Exhibit 99.1
 
Lorus Therapeutics Inc.
        
Interim Consolidated Balance Sheets
        
 
 
    
As at
    
As at
  
(amounts in 000's)
    
February 28, 2007
    
May 31, 2006
  
(Canadian dollars)
    
(Unaudited
)
      
ASSETS
              
Current
              
Cash and cash equivalents
  
$
2,284
  
$
2,692
  
Marketable securities and other investments (note 4)
    
6,173
   
5,627
 
Prepaid expenses and other assets
    
614
   
515
 
     
9,071
   
8,834
 
Long-term
              
Marketable securities and other investments (note 4)
    
4,779
   
-
 
Fixed assets
    
590
   
885
 
Deferred financing charges
   
402
   
481
 
Deferred arrangement costs (Note 7)
    
530
   
-
 
Goodwill
    
606
   
606
 
Acquired patents and licenses
   
-
   
655
 
     
6,907
   
2,627
 
   
$
15,978
  
$
11,461
  
LIABILITIES
              
Current
              
Accounts payable
  
$
217
  
$
555
  
Accrued liabilities (note 5)
    
1,774
   
2,460
 
     
1,991
   
3,015
 
Long-term
              
Secured convertible debentures (note 6)
    
11,684
   
11,002
 
SHAREHOLDERS' EQUITY
              
Share capital (note 3)
              
Common shares (note 2)
    
157,449
   
145,001
 
Equity portion of secured convertible debentures
    
3,814
   
3,814
 
Stock options (note 3(c))
    
4,844
   
4,525
 
Contributed surplus (note 2(e))
    
7,706
   
7,665
 
Warrants (note 2)
   
991
   
991
 
Deficit accumulated during development stage
    
(172,501
)
  
(164,552
)
     
2,303
   
(2,556
)
   
$
15,978
  
$
11,461
  
 
See accompanying notes to the unaudited consolidated interim financial statements
              
Basis of Presentation Note 1
              
               
 
 

Lorus Therapeutics Inc.
          
Interim Consolidated Statements of Loss and Deficit (unaudited)
          
 
                                 
 
                            
Period
  
 
    
Three
    
Three
    
Nine
    
Nine
    
from inception
  
(amounts in 000's except for per common share data)
    
months ended
    
months ended
    
months ended
    
months ended
    
Sept. 5, 1986 to
  
(Canadian dollars)
    
Feb 28, 2007
    
Feb 28, 2006
    
Feb 28, 2007
    
Feb 28, 2006
    
Feb 28, 2007
  
REVENUE
 
$
37
  
$
5
  
$
67
  
$
12
  
$
773
  
                                 
EXPENSES
                                
Cost of sales
    
6
   
1
   
12
   
2
   
99
 
Research and development (note 5)
    
672
   
2,296
   
3,125
   
8,884
   
113,600
 
General and administrative (note 5)
    
833
   
909
   
3,028
   
3,604
   
50,503
 
Stock-based compensation (note 3)
    
105
   
400
   
368
   
1,105
   
7,118
 
Depreciation and amortization of fixed assets
    
98
   
130
   
298
   
390
   
9,121
 
Operating expenses
    
1,714
   
3,736
   
6,831
   
13,985
   
180,441
 
Interest expense on convertible debentures
    
259
   
224
   
786
   
631
   
1,968
 
Accretion in carrying value of convertible debentures
   
236
   
202
   
682
   
568
   
1,898
 
Amortization of deferred financing charges
    
27
   
23
   
79
   
62
   
250
 
Interest income
    
(137
)
  
(85
)
  
(362
)
  
(295
)
  
(11,283
)
Loss for the period
    
2,062
   
4,095
   
7,949
   
14,939
   
172,501
 
Deficit, beginning of period
   
170,439
   
157,487
   
164,552
   
146,643
   
-
 
Deficit, end of period
  
$
172,501
  
$
161,582
  
$
172,501
  
$
161,582
  
$
172,501
  
Basic and diluted loss per common share
  
$
0.01
  
$
0.02
  
$
0.04
  
$
0.09
        
Weighted average number of common shares
                                
    outstanding used in the calculation of
                                
    basic and diluted loss per share
    
210,670
   
173,810
   
202,236
   
172,911
       
 
See accompanying notes to the unaudited interim consolidated financial statements
                          
 
 

Lorus Therapeutics Inc.
          
Interim Consolidated Statements of Cash Flows (unaudited)
          
 
 
                            
Period
  
 
    
Three
    
Three
    
Nine
    
Nine
    
from inception
  
(amounts in 000's)
    
months ended
    
months ended
    
months ended
    
months ended
    
Sept. 5, 1986 to
  
(Canadian Dollars)
    
Feb 28, 2007
    
Feb 28, 2006
    
Feb 28, 2007
    
Feb 28, 2006
    
Feb 28, 2007
  
OPERATING ACTIVITIES
                                
Loss for the period
  
$
(2,062
)
$
(4,095
)
$
(7,949
)
$
(14,939
)
$
(172,501
)
Add items not requiring a current outlay of cash:
                               
Stock-based compensation
   
105
   
400
   
368
   
1,105
   
7,118
 
Interest expense on convertible debentures
    
259
   
224
   
786
   
631
   
1,968
 
Accretion in carrying value of convertible debentures
   
236
   
202
   
682
   
568
   
1,898
 
Amortization of deferred financing charges
   
27
   
23
   
79
   
62
   
250
 
Depreciation, amortization and write-down of fixed assets
                               
and acquired patents and licenses
    
98
   
523
   
953
   
1,568
   
21,682
 
Other
    
-
   
-
   
-
   
-
   
707
 
Net change in non-cash working capital
                                
balances related to operations
   
(468
)
  
(1,233
)
  
(1,123
)
  
(120
)
  
469
 
Cash used in operating activities
    
(1,805
)
  
(3,956
)
  
(6,204
)
  
(11,125
)
  
(138,409
)
INVESTING ACTIVITIES
                                
Maturity (purchase) of short-term investments, net
    
(2,418
)
  
1,623
   
(5,325
)
  
16,611
   
(10,952
)
Business acquisition, net of cash received
   
-
   
-
   
-
   
-
   
(539
)
Acquired patents and licenses
    
-
   
-
   
-
   
-
   
(715
)
Additions to fixed assets
    
(3
)
  
(1
)
  
(3
)
  
(74
)
  
(6,052
)
Cash proceeds on sale of fixed assets
    
-
   
-
   
-
   
-
   
348
 
Cash (used in) provided by investing activities
    
(2,421
)
  
1,622
   
(5,328
)
  
16,537
   
(17,910
)
FINANCING ACTIVITIES
                                
Issuance of debentures, of issuance costs
    
-
   
-
   
-
   
-
   
12,948
 
Issuance of warrants
    
-
   
-
   
-
   
-
   
37,405
 
Issuance of common shares, net
    
-
   
-
   
11,654
   
-
   
109,025
 
Additions to deferred financing/arrangement charges
   
(530
)
  
-
   
(530
)
  
-
   
(775
)
Cash provided by financing activities
    
(530
)
  
-
   
11,124
   
-
   
158,603
 
(Decrease) increase in cash and cash equivalents during the period
    
(4,756
)
  
(2,334
)
  
(408
)
  
5,412
   
2,284
 
Cash and cash equivalents, beginning of period
    
7,040
   
10,522
   
2,692
   
2,776
   
-
 
Cash and cash equivalents, end of period
  
$
2,284
  
$
8,188
  
$
2,284
  
$
8,188
  
$
2,284
  
 
See accompanying notes to the unaudited consolidated interim financial statements
                
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three and nine months ended February 28, 2007 and 2006
 
1.  
  Basis of presentation
 
These unaudited interim consolidated financial statements of Lorus Therapeutics Inc. (“the Company”) have been prepared by the Company in accordance with Canadian generally accepted accounting principles for interim financial statements and do not include all the information required for complete financial statements.  The unaudited interim financial statements follow the same accounting policies and methods of application as the audited annual financial statements for the year ended May 31, 2006. These statements should be read in conjunction with the audited consolidated financial statements for the year ended May 31, 2006.
 
The information presented as at and for the three and nine months ended February 28, 2007 and February 28, 2006 reflect, in the opinion of management, all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The Company has not earned substantial revenues from its drug candidates and is therefore considered to be in the development stage. The continuation of the Company’s research and development activities is dependent upon the Company’s ability to successfully finance its cash requirements through a combination of equity financing and payments from strategic partners. The Company has no current sources of payments from strategic partners. In addition, the Company will need to repay or refinance the secured convertible debentures on their maturity should the holder not choose to convert the debentures into common shares. There can be no assurance that additional funding will be available at all or on acceptable terms to permit further development of the Company’s product candidates or to repay the convertible debentures on maturity.

Management believes that the Company’s current level of cash and short-term investments will be sufficient to execute the Company’s current planned expenditures for the next twelve months. If the Company is not able to raise additional funds, it may not be able to continue as a going concern and realize its assets and pay its liabilities as they fall due. The financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenues and expenses and the balance sheet classifications used.
 
2.   Share capital
 
(a) Continuity of common shares and warrants
 
(amounts and units in 000's)
  
Common Shares
Number Amount
 Warrants
Number Amount
Balance at May 31, 2005
    
172,541
  
$
144,119
    
3,000
  
$
991
  
Interest payments (b)
    
265
    
198
    
—
    
—
  
Balance at August 31, 2005
    
172,806
  
$
144,317
    
3,000
  
$
991
  
Interest payments (b)
    
537
    
209
    
—
    
—
  
Balance at November 30, 2005
    
173,343
  
$
144,526
    
3,000
  
$
991
  
Interest payments (b)
    
672
    
224
    
—
    
—
  
Balance at February 28, 2006
    
174,015
  
$
144,750
    
3,000
  
$
991
  
Interest payments (b)
    
679
    
251
    
—
    
—
  
Balance at May 31, 2006
    
174,694
  
$
145,001
    
3,000
  
$
991
  
Equity issuance (c)
    
33,800
    
11,640
    
—
    
—
  
Interest payments (b)
    
792
    
265
    
—
    
—
  
Stock option exercises
    
46
    
22
    
—
    
—
  
Balance at August 31, 2006
    
209,332
  
$
156,928
    
3,000
  
$
991
  
Interest payments (b)
    
1,031
    
262
    
—
    
—
  
Balance at November 30, 2006
    
210,363
  
$
157,190
    
3,000
  
$
991
  
Interest payments (b)
    
915
    
259
    
—
    
—
  
Balance at February 28, 2007
    
211,278
  
$
157,449
    
3,000
  
$
991
  
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three and nine months ended February 28, 2007 and 2006

(b)    Interest payments
 
Interest payments relate to interest payable on the $15.0 million convertible debentures payable at a rate of prime +1% until such time as the Company’s share price reaches $1.75 for 60 consecutive trading days, at which time, interest will no longer be charged. Common shares issued in payment of interest were issued at a price equal to the weighted average trading price of such shares for the ten trading days immediately preceding their issue in respect of each interest payment.
 
(c)     Equity issuances
 
On August 30, 2006, the Company raised gross proceeds of $10.4 million by way of a subscription agreement for 28.8 million common shares at a price of $0.36 per common share. The 28.8 million common shares have been qualified for distribution in Canada under a short form prospectus filed on August 25, 2006 with the Ontario Securities Commission. In connection with the transaction, the investor received demand registration rights that will enable the investor to request the registration or qualification of the common shares for resale in the United States and Canada, subject to certain restrictions. These demand registration rights will expire on June 30, 2012.
 
On August 31, 2006, the Company raised gross proceeds of $1.8 million by way of a private placement for 5.0 million common shares at a price of $0.36 per common share.
 
The Company incurred expenses of $527 thousand related to these issuances, which have been recorded as a reduction to share capital.
 
During the quarter ended August 31, 2006, 46 thousand stock options were exercised for cash proceeds of $14 thousand (August 31, 2005 - nil)
 
(d)    Loss per share
 
The Company has excluded from the calculation of diluted loss per share all common shares potentially issuable upon the exercise of stock options, warrants and the convertible debenture that could dilute basic loss per share, because to do so would be anti-dilutive.
 
(e)   Continuity of contributed surplus
 
  (amounts in 000’s)    
Nine months ended
February 28, 2007
 
 
Nine months ended
February 28, 2006
  
Balance at beginning of the year
  
$
7,665
  
$
6,733
  
Forfeiture of vested options
    
41
    
399
  
Balance at end of the period
  
$
7,706
  
$
7,132
  
 
3.   Stock-based compensation

(a)   Continuity of stock options
 
  
Nine months ended
February 28, 2007
Nine months ended
February 28, 2006
 
    
Options
(000’s)
    
Weighted average exercise price
    
Options
(000’s)
 
  
Weighted average exercise price
  
Outstanding at beginning of period
    
10,300
  
$
0.70
    
8,035
  
$
0.96
  
Granted
    
5,318
  
$
0.30
    
6,521
  
$
0.59
  
Exercised
    
(46
)
$
0.30
    
―
   
―
 
Forfeited
    
(2,015
)
$
0.33
    
(2,770
)
$
0.84
  
Outstanding at end of period
    
13,557
  
$
0.58
    
11,786
  
$
0.81
  
 

For the three and nine month periods ended February 28, 2007 stock compensation expense of $105 thousand (2006 - $400 thousand) and $368 thousand (2006 - $1.1 million) respectively, was recognized, representing the amortization applicable to the current period of the estimated fair value of options granted since June 1, 2002.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three and nine months ended February 28, 2007 and 2006
 
(b)   Fair value assumptions
 
The following assumptions were used in the Black-Scholes option-pricing model to determine the fair value of stock options granted during the period:
 
Three months ended
Feb 28, 2007
Nine months ended
Feb 28, 2007
Three months ended
Feb 28, 2006
Nine months ended
Feb 28, 2006
Risk free interest rate
4.50%
4.50%
4.00%
2.25 - 4.00%
Expected dividend yield
Expected volatility
Expected life of options
Weighted average fair value of options granted or modified in the period
0%
75%
5 years
 
$0.18
0%
75-80%
5 years
 
$0.20
0%
70-81%
2.5-5 years
 
$0.17
0%
70-81%
1-5 years
 
$0.39
 
The amounts estimated according to the Black-Scholes option pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders.
 
(c)  Continuity of stock options

(amounts in 000's)   2007   2006  
Balance at beginning of the year
  
$
4,525
  
$
4,252
  
    Forfeiture of vested stock options
    
(16
)
  
—
  
    Stock option exercise
    
(8
)
  
—
  
    Stock option expense
    
113
   
291
  
Balance at August 31,
  
$
4,614
  
$
4,543
  
    Stock option expense
    
150
   
414
  
    Forfeiture of vested stock options
    
(21
)
  
(16
)
Balance at November 30,
 
$
4,743
  
$
4,941
  
    Forfeiture of vested stock options
    
(4
)
  
(383
)
    Stock option expense
    
105
    
400
  
Balance at February 28
  
$
4,844
  
$
4,958
  
 
4.  
  Marketable securities and other investments

As at February 28, 2007 (amounts in 000’s)
 
 
    
Less than
one year maturities
    
Greater than
one year
maturities
    
Total
    
Yield to
maturity
  
Fixed income government investments
$
1,534
  
$
―
  
$
1,534
    
3.91
%
Corporate instruments
$
4,639
  
4,779
9,418
    
3.89-4.14
%
Balance
  
$
6,173
  
$
4,779
  
$
10,952
        
 
        As at May 31, 2006 (amounts in 000’s)
 
 
    
Less than
one year
maturities
    
Greater than
one year
maturities
    
Total
    
Yield to
maturity
  
Fixed income government investments
  
$
2,838
  
$
―
  
$
2,838
    
3.55-3.64
%
Corporate instruments
  
$
2,789
 
 
―
  
 
2,789
   
3.46-3.87
%
Balance
  
$
5,627
  
$
―
  
$
5,627
        
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three and nine months ended February 28, 2007 and 2006

At February 28, 2007 and May 31, 2006, the carrying values of short-term investments approximate their quoted market values. Short-term investments held at February 28, 2007 have varying maturities from one to ten months (May 2006 - one to six months). Long-term investments have maturities varying from one to five years. (May 2006 - none greater than 1 year)
 
5.  
  Corporate changes

(a)   In November 2005, as a means to conserve cash and refocus operations, the Company scaled back some activities related to the Virulizin® technology and implemented a workforce reduction of approximately 39% or 22 employees.

In accordance with EIC 134 - Accounting for Severance and Termination Benefits, during the three-month and six-month periods ended November 30, 2005 the Company recorded severance expense for former employees of $557 thousand. Of this expense, $468 thousand was presented in the income statement as general and administrative expense and $89 thousand as research and development expense. All severance liabilities relating to the Company’s November 2005 corporate changes have been paid as of February 28, 2007 (May 31, 2006 - $154 thousand remained in accrued liabilities).

(b)   Dr. Jim Wright resigned as the President and Chief Executive Officer effective September 21, 2006. The Company accrued a liability based on a mutual separation agreement executed during the three months ended May 31, 2006 of $500 thousand and charged general and administrative expense. Amounts payable under the mutual separation agreement were paid during the third quarter.

6.     Secured convertible debentures

The terms of the secured convertible debentures are described in note 13 to the Company's annual consolidated financial for the year ended May 31, 2006. The debentures are due on October 6, 2009 and may be converted at the holder's option at any time into common shares of the Company at a conversion price of $1.00 per share. The lender has the option to demand repayment in the event of default, including the failure to maintain certain subjective covenants, representations and warranties.

Management assesses on a quarterly basis whether or not events during the quarter could be considered an event of default. This assessment was performed and management believes that there has not been an event of default and that, at February 28, 2007; the term of the debt remains unchanged.
 
7.  
Deferred arrangement costs

During the quarter, the Company incurred approximately $530 thousand in deferred arrangement costs associated with negotiating a possible financing arrangement. These negotiations are ongoing but have not yet resulted in a definitive agreement. Management expects that it will complete these negotiations in the near term and will provide details once an agreement is reached or a statement that negotiations have terminated. These deferred costs and any additional costs would be netted against proceeds from the arrangement if completed or expensed if not completed.