Ondine Biopharma Corporation
TSX : OBP
AIM : OBP

Ondine Biopharma Corporation

March 27, 2009 08:22 ET

Ondine Biopharma Announces 2008 Year End Financial Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 27, 2009) - Ondine Biopharma Corporation (the "Company" or "Ondine") (TSX:OBP)(AIM:OBP) a medical technology company developing photodisinfection based products, today announced its financial results for the year ended December 31, 2008.

"2008 will be long remembered as one of the most challenging years ever faced by businesses and investors. The backdrop of the financial markets crisis dominated the last quarter of the year and offset many of the favourable advancements made by the Company," stated Carolyn Cross, Ondine's Chairman & CEO. "Ondine responded by reducing certain of its monthly expenditures to conserve cash while continuing its research and development programs. Our R&D emphasis is focused around further advancing our platform photodisinfection technology, our Periowave™ system and our MRSAid™ nasal decolonization program. Some of the 2008 highlights included achieving statistically and clinically significant results from our Canadian Multi-Centre Trial, in addition to multiple publications and presentations of key clinical trial and pre-clinical study results. Over the coming quarters Ondine intends to continue its quest to partner and commercialize leading photodisinfection based products in order to help improve patients' health and curb the spread of antibiotic resistant bacteria in healthcare settings."

FINANCIAL RESULTS

For the year ended December 31, 2008 (the "Current Year") the Company recorded a loss of $10.27 million, or $0.17 per common share, compared with a loss of $13.16 million, or $0.24 per common share, for the year ended December 31, 2007 (the "Prior Year"). Product sales revenue for Periowave™ laser base stations and treatment kits for the Current Year was $0.91 million generating a gross margin of $0.18 million (20.4%) compared to product sales of $1.61 million and gross profit margin of $0.82 million (51.1%) for the Prior Year.

DEVELOPMENTS DURING 2008

In February of 2008, the Company cancelled its exclusive distribution agreement for the Canadian market with Henry Schein Canada, Inc., who continues to distribute the Company's Periowave™ system on a non-exclusive basis. During the second and third quarters of 2008, the Company commenced distribution of its Periowave™ system in Canada through two additional national distributors, Patterson Dental Canada Inc. and Sinclair Dental Co Ltd.

In May 2008, Ondine announced the results from the Canadian Multi-Centre Trial, which was the largest study to date. The trial compared the photodisinfection system to the gold standard of scaling and root planing ("SRP") alone for the treatment of periodontal disease. The trial was a prospective, randomized, examiner-blinded study that included 121 patients and 5,330 defect treatment sites. Fifty-eight patients were included in the photodisinfection treatment arm and sixty-three patients were included in the control arm. Two formats of laser system were used in this study: the first was a lower-power first generation laser unit and the second was the Company's commercially available higher-power Periowave™ PDD System. The results showed the lower-power lasers were not able to achieve statistical or clinical significance on any endpoint. Only the patients in the study treated with the Periowave™ PDD System met both the primary endpoint, improvement in clinical attachment level (CAL), and the secondary endpoint, improvement in pocket depth (PD). For all pockets averaged together for those patients, the improvement in CAL was 154% of SRP alone (p equals 0.003) and the improvement in PD was 138% of SRP alone (p equals 0.01).

Results from two research studies from the Company's MRSA program were presented at the Society for General Microbiology's 162nd Meeting that was held March 31 - April 3, 2008 in Edinburgh, Scotland. The studies provide detailed results of Ondine's PDD System in the eradication of Staphylococcus aureus ("S. aureus"), a bacterium which secretes potent cell wall-bound virulence factors that enhance host tissue destruction. S. aureus has become resistant to many antibiotics including in some cases to vancomycin, which is often considered the antibiotic of last resort. MRSA is known to produce toxins that are responsible for destroying cell tissue. These toxins continue to destroy the tissue even after antibiotics have killed the organism. The Company's photodisinfection technology kills both the bacteria and substantially inactivates these toxins, something that none of the antibiotics that are used to kill MRSA today are able to accomplish. This dual-mode approach also does not contribute to bacterial resistance.

In May of 2008, the Company announced it had received a Health Canada license for the use of its non-antibiotic photodisinfection system for the treatment of Otitis Externa. Otitis Externa is an inflammation of the outer ear and ear canal often caused by bacteria such as Pseudomonas aeruginosa and Staphylococcus aureus. Moderate Otitis Externa can result in narrowing of the canal and swelling of soft tissue, while severe Otitis Externa can cause significant obstruction of the ear canal and invasion of soft tissues.

In June of 2008, the Company announced it had received a Health Canada license for a next-generation multi-purpose laser system that is suitable for a broad range of applications in high volume settings, such as hospitals and large institutions. This system will initially be directed towards decolonization of potentially pathogenic bacteria such as S. aureus and MRSA in the nose, as well as for the decolonization of micro organisms from other sites.

In July of 2008, the Company acquired an exclusive license for the human therapeutic use of a gold-nanoparticle photosensitizer from UCLB. In vitro studies have shown this compound to be highly efficacious in killing MRSA, a prominent hospital-acquired pathogen. Ondine intends to further develop this new agent for integration into the Company's Photodisinfection System for various medical applications.

In August of 2008, the Company announced that it had received confirmation from the FDA that the Company's Periowave™ Photodisinfection System will be evaluated as a Class III medical device under PMA regulations. Receipt of FDA clearance through the PMA pathway would provide competitive barriers that will offer strategic benefits to Ondine in the dental market.

RECENT DEVELOPMENTS

In January of 2009, the Company announced a reorganization of its senior management team reflecting the Company's focus on the development of its photodisinfection product pipeline. Dr. Cale Street was appointed Vice-President of Research of Ondine's wholly-owned subsidiary, Ondine Research Laboratories, Inc. ("ORL"); located at the Company's research facilities in Bothell, Washington. Mr. Thomas Dawson, who continues as an officer of ORL, was appointed Chief Operating Officer of the Company. Dr. Nicolas Loebel, who continues as an officer of ORL and as Chief Technology Officer of the Company, was appointed President of the Company. Carolyn Cross, who continues to hold the title of Chief Executive Officer of the Company, was appointed Chairman of Ondine's Board of Directors, replacing Mr. Pierre Leduc who resigned his positions of Executive Chairman and a Director of the Company effective January 6, 2009.

The Company closed two tranches of a non-brokered private placement by issuing 8,620,168 common shares at $0.06 per share for aggregate gross proceeds of $517,210 (the "Private Placement"). 6,970,000 of the common shares are subject to a hold period in Canada and can not be traded through the facilities of the Toronto Stock Exchange until June 17, 2009 and 1,650,168 of the shares have a hold period until June 21, 2009. Insiders of the Company purchased 2,216,334 of the shares, which represent 3.2% of the Company's 69,979,344 issued and outstanding common shares subsequent to the closing of the second tranche.

The Company has completed the analysis of the results of a clinical study on the use of Periowave™ for the treatment of periodontitis conducted at UCLH. The primary endpoint in this study was reduction in probing depth (PD), while secondary endpoints included gain in clinical attachment level (CAL) and bleeding on probing (BOP). As seen in several prior studies conducted by the Company, the reduction in PD in patients treated with the low-power first generation lasers, for all teeth with an initial PD greater than or equals 5 mm and BOP, or in all measured pockets (both treated and untreated), versus SRP alone did not reach statistical significance (p greater than 0.05). The same conclusion was also true for gain in CAL, either for those teeth with an initial PD greater than or equals 5 mm and BOP or for all measured pockets (both treated and untreated) included in the analysis. However an analysis of the reduction in PD stratified by PD at baseline demonstrated that reduction in PD was related to the initial extent of disease. Reduction in PD for teeth with initial PD of 5mm less than or equals PD less than 6 mm was highly significant when compared to SRP controls (p less than 0.0001). Similarly, the reduction in PD for teeth with initial PD of 6mm less than or equals PD less than 7 mm was highly significant when compared to SRP controls (p less than 0.001).

In March 2009, the Company received a Health Canada license for the Company's handheld Periowave™ photodisinfection system. This system utilizes a new model of laser, which is a hand held version of the Company's current countertop laser base station. It is expected this new system will be commercialized in the latter part of 2009.

Financial Review

Consolidated statements of operations for the fourth quarter of 2008 (unaudited - in thousands except per share amounts):



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Three months ended
December 31,
2008 2007
$ $
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Revenue
Product sales 302 128
Cost of sales 164 75
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Gross Margin 138 53
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Expenses
Research and development 1,114 1,096
General and administration 614 917
Marketing and sales 311 713
Depreciation and amortization 89 53
Write-down of capital assets 143 -
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(2,271) (2,779)
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Other
Interest income 8 55
Foreign exchange gain (loss) 1 (52)
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9 3
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Loss before income taxes (2,124) (2,723)
Income tax recovery (expense) - (11)
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Loss for the period (2,124) (2,734)
Unrealized (loss) gain on short-term investments (1) 1
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Comprehensive loss for the period (2,125) (2,733)
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Basic and diluted loss per common share (0.03) (0.05)
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Weighted average number of shares outstanding 61,359 56,345
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The decline in gross margin percentage during the Current Year, as compared to the Prior Year, is primarily due to the recording of a $0.45 million provision for excess and obsolete inventory, primarily due to an increase in the expected time required to obtain FDA clearance to market Periowave™ in the United States and the prospect that in the latter part of 2009 the Company will introduce a handheld version of its photodisinfection system. Having cancelled the Company's exclusive distribution agreement with a Canadian dental distributor in February of 2008, the Company commenced sales of its products to two additional dental distributors in Canada during the second and third quarters of 2008.

The Company is seeing additional market acceptance for its Periowave™ system in Canada. Our top users in Canada are currently deploying Periowave™ daily in their practices. Information obtained from the Company's Canadian distributors show an increase of 12% in the number of treatment kits sold by them during the Current Year, when compared to the Prior Year. In addition, a number of dental offices in Canada have purchased more than one laser base station. The priority for the Canadian market is to establish the appropriate marketing and sales strategies, as well as to identify key strategic partnership opportunities, for the larger United States and European markets.

Although the Company is seeing increasing market acceptance for Periowave™, its sales to date have been limited and there is not sufficient sales history to reasonably predict future demand, including the full impact of seasonality on its sales. The Company expects that the summer months will generally be a slower sales period. In addition, substantially all of the Company's sales in Canada have been to one distributor. The Company expects that the sale of its products through the additional distributors will add to the installed base of its Periowave™ PDD systems in Canada as the Company continues to work on increasing the utilization rate of its consumable product by end users.

Sales by the Company to its distributors are not necessarily reflective of the distributors' sales to dental offices. Until the Company has adequate sales history to accurately forecast demand on an ongoing basis, fluctuations in distributors' inventory levels could significantly impact sales in future quarters.

During the Current Year, the Company continued to work with leading hygiene and dental schools across Canada by assisting them with the adoption of Periowave™ into their educational programs and training clinics. Validation by these dental schools adds significant credibility to the novel approach of using photodisinfection ("PDD") to treat gum disease. We expect that in time, the Periowave™ system will be incorporated into their teaching curriculums and this will have a positive effect on the market penetration of Periowave™ in the general dental community in Canada.

During the Current Year, the Company continued to invest in research and development including, among other things: i) commenced certain tasks required to enable the Company to file a PMA submission with the FDA; ii) analyzed the data collected from a clinical study of Periowave™ for the treatment of periodontitis conducted by the University College London Eastman Dental Hospital, the results of which are described above; and iii) the continued research and development programs on potential new applications of the Company's PDD technology which was conducted at the University College London, principally for the non-antibiotic treatment of MRSA and other topical infections.

The $2.89 million decrease in loss for the Current Year, when compared to the Prior Year, was primarily due to decreases in research and development, general and administration, and marketing and sales expenses, which were partially offset by the decrease in gross profit margin as described above.

Research and development expenses for the Current Year were $4.52 million, a decrease of $1.19 million when compared to $5.71 million incurred during the Prior year. The decrease was primarily due to a reduction in salaries and benefits costs, principally due to a reduction in clinical trial staff and bonus compensation, and a reduction in consulting and professional fees, principally due to a reduction in clinical trial costs.

General and administration expenses for the Current Year were $3.40 million, a decrease of $0.84 million when compared to $4.24 million incurred during the Prior Year. The decrease was primarily due to decreases in salaries and benefits, consulting and professional fees, investor relations, and office and other expenses. These decreases were partially offset by an increase in stock-based compensation and in bad debt expense, as the Company recorded an allowance for doubtful accounts.

Marketing and sales expenses for the Current Year were $2.02 million, a decrease of $1.69 million when compared to $3.71 million incurred during the Prior Year. The decrease was primarily due to a reduction in staff, which reduced salaries and benefits costs, and reductions in advertising and promotions activities, consulting fees, and travel costs. These reductions occurred as the Company transitions to its priorities of obtaining a strategic partner for the dental application and focusing on its research and development activities as it prepares its PMA submission for filing with the FDA.

The loss for the three months ended December 31, 2008 ("Fourth Quarter 2008") was $2.12 million, representing a decrease of $0.61 million when compared to the 2.73 million loss for the three months ended December 31, 2007 ("Fourth Quarter 2007"). Product sales revenue for Periowave™ laser base stations and treatment kits for the Fourth Quarter 2008 was $0.30 million generating a gross margin of $0.14 million (45.7%), which includes a $0.06 million provision for excess and slow moving inventory, compared to product sales of $0.13 million and gross profit margin of $0.05 million (41%) for the Fourth Quarter 2007. The $0.61 million decrease in loss during Fourth Quarter 2008, when compared to Fourth Quarter 2007, was primarily due to an increase in gross margin on higher sales and decreases in general and administration and in marketing and sales expenses, which was partially offset by a write-down of certain of the Company's capital assets. Research and development expenses during the Fourth Quarter 2008 were substantially the same as the Fourth Quarter 2007. The decrease in general and administration expenses was primarily due to decrease in consulting and professional fees and in investor relations expenses. The decrease in marketing and sales expenses was primarily due to decreases in advertising and promotions, in salaries and benefits and in travel costs.

As at December 31, 2008 the Company had cash, cash equivalents and short-term investments totaling $1.03 million compared with $10.15 million as at December 31, 2007. During the Current Year the Company used cash of approximately $8.9 million for its operating activities, $5.6 million was provided by net redemptions of short-term investments, $0.1 million was used for the purchase of capital assets, $0.17 was used to acquire an intangible asset, and $0.08 million was provided by the issuance of common shares on exercise of stock options.

In February of 2009 the Company completed the Private Placement raising gross proceeds of $0.5 million. The Company's average monthly expenses, net of revenues, during the beginning of 2009 are expected to be in the order of $0.35 million to $0.45 million per month. Based on the Company's current level of activities and its future plans, the Company needs to raise additional capital in the near term to continue with its planned activities. No assurances can be given that additional funding will be available or, if available, that it will be on terms that are acceptable to the Company. There is a risk that in the second quarter of 2009 the Company could have insufficient cash to operate its business if it is unable to raise further funding. The Company believes the current challenging conditions in the capital marketplace will make it more difficult and time consuming than normal for companies at its stage of development to secure additional funding. Various other options are being pursued to raise funds, such as through strategic partnerships or the sale of certain of our assets. In addition, the Company has and will continue to reduce its expenses and to defer capital outlays in order to extend the period it can operate utilizing its existing cash balances. However such reductions and deferrals may not be sufficient to allow the Company to continue in business unless it is able to obtain further cash to fund its operations. Should the Company be unable to obtain additional funding in a timely manner, it would have to severely curtail or cease its activities and their can be no assurances that the Company will be able to continue in business.

As at December 31, 2008 the Company had 61,359,176 common shares outstanding.

Additional analysis of the Company's financial results for the Current Year, including an analysis of the results for the three months ended December 31, 2008, is included in our management's discussion and analysis of financial condition and results of operations (MDA) for the year ended December 31, 2008, which will be available on the Company's website and on www.sedar.com.

About Ondine Biopharma Corporation

Ondine is developing non-antibiotic therapies for the treatment of a broad spectrum of bacterial, fungal and viral infections. The Company is focused on developing leading edge products utilizing its patented light-activated technology. Photodisinfection provides broad-spectrum antimicrobial efficacy without encouraging the formation and spread of antibiotic resistance. The Company is based in Vancouver, British Columbia, Canada, with a research and development laboratory in Bothell, Washington, USA, and an international office in St. Michael, Barbados. For additional information, please visit the Company's website at: www.ondinebiopharma.com.

Forward-Looking Statements:

Certain statements contained in this release containing words like "believe", "intend", "may", "expect" and other similar expressions, are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the Company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain and develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products and other risk factors identified from time to time in the Company's public filings.



Ondine Biopharma Corporation
Incorporated under the laws of British Columbia
CONSOLIDATED BALANCE SHEETS

As at December 31 (expressed in Canadian dollars)
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2008 2007
$ $
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ASSETS
Current
Cash and cash equivalents 1,033,248 4,540,245
Short-term investments - 5,606,836
Accounts receivable 416,352 653,448
Inventories 283,877 570,561
Prepaid expenses and deposits 321,202 526,520
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Total current assets 2,054,679 11,897,610
Capital assets 651,878 991,606
Intangible assets 239,853 114,714
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Total assets 2,946,410 13,003,930
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,334,572 1,873,860
Income taxes payable 37,800 30,765
Current portion of deferred tenant inducement 45,276 42,374
Future income tax 82,355 67,026
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Total current liabilities 1,500,003 2,014,025
Deferred tenant inducement, net of
current portion 109,149 145,967
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Total liabilities 1,609,152 2,159,992
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Shareholders' equity
Share capital 51,336,368 51,193,823
Contributed surplus 4,087,139 3,467,847
Deficit (54,086,249) (43,816,528)
Accumulated other comprehensive loss - (1,204)
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Total shareholders' equity 1,337,258 10,843,938
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Total liabilities and shareholders' equity 2,946,410 13,003,930
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Ondine Biopharma Corporation
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS


For the years ended December 31 (expressed in Canadian dollars)
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2008 2007
$ $
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REVENUE
Product sales 912,326 1,605,485
Cost of sales 726,490 784,838
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Gross margin 185,836 820,647
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EXPENSES
Research and development 4,516,247 5,714,608
General and administration 3,398,195 4,243,368
Marketing and sales 2,018,389 3,709,383
Depreciation and amortization 340,825 371,744
Write-down of inventory deposit 232,000 -
Write-down of capital assets 143,000 -
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(10,648,656) (14,039,103)
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Other
Interest income 155,533 335,002
Foreign exchange gain (loss) 37,566 (276,236)
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193,099 58,766
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Loss before income taxes (10,269,721) (13,159,690)
Income tax recovery - 2,168
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Loss for the year (10,269,721) (13,157,522)
Unrealized gain on short-term investments - 3,197
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Comprehensive loss for the year (10,269,721) (13,154,325)
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Basic and diluted loss per common share (0.17) (0.24)
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Weighted average number of common
shares outstanding 61,275,413 55,084,943
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Ondine Biopharma Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(expressed in Canadian dollars)
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Accum-
ulated
Other Total
Cont- Compre- Share-
Number of Share ributed hensive holders'
Common Capital Surplus Deficit Loss Equity
Shares $ $ $ $ $
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Balance,
December
31, 2006 54,592,493 45,453,690 1,801,209 (30,663,407) - 16,591,492
Transitional
adjustment
to beginning
balance on
adoption of
new
accounting
policy - - - 4,401 (4,401) -
Common shares
issued for
cash during
the year for:
Exercise of
options 100,000 25,000 - - - 25,000
Private
placement
of units
(net of
issue
costs) 6,335,182 5,697,133 1,267,036 - - 6,964,169
Stock-based
compensation - - 417,602 - - 417,602
Reallocation
of
contributed
surplus
arising from
stock-based
compensation
on exercise
of stock
options - 18,000 (18,000) - - -
Loss for the
year - - - (13,157,522) - (13,157,522)
Unrealized
gain on
short-term
investments - - - - 3,197 3,197
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Balance,
December
31, 2007 61,027,675 51,193,823 3,467,847 (43,816,528) (1,204) 10,843,938
Common shares
issued for
cash during
the year for:
Exercise of
options 331,501 82,875 - - - 82,875
Stock-based
compensation - - 678,962 - - 678,962
Reallocation
of
contributed
surplus
arising from
stock-based
compensation
on exercise
of stock
options - 59,670 (59,670) - - -
Loss for the
year - - - (10,269,721) - (10,269,721)
Reclassif-
ication
of
unrealized
loss on
short-term
investments - - - - 1,204 1,204
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Balance,
December
31, 2008 61,359,176 51,336,368 4,087,139 (54,086,249) - 1,337,258
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Ondine Biopharma Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31 (expressed in Canadian dollars)
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2008 2007
$ $
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OPERATING ACTIVITIES
Loss for the year (10,269,721) (13,157,522)
Add items not affecting cash:
Depreciation and amortization 340,825 371,744
Write-down of capital assets 143,000 -
Stock-based compensation 678,962 417,602
Deferred tenant inducement (33,916) (6,583)
Future income tax expense 15,329 962
Changes in non-cash working capital items relating
to operations:
Accounts receivable 237,096 108,802
Inventory 286,684 175,843
Prepaid expenses and deposits 205,318 43,693
Accounts payable and accrued liabilities (539,288) 159,499
Income taxes payable 7,035 (18,525)
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Cash used in operating activities (8,928,676) (11,904,485)
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FINANCING ACTIVITIES
Issuance of common shares and warrants, net of
issue costs 82,875 6,989,169
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Cash provided by financing activities 82,875 6,989,169
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INVESTING ACTIVITIES
Short-term investments 5,608,040 5,377,017
Purchase of capital assets (96,997) (368,159)
Acquisition of intangible asset (172,239) (76,174)
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Cash provided by investing activities 5,338,804 4,932,684
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Net (decrease)/increase in cash and cash
equivalents (3,506,997) 17,368
Cash and cash equivalents, beginning of year 4,540,245 4,522,877
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Cash and cash equivalents, end of year 1,033,248 4,540,245
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