Ecopia BioSciences Inc.: 2005 Operating Highlights and Financial Results.

MONTREAL -- Ecopia BioSciences Inc. (TSX:EIA) today announced operating highlights and financial results for the year ended November 30, 2005.

Management's discussion and analysis of results of operations and financial condition for the years ended November 30, 2005 and November 30, 2004

This Management's Discussion and Analysis of Ecopia's Operations and Financial Condition for the year ended November 30, 2005 dated as of February 6, 2006 should be read in conjunction with the financial statements and the accompanying notes and the Management's Discussion and Analysis for the year ended November 30, 2004 that can be found in Ecopia's 2004 Annual Report. Ecopia uses the same accounting policies and methods as those used in 2004.

Certain statements in this Management's Discussion and Analysis that do not relate exclusively to historical facts are forward-looking information. When used in this Management's Discussion and Analysis, the words "may", "would", "could", "will", "intend", "anticipate", "believe", "expect" and similar expressions, as they relate to Ecopia or its management, are intended to identify forward-looking statements. These statements represent the Company's current expectations regarding future events. These forward-looking statements, including the ability to raise future capital to fund our R&D activities, favorable review by regulatory authorities of the Company's Clinical Trial Application (CTA) and commencement of Phase I clinical trials of ECO-4601 in Canada, the pursuit of clinical trials in the United States, the potential of ECO-4601 as a chemotherapy against primary brain cancer, the potential of ECO-4601 in the treatment of breast, prostate, colon, lung and ovarian cancers, the identification of a second-generation ECO-4601 compound, the identification of a non-ECO-4601 related compound as a candidate for another regulatory filing, the grant by the USPTO of a patent directed to ECO-4601 based on the Company's Notice of Allowance and the earning of revenues from the exercise of exclusivity options on out-licensed patent properties may rely on a number of assumptions concerning future events and are therefore subject to a number of risks and uncertainties, many of which are outside Ecopia's control. Actual results may therefore vary materially from the expectations expressed by the Company and depend on a number of factors. These factors include and are not restricted to the possibility of objections or delays in approval by regulatory authorities of the CTA or counterpart US Investigational New Drug (IND) applications, scientific uncertainties relating to the correlation between preclinical animal data and human clinical data, the safety and efficacy of ECO-4601 as a cancer treatment, success and timely completion of clinical studies, withdrawal of a notice of allowance by the USPTO, uncertainties related to the regulatory process for drug development, the ability for Ecopia to fund its future operations in light of the lack of operating revenues for the years to come and the impact of general economic conditions. Investors are cautioned against placing undue reliance on forward-looking statements or forward-looking information. These forward-looking statements or forward-looking information should not be relied upon as representing the Company's views as of any date subsequent to the date these statements were originally made or information originally provided. Readers are recommended to consult the more complete discussion of the risks and uncertainties facing the Company included below in this Management's Discussion and Analysis. Except as required by law, Ecopia does not undertake and disclaims any obligation to update or revise its forward-looking statements or forward-looking information whether as a result of new information, future events, or otherwise.

Internal Disclosure Controls

In accordance with Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings, the Corporation's President and Chief Executive Officer and Executive Vice-President and Chief Financial Officer have designed, or have caused to be designed under their supervision, controls and procedures that provide reasonable assurance that information required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by it under provincial and territorial securities legislation is recorded, processed summarized and reported within the time periods specified  in the provincial and territorial securities legislation. The Corporation's President and Chief Executive Officer and Executive Vice-President and Chief Financial Officer are assisted in such functions by a Disclosure Policy Committee (the "Committee") responsible for the Corporation's disclosure policy established by the Board to ensure that the communication of material information to the public is timely, factual and accurate and broadly disseminated  in accordance with all applicable legal and regulatory requirements. The Committee is currently composed of the President and Chief Executive Officer, the Executive Vice-President and Chief Financial Officer and all vice-presidents and operational directors. The President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer, after evaluating the effectiveness of the Corporation's disclosure controls and procedures as at November 30, 2005, have concluded that the Corporation's disclosure controls and procedures are adequate and effective to ensure that material information relating to the Corporation would have been known to them, particularly during the period in which the annual filings are being prepared.

Overview

ACCOMPLISHING THE KEY MILESTONE 

As 2005 began, the Company had identified sufficient characteristics of ECO-4601 to invest into its potential as a chemotherapy of choice in the fight against primary brain tumors. Firstly, the compound shows tumor-reducing efficacy in an animal model where tumor growth is very aggressive. Secondly, animal testing suggests that ECO-4601 crosses the blood brain barrier, a critical property in developing compounds with a competitive advantage in the brain cancer market. Finally, because ECO-4601 comes from Ecopia's DECIPHER(R) drug discovery platform, it is by definition a novel compound, also a critical property needed in the eventual marketing among leading practicing oncologists. Management gave itself the major task of filing a Clinical Trial Application ("CTA") with the appropriate regulatory authorities before the end of the calendar year and that objective has been accomplished.

PREPARING THE CTA

The delivery of such an objective required important milestones. Most importantly, our preclinical team was asked very early in the year to refine the compound's formulation status, determine its route of administration for preclinical and clinical use and initiate a manufacturing process that allows the production of ECO-4601 under current Good Laboratory Practices ("cGLP") in order to have sufficient material to identify the compound's safety and tolerability levels in GLP preclinical testing. The process to achieve these milestones was started in the first quarter and completed around the first half of the year.

Under a regulatory filing, potential drugs tested in humans must meet very strict criteria regarding their chemistry, manufacturing and control, or CMC. Most importantly, we had to show that ECO-4601 can be produced under a current Good Manufacturing Process ("cGMP"). The whole CMC process was initiated in the latter part of 2004 and was completed before the end of 2005, in time for the filing of the CTA. This was accomplished below our budgetary estimates because our production team found a way of producing ECO-4601 using a crystallization process, which obviates the need for expensive production methods.

In the third quarter of the year, rodent and primate GLP toxicology programs were well under way. By the end of August, Ecopia had sufficient data from these studies to meet on a pre-filing basis with the Therapeutic Product Directorate of Health Canada and the Food and Drug Administration of the United States. Based on guidance received from these meetings, the Company decided to file for clinical trials in Canada only because patient recruitment and availability of world-class technical resources are immediately available in its principal place of business. Management expects no serious difficulties for future clinical trials in the United States, assuming the Phase I trial of 2006 turns out satisfactorily.

Ecopia is proposing to conduct a Phase I clinical trial with up to 30 patients who suffer from one of six types of cancers and who are refractory to current chemotherapies. Such cancers are glioblastomas, breast, prostate, ovarian, lung and colon cancers. The purpose of the trial will be to find the ideal dosage and to test ECO-4601's safety and tolerability. The clinical trial involves a 21-day cycle where different patients will receive escalating dosages of the compound via continuous infusion using ambulatory pumps for 14 days, followed by a seven-day rest. The trial is expected to last approximately 12 months from the date of recruitment.

OTHER IMPORTANT MILESTONES

Many other important milestones were achieved in 2005, some of which relate to ECO-4601. In November, Ecopia disclosed data at an oncology conference demonstrating that ECO-4601 is active in vivo against breast and prostate cancer. Enlarging the medical spectrum of ECO-4601 beyond primary brain tumor can add substantial value to this compound.

During the year, our Chemistry Group advanced ECO-4601's analog program that was initiated in 2004. So far, approximately 60 analogs were characterized. This program provides us with a better understanding of the compound's structure activity relationship. It also allows us to identify a second-generation compound and improve our intellectual property stake beyond the original compound.

Ecopia was pleased to announce right after the end of the fiscal year that the United States Patent and Trademark Office granted a Notice of Allowance on ECO-4601's composition of matter. Obtaining composition of matter claims to the structure of our lead compound is the most solid protection that can be obtained on a potential drug because such claims cover any medical use of the compound. Composition of matter claims are available where novelty resides in the structure of the compound, as opposed to only in its utility.

In the first half of 2005, Ecopia raised $9.9 million in order to fund its operations and finance ECO-4601's first clinical trial.

Finally, despite restricted resources, our DECIPHER(R) drug discovery platform allowed us to add 40 new chemical entities to our portfolio. Of the 59 novel compounds discovered to date, excluding analogs of ECO-4601, 14 have shown anticancer activities. The Profiling Team is working on these new discoveries to identify the best candidates for another regulatory filing. Although this activity is important, priority will be given to the development of ECO-4601 and to understanding its mechanism of action.

LOOKING FORWARD

We begin the year 2006 by seeing our first discovery moving into the clinic. ECO-4601 has evolved from a newly discovered compound to Phase I development in approximately three years. Under current standards of our industry, this is rapid progression. Such an accomplishment is a success onto itself and is a testimonial to the capability of Ecopia's DECIPHER(R) drug discovery platform to come up with novel potential therapies to fight cancer.

Our focus on cancer was undoubtedly motivated by the potential of ECO-4601 as a novel chemotherapy. More importantly, however, is the ability of our DECIPHER(R) technology to deliver fundamentally brand new chemical classes of therapies with novel mechanisms of action. This provides us with a distinct competitive advantage in this highly competitive field.

SUMMARY OF OPERATING RESULTS

Years ended November 30
(in thousands of dollars, except per-share amounts) - (audited)
--------------------------------------------------------------
--------------------------------------------------------------
                                        2005     2004     2003
--------------------------------------------------------------
--------------------------------------------------------------
                                           $        $        $
Interest revenues                        287      293      435
License revenues                           -      120        -
Research and development expenditures,
 before tax credits and grants         8,079    6,819    6,386
General and administrative
 expenditures                          2,896    2,735    2,436
Net loss                               9,612    8,214    7,147
Net basic and diluted loss per share    0.14     0.14     0.14
--------------------------------------------------------------
Weighted average shares outstanding
 (in thousands)                       66,939   57,172   50,422
--------------------------------------------------------------
--------------------------------------------------------------

Revenues

Total revenues amounted to $286,709 for the year ended November 30, 2005, compared with $412,956 for the year ended November 30, 2004, representing a decline of approximately 30.6%. This variance is explained by the absence of license revenues in 2005. In 2004, Ecopia had earned license revenues of $120,050 under the terms of a license transfer agreement for the use of some of its gene clusters in the licensee's drug discovery efforts. The licensee has future exclusivity options to use these gene clusters within a specified field of use. Additional revenues may be earned if these options are exercised.

R&D Activities

Research and development ("R&D") expenditures, before tax credits and grants, amounted to $8,078,665 for the year ended November 30, 2005, compared with $6,818,996 for the year ended November 30, 2004, an increase of 18.5%. This increase in R&D expenses results from preclinical expenses that were 73% higher than those of 2004. These increased costs were needed to prepare the Clinical Trial Application of ECO-4601, including the CMC process, advisory expenses for regulatory filing and the GLP toxicology studies in rodents and primates. Costs in all other areas of our R&D were lower than those of 2004, principally because of the reduction in the number of employees that was implemented before the end of the second quarter of 2005. This change in the nature of the Company's R&D expenses is consistent with the business objective of focusing on moving our lead cancer candidate into clinical trials as quickly as possible.

General and Administrative Expenditures

General and administrative ("G&A") expenses amounted to $2,896,195 for the year ended November 30, 2005, compared with $2,734,522 for 2004, an increase of 5.9%. These increases are largely explained by higher costs related to the Company's intellectual property activities.

Earnings Results

The Company recorded a net loss of $9,611,761 for the year ended November 30, 2005, compared with $8,214,000 for the year ended November 30, 2004. The loss per share amounted to $0.14 for both years. The increase in the loss reflects higher R&D expenditures and G&A expenditures discussed above.

Contractual Commitments

As of November 30, 2005 Ecopia's future contractual commitments are principally for an operating lease for facilities. Future rental payments under the operating lease agreement are presented below. The Company does not have any purchase obligations as of November 30, 2005. The Company has not engaged in off-balance sheet financing or commodity contract trading.

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Payments Due by Period
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                                                    $
2006                                          566,000
2007-2008                                   1,151,000
2009-2010                                   1,181,000
2011 and after                                600,000
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Total                                       3,498,000
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LIQUIDITY AND FINANCIAL POSITION

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November 30 (in thousands           2005           2004          2003

 of dollars) - (audited)
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Cash and bonds(i)                 $8,810         $6,266        $6,216
Tax credits receivable              $905           $797        $1,024
Bonds(ii)                           $638         $2,753        $2,330
Total assets                     $13,700        $13,466       $14,052
Capital stock and
 contributed surplus             $55,021        $44,878       $36,146
Shareholders' equity             $11,771        $12,027       $12,227
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(i) Cash invested in investment-grade bonds due in less than one
    year.
(ii)Cash invested in investment-grade bonds due in more than one
    year.

On November 30, 2005, the Company's cash position amounted to $9,448,048 measured in terms of cash and investments in investment-grade bonds. Tax credits receivable amounted to $904,811. Thus, the Company's liquidity position, measured in terms of cash, bonds and tax credits receivable, amounted to $10,352,859 on November 30, 2005, compared with $9,816,390 on November 30, 2004. The increase in the Company's cash position takes into account the issuance of units on March 8, 2005 for gross proceeds of $9.9 million.

In 2005, the Company disbursed $538,070 for additions to capital assets and for costs related to patent acquisitions. Capitalized  patent costs totaling $113,020 were written-off because of a decision not to pursue patent applications relating to certain genetic pathways that did not assist in discovering NCEs. These applications were abandoned in order to keep our resources for patent applications relating to the discovery of new compounds. Capitalized costs relating to scientific equipment were also written-off by $54,148 because of the reduction in our genomic activities in mid-2005.

Shareholders' equity amounted to $11,771,255 on November 30, 2005, compared with $12,027,374 on November 30, 2004. Total assets amounted to $13,700,050 on November 30, 2005, compared with $13,466,285 on November 30, 2004. The reductions in shareholders' equity and assets take into account the loss for the year and the issuance of the unit offering for proceeds of $9.9 million less share issue costs.

The Company's liquidity position, both in the short term and long term, is allocated to salaries, the funding of R&D activities, patent filings and the acquisition of capital assets. In a manner consistent with a goal of capital preservation and maintaining high levels of liquidity, the Company invests available cash resources in investment grade securities with varying terms to maturity, selected with regard to the expected timing of expenditures to be incurred from continuing operations. 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 to the end of fiscal 2006.

While Ecopia's management believes it can raise additional funding to continue its R&D operations into 2007, fundraising for early-stage biotechnology companies could be beyond the control of management, given current market conditions. It may be necessary to reduce these operations in the course of 2006 if necessary funds are not available.

On February 6, 2006, the number of common shares outstanding totalled 69,871,584, while 4,175,700 options were granted under the share purchase option plan and 7,820,834 share purchase warrants are outstanding pursuant to the unit offerings completed in February 2004 and March 2005. The outstanding options are exercisable at a weighted average price of $1.47 per share. A total of 4,154,167 share purchase warrants are exercisable at a price of $1.28 each and 3,666,667 share purchase warrants are exercisable at a price of $1.03 each.

Critical accounting policies

In preparing the Company's consolidated financial statements in conformity with GAAP, management is required to make certain estimates, judgments and assumptions that the Company believes are reasonable based upon the information available at the time. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The accounting policies which the Company considers to be critical are those that require the most difficult, subjective, or complex judgments and that are the most important to aid in fully understanding and evaluating its consolidated financial statements. These accounting policies are discussed in the following paragraphs.

CAPITAL ASSETS AND PATENTS are stated at cost and are amortized on a straight-line or declining balance basis. The Company regularly reviews capital assets and patents for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets exceeds the sum of the expected cash flows from its uses and disposal. Management's judgment regarding the existence of impairment indicators is based on legal factors, market conditions and operating performances. Future events could cause management to conclude that impairment indicators exist and that the carrying values of the Company's capital assets or patents are impaired. Any resulting impairment loss could have a material adverse impact on the Company's financial position and results of operations.

INCOME TAXES are accounted for under the asset and liability method. In the Company's case, recurrent operating losses during the development years create tax assets that may reduce future taxable earnings, if any. In assessing whether future tax assets may be realized, management provides valuation allowances by considering the likelihood that some portion or all of the tax assets will not be realized. The ultimate use of these future tax assets is dependent upon the generation of future taxable income. Given the high level of risk that is inherent in its industry, management does not recognize any value in the future tax assets that are created in excess of its future tax liabilities. As a result, a valuation allowance was recognized on the same basis as in prior years.

RESEARCH AND DEVELOPMENT AND TAX CREDITS consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company's various research and development programs. Research and development costs are expensed as incurred. Overhead expenses comprise general and administrative support provided to the research and development programs and involve costs associated with support activities such as facility maintenance, utilities, office services, information technology and human resources. Refundable research and development tax credits are recorded based on our estimates of amounts expected to be recovered and are subject to audit by the taxation authorities and, accordingly, these amounts may vary materially.

STOCK-BASED COMPENSATION represents the accounting cost of stock options awarded to employees and directors under Ecopia's stock option plan. The cost of these options is estimated by using the Black-Scholes option-pricing model that was developed to estimate the fair value of freely-tradable, fully transferable options without vesting restrictions. The terms of the options awarded under the stock option plan differ significantly from actual options for which the Black-Scholes model was designed to evaluate. Moreover, the use of this model requires highly subjective assumptions, especially the one relating to future stock price volatility, which greatly affects the computed values.

Quarterly Financial Data
(Unaudited)

Fiscal 2005
Quarters ended     February 28      May 31    August 31   November 30
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Revenues              $44,305    $84,488     $82,772      $75,144
Research and
 development
 expenditures,
 before tax
 credits and
 grants            $1,760,025 $1,847,053  $2,067,686   $2,403,901
Net loss           $2,261,950 $2,288,231  $2,265,561   $2,796,019
Net basic and
 diluted loss
 per share              $0.04      $0.03       $0.03        $0.04
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Fiscal 2004
Quarters ended     February 29      May 31    August 31   November 30
---------------------------------------------------------------------
Revenues              $68,970    $88,803     $76,033     $179,150
Research and
 development
 expenditures,
 before tax
 credits and
 grants            $1,488,238 $1,853,382  $1,720,400   $1,756,976
Net loss           $1,899,734 $2,271,839  $2,049,306   $1,993,121
Net loss per
 share                  $0.04      $0.04       $0.03        $0.03
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Risks and Uncertainties

The Company's operations involve certain risks and uncertainties that are inherent to the Company's industry. The most significant known risks and uncertainties faced by the Company are described below.

DEVELOPMENT AND LICENSING

The Company is at an early stage of development and has taken steps to license its technologies and develop its products. The Company may not be able to successfully develop or license its technologies. In addition, the Company's novel bioactive molecules may not be developed as drug candidates for human diseases.

SCIENTIFIC UNCERTAINTIES

Ecopia is a biotechnology company whose business case is to discover novel drug candidates and move them forward into the clinic as brand new chemotherapies never used before by the medical community. Because of the novelty of our drug candidates, there is no historical background that allows us to predict their outcome in preclinical and clinical trials. As well, drug discovery and development is a scientific discipline that involves uncertainty. Assumptions are made at the outset of experiments and trials, but there is no assurance that such assumptions are the right ones to be made. Such a discipline involves trial and error, and we may encounter serious setbacks that would prevent us from successfully developing, manufacturing and marketing any of our drug candidates. We are also dependent on the work of third parties such as contract research organizations that face the same scientific risks and uncertainties. Such setbacks could be more detrimental to us than to other organizations that have deeper scientific and financial resources than we have.

HISTORY OF OPERATING LOSSES AND EXPECTATIONS TO INCUR LOSSES IN THE FUTURE

The Company has experienced operating losses since its inception and expects that losses will continue for the next several years. The Company may never be profitable or achieve significant revenues. In order to develop and commercialize its products or license its technologies, the Company expects to incur significant increases in expenses over the next several years.

ABILITY TO ADAPT TO CHANGING PRIORITIES

The Company has experienced changes in its employees and the scope of its operations given its added priorities in drug development. These changes have placed, and may continue to place, a significant strain on the Company's management and operations. The Company's ability to manage such growth effectively will depend on its ability to strengthen its management team and on its ability to attract and retain skilled employees.

ADDITIONAL FUNDING

The current capital resources of the Company will not be sufficient to fund its long-term business strategy and the Company will therefore need to raise additional capital. To obtain the necessary capital, the Company must rely on government grants and tax credits, additional share issues and collaboration agreements or corporate partnerships to provide full or partial funding for its activities. Should the Company fail to obtain the necessary capital, it will have to considerably reduce, or even cease its operations, unless it is able to enter into agreements to obtain financial support from third parties, which may require that the Company waive  its rights to some of its eventual products or technologies.

PATENTS

The Company's success will depend in part on its ability to obtain patents, protect its trade secrets and operate without infringing the exclusive rights of third parties. There is no guarantee that any patent granted to the Company will bring any competitive advantage to the Company, that its patent protection will not be contested by third parties, or that the patents of competitors  will not be detrimental to the Company's commercial activities. It cannot be assured that competitors will not independently develop products similar to the Company's products, that they will not imitate any of the Company's products or that, if the Company obtains its patents, its competitors will not manufacture products designed to circumvent the exclusive patent rights granted to the Company.

COMPETITION

The Company is subject to significant competition from (i) pharmaceutical companies, (ii) biotechnology companies, (iii) academic and research institutions and (iv) government agencies or other organizations that are pursuing technologies and products that are the same as or similar to its technology and products. Many of the organizations competing with the Company have greater capital resources, research and development staffs and facilities and marketing capabilities.

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

AUDITORS' REPORT TO THE SHAREHOLDERS

We have audited the balance sheets of Ecopia BioSciences Inc. as at November 30, 2005 and 2004 and the statements of operations, deficit and cash flows for the years then ended.These financial statements are the responsibility of the Company's management.Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards.Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants 

Montreal, Canada January 13, 2006

ECOPIA BIOSCIENCES INC.
Balance Sheets

November 30, 2005 and 2004

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                                              2005              2004
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Assets

Current assets:
 Cash                                     $263,198          $152,763
 Bonds                                   8,546,532         6,113,689
 Sales tax receivable and other            136,292            45,351
 Tax credits receivable                    904,811           796,936

 Research supplies, at cost                      -            29,646
 Deposits and prepaid expenses             105,096           170,044
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                                         9,955,929         7,308,429

Bonds                                      638,318         2,753,002

Capital assets (note 3)                  2,293,381         2,818,817

Patents (note 4)                           812,422           586,037
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                                       $13,700,050       $13,466,285


Liabilities and Shareholders' Equity

Current liabilities:
 Accounts payable and accrued
  liabilities                           $1,928,795        $1,438,911

Shareholders' equity:
 Capital stock (note 5)                 54,567,028        44,655,975
 Contributed surplus                       453,660           222,469
 Deficit                               (43,249,433)      (32,851,070)
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                                        11,771,255        12,027,374

Commitments (note 9)

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                                       $13,700,050       $13,466,285
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See accompanying notes to financial statements.

On behalf of the Board.


ECOPIA BIOSCIENCES INC.
Statements of Operations

Years ended November 30, 2005 and 2004

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                                              2005              2004
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Revenues:
 Interest                                 $286,709          $292,906
 License                                         -           120,050
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                                           286,709           412,956

Costs and expenses:
 Research and development                8,078,665         6,818,996
 Tax credits and grants                 (1,076,390)         (926,562)
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                                         7,002,275         5,892,434

 General and administrative              2,896,195         2,734,522
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                                         9,898,470         8,626,956

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Net loss                               $(9,611,761)      $(8,214,000)
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Net basic and diluted loss per share        $(0.14)           $(0.14)
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Weighted average number of
 outstanding shares                     66,939,214        57,172,017
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See accompanying notes to financial statements.


ECOPIA BIOSCIENCES INC.
Statements of Operations

Years ended November 30, 2005 and 2004

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                                              2005              2004
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Revenues:
 Interest                                 $286,709          $292,906
 License                                         -           120,050
---------------------------------------------------------------------
                                           286,709           412,956

Costs and expenses:
 Research and development                8,078,665         6,818,996
 Tax credits and grants                 (1,076,390)         (926,562)
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                                         7,002,275         5,892,434

 General and administrative              2,896,195         2,734,522
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                                         9,898,470         8,626,956

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Net loss                               $(9,611,761)      $(8,214,000)
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Net basic and diluted loss per share        $(0.14)           $(0.14)
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Weighted average number of
 outstanding shares                     66,939,214        57,172,017
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See accompanying notes to financial statements.


ECOPIA BIOSCIENCES INC.
Statements of Deficit

Years ended November 30, 2005 and 2004

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                                              2005              2004
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Deficit, beginning of year            $(32,851,070)     $(23,919,440)

Net loss                                (9,611,761)       (8,214,000)

Share issue costs                         (786,602)         (717,630)

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Deficit, end of year                  $(43,249,433)     $(32,851,070)
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See accompanying notes to financial statements.


ECOPIA BIOSCIENCES INC.
Statements of Cash Flows

Years ended November 30, 2005 and 2004

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                                              2005              2004
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Cash flows from operating activities:
 Net loss                              $(9,611,761)      $(8,214,000)
 Adjustments for:
  Depreciation on capital assets           683,393           978,383

  Depreciation on patents                   35,630            25,206
  Write-off of capital assets               54,148            95,200
  Write-off of patents                     113,020            66,295
  Loss on disposal of capital asset          3,500                 -
  Stock-based compensation                 233,544           155,403
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                                        (8,488,526)       (6,893,513)

 Changes in operating assets
  and liabilities:
   Interest receivable on bonds            (28,045)           71,010
   Sales tax receivable and other          (90,941)           76,329
   Tax credits receivable                 (107,875)          226,720
   Research supplies                        29,646            12,354
   Deposits and prepaid expenses            64,948           114,020
   Accounts payable and accrued
    liabilities                            434,814            68,513
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                                           302,547           568,946

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                                        (8,185,979)       (6,324,567)

Cash flows from financing activities:
 Proceeds from issuance of shares        9,908,700         8,576,660
 Share issue costs                        (786,602)         (717,630)
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                                         9,122,098         7,859,030

Cash flows from investing activities:
 Acquisition of bonds                  (11,327,682)       (7,999,921)
 Proceeds from disposal of bonds        11,037,568         7,537,247
 Additions to capital assets              (204,313)         (594,457)
 Costs relating to patent acquisitions    (333,757)         (399,631)
 Proceeds from disposal of capital assets    2,500             3,800
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                                          (825,684)       (1,452,962)

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Net increase in cash                       110,435            81,501

Cash, beginning of year                    152,763            71,262

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Cash, end of year                         $263,198          $152,763
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Supplemental cash flow information (note 6)


See accompanying notes to financial statements.


ECOPIA BIOSCIENCES INC.
Notes to Financial Statements

Years ended November 30, 2005 and 2004
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1. Organization and business activities:

Ecopia BioSciences Inc. (the "Company"), incorporated under the Canada Business Corporations Act, is searching for novel anticancer therapies from soil-dwelling microorganisms using its discovery platform called the Decipher(R) technology.The Company is currently focusing on moving its lead anticancer compound ECO-4601 into phase I clinical trials.

The Company is considered to be in the development stage. Substantially all of the Company's research and development expenditures, and all revenues from research contracts, since inception, relate to the Company's core technology and its development program.In addition, the Company's capital expenditures since inception relate principally to the Company's core technology.

The following table provides cumulative information for research revenues, and research and development expenditures, since the beginning of operations in 1998:

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                                            2005                2004
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Revenues from research
 contracts and license                 $256,310           $256,310
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Research and development
 expenditures:
  Gross amount                      $33,541,558        $25,462,893
  Research tax credits and grants     (6,030,357)         (4,953,967)

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                                    $27,511,201        $20,508,926
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As part of its activities, the Company faces certain risks, namely risks that are inherent to the research and development of its technologies and the commercialization of its products or services, the protection of its intellectual property, retaining key employees, as well as obtaining sufficient financing in order to achieve its business plan.

2. Significant accounting policies:

(a) Basis of presentation:

The financial statements have been prepared on the going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future.

The Company's ability to continue as a going concern is dependent on raising additional capital and, in the longer term, finding and marketing commercially viable products and attaining financially sustainable operations.Should the Company fail to obtain the necessary capital, it will have to reduce its operations, unless it is able to enter into agreements to obtain financial support from third parties, which may require that the Company waive its right to some of its eventual products or technologies.

(b) Cash equivalents:

Cash equivalents are limited to investments with maturities of three months or less that are highly liquid and readily convertible into cash.These investments are recorded at cost.As at November 30, 2005 and 2004, there were no cash equivalents.

(C) Bonds:

Bonds are recorded at the lesser of cost and market value for those classified in current assets.Bonds are classified in current assets with respect to their maturity date or management estimates of cash flow needs for the next year.Long-term investments are recorded at cost less a provision for permanent impairment, if any. Any discount or premium arising on purchase of bonds is amortized using the straight-line method over the remaining term.These bonds consist of investment-grade instruments that are readily convertible into cash.

(d) Capital assets:

Capital assets are stated at cost.Depreciation is provided using the following methods and annual rates/periods:

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Asset                                 Method             Rate/period
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Specialized computer
 equipment                     Straight-line                 5 years
Machinery and equipment    Declining balance          From 20% to 50%
Leasehold improvements         Straight-line           Term of lease

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The Company performs a review for the impairment of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable.An impairment loss would be recognized when the recoverable value of the capital asset is less than its carrying amount.Fair value, at which the capital asset would be measured, can be established on a quotation price basis or by other valuation methods.Some equipment is no longer utilized in the activities of the Company.As a result, the net book value of specialized computer equipment has been reduced by $24,482 ($95,200 in 2004) and the net book value of machinery and equipment, by $29,666 (2004 - nil).

(e) Patents:

The costs relating to patent acquisitions are amortized over a period of 20 years, using the straight-line method.The cost of the patents does not necessarily reflect the present or future value of patents and the amount ultimately recoverable is dependent upon the successful commercialization of the related products.Management reviews the unamortized balance of patent costs on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable, and recognizes any impairment in carrying values in the year of impairment.

An impairment would be recognized when the recoverable value of the asset is less than its carrying amount.The fair value, at which the asset would be measured, can be established on the basis of comparable information or transaction or by other valuation methods. In 2005, a write-off of $113,020 ($66,295 in 2004) was recorded.

(f) Revenue recognition:

Revenue from research contracts consists of non-refundable research and development funding under collaborative and other agreements.Contract research and development funding generally compensates the Company for discovery, preclinical and clinical expenses related to the collaborative development programs for certain products and product candidates of the Company.Such funding is recognized as revenue at the time research and development activities are performed under the terms of the agreements.

License revenues are recorded when the conditions or the obligations have been satisfied under the license agreement and collection is reasonably assured.

(g) Research and development:

Research expenditures, net of related research tax credits and grants, are charged to earnings in the year in which they are incurred.Development expenditures, net of tax credits, if any, are capitalized when they meet the appropriate criteria for capitalization in accordance with generally accepted accounting principles.At November 30, 2005 and 2004, no development cost was capitalized.

(h) Stock-based compensation:

Stock option awards to employees are measured based on the fair value of the options at the grant date and a compensation expense is recognized over the vesting period of the options, with a corresponding increase to contributed surplus.When the stock options are exercised, capital stock is credited by the sum of the consideration paid, together with the related portion previously recorded to contributed surplus.

(i) Government assistance:

Government assistance, consisting of research tax credits and grants, is recorded as a reduction of the related expense or the cost of the asset acquired.Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved grant program or, with regard to tax credits, when there is reasonable assurance that they will be realized.

(j) Income taxes:

The Company uses the asset and liability method of accounting for income taxes.Under the asset and liability method, future 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.As appropriate, a valuation allowance is recorded to bring future assets back to an amount of which the realization is more probable than not.Future tax assets and liabilities are measured using enacted or substantively enacted tax rates at the balance sheet date which are expected to apply when the asset is realized or the liability settled.The effect of a change in tax rates is recognized in the period during which the tax rates change occurred.

(k) Earnings per share:

Basic earnings per share are determined using the weighted average number of common shares outstanding during the period.The treasury stock method is used for calculating diluted earnings per share.In connection with such calculation, the number of additional shares is calculated by assuming that outstanding options and warrants were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period.

(l) Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period.Actual results could differ from those estimates.

3. Capital assets:

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                                                                 2005
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                                             Accumulated
                                        depreciation and     Net book
                                Cost        amortization        value
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Specialized computer
 equipment                  $438,000            $438,000           $-
Machinery and
 equipment                 4,775,706           3,269,264    1,506,442
Leasehold improvements     1,190,247             403,308      786,939

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                          $6,403,953          $4,110,572   $2,293,381
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                                                                 2004
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                                             Accumulated
                                        depreciation and     Net book
                                Cost        amortization        value
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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. Patents:

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                                           2005                  2004
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Cost                                  $995,762             $620,727
Accumulated amortization                183,340                34,690

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                                      $812,422             $586,037
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5. Capital stock:

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

Issued:
 69,871,584 common shares
 (58,851,584 in 2004)              $54,567,028          $44,655,975
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  (a) Changes in the issued and outstanding capital stock were as
      follows:
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                                         Number                Amount
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Balance, November 30, 2003           50,465,200          $36,075,613

Shares issued pursuant to
 a private placement                  8,333,334             8,500,001
Shares issued pursuant to
 exercise of options                     40,550                64,361
Shares issued pursuant to
 exercise of warrants                    12,500                16,000

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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                     20,000                11,053

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Balance, November 30, 2005           69,871,584          $54,567,028
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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 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 approximately $9.9 million.Each full share purchase warrant allows the holders to purchase one common share of the Company at an exercise price of $1.03 and expires in March 2007.

In February 2004, the Company closed a private placement for the issuance of 8,333,334 units, each unit comprised of one share and one half of one common share purchase warrant.Each unit was sold at $1.02, allowing the Company to raise gross proceeds of approximately $8.5 million.Each full share purchase warrant allows the holders to purchase one common share of the Company at an exercise price of $1.28 and expires in February 2008.

During the years ended November 30, 2005 and 2004, the Company issued 20,000 and 40,550 shares, pursuant to exercise of options for a gross consideration of $8,700 and $60,659 respectively.The stock-based compensation relating to these awards, which had been included in the contributed surplus and then credited to the capital stock during the year, amounted to $2,353 ($3,702 in 2004).

In 2004, the Company also issued 12,500 shares pursuant to exercise of warrants for a gross consideration of $16,000.

At November 30, 2005, 7,820,834 (4,154,167 in 2004) warrants were outstanding as a result of issuance of units previously mentioned.

All issues of shares were made for cash consideration.

(b) Stock option plan:

The Company has established a stock option plan under which it can grant to its directors, management, employees, researchers and its consultants non-transferable options for the purchase of common shares.During the year, the plan was amended in order to establish the maximum number of common shares available for issuance under options to 10% of the number of common shares outstanding at the time of the grant.Options expire ten years after their initial release. The options vest over an average period of 5 years.

Changes in the number of options outstanding during the past two fiscal years were as follows:

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                                                     Weighted average
                                                       exercise price
                                     Options                per share
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Options, November 30, 2003         3,768,350                   $1.51

Granted                              660,500                     1.41
Exercised                            (40,550)                    1.50
Cancelled                           (111,450)                    1.04

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



Granted                              131,250                     0.70
Exercised                            (20,000)                    0.44
Cancelled                           (212,400)                    1.77

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Options, November 30, 2005         4,175,700                   $1.47
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The following table summarizes the information on outstanding stock
options at November 30, 2005:

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                         Outstanding options
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                                             Weighted
                                              average
                                         of remaining        Weighted
Price and                 Number          contractual         average
range of              of options                 life        exercise
prices               outstanding               (years)          price
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$0.20                    350,000                  2.4          $0.20
$0.35 - $0.50          1,305,200                  4.9            0.40
$0.67 - $0.90            277,500                  7.5            0.84
$1.03 - $1.35            814,500                  8.5            1.14
$1.65 - $2.15            888,500                  5.4            1.87
$3.02                     15,000                  5.4            3.02

$5.00 - $5.35            525,000                  4.7            5.08

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                       4,175,700                  5.6          $1.47
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                         Exercisable options
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                                             Weighted
                       Number of              average
                     exercisable             exercise
                         options                price
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                         350,000                $0.20
                       1,123,120                 0.40
                         154,500                 0.84
                         233,400                 1.11
                         824,500                 1.85
                          15,000                 3.02
                         500,000                 5.07

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                       3,200,520                $1.57
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The fair value of the options granted during the year ended November 30, 2005 was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 4.5%, expected dividend yield of nil, expected volatility ranging from 71% to 76% and expected average option life of 5 years.The weighted average fair value of the options granted during the year ended November 30, 2005 is $0.52 ($0.95 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.These models also require 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, for the year ended November 30, 2005, the exercise of 2,520,500 options (1,918,500 in 2004) and 7,820,834 warrants would not have been considered in such computation since the exercise price of these options was higher than the average market price.

6. Supplemental information:

  (i) Cash flow statement:

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                                         2005                    2004
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 Costs relating to patent acquisitions
  included in accounts payable and
  accrued liabilities                $47,048                 $5,770

 Acquisition of capital assets

  included in accounts payable and
  accrued liabilities                  16,686                   2,894

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  (ii) Statement of operations:

Depreciation of is included in the following accounts:

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                                         2005                    2004
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 Research and development:
  Depreciation of capital assets    $536,400               $821,973

 General and administrative:
  Depreciation of capital assets      146,993                 156,410
  Depreciation of patents              35,630                  25,206
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7. Restructuring fees:

In the context of the execution of its business strategy, the Company
reduced, in May 2005, its headcount by 30% and abandoned patents
considered of secondary importance.  The Company incurred severance
fees in the amount of $144,626, which were fully paid as of November
30, 2005.  In addition, the Company recorded a write-off of $83,366
related to the abandoned patents.  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.

8. Income taxes:

Details of the components of income taxes are as follows:

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                                         2005                   2004
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Loss before recovery of income
 taxes                            $9,611,761            $8,214,000

Basic income tax rate                    31.2%                  31.2%

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Computed income tax recovery        2,998,869              2,562,768

Adjustment in income taxes
 resulting from:
  Unrecorded potential tax
  benefits of operating losses     (2,941,150)            (2,548,015)
Impact of the expected increase
 on the provincial tax rate:
  Future tax assets increase        1,331,601                      -
  Valuation allowance              (1,331,601)                     -
Permanent differences and other       (57,719)               (14,753)

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                                          $-                    $-
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The income tax effect of temporary differences that give rise to net
future tax assets and future tax liabilities is presented below:

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                                         2005                   2004
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Future tax assets:
 Net operating loss
  carryforwards                   $5,180,737            $4,141,232
 Unused research and development
  expenditures                      9,376,954              6,126,756
 Share issue costs                    399,052                366,338
 Costs relating to patents and other   87,557                 33,771
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                                   15,044,300             10,668,097

Future tax liabilities:
 Capital assets                      (140,138)              (307,261)
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                                   14,904,162             10,360,836

Less valuation allowance          (14,904,162)           (10,360,836)

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Net future tax asset                      $-                    $-
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In assessing the ability to realize future tax assets, management
considers whether it is more likely than not that some portion or all
of the future tax assets will not be realized.  The ultimate
realization of future tax assets is dependent upon the generation of
future taxable income and available tax planning strategies in making
this assessment. Since the Company is a development stage
corporation, the generation of future taxable income is dependent on
the successful commercialization of its products and technologies.

At November 30, 2005, the Company had the following operating loss
carryforwards and unclaimed deductions and credits available for
carry forward:

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                                           Federal        Provincial
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Research and development
 expenditures, without time
 limitation                           $24,893,000      $32,569,000
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Losses carried forward:
 Expiring:
  2006                                   $417,000         $250,000
  2007                                     419,000           198,000
  2008                                   2,531,000         1,655,000
  2009                                   3,485,000         2,448,000
  2010                                   4,280,000         2,803,000
  2014                                   2,611,000         2,608,000
  2015                                   2,822,000         2,809,000

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                                      $16,565,000      $12,771,000
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Share issue costs                      $1,174,000       $1,174,000
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Unused tax credits:
 Expiring:
  2007                                   $119,000
  2008                                      19,000
  2009                                     213,000
  2010                                     228,000
  2011                                     738,000
  2012                                     883,000
  2013                                   1,005,000
  2014                                   1,077,000
  2015                                   1,329,000

---------------------------------------------------
                                       $5,611,000


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9. Commitments:

The Company rents premises under an operating lease expiring in
November 2011.  The minimum payments required, including additional
rent representing operating costs under the terms of the lease, are
as follows:

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2006                                                       $566,000
2007                                                         572,000
2008                                                         579,000
2009                                                         587,000
2010                                                         594,000
Thereafter                                                   600,000

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                                                         $3,498,000
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In addition, the Company has issued an irrevocable letter of credit amounting to $389,282, along with a first rank movable hypothec, which can be subordinated in regard to lending institutions, of $1,000,000 covering the Company's tangible assets  located in the rented premises.The lease comprises progressive reduction clauses with respect to the amount of the letter of credit beginning in 2005, and an option for the purchase of the land and building.

10. Financial instruments:

The Company has determined that the carrying value of its short-term financial assets and liabilities, including cash, sales tax receivable and other, tax credits receivable and accounts payable and accrued liabilities, approximates their fair value because of the relatively short periods to maturity of these instruments.

Bonds are composed of financial instruments issued from municipal and paragovernmental bodies as well as companies with investment-grade ratings.These investments bear interest at rates varying between 2.46% and 6.25% based on nominal value and mature at various dates over the next two years.Fair value of bonds amounted to $9,162,664 and $8,844,564 as at November 30, 2005 and 2004, respectively.

Ecopia BioSciences Inc. (TSX:EIA)