Outstanding

Liquidity and Capital Resources
The Company believes that its existing cash, cash equivalents and marketable securities, as well as cash generated from operations
are sufficient to finance its current operations, working capital requirements and future product acquisitions. At present, the Company
is actively pursuing acquisitions that may require the use of substantial capital resources. There are no present agreements or
commitments with respect to such acquisitions except as disclosed in the “Subsequent Events” section below.
The Company has entered into a one-year $2,000 revolving unsecured credit facility with one of the Company’s bankers effective
August 10, 2009. The credit facility may be used for general corporate purposes including financing acquisitions.
The table below sets forth a summary of cash flow activity and should be read in conjunction with our consolidated statements of
cash flows.
2009 2008
$ $
Cash flows from operating activities 46,558 25,152
Cash flows used in investing activities (77,314) (25,828)
Cash flows from (used) in financing activities 57,337 (752)
Increase (decrease) in cash position 26,581 (1,428)
Cash and cash equivalents, beginning of year 4,646 6,074
Cash and cash equivalents, end of year 31,227 4,646
Short- and long-term marketable securities, end of year 74,142 16,696
Cash, cash equivalents and marketable securities, end of year 105,369 21,342
Paladin’s cash, cash equivalents and marketable securities increased $84,027 to $105,369 as at December 31, 2009 from $21,342
for the same comparative period last year. This increase is primarily a result of the Company’s cash inflows from financing activities
whereby the Company issued 3,450,000 common shares in the form of a bought deal share offering at a price of $17.00 per
common share, generating total net proceeds of $55,871, further described in Note 11 to the annual audited consolidated financial
statements. Furthermore, the Company has generated $46,558 from operations and $6,979 from disposal of investments in
portfolio companies. These cash inflows were offset by $57,397 net additions of marketable securities from funds generated as
a result of the Company’s share offering, by $11,021 for the repayment of a portion of the balance of sale payable, by $8,273 for
additions to pharmaceutical product licenses and rights and by $7,594 for the acquisition of Isotechnika Inc. Working capital, which
is defined as current assets less current liabilities, increased $85,037 to $110,456 as at December 31, 2009 from $25,419 for the
same comparative period last year. This increase in working capital is primarily due to the Company’s share offering, generating net
proceeds of $55,871, and cash flow from operations.
No dividend was declared or paid by Paladin on its common shares during the current financial year. In addition, the Company does
not expect to pay dividends in the near future.
Cash flows from operating activities increased $21,406 or 85% to $46,558 for the year ended December 31, 2009 from $25,152
for the same comparative period last year. Cash flows from operating activities represent the cash flows from net earnings, excluding
revenues and expenses not affecting cash, principally amortization, future income taxes, stock-based compensation expense, gains
(losses) on investments, derivative instruments and pharmaceutical licenses, accreted interest and extraordinary gains.
Cash flows used in investing activities increased $51,486 to $77,314 for the year ended December 31, 2009 compared to $25,828
for the year ended December 31, 2008. During the year ended December 31, 2009, the Company’s investment activities primarily
consisted of the following: an investment of $57,397 towards the acquisition of short- and long-term marketable securities net
of cash flows generated by maturing marketable securities, $11,021 in repayment of a balance of sale payable relating to the
Dexedrine ® acquisition, $8,273 for the acquisition of pharmaceutical product licenses and rights, $7,594 for the business acquisition
of Isotechnika further described in Note 13 to the annual audited consolidated financial statements and $429 towards acquisition
of property, plant and equipment. These investment activities were partially offset by proceeds from disposal of investments in
portfolio companies in the amount of $6,979 and proceeds from disposal of pharmaceutical licenses in the amount of $551. During
the year ended December 31, 2008, the Company invested $34,562 towards the acquisition of pharmaceutical product licenses and
rights, $3,000 as an investment in a portfolio company, $1,446 towards the acquisition of ViRexx, further described in Note 13 to
the annual audited consolidated financial statements, $531 in repayment of a balance of sale payable, and $510 for the acquisition
of property, plant and equipment. These investments were partially offset by net cash flows generated by maturing marketable
securities in the amount of $13,521, proceeds from the disposal of an investment in a portfolio company in the amount of $500
and proceeds from the disposal of a pharmaceutical license in the amount of $200.
Management’s Discussion & Analysis —25