Currency and Exchange Rates

 

The following table sets out the exchange rates for U.S. dollars expressed in terms of one Canadian dollar in effect at the end of the following periods, and the average exchange rates (based on the average of the exchange rates on the last day of each month in such periods):

 

						U.S. Dollars Per One Canadian Dollar Year Ended December 31,
	January - March 2008			2007					2006			2005			2004			2003
End of period		0.98					1.01			0.86			0.86			0.83			0.77
Average for the period		1.00					0.93			0.88			0.82			0.76			0.71

The following table sets out the high and low exchange rates for U.S. dollars expressed in terms of one Canadian dollar in effect at the end of the following periods:

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	U.S. Dollars per One Canadian Dollar
	March 2008			February 2008			January 2008			December 2007			November 2007			October 2007
High for the month		0.98			0.98			0.97			0.97			0.97			0.97
Low for the month		1.03			1.01			1.01			1.02			1.09			1.09

Exchange rates are based upon the noon buying rate in New York, U.S. for cable transfers in foreign currencies, as certified for customs purposes by the United States Federal Reserve Bank of New York. The noon rate of exchange on March 28, 2008 as reported by the United States Federal Reserve Bank of New York for the conversion of Canadian dollars into United States dollars was CDN$1.00 = U.S.$0.98.

 

B.	Capitalization and Indebtedness

 

Not applicable.

WE HAVE NOT DERIVED ANY REVENUE TO DATE FROM THE COMMERCIAL SALE OF PRODUCT CANDIDATES, HAVE NEVER HAD ANY REVENUES FROM COMMERCIAL SALES AND HAVE RELIED ON EQUITY AND DEBT FINANCINGS TO SUPPORT OUR OPERATIONS.

 

We have not derived any revenue to date from the commercial sale of product candidates and have no product candidates for sale. Our future profitability will depend upon our ability to enter into suitable licensing or partnering arrangements to commercialize our product candidates obtain regulatory approvals and bring product candidates to market in a timely manner. We have relied solely on equity and debt financing, government grants, and milestone payments from potential product out-licensing to support our operations. We have not commercially introduced any product candidates and the product candidates are in varying stages of development and testing. Our ability to sell an approved commercial product will depend upon our ability to develop products that are safe, effective and commercially viable, to obtain regulatory approval for the manufacture and sales of our product candidates and to license or otherwise market our product candidates successfully. We may never commercialize an approved product and may have to rely on equity, debt financings and collaborative agreements to support ongoing operations.

 

WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES. IF WE ARE UNABLE TO ACHIEVE SIGNIFICANT REVENUES IN THE FUTURE, WE WILL CEASE DOING BUSINESS.

Since our inception, we have incurred significant losses each year. Our accumulated deficit from inception to December 31, 2007 is $65,381,861. We expect to continue to incur significant operating losses as we continue our product-candidate research and development and potential clinical trials. These losses, among other things, have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Unless we are able to generate sufficient product revenue, we will continue to incur losses from operations and may not achieve or maintain profitability.

We will need to generate significant revenues in order to achieve and maintain profitability. Our ability to generate revenue in the future is dependent, in large part, on completing product development, obtaining regulatory approvals, and commercializing, or entering into agreements with third parties to commercialize, our product candidates. We cannot assure you that we will ever successfully commercialize or achieve revenues from sales of our therapeutic product candidates if they are successfully developed or that we will ever achieve or maintain profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.

 

Until we receive regulatory approval for sales of product candidates incorporating our licensed and/or patented technologies, we cannot sell our product candidates and will not have revenues from sales. The research, development, production, and marketing of new products require the application of considerable technical and financial resources. However, any revenues generated from such product candidates, assuming they are successfully developed, marketed, and sold, may not be realized for a number of years.

 

WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT EXPENSES.

 

We expect to continue to incur significant expenses connection with:

 

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the Chimigen™ Platform technology to develop therapeutic as well as prophylactic vaccines for the treatment of different viral diseases;

 

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our expenses will increase as we commence new preclinical and clinical trials as we progress existing product candidates to more advanced phases of pre-clinical and clinical development in the event that we are not able to obtain a licensing partner. The more advanced trials typically require more clinical trial participants, clinical trial sites and research investigators than earlier stage clinical trials and are consequently more expensive;

 

We also expect to incur significant general and administrative expenses in support of our increased operations as well as the ongoing costs to operate as a company listed on the American Stock Exchange (“AMEX”) and on the Toronto Stock Exchange (“TSX”).

 

Over the longer term, the costs referred to above will fluctuate, primarily dependant on the number and type of preclinical and clinical trials being undertaken at any one time and the number of regulatory marketing authorizations being sought. Costs will also increase if we are able to progress any product candidates from preclinical testing to clinical trials or if we are able to complete clinical trials in the event that we are not able to obtain a licensing partner of any product candidates and seek regulatory marketing authorizations.

 

 

 

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WE WILL CONTINUE TO NEED SIGNIFICANT AMOUNTS OF ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR AT ALL OR WHICH MAY BE DILUTIVE.

 

To date, we have funded our operations and capital expenditures with proceeds from the sale of our securities, government grants and interest on investments.

 

In order to achieve our goal of being a successful biotechnology company and to conduct the lengthy and expensive research, preclinical studies, clinical trials, regulatory approval process, manufacture, sales and marketing necessary to complete the full development of our product candidates, we may require substantial additional funds in addition to the funds received in connection with the United States (“U.S.”) private offerings and the various Canadian placements completed in 2006.  In April 2008, we expect to file a final short form prospectus for a rights offering.  The subscription price has not yet been determined and will be equal to the weighted average of the closing price of the Company’s common shares on the TSX for each of the trading days on which there was a closing price during the three trading days immediately preceding the date of the final prospectus in respect of the offering, less a discount of 25%.  The Company has applied to list on the TSX the rights distributed under the short form prospectus and the shares issuable upon the exercise of the rights.  Approval of such listing will be subject to the Company fulfilling all of the listing requirements of the TSX.  The Company has applied to list the shares issuable upon the exercise of the rights (but not the rights themselves) on the AMEX. Approval of such listings will be subject to the Company fulfilling all of the listing requirements of the AMEX.  The offering will only be available to existing shareholders on the, as yet to be determined, record date.  The Company anticipates raising net proceeds of approximately CDN$5 million dollars which translates to approximately 12 to 18 months of operating capital.

 

To further meet our financing requirements, we may raise funds through public or private equity offerings, debt financings, and through other means, including collaborations and license agreements. Raising additional funds by issuing equity or convertible debt securities may cause our shareholders to experience significant additional dilution in their ownership interests. Raising additional funds through debt financing, if available, may involve covenants that restrict our business activities. Additional funding may not be available to us on favorable terms, or at all. If we are unable to obtain additional funds, we may be forced to delay, reduce the scope of or terminate preclinical and/or clinical trials and the development, manufacturing and marketing of our products. To the extent that we raise additional funds through collaborations and licensing arrangements, we may have to relinquish valuable rights and control over our technologies, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

 

IF WE FAIL TO OBTAIN ADDITIONAL FINANCING, WE MAY BE UNABLE TO FUND OUR OPERATIONS AND COMMERCIALIZE OUR PRODUCT CANDIDATES.

The Company’s focus in 2008-2009 is to concentrate its internal resources on bringing additional Chimigen™ Platform Vaccines into development, as well as working on establishing a partnership for the development and commercialization of Occlusin™ 500 Artificial Embolization Device (“AED”) in Europe and / or Asia. ViRexx will also seek partnerships to move the AIT™ Platform strategy forward, both in the clinical and pre-clinical areas.  Analysis of the past trials will lay the foundation for any future trials of OvaRex® MAb in conjunction with front-line chemotherapy.  A number of companies have expressed interest in partnering with ViRexx to work on several of the other MAbs in the AIT™ Platform.  We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our projected operating requirements only through to the second quarter of 2008.

 

Our future funding requirements will depend on many factors, including:

 

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the scope, results, rate of progress, timing and costs of preclinical studies and clinical trials and other development activities. Specifically, the funding requirements for clinical trials of Occlusin™ 500 AED and Occlusin™ 50 Injection. The funding requirements for the preclinical testing and potential future clinical testing of our earlier-stage product candidates and any other testing that we may initiate are also significant.  As a result, we will be looking to partner these product candidates prior to initiating Phase II clinical trials and /or funding selected projects based on funding availability;

 

•

the costs and timing of seeking and obtaining regulatory approvals;

 

•

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

•

the costs of developing sales and marketing capabilities and establishing distribution capabilities;

 

•

the cost of developing our commercial-scale capabilities;

 

•

the cost of additional management, scientific, manufacturing, and sales and marketing personnel. We may be required to increase the number of our personnel over time;

 

•

the terms, timing and cash requirements of any future acquisitions, collaborative arrangements, licensing of product candidates or investing in businesses, product candidates and technologies;

 

 

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the costs of securing coverage, payment and reimbursement of our product candidates, if any of our product candidates receive regulatory approval; and

 

•

the effects of competing clinical, technological and market developments.

If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs or future commercialization efforts.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

 

WE ARE IN THE EARLY STAGES OF DEVELOPING PRODUCT CANDIDATES. OUR PRODUCT CANDIDATES MAY NOT BE EFFECTIVE AT A LEVEL SUFFICIENT TO SUPPORT A PROFITABLE BUSINESS VENTURE. IF THEY ARE NOT, WE WILL BE UNABLE TO CREATE MARKETABLE PRODUCT CANDIDATES AND DERIVE ANY MEANINGFUL REVENUES. UNLESS WE ARE ABLE TO GENERATE SUFFICIENT PRODUCT REVENUE, WE WILL CONTINUE TO INCUR LOSSES FROM OPERATIONS AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY AND WE WILL HAVE TO CEASE OPERATIONS.

 

 

In addition, it takes a significant period of time for new vaccines, medical devices and therapeutic drugs and monoclonal antibody therapies, to be developed, to obtain the necessary regulatory approvals to permit sales, to establish appropriate distribution channels and market acceptance, and to obtain insurer reimbursement approval. This time period is generally not less than 10 years. None of our therapeutic product candidates have been commercialized and completion of the commercialization process for any of our product candidates will require significant investments of time and funds. We cannot predict either the total amount of funds that will be required, or assure you that we will be successful in obtaining the necessary funds. It is also not possible for us to predict the time required to complete the regulatory process or if there will be sufficient market demand at such time. If any of our product candidates are approved, we cannot give assurances that it will be possible to produce them in commercial quantities at reasonable cost, successfully market them, or whether any investment made by us in the commercialization of any product candidates would be recovered through sales, license fees, or related royalties. Furthermore, the time it takes for product candidates to reach market acceptance exposes us to significant additional risks, including the development of competing products, loss of investor interest, changing market needs, changes in personnel, and regulatory changes.

 

Since the process of discovering and developing cancer therapies and treatments for chronic viral infections is our core business, we anticipate that we will remain engaged in research and development for the foreseeable future. As product candidates advance to commercialization, we expect that research will identify other potential candidates for development.

WE RELY ON, AND INTEND IN THE FUTURE TO CONTINUE TO RELY ON, TECHNOLOGY LICENSES FROM THIRD PARTIES AND ANY BREACH OR TERMINATION OF THESE LICENSE ARRANGEMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.

 

We cannot assure you that we will obtain any additional required licenses, that our existing licenses or new licenses, if obtained, will not terminate, or that they will be renewed. The failure to obtain, the termination of, or the failure to renew any of these licenses could have a material adverse effect on our pre-clinical and clinical programs and may cause us to suspend or cease our operations. In addition, we cannot assure you that these licenses will remain in good standing or that the technology we have licensed under these agreements has been adequately protected or is free from claims of infringement of the intellectual property rights of third parties.

 

Pursuant to the terms of the licenses and any agreements we may enter into in the future, we are and could be obligated to exercise diligence in bringing potential products to market and to make license payments and certain potential milestone payments that, in some instances, could be substantial. We are obligated and may in the future be obligated, to make royalty payments on the sales, if any, of product candidates resulting from licensed technology and, in some instances, may be responsible for the costs of filing and prosecuting patent applications.

 

 

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OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY OR OUR INFRINGEMENT ON THE PROPERTY RIGHTS OF OTHERS MAY IMPEDE OUR ABILITY TO OPERATE FREELY.

We continually evaluate our technology to determine whether to make further patent filings and rely significantly upon proprietary technology. We protect our intellectual property through patents, copyrights, trademarks, trade secrets and contractual agreements as appropriate. We own or exclusively license 9 issued U.S. patents having expiration dates ranging from 2016 to 2021. As we develop our product candidates, we may discover additional patentable subject matter that we may elect to prosecute. 

Prior to filing a patent, data developed by the Company or its licensees is held in confidence, which confidence is secured by contractual arrangement. From time to time management may make a determination that superior economic gain may be attained by perpetually protecting an invention as a trade secret rather than disclosing it in a patent application. Inventions held as trade secrets can be independently discovered by others. In addition, the contractual agreements by which we protect our unpatented technology and trade secrets may be breached. If technology similar to ours is independently developed or our contractual agreements are breached, our technology will lose value and our business will be irreparably harmed.

 

There is always a risk that issued patents may be subsequently invalidated, either in whole or in part, and this could diminish or extinguish our patent protection for key elements of our technology. We are not involved in any such litigation or proceedings, nor are we aware of any basis for such litigation or proceedings. We cannot be certain as to the scope of patent protection, if any, which may be granted on our patent applications.

 

Having patents issued does not guarantee that our business activities are not infringing intellectual property rights of third parties. Any claims against us or any purchaser or user of our potential products asserting that such product or process infringes intellectual property rights of third parties could have a material effect on our business, financial condition or future operations. Any asserted claims of infringement, with or without merit, could be time consuming, result in costly litigation, divert the efforts of our technical and management personnel, or require us to enter into royalty or licensing agreements, any of which could materially adversely affect our operating results. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In the event a claim is successful against us and we cannot obtain a license to the relevant technology on acceptable terms, license a substitute technology or redesign our potential products to avoid infringement, our business, financial condition and operating results would be materially adversely affected.

 

OUR BUSINESS IS SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION AND FAILURE TO ACHIEVE REGULATORY APPROVAL OF OUR DRUG CANDIDATES WOULD SEVERELY HARM OUR BUSINESS.

 

 

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WE ARE DEPENDENT ON THE SUCCESSFUL OUTCOME OF PRECLINICAL TESTING AND CLINICAL TRIALS.

 

None of our product candidates are currently approved for sale by the FDA, EMEA, and Health Canada or by any other regulatory agency in the world, and they may never receive approval for sale or become commercially viable. Before obtaining regulatory approval for sale, each of our product candidates must be subjected to extensive preclinical and clinical testing to demonstrate safety and efficacy for each proposed indication for human use. Our success will depend on the successful outcome of these preclinical tests and clinical trials. There are multiple risk factors associated with conducting clinical trials of our investigational drug and device product candidates. There may be unforeseen delays in identifying and reaching agreement on acceptable terms with Institutional Review Boards of clinical trial providers with respect to proposed clinical study protocols. There may also be delays in reaching satisfactory financial agreements with prospective clinical trial sites and the investigators themselves.

 

There may be regulatory delays of clinical trials related to obtaining FDA, Health Canada, EMEA, or other regulatory agency clearance to begin patient treatment in a clinical trial. A common issue in conducting a clinical trial is that delays encountered in the enrollment of patients may significantly prolong the length of time required to conduct the clinical studies.

 

A prime risk factor of clinical trials is that the study outcome may reveal that the product candidate does not demonstrate the anticipated level of effectiveness in the target patient population. Such outcomes may adversely affect the approvability of the potential product by regulatory agencies. Similarly, clinical trials may show that an investigational product causes unacceptable adverse events in the patient population to be treated with the drug.

 

 

In addition to the risks mentioned, there are a number of other difficulties and risks associated with clinical trials. The possibility exists that:

 

(a)	we may discover that our product candidates may cause, alone or in combination with another therapy, unacceptable side effects;
(b)	we may discover that our product candidates, alone or in combination with another therapy, do not exhibit the expected therapeutic results in humans;
(c)	results from early trials may not be predictive of results that will be obtained from large-scale, advanced clinical trials as mentioned above;
(d)	we or the FDA or other regulatory agencies may suspend the clinical trials of one or more of our product candidates;
(e)	patient recruitment may be slower than expected;
(f)	patients may drop out of our clinical trials; and
(g)	there may be cost overruns.

 

Although the FDA and EMEA have granted OvaRex® MAb Orphan Drug Status for its use in ovarian cancer, this status does not diminish any of the requirements for market approval. Orphan Drug status in the U.S. provides seven year market exclusivity and ten years in Europe.  Given the uncertainty surrounding the regulatory and clinical trial process, we may not be able to develop safety, efficacy or manufacturing data necessary for approval of this or any of our product candidates. In addition, even if we receive approval, such approval may be limited in scope and affect the commercial viability of such product candidate. If we are unable to successfully obtain approval to commercialize any product candidate, this would materially harm our business, impair our ability to generate revenues and adversely impact our stock price.

DELAYS IN CLINICAL TRIALS WILL CAUSE US TO INCUR ADDITIONAL COSTS, WHICH COULD JEOPARDIZE THE TRIALS AND ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL RESULTS.

 

For internally funded clinical trials and due to the associated high costs, a delay for any reason, will require us to spend additional funds to keep our product candidates moving through the regulatory process. If we do not have or cannot raise the necessary additional funds, the testing of our product candidates could be cancelled. If we are required to spend additional funds, it will require us to spend funds that could have been used for other purposes and could adversely affect our liquidity and financial results. Delays in obtaining clinical trial results will also delay profitability from commercialization of any given product candidate and accordingly negatively effect our financial results.

 

 

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WE RELY ON CLINICAL INVESTIGATORS AND CONTRACT RESEARCH ORGANIZATIONS TO CONDUCT OUR CLINICAL TRIALS.

 

We rely, in part, on independent clinical investigators and contract research organizations to conduct our clinical trials. Contract research organizations also assist us in the collection and analysis of the data generated from these clinical trials. These investigators and contract research organizations are not our employees and we cannot control, other than by contract, the amount of resources, including time that they devote to our product candidates and our clinical trials. If independent investigators fail to devote sufficient resources to our clinical trials, or if their performance is substandard, these factors may delay any possible approval and commercialization of our product candidates and could harm our chances of obtaining regulatory approval. Further, most regulatory agencies require that we comply with standards, commonly referred to as Good Clinical Practice (“GCP”) for conducting, recording, and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial subjects are protected.

THERE ARE RISKS INHERENT IN RELYING ON SOLE SOURCE SUPPLIER FOR SOME OF OUR MATERIALS.

 

We are reliant upon the supply of raw materials from key suppliers in the manufacture of our product candidates. These key suppliers currently meet our manufacturing requirements but they could default in the supply of the raw material for several reasons, including insolvency, lack of regulatory compliance, inability to manufacture sufficient quantities of the raw material, fire, and natural disasters. Although we have made every effort to identify alternate source suppliers of these raw materials, there is no guarantee that supply agreements would be established with these suppliers if the primary supplier defaults in the supply of raw material. If we are unable to procure the requisite raw materials for the manufacture of product candidates, then we might not be able to manufacture sufficient quantities of the drug candidate for pre-clinical and clinical testing purposes.

 

WE ARE DEPENDENT ON STRATEGIC PARTNERS, SUCH AS THE SIGMA TAU GROUP OF COMPANIES, AS PART OF OUR PRODUCT CANDIDATE DEVELOPMENT STRATEGY, AND WE WOULD BE NEGATIVELY AFFECTED IF WE ARE NOT ABLE TO INITIATE OR MAINTAIN THESE RELATIONSHIPS.

 

In November 2006, ViRexx International Corp. (“International”) entered into a License and Supply Agreement with Defiante Farmaceutica, Lda. (“Defiante”), a subsidiary of Sigma Tau Farmaceutica (“Sigma Tau”) for the marketing of OvaRex® MAb for certain unlicensed countries in Europe. At the same time, International entered into a Manufacturing and Supply Agreement with Tecnogen S.C.p.A (“Tecnogen”), another subsidiary of Sigma Tau, for Tecnogen to manufacture OvaRex® MAb for most of Europe and the Middle East.

Once some of our product candidates advance to a Phase II clinical trial stage, we intend to enter into strategic partnerships whereby third parties will finance further clinical development. We cannot assure you, however, that we will be able to find partners and establish such relationships on favorable terms, if at all, or that any such future arrangements will be successful.

 

Should any partner fail to develop or commercialize successfully any product candidates to which we have licensed product rights, our business, financial condition, and results of operations may be adversely affected. The failure of any collaborative partner to continue funding any particular program, for any reason, could delay or halt the development or commercialization of any potential product arising out of a particular program. In addition, we cannot assure that any of our future partners would not pursue alternative technologies or develop alternative product candidates either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by our programs.

WE RELY ON COLLABORATIVE ARRANGEMENTS FOR MANUFACTURING OUR TRIAL MATERIAL AND PRODUCT CANDIDATES

 

We are, or could rely upon various collaborators or contract manufacturing organizations (CMOs) for manufacturing of product candidate from all three of our technology platforms.  These collaborators and CMOs are not our employees and we cannot control, other than by contract, the amount of resources, including time that they devote to the manufacture of our product candidates. If independent manufacturers fail to devote sufficient resources to manufacture of our product candidates, or if their performance is substandard, these factors may delay any possible approval and commercialization of our product candidates.

 

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Further, most regulatory agencies require that we comply with standards, commonly referred to as Good Manufacturing Practice (“GMP”) for manufacturing product candidates that will be used in human clinical trials or for commercial sale to assure that each batch of the product candidate are of consistent quality.

If our independent manufacturers fail to comply with GMP, the clinical development of our product candidates could be delayed or halted. The failure of independent manufacturers to meet their obligations to us or comply with GMP procedures could adversely affect the clinical development of our product candidates, and have a material adverse effect on our business, financial condition, and results of operations.

EVEN IF OUR PRODUCT CANDIDATES RECEIVE ALL OF THE REQUIRED REGULATORY APPROVALS, WE HAVE NO GUARANTEE OF MARKET ACCEPTANCE OR COMMERCIALIZATION OF THE RESULTING PRODUCT CANDIDATES, WHICH WILL BE DETERMINED BY OUR SALES, MARKETING, AND DISTRIBUTION CAPABILITIES AND THE POSITIONING AND COMPETITIVENESS OF OUR PRODUCT CANDIDATES COMPARED WITH ANY ALTERNATIVES.

 

 

 

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In the U.S., government and other third-party payers have sought to contain healthcare costs by limiting both coverage and the level of reimbursement for new pharmaceutical products approved for marketing by the FDA. In some cases, these parties may place conditions on the use of new products which limit their market penetration or may refuse to provide any coverage for uses of approved products to treat medical conditions even though the FDA has granted marketing approval. Healthcare reform may increase these cost containment efforts. U.S. managed care organizations and government health insurance programs may seek to restrict the use of new products, delay authorization to use new products or limit coverage. New rule making by the Center for Medicare and Medicaid Services could affect drug coverage and payments by Medicare. Internationally, where government healthcare systems are prevalent, little if any funding may be available for new products, and cost containment and cost reduction efforts can be more pronounced than in the U.S.

 

COMPETITIVE PRODUCTS AND TECHNOLOGIES MAY REDUCE DEMAND FOR OUR PRODUCT CANDIDATES AND TECHNOLOGIES.

 

Our success depends upon maintaining our competitive position in the research, development, and commercialization of products and technologies in our area of expertise. Competition from pharmaceutical and biotechnology companies as well as universities and research institutes, is intense and is expected to increase. Many of these competitors have substantially greater research and development capabilities, more experience in manufacturing and marketing, as well as superior financial and managerial resources than we do and represent significant competition for us.

 

We cannot assure you that developments by others will not render our product candidates or technologies non-competitive or obsolete, or that we will be able to achieve the level of acceptance within the medical community necessary to compete successfully. We are aware of several potential competitors that are at various stages of development or that have commercial sales of products that may address similar indication as do our products. The success of our competitors and their products may have a material adverse impact on our business, financial condition, and results of operations.

 

OUR INDUSTRY IS CHARACTERIZED BY RAPID CHANGE AND A FAILURE BY US TO REACT TO THESE CHANGES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

 

The biotechnology industry is characterized by rapid and substantial technological change. Alternative forms of medical treatment may render our technologies or product candidates of little or no value in the future. Our future success depends on our ability to adapt to this change and keep pace with new technological developments and emerging industry standards, and we cannot assure that we will be able to do so.

 

 

The sale and use of human therapeutic products, including those product candidates we are developing, involve an inherent risk of product liability claims and adverse publicity. Clinical studies involve trials on humans. These studies create a risk of liability for side effects to participants resulting from an adverse reaction to the product candidates being tested or resulting from negligence or misconduct. While we currently maintain limited insurance related to our ongoing clinical trials, we cannot assure you that this insurance will continue to be available to us on commercially reasonable terms. Any claims might also exceed the amounts of this coverage. If we are unable to obtain our insurance at reasonable rates or otherwise protect ourselves against potential liability proceedings, we may be required to slow down any future development of product candidates or may even be prevented from developing the product candidates at all. Our obligation to pay indemnities or withdraw a product candidate from clinical trials following complaints could have a material adverse effect on our business, financial condition, and results of operations. Claims against us, regardless of their merit or potential outcome, may also result in severe public relations problems that could seriously damage our reputation and business viability.

 

In addition, certain drug retailers require minimum product liability insurance coverage as a condition of purchasing or accepting products for retail distribution. If any of our product candidates are successfully developed and approved for commercial sale, it is our intention to obtain adequate product liability insurance before the product candidates are marketed. Failure to satisfy these insurance requirements could impede our ability or that of any potential distributors of our product candidates to achieve broad retail distribution of these product candidates, which would have a material adverse effect on our business, financial condition, and results of operations.

 

WE USE HAZARDOUS MATERIALS THAT ARE HIGHLY REGULATED AND WE MAY BE EXPOSED TO POTENTIAL LIABILITY IN THE EVENT OF AN ACCIDENT INVOLVING THESE MATERIALS; OUR COMPLIANCE WITH ENVIRONMENTAL REGULATIONS COULD BE COSTLY IN THE FUTURE.

 

Our discovery and development processes involve the controlled use of radioactive and hazardous materials. We are subject to Canadian federal, provincial, and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident of this nature, we could be held liable for any damages that result and any liability of this kind could exceed our resources and, if so, we may have to cease operations. We have general liability insurance but it may not be sufficient to cover the cost of any injuries or other damage sustained in respect of these risks. Our coverage limitations under our insurance policies are described above under "OUR INSURANCE MAY NOT BE SUFFICIENT AND WE MAY BE EXPOSED TO LAWSUITS AND OTHER CLAIMS RELATED TO OUR PRODUCT CANDIDATES IN CLINICAL STUDIES AND PRODUCT LIABILITY WHICH COULD INCREASE OUR EXPENSES, HARM OUR REPUTATION, AND KEEP US FROM GROWING OUR BUSINESS". We cannot assure you that we will not be required to incur significant costs to comply with environmental laws and regulations in the future, or that our operations, business, or assets will not be materially adversely affected by current or future environmental laws or regulations.

 

 

 

 

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IT IS POSSIBLE THAT OUR CHIMIGEN™, T-ACT™ AND AIT™ TECHNOLOGIES HAVE ADVERSE SIDE EFFECTS OR CAUSE UNDESIRABLE REACTIONS ALTHOUGH WE ARE NOT AWARE OF ANY AT PRESENT.

 

Chimigen™ Platform

 

Since the Chimigen™ Vaccines incorporate a portion of a murine (foreign) antibody fragment, it is possible that patients receiving a Chimigen™ Vaccine could develop an anaphylactic adverse event similar to that discussed for the AIT™ platform below. This risk is mitigated somewhat by the completion of the 15 patient Phase I safety trial which showed the benign safety profile of the Chimigen™ Hepatitis Therapeutic Vaccine candidate CHB-111 (formerly called HepaVaxx B Vaccine). In addition, Chimigen™ Vaccines are designed to induce both humoral and cellular immune responses against the viral antigen epitope(s) contained in the vaccine. These immune responses can lead to the death of cells infected with the target virus. Patients chronically infected with hepatitis B or C viruses could suffer adverse events associated with the destruction of liver cells following immunization with a Chimigen™ Vaccine such as a Chimigen™ HBV Therapeutic Vaccine or Chimigen™ Hepatitis C Therapeutic Vaccine. This could be important in patients that have impaired liver function and could render a patient ineligible to receive a Chimigen™ Platform-based therapy.

 

T-ACT™ Platform

 

T-ACT™ technology is based on the induction of a specific platelet-dependent clot at a desired location. A potential risk of this technology is that a clot may break-up and localize to other locations in the body. This risk is mitigated by the limited Clinical Trial Phase I safety data on Occlusin™ 50 Injection showing the absence of serious adverse off-target thrombic events.  Another potential risk is that with Occlusin™ product candidates, injected material could reach the systemic circulation through arterio-venous shunts in the target vasculature. These risks are mitigated using angiographic imaging of the target blood vessels prior to treatment.

AIT™ Platform

 

 

THE MARKET PRICE AND TRADING VOLUME OF OUR COMMON SHARES MAY BE VOLATILE.

 

The market price and trading volume of our common shares on the TSX and the AMEX, has experienced significant volatility and will likely continue to do so, which has been or could be in response to numerous factors, including:

 

(a)	macroeconomic factors such as a change in interest rates;

(b)                 quarterly variations in operating results;

(c)   market conditions in the industry;

(d)   announcements of results of testing, technological innovations;

(e)   announcements by our customers or competitors, developments affecting government regulations, developments concerning

        proprietary rights, litigation, and public concerns as to the safety of our product candidates;

(f)   announcements of acquisitions;

(g)   general fluctuations in the stock market; and

(h)   revenues and results of operations below the expectations of the public market.

Any of these factors could result in a sharp decline in the market price of our common shares.

 

From January 1, 2005, to December 31, 2007, the trading price of our common shares has ranged from a low of CDN$0.06 per share to a high of CDN$1.62 per share on the TSX and from December 22, 2005, to December 31, 2007, it has ranged from U.S. $0.06 to U.S. $1.43 per share on the AMEX.

 

During 2007 and the first three months of 2008, an average of approximately 113,390 and 59,186 of our shares traded per day on the TSX and AMEX respectively.  On some trading days our shares have had limited trading volume. In addition, stock markets have occasionally experienced extreme price and volume fluctuations. Historically, the market prices for the securities of biotech companies, including ours, have been particularly affected by these market fluctuations, and these effects have often been unrelated to the operating performance of these particular companies. These broad market fluctuations may cause a decline in the market price of our common shares.

 

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THE SIGNIFICANT COSTS THAT WE WILL INCUR AS A RESULT OF BEING A PUBLIC COMPANY IN THE UNITED STATES AND CANADA COULD ADVERSELY AFFECT OUR BUSINESS.

 

 

AS A FOREIGN PRIVATE ISSUER, WE ARE SUBJECT TO DIFFERENT U.S. SECURITIES LAWS AND RULES THAN A DOMESTIC ISSUER, WHICH MAY, AMONG OTHER THINGS, LIMIT THE INFORMATION AVAILABLE TO HOLDERS OF OUR SECURITIES.

 

As a foreign private issuer, we are subject to requirements under the Securities Act and the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are different from the requirements applicable to domestic U.S. issuers. For example, our officers, directors, and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder with respect to their purchases and sales of our common shares. The periodic disclosure required of foreign private issuers is more limited than the periodic disclosure required of U.S. issuers and therefore there may be less publicly available information about us than is regularly published by or about U.S. public companies in the U.S. Also, although we are subject to Canadian regulation prohibiting selective disclosure, we are not required to comply with SEC Regulation FD, which may affect the timing of material disclosure regarding the Company.

Item 4.        Information on ViRexx

 

A.            History and Development of ViRexx

 

The legal and commercial name of the Corporation is ViRexx Medical Corp.

 

ViRexx is a corporation amalgamated under the laws of the Province of Alberta, Canada pursuant to the provisions of the Alberta Business Corporations Act (“ABCA”). Our head office is located at 8223 Roper Road, Edmonton, Alberta, Canada, T6E 6S4, telephone: (780) 433-4411 and our registered office is located at 1500 Manulife Place, 10180 - 101 Street, Edmonton, Alberta, Canada T5J 4K1. Our common shares are listed and posted for trading on the TSX under the symbol “VIR” and the AMEX under the symbol “REX”.

 

ViRexx is the corporation resulting from the amalgamation of ViRexx Research Inc. (“ViRexx Research”), Norac Industries Inc. (“Norac”) and Norac Acquisitions Inc. (“NAI”), a wholly owned subsidiary of Norac, under the ABCA on December 23, 2003 (the “ViRexx Amalgamation”). Pursuant to the ViRexx Amalgamation holders of Norac subordinate voting shares (the “Norac A Shares”) received 0.2244667 common shares of ViRexx (“ViRexx Shares”) for each Norac A Share held and holders of Norac multiple voting shares (the “Norac B Shares”) received 0.0000004 ViRexx Shares for each Norac B Share held. The issued and outstanding class A shares of NAI (the “NAI Shares”) were cancelled without any repayment of capital in respect of such shares as part of the ViRexx Amalgamation, and therefore Norac, as the sole shareholder of NAI, did not receive any ViRexx Shares. Holders of shares of ViRexx Research received 0.5285974 ViRexx Shares for each share of ViRexx Research held.

 

Norac was incorporated under the ABCA on September 22, 1986. Norac has been a reporting issuer in the Province of Alberta since October 2, 1986, pursuant to the issuance of a receipt for a final prospectus under the Securities Act (Alberta). The Norac A Shares began trading on the TSX Venture Exchange (“TSXV”) (formerly, the Canadian Venture Exchange and prior to that the Alberta Stock Exchange) in April 1987 under the symbol “NRC.A” which was subsequently changed to the symbol “NRC.T”. On June 23, 2003, trading of Norac’s securities was halted upon the announcement of the ViRexx Amalgamation. On August 18, 2003, Norac’s listing was moved to the NEX board of the TSXV as a result of its inactive status, and Norac’s symbol was changed to “NRC.H”. Norac has been a reporting issuer in the Province of British Columbia since November 26, 1999.

 

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Novolytic Corp. was incorporated under the laws of the State of Nevada, U.S. on October 30, 2000 and was continued into the Province of Alberta as a corporation subject to the ABCA on May 31, 2002. On June 1, 2002, Novolytic Corp. was amalgamated under the laws of Alberta with Novolytic Inc. with the amalgamated corporation continuing under the name “Novolytic Corp.” On June 1, 2002, immediately prior to the amalgamation of Novolytic Corp. and Novolytic Inc. the shareholders of Novolytic Inc. exchanged the 100 issued and outstanding shares of Novolytic Inc. for 100 class “A” common shares of Novolytic Corp. with Novolytic thereby becoming a wholly owned subsidiary of Novolytic Corp.

 

Novolytic Inc. was incorporated under the ABCA on April 8, 1999 under the name “A.C.T. Technologies Corp.”, and on November 10, 1999 changed its name to Novolytic Inc.

 

The Original ViRexx was incorporated as “ViRexx Corporation” under the ABCA on June 6, 2001, and on October 26, 2001 changed its name to “ViRexx Research Inc.”

 

On December 10, 2004, ViRexx completed a plan of arrangement pursuant to Section 193 of the ABCA involving ViRexx and AltaRex Medical Corp. (“AltaRex”), whereby amongst other things, ViRexx acquired all of the outstanding common shares of AltaRex (the “AltaRex Arrangement”). For each common share of AltaRex owned, AltaRex shareholders received one half of one ViRexx Share. Also pursuant to the arrangement, all outstanding AltaRex stock options and warrants were deemed transferred to ViRexx (free of any claims) in consideration of new stock options or warrants for ViRexx Shares on the basis of one stock option or warrant for a ViRexx Share for every two AltaRex stock options or warrants with the exercise price of the such new ViRexx stock options and warrants being the price of the prior AltaRex stock options or warrants multiplied by two.

 

AltaRex was incorporated pursuant to the provisions of the ABCA as “AltaRex Medical Corp.” on December 8, 2003. Effective December 23, 2003, AltaRex amended its articles of incorporation to remove its private company restrictions and restrictions on share transfer.

 

On February 3, 2004, AltaRex completed a plan of arrangement pursuant to Section 193 of the ABCA involving AltaRex, AltaRex Corp., the holders of the securities of AltaRex Corp. and Nova Bancorp Investments Ltd. (the “Bancorp Arrangement”) whereby, amongst other things, AltaRex acquired substantially all the assets of AltaRex Corp. with a legally effective date of December 31, 2003, and has since carried on the business substantially as carried on by AltaRex Corp. prior to the completion of the Bancorp Arrangement.

 

Prior to the AltaRex Arrangement, the AltaRex common shares were listed and posted for trading on the TSX under the symbol “ALT”. AltaRex was delisted from the TSX on December 16, 2004 as a result of the AltaRex Arrangement and ceased to be a reporting issuer in Canadian jurisdictions.

On December 22, 2005, our common shares were listed on the AMEX. In 2006, we incorporated our wholly owned subsidiary named ViRexx International Corp. Limited under the laws of Ireland.

 

 

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The principal capital expenditures for the last three fiscal years of ViRexx were as follows:

		2007				2006				2005
Laboratory Equipment		$	133,095			$	22,960			$	5,783
Leasehold Improvements			-				-				2,125
Office Furniture & Equipment			4,650				8,440				44,310
Computer Hardware			8,050				37,812				56,600
Computer Software			3,695				23,272				23,173
		$	149,490			$	92,484			$	131,991

Competition

 

Numerous companies, including major international pharmaceutical companies (e.g. Roche, Schering-Plough, and Eli Lilly), are developing innovative drugs for the treatment of hepatitis C. The development strategies can be categorized as (a) biological response modifiers   (e.g. interferon α-2b), (b) antiviral nucleosides, (c) immune globulins (e.g., Civacir™ Hepatitis C immune globulin), (d) monoclonal antibodies (e.g., XTL-002), (e) ribozymes (e.g.. Heptazyme™), (f) antisense drugs (e.g. ISIS 14803), (g) small molecule protease inhibitors (e.g., LY570310 / BILN2061, VX-950), (h) polymerase inhibitors (e.g. NM283) and (i) other strategies (e.g. human recombinant lactoferrin).

 

Among these developmental strategies, the biological response modifiers (“BRMs”) (e.g. interferon- α) have promise for treatment of hepatitis C infection. BRMs enhance, direct or restore the body’s ability to fight disease and provide a non-specific boost to the patient’s immune system, which will then mount an attack on cells harboring HCV. Although BRMs such as interferon- α impart a general immune boost that is effective in some patients, the side effect profile is very poor and many patients choose to discontinue therapy because they cannot tolerate the adverse effects.

 

We believe, based on CHB-111 studies, that the adverse side effect profile associated with treatment of chronic hepatitis C patients with a Chimigen™ Hepatitis C Therapeutic Vaccine may be very mild. Furthermore, we believe, based on studies of various Chimigen vaccine candidates, that a Chimigen™ Hepatitis C Therapeutic Vaccine will elicit both humoral and cellular immune responses in chronic hepatitis C patients that may eliminate the HCV infection from the body.

 

Chiron Corporation

 

Chiron Corporation is developing prophylactic and therapeutic vaccines using recombinant HCV antigens and adjuvants.

 

Schering-Plough Corp.:

 

Schering-Plough Corp.’s (“Schering-Plough”) interferon product (“interferon- α”), PEG-INTRON®, is currently the preferred treatment for HCV because it appears to be less toxic than Rebetol®. Schering-Plough has developed a combination therapy with this product and ribavirin has been approved in North American and Europe.

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F. Hoffman-La Roche Ltd. :

 

Hoffman-La Roche Ltd. (“Roche”) has a therapeutic for the treatment of HCV infections. In a head-to-head Phase III clinical trial, it was found that patients treated with Roche’s PEG interferon α-2a or Pegasys®, combined with the antiviral agent ribavirin, was effective in 56% of patients tested, relative to 45% of subjects taking Schering-Plough’s Rebetol®, the current industry standard.

 

In the Roche trial, researchers discovered that the most common side effects, depression and flu-like symptoms, were less frequently exhibited in the Pegasys and ribavirin group than in the group taking ribavirin alone. Depression occurred in 21% of those taking the combination therapy, compared with 30% in the ribavirin alone group, and 20% in the group taking Pegasys without ribavirin. (Source: Roche Press Release) However, the high cost (approximately U.S. $31,000 for a year’s supply) and the frequency of side effects with moderate efficacy make this therapy less than ideal. (Source: Fields Virology (2000) Volumes I and II (Fourth Edition).

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Occlusin™ particles physically cause a blockage of blood flow in the treated vessel, as do all embolic agents.  However, Occlusin™ particles also bind and activate platelets which lead to the consolidation of the blood clot and a therefore more efficient blockage of blood flow.

 

AIT™ Platform Technology

 

Technology Overview

 

 

Third-Party Patents

 

Our commercial success also depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. From time to time, companies may possess rights to technologies in the same areas of research and development as ours, may have patents similar to ours, and may notify us that we may require licenses from them in order to avoid infringing their rights in that technology or in order to enable us to commercialize our own technology. Patent applications are, in some cases, maintained in secrecy until patents are issued. Our competitors or potential competitors may have filed applications for, or may have received patents and may obtain additional and proprietary rights to compounds or processes used by us or are competitive with ours. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. In the event of infringement or violation of another party’s patent, we may be prevented from pursuing potential product development or commercialization. In addition, we may be required to obtain licenses under patents or other proprietary rights of third parties. We cannot assure you that any licenses required under such patents or proprietary rights will be available on terms acceptable to us. If we do not obtain such licenses, we could encounter delays in introducing one or more of our product candidates to the market, without infringing third-party patents, or we could find that the development, manufacturing or sale of potential products requiring these licenses could be foreclosed.

 

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Patent Litigation

 

Patent litigation is becoming widespread in the biopharmaceutical industry and we cannot predict how this will affect our efforts to form strategic alliances, conduct clinical testing, or manufacture and market any of our product candidates that we may successfully develop. We are unaware of any potential issues related to our possible infringement or violation of another party’s patent. If challenged, however, our patents may not be held to be valid. We could also become involved in interference or impeachment proceedings in connection with one or more of our patents or patent applications to determine priority of invention. If we become involved in any litigation, interference, impeachment, or other administrative proceedings, we will likely incur substantial expenses and the efforts of our technical and management personnel will be significantly diverted. We have the obligation to protect and bear the cost of defending the patent rights of the patents we own. With respect to our licensed patents we have the right but not the obligation to bear the cost of defending patent rights from third parties. A decision to pursue a patent infringement action may be prohibitively expensive.

 

More specifically, we cannot warrant that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. Moreover, if our potential products infringe the patents, trademarks, or proprietary rights of others, we could, in certain circumstances, become liable for substantial damages, which also could have a material adverse effect on our business, financial condition, and results of operations. Where there is any sharing of patent rights, either through co-ownership or different licensed "fields of use", one owner’s actions could lead to the invalidity of the entire patent.

 

In relation to the License Agreement established between AltaRex and Oncothyreon Inc. (formerly Biomira Inc.) dated November 24, 1995, we are responsible for the maintenance of certain existing patents and the prosecution of all patent applications related to the licensed technology while Oncothyreon Inc. is responsible for others.

Economic Dependence and Foreign Operations

 

Some of our product candidates are in the preliminary development stage, have not been approved for marketing by any regulatory authority and cannot be commercially distributed in any markets until such approval is obtained. We cannot assure you that our Chimigen™ Vaccines, tumor starvation therapies and monoclonal antibody therapies, will be effective at a level sufficient to support a profitable business venture. The science on which our technologies are based may also fail due to flaws or inaccuracies in the data, or because the data is not predictive of future results. The scientific theories, upon which our business is based, like all science, will evolve over time and become increasingly predictive of the world in which we live. One potential consequence of imperfect theories may be that we will never be able to create a marketable product. If we are unable to do so, we will not generate revenues, will have to cease operations, and investors will be at risk of losing their entire investment.

 

In addition, it takes a significant period of time for new vaccines, medical devices and therapeutic drugs and monoclonal antibody therapies, to be developed, to obtain the necessary regulatory approvals to permit sales, to establish appropriate distribution channels and market acceptance, and to obtain insurer reimbursement approval. This time period is generally not less than 10 years. None of our therapeutic product candidates have been commercialized and completion of the commercialization process for any of our product candidates will require significant investments of time and funds. We cannot predict either the total amount of funds that will be required, or assure you that we will be successful in obtaining the necessary funds. It is also not possible for us to predict the time required to complete the regulatory process or if there will be sufficient market demand at such time. If any of our product candidates are approved, we cannot give assurances that it will be possible to produce them in commercial quantities at reasonable cost, successfully market them, or whether any investment made by us in the commercialization of any product candidates would be recovered through sales, license fees, or related royalties. Furthermore, the time it takes for product candidates to reach market acceptance exposes us to significant additional risks, including the development of competing products, loss of investor interest, changing market needs, changes in personnel, and regulatory changes.

 

Since the process of discovering and developing cancer therapies and treatments for chronic viral infections is our core business, we anticipate that we will remain engaged in research and development for the foreseeable future. As product candidates advance to commercialization, we expect that research will identify other potential candidates for development.

  

We cannot assure you that we will obtain any additional required licenses, that our existing licenses or new licenses, if obtained, will not terminate, or that they will be renewed. The failure to obtain, the termination of, or the failure to renew any of these licenses could have a material adverse effect on our pre-clinical and clinical programs and may cause us to suspend or cease our operations. In addition, we cannot assure you that these licenses will remain in good standing or that the technology we have licensed under these agreements has been adequately protected or is free from claims of infringement of the intellectual property rights of third parties.

 

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Pursuant to the terms of the licenses and any agreements we may enter into in the future, we are and could be obligated to exercise diligence in bringing potential products to market and to make license payments and certain potential milestone payments that, in some instances, could be substantial. We are obligated and may in the future be obligated, to make royalty payments on the sales, if any, of product candidates resulting from licensed technology and, in some instances, may be responsible for the costs of filing and prosecuting patent applications. Because we require additional funding, we may not be able to make payments under current or future license agreements, which may result in our breaching the terms of any such license agreements. Any breach or termination of any license could have a material adverse effect on our business, financial condition, and results of operations.

Government Regulation and Product Approval

 

Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development, manufacture and marketing of pharmaceuticals. All of our products will require regulatory approval by governmental agencies prior to commercialization. In particular, pharmaceutical drugs are subject to rigorous preclinical testing and clinical trials and other premarketing approval requirements by the FDA and regulatory authorities in other countries. In the U.S., various federal, and in some cases state statutes and regulations, also govern or impact upon the manufacturing, safety, labeling and storage, recordkeeping and marketing of pharmaceutical products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. Regulatory approval, when and if obtained for any of our product candidates, may be limited in scope which may significantly limit the indicated uses for which our product candidates may be marketed. Further, approved drugs and manufacturers are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on their manufacture, sale or use or in their withdrawal from the market.

 

Preclinical Studies

 

Before testing any compounds with potential therapeutic value in human subjects in the U.S., stringent government requirements for preclinical data must be satisfied. Preclinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Preclinical testing results obtained from studies in several animal species, as well as from in vitro studies, are submitted to the FDA as part of an Investigational New Drug Application, or IND, and are reviewed by the FDA prior to the commencement of human clinical trials. These preclinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial trials in human volunteers.

 

Clinical Trials

 

If a company wants to test a new drug in humans in the U.S., an IND must be prepared and filed with the FDA. The IND becomes effective if not rejected or put on clinical hold by the FDA within 30 days. In addition, an Institutional Review Board comprised in part of physicians at the hospital or clinic where the proposed trials will be conducted must review and approve the trial protocol and monitor the trial on an ongoing basis. The FDA may, at any time during the 30-day period or at any time thereafter, impose a clinical hold on proposed or ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA. In some instances, the IND application process can result in substantial delay and expense.

 

Clinical Trial Phases

 

Clinical trials typically are conducted in three sequential phases, phases I, II and III, with phase IV trials potentially conducted after marketing approval. These phases may be compressed, may overlap or may be omitted in some circumstances.

 

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Phase I clinical trials. These trials evaluate a drug’s safety profile, and the range of safe dosages that can be administered to healthy volunteers and/or patients, including the maximum tolerated dose that can be given to a trial subject with the target disease or condition. Phase I trials also determine how a drug is absorbed, distributed, metabolized and excreted by the body, and duration of its action.

 

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Phase II clinical trials. Phase II clinical trials typically are designed to evaluate the potential effectiveness of the drug in patients and to further ascertain the safety of the drug at the dosage given in a larger patient population.

 

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Phase III clinical trials. In phase III clinical trials, the drug is usually tested in a controlled, randomized trial comparing the investigational new drug to an approved form of therapy in an expanded and well-defined patient population and at multiple clinical sites. The goal of these trials is to obtain definitive statistical evidence of safety and effectiveness of the investigational new drug regime as compared to an approved standard therapy in defined patient populations with a given disease and stage of illness.

 

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All clinical trials for our product candidates have been conducted in accordance with Health Canada regulations and guidelines, which satisfy FDA regulations above, particularly the ICH (International Conference On Harmonization of Technical Requirements for Registration of Pharmaceuticals For Human Use) Harmonized Tripartite Guideline “Good Clinical Practice: Consolidated Guideline”.

 

New Drug Application

 

After completion of clinical trials, if there is substantial evidence that the drug is safe and effective, a New Drug Application, or NDA, is prepared and submitted for the FDA to review. The NDA must contain all of the essential information on the drug gathered to that date, including data from preclinical and clinical trials, and the content and format of an NDA must conform to all FDA guidelines. Accordingly, the preparation and submission of an NDA is a major undertaking for a company.

 

The FDA reviews all NDAs submitted before it accepts them for filing or may request additional information from the sponsor rather than accepting an NDA for filing. In such an event, the NDA must be submitted with the additional information and, again, is subject to review before filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Typically, the FDA takes ten months to review and respond to the NDA. The FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation, but gives great weight to it. If the FDA evaluations of both the NDA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or a non-approval letter, which usually contains a number of conditions that must be satisfied in order to secure final approval. If the FDA’s evaluation of the NDA submission or manufacturing facility is not favorable, the FDA may issue a non-approvable letter or refuse to approve the NDA.

 

Other Regulatory Requirements

 

Any products we manufacture or distribute under FDA approvals are subject to continuous regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with current GMP regulations, which impose procedural and documentation requirements upon us and any third party manufacturers we utilize.

 

The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use.

 

The FDA’s policies may change or additional government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or approval of new indications for any existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the U.S. or abroad.

 

We received an orphan drug designation for OvaRex® MAb from the FDA in November 1996 for its use in the treatment of ovarian cancer. Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting an NDA. After the FDA grants the orphan drug designation, the identity of the applicant and the orphan-designated therapeutic agent are disclosed publicly by the FDA. EMEA in July 2002 also granted an orphan drug designation for OvaRex® MAb for its use in the treatment of ovarian cancer in Europe.

 

Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation is the first such product to receive FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, for seven years in the U.S.  This market exclusivity lasts for 10 years in the EU. The FDA may permit additional companies to market a drug for the designated condition if such companies can demonstrate clinical superiority. More than one product may also be approved by the FDA for the same orphan indication or disease as long as the products are different drugs. As a result, the FDA can still approve other drugs for use in treating the same indication or disease covered by OvaRex® MAb, which could create a more competitive market for us. Moreover, if a competitor obtains approval of the same drug for the same indication or disease before us, we would be blocked from obtaining approval for our product in the U.S. for seven years, unless our product can be shown to be clinically superior.

 

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Foreign Regulation

 

In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

 

Under EU regulatory systems, marketing authorizations may be submitted under centralized procedure, a mutual recognition procedure, or a decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for a joint assessment of safety and efficacy by a number of EU member states. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the member state approving the first marketing authorization within the EU submits an application for recognition to other EU member states. Within 90 days of receipt of the application and the first member state’s report of the assessment of the drug, the other member states are supposed to recognize the marketing authorization of the first member state.  If one or more member states believe that there is a potential serious risk to public health, and they cannot reach agreement on the approval of the product the application is referred to the Committee for Human Medicinal Products (CHMP), for arbitration. The CHMP is a scientific expert committee of EMEA. EMEA is responsible for the protection of public health in the EU through the coordination and evaluation and supervision of medicinal products, including administering the centralized procedure and performing a more limited role in the mutual recognition procedures. After member states agree to mutual recognition of the first marketing authorization, national marketing authorizations must still be issued in each member state which recognized it, including approval of translations, labeling and the like. All marketing authorization applications for drugs that have received the orphan drug designation must be submitted through the centralized procedure.

 

Legal Proceedings

The Company has received statements of claim filed in the Court of Queen’s Bench of Alberta in May 2007 and February 2008  from three former employees and the former Chief Financial Officer relating to their termination or change in employment with the Company.  The former employees and the former Chief Financial assert that they are entitled to additional pay, benefits and accelerated vesting of their stock options due to a change in control within the Company in 2007 or defamation or wrongful dismissal.  The collective total of these claims is $1,939,750.  ViRexx believes that these claims are without merit and intends to aggressively defend this position.

 

 

In February 2008, the Company proposed settlement of one of the claims for severance pay and wrongful dismissal filed by a former employee.    The settlement amount was accrued in the December 31, 2007 audited consolidated financial statements.

 

 

Also, during February 2008 the Company has reached, but not yet finalized a settlement with Clarus Securities Ltd. (“Clarus”) for damages for non-performance in regard to the cancellation of a $15,000,000 public offering.  The proposed settlement includes a cash payment and warrants.  The cash settlement amount was accrued in the December 31, 2007 audited consolidated financial statements.  The issuance of the warrants will be recorded in the second quarter of 2008 once they are issued and the exercise price has been determined.

 

 

C.         Organizational structure

 

Control of ViRexx

 

ViRexx has two wholly owned subsidiaries named AltaRex and International.  AltaRex has one wholly owned inactive subsidiary named AltaRex U.S. Corp. (“AltaRex US”). AltaRex was incorporated under the laws of the Province of Alberta, Canada, International was incorporated under the laws of Ireland, and AltaRex US is a Delaware corporation.  ViRexx Medical Corp. has 100% voting control of AltaRex and International.  AltaRex has 100% voting control of AltaRex US.

 

D.         Property and equipment

 

Our corporate headquarters are located at 8223 Roper Road, Edmonton, Alberta T6E 6S4 and our registered office is located at Suite 1500, Manulife Place, 10180-101 Street, Edmonton, Alberta T5J 4K1. We lease our corporate headquarters in Edmonton, Alberta under the following terms:

 

                              Annual base rent:       $ 115,885

                              Term expires:                May 31, 2011

                               Square footage:          13,244

 

We do not deem our lease to be material. We believe that the physical facilities we lease are adequate to conduct our business during the next 12 months.

 

 

Property and equipment are described at cost less accumulated amortization in the audited consolidated financial statements. Amortization is provided for by using the declining balance method at the following annual rates:

 

Laboratory equipment	20%
Office furniture and equipment	20%
Computer equipment	30%
Computer software	100%

Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful lives of the assets.

4A.	Unresolved Staff Comments

 

None

 

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Item 5.        Operating and Financial Review and Prospects

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to help the reader of the consolidated financial statements understand ViRexx Medical Corp. (“ViRexx” or “the Company”), our operations and our present business environment as of March 31, 2008. This MD&A should be read in conjunction with our December 31, 2007 audited consolidated financial statements and the accompanying notes thereto.  These audited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).  Canadian GAAP differs in certain material respects from accounting principles generally accepted in the United States (“U.S. GAAP”). For a reconciliation and discussion of the principal differences between Canadian GAAP and U.S. GAAP as they pertain to ViRexx see Note 24 to the audited consolidated financial statements.  Unless otherwise indicated, all amounts are expressed in Canadian dollars.  This MD&A includes the following sections:

 

§	Our Business – a general description of our business including a brief overview of our product candidates; a corporate update; our outlook for 2008 and the general challenges and risks related to our business and industry.

 

§	Operations Review – an analysis of our consolidated results of operations presented in the audited consolidated financial statements for the year ended December 31, 2007 compared to the year ended December 31, 2006 and the year ended December 31, 2006 compared to the year ended December 31, 2005..

 

§	Liquidity, Capital Resources and Financial Position – an analysis of cash availability and cash flows; off-balance sheet arrangements and contractual obligations;

 

§	Controls and Procedures – an analysis of disclosure controls and procedures, as well as internal controls over financial reporting.

 

§	Critical Accounting Policies and Estimates – a discussion of significant accounting policies that require critical judgments and estimates, along with a discussion of the future impact of accounting standards that have been issued but are not yet effective.

 

OUR BUSINESS

ViRexx is a Canadian-based development-stage biotech company focused on developing innovative targeted therapeutic products that offer better quality of life and a renewed hope for living.  Our platform technologies include product candidates for the treatment of hepatitis B, hepatitis C, avian influenza viral infections, biodefence and nanoparticle applications, select solid tumors and late-stage ovarian cancer.

We have currently three proprietary platform technologies: Chimigen™ Vaccines, targeted-autothrombogenic cancer therapy (“T-ACT™”) and antibody-based immunotherapy (“AIT™”), all of which are based on the principle of harnessing the body’s power to fight disease.

As at March 31, 2008, the Company had $1.1 million in cash, cash equivalents and short-term investments.  We remain focused on advancing our technology platforms and securing the appropriate financing, collaboration and/or license agreements and continue to apply our limited resources to these activities.  We have been working with our vendors to secure payment plans that meet our obligations while enabling us to focus our attention on the advancement of our technology platforms and our financing initiatives.  Based on our current estimates and expected operating activities there are sufficient resources to carry the operations of the Company into the second quarter of 2008.

Chimigen™ Platform Technology

The Chimigen™ Platform technology is being used to develop therapeutic as well as prophylactic vaccines for the treatment of different viral diseases.

Two Chimigen™ HCV Therapeutic Vaccine candidates are currently being evaluated for scaled up production methods and immune responses in both ex vivo assays and in animals.  Several avian influenza vaccine candidates have been produced using Chimigen™ Vaccine Platform and two potential candidates have been selected.  These are currently being evaluated in laboratory studies, to be followed by evaluation in animal models.

Two Chimigen™ HBV Therapeutic Vaccine candidates are currently being evaluated for scaled up production methods and immune responses in laboratory studies.

ViRexx is continuing its research collaboration with Defence Research and Development Canada Suffield (“DRDC Suffield“) and with National Research Council Canada's National Institute for Nanotechnology (“NINT“) to study ViRexx's proprietary Chimigen™ Vaccine platform, with networking and financial contributions from the National Research Council of Canada Industrial Research Assistance Programme (“NRC-IRAP”). The DRDC Suffield collaboration is evaluating the use of Chimigen™ Vaccines for biodefence applications and the studies at NINT are evaluating the targeted nanoparticle properties of Chimigen™ Vaccines for various biomedical uses, including immunotherapy.

 

 

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T-ACT™ Platform Technology

The T-ACT™ Platform technology is designed to cut off the blood supply to hypervascular tumors, leading to tumor tissue starvation and tumor death. The lead product candidate of the T-ACT™ Platform is Occlusin™ 50 Injection, a treatment for primary cancer of the liver.  The Phase I study of Occlusin™ 50 Injection in liver cancer patients was completed in the third quarter of this year.  The product was found to be safe, simple to administer, and effective as an embolic agent. There were no clinically important safety concerns related to treatment with Occlusin™ 50 Injection. Of the 12 patients treated with Occlusin™ 50 Injection as part of a transcatheter aterial chemoembolization (“TACE”) procedure, three patients have undergone liver transplantation.  TACE is the treatment of choice to control tumor progression in patients who are being considered for liver transplantation. Liver transplantation is the optimal treatment for primary cancer of the liver in selected patients, because it essentially “cures” the liver cancer and any underlying liver disease that might lead to the reappearance of the cancer. Partnering discussions are ongoing with respect to this product candidate.

The second product candidate from the T-ACT™ Platform is Occlusin™ 500 Artificial Embolization Device (“AED”), an embolic agent designed to treat hypervascular tumors including uterine fibroids. This device is delivered by catheter to the blood vessels feeding the tissue to be treated.  Unlike other embolic agents, Occlusin™ 500 AED undergoes natural break down in the body and ultimately disappears. We are continuing preclinical testing of this product candidate, which will likely be completed during the first half of 2008.  We have also completed the production of two Good Manufacturing Practice (“GMP”) batches of the product.  Exploration of GMP manufacturing methods of Occlusin™ 500 AED to increase efficiency of product production are in progress.

AIT™ Platform Technology

On December 5, 2007, ViRexx announced the preliminary analysis of results from the two Phase III clinical trials of OvaRex® MAb for the treatment of advanced ovarian cancer and the results failed to reach statistical significance. The two identical Phase III trials, IMPACT I and IMPACT II, were randomized, double-blind, placebo-controlled trials conducted at over 60 centers across the United States. The studies enrolled 367 ovarian cancer patients and assessed the efficacy of OvaRex® mono-immunotherapy during the "watchful waiting" period following front-line chemotherapy. The studies demonstrated no difference between active (standard of care followed by OvaRex® MAb) and control (standard of care followed by placebo) treatment arms. The results of IMPACT I and IMPACT II were consistent with each other.

We are assessing fully the clinical trial results and the assumptions underlying the program prior to determining the next steps in the development of this product and the effect of this on related technologies.  In addition, United Therapeutics Corporation announced they will terminate the development agreement with AltaRex Medical Corp. (“AltaRex”), a wholly owned subsidiary of ViRexx, for the entire platform of antibodies thereby consolidating world wide manufacturing and distribution rights back to AltaRex.

CORPORATE UPDATE

On February 14, 2007, and amended on February 21, 2007 a group of our shareholders (the “13D Group”) filed a Schedule 13D with the United States Securities and Exchange Commission.  The result of this filing was a change in the Board of Directors.  Mr. Bruce Brydon, Mr. Jean-Claude Gonneau, Mr. Lorne Tyrrell and Mr. Tom Brown left the Board and Mr. Michael Marcus, Mr. Peter Smetek and Mr. Yves Cohen joined to serve as members of the Board of Directors.  In addition, Mr. Peter Smetek was appointed as Interim Chief Executive Officer on May 3, 2007.

During the second quarter Mr. Marc Canton, former President and Chief Operating Officer, Mr. Lorne Tyrrell, former Chief Executive Officer, Mr. Scott Langille, former Chief Financial Officer and Mr. Jean-Paul Laurin, former Business Development Director, ended their employment with ViRexx.

In July 2007, Dr. Richard Ascione was appointed Interim Chief Scientific Officer. He has over 21 years experience with the National Institute of Health as Deputy Director of Laboratory Molecular Oncology and ten years of experience working with Aphton Corporation where he was Director of Research.

On September 21, 2007, Mr. Darrell Elliott was appointed a Director, Chairman of the Board of Directors and Interim Chief Executive Officer.  Mr. Elliot has more than 35 years of experience in merchant banking, venture capital and analogous operating experiences in Africa, Europe and North America.  He has served on numerous boards in both private and publicly traded companies.

On September 24, 2007, PricewaterhouseCoopers LLP, resigned on their own initiative, as our external auditors.  The Audit Committee and the Board of Directors accepted their resignation.  The related auditor’s reports for the two years ended December 31, 2006 and 2005 did not contain any reservations as to departures from Canadian GAAP or limitations in scope.  In connection with those two audits and through September 24, 2007, there were no reportable events requiring disclosure to regulatory authorities.

 

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On October 30, 2007, Deloitte & Touche LLP was appointed as successor external auditor.

As announced on October 12, 2007, Mr. Erich Bam was appointed Interim Chief Operating Officer.  Mr. Bam is a Chartered Accountant with more than 20 years of experience in the financing, development and management of both private and publicly traded companies.  Most recently, Mr. Bam serves as a partner and Managing Director of Gemini Partners where he is responsible for sourcing and managing assignments.

In October 2007, Mr. Gary Woerz, the Company’s former Chief Financial Officer, was relieved of responsibility for the day to day financial operations of the Company.  Subsequently, Mr. Woerz filed a wrongful dismissal claim against the Company in the amount of $250,000 plus additional damages in February 2008.  The Corporation is of the position that the claim is without merit and intends to defend the claim.  Mr. Brent Johnston, CA, is currently the Acting Chief Financial Officer and is presently responsible for the day to day financial operations of the Company.

Other Updates

On October 17, 2007, we resolved and reconciled any misunderstanding related to costs associated with the set-up and renovation of a manufacturing facility of Tecnogen Farmaceutica Lda (“Tecnogen”) related to OvaRex® MAb.

OUTLOOK

The rights to the AIT™ platform and its several antibodies, including OvaRex® MAb, which had been licensed to United Therapeutics Corporation, have been repatriated to ViRexx. ViRexx is completing an in depth evaluation of the data available from the clinical trial results and is also evaluating the possibility of commencing another trial, with an appropriate partner, for OvaRex® MAb in combination therapy, for which there appears to be supporting evidence.

The Company is actively investigating partnering interest in both Europe and China for its embolotherapeutic agent Occlusin™ 500 AED.  These prospects are expected to be brought to a conclusion in the first half of 2008.

The Company is of the view that strong opportunities exist in Asian markets, where there is a high incidence of liver cancer, for the further development and commercialization of Occlusin™ 50 Injection. The Company will investigate the co-development of this therapeutic with a regional partner, by taking it into a pivotal trial in the Asian market.

The Company’s Chimigen™ Platform has promise for the future.  ViRexx is continuing to develop these novel immunotherapies for high value infectious disease markets.  Over the next two years, the Company will increasingly focus its research and development efforts on advancing its current candidate Chimigen™ therapies into clinical development and seeking corporate partners at the appropriate time.

The Chimigen™ Platform has already produced one candidate, Chimigen™ Hepatitis B Vaccine, CHB-111 (formerly HepaVaxx B), which demonstrated safety in a clinical trial on August 9, 2006.   The Company does not intend further to develop this particular candidate, independently, and is currently responding to a partnering enquiry.

The past year was a challenge for ViRexx, but the Company is optimistic about the future of its existing products as well as new relationships being put in place.  The potential exists for medium term re-partnering of antibody candidates from the AIT™ Platform, on terms superior to the past and several of the Company’s existing product candidates from its other two platforms are currently under active consideration by new potential partners.  The year has resulted in a strong sharpening of the Company’s focus and a keener understanding of its strengths.

 

The support of the Company’s shareholders will be key as new management seeks to build upon the great inherent value within the Company and to maximize opportunities from its product candidates within the Company’s Chimigen™ technology platforms.  ViRexx was awarded the Alberta Science and Technology Leadership Foundation award in 2004 for technology innovation for this platform.

 

RISKS AND UNCERTAINTIES

The Company operates in a highly competitive environment that involves significant risks and uncertainties, many of which are outside of the Company’s control. The Company is subject to risks inherent in the biotechnology industry as described in Item 3.D. of this Form 20-F, including:

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Risks Related to the Company’s Financial Condition

·	The need to raise capital from investors to continue planned operations. If the Company is unable to fund operations, the Company may cease doing business.

·	The Company has not derived any revenue to date from the commercial sale of its product candidates, nor had any revenues from other commercial sales; the Company has relied on equity and debt financings to support operations.

·	The operating losses are expected to continue. If the Company is unable to achieve significant revenues in the future or secure alternative sources of capital or financing, the Company may cease doing business.

·	The Company will continue to need significant amounts of additional capital that may not be available to the Company on favorable terms, and may be dilutive.

·	The Company may fail to obtain additional financing and be unable to fund operations and commercialize its product candidates.

Risks Related to the Company’s Business and Operations

·	The Company is in various stages of development of product candidates and unless it is able to generate sufficient product revenue from these candidates, the Company will continue to incur losses from operations and may not achieve or maintain profitability and may have to cease operations.

·	The Company relies on, and intends in the future to continue to rely on revenue from technology licenses with or issued to third parties. Any breach or termination of these license arrangements could have a material adverse effect on the business, financial condition and results of operations.

·	Failure to protect intellectual property, or infringement on the intellectual property rights of others, may impede the Company’s ability to operate freely.

·	The Company’s business is subject to significant government regulation and failure to achieve regulatory approval of drug candidates would severely harm its business.

·	The Company is dependent on the successful outcome of preclinical testing and clinical trials.

·	Delays in clinical trials will cause the Company to incur additional costs which could jeopardize the trials and adversely affect the Company’s liquidity and financial results.

·	The Company relies on clinical investigators and contract research organizations to conduct its clinical trials.

·	There are risks inherent in relying on a sole source supplier for some of the Company’s materials.

·	The Company is dependent on strategic partners as part of its product candidate development strategy, and it would be negatively affected if it is not able to initiate or maintain these relationships.

·	The Company relies on collaborative arrangements for manufacturing its investigational drug products and product candidates.

·	The Company is required to comply with regulations that are administered by regulatory authorities in the United States, Europe and Canada.

·

Even if product candidates receive all of the required regulatory approvals, there is no guarantee of market acceptance or commercialization of the resulting product candidates, which will be determined by the Company’s sales, marketing and distribution capabilities and the positioning and competitiveness of its product candidates compared with any alternatives.

·	Reimbursement procedures and future healthcare reform measures are uncertain and may adversely affect the Company’s ability to successfully sell or license any pharmaceutical product candidate.

·	Competitive products and technologies may reduce demand for the Company’s product candidates and technologies.

·	The Company’s industry is characterized by rapid change and a failure by the Company to react to these changes could have a material adverse effect on its business.

·	If the Company fails to hire or retain needed personnel, the implementation of its business plan could slow and future growth could suffer.

·	The Company is reliant on key employees and strategic relationships.

·	The Company conducts certain elements of its business internationally, and the decisions of sovereign governments could have a material adverse effect on its financial condition.

·	The Company’s operating results may be subject to currency fluctuations as some of its expenses are in U.S. dollars or other foreign currencies.

·	The Company’s insurance may not be sufficient, exposing the Company to potential loss from litigation. Claims related to product candidates in clinical studies and product liability could also increase its expenses, harm its reputation and keep it from growing its business.

·	Hazardous materials that are highly regulated may expose the Company to potential liability in the event of an accident therefore; compliance with environmental regulations could be costly in the future.

·	Although the Company is not aware of any, at present, it is possible that the Chimigen™, T-ACT™ and AIT™ Platforms might cause unknown adverse side effects or cause undesirable reactions that would affect their market potential.

·	If there are fewer individuals in the Company’s target markets than the Company estimates, then it may not generate sufficient revenues to continue development of its product candidates or continue operations.

·	The Company may need to significantly increase the size of its organization, and it may experience difficulties in managing growth.

 

 

 

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Risks Relating to the Company’s Common Shares

·	The Company has not paid, and does not intend to pay any cash dividends on its common shares and therefore its shareholders may not be able to receive a return on their shares unless they sell them.

·	The market price and trading volume of the Company’s common shares may be volatile.

·	The significant costs that the Company will incur as a result of being a public company in the United States and Canada could adversely affect its business.

The Company is also subject to other risks inherent in the biotechnology industry. The Company’s financial results will fluctuate from period to period and therefore are not necessarily meaningful and should not be relied upon as an indication of future financial performance. Such fluctuations in quarterly results or other factors beyond the Company’s control could affect the market price of its common stock. These factors include changes in earnings estimates by analysts, market conditions in our industry, announcements by competitors, changes in pharmaceutical and biotechnology industries, and general economic conditions. Any effect on its common stock could be unrelated to longer-term operating performance.

OPERATIONS REVIEW

	For year ended December 31
	2007	2006	2005
Canadian GAAP
Revenue	-	-	-
Research and development expense	$4,760,560	$5,937,122	$4,750,190
Corporate administration expense	4,947,487	4,976,837	3,650,282
Impairment of acquired intellectual property	(24,991,344)	-	-
Net loss and comprehensive loss	(31,567,690)	(17,493,375)	(7,459,714)
Basic and diluted loss per common share	(0.43)	(0.25)	(0.13)
Cash and cash equivalents and short-term investments	$2,575,248	$10,742,191	$5,571,850
U.S. GAAP net loss and comprehensive loss	(9,545,235)	(10,694,110)	(8,460,699)
U.S. GAAP basic and diluted loss per common share	$(0.13)	$(0.16)	$(0.15)

For the year ended December 31, 2007, the net loss was $31,567,690 or ($0.43) per common share, as compared to $17,493,375 or ($0.25) per common share for the year ended December 31, 2006. The $14,074,315 increase in net loss is mainly attributable to the following, as more fully described in the following sections.

·	Impairment of acquired intellectual property and related future income tax recovery.

·	Decrease in overall research and development costs due to lower clinical trial costs and employee related expenditures that were partially offset by manufacturing costs related to the Occlusin™ 500 AED and facility start up costs related to the Tecnogen manufacturing facility.

·	Lower corporate administration costs that were partially offset by increased costs due to the 13D filing and related legal and consulting fees.

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During the year ended December 31, 2007, research and development costs for the Chimigen™ Platform were offset by a $226,545 financial contribution from the NRC-IRAP.

Research and Development

		For year ended December 31
		2007				2006				2005
Contract research costs		$	338,223			$	628,240			$	410,052
Clinical trial costs			98,529				477,364				104,692
Clinical material manufacturing costs			575,611				386,216				861,064
Employee related costs			1,650,067				2,554,289				2,068,468
Other research and development costs			2,098,130				1,891,013				1,305,914
		$	4,760,560			$	5,937,122			$	4,750,190

Research and development expenses for the year ended December 31, 2007, were $4,760,560 compared to $5,937,122 for the year ended 2006, a decrease of $1,176,562 or 20%.

This decrease in research and development spending can be attributed to the following factors.

Contract research costs were lower in 2007 due to a one time toxicology study being done in non-human primates in 2006 that cost $396,000.  Additional contract research costs of $181,000 were incurred in 2007 related to stability testing of the GMP manufactured product for Occlusin™ 500 AED and a mouse study performed in collaboration with Vaccine and Infectious Disease Organization (”VIDO”) related to the Chimigen™ vaccines.

 

Decreased clinical trial costs compared to the same period in 2006 is due to the completion of the Phase I clinical studies of Chimigen™ Hepatitis B Vaccine, which cost $335,000 in 2006.

 

Clinical material manufacturing costs increased $189,395 compared to 2006 due to the following:

 

·	GMP manufacturing for the Occlusin™ 500 AED was started in September 2006 and ended in June 2007. Costs of $311,000 were incurred that were not incurred 2006;

 

·

In 2005, Protein Sciences Corporation was contracted for the GMP manufacturing of Chimigen™ Hepatitis B Vaccine, formerly HepaVaxx B, which completed a Phase I safety clinical trial in humans.  Final costs and completion of the contract occurred early in 2006.  There was no similar GMP manufacturing in 2007; and

 

·	One time various microbial and viral tests on the cell banks which cost $30,000 for the AITä Platform were conducted in 2006 that were not performed in 2007.

 

The decrease in employee related costs of $904,222 is primarily due to the staff reductions as a result of the November 2006 restructuring and allocation of certain executive costs. In April 2007, the Alberta Heritage Foundation for Medical Research (“AHFMR”) - Industrial Research Fellowship granted funding of $37,500.  There was  no funding received in 2006.

 

Other research and development costs increased in 2007 due to resolution of the start-up and renovation of the Tecnogen manufacturing facility of $354,545.

 

Research and development expenses for the year ended December 31, 2006 totaled $5,937,122, an increase of $1,186,932 from $4,750,190 for the corresponding year ended December 31, 2005. This increase was due primarily to additional toxicology testing for the Chimigen™ Hepatitis B Vaccine clinical studies, development of Occlusin™ 500 AED, development of Occlusin™ 50 Injection, preclinical studies for a Chimigen™ Vaccine candidate for Hepatitis C, development for Chimigen™ Vaccines for biodefence applications and initiating manufacturing activities in Europe for OvaRex® MAb.

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Corporate Administration

		For year ended December 31
		2007				2006				2005
Business development costs		$	284,901			$	527,487			$	-
Employee related costs			776,146				1,666,889				1,855,556
Other administration costs			3,886,440				2,782,461				1,794,726
		$	4,947,487			$	4,976,837			$	3,650,282

Corporate administration expenses for the year ended December 31, 2007, totaled $4,947,487, a decrease of 1% or $29,350 from $4,976,837 for the year ended December 31, 2006.

During 2007, efforts continued on business development including the pursuit of potential partnerships and finance arrangements for product candidates and technology platforms.  The significant decrease from 2006 in business development of $242,586 or 46% is a direct result of a second quarter reduction of management personnel in this department.

The decrease from 2006 of $890,743 in employee related costs was due to the second quarter change in management.  Employee related costs savings have been offset by higher consulting and travel costs incurred by senior management.  Additional costs of $685,000 were also incurred from legal and other advisory services that management retained to determine courses of action relating to the effects of the Schedule 13D filed February 14, 2007 with the Securities and Exchange Commission.

Corporate administration expenses for the year ended December 31, 2006 were $1,326,555 higher compared to 2005.  This was due to increased activity relating to investor relations, corporate communication, an increase in legal expenses and other related service fees for U.S. regulatory filing requirements including consulting fees associated with Sarbanes-Oxley compliance requirements.

Other Income (Expense)

The significant decrease in other income is directly related to the impairment loss on acquired intellectual property of $24,991,344.  Under U.S. GAAP, the cost of acquiring intellectual property is charged to expense as in-process research and development (“IPRD”) when acquired if the feasibility of such technology has not been established and no future alternative use exists. This difference increases the loss from operations under U.S. GAAP in the year the IPRD is acquired and reduces the loss under U.S. GAAP in subsequent periods because there is no amortization charge.  On December 5, 2007, the Company announced the results of two Phase III clinical trials of OvaRex® MAb for the treatment of advanced ovarian cancer.  The results showed that the studies failed to reach statistical significance.  These trials were conducted and based on acquired intellectual property and related agreements from the acquisition of AltaRex in December 2004.  The value of the Unither Pharmaceuticals, Inc. (a subsidiary of United Therapeutics Corporation) development agreement and other licenses was directly linked to expected future cash flows from these agreements.  Due to the failure of the clinical trials, the ability to realize the expected future economic benefit from the acquired intellectual property is remote.  Therefore, the entire unamortized value of the acquired intellectual property has been recognized as an impairment loss.

Future Income Taxes

The future income tax recovery for the year ended December 31, 2007, was $5,346,990 compared to an expense of $4,178,613 for the year ended December 31, 2006 and a recovery of $3,358,426 for the year ended December 31, 2005.  Under Canadian GAAP, a future tax liability is also recorded upon acquisition of the intellectual property to reflect the tax effect of the difference between the carrying amount of the intellectual property in the consolidated financial statements and the tax basis of these assets. Under U.S. GAAP, because the intellectual property is expensed immediately as IPRD, there is no difference between the tax basis and the financial statement carrying value of the assets and therefore no future tax liability exists.  Under Canadian GAAP, a future tax liability is also recorded upon acquisition of the intellectual property to reflect the tax effect of the difference between the carrying amount of the intellectual property in the consolidated financial statements and the tax basis of these assets. Under U.S. GAAP, because the intellectual property is expensed immediately as IPRD, there is no difference between the tax basis and the financial statement carrying value of the assets and therefore no future tax liability exists.

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On the acquisition of AltaRex in 2004, the premium paid by ViRexx over the carrying value of the net assets of AltaRex was allocated to the acquired intellectual property owned by AltaRex. This resulted in a significant future tax liability based on the difference between the tax cost base of the acquired intellectual property and its net book value for accounting purposes.  With the impairment loss on the acquired intellectual property recognized in other income, the liability associated with this asset has been eliminated.  This provided a recovery of the future income tax liability previously reported.

ViRexx, as the parent company, has incurred significant operating losses and has other tax assets, such as scientific research and experimental development credits that can be used to reduce future taxable income. Management’s assessment of the value of these non-capital losses carried forward is based on its best estimate of the ability of the Company to utilize these non-capital losses and tax credits to offset future taxable income. Judgments as to the timing and potential use of such non-capital losses and tax credits are made on the best information available and are reassessed periodically.  Currently management is not of the opinion that the realization of these future income tax assets is more likely than not, therefore management has recorded a valuation allowance such that no future income tax asset has been recorded in the consolidated financial statements.

SUBSEQUENT EVENT

In February 2008, the Company proposed settlement of a claim for severance pay and wrongful dismissal filed by a former employee.  The settlement amount is accrued for in the consolidated financial statements.

Also, during February 2008 the Company has reached, but not yet finalized a settlement with Clarus Securities Ltd. (“Clarus”) for damages for non-performance in regard to the cancellation of a $15,000,000 public offering.  The proposed settlement includes a cash payment and warrants.  The cash settlement amount was accrued in the December 31, 2007 audited consolidated financial statements.  The issuance of the warrants will be recorded in the second quarter of 2008 once they are issued and the exercise price has been determined.

 

LIQUIDITY AND CAPITAL RESOURCES

		As at December 31,
		2007				2006
Cash and cash equivalents		$	2,533,105			$	405,354
Short-term investments			42,143				10,336,837
		$	2,575,248			$	10,742,191

As at December 31, 2007, the Company’s cash and cash equivalents and short-term investments totaled $2,575,248 as compared with $10,742,191 at December 31, 2006. The Company’s net cash provided from operating activities amounted to $2,283,769 for the year ended December 31, 2007, reflecting the Company’s redemption and use of short-term investments to fund corporate administration expenses, including costs incurred for the public offering, dealing with the 13D group, and research and development expenses.

Currently the Company has no contributing cash flows from operations. As a result, the Company relies on external sources of financing such as the issue of equity or debt securities, the exercise of options or warrants and investment income to finance operations. Revenues from operations are not expected until certain milestone and royalty payments from license and collaboration agreements have been earned, or commercialization of a product candidate has occurred.

The Company believes that its cash and cash equivalents and short-term investments will be sufficient to satisfy the Company’s anticipated operating requirements into the second quarter of 2008.

Currently Management is preparing a short form prospectus for a rights offering (“Offering”) to all existing shareholders of the Company.  The record date for this transaction has not yet been determined but is expected to be in early April 2008.  Each shareholder who is eligible to participate in the offering will receive one right for each share owned.  Each right will entitle the holder to receive one common share in the capital of the Company.  The Company has applied to list all shares issuable upon exercise of the rights on the TSX and the AMEX.  Management expects the offering to be complete by early May 2008 and anticipates raising net proceeds of approximately CDN$5 million.  This will provide the Company with operating capital for approximately 12 to 18 months.

If the rights offering is not successful, the Company would have to pursue alternative sources of liquidity to meet its short term cash needs, which may not be available on terms favorable to the Company, if at all.

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The Company has applied to list on the TSX the Rights distributed under this short form prospectus and the Shares issuable upon the exercise of the Rights.  Approval of such listing will be subject to the Corporation fulfilling all of the listing requirements of the TSX.  The Company has applied to list the Shares issuable upon the exercise of the Rights (but not the Rights themselves) on the AMEX. Approval of such listings will be subject to the Company fulfilling all of the listing requirements of the AMEX.

The Rights may not be transferred to any person in the United States or to any U.S. person within the meaning of Regulation S under the United States Securities Act of 1933, as amended. Shareholders in the United States who receive Rights may resell them only outside the United States in accordance with Regulation S.

 

The subscription price of each right has not yet been determined but will be equal to the weighted average closing price of the Company’s common shares on the TSX for each of the trading days on which there was a closing price during the three trading days immediately preceding the date of the final prospectus in respect of the Offering, less a discount of 25%.

 

The Company has engaged a Dealer Manager to act as financial adviser to the Company and to solicit the exercise of the Rights. The Company has agreed to pay the Dealer Manager an advisory fee equal to 6% of the gross proceeds of the Offering but before deducting the other expenses of the Offering.  In addition to the advisory fee, the Dealer Manager will also be issued a compensation warrant (the “Dealer Warrant”) entitling the holder thereof to purchase such number of common shares of the Company equal to 6% of the Rights exercised under this Offering.  The Dealer Warrant will be exercisable at the subscription price and will expire 18 months after the completion of the Offering.

Management is considering all financing alternatives and is seeking to raise additional funds for operations from all potential sources. This disclosure is not an offer to sell, nor a solicitation of an offer to buy securities of the Company. While the Company is striving to achieve the above plans, there is no assurance that such funding will be available or obtained on favorable terms. At December 31, 2007, there was substantial doubt that the Company would be able to continue as a going concern. The consolidated financial statements do not reflect adjustments in the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classification used, that would be necessary if the going concern were not appropriate and these adjustments could be material.

Projections of further capital requirements are subject to substantial uncertainty. Working capital requirements may fluctuate in future periods depending upon numerous factors, including: results of research and development activities; progress or lack of progress in preclinical studies or clinical trials; drug substance requirements to support clinical programs; the ability to achieve milestone payments under current licensing partner collaborations or any other collaboration the Company establishes that provide funding; changes in the focus, direction, or costs of research and development programs; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; establishment of marketing and sales capabilities; business development activities; new regulatory requirements implemented by regulatory authorities; and the timing and outcome of any regulatory review process or commercialization activities, if any.

OFF BALANCE SHEET ARRANGEMENTS

As at December 31, 2007, the Company did not have any material off-balance sheet arrangements other than those listed under the Contractual Obligations and Commitments described below and those disclosed in Note 13 to the Audited Consolidated Financial Statements for the year ended December 31, 2007.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The Company periodically enters into long-term contractual arrangements for the lease of office and laboratory facilities and product candidate manufacturing for clinical trials. The following table presents commitments arising from these arrangements currently in force over the next five years:

	Total	< 1 year	1 – 3 years
Operating lease obligations	$ 395,940	$ 115,885	$ 280,055
Product candidates manufacturing obligations	18,000	9,000	9,000
Capital lease obligation	5,931	5,931	-
Total contractual obligations	$ 419,871	$ 130,816	$ 289,055

Notes:  Lease on laboratory and offices of $115,885 per annum from June 1, 2007 to May 31, 2011

 

 

 

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CONTROLS AND PROCEDURES

In order to ensure that information filed under Canadian and U.S. securities legislation presents fairly in all material respects the financial information of ViRexx, the Chief Executive Officer and the Chief Financial Officer, are responsible for establishing and maintaining disclosure controls and procedures, as well as internal controls over financial reporting.

Disclosure Controls and Procedures

It is the conclusion of the Company's Chief Executive Officer and Chief Financial Officer that the Company's disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), based on their evaluation of these controls and procedures as of the end of the period covered by this Annual Report, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting.

 

There were no changes in the Company's internal controls over financial reporting that occurred during the period that is covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, these controls.

 

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

 

 

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2007, the Company’s internal control over financial reporting was effective based on those criteria.

 

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our audited consolidated financial statements are prepared in accordance with Canadian GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  We believe that our most critical accounting policies and estimates relate to the following areas, with reference to notes contained in the audited consolidated financial statements:

§	Acquired Intellectual Property (Note 7 and 24(a))

§	Income Tax Provision (Note 11 and 24(a))

§	Legal Claims (Note 14 and 15)

§	Stock Based Compensation (Note 18 and 24 (b))

 

 

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Management has discussed the development, selection and disclosure of critical accounting policies and estimates with its Audit Committee of our Board of Directors. While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. A summary of significant accounting policies and estimates and a description of accounting policies that are considered significant may be found in the Note 4 to the audited consolidated financial statements.

The Company has various legal and administrative proceedings, principally related to former employee claims for wrongful dismissal. The Company may make a provision for those proceedings and may make additional significant provisions for such legal proceedings, as required in the event of further developments. Litigation is inherently unpredictable. The Company may in the future incur judgments or enter into settlements of claims that could result in payments that exceed its current provisions by an amount that would have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2007, the Company adopted the following new accounting standards related to financial instruments that were issued by the Canadian Institute of Chartered Accountants (“CICA”) in 2005.  These accounting policy changes were adopted on a retroactive basis with no restatement of prior period consolidated financial statements.  The new standards and accounting policy changes are as follows:

 

Financial Instruments

 

Financial Instruments – Recognition and Measurement (CICA Handbook Section 3855)

 

Financial Instruments – Disclosure and Presentation (CICA Handbook Section 3861)

 

In accordance with these standards, the Company now classifies all financial instruments as held-to-maturity, available-for-sale, held-for-trading, loans and receivables or other liabilities.  Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, are measured at amortized cost using the effective interest method.  Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss).  Instruments classified as held-for-trading are measured at fair value with unrealized gains and losses recognized in the consolidated statement of loss. Financial instruments of the Company consist of cash equivalents, short-term investments, other current assets, accounts payable and accrued liabilities and obligations under capital lease.  The fair value of these instruments approximates their carrying amount due to their immediate or short-term maturity.

 

The Company has made the following classifications:

 

·	Cash equivalents and short-term investments are classified as held-for-trading and are measured at fair value.  Gains and losses related to periodic revaluation are recorded in net loss;

 

·	Other current assets are classified as loans and receivables and are initially measured at fair value and subsequently at amortized cost using the effective interest method; and

 

·	Accounts payable and accrued liabilities and obligations under capital lease are classified as other liabilities and are initially measured at fair value and subsequently at amortized cost using the effective interest method.

 

Derivative instruments are recorded at fair value unless exempted from derivative treatment as normal purchases and sales.  All changes in their fair value are recorded in income unless cash flow hedge accounting is used, in which case, changes in fair value are recorded in other comprehensive income (loss).  The Company has elected to apply this accounting treatment for embedded derivatives on transactions entered into after January 1, 2003, and the change in accounting policy did not have a material impact on the consolidated financial statements.

 

Transaction costs with respect to instruments not classified as held-for-trading are recognized as an adjustment to the cost of the underlying instruments, when they are recognized, and amortized using the effective interest method.  Transaction costs with respect to instruments classified as held-for-trading are expensed as incurred.

As at December 31, 2007, the impact on the consolidated balance sheet of measuring the financial assets and liabilities was $nil.

 

Comprehensive income (CICA Handbook Section 1530)

Comprehensive income is the change in shareholders’ equity during a period from transactions and events from sources other than the Company’s shareholders.  In accordance with this new standard, the Company is required to report a consolidated statement of comprehensive loss and a new category, accumulated other comprehensive loss, and is required to be added to the shareholders’ equity section on the consolidated balance sheet.  The components of accumulated other comprehensive loss may include unrealized gains and losses on financial assets classified as available-for-sale, foreign currency gains and losses on the net investment in self-sustaining foreign operations and changes in fair market value of derivative instruments designated as cash flow hedges, all net of income taxes.  There were no such components to be recognized in other comprehensive loss at adoption on January 1, 2007 or for the year ended December 31, 2007.  As the Company has no items of other comprehensive loss, net loss is equivalent to comprehensive loss and the Company has not reported a separate statement of comprehensive loss.

 

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Hedges (CICA Handbook Section 3865)

This standard specifies the criteria under which hedge accounting can be applied and how hedge accounting can be executed.  The Company does not have any hedging items so the implementation of this Section did not have a material impact on the Company’s consolidated financial statements.

 

 

Equity (CICA Handbook Section 3251)

 

In January 2005, the CICA issued a new Section to the CICA Handbook, Section 3251 “Equity” which became effective for the Company on January 1, 2007.  This Section establishes standards for the presentation of equity during a reporting period.  The implementation of this Section did not have a material impact on the Company’s consolidated financial statements.

 

Accounting changes (CICA Handbook Section 1506)

Effective January 1, 2007, the Company adopted CICA Handbook Section 1506 "Accounting Changes" which establishes criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies and estimates, and correction of errors. Under the new standard, accounting changes should be applied retroactively unless otherwise permitted or where impracticable to determine. As well, voluntary changes in accounting policies are made only when required by a primary source of Canadian GAAP or the change results in more relevant and reliable information. The Company has determined that the application of this Section did not have any impact on the consolidated financial statements.

 

FUTURE ACCOUNTING PRONOUNCMENTS

 

Capital Disclosures (CICA Handbook Section 1535)

 

In November 2006, the CICA issued new Handbook Section 1535 "Capital Disclosures", effective for annual and interim periods beginning on or after October 1, 2007. This Section establishes standards for disclosing information about an entity's capital and how it is managed in order that a user of the financial statements may evaluate the entity's objectives, policies and processes for managing capital. This new Standard will not have a material effect on the Company's consolidated financial statements.  The following disclosure will be added to annual and interim reports beginning January 1, 2008:

 

The Company's objectives when managing capital are:

 

To safeguard the Company's ability to continue as a going concern, to continue to provide returns for shareholders and benefits for other stakeholders, and;

 

To provide an adequate return to shareholders commensurate with the level of risk associated with a development stage biotechnology company.

 

The Company sets the amount of capital in proportion to risk and manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the number of shares issued, sell assets, enter into mergers and acquisitions, acquire debt or enter into some other form of financing facility.

 

Capital comprises all components of equity (i.e. common shares, contributed surplus, and deficit accumulated during development stage) other than amounts in accumulated other comprehensive income relating to cash flow hedges.

 

 

Inventories (CICA Handbook Section 3031)

 

Effective January 1, 2008, the Company will be required to adopt CICA Section 3031 “Inventories”. This Section prescribes the measurement of inventory at the lower of cost and net realizable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. This Section applies to interim and annual consolidated financial statements for fiscal years beginning on or after January 1, 2008. The Company plans to adopt this Section for its fiscal year beginning January 1, 2008 and it will not have a material effect on the Company's consolidated financial statements.

 

 

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Financial Instruments: Disclosures (CICA Handbook Section 3862)/ Presentation (CICA Handbook Section 3863)

 

Effective January 1, 2008, the Company will be required to adopt two new CICA standards, Section 3862 “Financial Instruments – Disclosures” and Section 3863 “Financial Instruments – Presentation”, which will replace Section 3861 “Financial Instruments – Disclosure and Presentation”.

 

The new Disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how these risks are managed. The new Presentation standard carries forward the former presentation requirements. The new financial instruments presentation and disclosure requirements were issued in December 2006. The Company plans to adopt these Sections for its fiscal year beginning January 1, 2008 and they will not have a material effect on the Company's consolidated financial statements.

 

 

Convergence to International Financial Reporting Standards (“IFRS”)

 

In 2006, Canada's Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public entities, being converged with IFRS over a transitional period currently expected to be about five years. The precise timing of convergence will depend on an Accounting Standards Board progress review to be undertaken in 2008. The impact of this transition on the Company's consolidated financial statements has not yet been determined; however, management continues to monitor these regulatory developments.

 

RECENTLY ADOPTED AND PENDING UNITED STATES ACCOUNTING PRONOUNCMENTS

Recent United States accounting pronouncements issued and adopted

 

Accounting for uncertainty in income taxes

 

In June 2006, the Financial Accounting Standard Board (“FASB”) issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of Statement of Financial Accounting (“FAS”) 109 “Accounting for Income Taxes”.  On January 1, 2007, the Company adopted the provisions of FIN 48 that prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The interpretation requires that the Company recognize the impact of a tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. In accordance with the provisions of FIN 48, any cumulative effect resulting from the change in accounting principle is to be recorded as an adjustment to the opening balance of deficit. The adoption of FIN 48 did not result in a material impact on the Company’s consolidated financial position or results of operations.

 

Recent United States accounting pronouncements issued and not yet adopted

 

Fair value measurements

 

In September 2006, the FASB approved FAS No. 157, “Fair Value Measurements” (“FAS 157”), which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and enhances disclosures about fair value measurements.  This statement applies when other accounting pronouncements require fair value measurements.  It does not require new fair value measurements.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The adoption of FAS 157 will not result in a material impact on the Company’s financial position or results of operations.

 

The Fair Value Option for Financial Assets and Financial Liabilities

 

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. This statement is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. The adoption of FAS 159 will not result in a material impact on the Company’s financial position or results of operations.

 

Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities

 

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-3 “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective for fiscal years beginning after December 15, 2007.   The adoption of EITF 07-03 will not result in a material impact on the Company’s financial position or results of operations.

 

Collaborative Agreements

 

In September 2007, the EITF reached a consensus on EITF Issue No. 07-1 “Collaborative Arrangements” ("EITF 07-1"). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company's collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008.  The Company is currently assessing the impact EITF 07-1 will have on its results of operations and financial position.

 

 

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Business Combinations

 

The FASB recently completed the second phase of its business combinations project, to date the most significant convergence effort with the International Accounting Standards Board (“IASB”), and issued the following two accounting standards:

 

i.	Statement No. 141, Business Combination; and

 

ii.	Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No.51.

 

 

These statements dramatically change the way companies account for business combinations and noncontrolling interests (minority interests in current U.S. GAAP).  Compared with their predecessors, Statements 141(R) and 160 will require:

 

·	More assets acquired and liabilities assumed to measured at fair value as of the acquisition date;

 

·	Liabilities related to contingent consideration to be remeasured at fair value in each subsequent reporting period;

 

·	An acquirer in preacquisition periods to expense all acquisition related costs; and

 

·	Noncontrolling interests in subsidiaries initially to be measure at fair value and classified as a separate component of equity.

 

Statements 141(R) and 160 should both be applied prospectively for fiscal years beginning on or after December 15, 2008.  However, Statement 160 requires entities to apply the presentation and disclosure requirements retrospectively (e.g., by reclassifying noncontrolling interests to appear in equity) to comparative financial statements if presented.  Both standards prohibit early adoption.  The Company is currently assessing the impact these new standards will have on its consolidated financial statements.

 

SELECTED ANNUAL AND QUARTERLY INFORMATION

The following quarterly information is presented in thousands of dollars except for loss per share amounts:

		2007																2006
			Q1				Q2				Q3				Q4				Q1				Q2				Q3				Q4
Research and development costs			1,125				1,355				1,210				1,071				1,544				1,476				1,506				1,411
Net loss			2,924				3,188				1,915				23,541				2,309				3,326				3,365				8,493
Basic and diluted net loss per common share			0.04				0.04				0.03				0.32				0.04				0.05				0.05				0.11
Weighted average number of common shares outstanding			72,761				72,761				72,761				72,761				63,842				70,281				70,343				68,921

The quarterly results have varied primarily as a result of availability of resources to fund operations and the timing of significant expenses incurred in the development of the Company’s product candidates (manufacturing, clinical trials).

OOutstanding Share Data

Mar. 31, 2008

Dec.31, 2007

Dec. 31, 2006

Common shares issued and outstanding                          72,760,717                                 72,760,717                                                72,760,717

Stock options outstanding                                                                                                            5,332,811                                   5,332,811                                                  6,096,241

Warrants outstanding                                                                                                                    2,618,182                                 14,618,181                                                17,077,480

Stock options and warrants exercised are converted into an equal number of common shares. If fully exercised the stock options and warrants outstanding at March 31, 2008 would generate proceeds of approximately $7,538,378.

Duties: Responsible for overall supervision and management of Research and Development and further responsible for duties associated with office of Senior Vice-President and any other duties as the President and/or the Board of Directors of ViRexx may determine.

Time Devotion: Dr. George shall devote his full business time, attention and ability to ViRexx’s affairs.

 

 

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Compensation: Commencing January 1, 2007, a salary, for each year of the Term, of no less than $155,000.00 per annum, reviewable annually.

Bonus: Dr. George is eligible to be considered for an annual bonus based on a percentage of salary. The current Compensation Plan calls for a bonus of 20% for this level of employment; however, the Company’s management has reserved the right whether or not to pay this bonus subject to the availability of cash.

Stock Options: Option to purchase 150,000 common shares at a price of $0.80 per share vesting on commencement of the term. In addition, during the fiscal year ended December 31, 2006, Dr. George was granted an option underlying 25,200 of the Company’s common shares exercisable at $1.30 per share, which expires on March 28, 2016. Said options shall vest in three equal installments over a three-year period, beginning on the date 12 months after the date of the grant. Dr. George is also eligible to participate in ViRexx’s Stock Option Plan as may be determined and/or amended from time to time in the sole discretion of ViRexx and as approved by its board of directors.

Term: Effective as of January 1, 2007, the Company renewed Dr. George’s employment which shall continue until the agreement is terminated by either Dr. George or ViRexx in accordance with the terms summarized herein and the terms of the agreement.

Termination by Dr. George and ViRexx Without Cause or Change of Control of the Employees: The Agreement may be terminated by ViRexx or Dr. George without cause:

(a) by Dr. George without cause on giving 90 days notice. ViRexx may waive the notice;

(b) by ViRexx on giving 1 year’s notice or payment in lieu of notice of 1 year’s salary inclusive of all benefits; or

(c) within twelve (12) months following a Change of Control (as defined in the agreement):

(i) by Dr. George for Good Reason (as defined in the employment agreement) on giving 60 days notice. ViRexx may waive notice.

If Dr. George elects to terminate his employment as a result of a Change of Control or resigns for Good Reason at any time up to twelve (12) months following a Change of Control, ViRexx shall pay to Dr. George the following:

(a) an amount equal to twelve (12) months of salary plus Bonus payable for the said twelve (12) months;

(b) continuation of the benefits during the 12 months following the date of his termination;

(c) immediate vesting of all stock options granted to Dr. George; and

(d) an extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to twelve (12) months.

Termination of Dr. George for Disability: If Dr. George suffers from any disability resulting in Dr. George being unable to perform duties; ViRexx may terminate this Agreement upon giving 60 days notice, 6 months’ salary, the value of benefits otherwise received over the same period and accrued vacation pay.

Other: Dr. George shall be paid a car mileage allowance and his reasonable business expenses, including business-related mobile phone charges, shall be reimbursed by ViRexx as further provided in the agreement. ViRexx shall pay all professional association and development fees and all course costs which are incurred from time to time by Dr. George in maintaining his professional designations and upgrading and/or continuing his education and development to improve the performance of his duties.

3.           Dr. Irwin Griffith (Effective January 1, 2007)

Position: Vice-President, Development (Embolotherapy)

Duties: Responsible for duties associated with office of Vice-President and any other duties as the President and/or the Board of Directors of ViRexx may determine.

Time Devotion: Dr. Griffith shall devote his full business time, attention and ability to ViRexx’s affairs.

Compensation: Commencing January 1, 2007, a salary, for each year of the Term, of no less than $140,000.00 per annum, reviewable annually.

Bonus: Dr. Griffith is eligible to be considered for an annual bonus based on a percentage of salary. The current Compensation Plan calls for a bonus of 20% for this level of employment; however, the Company’s management has reserved the right whether or not to pay this bonus subject to the availability of cash.

Stock Options: Option to purchase 100,000 common shares at a price of $0.80 per share. The option shall vest in equal 1/3 amounts over a three (3) year period. In addition, during the fiscal year ended December 31, 2006, Dr. Griffith was granted an option underlying 36,000 of the Company’s common shares exercisable at $1.30 per share, which expires on March 28, 2016. Said options shall vest in three equal installments over a three-year period, beginning on the date 12 months after the date of the grant. Dr. Griffith is also eligible to participate in ViRexx’s Stock Option Plan as may be determined and/or amended from time to time in the sole discretion of ViRexx and as approved by its board of directors.

Term: Effective as of January 1, 2007, the Company renewed Dr. Griffith’s employment which shall continue until the agreement is terminated by either Dr. Griffith or ViRexx in accordance with the terms summarized herein and the terms of the agreement.

Termination by Dr. Griffith and ViRexx Without Cause or Change of Control of the Employees: The Agreement may be terminated by ViRexx or Dr. Griffith without cause:

(a) by Dr. Griffith without cause on giving 90 days notice. ViRexx may waive the notice.

(b) by ViRexx on giving 1 year’s notice or payment in lieu of notice of 1 year’s salary inclusive of all benefits; or

(c) within twelve (12) months following a Change of Control (as defined in the agreement):

 

 

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(i) by Dr. Griffith for Good Reason (as defined in the employment agreement) on giving 60 days notice. ViRexx may waive notice.

If Dr. Griffith elects to terminate his employment as a result of a Change of Control or resigns for Good Reason at any time up to twelve (12) months following a Change of Control, ViRexx shall pay to Dr. Griffith the following:

(a) an amount equal to twelve (12) months of salary plus Bonus payable for the said twelve (12) months;

(b) continuation of the benefits during the 12 months following the date of his termination;

(c) immediate vesting of all stock options granted to Dr. Griffith; and

(d) an extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to twelve (12) months.

Termination of Dr. Griffith for Disability: If Dr. Griffith suffers from any disability resulting in Dr. Griffith being unable to perform duties; ViRexx may terminate this Agreement upon giving 60 days notice, 6 months’ salary, the value of benefits otherwise received over the same period and accrued vacation pay.

Other: Dr. Griffith shall be paid a car mileage allowance and his reasonable business expenses, including business-related mobile phone charges, shall be reimbursed by ViRexx as further provided in the agreement. ViRexx shall pay all professional association and development fees and all course costs which are incurred from time to time by Dr. Griffith in maintaining his professional designations and upgrading and/or continuing his education and development to improve the performance of his duties.

 

4.           Dr. Andrew Stevens (effective January 1, 2007)

Position: Vice-President Clinical and Regulatory Affairs

Duties: Responsible for the overall supervision and management of Clinical and Regulatory Affairs and further responsible for duties associated with office of Vice-President and any other duties as the President and/or the Board of Directors of ViRexx may determine.

Time Devotion: Dr. Stevens shall devote his full business time, attention and ability to ViRexx’s affairs.

Compensation: Commencing January 1, 2007, a salary, for each year of the Term, of no less than $135,000.00 per annum, reviewable annually.

Bonuses: Dr. Stevens is eligible to be considered for an annual bonus based on a percentage of salary. The current Compensation Plan calls for a bonus of 20% for this level of employment; however, the Company’s management has reserved the right whether or not to pay this bonus subject to the availability of cash.

Stock Options: Option to purchase 100,000 common shares at a price of $0.80 per share vesting upon commencement of the term. In addition, during the fiscal year ended December 31, 2006, Dr. Stevens was granted an option underlying 25,000 of the Company’s common shares exercisable at CDN$1.30 per share, which expire on March 28, 2016. Said options shall vest in three equal installments over a three-year period, beginning on the date 12 months after the date of the grant. Dr. Stevens is also eligible to participate in ViRexx’s Stock Option Plan as may be determined and/or amended from time to time in the sole discretion of ViRexx and as approved by its board of directors.

Term: Effective as of January 1, 2007, the Company renewed Dr. Stevens’s employment which shall continue until the agreement is terminated by either Dr. Stevens or ViRexx in accordance with the terms summarized herein and the terms of the agreement.

Termination by Dr. Stevens and ViRexx Without Cause or Change of Control of the Employees: The Agreement may be terminated by ViRexx or Dr. Stevens without cause:

(b) by ViRexx on giving 1 year’s notice or payment in lieu of notice of 1 year’s salary inclusive of all benefits; or

(c) within twelve (12) months following a Change of Control (as defined in the agreement):

(i) by Dr. Stevens for Good Reason (as defined in the employment agreement) on giving 60 days notice. ViRexx may waive notice.

If Dr. Stevens elects to terminate his employment as a result of a Change of Control or resigns for Good Reason at any time up to twelve (12) months following a Change of Control, ViRexx shall pay to Dr. Stevens the following:

(a) an amount equal to twelve (12) months of salary plus Bonus payable for the said twelve (12) months;

(b) continuation of the benefits during the 12 months following the date of his termination;

(c) immediate vesting of all stock options granted to Dr. Stevens; and

(d) an extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to twelve (12) months.

Termination of the Employee for Disability: If Dr. Stevens suffers from any disability resulting in Dr. Stevens being unable to perform duties, ViRexx may terminate this Agreement upon giving 60 days notice, 6 months’ salary, the value of benefits otherwise received over the same period and accrued vacation pay.

Other:  Dr. Stevens shall be paid a car mileage allowance and his reasonable business expenses, including business-related mobile phone charges, shall be reimbursed by ViRexx as further provided in the agreement. ViRexx shall pay all professional association and development fees and all course costs which are incurred from time to time by Dr. Stevens in maintaining his professional designations and upgrading and/or continuing his education and development to improve the performance of his duties.

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5.           Dr. Hubert Eng (effective November 1, 2007)

Position: Vice-President, Development (AIT)

Duties: Responsible for the overall supervision and management of the AIT Platform.

Time Devotion: Dr. Eng shall devote his full business time, attention and ability to ViRexx’s affairs.

Compensation: Commencing January 1, 2007, a salary, for each year of the Term, of no less than $90,000.00 per annum, reviewable annually.

Bonuses: Dr. Eng is eligible to be considered for an annual bonus based on a percentage of salary. The current Compensation Plan calls for a bonus of 20% for this level of employment; however, the Company’s management has reserved the right whether or not to pay this bonus subject to the availability of cash.

Term: Effective as of January 1, 2007, the Company renewed Dr. Eng’s employment which shall continue until the agreement is terminated by either Dr. Eng or ViRexx in accordance with the terms summarized herein and the terms of the agreement.

Termination by Dr. Eng and ViRexx Without Cause or Change of Control of the Employees: The Agreement may be terminated by ViRexx or Dr. Eng without cause:

(a) by Dr. Eng without cause on giving 90 days notice. ViRexx may waive the notice;

(b) by ViRexx on giving 1 year’s notice or payment in lieu of notice of 1 year’s salary inclusive of all benefits; or

(c) within twelve (12) months following a Change of Control (as defined in the agreement):

(i) by Dr. Eng for Good Reason (as defined in the employment agreement) on giving 60 days notice. ViRexx may waive notice.

If Dr. Eng elects to terminate his employment as a result of a Change of Control or resigns for Good Reason at any time up to twelve (12) months following a Change of Control, ViRexx shall pay to Dr. Eng the following:

(a) an amount equal to twelve (12) months of salary plus Bonus payable for the said twelve (12) months;

(b) continuation of the benefits during the 12 months following the date of his termination;

(c) immediate vesting of all stock options granted to Dr. Eng; and

(d) an extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to twelve (12) months.

Termination of the Employee for Disability: If Dr. Eng suffers from any disability resulting in Dr. Eng being unable to perform duties, ViRexx may terminate this Agreement upon giving 60 days notice, 6 months’ salary, the value of benefits otherwise received over the same period and accrued vacation pay.

Other:  Dr. Eng shall be paid a car mileage allowance and his reasonable business expenses, including business-related mobile phone charges, shall be reimbursed by ViRexx as further provided in the agreement. ViRexx shall pay all professional association and development fees and all course costs which are incurred from time to time by Dr. Eng in maintaining his professional designations and upgrading and/or continuing his education and development to improve the performance of his duties.

Management and Consultants Agreements

Each of the consultants of ViRexx has consulting services agreements. Below is a summary of the consulting services agreements for the top main consultants of ViRexx:

1.           Darrell Elliott (Effective September 21, 2007)* (see page 63)

Firm:  Isuma Strategies Inc.

Position: Chief Executive Officer

Duties:  In collaboration with the Board of Directors, responsible for the overall supervision, management and operations of ViRexx.

Time Devotion:  Approximately 40% of the Contractor’s work time.

Compensation: Contractor fee of $2,000 for each complete working day (5 or more hours per day); if less than 5 hours, an hourly rate of $300 will be paid.

Term: The contract which shall continue until the agreement is terminated by either Mr. Elliott or ViRexx in accordance with the terms summarized herein and the terms of the agreement.

Termination:  The agreement will terminate 10 days following the appointment of the Board a new chief Executive Officer of the Company or either party may terminate the agreement by providing the other party with 60 days written notice of termination.

Termination for Disability: If Mr. Elliott shall die or as a result of sickness, accident or other disability be unable to substantially perform the Services for a continuous period of two months or for periods aggregating two months in any six month period.

Other:  Reimbursement for reasonable business expenses incurred in relation to performance of the Services.

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2.            Erich Bam (Effective September 23, 2007)

Firm:  Gemini Partners Corporate Finance C.C.

Position: Chief Operating Officer

Duties:  Gemini shall ensure that Erich Bam performs his duties similar to other chief operating officers in similar companies and in accordance with the terms of a formal consulting agreement to be signed in due course.

Time Devotion:  On a per diem basis as required by the Chief Executive Officer.

Compensation:  Per Diem rate of $1,600 per day.

Stock Options: Gemini will be entitled to a number of warrants or options pursuant to the financing.

Term: On a per diem basis as required by the Chief Executive Officer.

Termination: On a per diem basis as required by the Chief Executive Officer.

Other: Reimbursement for reasonable business expenses incurred in relation to performance of the Services.

3.           Dr. Richard Ascione (Effective June 1, 2007)

Position: Chief Scientific Officer

Duties: Such reasonable services as are from time to time requested by the Chief Executive Officer and/or the Board of Directors.

Time Devotion:  A reasonable amount of time for completing any work.

Compensation: $10,000 USD per month

Stock Options: 25,000 common shares of ViRexx to vest immediately.  An additional 25,000 common shares shall be granted pursuant to the Consultant achieving milestones.

Term: The agreement shall commence on June 1, 2007 and continue until May 31, 2008 unless terminated earlier.

Termination: Agreement may be terminated by either party with two weeks written notice.

Other: Reimbursement for reasonable business expenses incurred in relation to performance of the Services.

4.           Dr. Joseph Zendegui (Effective December 4, 2007)*

Position: Vice-President, Business Development

Duties:  As directed by the CEO to carry out all business development, planning and analysis required by ViRexx.

Time Devotion:  Minimum 10 days per month

Compensation: $12,000 per month plus $800 per day for every day exceeding 10 days of service in any month for which services are provided.

Term: Monthly contract

Termination: Either party may terminate this Agreement without cause on providing the other party with one month’s written notice.

Other: Reimbursement for reasonable business expenses incurred in relation to performance of the Services.

B.       Compensation

 

As at December 31, 2007, we had nine executive officers. The aggregate cash compensation (including salaries, fees (including Director’s fees), commissions, bonuses to be paid for services rendered, bonuses paid for services rendered in a previous year, and any compensation other than bonuses earned, the payment of which is deferred), paid to and/or accrued in favor of such executive officer and corporations controlled by them by us for services rendered during 2007 for the CEO and the next five highest compensated officers is listed in the table below. We incurred $640,127 in additional direct non-cash compensation in the form of expenses associated with issuance of stock options to our executive officers during the fiscal year ended December 31, 2007.  As at December 31, 2007 no amounts have been accrued or set aside for pension, retirement or other benefits for the executive officers and directors.

 

*Darrell Elliott and Dr. Joseph Zendegui were directors/officers of Chromos Molecular Systems Inc. (“Chromos”), a Canadian public company.  Chromos filed a Notice of Intention to File a Proposal under the Bankruptcy and Insolvency Act because of last minute withdrawal of financing.  The proposal was duly filed and accepted by the creditors, Chromos proceeded to sell assets and both secured and unsecured creditors were paid out under court approved settlements.  During this period Chromos’ shares were placed under a cease trade by the TSX.  Chromos plans shortly to request revocation of this order.  Darrell Elliott also served as a director of A.R.C. Resins International Corp. as a nominee of the venture investor, when it declared bankruptcy under Quebec law in April 1997.

 

 

 

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Summary Compensation Table

 

The following table sets forth the compensation paid by us for the fiscal year ended December 31, 2007 in respect of the directors and members of our administrative, supervisory or management bodies:

Name & Principal Position		Year		Salary/Fee  ($)		Bonus ($)		Stock Awards ($)		Option Awards ($) (3)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)		All Other Compensation ($) (1) (2)		Total ($)
Isuma Strategies Inc., Darrell Elliott, Chief Executive Officer and Chairman of the Board		2007		$103,701				$36,000		$32,625						$25,000		$197,326
Gemini Partners, Erich Bam, Chief Operating Officer		2007		$138,700						$801								$139,501
Dr. D. Lorne Tyrrell, Former Chief Executive Officer, Chief Scientific Officer and Director		2007		$75,000		$67,500				$47,017								$189,517
Dr. Rajan George, Senior Vice-President, Research		2007		$160,365		$30,275				$14,891								$203,531
Dr. Andrew Stevens, Vice-President, Clinical & Regulatory Affairs		2007		$135,000		$24,133				$17,382								$176,515
Dr. Irwin Griffith, Vice-President, Development  (Embolotherapy)		2007		$147,538		$28,791				$21,276								$197,605
Dr. Hubert Eng, Vice-President, Development  (AIT)		2007		$94,659		$13,561				$11,650								119,870
Douglas Gilpin, CA, Director		2007								$85,573						$39,000		$124,573
Jacques R. LaPointe, Director		2007								$83,026						$31,500		$114,526
Michael Marcus, Director		2007								$74,997						$20,363		$95,360
Yves Cohen, Director		2007								$74,744						$10,121		$84,865
Peter Smetek, Former Chief Executive Officer and Director		2007								$68,203						$   -		$68,203

Notes:

 

(1) With the exception of reimbursement of expenses incurred by our named executive officers during the scope of their employment and stated stock award amounts, none of the named executive received any other compensation, perquisites, and personal benefits in excess of $10,000.

      (2) Compensation of Directors

      (3) Calculated using the Black-Scholes Model

 

In May 2007, Dr. Lorne Tyrrell ended his employment with ViRexx as Chief Executive Officer (“CEO”) and Mr. Peter Smetek was appointed to this position.  In September 2007, Mr. Smetek was replaced as Interim CEO by Mr. Darrell Elliott.

 

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In May 2007, Mr. Scott Langille’s employment with ViRexx as Chief Financial Officer ended and Mr. Gary Woerz was appointed to this position.  In October 2007 Mr. Woerz was relieved of  responsibility for the day-to day financial operations of the Company and subsequently filed a statement of claim for wrongful dismissal effectively terminating his employment agreement with the Company.  Mr. Brent Johnston is currently the Acting Chief Financial Officer and is responsible for the day to day financial operations of the Company.

 

During the fiscal year ended December 31, 2007, directors were compensated based on a retainer of $10,000 each plus $ 5,000 for Audit Committee Chair.  The Chairman of the Board is compensated on a retainer of $100,000 which is paid quarterly in advance. Meeting fees for which they were in attendance of $1,500 per meeting for board meetings and $750 per meeting for committee meetings for the year ended January to December 2007. Directors are also reimbursed for their expenses incurred in respect of each meeting of the directors or special service.

 

 

Jacques LaPointe, Yves Cohen and Michael Marcus constitute the Compensation Committee.

 

Douglas Gilpin, Michael Marcus and Yves Cohen constitute the Nominating and Corporate Governance Committee.

Our entire Board of Directors comprises the Environmental Committee.

Our by-laws provide that from time to time the directors may fix the quorum for meetings of directors and for meetings of committees of directors but unless so fixed, a majority of the directors present at a meeting of directors or a majority of members of a committee of directors at a meeting of that committee of directors constitutes a quorum and to the extent required by the ABCA no business may be transacted unless one-quarter of the directors present are resident Canadians. Meetings of the Board or committees of the Board may be held any place the Board determines or by telephone.

 

Board of Directors

The Board currently consists of six members. Each director elected will hold office until the next annual meeting of shareholders or until his/her successor is duly elected, unless his/her office is earlier vacated in accordance with our by-laws.

 

Board Committees

The Board of Directors has four standing committees: an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and an Environmental Committee.

Audit Committee

The members of the Audit Committee are all outside and unrelated directors and are independent from any interest in us. The Chairman of the Audit Committee is Douglas Gilpin. He was specifically recruited for his accounting and financial skills. All members of the Audit Committee are considered financially literate. The Audit Committee met formally four times in 2007 and a quorum was present at each meeting. We formally adopted the Audit Committee Charter on April 11, 2005. The stated purpose of the Audit Committee is to serve as an independent and objective party to monitor the integrity of our financial reporting process and system of internal controls, to review, appraise and monitor the independence and performance of our independent auditors and to provide an avenue for open communication among the independent auditors, management and the Board of Directors. All members of the Audit Committee must have a basic understanding of finance and accounting and must be able to read and understand fundamental financial statements. In addition, the Audit Committee reviews the independence and performance of its auditors and approves the fees and other significant compensation to be paid to the independent auditors. The Audit Committee has direct access to the independent auditors at all times and has the ability to retain, at our expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.

 

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 Compensation Committee

 

The Compensation Committee advises the Board on the administration of our Stock Option Plan, and reviews and approves the recommendations of senior management relating to the annual salaries, bonuses and stock option grants of our executive officers. The Compensation Committee reports to the Board, which in turn gives final approval to compensation matters.

 

Under the direction of the Compensation Committee, we are committed to the fundamental principles of pay for performance, improved shareholder returns and external competitiveness in the design, development and administration of its compensation programs. The Compensation Committee recognizes the need to attract and retain a stable and focused leadership with the capability to manage our operations, finances and assets. As appropriate, the Compensation Committee recognizes and rewards exceptional individual contributions with highly competitive compensation. The major elements of our executive compensation program are salary, annual cash incentives and long-term incentives, through the granting of stock options.

 

In connection with determining base salaries, we maintain an administrative framework of job levels into which positions are assigned based on internal comparability and external market data. Because of our lean organizational structure and potential growth in the international arena, the Compensation Committee’s goal is to provide base salaries for our top-performing employees, that are competitive with our peers and which also recognize the differentials from such peers.

 

The Board believes that employees should have a stake in our future and that their interest should be aligned with the interest of our shareholders. To this end, the Committee selects those executives and key employees whose decisions and actions can most directly impact business results to participate in the Stock Option Plan. Under the Stock Option Plan, officers, consultants, and key employees who are selected to participate are eligible to receive stock options that are granted subject to a vesting period determined by us and approved by the Board to create a long-term incentive to increase shareholder value. Awards of stock options are supplementary to the cash incentive plan and are intended to increase the pay-at-risk component for officers and key employees.

 

We have employment agreements or remuneration arrangements with all of our executive officers. Each agreement or arrangement provides for salary, benefits, bonuses and incentive stock option grants for the executive officer and for compensation if his or her employment is terminated. Commencing January 1, 2006, directors are paid $1,500 per board meeting and $750 per committee meeting, except as described herein, there are no other agreements or other remuneration arrangements with any of its directors. The Compensation Committee met twice formally during 2007.

 

Nominating and Corporate Governance Committee

The members of this Committee are all outside and unrelated directors and are independent from any interest in us. The Nominating and Corporate Governance Committee also adopted a charter on April 11, 2005.

 

Pursuant to its charter, the Nominating and Corporate Governance Committee takes responsibility for preparing the disclosure in the Management Information Circular concerning corporate governance, and for developing and monitoring our general approach to corporate governance issues as they arise. It also assumes responsibility for assessing current members and nominating new members to the Board of Directors and ensuring that all Board members are informed of and are aware of their duties and responsibilities as a director of the Corporation. The Nominating and Corporate Governance Committee takes responsibility for the adoption of adequate policies and procedures to allow us to meet our continuous disclosure requirements, manage our principal risks, review the strategic plan on a timely basis, develop and monitor corporate policies relating to trading in securities, ensuring the Board annually reviews organizational structure and succession planning, reviews areas of potential personal liability of directors and ensures reasonable protective measures are in place and causes the Board to annually review its definition of an unrelated director.  This committee met once formally during 2007.

 

Our approach to corporate governance is set out in our Management Information Circular as prescribed by National Instrument 58-101 “Disclosure of Corporate Governance Practices” (“58-101”).

 

 

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 Environmental Committee

 The Environmental Committee is comprised of our entire Board of Directors. The Environmental Committee adopted a charter on April 11, 2005. Under its charter the Environmental Committee will review, provide oversight of and monitor our environmental, health and safety policies, practices and actions; review, provide oversight of and monitor the social, political, and environmental trends, issues and concerns at the legislative, regulatory and judicial levels as they affect us and the industry, along with our positions and responses with respect thereto. It will also receive reports on the nature and extent of compliance or any non-compliance with relevant policies, standards and applicable legislation and will develop plans to correct deficiencies, if any. It reports to the Board on the status of such matters and reviews such other environmental matters as the Committee may consider suitable or the Board may specifically direct.

 

The Environmental Committee meets each time we have a board meeting because it is a committee of the whole board.

 

D.

Employees

 As at December 31, 2007, we have nineteen full-time employees and one part-time employee.  Of those nineteen employees, fourteen hold a Ph.D. There are currently sixteen employees in research and development, and four employees in administration, corporate affairs and business development. All employees execute confidentiality and non-competition agreements and assignments of intellectual property rights to us.

 

We are not party to any collective bargaining agreements, have never experienced any material labor disruption and are unaware of any current efforts or plans to organize employees. We consider our relationship with our employees good.

 

E.	Share ownership

 The following table sets out the names and titles of our executive officers and directors and their respective common share ownership in us as at December 31, 2007:

 

Name		Title/Office		Share Ownership directly or indirectly and as a % of Outstanding Shares*
Darrell Elliott		Chief Executive Officer and Chairman of the Board		60,000 0.08%
Erich Bam		Chief Operating Officer		Nil
Brent Johnston		Acting Chief Financial Officer		54,500 0.07%
Dr. Richard Ascione		Chief Scientific Officer		Nil
Dr. Rajan George		Senior Vice-President, Research		65,325 0.09%
Dr. Andrew Stevens		Vice-President, Clinical and Regulatory Affairs		Nil
Dr. Irwin Griffith		Vice-President, Development (Embolotherapy)		Nil
Dr. Hubert Eng		Vice-President, Development (AIT)		Nil
Dr. Joseph Zendegui		Vice-President, Business Development		Nil
Douglas Gilpin, CA		Director		Nil
Jacques R. LaPointe		Director		175,000 0.24%
Michael Marcus		Director		7,078,510 9.73%
Yves Cohen		Director		Nil
Peter Smetek		Director		500,000 0.69%
Bruce Hirsche		Corporate Secretary		133,783 0.18%

*Listed beneficial ownership is based on 72,760,617 Common Shares issued and outstanding as of December 31, 2007.

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The names and titles of our executive officers and directors to whom options have been granted by us which are outstanding as of December 31, 2007 and the number of Common Shares subject to such options are set forth in the following table:

 

Name		Title/Office		Number of Shares		Exercise Price		Expiry Date
Darrell Elliott		Chief Executive Officer and Chairman of the Board		100,000  21,292 9,489		$0.59 $0.10 $0.10		September 21, 2017 December 20, 2017 December 20, 2017
Erich Bam, CA (SA)		Chief Operating Officer		9,489		$0.10		December 20, 2017
Dr. Lorne Tyrell		Former Chief Executive Officer and Chief Scientific Officer		20,000		$0.90		December 16, 2014
Dr. Rajan George		Senior Vice-President, Research		150,000  15,000 25,200 36,000 68,466		$0.80  $0.90 $1.30 $0.59 $0.10		December 23, 2008 December 16, 2014 March 28, 2016 February 7, 2017 December 20, 2017
Dr. Andrew Stevens		Vice-President, Clinical and Regulatory Affairs		100,000 15,000 25,200 33,120 68,466		$0.80  $0.90 $1.30 $0.59 $0.10		December 23, 2008 December 16, 2014 March 28, 2016 February 7, 2017 December 20, 2017
Dr. Irwin Griffith		Vice-President, Development (Embolotherapy)		100,000  15,000 36,000 36,000 68,466		$0.80 $0.90 $1.30 $0.59 $0.10		April 14, 2009 December 16, 2014 March 28, 2016 February 7, 2017 December 20, 2017
Dr. Hubert Eng		Vice-President, Development (AIT)		20,000 6,000 9,000 21,000 68,466		$0.80 $0.90 $1.30 $0.59 $0.10		April 14, 2009 December 16, 2014 March 28, 2016 February 7, 2017 December 20, 2017
Douglas Gilpin, CA		Director		125,000 20,000 27,000 27,000 100,000 33,292		$0.80  $0.90 $1.30 $0.59 $1.04 $0.10		April 14, 2009 December 16, 2014 March 28, 2016 February 7, 2017 June 4, 2017 December 20, 2017
Jacques R. LaPointe		Director		10,000  20,000 50,000 200,000 125,000 21,000 21,000 100,000 30,292		$6.26 $0.94 $0.76 $0.86 $0.90 $1.30 $0.59 $1.04 $0.10		May 24, 2011 June 19, 2012 July 18, 2012 June 9, 2013 December 16, 2014 March 28, 2016 February 7, 2017 June 4, 2017 December 20, 2017
Michael Marcus		Director		100,000  30,292		$1.04 $0.10		June 4, 2017 December 20, 2017
Yves Cohen		Director		100,000  27,292		$1.04 $0.10		June 4, 2017 December 20, 2017
Peter Smetek		Former Chief Executive Officer and Director		100,000  21,292		$1.04 $0.10		June 4, 2017 December 20, 2017

Option Plan

 

During the financial year ended December 31, 2007, there were 2,580,341 options granted to the Directors, employees or executives of the Corporation pursuant to the option plan or otherwise.  As at December 31, 2007, 5,332,811 or 7% out of the authorized 8,256,000 options have been granted leaving 2,923,189 or 4% available for future grants. Under the terms of the Plan, any options which are exercised replenish the option pool shall again be made available to be granted pursuant to the provisions of the Plan herein.

 

The purpose of the Plan is to assist Directors, officers, employees, consultants and other persons who provide ongoing services of ViRexx and any of its subsidiaries to participate in the growth and development of ViRexx. The total number of Shares, which may be granted to any one optionee, including any one insider and such insider’s associates, at any time shall not exceed 5% of the issued and outstanding Shares of the Company. The number of common shares that may be issuable to insiders at any time, or that may be issued to insiders within any one year period in each case under the Plan and when combined with all of the Corporation’s security based compensation arrangements, may not exceed 10% of the Corporation’s total issued and outstanding securities. The granting of Options is administered by the ViRexx Board, subject to the policies of the TSX.

The Directors may amend or discontinue the Plan at any time without shareholder approval upon receipt of the approval of the TSX, provided that no such amendment or discontinuance may, without the consent of any affected optionee, alter or impair any Option previously granted to such optionee under the Plan.  Any amendment to any provision of the Plan shall be subject to approval, if applicable and if required, by any regulatory body having jurisdiction over the securities of the Corporation.

Notwithstanding the foregoing, any amendment to the following will require shareholder approval:

(a)	any change to the number of Common Shares issuable under the Plan, including a change to the fixed maximum percentage of Common Shares or a change from a fixed maximum percentage of Common Shares to a fixed maximum number shall require shareholder approval as required by the TSX;

 

(b)	any reduction to the exercise price of an Option held by an insider (as defined by the Exchange) or an extension to the Expiry Date, provided that such extension does not result in such date being more than 10 years from the date of grant;

 

(c)	any change to the eligible participants which would have the potential of broadening or increasing insider participation;

 

(d)	the addition of any form of financial assistance;

 

(e)	any amendment to a financial assistance provision which is more favorable to participants;

 

(f)	the addition of a cashless exercise feature, payable in cash or securities which does not provide for a full deduction of the number of underlying securities from the Plan; and

 

(g)	the addition of a deferred or restricted share unit or any other provision which results in participants receiving securities while no cash consideration is received by the Corporation.

 

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All Options granted pursuant to the Plan shall be personal to the optionee and shall not be assignable or otherwise transferable except: (i) to a “permitted assign” as that term is defined in Multilateral Instrument 45-105 (Trades to Employees, Senior Officers, Directors and Consultants) as the same may be amended, supplemented and/or replaced from time to time; or (ii) by will or the laws of descent and distribution.

At the time of grant of an Option, the Directors shall fix the date or dates on which the optionee shall be entitled to exercise part or all of such Option.

In the event that an optionee dies, such optionee’s executor or executrix shall have right to exercise part or all of all then outstanding and vested Options on behalf of the optionee’s estate until the earlier of the date set by the Directors at the time of the grant of such Options (such date not to exceed one year after the date of death of the optionee) or the Expiry Date.  All Options not exercised by such date shall immediately and automatically terminate.  The Directors shall have the right, in their sole discretion, to provide at the time of the grant of the Options of an optionee, that all Options granted to such optionee shall be deemed to fully vest on the day prior to the optionee’s death.  If the Directors do so, such optionee’s executor or executrix shall have the right to exercise all of the outstanding Options of such optionee in accordance with the above.

 

In the event that an optionee retires or resigns from his or her office, employment or position with the Corporation and all of its subsidiaries or is removed from such office, employment or position (whether with or without cause) or otherwise ceases to hold such office, employment or position for any reason (otherwise than as a result of the death of the optionee) all then outstanding and unvested Options granted to such optionee shall immediately and automatically terminate.  Such optionee shall have the right to exercise part or all of his or her then outstanding and vested Options until the earlier of the date set by the Directors at the time of the grant of such Options (such date not to exceed 90 days after the date such optionee retires, resigns or is removed from such office) or the Expiry Date.  All such Options not exercised by such date shall immediately and automatically terminate.  The Directors shall have the right, in their sole discretion, to provide at the time of the grant of the Options of an optionee, that all Options granted to such optionee shall be deemed to fully vest on the day prior to the retirement, resignation or removal of the Optionee from such office, employment or position.  If the Directors do so, such Optionee shall have the right to exercise all of the outstanding Stock Options of such Optionee in accordance with the above.

 

In the event that:

 

(a)	the Directors determine that there is a reasonable probability that the Corporation will be reorganized, amalgamated or merged with, consolidated into or in any way combined with, another corporation;

 

(b)	the shareholders of the Corporation approve the liquidation, dissolution or winding-up of the Corporation or the sale, lease, exchange or other disposition of all or substantially all of the property of the Corporation;

 

(a)	a take-over bid, which is a “formal bid” (as that term is defined by the Securities Act (Alberta)), is made for any voting or equity securities of the Corporation; or

 

(b)	the Directors determine that there is a reasonable probability that the Corporation will experience a change of control (as determined by the Directors),

 

then the Directors may by resolution determine that all or any part of the outstanding and unvested Stock Options granted to any one or more Optionees shall vest on a date specified by such resolution and all such Stock Options shall be deemed to have vested on the date so specified.

 

During the financial year ended December 31, 2004, there were 4,564,168 Options which were either granted or converted from AltaRex options pursuant to the Arrangement.

 

No optionee has any rights as a shareholder with respect to any shares subject to an Option prior to the date of the issuance of a certificate or certificates for such shares.

 

 

 

 

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Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans approved by security holders			5,332,811(1)(2)		$	0.67			2,923,189

Notes:

(1)	Includes 5,332,811 Shares issuable upon exercise of outstanding Options during the Corporation’s financial year ended December 31, 2007. The Corporation can grant no more than 8,256,000 Options under the Option Plan. See “Stock Options”.
(2)	Includes 50,000 and 85,000 Options granted to the University of Alberta on December 23, 2003 and April 14, 2004 respectively, pursuant to a license agreement dated December 13, 2001.

F.	Pension and Retirement Plans and Payments made upon Termination of Employment

 

We do not have any pension or retirement plan that is applicable to the Named Executive Officers other than as described below. We have not provided compensation, monetary or otherwise, during the preceding fiscal year, to any person who now acts or has previously acted as a Named Executive Officer of ViRexx, in connection with or related to the retirement, termination or resignation of such person other than as described in the succeeding paragraph and we have provided no compensation to such persons as a result of a change of control of us, our subsidiaries or affiliates. We are not party to any compensation plan or arrangement with any person who now acts as a Named Executive Officer resulting from the resignation, retirement or the termination of employment for cause of such person.

 

Item 7.

Major Shareholders and Related Party Transactions

 

A.	Major shareholders

 

The following table sets forth, as of the most practicable date, certain information regarding each person who is known to us as an owner of more than 5% of the outstanding Common Shares of us.

 

Name		Class			Amount Owned (1)			% of Class
The Estate of Dr. Antoine A. Noujaim			Common			7,446,449			10.23	%
Canmarc Trading Co. (2)			Common			7,018,510			9.65	%
United Therapeutics			Common			5,051,990			6.94	%

	(1)	Includes the Common Shares directly controlled by The Estate of Dr. Noujaim.
	(2)	Michael Marcus of Houston, Texas, holds 100% voting and dispositive power over Canmarc Trading Co.

None of our major shareholders have different voting rights.

Based on a report from our transfer agent Computershare, as at December 31, 2007, there were 51 registered Shareholders in the U.S. who held common shares totaling 6,574,793 or 9.04% percent of the common shares outstanding.

 

To the extent known to us, we are not directly or indirectly owned or controlled by any Foreign Government, or by any other natural or legal persons, severally or jointly.

 

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B.        Related- party transactions (1) 

 

During the fiscal year ended December 31, 2007, the Company incurred amounts totalling approximately $510,525 (2006 – $301,870) for legal services rendered by a firm in which Bruce Hirsche, the company’s Corporate Secretary, is a partner.  The Company also paid $435,207 (2006 – $138,750) for consulting services rendered by directors of the Company.

To the best of the knowledge of our management, other than information already disclosed above and elsewhere in this Annual Report and except for employment agreements with Executive Officers and stock option agreements, no person who has been an insider of us for the most recently completed fiscal year ended December 31, 2007 or subsequent period to the date of this Annual Report or any associate or affiliate of such insider has had any material direct or indirect interest in any material transaction with us since January 1, 2006 or in any proposed transaction which has materially affected or would materially affect us or our subsidiaries.

(1)

“Related Party” means, in relation to a corporation, a promoter, officer, Director, other insider or Control Person of that corporation (including an issuer) and any associates and affiliates of any of such persons. In relation to an individual, related party means any associates of the individual or any corporation of which the individual is a promoter, officer, Director or Control Person.

 

C.	Interests of experts and counsel

 

Item 8.

Financial Information

 

A.	Consolidated Statements and Other Financial Information

 

Our consolidated financial statements are included herein under Item 17.

Legal Proceedings

 

The Company has received statements of claim filed in the Court of Queen’s Bench of Alberta in May 2007 and February 2008 from three former employees and the former Chief Financial Officer to their termination or change in employment with the Company.  The former employees and the former Chief Financial Officer assert that they are entitled to additional pay, benefits and accelerated vesting of their stock options due to a change in control within the Company in 2007 or defamation or wrongful dismissal.  The collective total of these claims is $1,939,750.  ViRexx believes that these claims are without merit and intends to aggressively defend this position.

 

 

In February 2008, the Company proposed settlement of one of the claims for severance pay and wrongful dismissal filed by a former employee.  The settlement amount was accrued in the December 31, 2007 audited consolidated financial statements.

 

 

Also, during February 2008 the Company has reached, but not yet finalized a settlement with Clarus Securities Ltd. (“Clarus”) for damages for non-performance in regard to the cancellation of a $15,000,000 public offering.  The proposed settlement includes a cash payment and warrants.  The cash settlement amount was been accrued in the December 31, 2007 audited consolidated financial statements.  The issuance of the warrants will be recorded in the second quarter of 2008 once they are issued and the exercise price has been determined.

 

 

Dividend Policy  

 

To date, we have not paid any dividends on its Common Shares. The payment of dividends in the future, if any, is within the discretion of the Board of Directors of ViRexx and will depend upon our earnings, our capital requirements and financial condition and other relevant factors. We do not anticipate declaring or paying any dividends in the foreseeable future.

 

B.	Significant Changes

 

Not applicable.

 

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Item 9.

The Offer and Listing

 

A.	Offer and listing details

 Our Common Shares are traded on the TSX under the symbol “VIR” and on the AMEX under the symbol “REX”. The following tables set forth, the annual high and low market prices for the five most recent full financial years as reported on the TSX and for the period indicated on AMEX:

B.	Memorandum and articles of association

 

Our Certificate of Incorporation, together with all amendments, which we refer to as our articles of incorporation, is on file with the Alberta Registrar of Corporations under Alberta Corporate Access Number 2010829345. Our articles of incorporation do not include a stated purpose and contain no restrictions on the nature of business to be carried on. Under the ABCA, in the absence of any such restrictions, a corporation has the capacity, rights, powers and privileges of a natural person, and has the capacity to carry on business, conduct its affairs and exercise its power in any jurisdiction outside Alberta to the extent that the laws of that jurisdiction permit. For additional information regarding our incorporation, see Item 4 - Information on the Corporation - History and Development of the Corporation.

 

A director of ViRexx need not be a shareholder. In accordance with the ABCA, at least one quarter of our directors must be residents of Canada. The ABCA requires that a person must be at least 18 years of age, be of sound mind and not be bankrupt or a dependent adult or formal patient under the Dependent Adults Act or Mental Health Act, or the subject of an order under The Mentally Incapacitated Persons Act in order to serve as a director. Neither our articles of incorporation or by-laws, nor the ABCA, impose any mandatory retirement requirements for directors.

 

A majority of the number of directors holding office at the time of the meeting will constitute a quorum, provided that at least one quarter of the directors present are resident Canadians. Business cannot be transacted at a directors’ meeting without quorum.

A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with us shall disclose to us the nature and extent of his interest at the time and in the manner provided by the ABCA. The ABCA prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction:

 

§ is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of ViRexx or an affiliate;

§ relates primarily to his or her remuneration as a director, officer, employee or agent of ViRexx or an affiliate;

§ is for indemnity or insurance; or

§ is with an affiliate.

 

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ViRexx’s Board of Directors may, on behalf of ViRexx and without authorization of our shareholders:

 

§ borrow money upon the credit of ViRexx;

§ Issue, reissue, sell or pledge debt obligations of ViRexx;

§ subject to certain disclosure requirements of the ABCA give a guarantee on behalf of ViRexx to secure performance of an obligation of any person;

 

§ mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of ViRexx owned or subsequently acquired to secure any obligation of the ViRexx; and

 

1.

An investment is reviewable if there is an acquisition of a Canadian business and the asset value of the Canadian business being acquired equals or exceeds the following thresholds:

 

(a)

For non-World Trade Organization (“WTO”) investors, the threshold is $5 million for a direct acquisition and $50 million for an indirect acquisition; however, the $5 million threshold will apply for an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction;

 

(b)

Except as specified in paragraph (c) below, a threshold is calculated annually for reviewable direct acquisitions by or from WTO investors. The threshold for 2007 was $281 million (for 2008, $295 million). Pursuant to Canada’s international commitments, indirect acquisitions by or from WTO investors are not reviewable;

 

(c)

The limits set out in paragraph (a) apply to all investors for acquisitions of a Canadian business that:

 

(i)	engages in the production of uranium and owns an interest in a producing uranium property in Canada;

 

(ii)	provides any financial service;

 

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(iii)

provides any transportation services; or

 

(iv)

is a cultural business.

 

2.

Notwithstanding the above, any investment that is usually only notifiable, including the establishment of a new Canadian business, and falls within a specific business activity, including the publication and distribution of books, magazines, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form may be reviewed if an Order-in-Council directing a review is made and a notice is sent to the Investor within 21 days following the receipt of a certified complete notification.

 

Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its direct or indirect Canadian parent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian direct or indirect parent of an entity carrying on the Canadian business. No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.

 

As defined in the ICA, a WTO investor, includes an individual who is a national of a member country of the WTO or who has the right of permanent residence in relation to that WTO member; a government or government agency of a WTO member; a WTO investor-controlled entity; certain corporations, limited partnerships or trusts that are neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as applicable are any combination of Canadians and WTO investors.

 

The ICA exempts certain transactions from the notification and review provisions of ICA, including, among others, (a) an acquisition of voting interests if the acquisition was made in the ordinary course of that person’s business as a trader or dealer in securities; (b) an acquisition of control of the company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the ICA; (c) the acquisition of voting interests by any person in the ordinary course of a business carried on by that person that consists of providing venture capital in Canada on terms and conditions not inconsistent with such terms and conditions as may be fixed by the Minister; and (d) acquisition of control by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the business through the ownership of voting interests, remains unchanged.

 

Change of Control

 

Our articles of incorporation and by-laws do not contain any specific provision that has the effect of delaying, deferring or preventing a change of control of ViRexx.

 

Disclosure of Ownership

 

Our by-laws do not contain provisions regarding public disclosure of share ownership. Applicable Canadian securities legislation requires certain public disclosure of the shareholdings of those persons who are insiders of ViRexx. Insiders include directors and senior officers as well as those persons who own common shares that exceed 10 percent of our company’s total issued and outstanding common shares.

 

With respect to the foregoing in this Item 10B, the applicable corporate law in the U.S. differs significantly in some respects from that in Canada. For example, under applicable corporate law in the U.S., a company may not issue an unlimited number of shares. Additionally, a corporation may not be formed for certain purposes, such as insurance or commercial banking, unless certain approvals are received.

 

Dividends

 

Subject to any special rights or restrictions attached to a share, we may pay dividends on our shares as the directors decide. Dividends may be only paid out of our profits.

 

Subject to any special rights or restrictions attached to a share, the directors may determine that a dividend will be payable on a share and fix the amount, the time for payment and the method for payment. Dividends may be paid on shares of one class but not another and at different rates for different classes. If the board of directors does not exercise their power to issue dividends, the shareholders in a general meeting may. Under the ABCA, a shareholder or shareholders holding the requisite number of shares required to convene a general meeting would be able to convene a meeting or require the directors to convene a meeting to consider whether we should pay a dividend.

 

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The proposed resolution to pay the dividend would need to be included in the notice of meeting and would be voted on by shareholders as an ordinary resolution. Any dividend payable would only be payable out of our profits.

 

Liquidation Rights

 

On a winding up, subject to any special rights or restrictions attached to shares, and subject to rights of creditors, all available assets must be repaid to the shareholders and any surplus must be distributed among the shareholders in proportion to the number of fully paid shares held by them.

 

If we experience financial problems, the directors may appoint an administrator to take over our operations to see if we can come to an arrangement with our creditors. If we cannot agree with our creditors, ViRexx may be wound up. A receiver, or receiver and manager, may be appointed by order of a court or under an agreement with a secured creditor to take over some or all of the assets of a company. For example, a receiver may be appointed, because an amount owed to a secured creditor is overdue.

 

We may be wound up by order of a court, or voluntarily if our shareholders pass a special resolution to do so. A liquidator may be appointed when a court orders a company to be wound up or the shareholders of a company pass a resolution to wind up the company. A liquidator may be appointed to administer the winding up of a company.

  

C. Material contracts

 

All Agreements described below relating to the Plan of Arrangement between Nova Bancorp and AltaRex and the Plan of Arrangement between ViRexx and AltaRex have been carried out and the purpose of these agreements achieved.

 

 

2. Asset Purchase Agreement Between AltaRex Corp. (“AltaRex”) and AltaRex Medical Corp. (“Medical”) Dated December 31, 2003

 

In connection with and as collateral to the Nova Bancorp Arrangement, AltaRex (now Twin Butte Energy Ltd. (“Twin Butte”) and Medical entered into an asset purchase agreement dated as of December 31, 2003 (the “Asset Purchase Agreement”). The Asset Purchase Agreement provides for the transfer from AltaRex to Medical of AltaRex’s biotechnology assets, together with all associated contractual obligations and liabilities.

 

3. Indemnification Agreement Between AltaRex Corp. (“AltaRex”) and AltaRex Medical Corp. (“Medical”) dated February 3, 2004 (“Indemnification Agreement”)

 

In connection with and as collateral to the Nova Bancorp Arrangement, AltaRex (now Twin Butte Energy Ltd. (“Twin Butte”) and Medical entered into the Indemnification Agreement and an asset purchase agreement dated as of December 31, 2003 (the “Asset Purchase Agreement”). The Indemnification Agreement provides that the assets acquired by Medical pursuant to the Asset Purchase Agreement where acquired on an “as is where is” basis and subject to any and all encumbrances, commitments and liabilities pertaining thereto, howsoever and whensoever arising.

 

The Indemnification Agreement provides that Medical will assume all liability for and indemnify, defend and save harmless Twin Butte arising out of any matter or thing relating to the assets previously owned by Twin Butte and transferred to Medical save and except losses related to certain income tax liabilities. Further, pursuant to the Indemnification Agreement Medical is appointed by Twin Butte as Twin Butte’s sole and exclusive attorney and agent for any and all purposes associated with any actions, causes of action, suits, debts, dues, sums of money, liabilities, general damages, special damages, costs, claims, proceedings and demands of every nature and kind to which Twin Butte may be entitled to be indemnified under the terms of the Indemnification Agreement.

 

4. Arrangement Agreement Between ViRexx Medical Corp. (“ViRexx”) And AltaRex Medical Corp. (“AltaRex”) dated October 15, 2004 (“AltaRex Arrangement Agreement”)

 

On October 15, 2004 ViRexx and AltaRex entered into the above noted AltaRex Arrangement Agreement, which was intended to effect a consolidation of ViRexx and AltaRex. The AltaRex Arrangement Agreement was made in contemplation of completing a statutory plan of arrangement (the “AltaRex Arrangement”) involving AltaRex and ViRexx. Pursuant to the arrangement, AltaRex became a wholly owned subsidiary of ViRexx with the occurrence, among other things, of the following:

 

§	each of the issued and outstanding common shares of AltaRex were deemed to be, transferred to ViRexx (free of any claims) and the holder of AltaRex common shares received from ViRexx in exchange for each AltaRex common share one-half of one ViRexx common share;

§	40% of the ViRexx common shares received by each former holder of AltaRex common shares issued pursuant to the AltaRex Arrangement were non-transferable and subject to a hold period for a period of six months following the effective date of the AltaRex Arrangement;

§

the outstanding stock options and warrants of AltaRex were deemed to be transferred to ViRexx (free of any claims) and in consideration for such transfer, the holder of such AltaRex stock options and warrants received stock options and warrants to purchase the number of ViRexx common shares determined by multiplying the number of AltaRex common shares subject to the particular AltaRex stock options and warrants by one-half at an exercise price per ViRexx common share equal to the exercise price per share of the particular AltaRex stock option or warrant multiplied by two. The other terms of all stock options and warrants issued by ViRexx in exchange for AltaRex stock options and warrants were identical in all material respects to the terms of the AltaRex stock options and warrants in respect of which they were issued.

 

The transactions contemplated by the AltaRex Arrangement Agreement were completed on December 10, 2004.

 

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U.S. Holders

 

As used herein, a “U.S. Holder” means a holder of ViRexx’s common shares who is a U.S. citizen or individual income tax resident of the U.S. under U.S. domestic law and the Convention a corporation created or organized in or under the laws of the U.S. or of any political subdivision thereof an estate the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source or a trust if a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have authority to control all substantial decisions of such trust. This summary does not address the tax consequences to, and a U.S. Holder does not include, persons subject to special provisions of federal income tax law, including but not limited to tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders who hold common stock as part of a “straddle”, hedging or a conversion transaction and shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation for service. This discussion is limited to U.S. Holders who hold the common shares as capital assets and who hold the common shares directly (e.g., not through an intermediate entity such as a corporation, partnership, LLC or trust). This discussion does not address the consequences to a person or entity holding an interest in a U.S. Holder or the consequence to a person of the ownership, exercise or disposition of any warrants, options or other rights to acquire common shares.

 

Distributions on Common Shares

 

U.S. Holders receiving dividend distributions with respect to ViRexx’s common shares are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions (including any Canadian tax withheld) equal to the U.S. dollar value of each dividend on the date of receipt (based on the exchange rate on such date) to the extent that ViRexx has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. It should be noted that as used in this discussion of U.S. Federal Income Tax Consequences, the term “earnings and profits” refers to ViRexx’s earnings and profits as determined under the Code and the term “dividend” refers to corporate distributions taxable as dividends for U.S. federal income tax purposes. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s U.S. federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s U.S. federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below.) To the extent that distributions exceed current or accumulated earnings and profits of ViRexx, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder that is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a corporation. Dividends paid on our common shares generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain U.S. corporations.

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Foreign Tax Credit

 

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces U.S. federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year.

 

The operation of the foreign tax credit for any particular U.S. Holder will be dependent on his or its particular situation. There are significant and complex limitations that apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s U.S. income tax liability that the U.S. Holder’s foreign source income bears to his, her or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income,” “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by us will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes.

 

Disposition of Common Shares

 

A U.S. Holder will recognize gain or loss upon the sale or other disposition of common shares equal to the difference, if any, between (i) the amount of cash and the fair market value of any property received, and (ii) the shareholder’s tax basis in our common shares. Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts. At present, there are no preferential tax rates applicable to U.S. Holders that are corporations. This gain or loss generally will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be a long-term capital gain or loss if the common shares of ViRexx are held for more than one year. Deductions for net capital losses may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.

 

Other Considerations

 

In the following circumstances, the above sections of this discussion may not describe the U.S. federal income tax consequences resulting from the holding and disposition of common shares.

 

As used herein a “U.S. Person” means a citizen or income tax resident of the U.S. as determined under U.S. domestic law.

 

Item 13.  Defaults, Dividend Arrearages and Delinquencies

 

Not applicable.

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

 

A.

Not applicable.

 

B.

Not applicable.

 

C.

Not applicable.

 

D.

Not applicable.

 

E.

Not applicable.

Item 15.

Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

It is the conclusion of the Company's Chief Executive Officer and Chief Financial Officer that the Company's disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), based on their evaluation of these controls and procedures as of the end of the period covered by this Annual Report, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

 

 (b) Management’s annual report on internal control over financial reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

 

 

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2007, the Company’s internal control over financial reporting was effective based on those criteria.

 

 

(c) Attestation report of the register public accounting firms

 

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.  The Company is a Foreign Private Issuer and Non-accelerated Filer, therefore an attestation report of the Company’s independent registered public accounting firm is not currently required.

 

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 (d) Changes in Internal Controls over Financial Reporting

 

There were no changes in the Company's internal controls over financial reporting that occurred during the period that is covered by this annual report that have materially affected, or are reasonably likely to materially affect, these controls. 

Item 16.  [Reserved]

 

Item 16A. Audit Committee Financial Expert

 

As an Alberta corporation with operations principally outside of the U.S., ViRexx is considered a “foreign private issuer” for the purposes of filings with the Securities and Exchange Commission (“SEC”) and with any stock exchange in the U.S.. Under applicable SEC regulations, an issuer must disclose if it has an “audit committee financial expert” on its audit committee if it is required to have such an expert by the listing rules applicable to it. ViRexx is presently listed on the AMEX and accordingly, ViRexx is presently subject to the audit committee financial expert requirement.

Item 16B. Code of Ethics

 

 

ViRexx has adopted a Code of Conduct that applies to its Chief Executive Officer and all of its directors, officers and employees, or persons performing similar functions. A copy of ViRexx’s Code of Conduct is posted on the Company’s website at www.virexx.com. Any future changes to the Code of Conduct will be posted on the ViRexx’s website within five business days of the change being effective. 

 

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

 

For the fiscal year ended December 31, 2007.

None.

ISSUER PURCHASES OF EQUITY SECURITIES THROUGH NORMAL COURSE ISSUER BID (1)

For the fiscal year ended December 31, 2005.

Period December 23, 2004 to December 31, 2005		(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid per Share (or Units)			(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs			(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 December 23, 2004 to December 22, 2005			—			—			—			2,663,823
Month #2 January 1, 2005 to January 31, 2005			40,800		$	1.10			—			2,623,023
Month #3 February 1, 2005 to February 28, 2005			200		$	1.10			—			2,622,823
Month #4 March 1, 2005 to March 31, 2005			90,000		$	1.48			—			2,532,823
Month #5 April 1, 2005 to April 30, 2005			6,000		$	1.44			—			2,526,823
Month #6 May 1, 2005 to May 31, 2005			—			—			—			2,526,823
Month #7 June 1, 2005 to June 30, 2005			108,800		$	1.01			—			2,418,023
Month #8 July 1, 2005 to July 31, 2005			331,200		$	1.00			—			2,086,823
Month #9 August 1, 2005 to August 31, 2005			1,003,800		$	1.04			—			1,083,023
Month #10 September 1, 2005 to September 30, 2005			—			—			—			1,083,023
Month #11 October 1, 2005 to October 31, 2005			—			—			—			1,083,023
Month #12 November 1, 2005 to November 30, 2005			350,000		$	1.10			—			733,023
Month #13 December 1, 2005 to December 31, 2005			126,100		$	1.16			—			606,923

Notes:

(1)   A Normal Course Issuer Bid was approved by the TSX on December 21, 2004 and the intention of ViRexx to engage in this program was announced on December 22, 2004 and terminated on December 23, 2005. Trading under the program commenced on December 22, 2004 and will terminate on December 22, 2005 at the close of trading. The trading will take place through the TSX and there is no restriction on the price paid per share. This Normal Course Issuer Bid is the first program of this nature ever implemented by ViRexx.

Item 19. Exhibits

 

SIGNATURES

 

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

	VIREXX MEDICAL CORP.
	By:	Darrell Elliott
		Name:   Darrell Elliott Title:     Interim Chief Executive Officer
		Date: July 10, 2008

 

	By:	Brent Johnston
		Name:   Brent Johnston Title:    Acting Chief Financial Officer
		Date: July 10, 2008