticated under the NASDAQ rules.

~~In addition, all members of the Audit Committee are considered financially literate under applicable Canadian laws.~~

Item 16B.

~~Item~~ ~~16B.~~

Code of Ethics.

The Code of Business Conduct and Ethics (the “Code of Ethics”) has been implemented. It may be viewed on our website at www.intellipharmaceutics.com. During the year ended November 30, ~~2010,~~2012, no waivers or requests for exemptions from the Code of Ethics were either requested or granted.

- 86 -

Item 16C.

~~Item~~ ~~16C.~~

Principal Accountant Fees and Services.

Our auditor is Deloitte ~~& Touche~~ LLP (“Deloitte”), Chartered Accountants, 5140 Yonge Street, Suite 1700, Toronto, ON M2N 6L7. Deloitte ~~has confirmed that it~~ is independent ~~with respect to the Company within the meaning~~under Rule 2-01 of ~~the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario.~~Regulation S-X.

Deloitte provides tax and audit-related services to the Company and its subsidiaries. Our Audit Committee has concluded that the provision of these non-audit services by Deloitte is compatible with Deloitte maintaining its independence.

The aggregate amounts billed by our auditors to us for the ~~year~~years ended November 30, ~~2010~~2012 and ~~the eleven month period ended November 30, 2009~~2011 for audit fees, audit-related fees, tax fees and all other fees are set forth below:

Year Ended
November 30, 2010

Eleven Months Ended
November 30, 2009

Audit Fees (1)
C$120,000 C$115,000
Audit-Related Fees (2)
45,000 205,770
Tax Fees (3)
33,600 23,250
All Other Fees (4)
25,150 9,664

Total Fees C$223,750 C$C353,684

~~-78-~~

	2012		2011
Audit Fees (1)	$	C205,810	$	C226,555
Audit-Related Fees (2)		-		10,843
Tax Fees (3)		35,215		118,471
All Other Fees (4)		63,778		60,408
Total Fees	$	C304,803	$	C416,277

Notes:

~~Notes~~:

(1)	Audit fees consist of fees related to the audit of the Company’s consolidated financial statements and reviews of quarterly interim financial statements.

(2)	Audit-related fees consist of ~~quarterly reviews of interim financial statements, auditor involvement in the Form 20-F,~~consultation on accounting and ~~auditor involvement with the joint management information circular for the IPC Arrangement Agreement completed during 2009.~~disclosure matters.

(3)	Tax fees consist of fees for tax consultation, tax advice and tax compliance services for the Company and its subsidiaries.

(4)	All other fees ~~consists of fees~~include accounting related ~~to SOX compliance service for the Company~~matters, Form 20-F, Form F-3, base shelf prospectus activities and internal control reviews.

The Company’s related party pre-approval policies and procedures are described in Item 6.C.

Under applicable Canadian securities regulations, the Company is required to disclose whether its Audit Committee has adopted specific policies and procedures for the engagement of non-audit services and to prepare a summary of these policies and procedures. The Audit Committee’s responsibility is to approve all audit engagement fees and terms as well as reviewing policies for the provision of non-audit services by the external auditors and, when required, the framework for pre-approval of such services. The Audit Committee delegates to its Chairman the pre-approval of such non-audit fees. For each of the years ended November 30, 2012 and 2011, all of the non-audit services provided by the Company’s external auditor were approved by the Chairman of the Audit Committee.

Item 16D.~~16D.~~

Exemptions from the Listing Standards for Audit Committees.

Not Applicable.

Item 16E.~~16E.~~

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Neither the Company nor, to our knowledge, any affiliated purchaser has made any purchases of our registered shares during the last financial year although shares were received by affiliated purchasers in connection with the IPC Arrangement Agreement (see Item ~~4.1)~~4.A).

Item 16F.

~~Item~~ ~~16F.~~

~~Changes~~Change in Registrant’s Certifying Accountant

None.

Item 16G.

~~Item~~ ~~16G.~~

Corporate Governance.

The Company is the successor issuer to Vasogen Inc. for reporting purposes under the ~~Securities~~U.S. Exchange ~~Act of 1934, as amended.~~Act. Our common shares are currently listed on the ~~Toronto Stock Exchange (the “~~TSX”) and quoted for trading on ~~the~~ NASDAQ ~~Capital Market (“NASDAQ~~”) under the symbols “I” and “IPCI”, respectively. Our shares began trading on October 22, 2009, when the IPC Arrangement Agreement with Vasogen was completed.

Variations from Certain NASDAQ Rules

NASDAQ listing rules permit the Company to follow certain home country practices in lieu of compliance with certain NASDAQ corporate governance rules. Set forth below are the requirements of NASDAQ’s Rule 5600 Series that the Company does not follow and the home country practices that it follows in lieu thereof and other differences from domestic U.S. companies that apply to us under NASDAQ’s corporate governance rules.

- 87 -

Shareholder Approval in Connection with Certain Transactions: NASDAQ’s Rule 5635 requires each issuer to obtain shareholder approval prior to certain dilutive events, including: (i) a transaction other than a public offering involving the sale under certain circumstances of 20% or more of the issuer’s common shares outstanding prior to the transaction at a price less than the greater of book value or market value, (ii) the acquisition of the stock or assets of another company; (iii) equity-based compensation of officers, directors, employees or consultants and (iv) a change of control. Under the exemption available to foreign private issuers under NASDAQ Rule 5615(a)(3), the Company does not follow NASDAQ Rule 5635. Instead, and in accordance with the NASDAQ exemption, the Company complies with applicable TSX rules and applicable Canadian corporate and securities regulatory requirements.

Independence of the Majority of the Board of Directors; Independent Director Oversight of Executive Compensation and Board Nominations: NASDAQ’s Rule 5605(b)(1) requires that the Board of Directors be comprised of a majority of independent directors, as defined in Rule 5605(a)(2). NASDAQ’s Rule 5605(b)(2) requires the independent members of the Board to regularly hold executive sessions where only those directors are present. Moreover, NASDAQ’s Rule 5605(d) requires independent director oversight of executive officer compensation arrangements by approval of such compensation by a majority of the independent directors or by a compensation committee comprised solely of independent directors, and Rule 5605(e) requires similar oversight with respect to the process of selecting nominees to the Board. Under the exemption available to foreign private issuers under Rule 5615(a)(3), the Company does not follow NASDAQ Rules 5605(b)(1), 5605(d) or 5605(e). Instead, and in accordance with the NASDAQ exemption, the Company complies with the applicable TSX rules and applicable Canadian corporate and securities regulatory requirements.

~~-79-~~

Disclosure of Waivers of Code of Business Conduct and Ethics: Domestic U.S. NASDAQ listed companies are required under NASDAQ Rule 5610 to disclose any waivers of their codes of conduct for directors or executive officers in a Form 8-K within four business days. As a foreign private issuer we are required to disclose any such waivers either in a Form 6-K or in the Company’s next Form 20-F or ~~40-F.~~40- F.

Item 16H.

Mine Safety Disclosure.

Not applicable.

PARTIII.

Item 17.

~~Item~~ 17 Financial Statements.

See Item 18 below.

Item 18.

~~Item~~ 18 Financial Statements.

~~-80-~~- 88 -

Consolidated financial statements of

Intellipharmaceutics

International Inc.

November 30, ~~2010~~2012, 2011, and ~~2009, and December 31, 2008~~2010

Intellipharmaceutics International Inc.

November 30, ~~2010~~2012, 2011, and ~~2009, and December 31, 2008~~2010

Table of contents

Report of Independent Registered Chartered Accountants	~~F-1~~1

Consolidated balance sheets	~~F-2~~2

Consolidated statements of operations and comprehensive loss	~~F-3~~3

Consolidated statements of shareholders’ equity (deficiency)	~~F-4~~4

Consolidated statements of cash flows	~~F-5~~5

Notes to the consolidated financial statements	~~F-6 - F-27~~6-27

Deloitte ~~& Touche~~ LLP

5140 Yonge Street

Suite 1700

Toronto ON M2N 6L7

Canada

Tel: 416-601-6150

Fax: 416-601-6151

www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Intellipharmaceutics International Inc.

We have audited the accompanying consolidated ~~balance sheets~~financial statements of Intellipharmaceutics International Inc. and subsidiaries (the “Company”), which comprise the consolidated balance sheets as at November 30, ~~2010~~2012 and ~~2009,~~November 30, 2011, and the ~~related~~ consolidated statements of operations and comprehensive loss, ~~shareholders’~~shareholders' equity (deficiency), and cash flows for each of the ~~year ended November 30, 2010,~~years in the ~~11 month~~three-year period ended November 30, ~~2009~~2012 and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the ~~year ended December 31, 2008. These~~Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are ~~the responsibility of the Company’s management.~~ free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the 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. The Company is not required~~misstatement of the consolidated financial statements, whether due to ~~have, nor were we engaged to perform, an audit of its~~fraud or error. In making those risk assessments, the auditor considers internal control ~~over~~relevant to the entity's preparation and fair presentation of the consolidated financial ~~reporting. Our audits included consideration of internal control over financial reporting as a basis for designing~~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 Company’s internal control over financial reporting. Accordingly, we express no such opinion.~~circumstances. An audit also includes ~~examining, on a test basis, evidence supporting amounts and disclosures in~~evaluating the ~~financial statements, assessing the~~appropriateness of accounting ~~principles~~policies used and ~~significant~~the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial ~~statement presentation.~~ statements.

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

Deloitte LLP

5140 Yonge Street

Suite 1700

Toronto ON M2N 6L7

Canada

Tel: 416-601-6150

Fax: 416-601-6151

www.deloitte.ca

Opinion

In our opinion, such consolidated financial statements ~~presently~~present fairly, in all material respects, the financial position of the Company as at November 30, ~~2010~~2012 and ~~2009,~~2011, and the results of its operations and its cash flows for each of the ~~year ended November 30, 2010,~~years in the ~~11 month~~three-year period ended November 30, ~~2009 and the year ended December 31, 2008,~~2012 in ~~conformity~~accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and the accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte ~~& Touche~~ LLP

Independent Registered Chartered Accountants

Licensed Public Accountants

~~February 28, 2011~~January 29, 2013

~~Toronto, Canada~~

~~F - 1~~

Intellipharmaceutics International Inc.
Consolidated balance sheets
as at November 30, 2010 and 2009
(Stated in U.S. dollars)
2010 2009
(Notes 1 and 2)
$ $

Assets
Current
Cash 789,136 8,014,492
Accounts receivable 1,619 5,427
Investment tax credits 1,184,345 1,840,044
Prepaid expenses, sundry and other assets 142,379 175,248
2,117,479 10,035,211

Deferred offering cost (Note 21) 224,673 -
Property and equipment, net (Note 5) 925,554 1,046,121
3,267,706 11,081,332

Liabilities
Current
Accounts payable 612,957 1,323,368
Accrued liabilities (Note 6) 321,030 540,604
Employee cost payable (Note 8) 575,625 501,114
Current portion of capital lease obligations (Note 9) 13,230 35,595
Due to related parties (Note 7) 1,635,842 2,360,181
3,158,684 4,760,862

Warrant liability (Note 14) 7,161 226,268
Capital lease obligations - 12,862
Deferred revenue (Note 19) 8,905 1,449,326
3,174,750 6,449,318

Shareholders' equity
Capital stock (Note 10 and 11)
Authorized
Unlimited common shares without par value
Unlimited preference shares
Issued and outstanding
10,907,054 common shares 16,969 16,969
(2009 - 10,907,054)
Additional paid-in capital 19,369,005 18,263,340
Accumulated other comprehensive loss (225,476 ) (341,844 )
Deficit (19,067,542 ) (13,306,451 )
92,956 4,632,014
Contingencies (Note 16)
3,267,706 11,081,332

Intellipharmaceutics International Inc.
Consolidated balance sheets
As at November 30, 2012 and 2011
(Stated in U.S. dollars)
	2012			2011
	$				$

Assets
Current
Cash and cash equivalents		497,016			4,817,088
Accounts receivable		2,778			3,383
Investment tax credits		301,932			349,861
Prepaid expenses, sundry and other assets		137,449			124,982
		939,175			5,295,314


Property and equipment, net (Note 4)		1,535,703			951,914
		2,474,878			6,247,228

Liabilities
Current
Accounts payable		512,360			554,210
Accrued liabilities (Note 5)		224,797			436,154
Employee costs payable (Note 7)		663,222			736,073
Current portion of capital lease obligations (Note 8)		51,524			43,383
Due to related parties (Note 6)		783,717			757,126
		2,235,620			2,526,946

Deferred revenue		-			107,091
Capital lease obligations (Note 8)		46,242			95,206
Warrant liability (Note 13)		1,960,893			6,611,015
		4,242,755			9,340,258

Shareholders' deficiency
Capital stock (Notes 9 and 10)
Authorized
Unlimited common shares without par value
Unlimited preference shares
Issued and outstanding
17,906,937 common shares (2011 - 15,908,444)		147,152			147,152
Additional paid-in capital		28,409,665			20,822,672
Accumulated other comprehensive loss		(240,010	)		(115,035	)
Accumulated deficit		(30,084,684	)		(23,947,819	)
		(1,767,877	)		(3,093,030	)
Contingencies (Note 15)
		2,474,878			6,247,228

On behalf of the Board:


/s/ Dr. Isa Odidi				/s/ Bahadur Madhani
__________________________________				__________________________________
Dr. Isa Odidi, Chairman of the Board				Bahadur Madhani, Director

See accompanying notes to consolidated financial statements

~~See accompnaying notes to consolidated financial statements~~

~~F -~~Page 2

Intellipharmaceutics International Inc.
Intellipharmaceutics International Inc.
Consolidated statements of operations and comprehensive loss	Consolidated statements of operations and comprehensive loss										Consolidated statements of operations and comprehensive loss
for the year ended November 30, 2010, 11 month period ended
November 30, 2009 and year ended December 31, 2008
for the years ended November 30, 2012, 2011 and 2010											for the years ended November 30, 2012, 2011 and 2010

(Stated in U.S. dollars)
		2010			2009			2008
		(12 Months)			(11 Months)			(12 Months)				2012			2011			2010
		(Notes 1 and 2)			(Notes 1 and 2)			(Notes 1 and 2)				$			$				$
			$			$			$

Revenue
Research and development (Note 19)			1,459,385			630,179			733,653
Other services			-			-			544,051
Research and development													107,091			501,814			1,459,385
			1,459,385			630,179			1,277,704				107,091			501,814			1,459,385

Expenses
Cost of revenue			-			382,597			1,885,790
Research and development			4,533,310			1,554,859			419,187				5,992,417			5,125,608			4,533,310
Selling, general and administrative			2,699,204			975,197			1,365,461				3,672,313			2,925,454			2,699,204
Depreciation			242,778			344,768			574,851
Write-down of long-lived assets			36,481			-			-
Depreciation (Note 4)													452,303			227,456			242,778
Write-down on long lived assets (Note 4)													107,123			-			36,481
			7,511,773			3,257,421			4,245,289				10,224,156			8,278,518			7,511,773

Loss before the undernoted			(6,052,388	)		(2,627,242	)		(2,967,585	)
Fair value adjustment of warrants			223,782			286,983			-
Loss from operations													(10,117,065	)		(7,776,704	)		(6,052,388	)
Fair value adjustment of derivative liabilty (Note 13)													3,841,233			5,346,878			223,782
Financing expense (Note 9)													-			(2,357,732	)		-
Net foreign exchange gain (loss)			138,949			587,642			(817,407	)			181,682			(70,036	)		138,949
Interest income			27,001			1,822			95,282				20,691			60,790			27,001
Interest expense			(98,435	)		(87,940	)		(75,464	)			(63,406	)		(83,473	)		(98,435	)
Loss			(5,761,091	)		(1,838,735	)		(3,765,174	)			(6,136,865	)		(4,880,277	)		(5,761,091	)
Other comprehensive (loss) income
Foreign exchange translation adjustment			116,368			(727,491	)		417,743				(124,975	)		110,441			116,368
Comprehensive loss			(5,644,723	)		(2,566,226	)		(3,347,431	)			(6,261,840	)		(4,769,836	)		(5,644,723	)

Loss per common share, basic and diluted			(0.53	)		(0.19	)		(0.40	)			(0.36	)		(0.33	)		(0.53	)

Weighted average number of common
shares outstanding, basic and diluted			10,907,054			9,512,131			9,327,716
Weighted average number of common shares outstanding, basic and diluted													17,258,686			14,994,118			10,907,054

See accompanying notes to consolidated financial statements

~~See accompnaying notes to consolidated financial statements~~

~~F -~~Page 3

Intellipharmaceutics International Inc.

Consolidated statements of shareholders' equity (deficiency)
for the year ended November 30, 2010, 11 month period ended
November 30, 2009 and year ended December 31, 2008
(Stated in U.S. dollars - Notes 1 and 2)
Accumulated Total
Additional other shareholders'
Special voting shares Common shares paid-in comprehensive equity
Number Amount Number Amount capital income (loss) Deficit (deficiency)
$ $ $ $ $ $
Balance, December 31, 2007 5,997,751 10,850 3,329,965 6,024 10,039,320 (32,096 ) (7,702,542 ) 2,321,556
Other comprehensive income - - - - - 417,743 - 417,743
Stock-based compensation (net of tax - $Nil) - - - - 442,800 - - 442,800
Loss - - - - - - (3,765,174 ) (3,765,174 )
- - - - 442,800 417,743 (3,765,174 ) (2,904,631 )

Balance, December 31, 2008 5,997,751 10,850 3,329,965 6,024 10,482,120 385,647 (11,467,716 ) (583,075 )
Shares issued as compensation - - 52,356 95 394,764 - - 394,859
Share cancellation (5,997,751 ) (10,850 ) (3,382,321 ) (6,119 ) (10,876,884 ) - - (10,893,853 )
Shares issued - - 10,907,057 16,969 10,876,884 - - 10,893,853
Broker options issued in connection with
acquisition - - - - 161,833 - - 161,833
Share issuance cost - - - - (1,767,935 ) - - (1,767,935 )
Excess of assets over liabilities assumed
on acquisition (Note 4) - - - - 8,992,558 - - 8,992,558
Other comprehensive loss (net of tax - $Nil) - - - - - (727,491 ) - (727,491 )
Loss - - - - - - (1,838,735 ) (1,838,735 )
(5,997,751 ) (10,850 ) 7,577,092 10,945 7,781,220 (727,491 ) (1,838,735 ) 5,215,089

Balance, November 30, 2009 - - 10,907,057 16,969 18,263,340 (341,844 ) (13,306,451 ) 4,632,014
Adjustment for rounding of shares
exchanged under the transaction
described in Note 1 - - (3 ) - - - - -
- - 10,907,054 16,969 18,263,340 (341,844 ) (13,306,451 ) 4,632,014

Adjustment of share issuance cost - - - - 68,328 - - 68,328
Granting of Stock options to broker (Note 11) - - - - 13,711 - - 13,711
Granting of Stock options to employees (Note 11) - - - - 964,016 - - 964,016
Granting of Stock options to non-management
board memebers (Note 11) 59,610 59,610
Other comprehensive gain (net of tax - $Nil) - - - - - 116,368 - 116,368
Loss - - - - - - (5,761,091 ) (5,761,091 )
- - - - 1,105,665 116,368 (5,761,091 ) (4,539,058 )
Balance, November 30, 2010 - - 10,907,054 16,969 19,369,005 (225,476 ) (19,067,542 ) 92,956

Intellipharmaceutics International Inc.
Consolidated statements of shareholders' equity (deficiency)
for the years ended November 30, 2012, 2011 and 2010

(Stated in U.S. dollars)
	Number			Common stock Amount		Additional paid-in capital			Accumulated other comprehensive (loss) income			Accumulated Deficit			Total shareholders' equity (deficiency)
				$		$			$			$				$

Balance, November 30, 2009		10,907,054			16,969		18,263,340			(341,844	)		(13,306,451	)		4,632,014

Adjustment of share issuance cost		-			-		68,328			-			-			68,328
Stock options to broker		-			-		13,711			-			-			13,711
Stock options to employees		-			-		964,016			-			-			964,016
Stock options to non-management board members		-			-		59,610			-			-			59,610
Other comprehensive gain (net of tax - $Nil)		-			-		-			116,368			-			116,368
Loss		-			-		-			-			(5,761,091	)		(5,761,091	)
		-			-		1,105,665			116,368			(5,761,091	)		(4,539,058	)

Balance, November 30, 2010		10,907,054			16,969		19,369,005			(225,476	)		(19,067,542	)		92,956
Issuance of common shares (Note 9)		4,800,000			-		-			-			-			-
Shares issued for options exercised (Note 10)		25,000			130,183		(37,018	)		-			-			93,165
Stock options to employees (Note 10)		-			-		674,746			-			-			674,746
Stock options to non-management board members (Note 10)		-			-		27,714			-			-			27,714
DSU's to non-management board members (Note 11)					-		33,101			-			-			33,101
Issuance of shares on exercise of cashless warrants (Note 13)		176,469			-		755,124			-			-			755,124
Other comprehensive gain (net of tax - $Nil)		-			-		-			110,441			-			110,441
Loss		-			-		-			-			(4,880,277	)		(4,880,277	)
Cancellation on shares exchanged		(79	)		-		-			-			-			-
		5,001,390			130,183		1,453,667			110,441			(4,880,277	)		(3,185,986	)

Balance, November 30, 2011		15,908,444			147,152		20,822,672			(115,035	)		(23,947,819	)		(3,093,030	)
Issuance of common shares (Note 9)		1,818,182			-		5,000,000			-			-			5,000,000
Share issuance cost (Note 9)		-			-		(779,271	)		-			-			(779,271	)
Stock options to employees (Note 10)		-			-		2,251,325			-			-			2,251,325
Stock options to non-management board members (Note 10)		-			-		72,520			-			-			72,520
DSU's to non-management board members (Note 11)		-			-		36,727			-			-			36,727
Issuance of shares on exercise of cashless warrants (Note 13)		180,315			-		1,005,692			-			-			1,005,692
Other comprehensive loss (net of tax - $Nil)		-			-		-			(124,975	)		-			(124,975	)
Loss		-			-		-			-			(6,136,865	)		(6,136,865	)
Cancellation on shares exchanged		(4	)		-		-			-			-			-
		1,998,493			-		7,586,993			(124,975	)		(6,136,865	)		1,325,153
Balance, November 30, 2012		17,906,937			147,152		28,409,665			(240,010	)		(30,084,684	)		(1,767,877	)

~~See accompnaying~~

See accompanying notes to consolidated financial statements

~~F -~~Page 4

Intellipharmaceutics International Inc.
Consolidated statements of cash flows
for the years ended November 30, 2012, 2011 and 2010
(Stated in U.S. dollars)
	2012			2011			2010
	$			$				$

Loss		(6,136,865	)		(4,880,277	)		(5,761,091	)
Items not affecting cash
Depreciation		452,303			227,456			242,778
Stock-based compensation (Note 10)		2,323,845			702,460			1,023,626
Deferred share units (Note 11)		36,727			33,101			12,426
Interest accrual		45,278			7,739			95,113
Investment tax credit written off (Note 18)		39,170			-			26,832
Fair value adjustment of derivative liability (Note 13)		(3,841,233	)		(5,346,878	)		(223,782	)
Write-down on long lived assets (Note 4)		107,123			-			36,481
Financing expense (Note 9)		-			884,587			-
Unrealized foreign exchange (gain) loss		(145,724	)		203,604			195,361

Change in non-cash operating assets & liabilities
Accounts receivable		605			(1,764	)		3,808
Investment tax credits		57,094			869,406			675,461
Prepaid expenses and sundry assets		(10,206	)		17,189			36,776
Accounts payable and accrued liabilities		(475,387	)		203,743			(1,117,563	)
Deferred revenue		(107,091	)		98,186			(1,440,421	)
Cash flows used in operating activities		(7,654,361	)		(6,981,448	)		(6,194,195	)

Financing activities
Payments to related parties (Note 6)		-			(801,551	)		(860,703	)
Repayment of capital lease obligations		(44,364	)		(22,452	)		(36,317	)
Deferred offering cost		-			-			(9,981	)
Issuance of common shares on exercise of stock options (Note 10)		-			93,165			-
Proceeds from issuance of shares and warrants, gross (Note 9)		-			12,000,000			-
Proceeds from issuance of shares on exercise of warrants (Note 13)		187,500			-			-
Proceeds from issuance of shares, gross (Note 9)		5,000,000			-			-
Share issuance cost		(779,271	)		-			-
Cash flows provided from (used in) financing activities		4,363,865			11,269,162			(907,001	)

Investing activity
Purchase of property and equipment		(1,036,092	)		(262,142	)		(133,878	)

Cash flows used in investing activities		(1,036,092	)		(262,142	)		(133,878	)


Effect of foreign exchange gain on cash held in foreign currency		6,516			2,380			9,718

(Decrease) increase in cash and cash equivalents		(4,320,072	)		4,027,952			(7,225,356	)
Cash and cash equivalents, beginning of period		4,817,088			789,136			8,014,492

Cash and cash equivalents, end of period		497,016			4,817,088			789,136

Supplemental cash flow information
Interest paid (Note 6)		39,173			163,099			104,943
Taxes paid		-			-			-

See accompanying consolidated financial statements

Intellipharmaceutics International Inc.

Consolidated statements of cash flows
for the year ended November 30, 2010, 11 month period ended
November 30, 2009 and year ended December 31, 2008
(Stated in U.S. dollars - Notes 1 and 2)
2010 2009 2008
(12 months) (11 months) (12 months)
$ $ $

Loss (5,761,091 ) (1,838,735 ) (3,765,174 )
Items not affecting cash
Depreciation 242,778 344,768 574,851
Stock-based compensation (Note 11) 1,023,626 18,529 442,800
Deferred share units (Note 12) 12,426 - -
Interest accrual 95,113 82,381 -
Investment tax credit written off (Note 20) 26,832 - -
Fair value adjustment of warrants (223,783 ) (286,983 ) -
Write-down of long-lived assets 36,481 - -
Unrealized foreign exchange loss (gain) 195,362 (669,379 ) 662,766
Change in non-cash operating assets and liabilities
Accounts receivable 3,808 12,042 454,638
Investment tax credits 675,461 (411,228 ) 130,595
Prepaid expenses and sundry assets 36,776 43,969 (37,946 )
Accounts payable and accrued liabilities (1,117,563 ) (1,631,804 ) 277,336
Deferred revenue (1,440,421 ) (521,543 ) (475,593 )
Cash flows used in operating activities (6,194,195 ) (4,857,983 ) (1,735,727 )

Financing activities
Payments to due to related parties (860,703 ) - (316,392 )
Receipts from due to related parties - 1,164,367 -
Repayment of capital lease obligations (36,317 ) (31,363 ) (38,405 )
Deferred offering cost (9,981 ) - -
Share issuance costs - (334,508 ) -
Cash flows from (used) in financing activities (907,001 ) 798,496 (354,797 )

Investing activities
Purchase of property and equipment (133,878 ) (93,412 ) (91,542 )
Cash received on acquisition of Vasogen (Note 4) - 11,334,855 -
Cash flows from (used) in investing activities (133,878 ) 11,241,443 (91,542 )

Effect of foreign exchange gain (loss) on
cash held in foreign currency 9,718 (69,677 ) (118,015 )

(Decrease) increase in cash (7,225,356 ) 7,112,279 (2,300,081 )
Cash, beginning of period 8,014,492 902,213 3,202,294
Cash, end of period 789,136 8,014,492 902,213

Supplemental cash flow information
Interest paid 104,943 - 141,822
Taxes paid - - -

~~See accompnaying notes to consolidated financial statements~~

~~F -~~Page 5

Intelli~~Intellipharmaceutics~~ pharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

1.	Nature of operations

Intellipharmaceutics International Inc. (“IPC” or the “Company”) is a pharmaceutical company specializing in the research, development and manufacture of novel orand generic ~~controlled release~~controlled-release and ~~targeted release~~targeted-release oral solid dosage drugs.

~~The shareholders of~~On October 22, 2009, IntelliPharmaCeutics Ltd. (“IPC Ltd.~~”),~~ “) and Vasogen Inc. (“Vasogen”) ~~approved~~completed a plan of arrangement and merger ~~whereby IPC Ltd. combined with Vasogen to continue as a newly incorporated publicly traded entity to be called Intellipharmaceutics International Inc. (“the IPC~~(the “IPC Arrangement Agreement”) at their respective shareholder meetings on October 19, 2009. All court and regulatory approvals required to effect the arrangement were received. The arrangement resulted in IPC Ltd. combining with 7231971 Canada Inc. (“New Vasogen”), ~~a new Vasogen company that acquired substantially all of the assets of Vasogen, including the proceeds from its non-dilutive financing transaction with Cervus LP as described further below.~~

Separately, Vasogen entered into an arrangement agreement with Cervus LP (“Cervus”), an Alberta based limited partnership that reorganized Vasogen prior to completion of the transaction with the Company and provided gross proceeds to Vasogen of approximately Cdn $7.5 million in non-dilutive capital.

~~The completion of the arrangement on October 22, 2009 resulted~~resulting in a ~~new publicly traded~~publicly-traded company, Intellipharmaceutics International Inc., which is incorporated under the laws of Canada and whose shares are traded on the ~~TSX~~Toronto Stock Exchange and NASDAQ. As a result of the arrangement transaction, IPC Ltd. shareholders owned approximately 86% of the outstanding common shares of the Company and Vasogen's shareholders owned approximately 14% of the outstanding common shares of the Company.

As a result of the transaction the Company selected a November 30 year end which resulted in the Company having an eleven month fiscal period in 2009. All comparable information for the 2008 year end is that of the predecessor company IPC Ltd. which had a December 31 year end. Accordingly, the Company’s consolidated statement of operations and comprehensive loss, shareholders’ equity and cash flows have been presented for the year ended November 30, 2010 with the comparative eleven month period November 30, 2009 and year ended December 31, 2008.

~~The Company’s principal business activities are focused on the research, development and manufacture of novel or generic controlled release and targeted release oral, solid dosage drugs.~~ The Company earns revenues from development contracts which provide upfront fees, milestone payments, reimbursement of certain expenditures and royalty income upon commercialization of its products. The Company has incurred losses from operations since inception, and has an accumulated deficit of ~~$19,067,542~~$30,084,684 as at November 30, ~~2010~~2012 (November 30, ~~2009~~2011 and 2010 - ~~$13,306,451).~~$23,947,819 and $19,067,542) respectively. Previously, the Company ~~has~~ funded its research and development activities through the issuance of capital stock, loans from related parties, funds from the IPC Arrangement Agreement and funds received under development agreements. There is no certainty that such funding will be available going forward.

AsThe consolidated financial statements are prepared on a going concern basis and substantial doubt exists on the appropriateness of this. In order for the Company ~~has several projects~~to continue operations at existing levels, the Company expects that over the next twelve months the Company will require significant additional capital. While the Company expects to satisfy its operating cash requirements for at least the next twelve months from cash on hand, collection of anticipated revenues resulting from future commercialization activities, development agreements or marketing license agreements, through managing operating expense levels, funds from senior management through the convertible debenture described elsewhere herein, equity and/or debt financings, and/or new strategic partners funding some or all costs of development, there can be no assurance that the Company will be able to obtain any such capital on terms or in amounts sufficient to meet its needs or at all. The availability of financing will be affected by, among other things, the results of its research and development, ~~stage, it expects~~its ability to ~~incur additional losses and require additional financial resources to support its operating activities for~~obtain regulatory approvals, the ~~foreseeable future. The continuation of the Company’s research and development activities and the commercialization~~market acceptance of its products, ~~are dependent upon~~ the ~~Company’s~~state of the capital markets generally, strategic alliance agreements, and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities, its then existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict its operations. In the event that the Company does not obtain additional capital over the next twelve months, there may be substantial doubt about its ability to ~~successfully complete~~continue as a going concern and realize its ~~research~~assets and pay its liabilities as they become due. Any failure by the Company to raise additional funds on terms favorable to the Company, or at all, may require the Company to significantly change or curtail its current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in its not taking advantage of business opportunities, in the termination or delay of clinical trials for one or more of its product candidates, in curtailment of its product development programs ~~protect~~designed to identify new product candidates, in the sale or assignment of rights to its ~~intellectual property, obtain regulatory approvals and finance~~technologies, products or product candidates, and/or its ~~cash requirements on an ongoing basis.~~inability to file abbreviated new drug applications (“ANDAs”) or New Drug Applications (“NDAs”) at all or in time to competitively market its products or product candidates.

~~Subsequent to November 30, 2010,~~The audited consolidated financial statements do not include any adjustments that might result from the ~~Company completed a financing for approximately $12,000,000 as described in Note 21.~~outcome of this uncertainty.

F - 6 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

2.	Basis of presentation

(a)

Basis of consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiaries, IPC Ltd., Intellipharmaceutics Corp. (“IPC Corp”), and Vasogen Corp. These consolidated financial statements also include the results of Vasogen Ireland Ltd. ~~(“VIL”) and Vasogen Corp. (“VUS”).~~

~~On October 22, 2009,~~up to June 27, 2012, the ~~Company, formerly IPC Ltd., as part~~date of the acquisition discussed in Note 1, issued 1,526,987 shares of stock in exchange for all the outstanding shares of Vasogen and 9,380,070 shares of stock in exchange for all the outstanding shares of IPC Ltd. Under accounting principles generally accepted in the United States of America (GAAP), this transaction is considered to be a continuity of interest transaction followed by the acquisition of assets and assumption of certain liabilities of Vasogen. On acquisition, the difference between the fair value of assets acquired and liabilities assumed was recorded as a credit to additional paid in capital, as described in Note 4.

~~The comparative number of shares issued and outstanding, options, warrants, basic and diluted loss per common share have been amended to give effect to reflect the merger.~~its dissolution.

All ~~significant~~ inter-company accounts and transactions have been eliminated on consolidation.

(b)

Use of estimates

The preparation of the consolidated financial statements in conformity with ~~GAAP~~accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates.

Areas where significant judgment is involved in making estimates are: the determination of estimated useful lives of property and equipment; the fair values of financial assets and liabilities; the determination of units of accounting for revenue recognition; the expected term of the Company's continued involvement in the research and development of each contract; the fair value of stock options and the determination of performance criteria for expensing share-based payments; the fair value of warrants; evaluation of income tax positions; the determination of valuation allowances; the determination of investment tax credits: accrued liabilities; deferred revenue; and forecasting future cash flows for assessing whether there are any impairments of long-lived assets.

~~F - 7~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

3.	Significant accounting policies

(a)	~~(a)~~Cash and cash equivalents

The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. Cash equivalent balances consist of bankers acceptances and bank accounts with variable, market rates of interest.

The financial risks associated with these instruments are minimal and the Company has not experienced any losses from investments in these securities. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature.

(b)	Financial Instruments

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are classified as liabilities, the derivative instrument is initially recorded at its fair value using the appropriate valuation methodology and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations and comprehensive loss.

(c)	Investment tax credits

The investment tax credits ("(“ITC") receivable are amounts considered recoverable from the Canadian federal and provincial governments under the Scientific Research & Experimental Development (“SR&ED”) incentive program. The amounts claimed under the program represent the amounts submitted by management based on research and development costs incurred during the year up to November 30, ~~2010.~~ 2012.

Realization is subject to government approval. Any adjustment to the amounts claimed will be recognized in the year in which the adjustment occurs. Refundable ITCs claimed relating to capital expenditures are credited to property and equipment. Refundable ITCs claimed relating to current expenditures are netted against research and development expenditures.

- 7 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

3.	~~(b)~~Significant accounting policies (continued)

(d)	Property and equipment

Property and equipment are recorded at cost. Equipment acquired under capital leases are recorded net of imputed interest, based upon the net present value of future payments. Assets under capital leases are pledged as collateral for the related lease obligation. Repairs and maintenance expenditures are charged to operations; major betterments and replacements are capitalized. Depreciation bases and rates are as follows:

Assets	Basis	Rate

Computer equipment	Declining balance	30%
Computer software	Declining balance	50%
Furniture and fixtures	Declining balance	20%
Laboratory equipment	Declining balance	20%
Leasehold improvements	Straight line	Over term of lease

Leasehold improvements and assets acquired under capital leases are depreciated over the term of their useful lives or the lease period, whichever is shorter. The charge to operations resulting from depreciation of assets acquired under capital leases is included with depreciation expense.

(e)

~~(c)~~

Impairment of long-lived assets

Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the sum of estimated undiscounted cash flows associated with the asset or group of assets is less than its carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on ~~discounted cash flows~~internal or ~~internal/~~external ~~appraisals, as applicable.~~appraisals.

(f)

~~(d)~~

Warrants

~~As a result of the transaction~~The Company issued warrants as described in ~~Note 1, the Company acquired certain assets~~Notes 9(b) and ~~assumed liabilities including warrants.~~13. The warrants are presented as a liability because they do not meet the criteria of ~~ASC~~Accounting Standard Codification (“ASC”) topic 480 for equity classification. Subsequent changes in the fair value of the warrants are recorded in the consolidated statements of operations.

~~F - 8~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

(g)

~~Significant accounting policies (continued)~~

Revenue recognition

~~(e)~~

~~Revenue recognition~~

The Company accounts for revenue in accordance with the provision of ASC topic 605 Revenue Recognition. The Company earns revenue from non-refundable upfront fees, milestone payments upon achievement of specified research or development, research and development support payments, scale-up services and royalty payments on sales of resulting products. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured. From time to time, the Company enters into transactions that represent multiple-element arrangements. Management evaluates arrangements with multiple deliverables to determine whether the deliverables represent one or more units of accounting for the purpose of revenue recognition. A delivered item is considered a separate unit of accounting if the delivered item has ~~stand alone~~stand-alone value to the customer, the fair value of any undelivered items can be reliably determined, and the delivery of undelivered items is probable and substantially in the Company's control.

The relevant revenue recognition accounting policy is applied to each separate unit of accounting.

- 8 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

3.	Significant accounting policies (continued)

(g)	Revenue recognition (continued)

Research and development

Under arrangements where the license fees and research and development activities can be accounted for as a separate unit of accounting, non-refundable upfront license fees are deferred and recognized as revenue on a straight-line basis over the expected term of the Company's continued involvement in the research and development process.

Deferred revenue represents the funds received from clients, for which the revenues have not yet been earned, as the milestones have not been achieved, or in the case of upfront fees for drug development, where the work remains to be completed.

For contracts that have been put on hold, the Company does not recognize any upfront fees from the period in which the product was on hold. For contracts that are terminated or abandoned, the Company recognizes all of the remaining unrecognized upfront fees in the period in which the contract was terminated, and net of amounts that are reimbursable, if any.

Revenue from the achievement of research and development milestones, if deemed substantive, is recognized as revenue when the milestones are achieved, and the milestone payments are due and ~~collectible,~~collectible. Milestones are considered substantive if all of the following conditions are met: (i) the milestone is non-refundable; (ii) achievement of the milestone was not reasonably assured at the inception of the arrangement; (iii) substantive effort is involved to achieve the milestone; and (iv) the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with achievement of the milestone. If any of these conditions are not met, the Company recognizes a proportionate amount of the milestone payment upon receipt as revenue that correlates to work already performed and the remaining portion of the milestone payment would be deferred and recognized as revenue as the Company completes its performance obligations.

Pursuant to the guidance in ASC topic 605, the Company analyzes whether to categorize reimbursed expenses from customers as a) the gross amount billed or b) the net amount retained, the Company will analyze the relevant facts and circumstances related to these expenses and considered the factors, as specified in the ASC topic noted above.

~~F - 9~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

3.	~~Significant accounting policies (continued)~~

~~(e)~~

~~Revenue recognition (continued)~~

Other services

Scale-up is the process of translating a laboratory batch to a much larger (manufacturing scale) batch. Revenue generated from any scale-up activities is recorded under ASC topic 605. Costs and profit margin related to these services that are in excess of amounts billed are recorded in accounts receivable, and amounts billed related to these services that are in excess of costs and profit margin are recorded in deferred revenue.

Royalties

The Company will recognize revenue from royalties based on licensees' sales of the Company's products or technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from licenses can be reasonably estimated and collectability is reasonably assured. To date, the Company has not yet recognized any royalty revenue.

~~(f)~~(h)

Research and development ~~cost~~costs

Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730. However, materials and equipment are capitalized and amortized over their useful lives if they have alternative future uses.

~~(g)~~(i)

Income taxes

The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for losses and tax credit carry forwards. Significant judgment is required in determining whether deferred tax assets will be realized in full or in part. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

- 9 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

3.	Significant accounting policies (continued)

(i)	Income taxes (continued)

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactments. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to remain unrealized.

The Company ~~adopted~~accounts in accordance with ASC topic 740-10. This ASC topic requires that uncertain tax positions are evaluated in a two-step process, whereby (i) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. ~~Prior to the adoption of ASC topic 740-10, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.~~ The cumulative effects of the application of the provisions of ASC topic 740-10 are described in Note ~~15.~~14.

The Company records any interest related to income taxes in interest expense and penalties in selling, general and administrative expense.

~~F - 10~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

3.	~~Significant accounting policies (continued)~~

~~(h)~~

~~Share issue costs~~

Share issue costs are recorded as a reduction of the proceeds from the issuance of capital stock. Share issue costs incurred in respect of issuing capital stock subsequent to the period have been deferred and are recorded as a deferred offering cost.

~~(i)~~(j)

Translation of foreign currencies

The financial statements of Intellipharmaceutics International Inc. are measured using the Canadian dollar as the functional currency. The Company's reporting currency is the U.S. dollar. The financial results of the Canadian operations are measured using the Canadian dollar as the functional currency. Assets and liabilities of the Canadian operations have been translated at year end exchange rates and related revenue and expenses have been translated at average exchange rates for the year. Accumulated gains and losses resulting from the translation of the financial statements of the Canadian operations are included as part of accumulated other comprehensive (loss) income, a separate component of shareholders' equity.

In respect of other transactions denominated in currencies other than the respective entities' functional currencies, the monetary assets and liabilities are translated at the year end rates. Revenue and expenses are translated at rates of exchange prevailing on the transaction dates. Non-monetary balance sheet and related income statement accounts are remeasured into U.S. dollar using historical exchange rates. All of the exchange gains or losses resulting from these other transactions are recognized in the statement of ~~operations.~~operations and comprehensive loss.

~~(j)~~(k)

Stock-based compensation

The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the appropriate term. The provisions of the Company's stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity.

Share-based compensation expense recognized during the period is based on the value of share-based payment awards that are ultimately expected to vest. The Company estimates forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The share based compensation expense is recorded in the statement of operations and comprehensive loss under research and development expense and under selling, general and administration expense. Note 1110 provides supplemental disclosure of the Company's stock options.

~~(k)~~(l)

Loss per share

Basic loss per share ~~("EPS"~~(“EPS”) is computed by dividing the loss attributable to common ~~shares'~~ shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.

- 10 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

3.	Significant accounting policies (continued)

(l)	Loss per share (continued)

The dilutive effect of stock options is determined using the treasury stock method. Stock options and warrants to purchase ~~1,687,914, 828,341,~~7,830,059, 7,876,229, and ~~312,652~~1,687,914 common shares of the Company during fiscal ~~2010, 2009,~~2012, 2011, and ~~2008,~~2010, respectively, were not included in the computation of diluted EPS because the Company has incurred a loss for the ~~year~~years ended November 30, ~~2010, eleven month period ended November 30, 2009~~2012, 2011 and ~~the year ended December 31, 2008~~2010 as the effect would be anti-dilutive.

~~F - 11~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

3.(m)

~~Significant accounting policies (continued)~~Comprehensive loss

~~(l)~~

~~Comprehensive (loss) income~~

The Company follows ASC topic 810-10. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive ~~(loss) income~~loss is ~~net (loss) income~~loss plus certain items that are recorded directly to shareholders' equity. Other than foreign exchange gains and losses arising from cumulative translation adjustments, the Company has no other comprehensive ~~(loss) income~~loss items.

~~(m)~~(n)

Fair value measurement

Under ASC topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based on the reliability of inputs, as follows:

●

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active.

●

Level 3 - Unobservable inputs for the asset or ~~liability.~~liability.

The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. The adoption of ASC topic 820 for financial assets and liabilities did not have a material effect on the Company's consolidated financial statements, or result in any significant changes to its valuation techniques or key considerations used in valuations.

(o)

~~(n)~~

~~Future~~Recently adopted accounting pronouncements

In ~~October 2009,~~May 2011, the FASB ~~issued Accounting Standards Update 2009-13, Revenue Recognition (“~~provided amendments ASU ~~2009-13”). ASU 2009-13 amends~~2011-4 “Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments provide clarification and/or additional requirements relating to the ~~criteria~~following: a) application of the highest and best use and valuation premise concepts, b) measurement of the fair value of instruments classified in an entity’s shareholders’ equity, c) measurement of the fair value of financial instruments that are managed within a portfolio, d) application of premiums and discounts in a fair value measurement, and e) disclosures about fair value measurements. These amendments are effective prospectively for ~~separating consideration in multiple-deliverable revenue arrangements,~~interim and establishes a hierarchy of selling prices to determine the selling price of each specific deliverable. As part of this, ASU 2009-13 eliminates the residual method for allocating revenue among the elements of an arrangement and requires that consideration be allocated at the inception of an arrangement. As well, it expands disclosure requirements. ASU 2009-13 is effective for fiscal yearsannual periods beginning ~~on or~~ after ~~June~~December 15, ~~2010.~~2011. The Company ~~has~~ adopted ~~this standard~~ASU 2011-4 on ~~December~~March 1, ~~2010.~~2012. The adoption did not have an impact on the Company’s ~~2010~~2012 financial statements.

F - 1211 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

3.	Significant accounting policies (continued)

(o)

~~(n)~~

~~Future~~Recently adopted accounting pronouncements (continued)

On April 29, 2010, the FASB issued ASU 2010-17, which establishes a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the ASU is limited to research or development arrangements and requires an entity to record the milestone payment in its entirety in the period received if the milestone meets all the necessary criteria to be considered substantive. However, entities would not be precluded from making an accounting policy election to apply another appropriate accounting policy that results in the deferral of some portion of the arrangement consideration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The Company has adopted this standard on December 1, 2010. The adoption did not have an impact on the Company’s 2010 financial statements.

4.	~~Acquisition~~

In June 2011, the FASB provided amendments ASU 2011-05 “Presentation of Comprehensive Income” requiring an entity 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, eliminating the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Additionally, the amendments require an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. These amendments are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted ASU 2011-05 on March 1, 2012. The adoption did not have an impact on the Company’s 2012 financial statements, as the Company was already presenting its statement of comprehensive income in accordance with the guidelines above.

~~As disclosed~~On December 23, 2011, the FASB issued ASU 2011-12, which defers certain provisions of ASU 2011-05. One of ASU 2011-05’s provisions required entities to present reclassification adjustments out of accumulated other comprehensive income by component in ~~Note~~both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements). Accordingly, this requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date. The new ASU is in response to constituents' concerns about whether the requirements under ASU 2011-05 for the presentation of reclassification adjustments were operational.

The FASB also decided that during the deferral period, entities would be required to comply with all existing requirements for reclassification adjustments in ASC 220, which indicates that "[a]n entity may display reclassification adjustments on the face of the financial statement in which comprehensive income is reported, or it may disclose reclassification adjustments in the notes to the financial statements." The effective date of ASU 2011-12 is the same as that for the unaffected provisions of ASU 2011-05 (i.e., those related to the requirement to report the components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements). Accordingly, for public entities, the effective date is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company adopted ASU 2011-12 on March 1, ~~in October 2009 the Company entered into an acquisition transaction acquiring certain assets and assumed liabilities from Vasogen. As Vasogen~~2012. The adoption did not ~~meet the definition of business under ASC paragraphs 805-10-55-4 through 55-9, the transaction was accounted as~~have an ~~asset acquisition recorded at carrying value which approximates fair value. The excess of Vasogen assets acquired over liabilities assumed~~impact on the ~~acquisition is recorded as a credit to the additional paid in capital of the Company as follows:~~Company’s 2012 financial statements.

	$
~~Assets~~
~~Cash~~		~~11,334,855~~
~~Investment tax credits and prepaid expenses and sundry assets~~		~~489,255~~
~~Fixed assets~~		~~11,406~~
		~~11,835,516~~

~~Liabilities assumed~~
~~Accounts payable and accrued liabilities~~		~~2,299,289~~
~~Warrant liability~~		~~543,669~~
		~~2,842,958~~
~~Additional paid in capital~~		~~8,992,558~~

F - 1312 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

5.4.	Property and equipment

	November 30, 2010
			Accumulated		Net book						November 30, 2012
	Cost		amortization		value		Cost		Accumulated amortization		Net book value
	$		$		$			$		$		$

Computer equipment		176,068		129,050		47,018		243,798		188,935		54,863
Computer software		31,664		20,415		11,249		126,568		53,916		72,652
Furniture and fixtures		103,140		68,066		35,074		140,829		98,091		42,738
Laboratory equipment		1,867,965		1,096,161		771,804		2,602,478		1,383,709		1,218,769
Leasehold improvements		920,808		920,808		-		1,108,246		1,108,246		-
Lab equipment under capital lease		63,455		31,501		31,954
Computer under capital lease		79,093		50,638		28,455
Laboratory equipment under capital lease								225,192		88,617		136,575
Computer equipment under capital lease								84,990		74,884		10,106
		3,242,193		2,316,639		925,554		4,532,101		2,996,398		1,535,703

	November 30, 2009
			Accumulated		Carrying						November 30, 2011
	Cost		amortization		value		Cost		Accumulated amortization		Carrying value
		$		$		$		$		$		$

Computer equipment		149,969		109,353		40,616		185,662		145,070		40,592
Computer software		17,050		14,087		2,963		39,355		27,808		11,547
Furniture and fixtures		85,149		59,301		25,848		111,255		76,187		35,068
Laboratory equipment		1,929,392		1,031,075		898,317		1,941,659		1,264,505		677,154
Leasehold improvements		895,511		895,511		-		940,362		927,021		13,341
Lab equipment under capital lease		61,712		22,868		38,844		201,622		44,128		157,494
Computer under capital lease		76,920		37,387		39,533		76,093		59,375		16,718
		3,215,703		2,169,582		1,046,121		3,496,008		2,544,094		951,914

Depreciation for the year ended November 30, ~~2010~~2012 was ~~$242,778~~$452,303 (November 30, ~~2009~~2011 - ~~$344,768; December 31, 2008~~$227,456; November 30, 2010 - ~~$574,851)~~$242,778).

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment is assessed by comparing the carrying amount of an asset with the sum of the undiscounted cash flows expected from its use and disposal, and as such requires the Company to make significant estimates on expected revenues from the commercialization of ~~our~~its products and services and the related expenses. The Company records a write-down for long-lived assets which have been abandoned and do not have any residual value. For the year ended November 30, ~~2010,~~2012, the Company recorded a $107,123 write-down of long-lived assets (2011 - $Nil; 2010 – $36,481). The Company performed an asset inspection at the end of ~~$36,481 (2009 – $Nil).~~the fiscal year and noted assets which were not in use or had nominal value. The fair value of these assets were determined based on internal appraisals as per the Company’s accounting policy.

6.5.	Accrued liabilities

	November 30,		November 30,
	2010		2009		November 30, 2012		November 30, 2011
	$			$		$		$

Professional fees		242,107		482,624		116,179		307,465
Other		78,923		57,980		108,618		128,689
		321,030		540,604		224,797		436,154

F - 1413 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

7.6.	Due to related parties

Amounts due to the related parties are payable to entities controlled by two shareholders who are also officers and directors of the Company.

November 30, November 30,
2010 2009
$ $
Promissory note payable to two directors and officers
of the Company, unsecured 6% annual interest
rate on the outstanding loan balance (i)

(2010 - Cdn $1,651,188; 2009 - Cdn $2,463,240) 1,608,405 2,333,498
Note payable to an entity controlled by
shareholders, officers and directors of the
Company, unsecured, non-interest bearing
with no fixed repayment terms.
(2010 - Cdn $28,167; 2009 - Cdn $28,167) 27,437 26,683
1,635,842 2,360,181

	November 30, 2012		November 30, 2011
		$		$
Promissory note payable to two directors and officers of the Company, unsecured 6% annual interest rate on the outstanding loan balance (i) (2012 - C$750,534; 2011 - C$774,330)		755,368		729,520
Note payable to an entity controlled by shareholders, officers and directors of the Company, unsecured, non-interest bearing with no fixed repayment terms. (2012 - C$28,167; 2011 - C$28,167)		28,349		27,606
		783,717		757,126

Interest expense on the promissory note payable to related parties for the year ended November 30, ~~2010~~2012 is ~~$94,055~~$45,278 (November 30, ~~2009 (11 months)~~2011 - ~~$85,113; December 31, 2008~~$73,011; November 30, 2010 - ~~$65,750)~~$94,055) and has been included in the consolidated statement of ~~operations.~~operations and comprehensive loss.

(i)

~~(i)~~

~~As a result of the transactions, as described in Note 1, effective~~Effective October 22, 2009 (“effective date”), the promissory note dated September 10, 2004 issued by IPC Corp to Dr. Isa Odidi and Dr. Amina Odidi (the “Promissory Note”) was amended to provide that the principal amount thereof shall be payable when payment is required solely out of (i) revenues earned by IPC Corp following the effective date, and/or proceeds received by any IPC Company from any offering of its securities following the effective date, other than the securities offering ~~described in Note 21,~~completed on February 1, 2011, and/or amounts received by IPC Corp for the scientific research tax credits received after the effective date for research expenses of IPC Corp incurred before the effective date and (ii) up to ~~Cdn$~~C$800,000 from the Net Cash (as defined in the IPC Arrangement Agreement). During the year ended November 30, 2012, no principal repayment was made (2011 - $801,551; 2010 ~~Cdn $800,000 (US~~- $755,760) and an interest payment of ~~Cdn $110,452 ($104,943)~~$39,173 (C$39,083) (2011 – $163,099; 2010 - $104,943) in respect of the ~~shareholder~~promissory note was repaid by the Company in accordance with the terms of the IPC Arrangement Agreement.

As described in Note 7, the Company had salaries payable to the two principal shareholders.

8.7.	Employee costs payable

As at November 30, ~~2010,~~2012, the Company had $472,619 (November 30, ~~2009~~2011 - ~~$462,986) in unpaid salary~~$472,619) salaries payable to Dr. Isa Odidi and Dr. Amina Odidi, principal shareholders, directors and executive officers of the Company and ~~$103,006~~$190,603 (November 30, ~~2009~~2011 - ~~$38,128)~~$263,454) for other amounts payable to certain employees. These balances are due on demand and therefore presented as current in nature.

- 14 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

9.8.	Lease obligations

The Company leases facilities under an operating lease which expires on November 2013, with an option to extend the lease on comparable terms for five additional years. The Company also leases various computers and equipment under capital leases. Future minimum lease payments under ~~these~~ leases ~~expiring in 2011~~with terms of one year or more are as ~~follows:~~follows at November 30, 2012:

	$

~~Balance~~	~~13,750~~
~~Less: amounts representing interest at 11%~~	~~(520~~	)
~~Balance, current portion~~	~~13,230~~

Year ending November 30, 2012	Capital Lease		Operating Lease
		$		$

2013		62,470		89,016
2014		49,251		-
		111,721		89,016
Less: amounts representing interest at 14%		13,955		-
		97,766		89,016
Less: Current portion		51,524		-
Balance, long-term portion		46,242		89,016

~~The Company is currently in discussion for the extension of the lease for its premises.~~

~~F - 15~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~10.~~9.

Capital stock

Authorized, issued and outstanding

(a)

~~(a)~~

The Company is authorized to issue an unlimited number of common shares, all without nominal or par value and an unlimited number of preference shares. As at November 30, ~~2010 and November 30, 2009~~2012 the Company has ~~10,907,054~~17,906,937 (2011 – 15,908,444) common shares issued and outstanding, ~~respectively,~~ and no preference shares issued and ~~outstanding. The previously reported 10,907,057 issued and~~ outstanding ~~shares have been adjusted for a rounding adjustment.~~.

(b)	Two officers and directors of IPC owned directly and through their family holding company (“Odidi Holdco”) 6,005,751 (2011 - 5,997,751) common shares or approximately 34% (2011 – 38%) ~~owned by two officers and directors of IPC owns 5,997,751 common shares or approximately 55%~~ of IPC.

Each common share of the Company entitles the holder thereof to one vote at any meeting of shareholders of the Company, except meetings at which only holders of a specified class of shares are entitled to vote.

Common shares of the Company are entitled to receive, as and when declared by the board of the Company, dividends in such amounts as shall be determined by the board of the Company. The holders of common shares of the Company have the right to receive the remaining property of the Company in the event of liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary.

The preference shares may at any time and from time to time be issued in one or more series. The board of directors will, by resolution, from time to time, before the issue thereof, fix the rights, privileges, restrictions and conditions attaching to the preference shares of each series. Except as required by law, the holders of any series of preference shares will not as such be entitled to receive notice of, attend or vote at any meeting of the shareholders of the Company. Holders of preference shares will be entitled to preference with respect to payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs, on such shares over the common shares of the Company and over any other shares ranking junior to the preference shares.

The Company was able to negotiate certain reduced stock issuance costs in connection with becoming a publicly traded company in 2009. The estimate used in preparation of the November 30, 2009 financial statements was higher than the amount eventually paid during the second quarter of fiscal 2010, which resulted in an adjustment of $54,454 in the statement of shareholders’ equity (deficiency) for the year ended November 30, 2010. In addition as described in Note 10, the Company issued an additional 32,722 broker options related to this transaction. The fair value of these stock options using the Black-Scholes options pricing model was less than the estimated fair value of these stock options recorded in the 2009 year end financial statements which resulted in a further adjustment of $13,874 for the year ended November 30, 2010. These adjustments have been recorded as credits to additional paid in capital.

~~As described in Note 2(a) the comparative share information have been amended to give effect of the transaction described in Note 1.~~

~~(b)~~

As a result of the transactions, as described in Note 1, effective October 22, 2009 former shareholders of IPC Ltd. owned approximately 86% of the outstanding common shares of IPC and former shareholders of Vasogen owned approximately 14% of the outstanding common shares of IPC. Each former Vasogen Inc. shareholder received 0.065963061 common shares of IPC, and each former equity shareholder of IPC Ltd. and its operating affiliate IPC Corp. received 0.552788117 common shares of IPC, for each share they exchanged in the transaction.

F - 1615 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

~~10.~~9.

Capital stock (continued)

Authorized, issued and outstanding (continued)

(b)

~~(b)~~

~~(continued)~~

On February 1, 2011, the Company completed a private offering for the sale and issuance of 4,800,000 units of the Company. Each unit consisted of one share of common stock, a five year Series A common share purchase warrant to purchase one half of a share of common stock at an exercise price of $2.50 per whole share and a two year Series B common share purchase warrant to purchase one half of a share of common stock at an exercise price of $2.50 per whole share for gross proceeds of $12,000,000. The Company also issued to the placement agents 96,000 warrants to purchase a share of common stock at an exercise price of $3.125 per whole share. The holders of Series A and Series B common share purchase warrants and placement agents warrants are entitled to a cashless exercise under which the number of shares to be issued will be based on the number of shares for which warrants are exercised times the difference between market price of common share and the exercise price divided by the market price.

Under U.S. GAAP where the strike price of the warrants is denominated in a currency other than an entity's functional currency, the warrants would not be considered indexed to the entity’s own stock, and would consequently be considered to be a derivative liability. Also under U.S. GAAP, warrants with the cashless exercise option satisfying the explicit net settlement criteria are considered a derivative liability.

The Series A, Series B common share purchase warrants and placement agents warrants are denominated in U.S. dollars and IPC’s functional currency is Canadian dollars. As a result, the Company determined that these warrants are not considered indexed to the Company’s own stock and characterized the fair value of these warrants as derivative liabilities upon issuance. The derivative has been subsequently marked to market through the statement of operations and comprehensive loss.

The Company incurred financing expenses of $2,357,732, which includes placement agent warrants with a fair value of $229,005 and $655,582 as the cost of the private offering.

The Company determined that the fair value of the warrant liability at issuance to be $12,655,582 based upon a Black-Scholes Options Pricing Model calculation (Note 13). The Company recorded the full value of the derivative as a liability at issuance with an offset to valuation discount. As the fair value of the liability of $12,655,582 exceeded the proceeds of $12,000,000, the excess of the liability over the proceeds amount of $655,582 was considered to be a cost of the private offering, which was included in the financing expenses.

As at December 31, 2008, IPC Ltd. had 3,329,965 common shares issued and outstanding (6,023,944 prior to exchange as described above). In connection with the October 2009 transaction IPC Ltd. issued an additional 52,356 common shares to a broker before all of the common shares outstanding of IPC Ltd. were converted to common shares in the Company. As a result of the transactions, as described in Note 1, effective October 22, 2009 these shares were cancelled and the holders of these shares received shares in the Company.

(c)

On March 15, 2012, the Company completed a registered direct common share offering for gross proceeds of $5,000,000. The Company sold an aggregate of 1,818,182 shares to U.S. institutional investors at a price of $2.75 per share. Professional, regulatory and other costs in the amount of $779,271 directly attributable to the common share offering have been recorded as share issuance costs in shareholders deficiency.

As at December 31, 2008, IPC Ltd. had 5,997,751 Special Voting Shares issued and outstanding (10,850,000 prior to exchange as described above). The Special Voting Shares outstanding in IPC Ltd. gave their holders voting rights on a one vote per share basis. The Special Voting Shares had no right to dividends or distributions from IPC Ltd. and had no equity interest in IPC Ltd. These Special Voting Shares were all owned by a company controlled by two officers and directors of the Company ("Odidi Holdco"). As a result of the transactions, as described in Note 1, effective October 22, 2009 these non-equity shares were cancelled and the holders of these shares received no shares in the Company. As a result of the transactions described in Note 1 effective October 22, 2009 the 5,997,751 (10,850,000 prior to exchange described above) equity shares owned by Odidi Holdco, were exchanged for common shares in the Company.

~~11.~~10.

Options

~~As a result of the transactions, as described in Note 1, effective October 22, 2009, the Company adopted a new stock option plan (the “Employee Stock Option Plan”).~~ All grants of options to employees after October 22, 2009 are made from the Employee Stock Option Plan (the “Employee Stock Option Plan”). The maximum number of common shares issuable under the Employee Stock Option Plan is limited to 10% of the issued and outstanding common shares of the Company from time to time, or ~~1,090,706~~1,790,694 based on the number of issued and outstanding common shares as at November 30, ~~2010.~~2012. As at November 30, ~~2010, 154,780~~2012, 1,375,119 options are outstanding under the employee stock option plan. Each option granted allows the holder to purchase one common share at an exercise price not less than the closing price of the Company's common shares on the Toronto Stock Exchange on the last trading day prior to the grant of the option. Options granted under these plans generally have a maximum term of 10 years and generally vest over a period of up to three years. As at November 30, ~~2010,~~2012, there were ~~935,926~~415,575 options available for grant under the Employee Stock Option Plan.

- 16 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

10.	Options (continued)

In August 2004, the Board of Directors of IPC Ltd. approved a grant of 2,763,940 performance-based stock options, to two executives who were also the principal shareholders of IPC Ltd. The vesting of these options is contingent upon the achievement of certain performance milestones. A total of 1,381,970 performance-based stock options have been vested as of November 30, 2012. These options were still outstanding as at November 30, ~~2010~~2012 and will expire in 2014.

In ~~addition to~~ the ~~Employee Stock Option Plan, in connection with the October 2009 transaction IPC Ltd. issued 87,256 broker~~year ended November 30, 2012, Nil (2011 – 120,000) stock options to ~~purchase common shares of IPC that were still outstanding as at November 30, 2010. The fair value of these broker options $161,833 were recorded as a charge to additional paid in capital~~non-management board members and a ~~charge~~grant of 955,000 (2011 – Nil) stock options to ~~share issuance costs in additional paid in capital.~~management were granted.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, consistent with the provisions of Accounting Standards Codification topic ASC 718.

~~F - 17~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~11.~~

~~Options (continued)~~

Option pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted average of the applicable assumption used to value stock options at their grant date.

The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly ~~traded.~~ traded for options that has an expected life than is more than two years. For options that have an expected life of less than three years the Company uses its own volatility.

The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options.

The ~~risk-free~~risk free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is Nil as the Company is not expected to pay dividends in the foreseeable future.

The weighted average fair value of employee stock options granted in ~~2010~~2012 and ~~the fair value of broker options granted in 2010 and 2009~~2011 was estimated using the following ~~assumptions.~~assumptions:

	2012			2011

Volatility		64.7	%		63.8	%
Risk-free interest rate		0.08	%		0.02	%
Expected life (in years)		10.00			7.77
Dividend yield		-			-
The weighted average grant date fair value per options granted	$	2.51		$	1.86

Broker options Employee stock options

2010 2009 2010 2009

Volatility 142.3 % 142.3 % 90.4 % -
Risk-free interest rate 1.5 % 1.5 % 3.38 % -
Expected life (in years) 0.33 1 6.49 -
Dividend yield - - - -
The weighted average grant date
fair value per options granted $ 1.46 $ 1.85 $ 2.03 -

- 17 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

10.	Options (continued)

Details of stock option transactions are as follows:

November 30, 2010 November 30, 2009 December 31, 2008
Weighted Weighted Weighted
average Weighted average Weighted average Weighted
exercise average exercise average exercise average
Number of price per grant date Number of price per grant date Number of price per grant date
options share fair value options share fair value options share fair value
$ $ $ $ $ $

Outstanding,
beginning of
period, 2,939,188 6.48 3.46 2,800,199 3.64 1.59 2,837,970 3.65 1.59
Granted 152,722 3.36 1.59 87,256 6.26 1.85 - - -
Vasogen options
exchanged for
IPC options - - - 72,386 116.40 78.82 - - -
Forfeiture (25,000 ) - - - - - - - -
Expired (28,212 ) 51.47 25.29 (20,653 ) 5.90 1.80 (37,771 ) 5.83 0.85
Balance at
end of period 3,038,698 5.53 2.87 2,939,188 6.48 3.46 2,800,199 3.64 1.59

Options
exercisable,
end of year 1,328,667 8.00 4.45 451,642 22.22 13.67 312,652 3.80 1.57

~~F - 18~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

						November 30, 2012							November 30, 2011							November 30, 2010
	Number of options			Weighted average exercise price per share		Weighted average grant date fair value		Number of options			Weighted average exercise price per share		Weighted average grant date fair value		Number of options			Weighted average exercise price per share		Weighted average grant date fair value
					$	$						$	$						$		$

Outstanding, beginning of period,		3,216,954			5.33		2.82		3,038,698			5.53		2.87		2,939,188			6.48		3.46
Granted		955,000			3.27		2.51		328,000			3.51		1.84		152,722			3.36		1.59
Exercised		-			-		-		(25,000	)		3.73		1.55		-			-		-
Forfeiture		(32,862	)		-		-		(4,667	)		-		-		(25,000	)		-		-
Expired		(33	)		69.74		53.82		(120,077	)		6.01		1.61		(28,212	)		51.47		25.29
Balance at end of period		4,139,059			4.86		2.76		3,216,954			5.53		2.87		3,038,698			6.48		3.46

Options exercisable, end of year		2,286,589			5.94		3.55		1,585,816			7.11		4.03		1,328,667			8.00		4.45

~~11.~~

~~Options (continued)~~

As of November 30, ~~2010,~~2012, the exercise prices, weighted average remaining contractual life of outstanding options and weighted average grant date fair values were as follows:

Options outstanding Options exercisable
Weighted Weighted Weighted Weighted Weighted
average average average average average
exercise remaining grant exercise grant
Number price per contract due Number price per date
outstanding share life (years) fair value exercisable share fair value
$ $ $ $

Under 10.00 2,994,340 3.63 3.6 1.57 1,284,309 3.83 1.57
10.00 - 100.00 36,065 39.52 6.8 31.02 36,065 39.52 31.02
300.00 - 500.00 4,070 331.92 5.2 224.06 4,070 331.92 224.06
500.00 - 1,000.00 4,190 705.65 2.3 435.50 4,190 705.65 435.50
1,000 - 1,500.00 33 1,149.13 3.4 709.18 33 1,149.13 709.18
3,038,698 5.53 1,328,667 8.00

				Options outstanding			Options exercisable
Exercise price	Number outstanding	Weighted average exercise price per share	Weighted average remaining contract life (years)	Weighted average grant due fair value	Number exercisable	Weighted average exercise price per share	Weighted average grant date fair value
		$		$		$	$

Under 2.50	-	-	-	-	-	-	-
2.51 - 5.00	4,094,833	3.52	3.90	1.85	2,242,363	3.48	1.89
5.01 - 7.50	-	-	-	-	-	-	-
7.51 - 10.00	-	-	-	-	-	-	-
10.01 - 100.00	36,032	39.52	4.83	30.99	36,032	39.50	30.99
300.00 - 500.00	3,971	331.15	3.30	223.52	3,971	331.15	223.52
500.01 - 1,000.00	4,190	705.99	0.29	435.71	4,190	705.99	435.71
1,000.01 - 1,500.00	33	1,149.13	1.45	709.18	33	1,149.13	709.18
	4,139,059	4.86			2,286,589	5.94

Total unrecognized compensation cost relating to the unvested ~~performance based~~performance-based stock options at November 30, ~~2010~~2012 is approximately ~~$2,656,800~~$2,214,000 (November 30, ~~2009~~2011 - ~~$3,542,400)~~$2,214,000). ~~A total of 2,763,940 performance-based stock options granted to date will vest upon the achievement of certain performance conditions. During~~For the year ended November 30, 2010, the Company had a second Abbreviated new Drug Application (“ANDA”) filing accepted by the U.S. Food and Drug Administration (“FDA”) to satisfy the actual performance condition of these options. Furthermore, a performance condition was met as the FDA accepted the two ANDAs for certain drugs, resulting in the vesting of 552,788 performance-based stock options. Accordingly the Company recorded an additional stock-based compensation expense of $885,600. As at November 30, 2010, 1,658,364 performance-based stock options remain unvested. No other2012, no compensation cost has been recognized for the remaining unvested ~~performance~~performance-based options. For the year ended November 30, 2011, the Company recorded stock based ~~options. If all performance conditions are achieved prior to the expiry of the term of these options in 2014, an additional stock-based~~ compensation expense of ~~approximately $2,656,800 will be recognized.~~$442,800 related to meeting the performance criteria of 276,394 options.

- 18 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

10.	Options (continued)

No options were exercised in the year ended November 30, ~~2010~~2012. For the ~~eleven month period~~year ended November 30, ~~2009,~~2011, 25,000 options were exercised for a cash consideration of $93,165 and no options were exercised in the year ended ~~December 31, 2008.~~November 30, 2010.

During the year ended November 30, ~~2010 the Company granted 120,000~~2012, no stock options were granted to employees. ~~In addition, during~~For the fiscal year ended November 30, 2010 the Company issued 32,722 broker options to purchase common shares of IPC, in connection with the October 2009 transaction. In fiscal 2009 the Company recorded a stock-based compensation expense of $18,529 related to 12,500 stock options. This accrued amount was recognized in additional paid in capital upon issuance of these options during the year ended November 30, 2010.

In fiscal 2010, the Company recorded $13,711 as a charge to additional paid in capital and a charge to share issuance costs in additional paid in capital,and expensed a stock-based compensation expense of $78,416 related to 45,1382011, 208,000 stock options issued under its employee stock option plan. In addition, in accordance with ASC topic 718-10, the Company has recorded a stock-based compensation of $59,610 related to 45,000 stock options issuable to non-management board members in accordance with the board approved remuneration plan. The fair value of these options has been estimated as at November 30, 2010 using the Black-Scholes Options Pricing Model, using volatility of 98%, risk free interest rate of 2.25%, expected life of 8.3 years, dividend yield of Nil.were granted.

The ~~Company's total~~following table summarizes the components of stock-based compensation ~~for the year ended November 30, 2010 and 2009 and year ended December 31, 2008 was $1,023,626, $18,529, $442,800 respectively.~~expense.

~~F - 19~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~11.~~

~~Options (continued)~~

The Company recorded stock-based compensation relating to option grants amounting to $137,573 recorded in selling, general and administration for the year ended November 30, 2010 and $18,529 for the eleven month period ended November 30, 2009, and $Nil for the year ended December 31, 2008.

The Company recorded stock-based compensation expense relating to option grants amounting $885,600 recorded in research and development expenses for the year ended November 30, 2010, 2009 - $Nil, and $442,800 in the year ended December 31, 2008.

	November 30, 2012		November 30, 2011	November 30, 2010
	$		$	$

Research and development		1,505,061	601,423	885,600
Selling, general and administrative		818,784	101,037	138,026
		2,323,845	702,460	1,023,626

The Company has estimated its stock option forfeitures to be $Nil at November 30, ~~2010.~~2012 (2011 - $7,302; 2010 - $Nil).

~~12.~~11.

Deferred share units

Effective May 28, 2010, the ~~Company~~Company’s shareholders approved a ~~Deferred Share Unit (“DSU”)~~DSU Plan to grant DSUs to its non-management directors and reserved a maximum of 110,000 common shares for issuance under the plan. The DSU ~~plan~~Plan permits certain non-management directors to defer receipt of all or a portion of their board fees until termination of the board service and to receive such fees in the form of common shares at that time. A DSU is a unit equivalent in value to one common share of the Company based on the trading price of the Company's common shares on the Toronto Stock Exchange. Upon termination of board service, the director will be able to redeem DSUs based upon the then market price of the Company's common shares on the date of redemption in exchange for any combination of cash or common shares as the Company may determine.

During the year ended November 30, ~~2010,~~2012, one non-management board member elected to receive director fees in the form of DSUs under the Company’s DSU ~~plan. Accordingly,~~Plan. As at November 30, 2012, 22,449 DSUs are outstanding and 87,551 DSUs are available for grant under the Company has recorded an accrual of $12,426 for 5,041 DSUs that will be issued. The value of DSUs issued has been recorded as a charge to selling, general and administration expense and accrued liabilities.DSU Plan.

	November 30, 2012			November 30, 2011
	$	shares		$	shares

Additional paid in capital	36,727		12,199	33,101		10,250
Accrued liability	9,688		4,611	6,569		2,050

~~13.~~12.

Restricted share units

Effective May 28, 2010, the ~~Company~~Company’s shareholders approved a Restricted Share Unit (“RSU”) Plan for officers and employees of the Company and reserved a maximum of 330,000 common shares for issuance under the plan. The RSU ~~plan~~Plan will form part of the incentive compensation arrangements available to officers and employees of the Company and its designated affiliates. AAn RSU is a unit equivalent in value to one common share of the Company. Upon vesting of the RSUs and the corresponding issuance of common shares to the participant, or on the forfeiture and cancellation of the RSUs, the RSUs credited to the participant’s account will be cancelled. No RSUs have been issued under the plan.

- 19 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

~~14.~~13.

Warrants

Under U.S. GAAP, where the strike price of warrants is denominated in a currency other than an entity's functional currency the warrants would not be considered indexed to the entity’s own stock. In connection with the February 1, 2011 private offering, the Company issued 4,800,000 five year Series A common shares purchase warrants to purchase one half of a share of common stock at an exercise price of $2.50 per whole share and 4,800,000 two year Series B common shares purchase warrants to purchase one half of a share of common stock at an exercise price of $2.50 per whole share. As noted in Note 9 these warrants are considered to be a ~~liability as they are indexed to both the~~derivative liability.

The fair value of the ~~Company’s~~Series A warrants of $7,214,366 and Series B warrants of $5,441,216 have been initially estimated at February 1, 2011 using the Black-Scholes Options Pricing Model, using volatilities of 70% and 59%, risk free interest rates of 0.99% and 0.29%, expected lives of 5 and 2 years, and dividend yields in each case of Nil, respectively.

The Company also issued to the placement agents 96,000 warrants to purchase a share of common stock ~~and foreign exchange rates. Any changes in the~~at an exercise price of $3.125 per share. The fair value of the placement agents’ warrants was initially estimated at February 1, 2011 as $229,005 using the Black-Scholes Options Pricing Model, using volatility of 67%, a risk free interest rate of 0.99%, an expected life of 3 years, and a dividend yield of Nil. These placement agent warrants were expensed and are ~~recorded on the statement of operations~~included in ~~the period of change.~~financing expense.

The following table provides information on the ~~357,237~~ 7,286,000 warrants outstanding and exercisable as of November 30, 2012~~2010:~~:

Number Shares issuable
Exercise price outstanding Expiry upon exercise
$

95.51 113,962 November 14, 2011 113,962
47.91 243,275 May 24, 2012 243,275
357,237 357,237

Warrant	Exercise price	Number outstanding	Expiry	Shares issuable upon exercise
Series B	2.50	3,470,000	February 1, 2013	1,735,000
Agent	3.125	96,000	March 30, 2014	96,000
Series A	2.50	3,720,000	February 1, 2016	1,860,000
		7,286,000		3,691,000

During the year ended November 30, 2012, there were cash and cashless exercises in respect of 150,000 (2011 – Nil) and 1,300,000 (2011 – 960,000) warrants respectively, resulting in the issuance of 75,000 (2011 – Nil) and 105,315 (2011 – 176,469) common shares respectively. The fair value of $1,005,692 for these shares was recorded as a charge to additional paid-in capital. Details of warrant transactions are as follows:

	November 30, 2012			November 30, 2011

Outstanding, beginning of year		8,979,275			357,237
Issued during the year		-			9,696,000
Exercised during the year		(1,450,000	)		(960,000	)
Expired during the year		(243,275	)		(113,962	)
Outstanding, end of year		7,286,000			8,979,275

U.S. GAAP requires the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations and comprehensive loss.

Accordingly, the fair value of the Series A and Series B warrants at November 30, 2012 using the Black-Scholes Options Pricing Model was estimated to be $1,659,492 (2011 - $3,786,049) and $276,038 (2011 - $2,741,185) respectively, and the fair value of the agent warrants was estimated to be $25,363 (2011- $83,781), using the following assumptions as of November 30, 2012:

F - 20 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, ~~2010, 2009~~2012, 2011, and ~~December 31, 2008~~2010

(Stated in U.S. dollars)

~~14.~~13.

Warrants (continued)

~~Details of warrant transactions are as follows:~~

Warrant	Warrants outstanding		Volatility		Risk free rate			Expected life (years)
			%		%

Series A		3,720,000		54.90		0.37	%		3.1
Series B		3,470,000		48.20		0.18	%		0.2
Agent		96,000		46.15		0.18	%		1.1

	~~November 30,~~
	~~2010~~

~~Outstanding in beginning of year~~		~~376,699~~
~~Expired~~		~~(19,462~~	)
		~~357,237~~

The change in the fair value of the warrants ~~outstanding at~~from the previously recorded amount to November 30, 2012 amounting to a gain of $3,841,233 (2011 - $5,346,878: 2010 ~~using~~- $223,782) has been recorded as fair value adjustment of derivative liability in the ~~Black-Scholes Options Pricing Model was estimated to be $7,161 (November 30, 2009 - $226,268), using the following assumptions as~~statement of ~~November 30, 2010:~~operations and comprehensive loss.

Warrants Risk free Expected
outstanding Dividend Volatility rate life
% %

113,962 - 100.7 1.57 1.0 yrs
243,275 - 97.1 1.57 1.5 yrs

~~15.~~14.

Income taxes

The Company files Canadian income tax returns for its Canadian operations. Separate income tax returns are filed as locally required.

The total provision for income taxes differs from the amount which would be computed by applying the Canadian income tax rate to loss before income taxes. The reasons for these differences are as follows:

November 30, November 30, December 31,
2010 2009 2008
% % %

Statutory income tax rate 31 33 35

$ $ $

Statutory income tax recovery (1,785,938 ) (606,782 ) (1,317,811 )
Increase (decrease) in income taxes
Non-deductible expenses/
non-taxable income 323,643 (30,210 ) 244,412
Change in valuation allowance 1,782,583 1,177,092 653,572
Change in substantively enacted
rates, other changes in tax rates
applied, changes in foreign
exchange rates and other (320,288 ) (540,100 ) 419,827
- - -

~~F - 21~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~15.~~

~~Income taxes (continued)~~

	November 30, 2012			November 30, 2011			November 30, 2010
	%			%			%

Statutory income tax rate		27			28			31

		$			$			$

Statutory income tax recovery		(1,632,406	)		(1,366,478	)		(1,785,938	)
Increase (decrease) in income taxes
Non-deductible expenses/ non-taxable income		(399,748	)		(1,324,979	)		323,643
Change in valuation allowance		3,217,198			2,452,926			1,782,583
Investment tax credit		(561,988	)		-			-
Ontario tax rate change		(420,990	)		-			-
Foreign exchange change		(230,695	)		-			-
True up of tax returns, etc.		28,629			238,531			(320,288	)
		-			-			-

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and certain carry-forward balances. Significant temporary differences and carry-forwards are as follows:

November 30, November 30, December 31,
2010 2009 2008
$ $ $

Deferred tax assets
Non-capital loss carry-forwards 2,813,049 2,343,338 1,533,384
Book and tax basis differences
on assets and liabilities 632,422 628,859 141,252
Other 10,380 21,060 63,694
Ontario harmonization tax credit 431,601 - -
Investment tax credit 740,213 - -
Undeducted research and
development expenditures 1,220,998 1,072,822 1,150,657
5,848,663 4,066,079 2,888,987
Valuation allowances for
deferred tax assets (5,848,663 ) (4,066,079 ) (2,888,987 )
Net deferred tax assets - - -

- 21 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

14.	Income taxes (continued)

	November 30, 2012			November 30, 2011			November 30, 2010
	$			$				$

Deferred tax assets
Non-capital loss carry-forwards		6,031,917			4,147,325			2,813,049
Book and tax basis differences on assets and liabilities		773,590			824,640			632,422
Other		17,590			8,635			10,380
Ontario harmonization tax credit		427,355			361,888			431,601
Investment tax credit		2,089,238			1,351,859			740,213
Undeducted research and development expenditures		2,179,097			1,607,242			1,220,998
		11,518,787			8,301,589			5,848,663
Valuation allowances for deferred tax assets		(11,518,787	)		(8,301,589	)		(5,848,663	)
Net deferred tax assets		-			-			-

At November 30, ~~2010,~~2012, the Company had cumulative operating losses available to reduce future years’ income for income tax purposes:

Canadian income tax losses expiring
in the year ended November 30, Federal
$

2013 1,729,906
2014 2,203,290
2025 531,182
2026 -
2027 1,419,956
2028 1,454,297
2030 3,720,421
11,059,052

Canadian income tax losses expiring in the year ended November 30,	Federal
		$

2014		(1,787,361	)
2015		(2,276,467	)
2026		(548,823	)
2027		-
2028		(1,467,117	)
2029		(1,502,598	)
2030		(3,879,335	)
2031		(5,278,281	)
2032		(5,923,991	)
		(22,663,973	)

United States Federal income tax losses expiring
in the year ended November 30,
$

2024 86,864
2025 16,234
2026 34,523
137,621

~~F - 22~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~15.~~

~~Income taxes (continued)~~

United States Federal income tax losses expiring in the year ended November 30,
			$

2024			23,426
2025			16,234
2026			34,523
			74,183

At November 30, ~~2010~~2012, the Company had a cumulative carry-forward pool of Federal SR&ED expenditures in the amount of approximately ~~$5,518,500 Federal,~~$9,822,000 (2011 - $7,549,000) which can be carried forward indefinitely.

At November 30, ~~2010,~~2012, the Company had approximately ~~$431,600~~$427,000 (2011 - $362,000) of Ontario harmonization credits, which will expire on the November 30, ~~2014~~2015 taxation year. These credits are subject to a full valuation allowance as they are not more likely than not to be realized.

At November 30, ~~2010,~~2012, the Company had approximately ~~$740,200~~$2,089,000 (November 30, ~~2009~~2011 - ~~239,000; December 31, 2008~~1,352,000; November 30, 2010 - ~~$163,800)~~$740,200) of unclaimed ITCs which expire from 2025 to ~~2030.~~2032. These credits are subject to a full valuation allowance as they are not more likely than not to be realized.

- 22 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

14.	Income taxes (continued)

The net deferred tax assets have been fully offset by a valuation allowance because it is not more likely than not the Company will realize the benefit of these deferred tax assets. The Company does not have any ~~unrecognized~~recognized tax benefits as of November 30, ~~2010,~~2012 or November 30, ~~2009 and December 31, 2008.~~2011.

The Company files unconsolidated federal income tax returns domestically and in foreign jurisdictions. The Company has open tax years from ~~2004~~2006 to ~~2010~~2012 with tax jurisdictions including Canada and the U.S. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations, as they relate to amount, timing, or inclusion of revenues and expenses.

The Company did not incur any interest expense related to uncertain tax positions in ~~2010, 2009~~2012, 2011 and ~~2008~~2010 or any penalties in those years. The Company had no accrued interest and penalties as of November 30, ~~2010~~2012 and ~~2009.~~2011.

The Company had no unrecognized tax benefits in ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, and the Company does not expect that the unrecognized tax benefit will increase within the next twelve months.

2010 2009 2008
$ $ $

Unrecognized tax benefit - beginning - - -
Adjustment - - -
Unrecognized tax benefit - ending - - -

~~16.~~15.

Contingencies

From time to time the Company may be exposed to claims and legal actions in the normal course of business, which may be initiated by the Company. As at ~~November 30, 2010,~~January 29, 2013, there were no pending ~~litigation~~ or threatened litigation claims outstanding other than the ~~one~~ones described in the following ~~paragraph.~~paragraphs.

Wyeth LLC, a wholly owned subsidiary of Pfizer Inc., filed a lawsuit for patent infringement against the Company in the United States District Court for the District of Delaware and for the Southern District of New York, relating to Intellipharmaceutics' generic version of Effexor XR® (venlafaxine hydrochloride extended release) capsules.

Wyeth served the Company with the Complaint in the Southern District of New York on August 31, 2010, and the Company filed its Answer and Counterclaim in response to the Complaint on or about September 20, 2010. Wyeth did not proceed with the Complaint in Delaware. In or about December 2010,both parties began to and continue to explore other alternatives.

~~Lawsuits such as these are an ordinary and expected part of the process of obtaining approval to commercialize a generic drug product in the United States.~~

~~F - 23~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~16.~~

~~Contingencies (continued)~~

The Company remains confident that Intellipharmaceutics’ generic versions of Effexor XR® do not in any event infringe the patents asserted in the above-noted lawsuit. There is no likelihood that the Company will be required to pay any damages or other penalty to Wyeth in connection with the resolution of this litigation in its reasonably anticipated course.

Pursuant to an arrangement agreement between Vasogen and Cervus LP (“Cervus”) dated August 14, 2009 (the "Cervus Agreement"), Vasogen and a Vasogen subsidiary (“New ~~Vasogen~~Vasogen”) entered into an indemnity agreement (the "Indemnity Agreement"), which became an obligation of the Company as of October 22, 2009.

The Indemnity Agreement is designed to provide Cervus with indemnification for claims relating to Vasogen's and New Vasogen's business that are brought against Cervus in the future, subject to certain conditions and limitations.

The Company's obligations under the Indemnity Agreement relating to the Tax pools defined in the Indemnity Agreement are limited to an aggregate of ~~Cdn$~~C$1,455,000 with a threshold amount of ~~Cdn$~~C$50,000 before there is an obligation to make a compensation payment. The Company does not expect to ~~incur~~have to pay any amount under this indemnity agreement.

~~17.~~In February 2012, the Company filed an amendment to the ANDA for generic Focalin to include the 40 mg strength of dexmethylphenidate hydrochloride extended-release capsules. Celgene Corporation, Novartis Pharmaceuticals Corporation, and Novartis Pharma AG, have filed a Complaint against Intellipharmaceutics Corp. for alleged patent infringement in the United States District Court for the District of New Jersey. In addition, Alkermes Pharma Ireland Limited (successor in title to Elan Pharma International Limited) has filed a Complaint against Intellipharmaceutics Corp. and Intellipharmaceutics Ltd. for alleged patent infringement in the United States District Court for the District of Delaware. Both Complaints are in relation to Intellipharmaceutics’ generic version of 40 mg Focalin XR®.

Both of these actions have been stayed on the consent of all parties pending ongoing settlement discussions. In view of the previous settlements related to five dosage strengths of the same drug product, the Company believes it is reasonable to expect that the litigation relating to the 40 mg strength could also be settled on terms satisfactory to the Company, although no assurance can be provided to this effect. Lawsuits such as these are an ordinary and expected part of the process of obtaining approval to commercialize a generic drug product in the United States. Intellipharmaceutics remains confident that its generic version of 40 mg Focalin XR® does not in any event infringe the patents in issue.

- 23 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

16. Financial instruments

(a)

Fair values

~~Effective January 1, 2008, the~~The Company ~~adopted~~follows ASC topic 820, “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for

fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs for asset or liabilities.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Fair value of cash is measured based on Level 1 inputs and fair value of warrant liability is measured based on Level 2 inputs referred to in the three levels of the hierarchy noted above.

The carrying values of cash and cash equivalents, accounts receivable, ~~investment tax credits~~ and accounts payable, accrued liabilities, employee cost payable, capital lease obligations ~~,accrued liabilities~~and due to related party loan approximates their fair values because of the short-term nature of these instruments.

~~F - 24~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~17.~~

~~Financial instruments (continued)~~

(b)

Interest rate and credit risk

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and cash equivalents, due to related parties and capital lease obligations due to the short-term nature of these balances.

Trade accounts receivable potentially subjects the Company to credit risk. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable.

- 24 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

16.	Financial instruments (continued)

(b)

Interest rate and credit risk (continued)

The following table sets forth details of the cash and cash equivalents:

	November 30, 2012		November 30, 2011
	$			$

Cash		447,016		3,817,158
Bankers acceptance		50,000		999,930
(30 days maturity, interest 0.10%)
Total cash and cash equivalents		497,016		4,817,088

The following table sets forth details of the aged accounts receivable that are not overdue as well as an analysis of overdue amounts and the related allowance for doubtful accounts:

November 30, November 30,
2010 2009
$ $

Total accounts receivable 1,619 5,427
Less allowance for doubtful accounts - - ��
Total accounts receivable, net 1,619 5,427

Not past due 536 521
Past due for more than 31 days
but no more than 60 days 539 3,589
Past due for more than 61 days
but no more than 90 days 544 -
Past due for more than 91 days
but no more than 120 days - -
Past due for more than 120 days - 1,317
Less allowance for doubtful accounts - -
Total accounts receivable, net 1,619 5,427

	November 30, 2012		November 30, 2011
	$			$

Total accounts receivable		2,778		3,383
Less allowance for doubtful accounts		-		-
Total accounts receivable, net		2,778		3,383

Not past due		2,778		1,122
Past due for more than 31 days but no more than 60 days		-		1,096
Past due for more than 61 days but no more than 90 days		-		1,165
Total accounts receivable, net		2,778		3,383

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. The Company’s maximum exposure to credit risk is equal to the potential amount of financial assets. For the year ended November 30, 2012, one customer accounted for 100% of revenue of the Company and 100% of the accounts receivable of the Company. For the year ended November 30, 2011, two customers accounted for 98% and 2% of the revenue of the Company and 100% of accounts receivable of the Company. For the year ended November 30, 2010, one customer accounted for 100% of revenue of the Company and 100% of the accounts receivable of the Company. In fiscal year 2009, two customers accounted for 90% and 10% of net revenue of the Company and one customer accounted for 100% of accounts receivable of November 30, 2009. In fiscal 2008, one customer accounted for 98% of net revenue of the Company and three customers accounted for 52%, 31% and 11% of accounts receivable at December 31, 2008.

The Company is also exposed to credit risk at period end from the carrying value of its cash. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank. The Company’s cash is not subject to any external restrictions.

~~F - 25~~

~~Intellipharmaceutics International Inc.~~

~~Notes to the consolidated financial statements~~

~~November 30, 2010, 2009 and December 31, 2008~~

~~(Stated in U.S. dollars)~~

~~17.~~

~~Financial instruments (continued)~~

(c)

Foreign exchange risk

The Company has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. For each Canadian dollar balance of $1.0 million a +/- 10% movement in the Canadian currency held by the Company versus the US dollar would affect the Corporation’s loss and other comprehensive loss by $0.1 million.

- 25 -

Intellipharmaceutics International Inc.

Notes to the consolidated financial statements

November 30, 2012, 2011, and 2010

(Stated in U.S. dollars)

16.	Financial instruments (continued)

(c)

Foreign exchange risk (continued)

Balances denominated in foreign currencies that are considered financial instruments are as follows:

	November 30, 2010						November 30, 2009							November 30, 2012						November 30, 2011
	U.S.			Canadian			U.S.		Canadian		Canadian			U.S			Canadian			U.S
FX rates used to translate to U.S.					1.0266					1.0266		0.9936						1.0203
	$				$		$			$		$			$			$			$

Assets
Cash		386,038			396,306			8,014,492		8,460,098		247,397			248,991			580,958			569,399
Accounts receivable		-			-			5,427		5,729
Investment tax credits		814,059			835,713			1,840,044		1,942,350		300,000			301,932			356,963			349,861
		1,200,097			1,232,019			9,859,963		10,408,177		547,397			550,923			937,921			919,260
Liabilities
Accounts payable		378,660			388,732			1,323,368		1,396,948		284,727			286,561			390,190			382,427
Accrued liabilities		301,776			309,803			540,604		570,662		106,621			107,308			334,493			327,838
Employee cost payable		103,006			105,746			501,114		528,976		189,383			190,603			264,588			259,324
Capital lease		13,229			13,582			48,457		51,151		51,194			51,524			44,263			43,382
Due to related party		1,635,842			1,679,355			2,360,181		2,491,407		778,701			783,716			772,496			757,126
		2,432,513			2,497,218			4,773,724		5,039,144		1,410,626			1,419,712			1,806,030			1,770,097
Net exposure		(1,232,416	)		(1,265,199	)		5,086,239		5,369,033		(863,229	)		(868,789	)		(868,109	)		(850,837	)

(d)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecast cash requirements with expected cash drawdown.

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at November 30, ~~2010:~~2012:

	Less than		3 to 6		6 to 9		9 months		Greater than
	3 months		months		months		1 year		1 year		Less than 3 months		3 to 6 months		6 to 9 months		9 months 1 year		Greater than 1 year
	$		$		$		$		$			$		$		$		$		$

Accounts payable		612,957		-		-		-		-		512,360		-		-		-		-
Accrued liabilities		321,030		-		-		-		-		224,797		-		-		-		-
Employee cost payable		575,625		-		-		-		-		663,222		-		-		-		-
Lease obligations		6,622		2,776		2,853		978		-		12,188		12,638		13,591		13,107		46,242
Due to related parties		1,635,842		-		-		-		-		783,717		-		-		-		-
		3,152,076		2,776		2,853		978		-		2,196,284		12,638		13,591		13,107		46,242

[ ]	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934; or
[ ~~X ]~~x]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended November 30, ~~2010;~~2012; or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934; or
[ ]	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report …………

	~~For the transition period from ________ to ________~~

Title of each class		Name of each exchange on which registered
Common shares, no par value		NASDAQ TSX

			Page

Part I.				12
Item 1.	Identity of Directors, Senior Management and Advisors		12
Item 2.	Offer Statistics and Expected Timetable		2
Item 3.	Key Information		2
	A.	Selected Financial Data	2
	A. B.	~~Selected Financial Data~~ Capitalization and Indebtedness	2 4
	B. C.	~~Capitalization and Indebtedness~~	3
	C.	Reasons for the Offer and Use of Proceeds	3 4
	D.	Risk Factors	3 4
Item 4.	Information on the Company		2021
	A.	History and Development of the Company	20 21
	B.	Business Overview	20 21
	C.	Organizational Structure	35 36
	D.	Property, Plant and Equipment	35 36
Item 4A.	Unresolved Staff Comments.		36
Item 5.	Operating and Financial Review and Prospects		3637
	A.	Operating Results	36 37
	B.	Liquidity and Capital Resources	40 42
	C.	Research and development, patents, and licenses, etc	42 44
	D.	Trend Information	42 44
	E.	Off-balance sheet arrangements	42 45
	F.	~~Contractual~~ Tabular disclosure of contractual obligations	43 45
	G.	Safe ~~Harbour~~Harbor	43 45
Item 6.	Directors, Senior Management and Employees		4446
	A.	Directors and Senior Management	44 46
	B.	Compensation	45 47
	C.	Board Practices	51 54
	D.	Employees	55 59
	E.	Share Ownership	55 59
Item 7.	Major Shareholders and Related Party Transactions		6267
	A.	Major Shareholders	62 67
	B.	Related Party Transactions	63 68
Item 8.	Financial Information		6368
	A.	Consolidated Statements and Other Financial Information	63 68
	B.	Significant changes	65 70
Item 9.	The Offer and Listing		6570
Item 10.	Additional Information		6571
	A.	Share Capital	65 71
	B.	Articles and By-laws	67 73
	C.	Material Contracts	68 74
	D.	Exchange Controls	69 75
	E.	Taxation	69 75
	F.	Dividends and Paying Agents	74 82
	G.	Statement by Experts	74 82
	H.	Documents on Display	74 83
	I.	Subsidiary Information	75 83
Item 11.	Qualitative and Quantitative Disclosures about Market Risk		7583
Item 12.	Description of Securities Other than Equity Securities		7685

Part II.				7785
Item 13.	Defaults, Dividends Arrearages and Delinquencies		7785
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		7785
Item 15.	Controls and Procedures		7785
Item ~~16A~~16A.	Audit Committee Financial Expert		7886
Item ~~16B~~16B.	Code of Ethics		7886
Item ~~16C~~16C.	Principal Accountant Fees and Services		7887

		Page

Item ~~16D~~16D.	Exemptions from the Listing Standards for Audit Committees	7987
Item ~~16E~~16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchases	7987

	~~Page~~
Item ~~16F Changes~~16F.	Change in Registrant’s Certifying Accountant	7987
Item ~~16G~~ 16G.	Corporate Governance	7987
Item 16H.	Mine Safety Disclosure	88

Part III.		8088
Item 17	Financial Statements	8088
Item 18	Financial Statements	8088
Item 19	Exhibits	8189

Periods ended (in thousands of US dollars, except for per share data)
	As at and for the year ended November 30, 2010	As at and for the eleven month period ended November 30, 2009	As at and for the year ended December 31, 2008	As at and for the year ended December 31, 2007	As at and for the year ended December 31, 2006

Revenue	1,459	630	1,278	2,297	1,490
Loss for the period	(5,761)	(1,839)	(3,765)	(1,291)	(1,320)
Total assets	3,268	11,081	3,026	6,878	3,027
Total liabilities	3,175	6,449	3,609	4,557	2,567
Net assets	93	4,632	(583)	2,322	460
Capital stock	17	17	17	17	17
Loss per share - basic and diluted	(0.53)	(0.19)	(0.40)	(0.14)	(0.15)
Dividends	Nil	Nil	Nil	Nil	Nil
Weighted average common shares	10,907	9,512	9,328	9,087	8,877

	As at and for the year ended November 30, 2012	As at and for the year ended November 30, 2011	As at and for the year ended November 30, 2010	As at and for the eleven month period ended November 30, 2009	As at and for the year ended December 31, 2008

Revenue	107	502	1,459	630	1,278
Loss for the period	(6,137)	(4,880)	(5,761)	(1,839)	(3,765)
Total assets	2,475	6,247	3,268	11,081	3,026
Total liabilities	4,243	9,340	3,175	6,449	3,609
Net assets	(1,768)	(3,093)	93	4,632	(583)
Capital stock	147	147	17	17	17
Loss per share - basic and diluted	(0.36)	(0.33)	(0.53)	(0.19)	(0.40)
Dividends	Nil	Nil	Nil	Nil	Nil
Weighted average common shares	17,259	14,994	10,907	9,512	9,328

	AVERAGE	AVERAGE
2006	0.8817
2007	0.9304
2008	0.9381		0.9381
2009 (11 months)	0.8696		0.8696
2010	0.9673		0.9673
2011			1.0123
2012			0.9977

November 2010	0.9833	0.9902
December 2010	0.9890	0.9950
January 2011	1.0026	1.0089
February 2011	1.0096	1.0153
March 2011	1.0209	1.0270
April 2011	1.0406	1.0470

Quarter Ended		Revenues $	Loss $	Loss per share ($)
November 30, 2010		7,164	(1,903,629)	(0.18)
August 31, 2010		-	(2,113,462)	(0.19)
May 31, 2010		1,449,624	(316,447)	(0.03)
February 28, 2010		2,597	(1,427,553)	(0.13)
November 30, 2009	(2 Months)	161,757	(875,322)	(0.09)
September 30, 2009		125,590	(165,739)	(0.02)
June 30, 2009		118,460	(224,662)	(0.02)
March 31, 2009		224,372	(573,012)	(0.06)

Quarter Ended	Revenues		Net income (loss)			Income (loss) per share
						Basic			Diluted
		$		$			$			$
November 30, 2012		-		(1,346,735	)		(0.08	)		(0.08	)
August 31, 2012		-		(1,458,238	)		(0.08	)		(0.08	)

		Payments Due by Period						Payments Due by Period
Contractual Obligations	Total	Less than 1 Year	1-3 Years	4-5 Years	After 5 Years	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Capital Lease Obligations	$ 13,230	$13,230	$ ---	$ ---	$ ---	$	97,766	$	51,524	$	46,242	$	---	$	---
Operating Lease Obligations							89,016		89,016		---		---		---
Total Contractual Obligations	13,230	13,230	---	---	---	$	186,782	$	140,540	$	46,242	$	---	$	---

Name and Province of Residence	Position held with the Company	Principal Occupation	Other Public Company Boards	Director Since
Dr. Isa Odidi Ontario, Canada	Chairman of the Board and Chief Executive Officer of the Company	Officer of the Company	None	September 2004
Dr. Amina Odidi Ontario, Canada	President, Chief Operating Officer and Director of the Company	Officer of the Company	None	September 2004

~~Name and~~ ~~Province of Residence~~	~~Position held~~ John Allport ~~with the Company~~	~~Principal Occupation~~	~~Other Public~~ ~~Company Boards~~	~~Director~~ ~~Since~~(2)
~~John N. Allport~~ Ontario, Canada	~~Vice President,~~ Vice-President, Legal Affairs and Licensing and Director of the Company	Officer of the Company	None	September 2004
Dr. Eldon R. Smith(1) (2) Alberta, Canada	Director of the Company	President and CEO of Eldon R. Smith and Associates Ltd., a consulting business, and Professor Emeritus at the University of Calgary, Faculty of Medicine	Aston Hill Financial; Canadian Natural Resources Limited; Resverlogix Corp.	October 2009
Bahadur Madhani (1) Ontario, Canada	Director of the Company	President and CEO of ~~Eldon R. Smith and Associates Ltd. and Professor Emeritus at the University of Calgary, Faculty of Medicine~~	~~Aston Hill Financial Inc.; Canadian Natural Resources Limited; Resverlogix Corp.~~	~~October 2009~~
~~Bahadur Madhani~~ ~~(1)~~ ~~Ontario, Canada~~	~~Director of the Company~~	~~Chief Executive Officer of~~ Equiprop Management Limited, a consulting business.	None	March 2006
Kenneth Keirstead (1)(2) New Brunswick, Canada	Director of the Company	Executive Manager of Lyceum Group, a consulting business.	None	January 2006
Dr. Patrick Yat Ontario, Canada	Vice-President, Pharmaceutical Analysis and Chemistry of the Company	Officer of the Company	None	N/A
Shameze Rampertab Ontario, Canada	Vice President, Finance and Chief Financial Officer of the Company	Officer of the Company	~~Imaging Dynamics Company Ltd.~~None	N/A

Name and principal position	Year	Salary(1)	Share-based awards	Option-based awards(2)	Non-equity incentive plan compensation		Pension value	All other compensation	Total compensation
(a)	(b)	(c)	(d)	(e)	(f)		(g)	(h)	(i)
					Annual incentive plans (f1)	Long-term incentive plans (f2)
Dr. Isa Odidi, Chairman& Chief Executive Officer	2010 2009 2008	436,997 383,481 341,134	N/A N/A N/A	Nil Nil Nil	N/A N/A N/A	N/A N/A N/A	N/A N/A N/A	11,600 8,701 11,245	448,597 392,182 352,379
Dr. Amina Odidi, President & Chief Operating Officer (3)	2010 2009 2008	436,997 383,481 341,134	N/A N/A N/A	Nil Nil Nil	N/A N/A N/A	N/A N/A N/A	N/A N/A N/A	11,600 8,701 11,245	448,597 392,182 352,379
Shamese Rampertab VP Finance & Chief Financial Officer (4)	2010	4,614	N/A	35,374	N/A	N/A	N/A	308	40,296
Graham Neil, former VP Finance & Chief Financial Officer (5)	2010	143,990	N/A	37,522	N/A	N/A	N/A	11,512	193,024

Name	Option-based awards - Value vested during the year (U.S.$)	Share-based awards - Value vested during the year (U.S.$)	Non-equity incentive plan compensation - Value earned during the year (U.S.$)
(a)	(b)(1)	(c)	(d)
~~Dr.~~Drs. Isa Odidi	~~Nil~~C$6,000	N/A	Nil
Dr. Amina Odidi	~~Nil~~C$6,000	N/A	Nil
Shameze Rampertab	Nil	N/A	Nil
~~Graham Neil~~Ira Baeringer	C$600	N/A	Nil
John Allport	C$5,250	N/A	Nil

Name	Fees earned	~~Fees~~Share-based ~~earned~~awards	~~Share-~~Option-based ~~based~~ awards~~(1)~~	~~Option-~~ ~~based~~ ~~awards(2)~~	Non-equity incentive plan compensation	Pension value	All other compensation	Total
(a)	(b)	(c) (1)	(d)	(e)	(f)	(g)	(h)
Eldon Smith	~~C$13,000~~Nil	C$~~13,000~~42,000	~~C$18,168~~N/A	N/A	N/A	N/A	C$~~44,168~~42,000
Kenneth Keirstead	C$~~26,000~~42,000	N/A	~~C$18,168~~N/A	N/A	N/A	N/A	C$~~44,168~~42,000
Bahadur Madhani	C$~~28,000~~43,500	N/A	~~C$18,168~~N/A	N/A	N/A	N/A	C$~~46,168~~43,500

	Option-based Awards				Share-based Awards
Name	Number of securities underlying unexercised options (#)	Option exercise price (U.S.$)	Option expiration date	Value of unexercised in-the-money options (U.S.$)	Number of shares or units of shares that have not vested (#)	Market or payout value of share- based awards that have not vested (U.S.$)

(a)	(b)	(c)	(d)	(e) (1)	(f) (2)	(g) (3)
Eldon Smith	5,000 25,000 10,000	C$2.88 C$3.25 C$2.88	Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019	Nil Nil Nil	22,449 Nil Nil	C$54,102 Nil Nil
Kenneth Keirstead	5,000 25,000 10,000	C$2.88 C$3.25 C$2.88	Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil
Bahadur Madhani	5,000 25,000 10,000	C$2.88 C$3.25 C$2.88	Nov. 30, 2016 Nov. 30, 2016 Oct. 22, 2019	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil

	November 30, 2010	November 30, 2009	December 31, 2008	November 30, 2012	November 30, 2011	November 30, 2010
Research Employees	19	16	27	30	24	19
Administrative Employees	10	7	6	9		10

Kenneth Keirstead	Director of the Company	Nil	15,000	6,667	Nil	Nil
Bahadur Madhani	Director of the Company	3,007	15,000	6,667	Nil	Nil
Shameze Rampertab	Vice President Finance and Chief Financial Officer of the Company	Nil	60,000	15,000	Nil	Nil
Totals		6,129,047	2,868,940	1,416,971	6,535	Nil

Kenneth Keirstead	Director of the Company	Nil		10,000 5,000 25,000	C$2.88 C$2.88 C$3.25	22/10/2019 30/11/2016 30/11/2016	10,000 5,000 12,500	N/A	Nil	N/A
Bahadur Madhani	Director of the Company	4,007	0.02%	10,000 5,000 25,000	C$2.88 C$2.88 C$3.25	22/10/2019 30/11/2016 30/11/2016	10,000 5,000 12,500	N/A	Nil	N/A
Dr. Patrick Yat	Vice-President Pharmaceutical Analysis and Chemistry of the Company	26,067	0.15%	50,000	C$3.82	24/05/2021	33,333	N/A	N/A	Nil
Shameze Rampertab	Vice President Finance and Chief Financial Officer of the Company	5,000	0.03%	60,000 40,000	C$2.62 C$3.27	29/11/2020 16/02/2017	45,000 13,334	N/A	N/A	Nil
Totals		6,173,114	34.47%	3,833,940			2,706,137	500,000	27,060	Nil

		NASDAQ (US$)				TSX (C$)
		High		Low		High		Low		NASDAQ (U.S.$)				TSX (C$)
Annual										High		Low		High		Low
2012											3.82		1.88		3.55		1.81
2011											6.12		2.30		6.05		2.21
2010			5.05		1.41		5.36		1.50		5.05		1.41		5.36		1.50
2009 (partial)			5.00		1.40		6.10		1.52		5.00		1.40		6.10		1.52

Quarterly
2012
Fourth quarter											3.16		1.88		3.17		1.81
Third quarter											3.49		2.40		3.54		2.49
Second quarter											3.19		2.64		3.38		2.51
First quarter											3.82		2.41		3.55		2.53
2011
Fourth quarter											3.50		2.66		3.59		2.43
Third quarter											4.35		2.50		4.20		2.21
Second quarter											5.25		2.87		5.04		2.76
First quarter											6.12		2.30		6.05		2.41
2010
Fourth quarter			3.26		2.11		3.35		2.20		3.26		2.11		3.35		2.20
Third quarter			3.30		2.05		3.39		2.15		3.30		2.05		3.39		2.15
Second quarter			5.05		1.45		5.36		1.50		5.05		1.45		5.36		1.50
First quarter			2.63		1.41		2.66		1.50		2.63		1.41		2.66		1.50

2009
Fourth quarter (partial)			5.00		1.40		6.10		1.52		5.00		1.40		6.10		1.52

										NASDAQ (U.S.$)				TSX (C$)
Most recent 6 months	Most recent 6 months									High		Low		High		Low
April 2011			4.98		2.87		4.75		2.76
March 2011			4.50		2.88		4.40		2.83
February 2011			5.00		3.65		4.95		3.59
January 2011			6.12		2.69		6.05		2.71
December 2010			2.97		2.30		2.89		2.41
November 2010			3.20		2.45		3.20		2.57
January 2013 (through to January 29, 2013)											2.56		2.19		2.43		2.11
December 2012											2.59		2.15		2.56		2.06
November 2012											3.00		1.88		2.90		1.81
October 2012											3.16		2.82		3.17		2.72
September 2012											3.02		2.76		2.92		2.69
August 2012											3.00		2.40		2.90		2.49

							Options outstanding						Options exercisable
			Weighted		Weighted		Weighted				Weighted		Weighted
			average		average		average				average		average
			exercise		remaining		grant				exercise		grant
Exercise	Number		price per		contract		due		Number		price per		date
price	outstanding		share		life (years)		fair value		exercisable		share		fair value
			$				$				$		$

Under 2.50		-		-		-		-		-		-		-
2.51 - 5.00		4,094,833		3.52		3.90		1.85		2,242,363		3.48		1.89
5.01 - 7.50		-		-		-		-		-		-		-
7.51 - 10.00		-		-		-		-		-		-		-
10.01 - 100.00		36,032		39.52		4.83		30.99		36,032		39.50		30.99
300.00 - 500.00		3,971		331.15		3.30		223.52		3,971		331.15		223.52
500.01 - 1,000.00		4,190		705.99		0.29		435.71		4,190		705.99		435.71
1,000.01 - 1,500.00		33		1,149.13		1.45		709.18		33		1,149.13		709.18
		4,139,059		4.86						2,286,589		5.94

	Year Ended November 30, 2010		Eleven Months Ended November 30, 2009
Audit Fees (1)		C$120,000		C$115,000
Audit-Related Fees (2)		45,000		205,770
Tax Fees (3)		33,600		23,250
All Other Fees (4)		25,150		9,664

Total Fees		C$223,750		C$C353,684

Intellipharmaceutics International Inc.
Consolidated balance sheets
as at November 30, 2010 and 2009
(Stated in U.S. dollars)
	2010			2009
	(Notes 1 and 2)
	$				$

Assets
Current
Cash		789,136			8,014,492
Accounts receivable		1,619			5,427
Investment tax credits		1,184,345			1,840,044
Prepaid expenses, sundry and other assets		142,379			175,248
		2,117,479			10,035,211

Deferred offering cost (Note 21)		224,673			-
Property and equipment, net (Note 5)		925,554			1,046,121
		3,267,706			11,081,332

Liabilities
Current
Accounts payable		612,957			1,323,368
Accrued liabilities (Note 6)		321,030			540,604
Employee cost payable (Note 8)		575,625			501,114
Current portion of capital lease obligations (Note 9)		13,230			35,595
Due to related parties (Note 7)		1,635,842			2,360,181
		3,158,684			4,760,862

Warrant liability (Note 14)		7,161			226,268
Capital lease obligations		-			12,862
Deferred revenue (Note 19)		8,905			1,449,326
		3,174,750			6,449,318

Shareholders' equity
Capital stock (Note 10 and 11)
Authorized
Unlimited common shares without par value
Unlimited preference shares
Issued and outstanding
10,907,054 common shares		16,969			16,969
(2009 - 10,907,054)
Additional paid-in capital		19,369,005			18,263,340
Accumulated other comprehensive loss		(225,476	)		(341,844	)
Deficit		(19,067,542	)		(13,306,451	)
		92,956			4,632,014
Contingencies (Note 16)
		3,267,706			11,081,332

	Broker options						Employee stock options

	2010			2009			2010			2009

Volatility		142.3	%		142.3	%		90.4	%		-
Risk-free interest rate		1.5	%		1.5	%		3.38	%		-
Expected life (in years)		0.33			1			6.49			-
Dividend yield		-			-			-			-
The weighted average grant date
fair value per options granted	$	1.46		$	1.85		$	2.03			-

	Number		Shares issuable
Exercise price	outstanding	Expiry	upon exercise
$

95.51	113,962	November 14, 2011	113,962
47.91	243,275	May 24, 2012	243,275
	357,237		357,237

Warrants			Risk free	Expected
outstanding	Dividend	Volatility	rate	life
		%	%

113,962	-	100.7	1.57	1.0 yrs
243,275	-	97.1	1.57	1.5 yrs

	November 30,			November 30,			December 31,
	2010			2009			2008
	%			%			%

Statutory income tax rate		31			33			35

		$			$			$

Statutory income tax recovery		(1,785,938	)		(606,782	)		(1,317,811	)
Increase (decrease) in income taxes
Non-deductible expenses/
non-taxable income		323,643			(30,210	)		244,412
Change in valuation allowance		1,782,583			1,177,092			653,572
Change in substantively enacted
rates, other changes in tax rates
applied, changes in foreign
exchange rates and other		(320,288	)		(540,100	)		419,827
		-			-			-

Canadian income tax losses expiring
in the year ended November 30,	Federal
		$

2013		1,729,906
2014		2,203,290
2025		531,182
2026		-
2027		1,419,956
2028		1,454,297
2030		3,720,421
		11,059,052

	~~2009~~
		$

~~Investment tax credits and prepaid expenses and sundry as~~		~~489,255~~
~~Accounts payable and assumed liabilities~~		~~2,299,289~~
~~Warrant liability~~		~~543,669~~

Number	Exhibit	Footnote	Exhibit	Footnote
1.1	Articles of Incorporation of the Company and Amendments thereto	(2)	Articles of Incorporation of the Company and Amendments thereto	(3)

1.2	By-laws of the Company	(2)	By-laws of the Company	(3)

4.1	IPC Arrangement Agreement	(2)	IPC Arrangement Agreement	(3)

4.2	The acknowledgement and agreement of the Company dated October 22, 2009 to be bound by the performance based stock option agreement dated September 10, 2004 pursuant to which Drs. Isa and Amina Odidi are entitled to purchase up to 2,763,940 of the Company’s shares upon payment of U.S.$3.62 per share, subject to satisfaction of the performance vesting conditions	(2)	The acknowledgement and agreement of the Company dated October 22, 2009 to be bound by the performance based stock option agreement dated September 10, 2004 pursuant to which Drs. Isa and Amina Odidi are entitled to purchase up to 2,763,940 of the Company’s shares upon payment of U.S.$3.62 per share, subject to satisfaction of the performance vesting conditions	(3)

4.3	The amended and restated promissory note dated October 22, 2009 for up to $2,300,000 issued by Intellipharmaceutics Corp. to Isa Odidi and Amina Odidi for advances that may be made by them from time to time to the Company	(2)	The amended and restated promissory note dated October 22, 2009 for up to $2,300,000 issued by Intellipharmaceutics Corp. to Isa Odidi and Amina Odidi for advances that may be made by them from time to time to the Company	(3)

4.4	The escrow agreement dated October 22, 2009 between the Company, CIBC Mellon Trust Company (as escrow agent) and Odidi Holdings Inc. under which the common shares of the Company held by Odidi Holdings Inc. are held in escrow pursuant to the TSX Escrow Policy Statement	(2)	The escrow agreement dated October 22, 2009 between the Company, CIBC Mellon Trust Company (as escrow agent) and Odidi Holdings Inc. under which the common shares of the Company held by Odidi Holdings Inc. are held in escrow pursuant to the TSX Escrow Policy Statement	(3)

4.51	Securities purchase agreement for February 1, 2011 private placement	(1)	Securities purchase agreement for February 1, 2011 private placement	(2)

4.52	Registration rights agreement for February 1, 2011 private placement	(1)	Registration rights agreement for February 1, 2011 private placement	(2)

4.53	Combined Series A/B common share purchase warrant for February 1, 2011 private placement	(1)	Combined Series A/B common share purchase warrant for February 1, 2011 private placement	(2)

4.54			Placement Agent Agreement between Intellipharmaceutics International Inc. and Roth Capital Partners, LLC, dated March 9, 2012	(4)
4.55			Form of Subscription Agreement (incorporated by reference to Exhibit A attached to Exhibit 4.54 filed herewith)	(4)
4.56			12% convertible term debenture dated January 10, 2013 in principal amount of $1,500,000	(1)
4.57			Lease as amended between Finley W. McLachlan Ltd. and Intellipharmaceutics Corp. for premises at 30 Worcester Road, Toronto, Ontario, Canada.	(1)
8.1	List of subsidiaries	(1)	List of subsidiaries	(1)

11.1	Code of Business Conduct and Ethics	(2)	Code of Business Conduct and Ethics	(3)

12.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	(1)	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	(1)

12.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	(1)	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	(1)

13.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(1)	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(1)

13.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(1)	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(1)

15.1	Consent of Independent Registered Chartered Accountants	(1)	Consent of Independent Registered Chartered Accountants	(1)

101			XBRL (Extensible Business Reporting Language). The following materials from Intellipharmaceutics International Inc.’s Annual Report on Form 20-F for the fiscal year-ended November 30, 2012, formatted in XBRL: (i) Consolidated balance sheets as at November 30, 2012 and 2011 (ii) Consolidated statements of operations and comprehensive loss for the years ended November 30, 2012, 2011 and 2010 (iii) Consolidated statements of shareholders’ equity for the years ended November 30, 2012, 2011 and 2010 (iv) Consolidated statements of cash flows for the years ended November 30, 2012, 2011 and 2010 (v) Notes to the consolidated financial statements	(5)