Ecopia BioSciences Inc.
TSX : EIA

Ecopia BioSciences Inc.

July 14, 2005 14:26 ET

Ecopia Announces Second Quarter 2005 Operating Highlights and Financial Results

MONTREAL, QUEBEC--(CCNMatthews - July 14, 2005) - Ecopia BioSciences Inc. (TSX:EIA) today reviewed recent operating highlights and announced its financial results for the second quarter ended May 31, 2005.



Highlights:

- The investigational new drug ("IND") application for ECO-4601 to
treat primary brain cancer is on schedule;
- New in vivo data showing ECO-4601 is active against breast and
prostate tumors strengthens its potential as a world-class oncology
therapy;
- Ecopia presented new data suggesting a mechanism of action for
ECO-4601;
- Ecopia closes its $9.9 million equity financing early in the second
quarter;
- The deficit for the quarter amounts to $2.3 million, remaining
approximately similar to the comparable quarter of 2004.


Summary and Outlook

Commenting on Ecopia's progress for the second quarter, Dr. Pierre Falardeau, President and Chief Executive Officer said: "We are very enthusiastic about these new results showing that ECO-4601 is also active against breast and prostate cancers. These cancers affect almost 400,000 patients per year in the United States alone. Our immediate focus remains glioma, an unmet medical need that can get us to the market very quickly. Our operations for this quarter and the remainder of 2005 remain focused on filing ECO-4601's IND application before year-end in order to treat the first patient in early 2006."

Web Cast

July 14, 2005 at 4:00 p.m. - Dr. Pierre Falardeau, President and Chief Executive Officer and Mr. Gary Littlejohn, Executive Vice-President and Chief Financial Officer, will discuss second quarter operating highlights and financial results. To listen to the live web cast please call local access: 416-695-5261 or 1-888-789-0089 or an archived version will be available shortly after the conference on Ecopia's website at www.ecopiabio.com.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE SECOND QUARTER ENDED
MAY 31, 2005

Overview

The preclinical advancement of the Company's anticancer compound (ECO-4601) remains on target. During the quarter, the preclinical group advanced the toxicology program in rodents. This program should be completed in the third quarter. The non-rodent toxicology program has been initiated within the third quarter and is expected to be completed by early fall. The data resulting from these studies will be the basis of the investigational new drug ("IND") application in the USA and Canada to recruit cancer patients to test ECO-4601 in phase I trials.

During the quarter, the preclinical group also completed the fieldwork to initiate production runs of ECO-4601 that meets current good manufacturing practices ("cGMP") in order to provide material for the first clinical trials. GMP production should begin in the third quarter of the year. The compound can be produced using a crystallization process, which obviates the need for expensive chromatography. In other words, the cost of production for the eventual sale of the product will be very competitive should it be approved for sale by the regulatory authorities. Most lots produced under good laboratory practices ("GLP") used in rodent and non-rodent toxicology studies were completed during the quarter, and the remaining lots are is currently under production.

ECO-4601's advancement in the second quarter went beyond management's expectations on two fronts.

First, on April 20, Ecopia presented new data at the American Association for Cancer Research suggesting that ECO-4601's anticancer activity takes place through a mechanism that involves apoptosis. In non-scientific terms, apoptosis is the "programmed suicide" of tumor cells. Ecopia has generated data showing that ECO-4601 interacts with a receptor that is over expressed in the cancer cells of several cancer types including those of the brain, colon, breast, and prostate. This receptor is called the peripheral benzodiazepine receptor (PBR) and the compound's interaction with the PBR would result in apoptosis. Findings on the compound's mechanism of action will allow Ecopia to exploit its value as a potential world-class targeted chemotherapy.

Second, on May 17, Ecopia disclosed data from two animal studies showing that ECO-4601 is active against breast and prostate cancers. The human breast cancer model called the MDA-MB-231 yielded data showing that the treated animals inoculated with human cancer cell lines benefited from a significant tumor inhibition of 60%. The human prostate cancer model called the PC3 showed up to 87% inhibition of the prostate tumor growth in many instances. The widening of the therapeutic spectrum of ECO-4601 beyond glioma is a necessary element in developing this compound into a drug with blockbuster status.

Ecopia's scientists are also conducting profiling activities on a few more NCEs discovered in 2004 in order to identify a new lead compound to fill our pipeline in oncology.

On March 8, Ecopia increased its cash position by closing a unit offering of net proceeds of approximately $9.1 million. This provides the Company with the ability to fund its operations beyond its initial clinical trials with respect to ECO-4601.



Summary of Operating Results
Quarters ended May 31 ($ in thousands, except per share amounts)

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(Unaudited) 2005 2004 Variance
---------------------------------------------------------------------
$ $ %
---------------------------------------------------------------------
Interest Revenues 84 89 (4.9)
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Research and Development Expenditures,
before Tax Credits and Grants 1,847 1,853 (0.3)
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Other Expenditures 832 734 13.3
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Net Loss 2,288 2,272 0.7
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Net Loss per Share 0.03 0.04 (25)
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Weighted Average Shares Outstanding
(in thousands) 69,025 58,845 17.3
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Six-month periods ended May 31 ($ in thousands, except per share
amounts)

---------------------------------------------------------------------
(Unaudited) 2005 2004 Variance
---------------------------------------------------------------------
$ $ %
---------------------------------------------------------------------
Interest Revenues 129 158 (18.4)
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Research and Development Expenditures,
before Tax Credits and Grants 3,607 3,342 7.9
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Other Expenditures 1,579 1,432 10.2
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Net Loss 4,550 4,172 9.1
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Net Loss per Share 0.07 0.07 -
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Weighted Average Shares Outstanding
(in thousands) 63,995 55,456 15.4
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Revenues: Interest revenues amounted to $84,488 for the quarter ended May 31, 2005, compared with $88,803 for the same period in 2004, a decrease of 4.9%. Interest revenues over the six-month period have been $128,793, compared with $157,773, a decrease of 18.4%. These decreases are explained by the fact that the Corporation's liquidities are invested in fixed income securities with maturities of less than one year where yields are lower compared with longer maturities.

R&D Activities: Research and development ("R&D") expenditures, before tax credits and grants, amounted to $1,847,053 in the second quarter of 2005, compared with $1,853,382 in second quarter of 2004, representing a change of 0.3%. R&D expenditures for the six-month period were $3,607,078, compared with $3,341,619 for the same period in 2004, representing an increase of 7.9%. R&D expenditures in preclinical development increased on account of the production costs of ECO-4601 and the toxicology program relating to the compound's IND application. However, these costs were offset by reduced discovery and chemistry costs resulting from cost reduction efforts implemented by management. During the quarter, 16 employees, most of which worked in the discovery group, were let go in order to execute the business plan.

Other Expenditures: General and administrative ("G&A") expenses amounted to $831,809 in the second quarter of 2005, compared with $734,024 in the second quarter of 2004, representing an increase of 13.3%. G&A expenditures in the first six months of 2005 were $1,578,822, compared with $1,432,245, an increase of 10.2%. These increases are largely explained by the accounting costs relating to the issuance of stock options, higher intellectual property expenses and the write-down relating to the abandonment of patent applications outside the Corporation's core business objectives. The abandonment of these patent applications is consistent with our current business strategy to preserve our cash resources for product development.

Net Income: The Company recorded a net loss of $2,288,231 or $0.03 per share in the second quarter of 2005, compared with $2,271,839 or $0.04 per share in the same period of 2004. The loss for the first six months of 2005 was $4,550,181 or $0.07 per share, compared with $4,171,573 or $0.07 per share for the same period in 2004. The changes in the loss reflect the changes in the R&D expenses and G&A expenses discussed above.



Financial Position

(in thousands of dollars) May 31, November 30,
2005 2004
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(unaudited) (audited)
Cash and bonds(i) $8,634 $6,266
Tax credits receivable $1,304 $797
Bonds(ii) $4,325 $2,753
Total assets $18,055 $13,466
Capital stock $54,561 $44,656
Shareholders' equity $16,711 $12,027

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(i) Cash invested in investment-grade bonds due in less than one
year.
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(ii) Cash invested in investment-grade bonds due in more than one
year.
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Liquidity and Financial Position: On May 31, 2005, the Company's cash position amounted to $12,958,649 measured in terms of cash and investments in investment-grade bonds. Tax credits receivable amounted to $1,303,862. Thus, the Company's liquidity position, measured in terms of cash, bonds and tax credits receivable, amounted to $14,262,511 on May 31, 2005, compared with $9,816,390 on November 30, 2004. The increase of $4,446,121 takes into account the closing of the unit offering during the quarter and the cash expenses relating to the first six months of 2005

During the second quarter of the current fiscal year, Ecopia incurred capital expenditures of $140,881, compared with $166,089 in the second quarter of last year. The greater part of these expenditures amount to $98,965 and relate to intellectual property activities. Capital expenditures for the first six months of 2005 were $213,741 compared with $715,906 for the first six months of 2004. Management does not expect capital expenditure requirements to be as high as previous quarters because the most expensive investments were related to our chemistry facilities that are adequately equipped to execute our business case.

Shareholders' equity amounted to $16,711,129 as at May 31, 2005, compared with $12,027,374 on November 30, 2004. Total assets amounted to $18,055,348 as at May 31, 2005, compared with $13,466,285 as at November 30, 2004. The increase in shareholders' equity and assets take into account of the closing of the unit offering for gross proceeds of $9.9 million, after giving effect to the cash absorption relating to the operations for the first six months of 2005.

The Company's liquidity position, both in the short term and long term, is allocated to salaries, the development of ECO-4601 as a clinical candidate, the funding of other R&D activities, patent filings and the acquisition of capital assets. Based on its current operating plan, the Company's management believes that its liquidity position will be sufficient to meet all anticipated future cash needs required to proceed beyond the initial phase I clinical trials with ECO-4601 and to identify another preclinical candidate.

As of May 31, 2005, the number of common shares outstanding totalled 69,861,584 while 4,251,450 options at an average exercise price of $1.49 were granted under the share purchase option plan. A total of 7,820,834 share purchase warrants were outstanding on that date, of which 4,154,167 are exercisable at a price of $1.28 each at any time until February 12, 2008 and the remainder are exercisable at a price of $1.03 at any time until March 8, 2007.



Quarterly Financial Data
($ in thousands, except for per share amounts)


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Quarters ended August 31, November 30, February 28, May 31,
(Unaudited) 2004 2004 2005 2005
---------------------------------------------------------------------
$ $ $ $
---------------------------------------------------------------------
Revenues 76 179 44 84
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Research and
Development
Expenditures,
before Tax
Credits and
Grants 1,720 1,757 1,760 1,847
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Net Loss 2,049 1,993 2,262 2,288
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Net Loss per Share 0.03 0.03 0.04 0.03
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Quarters ended August 31, November 30, February 29, May 31,
(Unaudited) 2003 2003 2004 2004
---------------------------------------------------------------------
$ $ $ $
---------------------------------------------------------------------
Revenues 109 85 69 89
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Research and
Development
Expenditures,
before Tax
Credits and
Grants 1,607 1,724 1,488 1,853
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Net Loss 1,689 1,787 1,900 2,272
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Net Loss per Share 0.04 0.03 0.04 0.04
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About Ecopia

Ecopia is finding novel anticancer therapies from soil-dwelling microorganisms that are as of this day one of the most prolific sources of these drugs. Our current focus is to move our flagship compound ECO-4601 into phase I clinical trials. ECO-4601 is a novel small molecule that crosses the blood brain barrier and is effective in significantly inhibiting primary tumor growth in the brain and other types of cancers. Just like well-known chemotherapies such as doxorubicin and daunorubicin, ECO-4601 comes from microorganisms that live in common soil. ECO-4601 represents a new chemical class discovered using Ecopia's unique drug discovery platform called the Decipher® technology. Ecopia's shares are listed on the Toronto Stock Exchange (ticker symbol: EIA).

Additional information about the Company can be obtained from Ecopia's website at www.ecopiabio.com.

This press release may contain forward-looking statements that reflect the Company's current expectations regarding future events. The forward-looking statements, including expectations as to the pharmaceutical potential of ECO-4601, the timeframe for preclinical and clinical development of ECO-4601 and expansion of the Company's product pipeline involve risk and uncertainties. Actual events could differ materially from those projected here and depend on a number of factors, including scientific uncertainties relating to correlation of demonstrated anti-tumor activity in animal models with anti-tumor activity in human subjects, uncertainties related to the regulatory process for drug development and the success and timely completion of clinical studies and trials, and the impact of general economic conditions. Investors are cautioned against placing undue reliance on forward-looking statements. A more complete discussion of the risks and uncertainties facing the Company appears in Ecopia's 2004 Annual Report.



Financial Statements of

ECOPIA BIOSCIENCES INC.

For the three-month and six-month period ended May 31, 2005



ECOPIA BIOSCIENCES INC.

Balance Sheets

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May 31 November 30
2005 2004
---------------------------------------------------------------------
(Unaudited) (Audited)

Assets

Current assets:
Cash $586,559 $152,763
Bonds 8,047,533 6,113,689
Sales tax receivable and other 149,411 45,351
Tax credits receivable 1,303,862 796,936
Research supplies, at cost 12,314 29,646
Deposits and prepaid expenses 390,219 170,044
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10,489,898 7,308,429

Bonds 4,324,557 2,753,002

Capital assets (note 3) 2,629,185 2,818,817

Patents 611,708 586,037

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$18,055,348 $13,466,285
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $1,344,219 $1,438,911

Shareholders' equity:
Capital stock (note 4) 54,561,463 44,655,975
Contributed surplus 337,519 222,469
Deficit (38,187,853) (32,851,070)
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16,711,129 12,027,374

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$18,055,348 $13,466,285
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See accompanying notes to unaudited financial statements.



ECOPIA BIOSCIENCES INC.

Statements of Operations
(Unaudited)

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---------------------------------------------------------------------
Three-month period Six-month period
ended May 31 ended May 31
2005 2004 2005 2004
---------------------------------------------------------------------

Interest income $84,488 $88,803 $128,793 $157,773

Costs and expenses:
Research and
development 1,847,053 1,853,382 3,607,078 3,341,619
Tax credits and grants (306,143) (226,764) (506,926) (444,518)
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1,540,910 1,626,618 3,100,152 2,897,101

General and
administrative 831,809 734,024 1,578,822 1,432,245
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2,372,719 2,360,642 4,678,974 4,329,346

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Net loss $2,288,231 $2,271,839 $4,550,181 $4,171,573
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Net basic and diluted
loss per share $0.03 $0.04 $0.07 $0.07
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Weighted average
number of
outstanding shares 69,024,627 58,844,548 63,995,430 55,455,801
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Statements of Deficit
(Unaudited)

Six-month period ended May 31

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---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Deficit, beginning of period $32,851,070 $23,919,440

Net loss 4,550,181 4,171,573

Share issue costs 786,602 717,630

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Deficit, end of period $38,187,853 $28,808,643
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See accompanying notes to unaudited financial statements.



ECOPIA BIOSCIENCES INC.

Statements of Cash Flows
(Unaudited)


---------------------------------------------------------------------
---------------------------------------------------------------------
Three-month period Six-month period
ended May 31 ended May 31
2005 2004 2005 2004
---------------------------------------------------------------------

Cash flows from
operating
activities:
Net loss $(2,288,231) $(2,271,839) $(4,550,181) $(4,171,573)
Adjustment for:
Depreciation of
capital assets 175,519 246,622 344,906 493,443
Depreciation of
patents 8,833 6,263 16,639 11,129
Write-off of
capital assets - 95,200 - 95,200
Write-off of
patents 83,366 - 91,242 7,194
Stock-based
compensation 57,209 35,104 116,338 66,720
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(1,963,304) (1,888,650) (3,981,056) (3,497,887)

Change in
operating
assets and
liabilities:
Interest
receivable
on bonds (111,008) (78,743) (50,258) 15,165
Sales tax
receivable
and other (51,016) 615 (104,060) 52,954
Tax credits
receivable (306,143) (226,764) (506,926) (444,518)
Research
supplies 1,369 (18,000) 17,332 -
Deposits and
prepaid
expenses (113,081) 15,924 (220,175) 51,057
Accounts
payable and
accrued
liabilities 330,003 424,122 (172,414) (148,392)
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(249,876) 117,154 (1,036,501) (473,734)

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(2,213,180) (1,771,496) (5,017,557) (3,971,621)

Cash flows from
financing
activities:
Proceeds from
share issuance 9,900,000 48,959 9,904,200 8,576,660
Share issue
costs (783,965) (87,396) (783,965) (717,630)
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9,116,035 (38,437) 9,120,235 7,859,030

Cash flows from
investing
activities:
Acquisition of
bonds (10,049,747) (7,383,921) (10,149,682) (7,950,921)
Proceeds from
disposal of
bonds 3,323,821 2,222,125 6,694,541 4,790,922
Additions to
capital assets (41,916) (82,019) (83,324) (495,019)
Costs relating
to patent
acquisitions (98,965) (84,070) (130,417) (220,887)
Proceeds from
disposal of
capital assets - 3,800 - 3,800
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(6,866,807) (5,324,085) (3,668,882) (3,872,105)

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Net increase
(decrease) in
cash 36,048 (7,134,018) 433,796 15,304

Cash, beginning
of period 550,511 7,220,584 152,763 71,262

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Cash, end of
period $586,559 $86,566 $586,559 $86,566
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Supplemental cash flow information (note 5)

See accompanying notes to unaudited financial statements.



ECOPIA BIOSCIENCES INC.
Notes to Financial Statements
(Unaudited)

Three-month and six-month period ended May 31, 2005

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1. Significant accounting policies:

Basis of presentation:

These financial statements included in this report are unaudited and
reflect normal and recurring adjustments, which are, in the opinion
of the Company, considered necessary for a fair presentation. These
financial statements have been prepared in conformity with Canadian
generally accepted accounting principles. The same accounting
policies as described in the Company's latest annual report have been
used. However, these financial statements do not include all
disclosures required under generally accepted accounting principles
and accordingly should be read in connection with the financial
statements and the notes thereto included in the Company's latest
annual report.

2. Restructuring fees:

In the context of the execution of its business strategy, the Company
reduced, during the quarter, its headcount by 30% and ceased the
process of obtaining certain patents considered of secondary
importance. Consequently, the Company incurred severance
fees in the amount of $ 144,626 of which $ 120,079 are included in
accounts payable and accrued liabilities as of May 31, 2005. In
addition, the Company recorded a write down of $ 83,366 related to
patent acquisition costs. These expenses are recorded in the
Statement of operations and are included in the Research and
development costs and the General and administrative costs,
respectively.

ECOPIA BIOSCIENCES INC.
Notes to Financial Statements
(Unaudited)

Three-month and six-month period ended May 31, 2005


3. Capital assets:

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May 31
2005
---------------------------------------------------------------------
Accumulated
depreciation and Net book
Cost amortization value
---------------------------------------------------------------------

Specialized computer
equipment $1,205,621 $1,153,057 $52,564
Machinery and equipment 4,714,090 2,981,724 1,732,366
Leasehold improvements 1,189,032 344,777 844,255

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$7,108,743 $4,479,558 $2,629,185
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---------------------------------------------------------------------
November 30
2004
---------------------------------------------------------------------
Accumulated
depreciation and Net book
Cost amortization value
---------------------------------------------------------------------

Specialized computer
equipment $1,205,621 $1,109,374 $96,247
Machinery and equipment 4,572,226 2,738,005 1,834,221
Leasehold improvements 1,175,622 287,273 888,349

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$6,953,469 $4,134,652 $2,818,817
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4. Capital stock:

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May 31 November 30
2005 2004
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Authorized in unlimited number
and without par value:
Common shares
Preferred shares, issuable in series

Issued:
69,861,584 common shares
(November 30, 2004 - 58,851,584) $54,561,463 $44,655,975
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(a) Changes in the issued and outstanding capital stock were as
follows:

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Number Dollars
---------------------------------------------------------------------

Balance, November 30, 2004 58,851,584 $44,655,975

Shares issued pursuant to a private
placement 11,000,000 9,900,000
Shares issued pursuant to exercise of
options 10,000 5,488

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Balance, May 31, 2005 69,861,584 $54,561,463
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In March 2005, the Company closed a private placement for the
issuance of 11,000,000 units, each unit comprised of one common share
and one-third of one common share purchase warrant. Each unit was
sold at $0.90, allowing the Company to raise gross proceeds of
$ 9.9 million. Each full share purchase warrant will allow the holder
to purchase one common share of the Company at an exercise price of
$1.03 and will expire on March 8, 2007.


(b) Stock option plan:

Changes in the number of options outstanding during the six-month
period ended May 31, 2005 were as follows:

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Weighted average
exercise price
Options per share
---------------------------------------------------------------------

Options, November 30, 2004 4,276,850 $1.50

Granted 106,250 0.82
Exercised (10,000) 0.42
Cancelled (121,650) 1.32

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Options, May 31, 2005 4,251,450 $1.49
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As at May 31, 2005, the number of exercisable options was 2,737,590.

For the six-month period ended May 31, 2005, the stock-based
compensation related to the stock option exercise mentioned above
amounted to $ 1,288.

The fair value of the options granted was estimated at the date of
grant using the Black-Scholes option pricing model. The following
assumptions were used during the period: average risk free interest
rate of 4.50%, expected dividend yield of nil, expected volatility
ranging from 71% to 76% and expected option life of 5 years. The
weighted-average fair value of the options granted in 2005 was $0.52
($1.46 in 2004).

The Black-Scholes model, used by the Company to calculate option
values, was developed to estimate fair value of freely tradable,
fully transferable options without vesting restrictions, which
significantly differs from the Company's stock option awards. This
model also requires four highly subjective assumptions, including
future stock price volatility and expected time until exercise, which
greatly affect the calculated values.

(C) Diluted loss per share:

Diluted loss per share was not presented as the effect of options and
warrants would have been anti-dilutive. Furthermore, the exercise of
2,330,050 options (1,333,200 in 2004) and 7,820,834 warrants would
not have been considered in such computation since the exercise price
of these options and warrants was higher than the average market
price during the reporting period.


5. Supplemental cash flow information:

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May 31 November 30
2005 2004
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Costs relating to patent acquisitions
included in accounts payable and accrued
liabilities $8,905 $5,770

Acquisition of capital assets included in
accounts payable and accrued liabilities 74,844 2,894

Share issue costs included in accounts
payable and accrued liabilities 2,637 -

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