- 7 -

Cumulative

from September

Nine Months

Nine Months

23, 1998 (Date

Ended

Ended

of Inception) to

May 31,

May 31,

May 31,

2005

2004 ^(a)

2005

Cash flows (used in) provided by operating activities:

Net loss

$

(2,715,868)

$

(3,222,067)

$

(5,324,024)

Adjustments to reconcile net loss to net cash used in

operating activities:

Depreciation

60,286

8,456

105,185

Expenses paid by affiliated company

-

-

301,303

Gain on revaluation of liability for warrants

(537,409)

-

(3,718,909)

Issue of common stock for services during the period

361,700

809,500

1,609,079

Stock option compensation

279,485

224,637

771,754

Loss on settlement of accounts payable

-

954,000

954,000

(Increase) decrease in assets

Amounts receivable

(177,976)

(10,679)

(177,976)

Prepayments to suppliers

(72,600)

(179,000)

(337,735)

Tax credits refundable

-

20,706

-

Inventory

(74,027)

(4,074)

(164,661)

Prepaid expenses

94,007

(60,634)

(51,462)

Increase in accounts payable and accrued liabilities

(165,109)

368,233

530,899

^{______________________}

^{______________________}

^{______________________}

Net cash used in operating activities

(2,947,511)

(1,090,922)

(5,502,547)

^{______________________}

^{______________________}

^{______________________}

Cash flows used in investing activity

Purchase of property, plant and equipment

(257,298)

(33,930)

(582,063)

Short term investments

2,197,639

-

(1,194,858)

^{_____________________}

^{______________________}

^{______________________}

Net cash provided by (used in) investing activities

1,940,341

(33,930)

(1,776,921)

^{______________________}

^{______________________}

^{_____________________}

Cash flows provided by (used in) financing activities

Loans payable

-

(60,212)

54,500

Issuance of common shares

1,073,288

5,301,468

7,478,065

Shares repurchased

-

(20,000)

(20,000)

^{______________________}

^{______________________}

^{_____________________}

Net cash provided by financing activities

1,073,288

5,221,256

7,512,565

^{______________________}

^{______________________}

^{______________________}

Increase in cash

66,118

4,096,404

233,097

Effect of foreign exchange rate changes on cash

1,275

17,911

(119,683)

^{______________________}

^{______________________}

^{______________________}

Net increase in cash

67,393

4,114,315

113,414

Cash, beginning of period

46,021

24,720

-

^{______________________}

^{______________________}

^{______________________}

Cash, end of period

$

113,414

$

4,139,035

$

113,414

Supplemental disclosure of cash flow information:

Cash paid for:

Interest

$

-

$

2,945

$

37,790

Income taxes

$

-

$

-

$

-

Non-cash Investing and Financing Activities

Issuance of shares in settlement of accounts payable

$

172,500

$

271,000

$

443,500

Issuance of shares in settlement of loans payable

$

-

$

59,000

$

59,000

Issuance of shares for services included in prepaid

$

114,000

$

-

$

130,900

Issuance of shares on recapitalization (Note 3)

$

-

$

796

$

796