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The following information should be read in conjunction with our 2010 audited consolidated financial statements and notes thereto, which were prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).

FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and under applicable Canadian provincial securities legislation. Forward-looking statements, including our belief as to the potential of REOLYSIN®, a therapeutic reovirus, as a cancer therapeutic and our expectations as to the success of our research and development and manufacturing programs in 2011 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties, which could cause our actual results to differ materially from those in the forward-looking statements.

Such risks and uncertainties include, among others, the need for and availability of funds and resources to pursue research and development projects, the efficacy of REOLYSIN® as a cancer treatment, the success and timely completion of clinical studies and trials, our ability to successfully commercialize REOLYSIN®, uncertainties related to the research, development and manufacturing of REOLYSIN®, uncertainties related to competition, changes in technology, the regulatory process and general changes to the economic environment.

With respect to the forward-looking statements made within this MD&A, we have made numerous assumptions regarding among other things: our ability to obtain financing to fund our development program, our ability to receive regulatory approval to commence enrollment in our clinical trial program, the final results of our co-therapy clinical trials, our ability to maintain our supply of REOLYSIN® and future expense levels being within our current expectations.

Investors should consult our quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Forward-looking statements are based on assumptions, projections, estimates and expectations of management at the time such forward-looking statements are made, and such assumptions, projections, estimates and/or expectations could change or prove to be incorrect or inaccurate. Investors are cautioned against placing undue reliance on forward-looking statements. We do not undertake to update these forward-looking statements except as required by applicable law.

REOLYSIN® DEVELOPMENT UPDATE FOR 2010

Oncolytics Biotech Inc. is a Development Stage Company

Since our inception in April of 1998, Oncolytics Biotech® Inc. has been a development stage company and we have focused our research and development efforts on the development of REOLYSIN®, our potential cancer therapeutic. We have not been profitable since our inception and expect to continue to incur substantial losses as we continue research and development efforts. We do not expect to generate significant revenues until, if and when, our cancer product becomes commercially viable.

Our goal each year is to advance REOLYSIN through the various steps and stages of development required for potential pharmaceutical products. In order to achieve this goal, we believe that we have to actively manage the development of our clinical trial program, our pre-clinical and collaborative programs, our manufacturing process and REOLYSIN supply, and our intellectual property.

Clinical Trial Program

We began 2010 with eight clinical trials, either enrolling patients or approved to commence enrollment. We sponsor four of these eight clinical trials which include our randomized Phase III head and neck clinical trial associated with our Special Protocol Assessment agreement with the U.S. Food and Drug Administration (“FDA”). Of the four other clinical trials one was sponsored by the U.S. National Cancer Institute (“NCI”), two were sponsored by the Cancer Therapy & Research Center at The University of Texas Health Center in San Antonio (“CTRC”) and one was sponsored by the University of Leeds (“Leeds”).

In 2010, enrollment in our randomized Phase III head and neck trial commenced and we expanded into other jurisdictions including the U.K., Belgium, and Canada.

We also expanded our clinical program in 2010, to include a Phase II squamous cell carcinoma of the lungs cancer study (sponsored by the CTRC), a Phase I colorectal cancer study (sponsored by Oncolytics), a Phase II pancreatic cancer clinical study (sponsored by the CTRC), a randomized Phase II ovarian cancer study (sponsored by the Gynecologic Oncology Group (“GOG”)), and a Phase I study in pediatric patients with relapsed or refractory solid tumours (sponsored by the NCI).

During the year, we presented positive updated results from our U.K. Phase I/II clinical trial focused on the head and neck at the ASCO annual meeting and published final results of our U.K. Phase Ia/Ib radiotherapy clinical trial and our U.K. Phase I docetaxel combination clinical trial. We also completed patient enrollment in our U.S. Phase I/II recurrent malignant glioma clinical trial and our Phase II sarcoma clinical trial.

We exited 2010 with eleven clinical trials which includes two randomized studies (our randomized Phase III head and neck trial and our randomized Phase II ovarian cancer trial). Five of the eleven trials are funded by us and the remainder are sponsored by the NCI, CTRC, and Leeds. Our clinical trial program currently encompasses various cancer indications including head and neck, non-small cell lung, ovarian, pancreatic, colorectal, melanoma, and squamous cell carcinoma of the lung among others.

Clinical Trial – Randomized Phase III Head and Neck Pivotal Trial

In 2010, we commenced enrollment in our randomized Phase III head and neck pivotal trial and throughout the year we expanded enrollment into other jurisdictions and sought out and initiated clinical sites within each jurisdiction. We obtained approval to conduct our randomized Phase III trial in the U.S., U.K. and Belgium. This is the same trial that we previously reached an agreement on with the FDA under the SPA process.

This trial is a randomized, two-arm, double-blind, multicentre, two-stage, adaptive Phase III trial that will assess the intravenous administration of REOLYSIN with the chemotherapy combination of paclitaxel and carboplatin versus the chemotherapy alone in patients with metastatic or recurrent squamous cell carcinoma of the head and neck, or squamous cell cancer of the nasopharynx, who have progressed on or after prior platinum-based chemotherapy. All patients will receive treatment every three weeks (21 day cycles) with paclitaxel and carboplatin and will also receive, on a blinded basis, either intravenous placebo or intravenous REOLYSIN. All dosing takes place in the first five days of each cycle with all patients receiving standard intravenous doses of paclitaxel and carboplatin on day one only, and on days one through five, either intravenous placebo or intravenous REOLYSIN at a dose of 3x1010 TCID50. Patients may continue to receive the trial combination therapy for up to eight, 21-day cycles and, thereafter, blinded placebo or blinded REOLYSIN until the patient has progressive disease or meets other criteria for removal from the trial.

The primary endpoint for the trial is overall survival (OS); secondary endpoints include progression free survival (PFS), objective response rate (complete response (CR) + partial response (PR)) and duration of response, and safety and tolerability of REOLYSIN® when administered in combination with paclitaxel and carboplatin. The first stage of the trial is designed to enroll 80 patients. The second stage is adaptive, and is designed to enroll between 100 and 400 patients with the most probable statistical enrolment being 195 patients in this stage. This adaptive trial design allows frequent data evaluation to determine if the probability of reaching a statistically significant endpoint has been achieved.

The decision to pursue a Phase III trial in head and neck cancers was predicated on positive results seen in our Phase I and Phase II combination REOLYSIN and paclitaxel/carboplatin clinical trials, as well as significant preclinical work demonstrating synergy in combination with taxane or platinum-based drugs. Updated results from the U.K. Phase I/II trial reported in 2010 demonstrated an overall response rate (PR and CR) of 42% and a total clinical benefit rate (PR + CR + stable disease) of 74%.

Clinical Trial – Program Expansion

U.S. Randomized Phase II Combination REOLYSIN Paclitaxel Clinical Trial for Ovarian Cancer

In 2010, the GOG received approval to commence a randomized Phase II trial of weekly paclitaxel versus weekly paclitaxel with REOLYSIN in patients with persistent or recurrent, ovarian, fallopian tube or primary peritoneal cancer (GOG186H) and commenced enrollment. The study will be sponsored by the Cancer Therapy Evaluation Program, Division of Cancer Treatment and Diagnosis, U.S. National Cancer Institute (NCI), which is part of the NCI, under our Clinical Trials Agreement. The Study Chair will be Dr. David E. Cohn of The Ohio State University Comprehensive Cancer Center - Arthur G. James Cancer Hospital and Richard J. Solove Research Institute.

This study is a randomized Phase II trial of weekly paclitaxel versus weekly paclitaxel with REOLYSIN in patients with persistent or recurrent ovarian, fallopian tube, or primary peritoneal cancer. Patients will be randomized to receive either paclitaxel alone or paclitaxel plus REOLYSIN. Patients in both arms will receive treatment with paclitaxel, with the second arm also receiving intravenous REOLYSIN. Patients will receive standard doses of paclitaxel on days one, eight, and 15 every 28 days. In the second arm, patients will also receive, on days one through five of each 28-day cycle, intravenous REOLYSIN at a dose of 3x1010 TCID50.

The primary objectives of this trial are to estimate the progression-free survival hazard ratio of the combination of weekly paclitaxel with REOLYSIN® to weekly paclitaxel alone in patients with persistent or recurrent ovarian, fallopian tube, or primary peritoneal cancer and to determine the frequency and severity of adverse events associated with treatment with weekly paclitaxel alone and weekly paclitaxel with REOLYSIN as assessed by Common Terminology Criteria for Adverse Events (CTCAE). The secondary objectives are to estimate the progression-free survival and overall survival of patients treated with weekly paclitaxel alone and weekly paclitaxel with REOLYSIN®; to estimate (and compare) the proportion of patients who respond to the regimen on each arm of the study (according to RECIST 1.1 with measurable patients and by CA-125 for those patients with detectable disease only); and to characterize and compare progression-free survival and overall survival in patients with measurable disease (RECIST 1.1 criteria) and patients with detectable (nonmeasurable) disease. The study is expected to enroll up to 150 patients.

U.S. Phase II Pancreatic Cancer Clinical Trial

In 2010, the CTRC started patient enrolment in a U.S. Phase II clinical trial using intravenous administration of REOLYSIN in combination with gemcitabine (Gemzar®) in patients with advanced pancreatic cancer. The Principal Investigator is Dr. Monica Mita of the CTRC.

This trial is a single arm, open-label, Phase II study of REOLYSIN given intravenously with gemcitabine every three weeks. Up to 33 patients are expected to be treated in this trial. Eligible patients include those with advanced or metastatic pancreatic cancer with measurable disease who have not received any prior chemotherapy or biotherapy.

The primary objective of the Phase II trial is to determine the clinical benefit rate (complete response + partial response + stable disease) of intravenous multiple doses of REOLYSIN® in combination with gemcitabine in patients with advanced or metastatic pancreatic cancer. The secondary objectives are to determine the progression-free survival, and to determine the safety and tolerability of REOLYSIN® when administered in combination with gemcitabine.

This trial is the third of five clinical trials with the CTRC under our broad preclinical and clinical collaboration contract. Our collaboration with CTRC will involve up to five, open-label, Phase 2 studies exploring the use of REOLYSIN® in combination with chemotherapy for various cancer indications.

U.S. Phase 1 Colorectal Cancer Clinical Trial

In 2010, we initiated a U.S. Phase 1 study of REOLYSIN in combination with FOLFIRI (Folinic Acid (leucovorin) + Fluorouracil (5-FU) + Irinotecan) in patients with oxaliplatin refractory/intolerant Kras mutant colorectal cancer. The principal investigator is Dr. Sanjay Goel of the Montefiore Medical Center at The Albert Einstein College of Medicine in New York.

The trial is a Phase I dose escalation study with three dose levels and cohorts of three to six patients to determine a maximum tolerated dose and dose-limiting toxicities with the combination of REOLYSIN and FOLFIRI. FOLFIRI will be administered on the first day of a two week (14 day) cycle, while REOLYSIN will be administered on days one through five of a four week (28 day) cycle. Eligible patients include those with histologically confirmed cancer of the colon or rectum with Kras mutation and measurable disease. They must have progressed on or within 190 days after last dose of oxaliplatin regimen as front-line therapy in the metastatic setting or be intolerant to oxaliplatin.

The clinical rationale for conducting this study was based on positive efficacy results seen in a range of our prior preclinical and clinical work with REOLYSIN. This includes a National Cancer Institute screen of seven colorectal cancer cell lines (four with ras mutations), all of which were susceptible to REOLYSIN; preclinical research into the efficacy of REOLYSIN in combination with various chemotherapeutic agents in colorectal cancer cell lines; observation of CEA responses and stable disease in colorectal patients in a Phase I study of REOLYSIN as a monotherapy; and evidence of viral replication of reovirus in liver metastases in patients with metastatic colorectal cancer in a translational study with REOLYSIN as a monotherapy that is currently ongoing.

U.S. Phase I Study in Pediatric Patients with Relapsed or Refractory Solid Tumors

In 2010, we expanded our clinical program to include pediatric patients. We announced that the Children's Oncology Group (COG) intends to conduct a Phase I trial of REOLYSIN in combination with cyclophosphamide in pediatric patients with relapsed or refractory solid tumors. The study will be conducted under our Clinical Trials Agreement with the NCI and in collaboration with the Cancer Therapy Evaluation Program, Division of Cancer Treatment and Diagnosis, U.S. National Cancer Institute, which is part of the National Institutes of Health. The study chair will be Dr. E. Anders Kolb of the Nemours/Alfred I. duPont Hospital for Children.

The study is an open label, multicentre, dose escalation Phase I study of REOLYSIN in patients aged three to 21 years with relapsed or refractory solid tumors. Patients will receive intravenous REOLYSIN on days one through five of each 28-day treatment cycle. Some patients will also receive oral cyclophosphamide on days one through 21. Treatments repeat every 28 days for up to 12 cycles in the absence of disease progression or unacceptable toxicity.

The primary objectives of the trial include estimating maximum tolerated dose, and defining and describing the toxicities of REOLYSIN and REOLYSIN plus oral cyclophosphamide in this patient population. Secondary objectives include defining antitumor activity of REOLYSIN within the confines of a Phase I study, evaluating the development of neutralizing antibodies to REOLYSIN following intravenous administration of REOLYSIN alone and in combination with cyclophosphamide, and assessing the biologic activity of REOLYSIN. After completion of study treatment, patients are to be followed up periodically for up to one year.

Clinical Trial – 2010 Results

U.K. Phase I/II REOLYSIN in Combination with Paclitaxel/Carboplatin

In 2010, a poster was presented covering updated results of our Phase I/II U.K. clinical trial of REOLYSIN combined with paclitaxel/carboplatin for patients with advanced cancers at the ASCO 2010 Annual Meeting in Chicago, IL.

The poster entitled "Phase I/II Study of Oncolytic Reovirus Plus Carboplatin/Paclitaxel in Patients with Advanced Solid Cancers with Emphasis on Squamous Cell Carcinoma of the Head and Neck," (SCCHN) updated our previously disclosed interim data to include new overall survival data.

The researchers reported that 31 patients were enrolled (24 males; median age 59 years) with head and neck cancer (n=24), melanoma (n=4), peritoneal/endometrial cancer (n=2), or sarcoma (n=1). In the dose-escalation phase of the study, there were no dose-limiting toxicities. Grade 3/4 toxicities included anaemia, leucopenia, neutropenia, lymphopenia, thrombocytopenia, infection and hypotension. In the Phase II study, PR were noted in two of five patients with head and neck cancer. The Phase II study treated head and neck cancer patients at the maximum dose level (3 x 1010 TCID50) in order to further assess tumour response. In total, 19 patients with head and neck cancer received at least two cycles and were evaluable for response. Most were SCCHN patients refractory to previous platinum-based chemotherapy for recurrent/metastatic disease. Partial responses were seen in eight patients (42%) and stable disease (SD) in six (32%). One additional PR and one SD were observed among four patients with malignant melanoma.

The mean overall survival (OS) in 24 treated head and neck cancer patients is more than eight months, with four patients still alive at the time of the presentation. The mean OS of the patients experiencing PR and PR plus SD is statistically significantly greater than the mean survival of those patients experiencing progressive disease (PD) (hazard ratio 0.2, p=0.0249 and hazard ratio 0.27, p=0.04, respectively, with a 95% confidence interval).

The researchers concluded that intravenous administration of reovirus in combination with carboplatin/paclitaxel is a safe and well-tolerated combination with promising anticancer activity in SCCHN. Further evaluation of this combination in a randomized Phase III trial in SCCHN is underway.

U.K. Phase Ia/Ib REOLYSIN in Combination with Radiotherapy Clinical Trial

In 2010, a paper entitled "Two-Stage Phase I Dose-Escalation Study of Intratumoural Reovirus Type 3 Dearing and Palliative Radiotherapy in Patients with Advanced Cancers," was published in the online version of the journal Clinical Cancer Research.

The paper covers final results from our Phase Ia/Ib U.K. clinical trial investigating the intratumoural delivery of REOLYSIN in combination with radiation to treat patients with advanced cancers. A total of 23 patients received a range of two to six intratumoural doses of REOLYSIN at escalating dosages up to a maximum of 1x1010 TCID50 with a constant localized radiation dose of either 20 Gy or 36 Gy. The principal investigator for the study was Dr. Kevin Harrington from The Institute of Cancer Research and The Royal Marsden Hospital, London, U.K.

Of the seven evaluable patients in the low-dose (20Gy) radiation group, two patients had a partial response (“PR”) (esophageal adenocarcinoma and squamous cell carcinoma (SCC) of the skin) and five had stable disease (“SD”) including patients with malignant melanoma, pancreatic adenocarcinoma, SCC of the larynx and SCC of the skin (2). In the high-dose (36Gy) radiation group, five of seven evaluable patients had PR (malignant melanoma (2), lung adenocarcinoma, colorectal adenocarcinoma, and ovarian adenocarcinoma) and two had SD (malignant melanoma).

The primary objective of the trial was to determine the maximum tolerated dose (MTD), dose limiting toxicity (DLT), and safety profile of REOLYSIN® when administered intratumourally to patients receiving radiation treatment. A secondary objective was to examine any evidence of anti-tumour activity. The treatment was well tolerated in all cohorts, with no DLTs, and no MTD was reached.

U.K. Phase I REOLYSIN in Combination with Docetaxel Clinical Trial

In 2010, a paper entitled "REO-10: A Phase I Study of Intravenous Reovirus and Docetaxel in Patients with Advanced Cancer," was published by Comins et al in the journal Clinical Cancer Research (Clin Cancer Res 16(22):5564-5572).

The paper reported final results from a combination REOLYSIN and docetaxel trial, designed to evaluate the anti-tumour effects of systemic administration of REOLYSIN in combination with docetaxel (Taxotere®) in patients with advanced cancers. Patients received docetaxel on day one (75mg/m2) and escalating doses of reovirus up to 3 x 1010 TCID50 on days one through five, every three weeks. The principal investigator was Professor Hardev Pandha of the Royal Surrey County Hospital, U.K.

Twenty-five patients were enrolled, with 24 being exposed to treatment and 23 completing at least one cycle of therapy. Sixteen patients were suitable for response assessment. The combination was deemed to be safe and well tolerated and a maximum tolerated dose was not reached. Antitumour activity was seen with one complete response (in the liver of a breast cancer patient with no evidence of disease recurrence at the end of the study, following eight cycles of treatment) and three partial responses. A disease control rate (combined complete response, partial response and stable disease) of 88% was observed. The authors concluded that the combination of reovirus and docetaxel is safe, with evidence of objective disease response, and warrants further evaluation in a Phase II study at a recommended schedule of docetaxel (75mg/m2, three times weekly) and reovirus (3 x 1010 TCID50, days one to five, every three weeks).

Eligible patients included those who had been diagnosed with advanced or metastatic solid tumours including bladder, lung, prostate or upper gastro-intestinal cancers that were refractory (had not responded) to standard therapy or for which no curative standard therapy existed. The primary objective of the trial was to determine the MTD, DLT, recommended dose and dosing schedule and safety profile of REOLYSIN when administered in combination with docetaxel. Secondary objectives included the evaluation of immune response to the drug combination, the body's response to the drug combination compared to chemotherapy alone and any evidence of anti-tumour activity.

Pre-Clinical and Collaborative Program

Publications

During 2010, the following article was published:

Title	Senior Author	Publication	Description/Conclusion
"Antiangiogenic cancer therapy combined with oncolytic virotherapy leads to regression of established tumors in mice"	Dr. Richard Vile Dr. Kevin Harrington	April 1, 2010 Journal of Clinical Investigation on	The research demonstrated that combining VEGF165 inhibitors such as Avastin or Sunitinib with systemic delivery of REOLYSIN leads to substantial regression and cure of established tumors in immunocompetent mice. This approach led to direct tumor cell lysis (break down) and triggered innate immune–mediated attack on the tumor vasculature. It also resulted in long-term antitumor effects, even against tumors in which viral replication was poorly supported. The authors concluded that because this combinatorial approach targets the tumor endothelium, these data have direct, wide-ranging, and immediate clinical applicability across a broad range of tumor types using reagents that are already approved for use in patients.

Manufacturing and Process Development

In 2010, we completed the bulk production of two 100-litre cGMP production runs. As well, we finished the fill and packaging of the 100-litre cGMP production run that was completed at the end of 2009 along with the two production runs that occurred in 2010. Our process development activity in 2010 focused on process validation and formulation studies.

Intellectual Property

At the end of 2010, we had been issued over 250 patents including 40 U.S. and 11 Canadian patents as well as issuances in other jurisdictions. We also have over 200 patent applications filed in the U.S., Canada and other jurisdictions. We have an extensive patent portfolio covering the oncolytic reovirus that we use in our clinical trial program including a composition of matter patent that expires in 2028. Our patent portfolio also includes methods for treating proliferative disorders using modified adenovirus, HSV, parapoxvirus and vaccinia virus.

Financing Activity

During 2010, we received cash inflow from financing activities of $27.3 million as follows:

Bought Deal Financing

In November 2010, we closed a bought deal financing whereby we issued 6,256,000 units at an issue price of $4.60 per unit for net cash proceeds of $26.8 million. Each Unit consists of one common share and one-half of one common share purchase warrant (each whole common share purchase warrant, a "Warrant"). Each Warrant entitles the holder to acquire one common share at a price of $6.15 at any time until November 8, 2012.

Warrants

In December 2010, and in conjunction with the terms of our warrant indenture, we accelerated the expiry date of our U.S.$3.50 warrants issued in November 2009 to January 24, 2010. As of the end of 2010, we had received U.S.$0.4 million with respect to the exercise of 119,900 warrants.

Subsequent to December 31, 2010, we received U.S.$6.4 million from the exercise of 1,823,100 of our warrants with an exercise price of U.S.$3.50. As well, in February and March of 2011, we received proceeds of $8.2 million from the exercise of 1,322,750 warrants with an exercise price of $6.15. These warrants were issued in connection with the financing that closed on November 8, 2010.

Options

During 2010, we received cash proceeds of $0.1 million with respect to the exercise of 32,433 stock options.

Financial Impact

We estimated at the beginning of 2010 that our cash requirements to fund our operations for the year would be approximately $24 million. We amended our estimate during the year to $21 million due to the timing of patient enrollment in our Phase III pivotal trial. Our cash usage for 2010 was $18,033,732 from operating activities and $81,846 for the acquisition of property and equipment. Our net loss for 2010 was $19,973,772.

Cash Resources

We exited 2010 with cash resources (cash, cash equivalents and short-term investments) totaling $42,905,928 (see “Liquidity and Capital Resources”).

REOLYSIN® DEVELOPMENT FOR 2011

Our planned development activity for REOLYSIN in 2011 is made up of clinical, manufacturing, intellectual property and collaboration programs. Our 2011 clinical program includes the anticipated completion of stage 1 (approximately 80 patients) of our Phase III head and neck clinical trial and commencement of stage 2. As well, we expect to commence enrollment in our colorectal study and complete enrollment in our non-small cell lung, U.S. phase II head and neck cancer trials and support those clinical trials that are sponsored by CTRC, Leeds and the NCI.

Our 2011 manufacturing program includes several 100-litre cGMP production runs along with the related fill, labeling, packaging and shipping of REOLYSIN to the various clinical sites. As well, we plan on performing smaller process development studies examining formulation, stability and additional scale up. Our intellectual property program includes filings for additional patents along with monitoring activities required to protect our patent portfolio. Finally, our 2011 collaboration program will finish the studies in place at the end of 2010 and contemplates the addition of future studies that may be required.

We estimate that the cash requirements to fund our operations for 2011 will be approximately $29,000,000 (see “Liquidity and Capital Resources”).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets at the date of the financial statements and the reported amounts of expenses during the periods presented. Significant estimates are used for, but not limited to, the treatment of our research and development expenditures, the assessment of realizable value of long-lived assets, the amortization period of intellectual property and the calculation of stock based compensation.

The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Research and Development

We account for our research and development activity in conjunction with the Canadian Institute of Chartered Accountants’ (the “CICA”) Handbook Section 3064 “Goodwill and Intangible Assets” (“Section 3064”) and expense all of our research and development costs as incurred. Under Section 3064, development costs should only be capitalized if all the criteria below are met:

1.	The technical feasibility of completing the intangible asset so that it will be available for use or sale.

2.	Our intention to complete the intangible asset and use or sell it.

3.	Our ability to use or sell the intangible asset.

4.	How the intangible asset will generate probable future economic benefits. Among other things, we are able to demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

5.	The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

6.	Our ability to measure reliably the expenditure attributable to the intangible asset during its development.

We believe that we do not meet all of the above criteria and for this reason, our research and development costs are expensed and not capitalized.

We will monitor our progress against these criteria and will capitalize our development costs once we can conclude we meet the above criteria.

Future Accounting Changes

International Financial Reporting Standards (“IFRS”)

The Canadian Institute of Chartered Accountants’ Accounting Standards Board announced that Canadian publicly accountable enterprises are required to adopt IFRS, as issued by the International Accounting Standards Board (IASB), effective January 1, 2011. We are prepared to adopt IFRS as at that date. Our transition process included the following phases:

•	Scoping and diagnostic phase — This phase involved performing a high-level diagnostic assessment to identify key areas that were impacted by the transition to IFRS. This phase was finalized in 2008.

•	Impact analysis, evaluation and design phase —This phase involved specification of changes required to existing accounting policies, information systems and business processes, together with an analysis of policy alternatives allowed under IFRS. This phase was finalized in 2009.

•

Implementation and review phase — This phase included execution of changes to information systems and business processes, completing formal authorization processes to approve recommended accounting policy changes and training. At the end of the implementation and review phase we will be able to compile financial statements compliant with IFRS.

As a result of completing these three phases we are now in the process of compiling financial statements in compliance with IFRS.

Implementation and Review Phase

During 2010, we commenced the implementation and review phase of our IFRS transition plan. Throughout the year, we trained key accounting and finance personnel on the application of IFRS accounting policies and the potential impact on our consolidated financial statements. We prepared a draft opening balance sheet along with our accounting policies under IFRS and presented them to our Audit Committee for review. Our external auditor has also reviewed our opening balance sheet and our disclosures under IFRS, however all amounts are considered unaudited, as we have not yet prepared a full set of financial statements under IFRS.

IFRS 1 “First Time Adoption of International Financial Reporting Standards”

As at December 31, 2010, we will utilize the exemption relating to investments in subsidiaries, jointly controlled entities and associates and the exemption relating to cumulative translation differences. We do not expect there to be a significant impact on our financial statements as a result of using these exemptions. As well, based on the transactions we have incurred to date and our specific facts, we believe it will not be necessary to utilize the other exemptions made available by IFRS 1. As we move towards actual implementation and reporting under IFRS, we will continue to monitor our transactions and make use of any exemptions that are determined to benefit Oncolytics.

Other GAAP to IFRS Differences

Treatment of Warrants with an Exercise Price Denominated in a Foreign Currency

There is a difference between GAAP and IFRS on the treatment of warrants with an exercise price denominated in a currency other than the entity’s functional currency. IFRS requires accounting for these warrants as a liability measured at fair value with changes in fair value recorded in the consolidated statement of loss. GAAP requires these warrants to be accounted for as an equity instrument.

Foreign Currency Translation

Under IFRS, the assets and liabilities of our US subsidiary will be translated to Canadian dollars at the year-end exchange rate and the statements of income and cash flows are translated at period average rates. The translation differences that arise are taken directly to a currency translation account within equity.

Classification of expenses within the statement of loss and comprehensive loss

Under IFRS, we expect to choose to present our expenses based on the function of each expense rather than the nature of each expense. As a result, stock based compensation and amortization of capital assets will be re-classified between research and development and operating expenses. There will be no impact on our net loss or comprehensive loss.

Financial Statement Impact

In preparing our opening balance sheet, we have adjusted amounts reported previously in our consolidated financial statements prepared in accordance with GAAP. The estimated impact on our balance sheet as at January 1, 2010 would be to reduce warrants in shareholders’ equity by approximately $1 million and reflect a long term liability. In 2010, we anticipate a further charge to our Consolidated Statement of Loss of approximately $4.8 million related to the revaluation of warrants.

Significant Estimates

Stock Based Compensation

As required by the fair value based method for measuring stock based compensation under Canadian GAAP, we have chosen to use the Black Scholes Option Pricing Model (“Black Scholes” or the “Model”) to calculate the fair value of our options. Though there are other models available to calculate the option values (for example, the binomial model), Black Scholes is currently widely used and accepted by other publicly traded companies. Therefore, we have concluded that Black Scholes is the appropriate option pricing model to use for our stock options at this time.

Black Scholes uses inputs in its calculation of fair value that require us to make certain estimates and assumptions. For 2010, we used the following weighted average assumptions:

	2010

Risk-free interest rate	1.85%
Expected hold period to exercise	3 years
Volatility in the price of the our shares	71%
Dividend yield	Zero

A change in these estimates and assumptions will impact the value calculated by the model. For instance, the volatility in the price of our shares is based on the quoted trading price. We assume that weekly trading prices best reflect our trading price volatility. However, an entity can choose between daily, weekly, or monthly trading prices in the volatility calculation.

The Model also uses an expected hold period to exercise in its calculation of fair value. When we are estimating the expected hold period to exercise we take into consideration past history, the current trading price and volatility of our common shares and have concluded that 3.0 years is an appropriate estimate. However, our options have a 10-year life and given the fluctuations in our stock price the expected hold period could be different.

Consequently, in complying with GAAP and selecting what we believe are the most appropriate assumptions under the circumstances, we have recorded non-cash employee stock based compensation expense for the year of $3,251,041. However, given the above discussion, this expense could have been different and still be in accordance with GAAP.

Warrant Values

Since inception, we have raised cash through the issue of units and the exercise of warrants and options. Each issued unit has consisted of one common share and a portion of one common share purchase warrant with each whole warrant exercisable at a specified price for one additional common share for up to 60 months from the issue date. GAAP requires that when recording the issued units, a value should be ascribed to each component of the units based on the component’s fair value. The fair value of our common shares is established based on trading on stock exchanges in Canada and the U.S. However, as the warrants do not trade on an exchange, the Black Scholes Option Pricing Model has been used to determine the fair value of the warrants. In the event that the total calculated value of each individual component is greater than the price paid for the unit, the value of each component is reduced on a relative basis until the total is equal to the unit’s issue price.

For reasons discussed above under “Stock Based Compensation”, the model can produce a range of calculated values for our warrants.

SELECTED ANNUAL INFORMATION

	$	2010	$	2009	$	2008
Revenue		—		—		—
Net loss(2)		19,973,772		16,231,249		17,550,204
Basic and diluted loss per share(2), (3)		0.32		0.33		0.42
Total assets (1), (3)		44,432,442		35,593,391		13,987,195
Cash dividends declared per share(4)	Nil		Nil		Nil

Notes:

(1)	Subsequent to the acquisition of Oncolytics Biotech Inc. by SYNSORB in April 1999, we applied push down accounting.

(2)	Included in net loss and loss per common share for 2010, 2009 and 2008 are stock based compensation expenses of $3,251,041, $424,273 and $64,039, respectively.

(3)	We issued 6,408,333 commons shares for net cash proceeds of $27,288,132 in 2010 (2009 – 17,524,211 common shares for net cash proceeds of $37,052,900; 2008 – 2,650,000 common shares for net cash proceeds of $3,421,309)

(4)	We have not declared or paid any dividends since incorporation.

RESULTS OF OPERATIONS

Net loss for the year ended December 31, 2010 was $19,973,772 compared to $16,231,249 and $17,550,204 for 2009 and 2008, respectively.

Research and Development Expenses (“R&D”)

	$	2010		$	2009	$	2008
Clinical trial expenses		4,159,064			3,766,234		5,797,085
Manufacturing and related process development expenses		4,528,115			3,720,251		3,062,951
Intellectual property expenses		1,020,897			968,849		1,244,388
Research collaboration expenses		303,929			509,600		687,679
Scientific Research and Development Refund		(531,506	)		—		(75,833	)
Other R&D expenses		2,711,310			2,641,580		2,635,605
Research and development expenses		12,191,809			11,606,514		13,351,875

Clinical Trial Expenses

Clinical trial expenses include those costs associated with our global clinical trial program that includes the U.S., U.K., Canada and Belgium as well as those incurred in the preparation of commencing other clinical trials. Included in clinical trial expenses are direct patient enrollment costs, contract research organization (“CRO”) expenses, clinical trial site selection and initiation costs, data management expenses and other costs associated with our clinical trial program.

	$	2010	$	2009	$	2008
Direct clinical trial expenses		2,630,202		3,691,553		5,797,085
Phase III start up expenses		1,528,862		74,681		—
Clinical trial expenses		4,159,064		3,766,234		5,797,085

Our clinical trial expenses in 2010 were $4,159,064 compared to $3,766,234 and $5,797,085 in 2009 and 2008, respectively.

During 2010, we continued the start up stage of our Phase III head and neck pivotal trial incurring costs associated with regulatory filings and submissions in various jurisdictions along with site identification and initiation costs. We also commenced enrollment in our pivotal trial in 2010 and incurred direct clinical trial expenses relating to the five clinical trials that we are currently sponsoring.

In 2009, we commenced the year with twelve clinical trials (two sponsored by the NCI) and incurred costs associated with the completion of enrollment of six clinical trials throughout 2009. As well, we incurred grant costs in 2009 associated with our clinical trial research collaboration with the CTRC that were not incurred during 2008.

We exited 2009 with a clinical trial program that included eight clinical trials, either underway or approved to commence, of which four were sponsored by Oncolytics and the remainder were being sponsored by the NCI (sponsoring one clinical trial), CTRC (sponsoring two clinical trials) and Leeds (sponsoring one clinical trial).

In 2008, our clinical trial program expanded from eight active clinical trials at the beginning of the year to 12 clinical trials by the end of 2008 of which two were sponsored by the NCI. Of the ten clinical trials being conducted by us, nine trials were actively enrolling patients throughout 2008.

We expect our clinical trial expenses to increase in 2011 compared to 2010. We expect to complete enrollment in stage 1 of our Phase III pivotal trial and enter into stage 2. We also expect to complete enrollment in our Phase II NSCLC study, our U.S. Phase II head and neck cancer study, our U.K. Phase I combination with cyclophosphamide clinical study and our Phase I colorectal study. Finally, we will continue to support our clinical research collaboration with CTRC, our Clinical Agreement with the NCI and our clinical trial with Leeds.

Manufacturing & Related Process Development Expenses (“M&P”)

M&P expenses include product manufacturing expenses and process development. Product manufacturing expenses include third party direct manufacturing costs, quality control testing, fill, label and packaging costs. Process development expenses include costs associated with studies that examine components of our manufacturing process looking for improvements and costs associated with the creation and testing of our master and working viral and cell banks.

	$	2010	$	2009	$	2008
Product manufacturing expenses		3,694,324		3,367,631		2,774,747
Process development expenses		833,791		352,620		288,204
Manufacturing and related process development expenses		4,528,115		3,720,251		3,062,951

Our M&P expenses for 2010 were $4,528,115 compared to $3,720,251 and $3,062,951 for 2009 and 2008, respectively.

During 2010, we incurred costs associated with two 100-litre cGMP production runs that commenced in 2010. As well, we incurred fill and packaging costs for these runs along with a 100-litre cGMP production run that was completed at the end of 2009.

In 2009, we completed the production and fill of our first cGMP 100-litre production run and completed the bulk production of a second cGMP 100-litre production run towards the end of 2009. We also incurred costs associated with the fill, labeling, and packaging of the product from our 40-litre runs from 2008 for shipment to our clinical sites.

In 2008, we were producing REOLYSIN at the 40-litre scale and incurred costs associated with the completion of two 40-litre cGMP production runs. As well, we incurred costs associated with the fill, packaging, and shipping of these production runs.

Our process development expenses in 2010 focused on optimization and validation studies anticipated to be required in support of product registration. During 2009, we focused on developing a lyophilization formulation plan which was completed in the second quarter of 2009 and we commenced validation studies. In 2008, we examined scale up to the 100-litre level, lyophilization and process validation studies. We completed our 100-litre scale up studies towards the end of 2008.

We expect our M&P expenses for 2011 to increase compared to 2010. We expect to complete several 100-litre cGMP production runs including fill and finish activities in 2011. We also expect to continue to perform a number of small scale process development studies focusing on formulation, process validation, and stability.

Intellectual Property Expenses

Intellectual property expenses include legal and filing fees associated with our patent portfolio.

		$	2010			$	2009			$	2008
Intellectual property expenses			1,020,897				968,849				1,244,388

Our intellectual property expenses for 2010 were $1,020,897 compared to $968,849 and $1,244,388 for 2009 and 2008, respectively. The change in intellectual property expenditures reflects the timing of filing costs associated with our portfolio of patents and a change in the geographic focus of our worldwide patent filing strategy. At the end of 2010, we had been issued over 250 patents including 40 U.S. and 11 Canadian patents, as well as issuances in other jurisdictions. We also have over 200 patent applications filed in the U.S., Canada and other jurisdictions. We expect that our intellectual property expenses will remain consistent in 2011 compared to 2010.

Research Collaboration Expenses

Pre-clinical trial expenses include toxicology studies and are incurred by us in support of expanding our clinical trial program into other indications, drug combinations and jurisdictions. Research collaborations are intended to expand our intellectual property related to reovirus and identify potential licensing opportunities arising from our technology base.

		$	2010			$	2009			$	2008
Research collaboration expenses			303,929				509,600				687,679

In 2010, research collaborations expenses were $303,929 compared to $509,600 and $687,679 in 2009 and 2008, respectively. Our research collaboration activity in 2010 continued to focus on the interaction of the immune system and the reovirus and the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation. For 2010, we selectively entered into additional research collaborations. In 2009, we completed the collaborative agreements we had entered into in 2008 and we continued to be selective in the types of new collaborations we entered into throughout the year. Over the last three years we have seen a decline in these expenses as we have entered into fewer collaborative agreements each year.

We expect that pre-clinical trial expenses and research collaborations in 2011 will remain consistent with 2010. We expect to complete our ongoing collaborative program carried over from 2010 and will continue to be selective in the types of new collaborations we enter into in 2011.

Scientific Research and Development Refund

		$	2010			$	2009			$	2008
Scientific research and development refund			(531,506	)			—				(75,833	)

During 2010, we received scientific research and development refunds totaling $287,506 from the Alberta and Quebec governments. As well, we received a cash grant of approximately U.S.$244,000 under the U.S. Government’s Qualifying Therapeutic Discovery Project program (“QTDP”) for our oncology program. The QTDP was created by Congress in March 2010 as part of the Patient Protection and Affordable Care Act and provides a tax credit or grant equal to 50% of eligible costs and expenses for tax years 2009 and 2010. The Department of Treasury allocated these credits and grants among qualified applicants as the program was oversubscribed.

Other Research and Development Expenses

Other research and development expenses include compensation expenses for employees (excluding stock based compensation), consultant fees, travel and other miscellaneous R&D expenses.

	$	2010	$	2009	$	2008
R&D consulting fees		63,071		279,321		197,773
R&D salaries and benefits		2,394,869		2,097,501		1,926,148
Other R&D expenses		253,370		264,758		511,684
Other research and development expenses		2,711,310		2,641,580		2,635,605

In 2010, our other research and development expenses were $2,711,310 compared to $2,641,580 and $2,635,605 for 2009 and 2008, respectively. In 2009, we incurred additional R&D consulting costs relating to our Special Protocol Assessment and U.S. randomized Phase III filings that did not occur in 2010 or 2008. R&D salaries and benefits in 2010 increased compared to 2009 and 2008 as our staff levels increased in order to support our clinical trial program. Our Other R&D expenses continued to decrease in 2010 compared to 2009 and 2008 as there was less travel activity in 2010 associated with supporting our clinical trials as the number of trials we sponsor continues to decrease in the U.S. and the U.K. and there were fewer conferences, symposiums and meetings attended in 2010 and 2009 compared to 2008.

In 2011, we expect that our Other R&D expenses will remain consistent with 2010.

Operating Expenses

	$	2010	$	2009	$	2008
Public company related expenses		2,806,048		2,326,431		3,099,583
Office expenses		1,384,355		1,456,076		1,211,992
Operating expenses		4,190,403		3,782,507		4,311,575

Public company related expenses include costs associated with investor relations and business development activities, legal and accounting fees, corporate insurance, and transfer agent and other fees relating to our U.S. and Canadian stock listings. In 2010, we incurred professional fees associated with the renewal of our base shelf prospectus and incurred additional costs associated with our AGM that were not incurred in 2009. As well, our investor relations, public relations, and business development activities increased in 2010 compared to 2009. In 2009, our investor relations, consulting, transfer agent and listing fees, and related travel costs decreased relative to 2008, as in 2008, we incurred professional fees associated with the expansion of our corporate structure that were not incurred in 2009.

Office expenses include compensation costs (excluding stock based compensation), office rent, and other office related costs. In 2010, we incurred office expenses of $1,384,355 compared to $1,359,346 and $1,211,992 in 2009 and 2008, respectively. In 2010, our office expense activity remained consistent compared to 2009. In 2009, we began to incur additional expenses associated with supporting our expanded corporate structure that were not incurred in 2008.

We expect our operating expenses to increase in 2011 compared to 2010 as we will increase our operating activities in support of our research and development programs.

Stock Based Compensation

		$	2010			$	2009			$	2008
Stock based compensation			3,251,041				424,273				64,039

Non-cash stock based compensation recorded for 2010 was $3,251,041 compared to $424,273 and $64,309 for 2009 and 2008, respectively. Stock based compensation in 2010 related to 1,183,000 options that were granted along with compensation expense relating to options that vested over the year. (2009 – 332,500 options; 2008 – 15,500 options).

Commitments

As at December 31, 2010, we are committed to payments totaling $1,140,000 during 2010 for activities related to clinical trial activity and collaborations. All of these committed payments are considered to be part of our normal course of business.

SUMMARY OF QUARTERLY RESULTS

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

	2010								2009
(unaudited)	Dec.		Sept.		June		March		Dec.		Sept.		June		March
Revenue		—		—		—		—		—		—		—		—
Net loss (3)		7,472		4,009		4,352		4,141		5,245		2,694		4,335		3,958
Basic and diluted loss per common share(3)	$	0.11	$	0.07	$	0.07	$	0.07	$	0.09	$	0.05	$	0.09	$	0.09
Total assets(1), (4)		44,432		21,137		26,569		30,159		35,593		10,240		12,755		9,802
Total cash(2), (4)		42,906		19,708		24,885		28,823		34,129		9,655		11,983		9,292
Total long-term debt		—		—		—		—		—		—		—		—
Cash dividends declared(5)	Nil		Nil		Nil		Nil		Nil		Nil		Nil		Nil

(1)	Subsequent to the acquisition of Oncolytics Biotech Inc. by SYNSORB in April 1999, we applied push down accounting.

(2)	Included in total cash are cash and cash equivalents plus short-term investments.

(3)	Included in net loss and loss per common share between December 2010 and January 2009 are quarterly stock based compensation expenses of $2,850,938, $397,675, $1,399, $1,029, $396,110, $7,982, $8,544, and $11,637, respectively.

(4)	We issued 6,408,333 commons shares for net cash proceeds of $27,288,132 in 2010 (2009 – 17,524,211 common shares for net cash proceeds of $37,052,900).

(5)	We have not declared or paid any dividends since incorporation.

FOURTH QUARTER

Statement of loss for the three month period ended December 31, 2010 and 2009:

	2010 $ (unaudited)			2009 $ (unaudited)
Expenses
Research and development expenses		3,290,721			3,600,282
Operating expenses		1,215,728			1,078,998
Stock based compensation		2,850,938			396,110
Foreign exchange (gain) loss		132,677			137,371
Amortization – property and equipment		17,669			15,318
		7,507,733			5,228,079
Interest income		(40,052	)		(5,225	)
Income taxes		3,884			22,000
Net loss		7,471,565			5,244,854

Fourth Quarter Review of Operations

For the three month period ended December 31, 2010, our net loss was $7,471,565 compared to $5,244,854 for the three month period ended December 31, 2009.

Research and Development Expenses (“R&D”)

	2010 $ (unaudited)			2009 $ (unaudited)
Clinical trial expenses		1,164,960			805,188
Manufacturing and related process development expenses (“M&P”)		902,425			1,599,609
Intellectual property expenses		343,764			201,854
Research collaboration expenses		146,315			185,906
Scientific Research and Development Refund		(244,000	)
Other R&D expenses		977,257			807,725
Research and development expenses		3,290,721			3,600,282

Clinical Trial Expenses

	2010 $ (unaudited)		2009 $ (unaudited)
Direct clinical trial expenses		788,679		730,507
Phase III start up expenses		376,281		74,681
Clinical trial expenses		1,164,960		805,188

During the fourth quarter of 2010, our direct clinical trial expenses increased to $788,679 compared to $730,507 for the fourth quarter of 2009. In the fourth quarters of 2010 and 2009, we incurred direct patient expenses related to the four clinical trials that we are sponsoring. As well, we continued to incur start up costs in the fourth quarter of 2010 related to our randomized Phase III head and neck pivotal trial that commenced in the fourth quarter of 2009.

Manufacturing & Related Process Development Expenses (“M&P”)

	2010 $ (unaudited)		2009 $ (unaudited)
Product manufacturing expenses		681,012		1,553,558
Process development expenses		221,413		46,051
Manufacturing and related process development expenses		902,425		1,599,609

During the fourth quarter of 2010, our M&P expenses were $902,425 compared to $1,599,609 for the fourth quarter of 2009. In the fourth quarter of 2010, we completed the fill, testing and packaging of our second cGMP 100-litre production run from earlier in 2010. As well, we incurred packaging and shipment activities required to supply our Phase III clinical sites with REOLYSIN that did not occur during the fourth quarter of 2009. During the fourth quarter of 2009, we completed our second cGMP 100-litre production run for the year and commenced the related fill process.

Our process development activity in the fourth quarters of 2010 and 2009 focused on optimization and validation studies.

Intellectual Property Expenses

		2010 $ (unaudited)				2009 $ (unaudited)
Intellectual property expenses			343,764				201,854

Our intellectual property expenses for the fourth quarter of 2010 were $343,764 compared to $201,854 for the fourth quarter of 2009. The change in intellectual property expenditures reflects the timing of filing costs associated with our expanded patent base. At the end of the third quarter of 2010, we had been issued over 250 patents including 40 U.S. and 11 Canadian patents, as well as issuances in other jurisdictions. We also have over 200 patent applications filed in the U.S., Canada and other jurisdictions.

Research Collaboration Expenses

		2010 $ (unaudited)				2009 $ (unaudited)
Research collaboration expenses			146,315				185,906

Our research collaboration expenses were $146,315 in the fourth quarter of 2010 compared to $185,906 for the fourth quarter of 2009. During the fourth quarters of 2010 and 2009, our research collaboration activities continued to focus on the interaction of the immune system and the reovirus and the use of the reovirus as a co-therapy with existing chemotherapeutics and radiation.

Scientific Research and Development Refund

		$	2010			$	2009
Scientific research and development refund			244,000				—

During the fourth quarter of 2010, we received a cash grant of approximately U.S.$244,000 under the U.S. Government’s Qualifying Therapeutic Discovery Project program (“QTDP”) for our oncology program. The QTDP was created by Congress in March 2010 as part of the Patient Protection and Affordable Care Act and provides a tax credit or grant equal to 50% of eligible costs and expenses for tax years 2009 and 2010. The Department of Treasury allocated these credits and grants among qualified applicants as the program was oversubscribed.

Other Research and Development Expenses

	2010 $ (unaudited)		2009 $ (unaudited)
R&D consulting fees		3,250		18,437
R&D salaries and benefits		913,375		711,774
Other R&D expenses		60,632		77,514
Other research and development expenses		977,257		807,725

Our other research and development expenses were $977,257 in the fourth quarter of 2010 compared to $807,725 in the fourth quarter of 2009. In the fourth quarter of 2010, our R&D salaries and benefits increased compared to the fourth quarter of 2009 as our staff levels increased in order to support our clinical trial program.

Operating Expenses

	2010 $ (unaudited)		2009 $ (unaudited)
Public company related expenses		778,500		668,046
Office expenses		437,228		410,952
Operating expenses		1,215,728		1,078,998

Our operating expenses in the fourth quarter of 2010 were $1,215,728 compared to $1,078,998 for the fourth quarter of 2009. In the fourth quarter of 2010, our public company related expenses increased as a result of additional investor and public relation activities compared to the fourth quarter of 2009.

Stock Based Compensation

		2010 $ (unaudited)				2009 $ (unaudited)
Stock based compensation			2,850,938				396,110

Our non-cash stock based compensation expense recorded in the fourth quarter of 2010 was $2,850,938 compared to $396,110 for the fourth quarter of 2009. In the fourth quarter of 2010, 868,000 options were granted compared to 332,500 options in the fourth quarter of 2009. These options vested immediately.

LIQUIDITY AND CAPITAL RESOURCES

2010 Financing Activities

During 2010, we received cash inflow from financing activities of $27.3 million as follows:

Bought Deal Financing

Warrants

In December 2010, and in conjunction with the terms of our warrant indenture with respect to our financing concluded in November 2009, we accelerated the expiry date of our U.S.$3.50 warrants to January 24, 2010. As of the end of 2010, we had received U.S.$0.4 million with respect to the exercise of 119,900 warrants. Subsequent to December 31, 2010, we received U.S.$6.4 million from the exercise of 1,823,100 of these warrants.

Options

During 2010, we received cash proceeds of $0.1 million with respect to the exercise of 32,433 stock options.

2009 Financing Activities

During 2009, we received cash inflow from financing activities of $37 million as follows:

Acquisition of Inactive Private Company

In April 2009, we completed the acquisition of an inactive private company. The cash available from the private company, at the time of closing, was $2.13 million and we issued 1,875,121 common shares in our capital based on a previously determined exchange ratio of $1.69. Net proceeds from this acquisition were $1.8 million.

Public Offerings

In May 2009, we closed a public offering whereby we issued 3,450,000 units at $2.00 per unit for gross proceeds of $6.9 million. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitled the holder to purchase one common share at an exercise price of $2.40 per share for a three year period, subject to an acceleration of the expiry date in certain circumstances. Net cash proceeds from this public offering were $5.9 million.

In November 2009, we closed a public offering whereby we issued 4,887,500 units at US$3.00 per unit for gross proceeds of US$14,662,500. Each unit consisted of one common share and 0.40 of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one common share at an exercise price of US$3.50 per share for a five year period subject to an acceleration of the expiry date in certain circumstances. Net cash proceeds from this public offering were $13.9 million.

Exercise of Warrants

$1.80 Warrants

On October 23, 2009, we announced that pursuant to the provision of written notification on September 23, 2009, of the accelerated expiry of our $1.80 warrants issued on December 5, 2008, and those warrants amended on December 18, 2008, we received total proceeds of $5,823,000 from the exercise of these warrants.

$2.40 Warrants

On November 3, 2009, we announced that pursuant to the provision of written notification on October 2, 2009, of the accelerated expiry of our $2.40 warrants issued on May 13, 2009, we had received total proceeds of $9,108,000.

Investment Activities

In 2009, we acquired all of the convertible preferred shares of British Canadian Biosciences Corp. (“BCBC”), a privately held biotechnology company specializing in the development of peptides for the treatment of a variety of conditions, including cancer. In February 2010, we completed the conversion of our preferred share holding in BCBC into common shares. As a result of this conversion we owned 10% of the issued common shares of BCBC. The common shares of BCBC do not have a quoted market price in an active market. BCBC’s only asset is intellectual property.

In the fourth quarter of 2010, BCBC concluded that it was unable to obtain additional financing to support its business and subsequently suspended operations. In November 2010, in order to maintain our investment in BCBC, we purchased an additional 60% of the common shares of BCBC for $51,681 which included cash and the settlement of certain trade accounts payable. As the operations of BCBC had been suspended, its only remaining asset was intellectual property. In conjunction with this purchase, we assessed the cost of our investment against the estimated fair value of BCBC using a cash flow analysis and determined that the estimated fair value of our investment was in excess of our cost. At the end of 2010, we began the process to sell BCBC and as a result we are reflecting our investment in BCBC’s intellectual property as an asset held for sale. We have also reclassified the prior year’s balance to reflect our current accounting treatment.

Liquidity

As at December 31, 2010 and 2009, we had cash and cash equivalents, short-term investments and working capital positions as follows:

	$	2010	$	2009
Cash and cash equivalents		39,296,682		32,448,939
Short-term investments		3,609,246		1,679,937
Working capital position		40,969,168		30,474,138

The increase in our cash and cash equivalent and short term investment positions reflects the cash usage from our operating activities of $18,033,732 along with the cash provided by financing activities of $27,288,132 for the year ending December 31, 2010.

We desire to maintain adequate cash and short-term investment reserves to support our planned activities which include our clinical trial program, product manufacturing, administrative costs, and our intellectual property expansion and protection. To date, we have funded our operations through the issue of additional capital via public and private offerings and acquisition of a private company.

As a result of our financing activities in 2010, we raised over $27 million to be used to support our clinical trial, manufacturing, intellectual property and collaboration programs. We anticipate that the expected cash usage from our operations in 2011 will be $29 million.

Despite the anticipated increase in our cash requirements compared to 2010, we continue to manage our research and development plan with the objective of ensuring optimal use of our existing resources. Additional activities continue to be subject to adequate resources and we believe we will have sufficient cash resources to fund our presently planned operations into 2012. Factors that will affect our anticipated cash usage in 2011 and into 2012, and for which additional funding might be required include, but are not limited to, any expansion in our clinical trial program, the timing of patient enrollment in our approved clinical trials, the actual costs incurred to support each clinical trial, the number of treatments each patient will receive, the timing of R&D activity with our clinical trial research collaborations, the number, timing and costs of manufacturing runs required to conclude the validation process, supply our clinical trial program and the level of collaborative activity undertaken.

During 2010, we were able to raise funds through a bought deal public offering and through the exercise of existing warrants and options. As well, we were able to raise funds in December 2009 through a public offering of units. We have no assurances that we will be able to raise funds through the sale of our common shares, consequently, we will continue to evaluate all types of financing arrangements.

We also want to be in a position to evaluate potential financings and be able to accept appropriate financings when available. As a result, we renewed our base shelf prospectus on June 10, 2010 which qualified for distribution up to $150,000,000 of common shares, subscription receipts, warrants, and/or units. Establishing our base shelf provides us with additional flexibility when seeking capital as, under certain circumstances, it shortens the time period to close a financing and is expected to increase the number of potential investors that may be prepared to invest in our company. We were able to take advantage of our renewed base shelf in 2010 with the bought deal financing along with the exercise of previously issued warrants raising approximately $27 million. Our renewed base shelf expires in July 2012.

Contractual Obligations

We have the following contractual obligations as at December 31, 2010

Contractual Obligations	Payments Due by Period
	Total $		Less than 1 year $		2 -3 years $		4 – 5 years $		After 5 years $
Alberta Heritage Foundation(1)		150,000		—		—		—		150,000
Capital lease obligations	Nil			—		—		—		—
Operating lease (2)		478,709		65,674		275,012		138,023		—
Purchase obligations		1,140,000		1,140,000		—		—		—
Other long term obligations	Nil			—		—		—		—
Total contractual obligations		1,768,709		1,205,674		275,012		138,023		150,000

Note:

(1)	Our Alberta Heritage Foundation obligation requires repayments upon the realization of sales (see notes of our audited 2010 consolidated financial statements).

(2)	Our operating lease is comprised of our office lease and exclude our portion of operating costs.

We expect to fund our capital expenditure requirements and commitments with existing working capital.

Investing Activities

Under our Investment Policy, we are permitted to invest in short-term instruments with a rating no less than R-1 (DBRS) with terms less than two years. Our portfolio consists of guarantee investment certificates. As of December 31, 2010, we had $3.6 million invested under this policy, currently earning interest at an effective rate of 0.30%.

OFF-BALANCE SHEET ARRANGEMENTS

As at December 31, 2010, we had not entered into any off-balance sheet arrangements.

TRANSACTIONS WITH RELATED PARTIES

In 2010 and 2009, we did not enter into any related party transactions.

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

Our financial instruments consist of cash and cash equivalents, short-term investments, investment, accounts receivable, and accounts payable. As at December 31, 2010, there are no significant differences between the carrying values of these amounts and their estimated market values. These financial instruments expose us to the following risks:

Credit risk

Credit risk is the risk of financial loss if a counter-party to a financial instrument fails to meet its contractual obligations. We are exposed to credit risk on our cash and cash equivalents and short-term investments in the event of non-performance by counterparties, but we do not anticipate such non-performance. Our maximum exposure to credit risk at the end of the period is the carrying value of our cash and cash equivalents and short-term investments.

We mitigate our exposure to credit risk by maintaining our primary operating and investment bank accounts with Schedule I banks in Canada. For our foreign domiciled bank accounts, we use referrals or recommendations from our Canadian banks to open foreign bank accounts and these accounts are used solely for the purpose of settling accounts payable or payroll.

We also mitigate our exposure to credit risk by restricting our portfolio to investment grade securities with short-term maturities and by monitoring the credit risk and credit standing of counterparties. Currently, 100% of our short-term investments are in guaranteed investment certificates.

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are exposed to interest rate risk through our cash and cash equivalents and our portfolio of short-term investments. We mitigate this risk through our investment policy that only allows investment of excess cash resources in investment grade vehicles while matching maturities with our operational requirements.

Fluctuations in market rates of interest do not have a significant impact on our results of operations due to the short term to maturity of the investments held.

Currency risk

Currency risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. We are exposed to currency risk from the purchase of goods and services primarily in the U.S. and the U.K. and to the extent cash is held in foreign currencies. The impact of a $0.01 increase in the value of the U.S. dollar against the Canadian dollar would have increased our net loss in 2010 by approximately $126,442. The impact of a $0.10 increase in the value of the British pound against the Canadian dollar would have increased our net loss in 2010 by approximately $128,859.

We mitigate our foreign exchange risk through the purchase of foreign currencies in sufficient amounts to settle our foreign accounts payable.

Balances in foreign currencies at December 31, 2010 are as follows:

	U.S. dollars $			British pounds £
Cash and cash equivalents		3,933,733			54,748
Accounts payable		(561,907	)		(64,441	)
		3,371,827			(9,693	)

Liquidity risk

Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities. We manage liquidity risk through the management of our capital structure as outlined in the notes to our audited financial statements. Accounts payable are all due within the current operating period.

RISK FACTORS AFFECTING FUTURE PERFORMANCE

General Risk Factors

Prospects for biotechnology companies in the research and development stage should generally be regarded as speculative. It is not possible to predict, based upon studies in animals, or early studies in humans, whether a new therapeutic will ultimately prove to be safe and effective in humans, or whether necessary and sufficient data can be developed through the clinical trial process to support a successful product application and approval.

If a product is approved for sale, product manufacturing at a commercial scale and significant sales to end users at a commercially reasonable price may not be successful. There can be no assurance that we will generate adequate funds to continue development, or will ever achieve significant revenues or profitable operations. Many factors (e.g. competition, patent protection, appropriate regulatory approvals) can influence the revenue and product profitability potential.

In developing a pharmaceutical product, we rely upon our employees, contractors, consultants and collaborators and other third party relationships, including the ability to obtain appropriate product liability insurance. There can be no assurance that this reliance and these relationships will continue as required.

In addition to developmental and operational considerations, market prices for securities of biotechnology companies generally are volatile, and may or may not move in a manner consistent with the progress we have made or are making.

Our product REOLYSIN® is in the research and development stage and will require further development and testing before they can be marketed commercially.

Prospects for companies in the biotechnology industry generally may be regarded as uncertain given the nature of the industry and, accordingly, investments in biotechnology companies should be regarded as speculative. We are currently in the research and development stage on one product, REOLYSIN®, for human application, the riskiest stage for a company in the biotechnology industry. It is not possible to predict, based upon studies in animals, or early studies in humans, whether REOLYSIN® will prove to be safe and effective in humans. REOLYSIN® will require additional research and development, including extensive clinical testing, before we will be able to obtain the approval of the United States Food and Drug Administration (the “FDA”) or from similar regulatory authorities in other countries to market REOLYSIN® commercially. There can be no assurance that the research and development programs conducted by us will result in REOLYSIN® or any other products becoming commercially viable products, and in the event that any product or products result from the research and development program, it is unlikely they will be commercially available for a number of years.

To achieve profitable operations, we, alone or with others, must successfully develop, introduce and market our products. To obtain regulatory approvals for products being developed for human use, and to achieve commercial success, human clinical trials must demonstrate that the product is safe for human use and that the product shows efficacy. Unsatisfactory results obtained from a particular study relating to a program may cause us to abandon our commitment to that program or the product being tested. No assurances can be provided that any current or future animal or human test, if undertaken, will yield favorable results. If we are unable to establish that REOLYSIN® is a safe, effective treatment for cancer, we may be required to abandon further development of the product and develop a new business strategy.

There are inherent risks in pharmaceutical research and development.

Pharmaceutical research and development is highly speculative and involves a high and significant degree of risk. The marketability of any product developed by us will be affected by numerous factors beyond our control, including:

·	the discovery of unexpected toxicities or lack of sufficient efficacy of products which make them unattractive or unsuitable for human use;

·	preliminary results as seen in animal and/or limited human testing may not be substantiated in larger controlled clinical trials;

·	manufacturing costs or other factors may make manufacturing of products impractical and non-competitive;

·	proprietary rights of third parties or competing products or technologies may preclude commercialization;

·	requisite regulatory approvals for the commercial distribution of products may not be obtained; and

·	other factors may become apparent during the course of research, up-scaling or manufacturing which may result in the discontinuation of research and other critical projects.

Our product under development has never been manufactured on a commercial scale, and there can be no assurance that such products can be manufactured at a cost or in a quantity to render such products commercially viable. Production and utilization of our products may require the development of new manufacturing technologies and expertise. The impact on our business in the event that new manufacturing technologies and expertise are required to be developed is uncertain. There can be no assurance that we will successfully meet any of these technological challenges, or others that may arise in the course of development.

Pharmaceutical products are subject to intense regulatory approval processes.

The regulatory process for pharmaceuticals, which includes preclinical studies and clinical trials of each compound to establish its safety and efficacy, takes many years and requires the expenditure of substantial resources. Moreover, if regulatory approval of a drug is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Failure to comply with applicable regulatory requirements can, among other things, result in suspension of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Further, government policy may change, and additional government regulations may be established that could prevent or delay regulatory approvals for our products. In addition, a marketed drug and its manufacturer are subject to continual review. Later discovery of previously unknown problems with the product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product from the market.

The FDA in the United States and other relevant regulatory authorities may deny approval of a new drug application (“NDA”) or its equivalent in the relevant jurisdiction if required regulatory criteria are not satisfied, or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA may require further testing and surveillance programs to monitor the pharmaceutical product that has been commercialized. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product withdrawals, product seizures, injunction actions and criminal prosecutions.

In addition to our own pharmaceuticals, we may supply active pharmaceutical ingredients and advanced pharmaceutical intermediates for use in or with our customers’ other drug products. The final drug products in which the pharmaceutical ingredients and advanced pharmaceutical intermediates are used, however, are subject to regulation for safety and efficacy by the FDA and other jurisdictions, as the case may be. Such products must be approved by such agencies before they can be commercially marketed. The process of obtaining regulatory clearance for marketing is uncertain, costly and time consuming. We cannot predict how long the necessary regulatory approvals will take or whether our customers will ever obtain such approval for their products. To the extent that our customers do not obtain the necessary regulatory approvals for marketing new products, our product sales could be adversely affected.

The FDA and other governmental regulators have increased requirements for drug purity and have increased environmental burdens upon the pharmaceutical industry. Because pharmaceutical drug manufacturing is a highly regulated industry, requiring significant documentation and validation of manufacturing processes and quality control assurance prior to approval of the facility to manufacture a specific drug, there can be considerable transition time between the initiation of a contract to manufacture a product and the actual initiation of manufacture of that product. Any lag time in the initiation of a contract to manufacture product and the actual initiation of manufacture could cause us to lose profits or incur liabilities.

The pharmaceutical regulatory regime in Europe and other countries is, by and large, generally similar to that of Canada and the United States. We could face similar risks in these other jurisdictions, as the risks described above.

Our operations and products may be subject to other government manufacturing and testing regulations.

Securing regulatory approval for the marketing of therapeutics by the FDA in the United States and similar regulatory agencies in other countries is a long and expensive process, which can delay or prevent product development and marketing. Approval to market products may be for limited applications or may not be received at all.

The products anticipated to be manufactured by us will have to comply with the FDA’s current Good Manufacturing Practices (“cGMP”) and other FDA and local government guidelines and regulations, including other international regulatory requirements and guidelines. Additionally, certain of our customers may require the manufacturing facilities contracted by us to adhere to additional manufacturing standards, even if not required by the FDA. Compliance with cGMP regulations requires manufacturers to expend time, money and effort in production, and to maintain precise records and quality control to ensure that the product meets applicable specifications and other requirements. The FDA and other regulatory bodies periodically inspect drug-manufacturing facilities to ensure compliance with applicable cGMP requirements. If the manufacturing facilities contracted by us fail to comply with the cGMP requirements, the facilities may become subject to possible FDA or other regulatory action and manufacturing at the facility could consequently be suspended. We may not be able to contract suitable alternative or back-up manufacturing facilities on terms acceptable to us or at all.

The FDA or other regulatory agencies may also require the submission of any lot of a particular product for inspection. If the lot product fails to meet the FDA requirements, then the FDA could take any of the following actions: (i) restrict the release of the product; (ii) suspend manufacturing of the specific lot of the product; (iii) order a recall of the lot of the product; or (iv) order a seizure of the lot of the product.

We are subject to regulation by governments in many jurisdictions and, if we do not comply with healthcare, drug, manufacturing and environmental regulations, among others, our existing and future operations may be curtailed, and we could be subject to liability.

In addition to the regulatory approval process, we may be subject to regulations under local, provincial, state, federal and foreign law, including requirements regarding occupational health, safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and future local, provincial, state, federal and foreign regulations.

Our products may fail or cause harm, subjecting us to product liability claims, which are uninsured.

The sale and use of our products entail risk of product liability. We currently do not have any product liability insurance. There can be no assurance that we will be able to obtain appropriate levels of product liability insurance prior to any sale of our pharmaceutical products. An inability to obtain insurance on economically feasible terms or to otherwise protect against potential product liability claims could inhibit or prevent the commercialization of products developed by us. The obligation to pay any product liability claim or a recall of a product could have a material adverse effect on our business, financial condition and future prospects.

Our technologies may become obsolete.

The pharmaceutical industry is characterized by rapidly changing markets, technology, emerging industry standards and frequent introduction of new products. The introduction of new products embodying new technologies, including new manufacturing processes, and the emergence of new industry standards may render our products obsolete, less competitive or less marketable. The process of developing our products is extremely complex and requires significant continuing development efforts and third party commitments. Our failure to develop new technologies and products and the obsolescence of existing technologies could adversely affect our business.

We may be unable to anticipate changes in our potential customer requirements that could make our existing technology obsolete. Our success will depend, in part, on our ability to continue to enhance our existing technologies, develop new technology that addresses the increasing sophistication and varied needs of the market, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical and business risks. We may not be successful in using our new technologies or exploiting the respective niche markets effectively or adapting our businesses to evolving customer or medical requirements or preferences or emerging industry standards.

We have no operating revenues and a history of losses.

To date, we have not generated sufficient revenues to offset our research and development costs and accordingly have not generated positive cash flow or made an operating profit. As of December 31, 2010, we had an accumulated deficit of $138.8 million and we incurred net losses of $20.0 million, $16.2 million, and $17.6 million, for the years ended December 31, 2010, 2009, and 2008, respectively. We anticipate that we will continue to incur significant losses during 2011 and in the foreseeable future. We do not expect to reach profitability at least until after successful and profitable commercialization of one or more of our products. Even if one or more of our products are profitably commercialized, the initial losses incurred by us may never be recovered.

We may need additional financing in the future to fund the research and development of our products and to meet our ongoing capital requirements.

We anticipate that we may need additional financing in the future to fund research and development and to meet our ongoing capital requirements. The amount of future capital requirements will depend on many factors, including continued scientific progress in our drug discovery and development programs, progress in our pre-clinical and clinical evaluation of drug candidates, time and expense associated with filing, prosecuting and enforcing our patent claims and costs associated with obtaining regulatory approvals. In order to meet such capital requirements, we will consider contract fees, collaborative research and development arrangements, and additional public or private financings (including the incurrence of debt and the issuance of additional equity securities) to fund all or a part of particular programs as well as potential partnering or licensing opportunities. There can be no assurance that additional funding will be available or, if available, that it will be available on acceptable terms. If adequate funds are not available on terms favorable to us, we may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of our proposed product, or obtain funds through arrangements with corporate partners that require us to relinquish rights to certain of our technologies or product. There can be no assurance that we will be able to raise additional capital if our current capital resources are exhausted.

The cost of director and officer liability insurance may continue to increase substantially or may not be available to us and may affect our ability to retain quality directors and officers.

We carry liability insurance on behalf of our directors and officers. Given a number of large director and officer liability insurance claims in the U.S. equity markets, director and officer liability insurance had until recently become increasingly more expensive with increased restrictions. Consequently, there is no assurance that we will continue to be offered this insurance or be able to obtain adequate coverage. The inability to acquire the appropriate insurance coverage will limit our ability to attract and maintain directors and officers as required to conduct our business.

We incur some of our expenses in foreign currencies and therefore are exposed to foreign currency exchange rate fluctuations.

We incur some of our manufacturing, clinical, collaborative and consulting expenses in foreign currencies, primarily the U.S. dollar and the British pound (“GBP”). We are therefore exposed to foreign currency rate fluctuations. Also, as we expand to other foreign jurisdictions there may be an increase in our foreign exchange exposure.

We earn interest income on our excess cash reserves and are exposed to changes in interest rates.

We invest our excess cash reserves in investment vehicles that provide a rate of return with little risk to principle. As interest rates change the amount of interest income we earn will be directly impacted.

OTHER MD&A REQUIREMENTS

We have 71,207,318 common shares outstanding at March 16, 2011. If all of our warrants (2,170,110) and options (4,608,094) were exercised we would have 77,985,522 common shares outstanding.

Our 2010 Annual Information Form on Form 20-F will be available on www.sedar.com.

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures:

Our chief executive and financial officers reviewed and evaluated our disclosure controls and procedures. Based on that evaluation, they have concluded that our disclosure controls and procedures are effective in providing them with timely material information relating to the Company.

Management’s Annual Report on Internal Control Over Financial Reporting:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles (GAAP), including a reconciliation to U.S. GAAP.

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls and procedures over financial reporting will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Oncolytics Biotech Inc. have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has evaluated the design and operation of our internal control over financial reporting as of December 31, 2010, and has concluded that such internal control over financial reporting is effective as of December 31, 2010. There are no material weaknesses that have been identified by management in this regard. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.