<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F

[ ]   REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES
      EXCHANGE ACT OF 1934

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

         For the fiscal year ended December 31, 2000

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

          For the transition period from        to

                         COMMISSION FILE NUMBER: 0-29574
                                  ALTAREX CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                           PROVINCE OF ALBERTA, CANADA
                 (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                               610 LINCOLN STREET,
                          WALTHAM, MASSACHUSETTS 02451
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

Securities registered or to be registered pursuant to Section 12 (b) of the Act:

None

Securities registered or to be registered or to be registered pursuant to
Section 12 (g) of the Act:

                         Common Shares without par value
                                (Title of Class)

         Securities for which there is a reporting obligation pursuant to
section 15 (d) of the Act: None

         The number of outstanding shares of each of the issuer's classes of
capital or common stock as of May 31, 2001 was 26,434,411 Common Shares.

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                   [X] Yes                              [ ] No

         Indicate by check mark which financial statement item the registrant
has elected to follow.

                   [X] Item 17                          [ ] Item 18
<PAGE>   2
         Unless the context otherwise requires, references herein to the
"Company" or to "AltaRex" are to AltaRex Corp. and its consolidated
subsidiaries.

         The Company's name is registered as a trademark in Australia, Japan,
Norway and Switzerland; BrevaRex(R) and OvaRex(R) are trademarks of the Company
registered in Austria, Canada, the European Community, Germany, Hungary, Japan,
Switzerland and the United States; GivaRex(TM) is a trademark of the Company
registered in Austria, Hungary and Switzerland; AIT(R) is a trademark of the
Company registered in Canada and the United States; IRT is a trademark of the
Company registered in Canada; and ProstaRex(TM) is a trademark of the Company
registered in Norway. This annual report also contains trademarks of other
companies.
<PAGE>   3






                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           Page
<S>                                                                                        <C>
PART I..................................................................................     1
Item 1:  Identity of Directors, Senior Management and Advisers..........................     1
Item 2:  Offer Statistics and Expected Timetable........................................     1
Item 3:  Key Information................................................................     1
Item 4:  Information on the Company.....................................................    10
Item 5:  Operating and Financial Review and Prospects...................................    30
Item 6:  Directors, Senior Management and Employees.....................................    33
Item 7:  Major Shareholders and Related Party Transactions..............................    42
Item 8:  Financial Information..........................................................    43
Item 9:  The Offer and Listing..........................................................    43
Item 10:  Additional Information........................................................    44
Item 11:  Quantitative and Qualitative Disclosures About Market Risk....................    50
Item 12:  Description of Securities Other than Equity Securities........................    50
PART II.................................................................................    50
Item 13:  Defaults, Dividend Arrearages and Delinquencies...............................    50
Item 14:  Material Modifications to the Rights of Security Holders and Use of Proceeds..    51
PART III................................................................................    51
Item 17:   Financial Statements.........................................................    51
Item 18:   Financial Statements.........................................................    51
Item 19:   Exhibits.....................................................................    51
</TABLE>
<PAGE>   4
                    NOTE REGARDING FORWARD LOOKING STATEMENTS

         Certain statements in this document constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "expects"
and similar expressions are intended to identify forward-looking statements.
Such risks and uncertainties include, but are not limited to our need for
capital and the risk that the Company can not raise funds on a timely basis on
satisfactory terms or at all, changing market conditions, completion of clinical
trials, patient enrollment rates, uncertainty of preclinical, retrospective and
early clinical trial results which may not be indicative of results that will be
obtained in ongoing or future clinical trials, new corporate alliances, the
establishment of manufacturing processes and the scale up of cell culture
material, the timely development, regulatory approval and market acceptance of
the Company's products, uncertainty as to whether patents will issue from
pending patent applications and, if issued, as to whether such patents will be
sufficiently broad to protect the Company's technology, and other risks detailed
from time-to-time in the Company's filings with the Securities and Exchange
Commission and Canadian securities authorities. See "Item 3. Key Information -
Risk Factors". In addition, any forward-looking statements represent the
Company's estimates only as of the date this annual report was first filed with
the Securities and Exchange Commission and should not be relied upon as
representing the Company's estimates as of any subsequent date. While the
Company may elect to update forward-looking statements at some point in the
future, the Company specifically disclaims any obligation to do so, even if its
estimates change.

                                     PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3: KEY INFORMATION

         Certain terms referred to in this annual report are defined in the
Glossary found elsewhere in this annual report, commencing at page 52.

SELECTED FINANCIAL DATA

         The following table presents selected financial data for the Company
which are for the periods indicated below and which are derived from the
Consolidated Financial Statements of the Company included in this annual report
under Item 17 and are prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). These principles, as applied to
the Company, do not differ materially from those accounting principles and
requirements of the Securities and Exchange Commission in the United States
("U.S. GAAP") except as disclosed in Note 9 to the Company's Consolidated
Financial Statements. All figures are in Canadian funds. The selected financial
data should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and the Company's Operating and Financial Review
and Prospects set forth under Item 5. To date, the Company has not generated
sufficient cash flow from operations to fund ongoing operational requirements
and cash commitments. The Company has financed its operations principally
through the sale of its equity securities and its ability to continue operations
is dependent on the ability of the Company to obtain additional financing. See
"Item 5 - Operating and Financial Review and Prospects".



                                       1
<PAGE>   5
INCOME STATEMENT DATA:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                  ----------------------------------------------------------------------------------
                                      2000              1999              1998             1997             1996
                                  ------------      ------------      ------------      -----------      -----------
                                                                  (in Canadian dollars)
<S>                               <C>               <C>               <C>               <C>              <C>
Revenues                          $    389,826      $    687,710      $  1,013,742      $ 1,619,836      $    88,257

Expenses
   Research and development         12,022,218        12,828,617         9,433,681        4,733,918      $ 1,720,031
   General and administrative        6,091,686         6,802,546         4,695,990        1,563,555          540,285
   Settlement costs                         --         5,074,714                --               --               --
                                  ------------      ------------      ------------      -----------      -----------

Net loss                          $(17,724,078)     $(24,018,167)     $(13,115,929)     $(4,677,637)     $(2,172,059)
                                  ============      ============      ============      ===========      ===========

Net loss per common share         $      (1.08)     $      (2.32)     $      (3.18)     $     (1.18)     $     (0.96)
                                  ============      ============      ============      ===========      ===========
</TABLE>


BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                         AS OF DECEMBER 31,
                              --------------------------------------------------------------------------
                                  2000           1999            1998            1997            1996
                              -----------     ----------     -----------     -----------     -----------
                                                        (in Canadian dollars)
<S>                           <C>             <C>            <C>             <C>             <C>
Cash and cash equivalents     $ 9,665,187     $2,328,641     $ 8,581,688     $ 4,204,155     $27,215,914
Short-term investments          3,591,323      4,878,039       4,241,732      20,797,951              --
Total assets                   14,754,556      8,567,429      15,159,774      27,299,744      28,016,056
Working capital                 9,892,448      5,057,620      10,997,161      24,495,936      27,050,923
Shareholders' equity           10,960,790      6,217,956      12,646,840      25,708,769      27,526,133
</TABLE>


         The Company has paid no dividends on its shares since incorporation and
does not anticipate doing so for the foreseeable future. The declaration of
dividends on the Common Shares of the Company is within the discretion of the
Company's Board of Directors and will depend upon, among other factors,
earnings, capital requirements, and the operating and financial condition of the
Company.

EXCHANGE RATE INFORMATION

         In this annual report, unless otherwise specified, all monetary amounts
are expressed in Canadian dollars ("$" or "Cdn. $"). The following tables set
forth, for the periods and dates indicated, certain information concerning the
exchange rates for the conversion of Canadian dollars into United States
dollars, based on the noon buying rate in New York City for cash transfers in
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York. On May 31, 2001, the noon buying rate, as reported by the Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars, was U.S. $0.6468 (U.S. $1.00 = Cdn. $1.5461).



                                       2
<PAGE>   6
<TABLE>
<CAPTION>
                                  Period           Average
     Calendar period               End             Rate(1)           High             Low
     -------------------          ------           ------           ------           ------
                                             (U.S. dollars per Canadian dollar)
<S>                               <C>             <C>               <C>              <C>
     May 2001                     0.6468           0.6489           0.6532           0.6434
     April 2001                   0.6510           0.6419           0.6510           0.6333
     March 2001                   0.6335           0.6415           0.6498           0.6335
     February 2001                0.6527           0.6572           0.6696           0.6493
     January 2001                 0.6668           0.6652           0.6691           0.6595
     December 2000                0.6668           0.6571           0.6668           0.6469
</TABLE>


<TABLE>
<CAPTION>
                                  Period           Average
     Calendar period               End             Rate(2)           High             Low
     -------------------          ------           ------           ------           ------
                                             (U.S. dollars per Canadian dollar)
<S>                               <C>             <C>               <C>              <C>
     1996                         0.7301           0.7329           0.7513           0.7235
     1997                         0.6988           0.7224           0.7484           0.6951
     1998                         0.6504           0.6740           0.7092           0.6341
     1999                         0.6925           0.6744           0.6925           0.6535
     2000                         0.6668           0.6723           0.6968           0.6410
</TABLE>

         (1)      The average of the noon buying rates on each business day
                  during the period.

         (2)      The average of the noon buying rates on the last business day
                  of each full calendar month during the period.

RISK FACTORS

         The following important factors, among others, could cause our actual
results to differ materially from those contained in forward-looking statements
made in this annual report or presented elsewhere by management from time to
time.

Capital Requirements

         As of December 31, 2000, the Company had cash, cash equivalents and
short-term investments of $13.2 million. On December 22, 2000, the Company
completed a private placement of 3,522,727 Common Shares with Dompe Farmaceutici
S.p.A ("Dompe") for gross proceeds to the Company of $7.75 million in
conjunction with a strategic alliance. See "Item 4: Information on the Company -
Business Strategic Alliances and License Agreements". In addition, in February
2001, the Company completed the sale of 4,402,211 Common Shares for net proceeds
to the Company of $7.2 million and, in June 2001, the Company completed the sale
of 3,000,000 Special Warrants for net proceeds estimated at $8.0 million. The
Company believes that its available cash, cash equivalents and short-term
investments, the proceeds of the February 2001 sale of Common Shares and the
June 2001 sale of Special Warrants and interest earned thereon, should be
sufficient to finance its operations and capital needs late into the fourth
quarter of 2001. The Company's future capital requirements will depend on many
factors, including continued scientific progress in its product discovery and
development program, progress in its preclinical and clinical evaluation of
product candidates, progress in corporate partnering and the time and expense
associated with filing, prosecuting and enforcing its patent claims and costs
associated with obtaining regulatory approvals.

         The Company will seek additional funding through public or private
equity or debt financing from time to time, as market conditions permit, or
through strategic relationships with pharmaceutical or large biotechnology
companies. These activities will likely result in the issuance of additional
equity securities of the Company. 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, the Company may have to
reduce substantially or eliminate expenditures


                                       3
<PAGE>   7
for research and development, testing, production and marketing of its proposed
products, or obtain funds through arrangements with corporate partners that
require the Company to relinquish rights to certain of its technologies or
products. There can be no assurance that the Company will be able to raise
additional capital if its capital resources are exhausted. The ability of the
Company to arrange such financing in the future will depend in part upon the
prevailing capital market conditions as well as the business performance of the
Company. There can be no assurance that the Company will be successful in its
efforts to arrange additional financing if needed or that any such additional
financing will be available on terms satisfactory to the Company.

No Assurance of Successful Development or Market Acceptance

         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 highly speculative.
The Company's realization of its long-term potential will be dependent upon the
successful development and commercialization of products currently under
development. There can be no assurance that these products will be developed
successfully or receive regulatory approval. The new products of the Company are
currently in the research and development stages, the riskiest stages for a
company in the biotechnology industry. There can be no assurance that the
research and development programs conducted by the Company will result in
commercially viable products. To achieve profitable operations, the Company,
alone or with others, must successfully develop, introduce and market its
products. To obtain regulatory approvals for the products being developed and to
achieve commercial success, clinical trials must demonstrate that the products
are safe for human use and that they demonstrate efficacy. Unsatisfactory
results obtained from a particular study relating to a program may cause the
Company to abandon its commitment to that program. No assurances can be provided
that any future animal or human test, if undertaken, will yield favourable
results.

         There can be no assurance that any products successfully developed by
the Company, if approved for marketing, will ever achieve market acceptance. The
Company's products, if successfully developed, will compete with a number of
traditional drugs and therapies manufactured and marketed by major
pharmaceutical and other biotechnology companies, as well as new products
currently under development by such companies and others. The degree of market
acceptance of any products developed by the Company will depend on the clinical
efficacy and safety of the product candidates, their potential advantage over
alternative treatment methods, and reimbursement policies of government and
third-party payors. There can be no assurance that physicians, patients or the
medical community in general will accept and utilize any products that may be
developed by the Company, and the lack of such market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Uncertainty Associated with the Timing of Submission of a Biologics License
Application for OvaRex(R) MAb

         The Company's development program for its lead product, OvaRex(R) MAb,
is designed to lead to the filing with the U.S. Food and Drug Administration
("FDA") of a Biologics License Application ("BLA") for the purpose of obtaining
approval to market the product in the United States. A BLA filing is extensive
and includes, among other things, detailed information regarding the design,
conduct and results of preclinical and clinical testing, the composition,
synthesis and manufacture of the product, and such other information and/or
analyses as may be requested by the FDA in support of the BLA. The timing of the
filing of the BLA may be impacted by, among other things, the sufficiency of
results and data from its ongoing clinical trials, the satisfactory completion
of ongoing development and manufacturing requirements and requests by the FDA
for additional information and data to support the filing.

         The Company expects to initiate the filing of a BLA for OvaRex(R) MAb
in late 2001 or early 2002. However, there can be no assurance that the ongoing
clinical trials will provide sufficient data in time for such a filing. In
addition, the Company has transferred its proprietary cell culture manufacturing
processes and development responsibilities from Lonza Biologics plc to Abbott
Laboratories and there can be no assurance that delays will not be encountered
in the remaining product development and manufacturing activities required for
the BLA. Also there can be no assurance that the FDA will not request additional
information or data to support such filing. A delay in the filing of the BLA
will impact the timing of the FDA's review of the application and approval for
marketing of the product and, if approved, the timing of commercialization of
the product. Any such delay may have a material adverse effect on the Company's
business, financial condition and results of operations.



                                       4
<PAGE>   8
Uncertainty Associated with Preclinical and Clinical Testing

         The Company has not completed the clinical trials necessary to confirm
the efficacy of its products. As a result, while the preliminary results from
trials with its OvaRex(R) MAb product are encouraging, there can be no assurance
that the Company's products will demonstrate sufficient therapeutic benefit in
the treatment of cancer patients that would lead to obtaining regulatory
approval.

         Before obtaining regulatory approvals for the commercial sale of any of
the Company's potential new products, the products will be subjected to
extensive preclinical and clinical testing to demonstrate their safety and
efficacy in humans. Results of the initial preclinical and clinical testing of
products under development by the Company or any interim analyses of clinical
trials are not necessarily indicative of results that will be obtained from
subsequent or more extensive preclinical and clinical testing. Furthermore,
there can be no assurance that clinical trials of products under development
will be completed or will demonstrate the safety and efficacy of such products
at all or to the extent necessary to obtain regulatory approvals. Companies in
the biotechnology industry have suffered significant setbacks in advanced
clinical trials, even after achieving promising results in earlier trials. The
failure to adequately demonstrate the safety and efficacy of a therapeutic
product under development could delay or prevent regulatory approval of such
product.

         The rate of completion of clinical trials depends on, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in the
Company's current clinical trials or future clinical trials may result in
increased costs, program delays, or both.

Regulatory Environment; No Assurance of Product Approval

         The FDA, the Therapeutic Products Programme ("TPP") of Health Canada,
the European Agency for the Evaluation of Medicinal Products ("EMEA") and
comparable agencies in other jurisdictions impose substantial requirements on
biotechnology and pharmaceutical companies prior to the introduction of
therapeutic products. These requirements include lengthy and detailed laboratory
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures, together which involve the expenditure of substantial
resources. Satisfaction of these requirements typically takes a number of years
and varies substantially based on the type, complexity and novelty of the
pharmaceutical product.

         Any future FDA, TPP, EMEA or other governmental approval of products
developed by the Company may entail limitations on the indicated uses for which
such product may be marketed. Approved products may be subject to additional
testing and surveillance programs as required by regulatory agencies. In
addition, product approvals may be withdrawn or limited for noncompliance with
regulatory standards or the occurrence of unforeseen problems following initial
marketing.

         The effect of governmental regulation may be to delay marketing the
Company's products for a considerable period of time, to impose costly
requirements on the Company's activities or to provide a competitive advantage
to other companies that compete with the Company. Adverse clinical results could
have a negative impact on the regulatory process and timing. A delay in
obtaining or failure to obtain regulatory approvals could adversely affect the
marketing of the Company's products and the Company's liquidity and capital
resources. In addition, future legislation or administrative action may result
in governmental regulations adverse to the Company. The extent of potentially
adverse governmental regulation that might arise from future legislation or
administrative action cannot be predicted.

         To date, the Company has submitted Investigational New Drug
Applications ("INDs") to the TPP and FDA for OvaRex(R) MAb and to the FDA for
BrevaRex(R) MAb, but has not submitted such documentation for other products
currently under development. There can be no assurance that the Company will
obtain regulatory approval to commercialize OvaRex(R) MAb and BrevaRex(R) MAb,
or that it will be in a position to file the regulatory applications for its
future products.



                                       5
<PAGE>   9
         The Company has developed in conjunction with the FDA a clinical plan
to study the comparability of cell culture-based OvaRex(R) MAb with its current
ascites-based material. The establishment of a clinical development plan or
program in conjunction with regulatory authorities provides no assurance that
such plan or program will be sufficient to gain regulatory approval of a product
upon submission of a licensing application. The insufficiency of a program could
delay or prevent regulatory approval of such product.

Lack of Product Revenues; History of Losses

         To date, the Company has not recorded any revenues from the sale of
biopharmaceutical products and there can be no assurance that significant
additional losses will not occur in the near future or that the Company will be
profitable in the future. The Company has accumulated net losses of
approximately $61.9 million to December 31, 2000. The Company anticipates that
it will continue to incur significant operating losses as it advances its
products through development and clinical trials to commercialization. The
amounts and timing of expenditures will depend on the progress of ongoing
research and development, the results of preclinical testing and clinical
trials, the rate at which operating losses are incurred, the execution of any
development and licensing agreements with strategic partners, the Company's
development of additional products, the FDA, TPP, EMEA and other regulatory
processes and other factors, many of which are beyond the Company's control.

         The Company does not expect to receive revenues from commercial sales
of its new products until late 2002, if at all. The Company expects to continue
to incur losses unless and until such time as strategic alliance payments,
product sales and royalty payments generate sufficient revenues to fund its
continuing operations. The ability of the Company to achieve profitability in
subsequent years depends upon, among other things, successfully completing
product development efforts and obtaining regulatory approval for its lead
clinical products. The development of the Company's products will require the
commitment of substantial resources to conduct the time-consuming development of
products to meet market and regulatory requirements and to establish strategic
relationships for production capabilities. There can be no assurance that the
Company will generate any revenues or achieve profitability.

         The Company is a party to an agreement with Biomira Inc. that requires
the payment of royalties based on sales of OvaRex(R) MAb and to two other
agreements that provide for repayment of funding upon successful
commercialization of OvaRex(R) MAb. There can be no assurance that the Company
will generate sufficient revenues from the sale of OvaRex(R) MAb to achieve
profitability.

         The Company believes that its available cash, cash equivalents and
short-term investments, the proceeds of the February 2001 sale of Common Shares
and the June 2001 sale of Special Warrants, and interest thereon, should be
sufficient to finance its operations and capital needs late into the fourth
quarter of 2001. Beyond that, the Company intends to rely on cash, if any,
generated from licensing revenues, collaborative agreements and other
capital-raising activities which will be highly dependent on the Company's
successful development and commercialization of its clinical products. There can
be no assurance that these products will be successfully developed or
commercialized or that the underlying assumed levels of expenses will prove to
be accurate.

Reliance on Strategic Relationships

         The Company's future success is dependent on the development and
maintenance of strategic relationships. The Company intends to seek to enter
into strategic relationships with strategic partners to commercialize products
and to participate in and continue to finance the later stage clinical
development of products. Alternatively, the Company may elect to market its
product(s) on its own in niche markets in North America.

         The Company has entered into agreements with three
pharmaceutical/biotechnology companies to establish joint ventures or
collaborations to commercialize its products in local foreign markets. See "Item
4: Information on the Company - Strategic Alliances and License Agreements -
Genesis Pharma, Medison Pharma and Dompe Farmaceutici". The Company intends to
enter into similar arrangements in other geographic locations around the world.

         If the Company fails to enter into strategic relationships for
development of products on terms favorable to the Company or if these strategic
partners fail to effectively complete the clinical trials, the regulatory
approval of


                                       6
<PAGE>   10
such products may be delayed, and such delay may have a materially adverse
effect on the Company's results of operations and business. The Company may also
rely on strategic partners to market its products. If the Company fails to enter
such strategic partnerships or if these strategic partners fail to effectively
market such products, the Company may lose the opportunity to successfully
commercialize the products. There can be no assurance that the Company will be
able to enter additional strategic partnerships on terms that are acceptable to
the Company. Similarly if the Company decides to market its product(s) on its
own, there can be no assurance that the Company will be successful in developing
or commercializing the product(s).

         The Company does not manufacture its own antibodies but has, and will
seek to enter into, agreements with third parties to manufacture its antibodies.
Pursuant to the Draximage Alliance Agreement referred to herein under "Item 4:
Information on the Company - Strategic Alliances and License Agreements -
Draximage Inc.", Draximage Inc. has filled/finished OvaRex(R) MAb vials for
clinical trials and may have certain contingent rights with respect to the
manufacture and/or marketing in Canada of the OvaRex(R) MAb drug for commercial
purposes. In addition, the Company is working with other vendors to fill/finish
OvaRex(R) MAb vials. The Company has worked with Lonza Biologics plc ("Lonza")
to date on production of cell culture-based OvaRex(R) MAb and has transferred
its proprietary cell culture manufacturing processes and the development
responsibilities to Abbott Laboratories. There can be no assurance that delays
will not be encountered related to this transfer in the remaining product
development and manufacturing activities required for the BLA. Also, if
long-term arrangements for the production of OvaRex(R) MAb and other antibodies
cannot be entered into, the Company may experience delays in the development and
commercialization of its products. In addition, if these contract suppliers fail
to perform under the terms of the agreement, the Company may incur significant
costs and risks.

         Scaling-up production of cell culture-derived materials will enable the
Company to further pursue regulatory approval and commercialization of OvaRex(R)
MAb. Such regulatory approval and commercialization is dependent upon the
Company's ability to achieve such production.

         The Company also relies on a number of alliances and collaborative
partnerships for the development of its products. There is no guarantee that
these relationships will continue or result in any successful developments.

Manufacturing and Marketing

         The Company has limited experience in manufacturing biopharmaceuticals.
The Company intends to rely primarily on contract manufacturers to produce
antibodies and other components of its products for research and development,
preclinical and clinical trial purposes. The Company's products have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable. There can be no assurance that third party manufacturers
will be able to meet the Company's needs with respect to timing, quantity or
quality. If the Company is unable to contract for a sufficient supply of
required products and substances on acceptable terms, or if it should encounter
delays or difficulties in its relationships with manufacturers, the Company's
preclinical and clinical testing would be delayed, thereby delaying the
submission of products for regulatory approval or the market introduction and
subsequent sales of such products. Any such delay may have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, contract manufacturers that the Company may use must continually
adhere to current Good Manufacturing Practices ("cGMP") regulations enforced by
the FDA through its facilities inspection program. If the facilities of such
manufacturers cannot pass a preapproval plant inspection, the FDA premarket
approval of the Company's products will not be granted.

         The Company currently has no sales, marketing or distribution
experience. The Company intends to rely on its future strategic partners to
market its products; however, there can be no assurance that such corporate
partners have effective sales forces and distribution systems. If the Company is
unable to maintain or establish such relationships and is required to market any
of its products directly, the Company will have to develop a marketing and sales
force with technical expertise and with supporting distribution capabilities.
There can be no assurance that the Company will be able to maintain or establish
such relationships with third parties or develop in-house sales and distribution
capabilities. To the extent that the Company depends on its strategic partners
or third parties for marketing and distribution, any revenues received by the
Company will depend upon the efforts of such strategic partners or third
parties, and there can be no assurance that such efforts will be successful.



                                       7
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Competition

         Technological competition in the pharmaceutical industry is intense.
There are many companies and institutions, both public and private, including
pharmaceutical companies, chemical companies, specialized biotechnology
companies and research, government and academic institutions, that are engaged
in developing synthetic pharmaceuticals and biotechnology products for human
therapeutic applications, including the applications targeted by the Company.
The Company may have to compete with these competitors to develop products aimed
at treating similar conditions. Many of these competitors have substantially
greater resources than the Company. There can be no assurance that developments
by others will not render the Company's products or technologies non-competitive
or adversely affect the commitment of the Company's commercial collaborators to
the Company's programs.

         The pharmaceutical industry is also characterized by extensive research
efforts and rapid technological change. Competition can be expected to increase
as technological advances are made and commercial applications for
biopharmaceutical products increase. Competitors of the Company may use
different technologies or approaches to develop products similar to products
which the Company is seeking to develop, or may develop new or enhanced products
for processes that may be more effective, less expensive, safer or more readily
available before the Company obtains approval of its products. There can be no
assurance that the Company's products will compete successfully or that research
and development will not render the Company's products obsolete or uneconomical.

Proprietary Rights and Patent Protection

         Due to the length of time and expense associated with bringing new
products through development and the governmental approval process to the
marketplace, the pharmaceutical industry has traditionally placed considerable
importance on obtaining and maintaining patent and trade secret protection for
significant new technologies, products and processes.

         The patent protection afforded to biotechnology and pharmaceutical
firms is uncertain and involves many complex legal, scientific and factual
questions. There is no clear law or policy involving the breadth of claims
allowed in such cases, or the degree of protection afforded under patents. These
issues are further complicated in this field by the abundance of publications
and/or prior art, including publications by the Company. Thus, while the Company
believes that its proprietary information is protected to the fullest extent
practicable, there can be no assurance that (i) additional patents will be
issued to the Company in any or all appropriate jurisdictions, (ii) litigation
will not be commenced seeking to challenge the Company's patent protection or
that such challenges will not be successful, (iii) processes or products of the
Company do not or will not infringe upon the patents of third parties, or (iv)
the scope of patents that may be issued to the Company will successfully prevent
third parties from developing similar and competitive products. It is not
possible to predict how any patent litigation will affect the Company's efforts
to develop, manufacture or market its products. The cost of litigation to uphold
the validity and prevent infringement of any patents issued to the Company may
be significant.

         The products developed by the Company also incorporate technology and
processes that will not be protected by any patent and are capable of being
duplicated or improved upon by competitors. Accordingly, the Company may be
vulnerable to competitors, which develop competing technology, whether
independently or as a result of acquiring access to the proprietary products and
trade secrets of the Company. In addition, the Company may be required to obtain
licenses under patents or other proprietary rights of third parties. No
assurance can be given that any licenses required under such patents or
proprietary rights will be available on terms acceptable to the Company. If the
Company does not obtain such licenses, it could encounter delays in introducing
one or more of its products to the market while it attempts to design around
such patents, or could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed.

         There can be no assurance that the Company's patent applications will
further mature into issued patents, or will afford legal protection against
competitors, or will provide significant proprietary protection or competitive
advantage. In addition, there can be no assurance that the Company's patents
will not be held invalid or unenforceable by a court, infringed or circumvented
by others or that others will not obtain patents that the Company would need to
license or circumvent. Competitors or potential competitors may have filed
patent


                                       8
<PAGE>   12
applications or received patents, and may obtain additional patents and
proprietary rights relating to the products or processes competitive with those
of the Company.

Key Personnel

         The Company is highly dependent on its senior officers, scientific
personnel, consultants and management staff, the loss of whose services might
significantly delay or prevent the Company's achievement of its scientific or
business objectives. Competition among biotechnology and biopharmaceutical
companies for qualified employees is intense, and the ability to retain and
attract qualified individuals is critical to the Company's success. There can be
no assurance that the Company will be able to attract and retain such
individuals currently or in the future on acceptable terms, or at all, and the
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.

Product Liability and Insurance

         The testing, marketing, sale and use of products under development by
the Company may entail risk of product liability. Such risk exists in human
clinical trials and even with respect to those products that receive regulatory
approval for commercial sale. There can be no assurance that the Company can
avoid significant product liability exposure. The Company currently has in place
product liability insurance for its biopharmaceutical products and expects that
as it expands, it will require additional insurance. There can be no assurance
that it will be able to obtain appropriate levels of product liability insurance
prior to any sale of its biopharmaceutical 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 the Company. The obligation to pay
any product liability claim or recall a product could have a material adverse
effect on the business, financial condition and future prospects of the Company.

Unstable Share Price

         Market prices for securities of biotechnology companies generally, and
of common shares in particular, are volatile. Factors such as announcements
(publicly made or at scientific conferences) of technological innovations, new
commercial products, patents, the development of proprietary rights by the
Company or others, results of clinical trials, regulatory actions, publications,
quarterly financial results or public concern over the safety of
biotechnological products, future sales of Common Shares by the Company or by
its current shareholders and other factors could have a significant effect on
the market price of the Common Shares.

Future Sales of Common Shares in the Public Market

         The market price of the Common Shares could decline if the Company's
existing shareholders sell substantial amounts of their Common Shares, including
shares issued upon the exercise of outstanding options, in the public market.
These sales might also make it more difficult for the Company to sell equity
securities in the future at a time and price that the Company deems appropriate.

Issue of Additional Common Shares and Preferred Shares

         The Company's Board of Directors may issue an unlimited number of
Common Shares and an unlimited number of preferred shares, issuable in one or
more series, without any vote or action by the Company's shareholders. If the
Company issues any additional Common Shares or any preferred shares, the
percentage ownership of existing shareholders may be reduced and diluted. In
addition, the Company's Board of Directors may determine the price, rights,
preferences, privileges and restrictions, including voting, dividend and
conversion rights, of the preferred shares and determine to whom they shall be
issued. Currently, there are no preferred shares outstanding and the Company has
no present plans to issue any preferred shares. However, the rights of the
holders of any preferred shares that may be issued in the future may be senior
to the rights of holders of Common Shares, which could preclude holders of
Common Shares from receiving dividends, proceeds of a liquidation or other
benefits. The issuance of preferred shares, while providing desirable
flexibility in connection with possible


                                       9
<PAGE>   13
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire control of the Company by, for example, discouraging an
unsolicited acquisition proposal or a proxy contest, the effect of which may be
to deprive the Company's shareholders of a control premium that might otherwise
be realized in connection with an acquisition of the Company.

ITEM 4: INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

         AltaRex is a corporation amalgamated under the laws of the Province of
Alberta. On June 27, 1997 articles of amendment were filed to provide that
meetings of shareholders may be held at any place within Canada and the United
States. The registered office of AltaRex is located at 1900, 715-5 Avenue SW,
Calgary, Alberta, T2P 2X6. The executive offices of AltaRex are located at 610
Lincoln Street, Waltham, Massachusetts 02451, and its telephone number is (781)
672-0138.

         AltaRex was founded in November 1995 by Dr. Antoine Noujaim and a team
of collaborators to commence a business engaged in the discovery and development
of anti-cancer immunotherapeutics. Prior to founding AltaRex, Dr. Noujaim was
President of Biomira Research Inc. ("Biomira Research"), a wholly-owned
subsidiary of Biomira Inc. ("Biomira"). The Company believes that in 1995
Biomira decided to discontinue funding the operations of Biomira Research. Dr.
Noujaim and other collaborators believed that the B43 antibody research project
undertaken by Biomira Research (known as the OvaRex(R) MAb Program) had the
potential to be further developed into a commercial product. As a result, in
November 1995, AltaRex acquired certain components of the OvaRex(R) MAb Program
and the OvaRex(R) MAb tradename and trademark from Biomira and Biomira Research
and entered into an exclusive licensing agreement with Biomira pursuant to which
it acquired the exclusive worldwide right to use, develop, manufacture and
commercialize (for anti-idiotype induction therapy applications) products based
on the B43 antibody. See " - Strategic Alliances and License Agreements -
Biomira License Agreement" and " - Strategic Alliances and License Agreements -
Biomira Settlement".

OVERVIEW

         AltaRex is engaged in the research and development of unique
antigen-targeted antibody-based cancer therapeutics or immunotherapeutics,
initially for the treatment of ovarian cancer. Immunotherapy is a therapeutic
approach to treat diseases by stimulating or enhancing the body's immune
response. Immunotherapeutics are drugs that work by modulating the immune system
to fight disease. The Company's products are based on its unique proprietary
technology. Based upon research, preclinical and clinical studies to date,
AltaRex believes that its technology enhances the ability of the human immune
system to produce its own anti-tumor response. The Company's lead product,
OvaRex(R) MAb for ovarian cancer, is currently being evaluated in six Phase
II/IIb clinical trials. A second monoclonal antibody, BrevaRex(R) MAb targeting
the TAA MUC 1, has completed a Phase I safety study without apparent toxicity. A
BrevaRex(R) MAb clinical trial for multiple myeloma is anticipated to be
initiated in the second half of 2001. Based on early discovery research, the
Company also believes its technology platform can be extended to infectious and
autoimmune diseases. The Company has been granted two patents by the US Patent
and Trademark Office including a patent which covers the Company's novel
technology of administering a low-dose foreign antibody (OvaRex(R) MAb) to any
patient whose cancer expresses the target antigen (CA125) and thereby activating
an anti-tumor response unique to that individual. In addition, the Company has
been issued a patent by each of the Australian and South African patent offices
which broadly covers its technology platform. The Company has 14 patent
applications pending in the United States related to its technology. Most of
these patent applications have been or will be the subject of international
patent applications.

         AltaRex's products are murine monoclonal antibodies ("MAbs") developed
by the Company's scientists or licensed to the Company and are administered by
intravenous infusion in low dosages to cancer patients. Based upon research and
clinical studies to date, the Company believes that these MAbs can be used to
complement and/or supplement conventional cancer therapies. The Company also
believes that its MAb products will elicit an immune response that is capable of
killing cancer cells without impacting healthy cells.

         OvaRex(R) MAb, the Company's lead product, targets a tumor associated
antigen known as CA125 which has been found to be over-expressed in greater than
80% of ovarian cancer patients with late-stage disease. Based


                                       10
<PAGE>   14
upon the clinical studies and research conducted to date, the Company believes
that when administered to patients in low dosages by intravenous (IV) infusion,
OvaRex(R) MAb acts by inducing or amplifying, through multiple mechanisms, the
body's immune response against ovarian cancer. The Company is conducting a
number of clinical studies to assess efficacy of OvaRex(R) MAb in various
ovarian cancer patient populations as indicated in the following schematic.

         [Schematic depicting the Company's OvaRex Clinical Development]

         The Company's clinical development plan for OvaRex(R) MAb is intended
to achieve North American and European registration by first seeking regulatory
approval in the U.S. under Fast Track and associated regulations. OvaRex(R) MAb
has been granted both Fast Track and Orphan Drug status by the U.S. Food and
Drug Administration ("FDA"). Accelerated approvals for cancer have been granted
by the FDA primarily on the basis of Phase II studies involving a surrogate
endpoint with a follow-on commitment for post-approval trials. The primary
criteria for FDA accelerated review is the meeting of an inadequately addressed
medical condition(s) or unmet medical need(s), either on the basis of efficacy
or improved safety.

         AltaRex expects to submit its BLA for OvaRex(R) MAb for the treatment
of ovarian cancer following primary treatment with surgery and chemotherapy,
under accelerated review and associated regulations. This filing is expected to
begin by year end 2001 or early 2002, assuming timely scale-up of cell culture
manufacturing. The Company expects to have studied OvaRex(R) MAb in greater than
500 patients at the time of the expected U.S. submission, a submission which the
Company expects will address the primary criteria associated with the
aforementioned accelerated approval process.

         The Company is conducting six Phase II/IIb OvaRex(R) clinical trials.
Results to date from completed as well as ongoing trials demonstrate efficacy as
measured by improvement in time to disease relapse and/or survival. These
benefits are associated with consistent humoral (HAMA, Ab2) and cellular
(particularly cytolytic T cell) immune responses that are notably correlated
with higher levels of CA125. Results of the Company's clinical trials to date
also indicate a very benign safety profile as the low doses of OvaRex(R) MAb do
not induce toxicity associated with higher doses of murine antibodies or with
chemotherapies.

         The Company's first large scale North American double-blind
placebo-controlled trial of OvaRex(R) MAb is fully enrolled (345 patients) and
the primary analysis for efficacy will occur in the third quarter of 2001. A
smaller double-blind placebo-controlled trial in 55 patients has reached its
primary endpoint of time to disease relapse and is in process of analysis to be
completed in the second quarter of 2001. An additional controlled trial of
approximately 102 ovarian cancer patients completed enrollment in June 2001.
This trial will compare the effect of OvaRex(R) MAb on time to disease relapse
in patients with differing treatment schedules. This randomized prospective
comparative dose trial will provide supporting data regarding immune response at
the time of the U.S. BLA submission on a Fast Track basis.

         The Company has also developed, in conjunction with the FDA, a plan to
demonstrate comparability between the ascites-based manufactured product used in
clinical trials and a state-of-the-art low-cost cell culture-based manufactured
product for commercial purposes. This testing will involve a pharmacokinetic
study and safety and immunology data with patients who either receive cell
culture-based product or ascites-based product. Under published but not yet
implemented European comparability procedures, the U.S. plan could suffice;
nonetheless the Company is planning with existing and potential partners the
conduct of cell culture-based efficacy trials if necessary. The Company expects
to complete its pharmacokinetic study in the first quarter of 2002, the results
of which will then be filed into its BLA. There can be no assurance that delays
will not be encountered such that the filing could be delayed. See "Item 3: Key
Information - Risk Factors".

         In a number of clinical studies conducted by the Company and others,
OvaRex(R) MAb and its other antibodies have evidenced specific immune activation
to a patient's own tumor. It is believed that the foreign (murine) nature of the
antibody enhances immune induction without the usual toxicity associated with
classical high dose murine antibody therapy. These same studies indicate that
the expected and non-specific human anti-mouse antibody response, or HAMA, is
actually a useful indicator of therapeutic activity, rather than toxicity. More
recently, the Company has announced that a specific immune response to the
OvaRex(R) MAb, i.e. Ab2, is a more specific indicator of therapeutic activity.
The Company attributes the clinical benefit as resulting from the low dose


                                       11
<PAGE>   15
administration of its antibody that is targeted to tumor associated antigen
circulating in the blood. The resulting complexes of antibody and antigen are
processed and presented in entirety to the immune system, resulting in immune
responses (humoral and cellular) to a tumor that was previously unrecognized or
tolerated by the immune system. The Company has data that suggests that this
process is further enhanced in the presence of HAMA. As such, the Company
believes it has clinical evidence of its mechanism of action as described in the
Company's patents and patent applications.

         AltaRex is also developing additional antibody-based cancer
therapeutics for the treatment of tumors expressing the MUC1 (BrevaRex(R) MAb
for multiple myeloma), TAG72 (AR54 MAb for ovarian cancer), PSA (ProstaRex(TM)
MAb for prostate cancer) and CA19.9 (GivaRex(TM) MAb for gastrointestinal
cancer) tumor associated antigens. The Company has completed a Phase I safety
and dose ranging clinical trial of BrevaRex(R) MAb without apparent toxicity.
The Company expects to conduct a Phase I/II clinical trial of BrevaRex(R) MAb
for the treatment of multiple myeloma beginning in the second half of 2001.

         In addition, the Company has announced a collaboration with Epigen Inc.
for the research and development of antibody-based treatments for potentially
twelve cancers associated with the human carcinoma antigen (HCA). The companies
will evaluate the ability of various Epigen foreign antibodies to induce
beneficial immune responses against the antigen and associated tumors, using
AltaRex's proprietary dendritic cell assay and proprietary technology rights.
HCA appears in circulation in early stage disease and is associated with the
vast majority of epithelial cancers including prostate, ovarian, breast and non
small cell lung cancers.

BUSINESS STRATEGY

         The Company's strategy is to focus its antibody development expertise
to produce unique, patent-protected, antibody-based cancer therapeutics based on
its technology platform for commercialization by partners or on its own. The key
elements of the Company's strategy are to:

         -        Focus exclusively on antibodies;

         -        Utilize the Company's proprietary assay platform to accurate
                  clinical candidate selection;

         -        Focus initially on cancer, subsequently on infectious and
                  autoimmune diseases;

         -        Realize value through strategic partnerships and/or joint
                  ventures (or by directly commercializing in market niches in
                  North America).

         The Company believes that this strategy will enable it to achieve the
patent-protected commercialization of antibody-based cancer therapeutics to
treat various cancers and other diseases including infectious and autoimmune
diseases.

MARKET FOR CANCER THERAPEUTICS

         Overall, the annual costs for cancer in the United States are estimated
at U.S. $107 billion which includes U.S. $37 billion for direct medical costs,
U.S. $11 billion for morbidity costs (loss of productivity) and U.S. $59 billion
for mortality cases. The world market for cancer therapeutics was U.S. $11.7
billion in 1997 and is expected to reach U.S. $14.7 billion by 2000. (SCRIP
Reports - The Complete Guide to Cancer - Second Edition, 1998). North America
(predominantly the United States) represents 47% of the worldwide anti-cancer
drug market.

         The majority of cancer patients are over the age of 65 and it is
anticipated that as the population continues to age, cancer treatment will
likely become the single largest health care expenditure in the United States
and other industrialized nations (Frost and Sullivan, World Cancer Therapeutic
Markets, August 1996).

APPROACHES TO CANCER THERAPY

         Conventional approaches for the treatment of cancer have been based on
a combination of surgery, radiation and chemotherapy. Despite increasing
resources to develop new therapies for cancer, survival rates for


                                       12
<PAGE>   16
cancer patients have not materially improved over the last 15 years (American
Cancer Society, 1998 Cancer Facts & Figures). This ongoing inability to
significantly improve survival or quality of life for cancer patients creates a
compelling need for alternative medical strategies.

         The potential market for antibody-based therapies in the management of
advanced cancer has rapidly expanded, as evidenced by the acceptance of IDEC
Pharmaceuticals Corp.'s Rituxan(R) (rituximab) for the treatment of
non-Hodgkin's lymphoma and Genentech Inc.'s Herceptin(R) (trastuzumab) for the
treatment of certain breast cancers, sales of each surpassing $150 million in
the first year.

     IMMUNOTHERAPEUTIC APPROACHES TO CANCER

         The immunotherapeutic approach to cancer therapy is based on the
principle that the human immune system is capable of recognizing and eliminating
cancer cells. In cancer patients, the immune system has failed, for unknown
reasons, to respond to the presence of cancer cells. Immunotherapeutic
approaches attempt to stimulate and enhance an anti-cancer response by the
patient's own immune system.

         The immunotherapeutic approach has inherent advantages in comparison to
current conventional treatment practices, which are often radical in nature and
associated with severe toxicities, thereby compromising the patient's quality of
life. In addition, tumors treated conventionally often re-emerge in more
aggressive and treatment-resistant forms. Immunotherapy, which can be utilized
in combination with conventional treatments or as a single treatment, can be
substantially less toxic than chemotherapy and therefore may improve the
patient's quality of life.

     ALTAREX'S APPROACH

         The Company believes its approach to immunotherapy is fundamentally
different from conventional approaches to immunotherapy. The Company's
technology involves the development of a murine antibody specific to a tumor
associated antigen. This antibody can be subsequently modified by a proprietary
technique and, after appropriate processing, is injected by IV infusion into a
patient. The antibody binds with the antigen, resulting in the formation of a
complex between the antibody and the antigen. The Company has developed a
proprietary understanding of antigen processing by the immune system and
utilizes its antibody products to alter the characteristics of immune response
targeted to the antigen and to the tumor. Mechanistic studies have demonstrated
the induction of the anti-idiotype network or cascade and, more particularly, of
the generation of multi-epitopic antibody and, most importantly, cellular immune
responses to the autologous tumor antigen. It is the Company's belief that this
in turn results in an immune response having unique characteristics, mobilizing
both cellular and humoral pathways against the TAA and the tumor cells,
triggered by a tumor antigen specific murine monoclonal antibody.

ALTAREX'S ANTIGEN-TARGETED ANTIBODIES

         The Company's technology approach is to generate products that alter
the way antigens are processed by the immune system and to make the immune
system recognize and attack tumors. Therapeutic candidates that have been
advanced to date by the Company include a series of foreign (murine) monoclonal
antibodies specific for tumor associated antigens that are shed or secreted into
the circulation. The original premise for the therapeutic mechanism of action
was induction of the idiotypic network. Subsequent research at the Company has
found that the idiotype network is operative, but is not the dominant mechanism
of our antibodies.

         The Company's antibodies in their current application specifically
induce cellular and humoral immunity against an autologous antigen that normally
is not recognized by the immune system. Clinical benefit is achieved through
induction of a beneficial immune response targeted against the tumor associated
antigen and the source malignant cells producing the antigen. The antibody
complexes with the tumor associated antigen in the circulation and brings the
antigen to the antigen presenting system where a multifocal immune response is
induced. Induction of human anti-mouse antibodies, Ab2, antigen specific T cells
and antibody to the tumor associated antigen have all been correlated with
clinical benefit in clinical studies.

         The development of the Company's technology and related products has
been facilitated by advances in the field of oncology that have demonstrated the
existence of components known as tumor associated antigens (TAAs).


                                       13
<PAGE>   17
The Company's technology is the process by which the Company produces, selects,
modifies and administers unique murine MAbs that can selectively bind to TAAs
that are highly associated with certain types of cancers. The Company has found
that the selective binding of MAbs to TAAs can induce a number of specific
anti-tumor immune responses in a cancer patient.

         The Company believes that it has developed a method to isolate groups
of TAAs associated with specific cancers. The Company develops murine MAbs
having a high degree of specificity to a particular TAA. The Company has shown
that the MAb B43, the primary component of OvaRex(R) MAb, has a high degree of
specificity to the TAA CA 125, an antigen over-expressed by over 80% of ovarian
cancer patients. The Company has developed murine MAbs that have specificity for
TAAs associated with seven of the ten most lethal forms of cancer in the United
States. In addition, the Company has announced a collaboration with Epigen Inc.
for the development of antibody-based treatments for potentially twelve cancers
associated with the human carcinoma antigen (HCA), using the Company's
proprietary dendritic cell assay and the Company's proprietary technology.

         The Company believes that its approach to immunotherapy may provide the
following advantages over conventional approaches to immunotherapy:

         -        The Company's approach uses a foreign (often murine) antibody
                  to a single epitope of a multi-epitopic TAA that induces the
                  immune system to mount its own generalized anti-tumor response
                  to multiple epitopes of the TAA. The technology mobilizes an
                  immune response that is not restricted by selection of
                  idiotype or vaccine fragment;

         -        The Company's approach has demonstrated the stimulation of
                  both a humoral and cellular immune response;

         -        The Company's approach utilizes low dosages and intravenous
                  infusion of antibody, minimizing the risk of toxicity and
                  lowering the cost of the treatment; and

         -        The use of a foreign MAb induces a potent immune response that
                  would not result from chimeric or humanized antibodies.

         The Company has two issued patents and fourteen pending patent
applications filed in the United States, most of which have been or will be
filed in countries throughout the world. The U.S. Patent and Trademark Office
has issued a patent for claims covering a technique using ultraviolet light to
modify antibodies while enhancing the production of certain beneficial immune
responses, being the technique employed in, among other products of the Company,
OvaRex(R) MAb. In addition, the U.S. Patent and Trademark Office has issued a
patent covering the Company's novel technology of administering a low-dose
foreign antibody (OvaRex(R) MAb) to any patient expressing the target antigen
(CA 125) and thereby activating an anti-tumor immune response unique to that
individual. Also, the Company has been issued a patent by the Australian and
South African patent offices entitled "Method and Composition for Reconforming
Multi-Epitopic Antigens to Initiate an Immune Response" which broadly covers its
technology platform. The Company's lead product, OvaRex(R) MAb, is based on a
murine MAb that is licensed to the Company from Biomira. AltaRex may license (as
it has for AR54) or develop (as it has for BrevaRex(R), GivaRex(TM) and
ProstaRex(TM) MAbs) other MAbs for future products.

THE COMPANY'S PRODUCTS

         AltaRex has selected five tumor-associated antigens for initial
therapeutic product development. The first and most advanced of these product
candidates is OvaRex(R) MAb for the treatment of patients with tumors expressing
CA 125. Other products in development include BrevaRex(R) MAb (for tumors
expressing MUC1), AR54 MAb (for tumors expressing TAG72), ProstaRex(TM) MAb (for
tumors expressing PSA) and GivaRex(TM) MAb (for tumors expressing CA 19.9). The
following chart sets forth the current development status of the Company's
products.

         [Chart of the Company's Antibody Pipeline]



                                       14
<PAGE>   18
     OVAREX(R) MAB OVERVIEW

         In the United States, Canada and Europe, ovarian cancer causes more
deaths than any other cancer of the female reproductive tract. It is estimated
that in the United States approximately 23,000 new cases of ovarian cancer will
be diagnosed and approximately 14,000 women will die from this disease annually
(American Cancer Society, 2000 Cancer Facts & Figures).

         Although detection of ovarian cancer at an early stage is now
associated with an improved chance for curative treatment, survival figures have
not changed significantly over the past 15 years. This is partially due to a
lack of efficient diagnostic methods or markers for routine tests that could
increase the number of patients diagnosed at the early stage of their disease.
Consequently, in approximately three-quarters of diagnosed patients, the tumor
has already progressed to an advanced stage (Stage III or IV), making treatment
more difficult. Of these Stage III and IV patients, more than 80% express the
tumor associated antigen CA 125. Patients diagnosed with advanced ovarian cancer
usually demonstrate a survival time of less than two years (Hoskins et al.,
Journal of Clinical Oncology, October 1992).

         OvaRex(R) MAb uses a murine MAb having a high degree of specificity to
a TAA (CA 125) over-expressed by the majority of ovarian cancer patients. The
Company believes that the product acts as an immunotherapeutic agent by inducing
or amplifying the human body's immune response against ovarian cancer. This
response is characterized by a cascade of events involving the production of
specific antibodies and cytotoxic T-cells in the body which target the tumor
cells. The Company believes that the immune response is enhanced in the presence
of HAMA resulting from the administration of OvaRex(R) MAb. The Company believes
that this combination of a humoral and cellular immune response accounts for the
observed improvement in the clinical outcome of patients receiving the OvaRex(R)
MAb.

     OVAREX(R) MAB REGULATORY APPROVAL STRATEGY

         AltaRex has received Orphan Drug status from the FDA for OvaRex(R) MAb
for the treatment of ovarian cancer which may result in seven years of market
exclusivity provided that the Company continues to meet certain conditions
established by the FDA. See "Regulatory Approval Process - Orphan Drug Status".
In December 1998, the FDA designated OvaRex(R) MAb as a Fast Track development
program for treatment of ovarian cancer in patients following primary treatment
with surgery and chemotherapy.

         Generally, the FDA approves the marketing of a drug based on adequate
and well-controlled trials. The FDA also has regulations which are intended to
expedite the development, evaluation and marketing of a new drug used for the
treatment of serious diseases for which there is no other satisfactory
treatment. In appropriate circumstances, the FDA may, in its discretion, approve
the marketing of a drug based on one adequate and well-controlled trial, if
supported by information from other related adequate and well-controlled studies
or if the trial is a single multi-center trial. Fast Track designation makes a
product eligible for consideration for a number of programs, including meeting
with the FDA to discuss research protocol design and the possibility that the
marketing of the product may be approved immediately after the conclusion of
Phase II studies. As a result of the FDA Modernization Act of 1997 ("FDAMA"),
products can receive Fast Track designation from the FDA if they meet an
inadequately addressed medical condition or unmet medical need and can receive
accelerated approval based on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Such approval may be subject to the requirements that
the sponsor conduct appropriate post-approval studies and submit all promotional
materials related to the Fast Track product at several different points in time.

         As part of the Company's regulatory approval strategy, it has conducted
or will conduct three controlled trials based on the surrogate endpoint of time
to disease relapse in the "watchful waiting" period. The Company is also
conducting open-label Phase II trials in the United States and Canada with
ovarian cancer patients in the relapsed disease period. The Company intends to
treat 500 patients or more with OvaRex(R) MAb (or an earlier radiolabelled
imaging product) prior to submission for approval by the FDA and other
regulatory agencies. The Company is also working with manufacturers to scale-up
cell culture-based OvaRex(R) MAb antibody that is expected to be studied in
comparability trials with the Company's current ascites-derived antibody
material. Scaling-up production of cell culture-derived materials will enable
the Company to further pursue regulatory approval and commercialization of
OvaRex(R) MAb. See "Item 3: Key Information - Risk Factors - Reliance On
Strategic Relationships".



                                       15
<PAGE>   19
     CLINICAL EXPERIENCE WITH OVAREX(R) MAB

         An earlier formulation of OvaRex(R) MAb was administered to more than
200 patients for imaging purposes. Of the patients who received the imaging
antibody, about 50% were evaluated for an immunological response to OvaRex(R)
MAb. The principal investigators observed that following the administration of
the imaging antibody, particularly in those patients who received more than one
dose, the patients developed a clinical response to treatment characterized by
what appeared to be unusually long survival times.

         A subsequent retrospective statistical analysis, initially prepared by
an independent statistician at the University of Dortmund in Germany, identified
a statistically significant treatment effect in the survival time of patients
receiving the earlier OvaRex(R) MAb, when compared to a historical control group
treated with conventional chemotherapy. An additional independent analysis by a
statistician at the University of Western Ontario in Canada was undertaken with
almost identical results. The following graph illustrates the adjusted survival
curves. In this Cox Statistical Analysis (described below), the median length of
survival was 30 months for the group treated with conventional chemotherapy and
59 months for the group that received the earlier formulation of OvaRex(R) MAb.
Additionally the five year survival rates as determined by this analysis were
11.4% for the chemotherapy group and 40.7% for the group that received the
earlier formulation of OvaRex(R) MAb.

         [Graph of AltaRex Retrospective Cox Analysis]

         Cox Statistical Analysis is a statistical method of comparing two
different populations with respect to the length of survival of patients who
received a drug with those who did not, while balancing the effect of other
parameters that can also affect survival.

     CURRENT TRIALS WITH OVAREX(R) MAB

         Based on the encouraging results obtained in the early retrospective
analysis and a substantial body of evidence supporting the retrospective
analysis based on immunological laboratory research, the Company initiated a
prospective multi-center double-blind placebo-controlled North American clinical
trial with ovarian cancer patients to evaluate the clinical utility of OvaRex(R)
MAb. In Canada, the Company received approval from the TPP on October 1, 1996 to
conduct this clinical trial. Patient enrollment commenced in a number of major
cancer centers in Canada in early 1997. In the United States, the Company
received Orphan Drug status for the OvaRex(R) MAb drug on November 26, 1996 and
received approval from the FDA on May 23, 1997 to proceed with a U.S. Phase IIb
trial. The first patient was treated in April 1998. In 1998, the FDA approved
the combination of the Canadian and United States clinical trials into one
combined, placebo-controlled and potentially pivotal trial that as of January
31, 2000 was completely enrolled with 345 patients participating. This trial is
expected to be completed with respect to the primary endpoint in the third
quarter of 2001.

         As part of the overall analysis of this lead, designated pivotal trial,
and without compromising its "blinded" nature, the Company conducted an interim
analysis on the first 252 patients (of 345 total enrolled) that had an
opportunity to receive three doses of OvaRex(R) MAb as of August 1999. The
statistical analysis of this interim data set was conducted using a method (Cox
proportional hazard model) that adjusts the data set to control for differences
between OvaRex(R) and placebo treated patients and for differences within each
patient population.

         This analysis indicated that circulating levels of CA 125 prior to
first dose of treatment (OvaRex(R) MAb or placebo) is a strong predictor of
patients projected time to relapse, the primary endpoint of the trial. All
participants in the trial had a CA 125 level below 35 U/mL, heretofore
considered within the normal range. Notably, patients at the high end of this
range were determined to be at increased risk for relapse. These patients (high
normal) who received OvaRex(R) MAb demonstrated a statistically significant
(p=0.0397) increase in 6 month relapse free survival over patients receiving
placebo. At the time of the primary endpoint analysis in late 2001 this data
will be strengthened by an additional 93 patients and approximately 24 months of
follow-up since the interim analysis of August 1999. The Company also believes
that the OvaRex(R) benefit could be extended to the low risk group, and
therefore to the population as a whole, since the data set matures enough to
measure such a difference by the time of the primary analysis.



                                       16
<PAGE>   20
         The Company has completed a smaller double-blind placebo-controlled
phase II trial in an ovarian cancer population with more advanced disease
(indicated by an already elevated circulating CA 125 level at the time of
enrollment but no clinical evidence of disease). This trial was designed to
enroll 102 patients but was closed to enrollment at 55 because many patients
refused to be randomized for fear of receiving placebo. The early closing of
this trial leaves it underpowered for purposes of statistical analysis.
Nevertheless, this supportive and well-controlled phase II trial was unblinded
for primary analysis in May 2001. Early reported findings from the analysis are
consistent with the findings of the interim analysis from the lead 345 patient
trial. Specifically, CA 125 level prior to first does of OvaRex(R) MAb (or
placebo) was an important predictor of time to relapse and those patients who
generated an immune response to OvaRex(R) MAb had a significantly improved time
to relapse versus those who did not generate an immune response. Analysis of
this trial is ongoing.

         The Company completed enrollment of 102 patients (identical to the
population in the lead 345 patient trial) in a third controlled phase II trial
in June of 2001. This trial is designed to reconfirm the immune response
observations from both of the double-blind placebo-controlled trials described
above. The data from this trial is expected to be consistent with observations
from each of its other trials and the Company plans to submit immune response
data and preliminary time to relapse data as part of its BLA filing.

         The three trials discussed above were conducted in patients with no
clinical evidence of disease following primary surgery and chemotherapy. In
addition to these three trials (designated pivotal trial and two supportive
randomized, controlled trials), the Company has conducted three open label phase
II clinical trials in over 100 patients with more advanced, relapsed or
chemotherapy refractory ovarian cancer in support of its planned BLA filing.
Consistent with the findings reported from each of the trials described above,
the open label phase II trials indicate that time to disease progression is
positively impacted in patients who generate an immune response to the
administered OvaRex(R) MAb. In addition, in these patients in whom survival is
generally poor, patients who respond to OvaRex(R) MAb therapy (as indicated by
an immune response) demonstrate an overall prolonged survival benefit that
appears to be comparable to salvage chemotherapy but without the associated
toxicities.

         At the time of its planned BLA filing the Company expects to have
treated over 500 patients with advanced ovarian cancer in 6 separate trials.
Importantly, in all trials completed to date, OvaRex(R) treatment has
demonstrated a benign safety profile.

         As part of its planned BLA filing the Company plans to submit its
application in accordance with the FDA's Fast Track, Accelerated Approval and
Priority Review provisions. The Company has a Fast Track designation for
"...delaying (prolonging) the time to recurrence in patients with stage III/IV
ovarian cancer who have undergone standard treatment (surgery and chemotherapy)
and have minimal or no evidence of residual disease". Fast Track designation
also provides the Company with the opportunity to submit its BLA for a "rolling
review" (one section at a time - efficacy, comparability, manufacturing).

         Accelerated Review allows expedited marketing of products that are
intended to treat "serious or life-threatening diseases" such as cancer and is
based on using a surrogate endpoint (time to relapse for OvaRex(R) MAb) as a
predictor of clinical benefit. Under Accelerated Review the amount of
information the Company must submit to gain initial approval could be lessened,
provided follow-up commitments to supplement initial data are adhered to.

         Priority Review is granted by the FDA upon filing of the application if
the product provides a significant improvement in the safety or effectiveness of
the treatment of a serious or life-threatening disease. A Fast Track program
normally meets the criteria for priority review meaning the review time from the
acceptance of the BLA filing is intended to be six months or less.

         The Company plans to begin the BLA filing process in December 2001 or
January 2002 with the submission of the clinical efficacy portion of the BLA and
complete with its manufacturing and comparability submission in mid-2002. At
this point, the six-month review clock will start and the Company could
therefore have approval for OvaRex(R) MAb by year-end 2002.



                                       17
<PAGE>   21
     BREVAREX(R) MAB

         The Company is developing cancer therapeutics based on its platform
technology for the treatment of MUC1 expressing cancers including multiple
myeloma, lung and prostate cancer. This tumor marker, also known as CA15.3 is
mutated in a majority of individuals with multiple myeloma (Treon et. al.,
Blood, 1999).

         Multiple myeloma is a rarely curable disease that was previously
considered to be a bone cancer. It is actually a hematological malignancy
related to leukemias and lymphomas. It accounts for about 10% of all hematologic
cancers. It is estimated that approximately 14,000 new cases will be diagnosed
in the United States in 2000 with a total of about 11,000 deaths (American
Cancer Society, 2000 Cancer Facts & Figures). A steady increase in incidence of
the disease has been noted over the past 30 years. Although multiple myeloma is
sensitive to chemotherapy, with a median survival of three to four years, most
patients are not cured and eventually succumb to their disease.

         Multiple myeloma cells express tumor associated antigens that are ideal
targets for immunotherapy. One such antigen is the core protein of MUC1. The
ability of an antibody to bind to MUC1 is largely dependent on the extent of
alteration of the antigen. In contrast to breast and certain other more common
cancers, MUC1 in multiple myeloma patients is highly altered in virtually every
patient, thereby making antibody therapy targeting the core peptide more
accessible.

         The combination of MUC1 antigen target and the nature of the disease in
question (i.e. a discrete population for whom there is currently no curative
alternative) makes multiple myeloma ideally suited for AltaRex's development
strategy. The Company is pursuing Orphan Drug status for BrevaRex(R) MAb and
should be in a position to petition for Fast Track designation.

         The Company has completed a Phase I trial of BrevaRex(R) MAb in 17
late-stage cancer patients with substantial tumor burden. In this trial, the
Company monitored safety and immunological parameters. Treatment with
BrevaRex(R) MAb was well tolerated and without significant treatment associated
toxicity. In addition, immune responses were induced to both the antibody and
the tumor associated antigen MUCI, to which BrevaRex(R) MAb is targeted. These
immune responses are consistent with the Company's understanding of its
proprietary mechanism for using a low dose foreign antibody to induce immunity
in cancer patients.

     AR54 MAb

         The Company has in-licensed a monoclonal antibody (AR54) to the TAA TAG
72 from the National Institutes of Health that will be developed with the
Company's proprietary technology for the treatment of ovarian and other cancers.
This antibody, as a radiolabelled diagnostic, has been studied extensively,
including more recently at the University of Miami and several centers in
Europe. This prior experience will greatly expedite clinical development and the
Company believes that, following the production of cGMP antibody and preclinical
characterization, clinical evaluation could commence at the Phase II level.

         At the 2000 Annual Meeting of the Society of Gynecological Oncologists,
Dr. Michael Method presented an abstract of encouraging data supporting the use
of AR54 for ovarian cancer on February 8, 2000, entitled, "Clinical Course of
Advanced Stage Ovarian Cancer Patients Following Stimulation of HAMA using
Radiolabeled MoAb B72.2 Prior to Reassessment Laparotomy". Data were from an
open-label clinical study involving consolidation therapy in 25 ovarian cancer
patients (in the same patient population as one of the OvaRex(R) MAb
double-blind placebo-controlled trials) using a single dose of radiolabelled
antibody. Dr. Method reported that the 11 patients (44%) who developed a HAMA
response demonstrated an overall prolonged survival.

         [Graph Demonstrating Dr. Method Abstract MoAb B72.3]

     OTHER INDICATIONS AND PRODUCTS

         The Company's registration strategy is to pursue an initial indication
based on obtaining both Orphan Drug status and Fast Track designation and then
to expand clinical use to additional indications following FDA approval.

         In addition to ovarian cancer and multiple myeloma, OvaRex(R),
BrevaRex(R) and AR54 MAbs may have applicability to other tumors expressing the
target antigens. In the case of OvaRex(R) and AR54 MAbs, this would


                                       18
<PAGE>   22
include endometrial, breast and non-small cell lung cancers, and in respect of
BrevaRex(R) MAb would include breast, prostate and non-small cell lung cancers.
As depicted below, these types of cancer express multiple tumor associated
antigens to which the Company's products are targeted.

         [Table depicting the Company's AIT Antibody Platform]

         The Company's Scientific Advisory Board has endorsed a strategy of
pursuing multiple antibodies for the same tumor type, e.g. ovarian cancer,
thereby enhancing the possibility of effecting additional "cures" than from the
use of a single antibody.

         The Company has commenced further exploratory research and early
preclinical work on two additional antibodies specific to the tumor associated
antigens PSA and CA19.9 for two other potential products, ProstaRex(TM) MAb and
GivaRex(TM) MAb, respectively. The Company has also announced a collaboration
with Epigen Inc. for the development of antibody-based treatments for
potentially twelve cancers associated with the human carcinoma antigen (HCA)
using the Company's proprietary dendritic cell assay and proprietary technology
platform. In addition, a component of the Company's strategy is to continue to
engage in discovery research activities, particularly the possibility of
accessing genomic data pertaining to additional TAAs as part of an external
collaboration, and to develop new technologies for antibody-based
immunotherapeutics to treat diseases in addition to cancer.

CANCER THERAPIES

     OVERVIEW

         Cancer is a disease characterized by uncontrolled growth and spread of
abnormal cells. The disease is believed to occur as a result of a number of
factors such as genetic predisposition and external (chemicals, radiation) and
internal (immune status, hormones) causes. Epidemiologists estimate that the
disease is responsible for the yearly death of approximately six million
individuals throughout the world including approximately 555,000 in the United
States. It is estimated that 40% of all Americans will ultimately be stricken
with the disease. The majority of industrialized nations report similar
statistics (Scientific American, September 1996).

         The world market for cancer therapeutics totals approximately US$ 6.5
billion, and is expected to increase to US$14.7 billion by the year 2002. The
majority of cancer patients are people over the age of 65 and it is anticipated
that as the population continues to age, cancer treatment will likely become the
single largest health care expenditure in the United States, Canada and other
industrialized nations (Frosst and Sullivan, World Cancer Therapeutic Markets,
August 1996).

         To date, traditional approaches to the treatment of cancer have been
based on a combination of surgery, radiation and chemotherapy. Despite the
increasing amount of resources to develop new therapies for cancer, survival
rates for cancer patients have not materially improved over the last 15 years
(American Cancer Society, 1995 Cancer Facts & Figures). Furthermore, the
incidence of cancer is increasing annually, largely the result of the aging of
the general population and increased exposure to environmental carcinogens
(Frosst and Sullivan, World Cancer Therapeutic Markets, August 1996).

     OVARIAN CANCER

         In the United States, Canada and Europe, ovarian cancer causes more
deaths than any other cancer of the female reproductive tract. It is estimated
that in the United States approximately 23,000 new cases of ovarian cancer will
be diagnosed and approximately 14,000 women will die from this disease annually
(American Cancer Society, 2000 Cancer Facts & Figures).

         Although detection of the tumor at an early stage is now associated
with an improved chance for curative treatment, survival figures have not
changed significantly over the past 15 years. This is partially due to a lack of
efficient diagnostic methods or markers for routine tests which could increase
the number of patients diagnosed at the early stage of their disease.
Consequently, in most diagnosed patients, the tumor has already progressed to an
advanced stage (Stage III or IV), making therapeutic approaches more difficult.
The five year survival rates for


                                       19
<PAGE>   23
women with regional (Stage III) and distant (Stage IV) ovarian cancer are 79%
and 28%, respectively (American Cancer Society, 2000 Cancer Facts & Figures).
Patients diagnosed with advanced ovarian cancer usually demonstrate a survival
time of less than two years (Hoskins et al., Journal of Clinical Oncology,
October 1992).

         The therapeutic approach prescribed for those patients whose tumors
have progressed to an advanced stage consists of surgery (debulking) in
combination with adjuvant chemotherapy, which improves the patient's prognosis,
particularly if the residual tumor is smaller than two centimeters in diameter.
Despite the high rate of patients whose advanced stage cancer enters into
clinical remission, 90% of them will eventually suffer a recurrence of their
disease, the median time to disease relapse being 18 months (Hoskins et al.,
Journal of Clinical Oncology, October 1992).

         Those patients who either have residual tumors larger than two
centimeters or are left with progressive disease, or a no change situation after
first-line chemotherapy, have a particularly poor prognosis. These individuals
typically require additional chemotherapy within a period of only a few weeks or
months. Second-line chemotherapy, however, suffers from a lack of suitable
therapeutic agents as the tumors have usually become chemoresistant due to their
inherent heterogeneity and adaptability to preceding first-line treatment.

         In recent years, new chemotherapeutic agents used either as single
treatments or in combination with other therapeutic agents have demonstrated an
increase in survival time by as much as 50%. However, despite their apparent
positive effect on survival time, these agents are generally associated with
significant toxicity and side effects which reduce the patient's quality of
life.

         Given the rigors of repeated chemotherapeutic treatments, and taking
into account the low response rates and the modest effects on survival time,
patient quality of life has become a major issue. This is increasingly true as
ovarian cancer affects a large number of older and postmenopausal women.

     BREAST CANCER

         Breast cancer is the most frequently diagnosed cancer in women. In
North America, breast cancer accounts for close to 18% of female cancer deaths;
it is exceeded only by lung cancer which has shown a resurgence since 1985. In
2000, approximately 183,000 new cases of breast cancer are expected to be
diagnosed in the United States alone, with approximately 41,000 patients dying
from it during the year (American Cancer Society, 2000 Cancer Facts & Figures).

         Breast cancer is typically considered a slow growing tumor. However,
some patients suffer from a more aggressive form of the disease and do not
respond well to any intervention. The disease has a propensity to metastasize to
distant sites in the body, beginning with nearby lymph nodes and then to other
sites such as the bone, liver and brain.

         Survival is excellent with early stage disease and poor when extensive
disease is present. The use of aggressive screening with technologies such as
digital mammography appears to play an important role in mitigating early death
due to the disease. For the treatment of breast cancer, surgical treatment,
either lumpectomy or mastectomy, is usually combined with radiation therapy,
chemotherapy or hormonal therapy. Multi-agent chemotherapy is the usual form of
treatment. The five year survival rate is 96% for patients with localized breast
cancer, 77% for patients with regional disease and 21% in women with distant
metastases (American Cancer Society, 2000 Cancer Facts & Figures).

     GASTROINTESTINAL CANCERS

         Cancers of the gastrointestinal tract consist of three significant
cancer diseases; colorectal, stomach and pancreatic. New cases in the U.S. in
2000 for these three diseases are estimated to be 130,000, 22,000 and 28,000
respectively. Moreover, it is estimated that 56,000, 13,000 and 28,000 Americans
will die in 2000 from these three cancers, respectively (American Cancer
Society, 2000 Cancer Facts & Figures).

         Colorectal cancer comprises the largest group, about 72%, of all new
cases of gastrointestinal cancer. At the time of diagnosis, approximately 75% of
patients with colon cancer have local or regional disease and 25% have


                                       20
<PAGE>   24
metastatic disease (Rubin (ed), Clinical Oncology, 7th Edition, 1993). The
primary method of treatment of colorectal cancer is surgery, often in
conjunction with subsequent radiation therapy. Approximately 61% of patients who
undergo surgery for locoregional colon cancer have developed recurrence of the
disease. Most recurrences (70%) occur within two years and almost all (90%)
within five years (Rubin (ed.), Clinical Oncology, 7th Edition, 1993). Adjuvant
chemotherapy has been shown to increase survival in patients with locoregional
(Dukes' C) colon cancer. The five year survival rate for early localized
colorectal cancer is about 90%, for regional disease 65%, and less than 8% for
metastatic disease (American Cancer Society, 2000 Cancer Facts & Figures).

     PROSTATE CANCERS

         Prostate cancer is the second most common cause of cancer death of men
in the United States. It is estimated that there will be 180,000 new cases and
32,000 deaths from prostate cancer in the U.S. during 2000. Fifty-eight percent
of all cases are discovered while still localized. The 5-year relative survival
rate for patients whose tumor is diagnosed at this stage is 100%. Overall, 67%
of men diagnosed with prostate cancer survive 10 years and 50% survive 15 years
(American Cancer Society, 2000 Cancer Facts & Figures).

         Management believes that notwithstanding these impressive survival
figures, with an aging population the numbers of deaths due to prostate cancer
will increase with time. More importantly, there is a significant opportunity in
patients with advanced disease since current therapy for this population is very
limited.

     REGULATORY APPROVAL PROCESS

     REGULATORY REQUIREMENTS

         Regulations imposed by governmental authorities in Canada and the
United States, as well as their counterparts in other countries, are a
significant factor in the conduct of the research, development, manufacturing
and eventual marketing activities for the Company's proposed products. In
Canada, these activities are regulated by the Food and Drug Act (Canada) and the
rules and regulations promulgated thereunder, which are enforced by the
Therapeutic Products Programme of Health Canada. Drugs and biological products
are subject to rigorous regulation by the FDA in the United States and by EMEA
in Europe. The regulatory processes in Canada, the United States and Europe
follow similar essential steps although timing and results may be different.

         The regulatory process for the development and approval of a new drug
includes the conduct of preclinical and clinical trials. The duration of those
trials and number of subjects required to meet the requirements of the various
authorities may vary according to, among other things, the disease studied, the
seriousness of the side effects, whether there is any current or conventional
therapy, the size of the target population, and the nature of the proposed
treatment.

     PRECLINICAL EVALUATION

         The purpose of preclinical evaluation is essentially to determine the
safety, pharmacokinetics and efficacy of a new drug in animals before it is
administered to humans. The data collected during preclinical studies must be
presented in the form of an IND application to the regulatory authorities in the
country where clinical trials will be conducted. In the United States, unless
otherwise notified, clinical trials may begin 30 days after the IND application
is filed, whereas in Canada, clinical trials may not begin until 60 days after
the application is submitted and upon receipt of a "no objection" letter.

     CLINICAL TRIALS

     PHASE I CLINICAL TRIALS

         Phase I clinical trials are commonly performed in healthy human
subjects or, more rarely, in selected patients with the targeted disease or
disorder. The objective of these trials is to study the pharmacokinetics and
pharmacodynamics of the drug, as well as the toxicity of the treatment and the
patient's tolerance to it. Data regarding the absorption, distribution,
metabolism and excretion of the drug is also compiled in Phase I clinical
trials.



                                       21
<PAGE>   25
     PHASE II CLINICAL TRIALS

         In Phase II clinical trials, preliminary evidence is sought regarding
the pharmacological effects of the drug and the desired therapeutic efficacy
with a small number of patients with the targeted disease. At this stage,
efforts are made to evaluate the effects of various dosages and to establish an
optimal dosage level and dosage schedule. Additional safety data may also be
compiled from these trials.

         Phase IIb (sometimes called Phase II/III) trials can be undertaken for
serious or fatal diseases and consist of well-controlled trials to evaluate
efficacy (and safety) in patients with the disease or condition to be treated,
diagnosed or prevented which may be deemed to be pivotal. Phase IIb trials can
lead to early approval by the FDA of the product for commercial sale conditional
upon the completion of subsequent Phase III post-market information studies.
Phase IIb trials incorporate certain design and control features of Phase III
trials. If data collected from Phase IIb trials is statistically significant,
authorization for Fast Track approval may be sought from the FDA.

     PHASE III CLINICAL TRIALS

         The Phase III clinical development program generally consists of
expanded, large-scale studies of patients with the targeted disease or disorder
so as to obtain definitive statistical evidence of the efficacy and safety of
the proposed product and dosing regimen in comparison with standard therapy.

         After an appropriate analysis, the TPP, FDA or EMEA may interrupt
clinical trials at any stage if the drug has a clear efficacy advantage or,
alternatively, if the health of the subjects is threatened or the side effects
are not compensated for by the drug's benefits.

     REGULATORY APPROVAL

         Once Phase III clinical trials have been completed, the applicant will
compile all results, as well as all information concerning the product and its
composition, synthesis, manufacture, packaging and labeling methods, for the
purpose of obtaining approval to market the product. This application is known
either as a New Drug Application ("NDA") or a Biologics License Application
("BLA") for a well-characterized biologic, such as a monoclonal antibody, or a
combination of a Product License Application ("PLA") and an Establishment
License Application ("ELA") for all other biologicals in the United States and
as a New Drug Submission ("NDS") in Canada. Government authorities may require
that additional trials be performed after the product is marketed to assess its
long-term effects.

         Since drug manufacturing is also regulated, the applicant is required
to ensure that it complies with cGMP's, which are quality standards that require
the control of production activities, raw-material procurement, complaint
management, product recalls, labeling and promotional material. In addition to
these standards, which are common to all drugs, certain biologics are subject to
ELAs and lot by lot release agreed to by FDA to ensure batch to batch
comparability.

         In certain circumstances, the FDA may expedite the development,
evaluation and marketing of new drugs used for the treatment of serious diseases
for which there is no other satisfactory treatment by granting such programs a
Fast Track designation.

     ORPHAN DRUG STATUS

         Orphan Drug designation is designed to facilitate the introduction of
drugs into the market in the United States for use in treating rare diseases or
conditions. The disease must affect fewer than 200,000 patients in the United
States. Upon obtaining marketing approval for the drug, the FDA will grant a
period of seven years during which no approval will be given to a subsequent
sponsor of the same drug product for the same indication. The only exception to
this is if a competitor can show superiority of a second product which generally
requires a head to head comparison. Written application for Orphan Drug status
must be submitted to the Office of Orphan Drug Products Development of the FDA
and must include documentation supporting the request for the particular
indication. Orphan Drug designation also allows the manufacturer to apply for
grants from the United States government to


                                       22
<PAGE>   26
help defray the cost of the clinical testing of the drug in the United States
and may allow for faster review of pending United States patent applications
filed with the United States Patent and Trademark Office.

         AltaRex has received Orphan Drug status for OvaRex(R) MAb for ovarian
cancer (prevalence of 191,000 patients, ACS SEER 1996-1999), is pursuing Orphan
Drug status for BrevaRex(R) MAb for multiple myeloma and expects to pursue
Orphan Drug status for its other antibodies.

     FAST TRACK DESIGNATION

         Fast Track designation is a result of the FDA Modernization Act of 1997
("FDAMA") and is intended to facilitate development and expedite review of drugs
to treat serious and life-threatening conditions that fill an unmet medical
need. It allows the FDA to approve a marketing application for a product that
shows efficacy on either a defined clinical endpoint or a reasonably predictive
surrogate endpoint. It also allows the FDA to review the marketing submission on
a rolling basis, thereby shortening the review time. FDAMA also specifies FDA's
ability to approve marketing applications based on one, well controlled trial if
sufficient supporting data is available.

         In December 1998, AltaRex received FDA Fast Track designation for
OvaRex(R) MAb for the treatment of late stage ovarian cancer in patients
following primary treatment with surgery and chemotherapy.

STRATEGIC ALLIANCES AND LICENSE AGREEMENTS

         As part of its business strategy the Company intends to seek to enter
into strategic relationships with strategic partners to commercialize products
and to participate in and finance the later stage development of products.
Alternatively, the Company may elect to market its products on its own in niche
markets in North America. The major objectives in seeking such strategic
partnerships include:

         -        Minimizing development expenditures through cost sharing
                  programs;

         -        Arranging for access to the resources and experience of
                  pharmaceutical and large biotechnology corporations; and

         -        Maximizing long term profit streams from commercialization of
                  the Company's products without the investment in significant
                  infrastructure.

         The Company has no current plans for developing in-house manufacturing,
marketing or sales capabilities. The Company believes that the biopharmaceutical
industry has adequate manufacturing, marketing and sales capacity, which the
Company believes it may access through contractual or partnership arrangements.

         The Company's current alliances and collaborative partnerships are
described below.

     GENESIS PHARMA, MEDISON PHARMA AND DOMPE FARMACEUTICI

         In June and July 2000, the Company announced the signing of memoranda
of understanding with Genesis Pharma S.A. ("Genesis Pharma") and Medison Pharma
Ltd. ("Medison Pharma"), respectively, to establish joint ventures for the
commercialization of OvaRex(R) MAb and cancer therapeutics of the Company. The
agreement with Genesis Pharma covers the territories of Greece, Turkey, Cypress
and the Balkans. The agreement with Medison Pharma covers the territories of
Israel and the Middle East. Under the agreements, the Company will supply
Genesis Pharma and Medison Pharma with clinical drug supply while those entities
will be responsible for any local development costs. Genesis Pharma and Medison
Pharma will utilize their sales forces and provide infrastructure for
distribution of the Company's products upon receipt of regulatory approval of
such products. The resulting profits of the joint ventures from product
commercialization will be shared equally by the parties. As part of these
arrangements, the Company issued 18,512 Common Shares to Medison Pharma and an
affiliate and 18,750 Common Shares to principals of Genesis Pharma in August
2000, for aggregate gross proceeds of approximately $300,000.



                                       23
<PAGE>   27
         On November 15, 2000, the Company entered into a memorandum of
understanding with Dompe Farmaceutici S.p.A to establish a strategic business
alliance for the commercialization of OvaRex(R) MAb in a territory that includes
Italy, Spain, Portugal, Switzerland, Austria and certain Eastern European
countries. Under the terms of the memorandum, the Company is responsible for
global product development and registration. Dompe becomes responsible for
certain OvaRex(R) MAb clinical trial obligations, including clinical trial
costs, and for product marketing, sales and distribution of OvaRex(R) MAb in the
territory. The Company and Dompe will share profits after expenses as
contemplated in the memorandum. Dompe escrowed US$5 million to be used to
purchase 3,522,727 Common Shares on a private placement basis at a price of
Cdn$2.20 per share, which transaction closed on December 22, 2000. In addition,
Dompe has an option to purchase an additional US$5 million in Common Shares on a
private placement basis concurrent with a future U.S. public offering of Common
Shares based on the then current market price, subject to regulatory approval.
Additionally, the agreement provides that Dompe will pay up to US$1.25 million
upon the commercialization of OvaRex(R) MAb in Spain and Portugal. In June 2001,
Dompe entered into an agreement with FAES S.A. of Spain whereby FAES will
commercialize OvaRex(R) MAb in Spain and Portugal. FAES invested in the
Company's June 2001 Special Warrant Offering and the Company has agreed with
Dompe that such investment satisfies Dompe's milestone obligation to AltaRex for
commercialization of OvaRex(R) MAb in Spain and Portugal.

     EPIGEN INC.

         In June 2001, the Company announced the signing of a memorandum of
understanding establishing a joint collaboration with Epigen Inc. for the
research and development of antibody-based treatments for potentially twelve
cancers associated with the human carcinoma antigen (HCA). HCA is Epigen's
proprietary antigen that appears in circulation in early stage disease and is
associated with the vast majority of epithelial cancers including ovarian,
prostate, breast and non small cell lung cancers.

         Epigen brings to the collaboration the antigen HCA and a series of
foreign monoelonal antibodies specific to HCA. AltaRex brings to the
collaboration its proprietary dendritic cell assay that will be utilized to
evaluate which, if any, of Epigen's antibodies are capable of inducing
beneficial immune responses against the target antigen. Additionally, AltaRex is
contributing a license to its intellectual property related to its ability to
elicit immune system responses against a target antigen in circulation, the
mechanism the companies believe is operable.

     ALBERTA RESEARCH COUNSEL, INC.

         The Company has licensed a family of four US issued patents and foreign
counterparts from the Alberta Research Council, Inc. (ARC). These patents allow
the Company to extend its technology to the development of treatments in the
area of autoimmune/inflammatory disease, such as multiple sclerosis, Crohn's
disease and allergy/asthma.

     DRAXIMAGE INC.

         The Company is a party to an alliance agreement with Frosst
Radiopharmaceuticals (a division of Merck Frosst Canada Inc.) dated February 20,
1996 and assigned to Draximage Inc. ("Draximage"), a wholly-owned subsidiary of
Draxis Health Inc. ("Draxis Health"), by agreement dated August 1, 1997 (the
"Draxis Alliance Agreement"). Under the Draxis Alliance Agreement, the Company
and Draximage have agreed to collaborate on the manufacture of pilot and
scale-up batches of OvaRex(R) MAb. Draximage has agreed to manufacture
(fill/finish) vials of OvaRex(R) MAb for clinical trials at a fixed price per
vial and may have certain rights with respect to the manufacture and/or
marketing of the OvaRex(R) MAb drug in Canada for commercial purposes. There are
various conditions to be fulfilled by the parties before such manufacturing
and/or marketing can commence.

     UNIVERSITY OF ALBERTA & NOUJAIM INSTITUTE

         In 1998, the Company entered into a three year collaborative research
agreement (the "NI Research Agreement") with the University of Alberta and its
Noujaim Institute for Pharmaceutical Oncology Research (the "Noujaim
Institute"). Under the NI Research Agreement, the Noujaim Institute performed
research on behalf of and at the direction of the Company in the development of
tumor binding agents and therapeutic compositions. During the term of the NI
Research Agreement the Company compensated the University for services rendered
in an


                                       24
<PAGE>   28
amount up to $300,000 per year. The NI Research Agreement terminated on March
31, 2000. The Company may also owe to the University a royalty on any net sales
(as defined in the NI Research Agreement) derived from a prostate cancer
immunotherapeutic composition developed under the NI Research Agreement.

     ALBERTA HERITAGE FOUNDATION AGREEMENT

         The Alberta Heritage Foundation for Medical Research ("AHFMR") is a
foundation established by the Government of the Province of Alberta to support
medical research in the Province of Alberta. AHFMR contributed $500,000 to the
funding of the current Canadian double blind placebo-controlled trial of
OvaRex(R) MAb pursuant to an agreement dated March 1, 1997 (the "AHFMR
Agreement"). Commencing on the earlier of March 1, 2002 and the first
anniversary of regulatory approval of OvaRex(R) MAb, the Company is required to
pay to AHFMR on an annual basis an amount equal to the lesser of 5% of the gross
product sales (as defined in the AHFMR Agreement) received from
commercialization of OvaRex(R) MAb and $100,000. The maximum total payments by
the Company under the AHFMR Agreement are $1 million.

     BIOMIRA LICENSE AGREEMENT

         The Company holds an exclusive worldwide license from Biomira Inc.
("Biomira") for the use of the murine working hybridoma cell bank and murine
antibody MAb B43 (the "B43 Technology") for all anti-idiotype induction
applications and products, as well as for the use of such related experimental
and clinical data for anti-idiotype induction applications and products. MAb B43
is the functional component of the OvaRex(R) MAb product.

         The Company obtained the license from Biomira pursuant to a license
agreement dated November 24, 1995 (the "Biomira License Agreement"). Under the
terms of the Biomira License Agreement:

         -        The Company paid an up-front fee of $150,000;

         -        The Company agreed to use its best efforts to commercialize
                  the B43 Technology;

         -        The Company agreed to spend a minimum of $3,000,000 to develop
                  the B43 Technology from December 1, 1995 to December 1, 1999;
                  and

         -        The Company agreed to pay a royalty to Biomira on the sale of
                  any products developed using the B43 Technology as set out in
                  the Biomira License Agreement.

         The Biomira License Agreement only pertains to the products that will
potentially use MAb B43 or a derivative thereof. Products developed by the
Company which do not incorporate the B43 Technology are not subject to the
Biomira License Agreement.

     BIOMIRA SETTLEMENT

         In February 1999, Biomira commenced legal action against AltaRex and
certain individuals affiliated with AltaRex asserting Biomira's ownership of an
invention disclosed in an international patent application filed by AltaRex. In
March 1999, AltaRex filed suit against Biomira seeking a declaratory judgement
concerning the terms of a license agreement between the companies and for
certain breaches of contract. On September 3, 1999, AltaRex and Biomira Inc.
announced that they had reached a settlement with respect to issues that were
the subject of litigation between the two biotechnology companies. In addition
to the termination of the respective lawsuits the settlement included the
following:

         -        The license agreement that was the subject of AltaRex's suit
                  against Biomira was amended and restated to clarify certain
                  terms of the agreement that had given rise to issues raised by
                  each of the parties.

         -        Biomira agreed to assign to AltaRex any interest Biomira might
                  have in the patent application that was the subject of
                  Biomira's lawsuit against AltaRex. AltaRex granted to Biomira
                  a royalty-free,


                                       25
<PAGE>   29
                  non-exclusive license, if and when this patent issues, in
                  relation to antigen-based or idiotypic cancer vaccines. This
                  agreement will also extend to two additional antibodies, one
                  of which will be royalty-bearing to AltaRex.

         -        AltaRex has paid, on behalf of Biomira, a $4.2 million
                  repayment of Biomira's liability to Industry Canada, an agency
                  of the Canadian government, under a 1991 contribution
                  agreement. AltaRex will similarly fund a $250,000 liability to
                  the Alberta Government, under a separate contribution
                  agreement, upon successful commercialization of OvaRex(R) MAb.
                  Both governments had financially supported research and
                  development work at Biomira, and Biomira Research Inc., that
                  ultimately principally benefited AltaRex. As a result of the
                  above, the Industry Canada agreement has been terminated.

MANUFACTURING

         The Company does not currently manufacture any of its products and has
no immediate plans to establish manufacturing facilities for commercial
production of its therapeutic products. Instead, the Company's strategy is to
manufacture and commercialize its products through strategic alliances and
licensing agreements with major pharmaceutical companies.

         The Company has entered into an agreement with Abbott Laboratories for
the remaining development, scale-up, process validation and clinical and
commercial supply of OvaRex(R) MAb. Initial commercial supply terms are for five
years post product launch with the Company holding options for renewal and
extension of the term. Abbott Laboratories will be the Company's exclusive major
market supplier, if they meet certain conditions, in North America, Europe and
Japan. The agreement is cancelable by the Company under certain conditions.

COMPETITION

         The biopharmaceutical industry is intensely competitive. Many
companies, including other biopharmaceutical companies and biotechnology
companies, are actively engaged in activities similar to those of the Company,
including research and development of drugs for the treatment of cancer. More
specifically, competitors for the development of new therapeutic products to
treat cancer also focus on MAb-based cancer therapeutics, cancer vaccines and
other approaches that are based on either stimulation of the body's own immune
response or on MAbs. Many of these companies have substantially greater
financial and other resources, larger research and development capabilities and
more extensive marketing and manufacturing organizations than the Company. In
addition, some such companies have considerable experience in preclinical
testing, clinical trials and other regulatory approval procedures. There are
also academic institutions, governmental agencies and other research
organizations which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.

         The Company expects to encounter significant competition for the
pharmaceutical products it plans to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, certain pharmaceutical and biotechnology firms,
including major pharmaceutical companies and specialized structure-based drug
design companies, have announced efforts in the field of immunological therapy
that exploit the presence of TAAs, and the Company is aware that other companies
or institutions are pursuing development of new drugs and technologies directly
targeted at applications for which the Company is developing its
biopharmaceutical products.

         Based on its review of the industry, the Company is not aware of any
other company that is focusing on its technology. There are a number of
companies however, that focus on the broader use of antibodies to treat various
diseases. These companies include Coulter Pharmaceuticals Inc., Genentech, IDEC,
Medarex Inc. and Antisoma plc among others. The Company expects that its
platform technology will attract significant additional competitors over time.
In order to compete successfully, the Company's goal is to develop proprietary
positions in patented drugs for therapeutic markets which have not been
satisfactorily addressed by conventional research strategies and, in the
process, extend its expertise in biopharmaceutical product design.



                                       26
<PAGE>   30
PROPRIETARY PROTECTION

         The Company vigorously pursues a policy of seeking patent protection to
preserve its proprietary technology and its right to capitalize on the results
of its research and development activities and, to the extent it may be
necessary or advisable, to exclude others from appropriating its proprietary
technology. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. The Company plans to prosecute and defend its
intellectual property, including any patents that have issued or may issue, and
proprietary technology. The Company regularly searches for third-party patents
in its fields of endeavor, both to shape its own patent strategy as effectively
as possible and to identify licensing opportunities.

     PATENTS

         In general, the Company pursues a policy of obtaining patent protection
both in the United States and in selected foreign countries for subject matter
considered patentable and important to its business. In addition, a portion of
the Company's proprietary position is based upon the use of technology and
products the Company has licensed from others, including MAb B43 that binds to
an ovarian cancer antigen. This license agreement generally requires the Company
to pay royalties upon commercialization of products covered by the licensed
technology.

         The Company owns 14 pending or provisional United States patent
applications for its therapeutic products and processes most of which have been
or will be filed in countries throughout the world. These patent applications
cover various aspects of the Company's core technology products, processes, and
the methods for their production and use. These patent applications include both
broad and specific claims to various tumor therapies. The Company will continue
to aggressively protect its technology with new patent filings with the intent
of further extending its patent coverage.

         The Company has been granted two patents by the US Patent and Trademark
Office including a patent which covers the Company's novel technology of
administering a low-dose foreign antibody (OvaRex(R) MAb) to any patient whose
cancer expresses the target antigen (CA125) and thereby activating an anti-tumor
response unique to that individual. In addition, the Company has been issued a
patent by each of the Australian and South African patent offices which broadly
covers its technology platform.

     TRADEMARKS AND TRADE NAMES

         The Company also relies upon trademarks and tradenames to protect its
technology. In the United States, the Company has a registered trademark for its
AIT(R) mark and its OvaRex(R) and BrevaRex(R) marks as well as pending
applications for the brand names related to its other developing products. In
addition, the Company has received registration and has pending applications for
registration of its marks and names in other jurisdictions.

     TRADE SECRETS

         The Company also relies in part on trade secrets, unpatented know-how
and continuing technological advancements to maintain its competitive position.
It is the practice of the Company to enter into confidentiality agreements with
employees, consultants and corporate sponsors. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use of
the Company's trade secrets and know-how.

CLINICAL ADVISORY BOARD

         The Company maintains a Clinical Advisory Board ("CAB") composed of
outside internationally recognized clinicians and scientists. The CAB meets
periodically to review the operational aspects of the Company's clinical program
and make appropriate recommendations with regard to the perceived trends and
direction of other companies. The members of the CAB have no rights to the
Company's technology and each member has signed a confidentiality agreement with
the Company. CAB members receive an honorarium of U.S. $15,000 per year. The
current composition of the Advisory Board is:



                                       27
<PAGE>   31
<TABLE>
<CAPTION>
Name                             Institution
----                             -----------
<S>                              <C>
Robert Ozols, M.D., Ph.D.        Fox Chase Cancer Center, USA

Roger Cohen, M.D.                Fox Chase Cancer Center, USA

Richard Margolese, M.D.          McGill University, Canada

Daniel Von Hoff, M.D.            Arizona Cancer Center, USA

James Holland, M.D.              Mount Sinai School of Medicine, New York, USA
</TABLE>

Robert Ozols, M.D. and Ph.D. is Senior Vice President for Medical Science at Fox
Chase Cancer Center, Philadelphia. Dr. Ozol serves as Chairman of the Advisory
Board and is also Medical Director at the Hospital of the Fox Chase Cancer
Center and Professor of Medicine at Temple University. He is currently serving
on the Oncologic Drugs Advisory Committee of the FDA. The recipient of the 1990
Cancer Research Award from the Milken Medical Foundation, Dr. Ozols has also
been elected to the American Society for Clinical Investigation. Dr. Ozols
received his medical degree and a Ph.D. in Biochemistry at the University of
Rochester in New York.

Roger Cohen, M.D. effective July 1, 2001 is a Member of the Fox Chase Cancer
Center and Director, Phase I Clinical Trials Program. Previously he was
Associate Professor at the University of Virginia, Department of Medicine,
Division of Hematology-Oncology and Director of the Clinical Trials Office. Dr.
Cohen is also currently an advisor and consultant to the FDA at the Center for
Biologics Evaluation and Research. Dr. Cohen received his medical degree at
Harvard Medical School and is the recipient of several awards including the FDA
Special Recognition Award.

Richard Margolese, M.D. is a Professor in the Department of Oncology, and
Herbert Black Chair in Surgical Oncology, McGill University. Dr. Margolese is
also Associate Director of Research at Lady Davis Institute, past President of
the National Cancer Institute of Canada and past Co-Chairman of the Management
Committee of the Canadian Breast Cancer Initiative. Dr. Margolese received his
medical degree at McGill University and was awarded the Order of Canada in 1997
- Canada's highest honour for lifetime achievement.

Daniel D. Von Hoff, M.D., F.A.C.P. is director of the Arizona Cancer Center at
the University of Arizona in Tucson. He is also professor of medicine at the
University of Arizona College of Medicine. Dr. Von Hoff is a graduate of
Columbia College of Physicians and Surgeons, New York. He performed his
internship and residency in internal medicine at the University of California,
San Francisco, and followed that with subspecialty training at the National
Cancer Institute, Bethesda, Maryland. He is currently serving as President of
the American Association for Cancer Research, which is the largest cancer
research organization for professionals in the United States. Dr. Von Hoff is
internationally known for his work in drug development research and has been
involved in laboratory and clinical studies of more than a dozen new anticancer
agents that have been approved by the FDA.

James Holland, M.D. is Distinguished Professor of Neoplastic Diseases,
Department of Medicine, Mount Sinai School of Medicine, New York. Dr. Holland
holds both a Medical Doctorate degree from Columbia University and a Doctor
Science degree from State University of New York. He is past-President of both
the American Society of Clinical Oncology and the American Association of Cancer
Research and has contributed to over 590 scientific publications.

SCIENTIFIC ADVISORY BOARD

         The Scientific Advisory Board of the Company is composed of
internationally recognized scientists. The Board meets to review the operational
aspects of the Company's technology and discovery research programs. With the
exclusion of Dr. Noujaim, Scientific Advisory Board members receive an annual
honorarium of U.S.$5,000 plus additional per diem amounts as outlined in their
agreements with the Company.



                                       28
<PAGE>   32
<TABLE>
<CAPTION>
Name                                Institution
----                                -----------
<S>                                 <C>
Antoine Noujaim, Ph.D.              AltaRex Corp. (Chief Scientific Officer), USA and Canada

Jeffrey Schlom, Ph.D.               National Cancer Institute at the National Institutes of Health, USA

Aldo Serafini, M.D.                 University of Miami, USA

Constantin Bona, M.D., Ph.D.        Mt. Sinai School of Medicine, USA

Dean Mann, M.D., Ph.D.              University of Maryland, USA
</TABLE>

Antoine Noujaim, Ph.D. is Chairman of the Board of Directors, Chairman of the
Scientific Advisory Board and Chief Scientific Officer at AltaRex Corp. He is
also presently a Professor Emeritus at the University of Alberta. He was the
co-founder of Biomira Inc. in 1985 where he assumed the position of Senior Vice
President and Chief Operating Officer for the Immunoconjugate Division of the
Company. In 1994, he became President of Biomira Research Inc., a fully owned
subsidiary of Biomira Inc. In December 1995, he founded AltaRex. Dr. Noujaim
received his undergraduate degree in Pharmacy from Cairo University in 1958. He
obtained his Master and Ph.D. degree in Bionucleonics from Purdue University in
1963 and 1965 respectively. He joined the University of Alberta as an Assistant
Professor of Nuclear Pharmacy in 1966, was promoted to full Professor in 1973,
and chaired this Division for several years.

Jeffrey Schlom, Ph.D. is Chief of the Laboratory of Tumor Immunology and Biology
at the National Cancer Institute at the National Institutes of Health. Dr.
Schlom received his B.S. from Ohio State University in 1964, his M.S. from
Adelphi University in 1966, and his Ph.D. in 1969 from the Waksman Institute of
Microbiology at Rutgers University. He is a member of several professional
societies and advisory boards. In addition, he has authored more than 500
scientific publications and holds numerous patents for monoclonal antibody and
recombinant vaccine generation and uses. Dr. Schlom currently serves on the
editorial boards of nine scientific journals and has won numerous scientific
awards.

Aldo Serafini, M.D. has been a Professor of Medicine and Radiology at the
University of Miami, School of Medicine since 1984. Dr. Serafini received a M.D.
degree from the University of Witwatersrand, Johannesburg, South Africa in 1966.
From 1967 to 1972, he was a resident physician at the Jackson Memorial Hospital
in Miami. Dr. Serafini is a member of the attending staff at the University of
Miami Hospital and Clinic, the University of Miami/Jackson Memorial Medical
Center and at the Cedars Medical Center in Miami. Dr. Serafini has numerous
teaching, university committee and administrative responsibilities and is on the
editorial board and acts as a reviewer for several academic journals. Dr.
Serafini has had 10 visiting professorships awarded to him and has had over 233
publications including articles, books, monograms and abstracts.

Constantin Bona, M.D. is professor of Microbiology at the Mt. Sinai School of
Medicine, New York, New York. As the author of more than 280 scientific
publications and 12 textbooks in the field, Professor Bona's contributions have
been most influential in bringing forth the potential of this technology in the
area of cancer therapy. He is also a member of the Royal Society of Medicine,
Chief Editor of four International Scientific journals, and serves on the
Editorial Board of more than 16 other journals.

Dean Mann, M.D., Ph.D. is head of the Division of Immunogenetics at the
University of Maryland and has served for more than 25 years at the National
Cancer Institute ("NCI") in various capacities including Head of Biochemical
Epidemiology and Head of Immunogenetics at the NCI. His work, which was
published in more than 220 scientific manuscripts, is recognized for its
contribution in the field of viral immunology and its relationship to cancer.
Dr. Mann received a M.D. degree from the St. Louis University School of
Medicine, St. Louis, MO.

ORGANIZATIONAL STRUCTURE

         AltaRex is a corporation amalgamated under the laws of the Province of
Alberta. On June 27, 1997 articles of amendment were filed to provide that
meetings of shareholders may be held at any place within Canada and the United
States. The registered office of AltaRex is located at 1900, 715-5 Avenue SW,
Calgary, Alberta, T2P 2X6. The executive offices of AltaRex are located at 610
Lincoln Street, Waltham, Massachusetts 02451.



                                       29
<PAGE>   33
         AltaRex US, Corp. ("AltaRex US"), the Company's only subsidiary, was
incorporated under the laws of the State of Delaware and is wholly-owned by the
Company. With offices located in Waltham, Massachusetts, AltaRex US directs the
executive, business development, clinical, regulatory, development,
manufacturing, finance and investor relations efforts of the Company.

PROPERTY, PLANT AND EQUIPMENT

         The Company's research and development facility is located at 1134
Dentistry Pharmacy Building, University of Alberta, Edmonton, Alberta T6G 2N8
which, as of July 2000, includes the Company's Canadian office. The Company's
executive offices as of October 2000 are located at 610 Lincoln Street, Waltham,
Massachusetts 02451. Prior to October 2000, the Company's executive offices were
located at 303 Wyman Street, Waltham, Massachusetts, 02451. Each of the above
premises are or were leased by AltaRex.

         The Canadian lease is for a term of five years, terminating on July 31,
2002. The U.S. lease is for a term expiring on August 31, 2002. The total lease
costs under leases for the Company's lab and office space, net of the impact of
a sub-lease for a portion of the U.S. offices, were approximately $474,000 for
the fiscal year ending December 31, 2000 and are expected to be approximately
$500,000 for the fiscal year ending December 31, 2001.

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         The following discussion and analysis explains trends in the Company's
financial condition and results of operation for the years ending December 31,
2000, 1999 and 1998. This discussion and analysis of the results of operations
and financial condition should be read in conjunction with the financial
statements and the related notes included elsewhere in this document. The
financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada.

OVERVIEW

         The Company's business is the research, development and
commercialization of biopharmaceutical products for the treatment of cancer.
Substantially all of the Company's products are subject to regulation by the TPP
in Canada, the FDA in the United States, the EMEA in Europe and similar agencies
in other countries. None of the Company's products have been approved by
regulatory agencies for sale to date. The Company has not been profitable since
inception and expects to continue to incur substantial losses in continuing the
research, development and clinical trials of its products. The Company does not
expect to generate significant revenues until such time as, and unless, its
cancer therapeutic products are approved by the various regulatory agencies and
become commercially viable.

RESULTS OF OPERATIONS

         Through the Company's predecessor AltaRex Inc., the Company commenced
operations on December 1, 1995 and completed its first full year of operations
on December 31, 1996. As of December 31, 2000, the Company has incurred
cumulative losses of $61.9 million. This includes annual losses of $17.7
million, $24.0 million, $13.1 million, and $4.7 million for the years ended
December 31, 2000, 1999, 1998 and 1997 respectively, and a loss of $2.4 million
for the period from inception on December 1, 1995 to December 31, 1996. These
losses are primarily due to the cost of clinical and product development
activities, supporting efforts in product commercialization and the settlement
of outstanding litigation in 1999. Costs for research and development and
supporting activities decreased in 2000 as a result of cost reduction activities
in late 1999. However, if financial resources allow, the Company expects such
costs to increase in 2001 as it pursues its development, clinical trials and
commercialization programs prior to receiving regulatory approvals and the
successful introduction of its products. On November 21, 2000, the Company
consolidated its outstanding Common Shares on a one-for-four basis. All share
and per share amounts herein have been adjusted to reflect this share
consolidation.



                                       30
<PAGE>   34
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.

     REVENUES

         Revenues for the year ended December 31, 2000 decreased by $0.3
million, from $0.7 million for the year ended December 31, 1999 to $0.4 million
for the year ended December 31, 2000. The decrease is due to the completion of a
grant in 1999, which contributed $65,000 to revenue in the first quarter of
fiscal 1999, and to lower interest income as a result of lower average levels of
cash equivalents and short-term investments in the year ended December 31, 2000
as compared to the year ended December 31, 1999.

     EXPENSES

         Expenses for the year ended December 31, 2000 decreased by $6.6
million, from $24.7 million for the year ended December 31, 1999 to $18.1
million for the year ended December 31, 2000. Expenses for the year ended
December 31, 1999 included $5.1 million related to the settlement of litigation
(See "Item 4: Information on the Company - Biomira Settlement"). Research and
development expenses decreased by $0.8 million, from $12.8 million for the year
ended December 31, 1999 to $12.0 million for the year ended December 31, 2000.
This decrease is primarily due to operational changes made in the fourth quarter
of 1999 to focus on the development of OvaRex(R) MAb. Clinical trial and product
development costs for OvaRex(R) MAb were largely unchanged from 1999 to 2000,
but such costs decreased by approximately $0.8 million for other products,
primarily BrevaRex(R) MAb, due to completion or deferral of work.

         General and administrative expenses decreased by $0.7 million, from
$6.8 million for the year ended December 31, 1999 to $6.1 million for the year
ended December 31, 2000. This decrease reflects decisions made to reduce costs,
resulting in decreases in spending in many areas, particularly consulting,
professional services and travel.

         The Company anticipates that research and development expenses will
increase in 2001, as financial resources allow, as the Company nears completion
of clinical trials, continues OvaRex(R) MAb product development efforts,
approaches the submissions for regulatory approval for OvaRex(R) MAb and
continues development of other product candidates. Similarly, the Company
anticipates that general and administrative expenses will also increase in 2001
in support of corporate and business development activities. The actual levels
of research and development and general and administrative expenditures are
dependent on many factors, including the progress and results of ongoing
clinical and development work, the cost, timing and outcome of the regulatory
process, the costs of materials, the cost of preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims, the availability and cost of
required personnel, the cash resources available to the Company and the extent
to which the Company enters into affiliations with one or more corporate
partners for the ongoing development and commercialization of its products. See
"-- Liquidity and Capital Resources".

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.

     REVENUES

         Revenues for the year ended December 31, 1999 decreased by $0.3
million, from $1.0 million in 1998 to $0.7 million in 1999. Interest income
decreased by $0.3 million, from $0.9 million in 1998 to $0.6 million in 1999,
due to a lower average balance of cash, cash equivalents and short-term
investments in 1999. Research contract revenue from government research
contracts remained relatively constant in 1998 and 1999.

     EXPENSES

         Expenses for the year ended December 31, 1999 increased by $10.6
million, from $14.1 million in 1998 to $24.7 million in 1999. Research and
development expenses increased by $3.4 million, from $9.4 million in 1998 to
$12.8 million in 1999. This increase is primarily due to the advancement and
continued expansion of the Company's clinical trial programs which included the
acceleration of and increase in enrollment in the North American OvaRex(R) MAb
lead double-blind placebo-controlled trial, the commencement of a second
double-blind placebo-controlled trial for OvaRex(R) MAb and the completion of
enrollment in the OvaRex(R) MAb open-label Phase II and the BrevaRex(R) MAb
Phase I trials. The increase includes costs related to production of antibody
for clinical trial purposes.



                                       31
<PAGE>   35
         General and administrative expenses increased by $2.1 million, from
$4.7 million in 1998 to $6.8 million in 1999. This increase is due to the costs
associated with the first full year of operation of the Company's office in the
United States, the related support costs for increasing research and development
activities and increased corporate development activities and patent related
costs.

         Settlement costs of $5.1 million incurred in 1999 related to the
settlement of outstanding litigation with Biomira that pertained to the claimed
ownership of certain intellectual property rights and breaches of the Biomira
license agreement. These costs incurred included the settlement payment and
legal fees.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         At December 31, 2000, the Company had cash, cash equivalents and
short-term investments of $13.2 million. Included in this balance were
short-term financial instruments with a carrying value, including accrued
interest, of $3.6 million, consisting of obligations of Canadian federal and
provincial governments, as well as corporate obligations. These instruments
carry maturities of nine months or less and their carrying value approximates
fair value. These instruments have a weighted average interest rate of 5.3%. The
Company purchased such financial instruments for investment purposes only and
not for trading or speculative purposes.

         The Company's risks relative to these securities are credit risk and
interest rate risk. Regarding credit risk, the Company mitigates such risk by
investing only in federal or provincial government securities or investment
grade corporate obligations in the form of commercial paper or bankers'
acceptances. Regarding interest rate risk, exposure results from changes in
short-term interest rates or early redemption of securities. These risks are
mitigated by the short-term nature of the portfolio.

FOREIGN CURRENCY EXPOSURE

         The Company currently has a significant portion of its operations in
the United States, including the operation of its U.S. office and the ongoing
administration of clinical trials and development and production activities
related to the Company's products. Accordingly, a significant portion of the
Company's transactions are denominated in U.S. dollars and the Company has an
exposure risk to foreign exchange rates. The Company partially offsets this risk
by maintaining cash balances and short-term investments denominated in U.S.
currency. At December 31, 2000 the Company had $9.9 million (or 75%) of the
total cash and short-term investments invested in U.S. denominated financial
instruments and cash deposits. Other than as mentioned here, the Company does
not actively engage in hedging or other activities to control the risk of its
foreign currency exposure.

LIQUIDITY AND CAPITAL RESOURCES

         Cash, cash equivalents and short-term investments totaled $13.2 million
at December 31, 2000. From AltaRex's inception through December 31, 2000 the
Company has financed its operations primarily through private placements and
public offerings of equity securities, amounting to approximately $72.9 million,
interest income on invested balances amounting to $2.9 million and amounts
received under research contracts of $0.8 million. In December 2000, the Company
completed the sale of 3.5 million Common Shares in a private placement with
Dompe Farmaceutici S.p.A. for net proceeds of $7.7 million. In August 2000, the
Company issued 2.6 million Common Shares in a public offering for net proceeds
of approximately $7.9 million. In February 2000, the Company closed the sale of
1.4 million Special Warrants, convertible into Common Shares at no additional
cost, for net proceeds of approximately $5.4 million. In April 2000, all of the
Special Warrants were exercised for an equal number of Common Shares. In 1999,
the Company sold 9.8 million Common Shares in a public offering for net proceeds
of $17.6 million. Since December 31, 2000, the Company completed a sale of 4.4
million Common Shares in a public offering in February 2001 for net proceeds of
approximately $7.2 million and a sale of 3.0 million Special Warrants in June
2001 for estimated net proceeds of approximately $8.0 million. The Company
currently has no contributing cash flows from operations. As a result, the
Company relies on external sources of financing such as the issue of equity or
debt securities, the exercise of options or warrants and investment income.

         The Company's net cash used in operating activities amounted to $16.4
million, $23.2 million and $11.4 million for the years ended December 31, 2000,
1999 and 1998, respectively, and resulted primarily from its net operating
losses. The Company's investing activities resulted in a net provision of cash
of $1.2 million and $4.2


                                       32
<PAGE>   36
million, respectively, for the years ended December 31, 2000 and 1998 and a net
use of cash of $0.8 million for the year ended December 31, 1998.

         The Company expects to continue to incur substantial research and
development expenses, including expenses related to preclinical studies,
clinical trials, manufacturing and commercialization activities, and supporting
general and administrative expenses. The Company believes that its available
cash, cash equivalents and short-term investments, including the net proceeds of
the February 2001 sale of Common Shares and the June 2001 sale of Special
Warrants, and interest earned thereon, should be sufficient to finance its
operations and capital needs late into the fourth quarter of 2001. The Company's
funding needs may vary depending on a number of factors including progress of
its research and development programs, the number and breadth of these programs,
the results of preclinical studies and clinical trials, the cost, timing and
outcome of the regulatory process, the establishment of collaborations, the cost
of preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, the status of competitive products and the availability of other
financing.

         The Company will seek additional funding through public or private
equity or debt financings from time to time, as market conditions permit, or
through collaborative arrangements. The Company's ability to access the capital
markets or to enlist strategic partners is substantially dependent on the
progress of its research and development programs and regulatory approval of its
products. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available, the Company
may be required to delay, reduce the scope of, or eliminate one or more of its
research and development programs or may be required to significantly scale back
or cease operations.

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND OFFICERS

The Directors and Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME                                  POSITION(S)
----                                  -----------
<S>                                   <C>
Dr. Antoine A. Noujaim                Chairman of the Board and Chief Scientific Officer
Richard E. Bagley(1)                  President, Chief Executive Officer and Director
William R. McMahan(1)(2)              Director
The Honourable Monique Begin          Director
Dr. Jim A. Wright(1)                  Director
Normand Balthazard(1)(2)              Director
Dr. William R. Darrow                 Director
Robert H. Uhl(2)                      Director
Bruce D. Brydon(2)                    Director
Jacques R. Lapointe                   Director
Edward M. Fitzgerald                  Senior Vice President, Chief Financial Officer and Secretary
Dr. Christopher F. Nicodemus          Senior Vice President, Clinical Research and Development
Peter C. Gonze                        Senior Vice President, Operations
Robert A. Newman                      Vice President, Business Development
Marlene R. Booth                      Vice President, Regulatory Affairs and Project Management
Dr. James L. Levin                    Vice President, Manufacturing and Development
Dr. Howard J. Fingert                 Vice President, Clinical Operations and Medical Director
</TABLE>

(1)      Member of Compensation Committee
(2)      Member of the Audit Committee

Dr. Antoine A. Noujaim. Dr. Noujaim is the founder, Chairman and Chief
Scientific Officer of the Company. From inception of the Company to February
1998, Dr. Noujaim was also the President and Chief Executive Officer of the
Company. From 1985 to 1995, Dr. Noujaim was associated with Biomira Inc., a
Canadian publicly-owned biotechnology company as an officer and a director. From
1994 to 1995 he was President of Biomira's subsidiary, Biomira Research. Prior
to 1994 he was Senior Vice President of the Immunoconjugate Division of Biomira.
Dr. Noujaim is also Professor Emeritus of the University of Alberta and a
director of Oncolytics Biotech Inc., a


                                       33
<PAGE>   37
Canadian publicly-owned biotechnology company. Dr. Noujaim has served as an
officer or Chairman of various scientific organizations, editorial boards and
national scientific committees and has authored more than 200 publications.

Richard E. Bagley. Mr. Bagley has been the President and Chief Executive Officer
and a Director of the Company since February 1998. Prior to joining the Company,
Mr. Bagley was Chairman and Chief Executive Officer of ProScript, Inc., a
Massachusetts based biotechnology company from 1995 to 1998 and prior to that he
was President and Chief Executive Officer of ImmuLogic Pharmaceutical Company
("ImmuLogic"), a Massachusetts based publicly-owned biotechnology company. Mr.
Bagley previously held several executive positions with Bristol-Myers Squibb
Company from 1985 to 1990, including President of E.R. Squibb & Sons, U.S. and
President of SquibbMark. Prior thereto, Mr. Bagley held executive positions with
SmithKline Beecham Company from 1968 to 1985, including President of SmithKline
Consumer Products.

William R. McMahan. Mr. McMahan has been a Director of the Company since July
1996. He has served as President of Oxbow Capital Corporation and Oxbow
Investments Inc. from 1993 to present and Director of International Marketing
for Oxbow Research Limited from 1992 to 1993. Mr. McMahan is also the Chief
Operating Officer and a Director of Oxbow Equities Corp., a mutual fund listed
on The Toronto Stock Exchange. Mr. McMahan is a Director of UltraVision, Inc.
(contact lenses) a Canadian publicly-traded company. Mr. McMahan was formerly a
Director of Abacus Software Group Inc., which was the subject of a cease trade
order of the Alberta Securities Commission issued on September 3, 1998.

The Honourable Monique Begin. Ms. Begin has been a Director of the Company since
May 1998. She is Professor Emeritus at the University of Ottawa and has served
as the Dean of Faculty of Health Sciences at the same institution. She is also a
member of the Board of Directors of The National Cancer Institute of Canada. Ms.
Begin is the former Minister of National Health and Welfare Canada from
September 1977 to September 1984 and, in that capacity, authored the Canada
Health Act of 1984.

Dr. Jim A. Wright. Dr. Wright has been a Director of the Company since May 1998.
Since October 1999, Dr. Wright has been a member of the Board of Directors of
Lorus Therapeutics Inc. ("Lorus") and serves as its President. In 1996 Dr.
Wright cofounded GeneSense Technologies Inc. ("GeneSense") and prior to the
recent merger of GeneSense and Lorus, he held various positions in GeneSense
including Chairman of the Board, President and Chief Scientific Officer. Dr.
Wright has also held positions as Professor of Microbiology, Chemistry and
Molecular Biology at the University of Manitoba, Associate Director of the
Manitoba Institute of Cell Biology, Professor of Medical Biophysics, Faculty of
Medicine at the University of Toronto and he has been a Terry Fox Senior
Scientist of the National Cancer Institute of Canada.

Normand Balthazard. Mr. Balthazard has been a director of the Company since
December 1999. Mr. Balthazard is President and Chief Executive Officer of
BioCapital Investments, Limited Partnerships, which he founded in 1990. Mr.
Balthazard has extensive experience in the financing of biotechnology companies.
Mr. Balthazard received, in 1996, the Fondation Armand-Frappier award in
recognition of his contribution to Quebec's biotechnology sector.

Dr. William R. Darrow. Dr. Darrow has been a director of the Company since April
2001. Dr. Darrow has served as Senior Medical Advisor at the Schering-Plough
Research Institute, and as an independent pharmaceutical consultant, from 1994
to present. Dr. Darrow is Chairman of the Scientific Advisory Board and Chief
Science Officer of the PhRMA Foundation. He formerly was Director of the
Pharmaceutical Education and Research Institute.

Robert H. Uhl. Mr. Uhl has been a Director of the Company since April 2001. Mr.
Uhl has served as Senior Vice President and Director of Research of Leerink
Swann & Company from 1998 to present. Previously, he was Vice President and
Specialty Pharmaceutical Analyst at Salomon Smith Barney in 1998. Mr. Uhl was
Vice President and Pharmaceutical Analyst at Salomon Brothers from 1995 to 1997.

Bruce D. Brydon. Mr. Brydon has been a Director of the Company since May 2001.
Mr. Brydon has served as Chief Executive Officer of Biovail Corporation since
1997, and as a Director of that company since 1995. Mr. Brydon was President and
Chief Executive Officer of Biovail Corporation from 1995 to 1997. Previously,
Mr.


                                       34
<PAGE>   38
Brydon was President, Managing Director and Chairman of the Canadian business of
Boehringer Mannheim from 1990 to 1995.

Jacques R. Lapointe. Mr. Lapointe has been a Director of the Company since May
2001. He is recent President and Chief Operating Officer of BioChem Pharma, Inc.
(Montreal, Quebec) from 1998 to 2001. Mr. Lapointe has more than 30 years of
leadership and operational experience with global biotechnology and
pharmaceutical organizations. Prior to BioChem Pharma, Mr. Lapointe was with
Glaxo Wellcome plc for 12 years from 1986 to 1998 and held the positions of
President and CEO of Glaxo Canada as well as Glaxo Wellcome U.K. Mr. Lapointe is
a former Chairman of the Pharmaceutical Manufacturers Association of Canada
(PMCA), now known as Canada's Research-based Pharmaceutical Companies (Rx&D).

Edward M. Fitzgerald. Mr. Fitzgerald has been Senior Vice President, Chief
Financial Officer and Secretary of the Company since September 1998. Prior to
joining the Company Mr. Fitzgerald was a consultant in private practice. From
1992 to 1997, Mr. Fitzgerald was Director, Mergers & Acquisitions and Director,
Consumer Lending Group at BankBoston Corporation. From 1978 to 1992 Mr.
Fitzgerald was with Arthur Andersen & Co. in Boston, holding the position of
Partner from 1989 to 1992. Mr. Fitzgerald is a licensed Certified Public
Accountant.

Dr. Christopher F. Nicodemus. Dr. Nicodemus joined the Company as Senior Vice
President, Medical and Regulatory Affairs of the Company in January 1999 and was
appointed Senior Vice President, Clinical Research and Development in March
1999. Prior to joining the Company, Dr. Nicodemus was Vice President, Medical
Affairs from 1998 to 1999 and Vice President, Clinical Operations from 1997 to
1998 of Diatide Inc., a biotechnology company. From 1993 to 1997 Dr. Nicodemus
was with ImmuLogic, in the position of Vice President, Medical Affairs from 1994
to 1997 and Senior Director, Medical Affairs from 1993 to 1994.

Peter C. Gonze. Mr. Gonze has been Senior Vice President of Operations since
February 2000 and previously held the position of Vice President Investor
Relations and Medical Marketing. He joined the Company in October 1999. From
1996 to 1999, Mr. Gonze served as Divisional Vice President at MediSense
Products, Abbott Laboratories. He was employed by The Griffin Group from 1994 to
1996.

Robert A. Newman. Mr. Newman has served as Vice President, Business Development
for the Company since February 2000. From February 1997 to May 1998 he held the
position of Director of Marketing for the Company and from June 1998 to February
2000, he held the position of Executive Director, Business Development. Mr.
Newman was Marketing Manager, Canada for Ligand Pharmaceuticals from 1995 to
1997 and Marketing/Program Manager for QLT Phototherapeutics 1994 to 1995.

Marlene R. Booth. Ms. Booth has been Vice President of Regulatory Affairs and
Project Management for the Company since June 1999. From 1997 to 1999 she was
Vice President of Project Management, QA and Regulatory at Proscript, Inc. and
from 1995 to 1997, Ms. Booth was employed as Senior Director of Regulatory
Affairs at Biopure Corporation. She held the position of Vice President,
Regulatory Affairs and Quality Assurance from 1992 to 1994 at Ares-Serono.

Dr. James L. Levin. Dr. Levin was appointed Vice President, Manufacturing and
Development in July 2000. From 1992 until July 2000, Dr. Levin held various
positions at Avant Immunotherapeutics, most recently as Vice President,
Operations and previously as Vice President, Pharmaceutical Evaluations and
Regulatory Affairs. Prior to Avant Immunotherapeutics, Dr. Levin was with TSI
Mason Laboratories from 1988 to 1992 attaining the position of Vice President,
Technical Operations.

Dr. Howard J. Fingert. Dr. Fingert was appointed Vice President, Clinical
Operations and Medical Director in February 2001. Dr. Fingert is board-certified
in Internal Medicine, Oncology and Hematology and has extensive experience in
clinical studies, regulatory affairs and the FDA approval process. Most
recently, Dr. Fingert served as Vice President for Clinical Operations and Vice
President for Clinical and Regulatory Affairs for Genta Inc. from 1998 to 2001.
Prior to Genta, Dr. Fingert was Director of Drug Safety and Professional
Services at Serono Laboratories from 1995 to 1998. Previously, with
Rhone-Poulenc Rorer, Inc. (now part of Aventis Pharmaceuticals) from 1993 to
1995, Dr. Fingert directed the drug development of the chemotherapy agent,
Taxotere(R), now used worldwide to treat multiple types of cancer including
ovarian cancer. Dr. Fingert has held faculty positions with Harvard Medical
School, Massachusetts General Hospital, Dana Farber Cancer Institute and Tufts
Medical School, where he conducted clinical and pre-clinical studies of
potential cancer therapeutics.



                                       35
<PAGE>   39
COMPENSATION

     COMPENSATION OF EXECUTIVE OFFICERS

         The following table sets for the compensation paid to Richard E.
Bagley, Dr. Antoine A. Noujaim, Edward M. Fitzgerald, Dr. Christopher F.
Nicodemus and Peter C. Gonze (the "Named Executive Officers") for each of the
fiscal years ended December 31, 2000, 1999, and 1998.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                LONG-TERM
                                                                               COMPENSATION
                                                                                  AWARDS
                                                       ANNUAL COMPENSATION     -------------
                                                       -------------------     COMMON SHARES     ALL OTHER
NAME AND                                                                       UNDER OPTIONS    COMPENSATION
PRINCIPAL POSITION                            YEAR    SALARY($)    BONUS($)      GRANTED(#)        ($)(5)
------------------------------------------    ----    ---------    --------    -------------    ------------
<S>                                           <C>     <C>          <C>         <C>              <C>
RICHARD E. BAGLEY(1)                          2000     401,054         Nil         402,500            797
  President and Chief Executive Officer       1999     386,158         Nil         257,812          1,304
                                              1998     315,179         Nil         206,250            Nil

DR. ANTOINE A. NOUJAIM(1)                     2000     220,000         Nil         187,500          6,941
  Chairman of the Board, Chief Scientific     1999     220,000         Nil             Nil          6,777
  Officer and Former President and Chief      1998     220,000         Nil             Nil          6,880
  Executive Officer

EDWARD M. FITZGERALD(2)                       2000     304,801         Nil         183,750            278
  Senior Vice President, Chief Financial      1999     293,480         Nil          54,687            298
  Officer and Secretary                       1998      92,374         Nil          43,750            Nil

DR. CHRISTOPHER F. NICODEMUS(3)               2000     328,864         Nil         186,250            185
  Senior Vice President, Clinical Research    1999     290,696      14,973          54,687            274
  and Development                             1998         Nil         Nil          43,750            Nil

PETER C. GONZE(4)                             2000     294,185         Nil         100,000            426
  Senior Vice-President, Operations           1999      33,115      14,365          18,750            885
                                              1998          --          --              --             --
</TABLE>

----------
(1)      Dr. Noujaim became an officer of the Company on July 17, 1996. Dr.
         Noujaim ceased to be the President and Chief Executive Officer of the
         Company on February 23, 1998 and Mr. Richard E. Bagley was appointed
         President and Chief Executive Officer of the Company on that date.
(2)      Mr. Fitzgerald joined the Company on September 28, 1998.
(3)      Mr. Nicodemus was hired by the Company in December 1998 and commenced
         work in January 1999.
(4)      Mr. Gonze joined the Company on October 1, 1999.
(5)      Compensation under the column "All Other Compensation" is with respect
         to employee benefits such as health care, life insurance and a group
         retirement savings plan. The aggregate amount of perquisites and other
         personal benefits, securities and property did not exceed the lesser of
         $50,000 and 10 percent of the total annual salary and bonus of the
         Named Executive Officer.



                                       36
<PAGE>   40
     STOCK OPTIONS GRANTED TO NAMED EXECUTIVE OFFICERS

         The following table details information with respect to the grant of
options by the Company to the named Executive Officers during the financial year
of the Company ended December 31, 2000.



         OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

<TABLE>
<CAPTION>
                                                                                  MARKET VALUE
                                                 % OF TOTAL                        OF COMMON
                                                  OPTIONS                           SHARES
                                     COMMON      GRANTED TO                       UNDERLYING
                                     SHARES      EMPLOYEES      EXERCISE OR      OPTIONS ON THE
                                     UNDER           IN          BASE PRICE      DATE OF GRANT
                                    OPTIONS      FINANCIAL       ($/COMMON         ($/COMMON
NAME                               GRANTED #        YEAR           SHARE)            SHARE)          EXPIRATION DATE
------------------------------     ---------     ----------     -----------      --------------     -----------------
<S>                                <C>           <C>            <C>              <C>                <C>
RICHARD E. BAGLEY.............       50,000                        4.16               4.16               June 1, 2010
                                    200,000         24.9           5.96               5.96          February 17, 2010
                                    152,500                        1.40               1.40          December 22, 2009

DR. ANTOINE A. NOUJAIM........       25,000                        4.16               4.16               June 1, 2010
                                     87,500         11.6           5.96               5.96          February 17, 2010
                                     75,000                        1.40               1.40          December 22, 2009

EDWARD M. FITZGERALD..........       25,000                        4.16               4.16               June 1, 2010
                                     50,000         11.3           5.96               5.96          February 17, 2010
                                    108,750                        1.40               1.40          December 22, 2009

DR. CHRISTOPHER F. NICODEMUS..       25,000                        4.16               4.16               June 1, 2010
                                     50,000         11.5           5.96               5.96          February 17, 2010
                                    111,250                        1.40               1.40          December 22, 2009

PETER C. GONZE................       50,000                        4.16               4.16               June 1, 2010
                                     50,000          6.2           5.96               5.96          February 17, 2010
</TABLE>

         The following table details information with respect to all options of
the Company exercised by the Named Executive Officers during the last financial
year of the Company and all options held by the Named Executive Officers and
outstanding on December 31, 2000.

         AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
             FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                           VALUE OF
                                     COMMON                       UNEXERCISED         UNEXERCISED IN-THE-
                                     SHARES        AGGREGATE       OPTIONS AT          MONEY OPTIONS AT
                                    ACQUIRED         VALUE      DECEMBER 31, 2000      DECEMBER 31, 2000
                                   ON EXERCISE      REALIZED      EXERCISABLE/            EXERCISABLE/
NAME                                   (#)            ($)       UNEXERCISABLE (#)       UNEXERCISABLE($)
------------------------------     -----------     ---------    -----------------     -------------------
<S>                                <C>             <C>          <C>                   <C>
RICHARD E. BAGLEY.............         Nil            Nil       411,040 / 455,522       54,900 / 27,450
DR. ANTOINE A. NOUJAIM........         Nil            Nil       143,750 / 137,500       27,000 / 13,500
EDWARD M. FITZGERALD..........         Nil            Nil       138,124 / 144,063       39,150 / 19,575
DR. CHRISTOPHER F. NICODEMUS..         Nil            Nil       139,790 / 144,897       40,050 / 20,025
PETER C. GONZE................         Nil            Nil        18,750 / 100,000           NA / NA
</TABLE>



                                       37
<PAGE>   41
     EMPLOYMENT AGREEMENTS

         The Company has entered into agreements with its executive officers
regarding terms of employment and severance arrangements. Dr. Noujaim's
agreement, dated January 1, 1996 and amended on June 3, 1999, provides for his
employment at will as Chairman and Chief Scientific Officer through December 31,
2001, subject to renewal thereafter. Mr. Bagley's agreement, dated February 28,
1998 and amended on June 4, 1999, provides for his employment at will as
President and Chief Executive Officer. Mr. Fitzgerald's agreement, dated
September 14, 1998 and amended on June 1, 1999, provides for his employment at
will as Senior Vice President, Chief Financial Officer and Secretary of the
Company. Dr. Nicodemus' agreement, dated December 16, 1998 and amended on June
1, 1999, provides for his employment at will as Senior Vice President, Clinical
Research and Development. These officers of the Company, by virtue of the June,
1999 amendments to their respective agreements, had severance arrangements
providing for severance upon termination for other than cause at the rate of
their respective base salaries, through the later of December 31, 2001 and the
one-year anniversary of termination. These arrangements were further amended by
the Board of Directors in December 1999 to reduce the total amount of severance
payable to one year for each of these officers. In exchange for such reduced
severance, the Board of Directors granted additional stock options to such
officers. Mr. Gonze's agreement, dated October 1, 1999 and amended February 1,
2000, provides for his employment at will as Senior Vice President, Operations
and severance upon termination other than for cause of one year of base salary.

     COMPENSATION OF DIRECTORS

         Each director of the Company, with the exception of Dr. Noujaim and Mr.
Bagley, receives a fee of U.S. $10,000 per annum. Further, all directors are
eligible to receive stock options and are entitled to receive reimbursement of
their reasonable out-of-pocket disbursements incurred on the business of the
Company. In the aggregate, a total of $59,467 in fees was paid to members of the
Board of Directors and a total of 17,500 options were granted by the Company to
members of the Board of Directors, excluding Dr. Noujaim and Mr. Bagley, during
the period from January 1, 2000 to December 31, 2000.

BOARD PRACTICES

         The shareholders of the Company elect the Directors annually, to serve
until the time of the Company's next annual meeting.

         With the exception of Dr. Noujaim and Mr. Bagley, none of the directors
have service contracts with the Company providing for benefits upon termination
of employment. See "--Employment Agreements" for information on the service
contracts of Dr. Noujaim and Mr. Bagley.

     AUDIT COMMITTEE

         The Audit Committee of the Board of Directors of the Company consists
of William R. McMahan, Normand Balthazard, Robert H. Uhl and Bruce D. Brydon.

         The Audit Committee is responsible for the engagement of the Company's
independent auditors and reviews with them to scope and timing of their audit
services they are asked to perform. The Committee also reviews with the auditors
their report on the Company's financial statements following completion of the
audit and on the Company's policies and procedures with respect to internal
accounting and financial controls.

     COMPENSATION COMMITTEE

         The Compensation Committee of the Board of Directors of the Company
(the "Compensation Committee") consists of William R. McMahan, Dr. Jim A.
Wright, Normand Balthazard and Richard E. Bagley. Dr. Wright is the Chairman of
the Compensation Committee.

         The task of the Compensation Committee is to periodically review the
compensation structure of the Company with respect to its executive officers to
ensure that the Company continues to attract and retain quality and experienced
individuals to its management team and to motivate these individuals to perform
to the best of their


                                       38
<PAGE>   42
ability and in the best interests of the Company. The Compensation Committee
makes recommendations with respect to the compensation of the Company's
executive officers to the Board of Directors, which gives final approval
regarding any executive compensation matters and issues.

         The primary objectives of the Company's executive compensation program
are to enable the Company to attract, motivate and retain outstanding
individuals and to align their success with that of the Company's shareholders
through the achievement of strategic corporate objectives and creation of
shareholder value. The level of compensation paid to an individual is based on
the individual's overall experience, responsibility and performance. Factors
also to be considered are the compensation levels of similarly situated
positions in the biopharmaceutical industry and other labour markets in which
the Company competes for employees. The Compensation Committee compares
remuneration for executive officers of the Company to the remuneration for
similar executives in the relevant labour markets. In the case of newly hired
employees, the individual's performance and compensation level in his or her
prior positions will also be a determining factor.

         The key components for the compensation of the executive officers of
the Company are base salaries, bonuses and stock options. It is the policy of
the Company that the base salaries paid to its executive officers, in addition
to the criteria set out above, reflect the individual responsibility and
experience of the executive officer and the contribution this is expected from
the executive officer. Base salaries and bonuses are reviewed by the
Compensation Committee on an annual to ensure that these criteria are satisfied.
Stock options under the Company's stock option plan are granted by the Board of
Directors to executive officers from time to time as a long-term performance
incentive.

     EMPLOYEES

         As of December 31, 2000, the Company had 30 employees, six of whom were
located at the Company's location in Edmonton, Alberta and 24 of whom were
located at the Company's executive office in Waltham, Massachusetts. There were
13 employees working in research and product development, six in clinical and
regulatory affairs, six in finance and administration and five in corporate
affairs. Of the Company's employees, three hold Ph.Ds, one is an M.D. and one is
a Doctor of Veterinary Medicine.

         None of the employees are governed by a collective bargaining
agreement. The Company believes that working relationships with its employees
are excellent.

SHARE OWNERSHIP

         The following table sets forth the beneficial share ownership of the
Company's Directors and Senior Management as of May 31, 2001:

<TABLE>
<CAPTION>
                                                       PERCENTAGE OF
                                       NUMBER OF        OUTSTANDING
NAME                                 COMMON SHARES     COMMON SHARES
--------------------------------     -------------     -------------
<S>                                  <C>               <C>
Dr. Antoine A. Noujaim(1)              1,981,249            7.4
Richard E. Bagley(2)                   1,285,663            4.7
William R. McMahan(3)                     39,166             *
The Honourable Monique Begin(4)           38,333             *
Dr. Jim A. Wright(5)                      38,333             *
Normand Balthazard(6)                    503,457            1.9
Dr. William R. Darrow(7)                  20,000             *
Robert H. Uhl(8)                          20,000             *
Bruce D. Brydon(9)                        20,000             *
Jacques R. Lapointe(10)                   20,000             *
Edward M. Fitzgerald(11)                 358,852            1.3
Dr. Christopher F. Nicodemus(12)         334,343            1.3
Peter C. Gonze(13)                       298,450            1.1
</TABLE>

----------
* Less than 1%



                                       39
<PAGE>   43
(1)  Includes 481,249 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(2)  Includes 999,060 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(3)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(4)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(5)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(6)  Includes 32,500 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001 and
     470,957 Common Shares held by BioCapital Investments, L.P. Mr. Balthazard
     is the Chief Executive Officer of BioCapital Investments L.P.

(7)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(8)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(9)  Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(10) Comprised entirely of shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(11) Includes 281,352 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(12) Includes 283,018 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

(13) Includes 202,082 shares issuable upon the exercise of options that are
     currently exercisable or exercisable within 60 days of May 31, 2001.

STOCK OPTION PLAN

         The Company maintains a stock option plan (the "Plan"). The Plan is
designed to develop the interest of the directors, officers, employees and other
persons who provide ongoing services to the Company and its subsidiaries in the
growth and development of the Company by providing such persons with the
opportunity to acquire an increased proprietary interest in the Company and to
better enable the Company and its Subsidiaries to attract and retain persons of
desired experience and ability.

         The maximum number of Common Shares which may be reserved for issuance
to any person under the Plan or any other previously established or proposed
share compensation arrangement of the Company in respect of all options granted
to any one person at any one time may not exceed 5% of the issued and
outstanding Common Shares. The maximum number of Common Shares reserved for
issuance at any time pursuant to the Plan is currently 5,500,000. The vesting
and expiry date of options granted under the Plan are determined by the Board of
Directors at the time the options are granted provided that the expiry date
cannot be later than 10 years from the date of grant of such option. The
exercise price of options granted under the Plan is fixed by the Board of
Directors and must either be the closing price of the Common Shares on the
Toronto Stock Exchange on the first date preceding


                                       40
<PAGE>   44
the date of grant or alternatively the weighted average of the trading prices of
the Common Shares for the five days preceding the date of grant.

     STOCK OPTIONS

         As at May 31, 2001, there were outstanding options to purchase a total
of 4,164,138 Common Shares under the Plan and the following table sets out in
detail all stock options issued and outstanding to Directors, Executive Officers
and Employees under the Plan.

<TABLE>
<CAPTION>
                                         NUMBER OF                              EXERCISE
                                        SHARES UNDER                            PRICE PER
GROUP                                      OPTION          DATE OF GRANT          SHARE         EXPIRY DATE
-----------------------------------     ------------     ------------------     ---------     ------------------
<S>                                     <C>              <C>                    <C>           <C>
Directors..........................           1,875      July 26, 1996              7.20      July 26, 2006
     (excluding Executive Officers)             625      July 8, 1997              14.72      July 8, 2007
     (eight in total)                        20,000      May 21, 1998               8.72      May 21, 2008
                                             17,500      February 17, 2000          5.96      February 17, 2010
                                             60,000      April 10, 2001             1.95      April 10, 2011
                                            140,000      May 24, 2001               3.13      May 24, 2011

Executive Officers.................          93,750      July 26, 1996              7.20      July 26, 2006
     (nine in total)                          3,333      February 4, 1997          24.00      February 4, 2007
                                            206,032      March 4, 1998             12.00      March 4, 2008
                                              3,000      May 21, 1998               8.72      May 21, 2008
                                                218      July 6, 1998              12.00      July 6, 2008
                                              6,250      August 4, 1998             4.60      August 4, 2008
                                             43,750      September 15, 1998         3.64      September 15, 2008
                                             43,750      December 23, 1998          2.12      December 23, 2008
                                             25,000      May 11, 1999               1.84      May 11, 2009
                                            382,911      July 8, 1999               4.12      July 8, 2009
                                             18,750      October 8, 1999            3.60      October 8, 2009
                                            447,500      December 22, 1999          1.40      December 22, 2009
                                            500,000      February 17, 2000          5.96      February 17, 2010
                                            183,750      June 1, 2000               4.16      June 1, 2010
                                             62,500      June 26, 2000              3.84      June 26, 2010
                                            100,000      April 10, 2001             1.95      April 10, 2011
                                          1,140,000      May 24, 2001               3.13      May 24, 2011

Employees..........................          12,874      July 26, 1996              7.20      July 26, 2006
     (twenty-two in total)                    2,500      December 31, 1996         23.60      December 31, 2006
                                             18,750      May 21, 1998               8.72      May 21, 2008
                                              6,250      August 4, 1998             4.60      August 4, 2008
                                              8,333      November 30, 1998          3.20      November 30, 2008
                                              4,187      August 19, 1999            3.60      August 19, 2009
                                             65,750      February 17, 2000          5.96      February 17, 2010
                                             61,250      June 1, 2000               4.16      June 1, 2010
                                             25,000      July 12, 2000              4.04      July 12, 2010
                                             12,500      September 6, 2000          3.64      September 6, 2010
                                             98,750      December 6, 2000           1.41      December 6, 2010
                                             57,500      April 10, 2001             1.95      April 10, 2011
                                            142,500      May 24, 2001               3.13      May 24, 2011
</TABLE>


                                       41
<PAGE>   45
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     MAJOR SHAREHOLDERS

         To the knowledge of the directors or officers of the Company, no person
beneficially owns or exercises control or direction over more than 5% of the
Common Shares (being the only class of shares of the Company outstanding),
except for Dompe which purchased 3,522,727 Common Shares of the Company (13.3%
of the outstanding Common Shares) on December 22, 2000 in a private placement
and which purchased 357,142 Special Warrants of the Company in June 2001; and
Dr. Antoine A. Noujaim, our Chairman of the Board and Chief Scientific Officer,
who beneficially owns 1,981,249 Common Shares of the Company (7.4% of the
outstanding Common Shares).

         Except as disclosed above, as of May 31, 2001, the current directors
and officers of AltaRex as a group own, directly or indirectly, or exercise
control or direction over a total of 5,222,233 Common Shares representing
approximately 17.9% of the issued and outstanding Common Shares.

         25.5% of the Common Shares outstanding are held by 25 record holders in
the United States.

         The Company is not owned or controlled by another corporation or by any
foreign government.

     RELATED PARTY TRANSACTIONS

         The only transactions in which the directors or officers of AltaRex or
any of the major shareholders of AltaRex mentioned under "Major Shareholders",
or any associate or affiliate of any of the foregoing persons or companies has
had, since November 1, 1997, a material interest, direct or indirect, which has
materially affected or will materially affect AltaRex or any of its subsidiaries
are as follows:

         -        Directors and officers of the Company (including associates
                  thereof) purchased an aggregate of (i) 290,047 Special
                  Warrants of the Company in February 2000 and (ii) 208,000
                  Common Shares of the Company in February 2001;

         -        BioCapital Investments, L.P. purchased (i) 162,500 Special
                  Warrants of the Company in February 2000, (ii) 1,052,631
                  Common Shares of the Company in February 2001, and (iii)
                  303,571 Special Warrants of the Company in June 2001; and

         -        Dompe Farmaceutici S.p.A. entered into a Memorandum of
                  Understanding with the Company relating to the
                  commercialization of OvaRex(R) MAb in Italy, Spain, Portugal,
                  Switzerland, Austria and certain other eastern European
                  countries in November 2000, and purchased (i) 3,522,727 Common
                  Shares of the Company in December 2000, and (ii) 357,142
                  Special Warrants of the Company in June 2001.





                                       42
<PAGE>   46
ITEM 8: FINANCIAL INFORMATION

     CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         The following financial statements together with the reports of Arthur
Andersen LLP, Chartered Accountants and Ernst & Young LLP, Independent Chartered
Accountants thereon, are filed as part of this annual report as Exhibit A
hereto:

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
     INDEX TO THE FINANCIAL STATEMENTS

<S>                                                                                 <C>
     Report of Arthur Andersen LLP, Chartered Accountants                            F2
     Report of Ernst & Young LLP, Independent Chartered Accountants                  F3
     Consolidated balance sheets as at December 31, 2000 and December 31, 1999       F4
     Consolidated statements of loss for the years ended December 31, 2000, 1999
       and 1998, and for the period December 1, 1995 to December 31, 2000            F5
     Consolidated statements of shareholders' equity and accumulated deficit for
       the years ended December 31, 2000, 1999, 1998, 1997, 1996 and 1995            56
     Consolidated statements of cash flows for the years ended December 31, 2000,
       1999 and 1998, and for the period December 1, 1995 to December 31, 2000       F7
     Notes to Consolidated Financial Statements                                      F8
</TABLE>

     LEGAL PROCEEDINGS

         The Company is not aware of any material existing or pending legal
proceedings against it.

ITEM 9: THE OFFER AND LISTING

         The Common Shares of the Company are listed and posted for trading on
The Toronto Stock Exchange under the symbol "AXO" and are traded on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. under the
symbol "ALXFF". The Common Shares of the Company were listed and posted for
trading on the Alberta Stock Exchange on June 7, 1994 and on the Toronto Stock
Exchange on December 20, 1996. The Company's shares were subsequently
voluntarily delisted on the Alberta Stock Exchange on February 2, 1997. On
November 21, 2000, the Company effected a consolidation of all of the issued and
outstanding Common Shares on a one-for-four basis.

         The following table sets forth the high and low sale prices per share
of the Common Shares of the Company as reported on the Alberta Stock Exchange
for the fiscal year ending December 31, 1996 and the Toronto Stock Exchange for
the fiscal years ending December 31, 1997, 1998, 1999 and 2000.

<TABLE>
<CAPTION>
                                                HIGH        LOW
                                                ----        ---
                                               Cdn.$       Cdn.$
<S>                                            <C>         <C>
         FISCAL YEAR ENDING
         December 31, 1996                      8.08        5.00
         December 31, 1997                      7.00        2.10
         December 31, 1998                      3.25        0.42
         December 31, 1999                      1.38        0.24
         December 31, 2000                      5.10        0.48
</TABLE>

         The following table sets forth for the periods indicated the high and
low sale prices per share of the Common Shares during each of the quarters set
forth below as reported on the Toronto Stock Exchange for fiscal years ending
December 31, 1999 and December 31, 2000.



                                       43
<PAGE>   47
<TABLE>
<CAPTION>
                                                HIGH         LOW
                                                ----         ---
                                               Cdn.$       Cdn.$
<S>                                            <C>         <C>
         1999
         First quarter                          0.74        0.42
         Second quarter                         1.38        0.42
         Third quarter                          1.14        0.76
         Fourth quarter                         1.00        0.24

         2000
         First quarter                          5.10        0.49
         Second quarter                         2.50        0.75
         Third quarter                          1.16        0.68
         Fourth quarter                         1.94        0.48
</TABLE>


         The following table sets forth the high and low sale prices per share
of the Common Shares during each of the months set forth below as reported on
the Toronto Stock Exchange for the most recent six months.

<TABLE>
<CAPTION>
                                                HIGH         LOW
                                                ----         ---
                                               Cdn.$       Cdn.$
<S>                                             <C>         <C>
         MONTH
         December 2000                          1.94        1.15
         January 2001                           2.80        1.70
         February 2001                          2.30        1.81
         March 2001                             2.15        1.79
         April 2001                             2.35        1.95
         May 2001                               4.02        2.20
</TABLE>

ITEM 10: ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

         AltaRex is a corporation amalgamated under the Business Corporations
Act (Alberta). There are no restrictions on the business which the Company may
carry on. The Company's articles provide that the Board of Directors shall
consist of such number of directors, being a minimum of three and a maximum of
ten, as may be from time to time determined by resolution of the Board of
Directors.

         The authorized share capital of the Company consists of an unlimited
number of Common Shares and an unlimited number of Preferred Shares. The holders
of Common Shares are entitled to dividends, if as and when declared by the
directors, to one vote per Common Share at meetings of the holders of Common
Shares of the Company and, upon liquidation, to receive such assets of the
Company as are distributable to the holders of the Common Shares. The Preferred
Shares may be issued in one or more series, and the directors are authorized to
fix the number of Preferred Shares in each series and to determine the
designation, rights, privileges, restrictions and conditions attached to the
Preferred Shares of each series. The Preferred Shares are entitled to a priority
over the Common Shares in respect of the payment of dividends and distribution
of assets upon liquidation of the Company. Under the Business Corporations Act
(Alberta) a special resolution of the shareholders is required to amend the
rights of any class of shares.

         On June 27, 1997 articles of amendment were filed to provide that
meetings of shareholders may be held at any place within Canada and the United
States. The directors of the Company must call an annual meeting of shareholders
not later than 15 months after holding the last preceding annual meeting and may
at any time call a special meeting of shareholders. In addition, the holders of
not less than 5% of the issued shares of the Company may requisition the Board
of Directors to call a meeting of shareholders. For the purpose of determining
shareholders entitled to receive notice of the meeting of shareholders, the
directors may fix in advance a date as the record date for that determination of
shareholders, but that record date shall not precede by more than 50 days or
less than 21 days the date on which the meeting is to be held. If a shareholder
becomes a shareholder after the setting of the record date, such person will be
entitled to vote at the meeting if he can produce a properly endorsed share
certificate, or can otherwise establish that he owns the shares, and demands,
not later than 10 days before the meeting, that his name be included among those
eligible to vote at the meeting.

MATERIAL CONTRACTS

         Except for contracts entered into the normal course of its business,
the only material contracts entered into by AltaRex during the past two years
prior to the date hereof are the settlement agreement between the Company and
Biomira Inc. referred to under "Item 4: Information on the Company - Strategic
Alliances and License Agreements - Biomira Settlement", an amended and restated
licence agreement dated as of September 3, 1999 between the Company and Biomira
Inc. in respect of OvaRex(R) MAb, the memorandum of understanding dated November
15, 2000 between the Company and Dompe Farmaceutici S.p.A. referred to under
"Item 4: Information on the Company - Strategic Alliances and License Agreements
- Genesis Pharma, Medison Pharma and Dompe Farmaceutici", the manufacturing
agreement dated May 1, 2001 between the Company and Abbott Laboratories referred
to under "Item 4: Information on the Company - Manufacturing", and the Special
Warrant Indenture dated June 6, 2001 relating to the issuance of 3,000,000
Special Warrants of the Company.

EXCHANGE CONTROLS

         There are no laws, governmental decrees or regulations in Canada that
restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to non-resident holders of the Company's
Shares, other than specific embargoes enacted by regulations under the United
Nations Act (Canada) and withholding tax requirements. See "Item 10 - Taxation".



                                       44
<PAGE>   48
         There are no limitations under the laws of Canada or the Province of
Alberta, or in the Articles of Amalgamation of the Company, with respect to the
right of non-resident or foreign owners to hold or vote the Common Shares of the
Company other than those imposed by the Investment Canada Act (Canada) (the
"Investment Act").

         The following summarizes the principal features of the Investment Act
for non-residents other than WTO investors (defined in section 14.1(b) of the
Investment Act as being individual investors who are nationals of, or have the
right of permanent residence in, a Member of the World Trade Organization and
corporate investors who are either WTO investor-controlled in fact, or
two-thirds of whose board of directors is comprised of any combination of
Canadians and WTO investors) who propose to acquire Common Shares of the
Company.

         The Investment Act prohibits implementation of a reviewable investment
by an individual, government (or agency thereof), company, partnership, trust or
joint venture which is not a "Canadian" (as defined in the Investment Act (a
"non-Canadian")) or a WTO investor, unless after review the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of net benefit to Canada. A reviewable investment under the
Investment Act is characterized as an investment for control of a Canadian
business with assets valued at $5,000,000 or more, or in the case where the
total assets of the Canadian business are less than half of the total assets
acquired, the Canadian business assets are $50,000,000 or more. Notwithstanding
the above limits, an investment can become a reviewable investment if an order
for review is made by the Federal cabinet on the grounds that the investment is
related to Canada's cultural heritage or national identity.

         An investment in Common Shares of the Company by a WTO investor would
only be reviewable under the Investment Act if it was an investment to acquire
control of the Company and the value of the assets of the Company equals or
exceeds an amount determined annually by the Minister pursuant to a formula
specified in the Investment Act ($192,000,000 for 2000).

         A non-Canadian, whether a WTO investor or otherwise, would acquire
control of the Company for the purposes of the Investment Act if he acquired a
majority of the Common Shares of the Company. The acquisition of less than a
majority, but one-third or more, of the Common Shares of the Company would be
presumed to be an acquisition of control of the Company unless it could be
established that the Company was not controlled in fact by the acquirer through
the ownership of Common Shares.

         Certain transactions in relation to Common Shares of the Company would
be exempt from the Investment Act, including:

         1.       the acquisition of Shares by a person in the ordinary course
                  of the person's business as a trader or dealer in securities;

         2.       the acquisition of control of the Company in connection with
                  the realization of security granted for a loan or other
                  financial assistance and not for any purpose related to the
                  provisions of the Investment Act; and

         3.       the acquisition of control of the Company by reason of an
                  amalgamation, merger, consolidation or corporate
                  reorganization following which the ultimate direct or indirect
                  control in fact of the Company, through the ownership of
                  voting interests, remain unchanged.

         The Investment Act further contains provisions which require
notification to be given under the Investment Act in the circumstances where a
"non-Canadian" (as defined in the Investment Act) acquires control of the
Company notwithstanding that such investment is not a reviewable investment as
described above.

         In addition to the foregoing, certain transactions involving the
Company and its security holders may be subject to notification and review under
the Competition Act (Canada). In general, in order for a transaction to be
notifiable, the parties together with their affiliates (defined to include
parent, subsidiary and sister companies) must have assets in Canada or gross
revenues from sales in, from or into Canada that exceed $400,000,000. Assuming
this threshold is met, additional thresholds based on the type of transaction
must be met before notification is required. If a transaction is ultimately
notifiable, the parties must provide the Commissioner of Competition (the


                                       45
<PAGE>   49
"Commissioner") with detailed information about the transaction and the parties,
and observe a waiting period prior to closing the transaction. However, in the
event that the Commissioner determines that a proposed transaction may result in
a substantial lessening of competition, the Commissioner may bring a proceeding
before the Competition Tribunal to enjoin the transaction or to seek other
remedies.

TAXATION

         The following is a general summary only and should not be considered as
income tax advice or relied upon for tax planning purposes.

     CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES

         The following is a general summary of certain Canadian federal income
tax considerations generally applicable to a holder of the Company's Shares who
is not a resident of Canada for the purposes of the Income Tax Act (Canada) (the
"Act"). The discussion does not address all potentially relevant federal income
tax matters and it does not address consequences peculiar to persons subject to
special provisions of federal income tax law.

         The summary is based on the current provisions of the Act and the
regulations thereunder and the Company's understanding of the current published
administrative practices of the Canada Customs and Revenue Agency, and press
announcements released by Revenue Canada. This summary takes into account
proposals to amend the Act announced prior to the date hereof (although no
assurances can be given that such changes will be enacted in the form presented
or at all), but does not otherwise take into account or anticipate any other
changes in law, whether by judicial, governmental or legislative action or
decision nor does it take into account any provincial, territorial, local or
foreign tax considerations. Accordingly, holders and prospective holders of the
Company's Shares should consult their own tax advisors about the federal,
provincial, territorial, local and foreign tax consequences of purchasing,
owning and disposing of such Shares.

         The Act provides in subsection 212(2) that dividends and other
distributions which are deemed to be dividends and which are paid or credited or
are deemed to be paid or credited by a Canadian resident company to a
non-resident of Canada shall be subject to non-resident withholding tax equal to
25 percent of the gross amount of the dividend or deemed dividend.

         Subsections 2(3) and 115(1) of the Act provide that a non-resident
person is subject to tax in Canada at the rates generally applicable to
residents of Canada on any "taxable capital gain" arising on the disposition of
the shares of a company which are listed on a prescribed stock exchange if such
non-resident, persons with whom the non-resident did not deal at arm's length,
or the non-resident together with such persons, owned 25 percent or more of the
issued shares of any class of the capital stock of the Company at any time in
the 60 month period immediately preceding the date of disposition of the shares.
For purposes of this computation, such holders are considered to own shares
which they have an interest in or an option to acquire. Subsections 2(3) and
115(1) also provide that a non-resident person is subject to tax in Canada on
taxable capital gains arising on the disposition of shares that constitute
capital property used in carrying on a business in Canada. The taxable portion
of a capital gain is equal to one-half of the amount by which the proceeds of
disposition of such shares, net of any reasonable costs associated with the
disposition of such shares, exceeds the adjusted cost base to the holder of the
shares.

         Provisions in the Act relating to dividend and deemed dividend payments
and gains realized by non-residents of Canada who are residents of the United
States are subject to the Canada-United States Income Tax Convention (1980), as
amended (the "1980 Convention").

         Article X of the 1980 Convention provides that for 1997 and subsequent
taxation years pursuant to the Third Protocol to the 1980 Convention the rate of
Canadian non-resident withholding tax on dividends paid to a U.S. company that
beneficially owns at least 10% of the voting stock of the Company shall not
exceed 5% of the dividends. Otherwise, and except in the case of dividends
received by a resident of the United States who carries on business in Canada
through a Canadian permanent establishment and the shares in respect of which
the dividends are paid are effectively connected with that permanent
establishment, the rate of non-resident withholding tax shall not exceed 15
percent of the dividend. Where the dividends are received by a United States
person carrying on business in Canada through a Canadian permanent establishment
and the shares in respect of which the dividends


                                       46
<PAGE>   50
are paid are effectively connected with that permanent establishment the
dividends are generally subject to Canadian tax as business profits, generally
without limitation under the 1980 Convention.

         Article XIII of the 1980 Convention provides that gains realized by a
United States resident on the disposition of shares of a Canadian company may
not generally be taxed in Canada unless the value of those shares is derived
principally from real property situated in Canada or the shares form part of the
business property of a permanent establishment which the United States
shareholder has or had in Canada within the 12 month period preceding the date
of disposition. Canada also retains the right to tax gains on property owned at
the time of departure from Canada if it is sold by a person (other than a trust)
who was during the 120 month period immediately preceding the sale a resident in
Canada for more than 60 months, subject to certain exceptions.

     CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

         The following is a general discussion of certain possible United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as defined below) of the Company's Shares. This discussion does not
address all potentially relevant federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (See "-- Taxation - Certain Canadian
Federal Income Tax Consequences" above.)

         The following discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations, published Internal Revenue
Service ("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. This
discussion does not consider the potential effects, both adverse and beneficial,
of any recently proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time. This discussion is for general
information only and it is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or prospective holder of the Company's Shares
and no opinion or representation with respect to the United States federal
income tax consequences to any such holder or prospective holder is made.
Accordingly, holders and prospective holders of the Company's Shares should
consult their own tax advisors about the federal, state, local, and foreign tax
consequences of purchasing, owning and disposing of the Company's Shares.

     U.S. HOLDERS

         As used herein, a "U.S. Holder" means a holder of the Company's Shares
who is a citizen or individual resident of the United States, a corporation
created or organized in or under the laws of the United States or of any
political subdivision thereof or a trust or estate whose income is taxable in
the United States irrespective of source. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, nonresident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. dollar, shareholders who hold the Company's Shares as part of a
straddle, hedging or a conversion transaction, and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own the
Company's Shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire the Company's Shares.

     DISTRIBUTIONS ON THE COMPANY'S SHARES

         U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to the Company's Shares are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions equal to the U.S. dollar value of such dividends on the date of
receipt (based on the exchange rate on such date) to the extent that the Company
has current or accumulated earnings and profits, without reduction for any
Canadian income tax withheld from such distributions. Such Canadian tax withheld
may be credited, subject to certain limitations, against the U.S. Holder's
United States federal income tax liability or, alternatively, may be deducted in
computing the U.S. Holder's United States federal taxable income by those who


                                       47
<PAGE>   51
itemize deductions. (See more detailed discussion at "-- Foreign Tax Credit"
below.) To the extent that distributions exceed current or accumulated earnings
and profits of the Company, they will be treated first as a return of capital up
to the U.S. Holder's adjusted basis in the Company's Shares and thereafter as
gain from the sale or exchange of the Company's Shares. Preferential tax rates
for long-term capital gains are applicable to a U.S. Holder which is an
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder which is a corporation.

         In the case of foreign currency received as a dividend that is not
converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss.

         Dividends paid on the Company's Shares will not generally be eligible
for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the United States source portion of dividends received from the Company (unless
the Company qualifies as a "foreign personal holding company" or a "passive
foreign investment company," as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.

         Dividends paid on the Company's Shares, if any, generally will not be
subject to information reporting and generally will not be subject to U.S.
backup withholding tax. However, dividends paid, and the proceeds of a sale of
the Company's Shares, in the U.S. through a U.S. or U.S. related paying agent
(including a broker) will be subject to U.S. information reporting requirements
and may also be subject to U.S. backup withholding tax, unless the paying agent
is furnished with a duly completed and signed Form W-9 or the U.S. Holder is
otherwise exempt. Any amounts withheld under the U.S. backup withholding tax
rules will be allowed as a refund or a credit against the U.S. Holder's U.S.
federal income tax liability, provided the required information is furnished to
the IRS.

     FOREIGN TAX CREDIT

         A U.S. Holder who pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of the Company's Shares may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by-year basis
and applies to all foreign taxes paid by (or withheld from) the U.S. Holder
during that year. There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate share of the U.S. Holder's United States income tax liability
that the U.S. Holder's foreign source taxable income bears to his or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
classes of income such as "passive income," "high withholding tax interest,"
"financial services income," "shipping income," and certain other
classifications of income. Dividends distributed by the Company will generally
constitute "passive income" or, in the case of certain U.S. Holders, "financial
services income" for these purposes. The availability of the foreign tax credit
and the application of the limitations on the credit are fact specific, and
holders and prospective holders of the Company's Shares should consult their own
tax advisors regarding their individual circumstances.

     DISPOSITION OF COMPANY'S SHARES

         A U.S. Holder will recognize gain or loss upon the sale of the
Company's Shares equal to the difference, if any, between (i) the amount of cash
plus the fair market value of any property received, and (ii) the shareholder's
tax basis in the Company's Shares. This gain or loss will be capital gain or
loss if the Company's Shares are a capital asset in the hands of the U.S.
Holder, which will be a short-term or long-term capital gain or loss depending
upon the holding period of the U.S. Holder. Gains and losses are netted and
combined according to special rules in arriving at the overall capital gain or
loss for a particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are individuals, any unused
portion of such net capital loss may be


                                       48
<PAGE>   52
carried over to be used in later tax years until such net capital loss is
thereby exhausted. For U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), an unused net capital loss
may be carried back three years from the loss year and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted.

     OTHER CONSIDERATIONS

         In the following circumstances, the above sections of this discussion
may not describe the United States federal income tax consequences resulting
from the holding and disposition of the Company's Shares:

     FOREIGN PERSONAL HOLDING COMPANY

         If at any time during a taxable year more than 50% of the total
combined voting power or the total value of the Company's outstanding shares is
owned, directly or indirectly, by five or fewer individuals who are citizens or
residents of the United States and 60% or more of the Company's gross income for
such year was derived from certain passive sources, the Company may be treated
as a "foreign personal holding company." In that event, U.S. Holders that hold
the Company's Shares would be required to include in gross income for such year
their allocable portions of such passive income to the extent the Company does
not actually distribute such income.

     PASSIVE FOREIGN INVESTMENT COMPANY

         As a foreign corporation with U.S. Holders, the Company could
potentially be treated as a passive foreign investment company ("PFIC"), as
defined in Section 1297 of the Code, depending upon the percentage of the
Company's income which is passive, or the percentage of the Company's assets
which is producing passive income. U.S. Holders owning shares of a PFIC are
subject to an additional tax and to an interest charge based on the value of
deferral of tax for the period during which the shares of the PFIC are owned, in
addition to treatment of gain realized on the disposition of shares of the PFIC
as ordinary income rather than capital gain. However, if the U.S. Holder makes a
timely election to treat a PFIC as a qualified electing fund ("QEF") with
respect to such shareholder's interest therein, the above-described rules
generally will not apply. Instead, the electing U.S. Holder would include
annually in his gross income his pro rata share of the PFIC's ordinary earnings
and net capital gain regardless of whether such income or gain was actually
distributed. A U.S. Holder of a QEF can, however, elect to defer the payment of
United States federal income tax on such income inclusions. In addition,
taxpayers owning (actually or constructively) marketable stock in a PFIC will be
permitted to elect to mark that stock to market annually, rather than be subject
to the excess-distribution regime described above. Amounts included in or
deducted from income under this regime (and actual gains and losses realized
upon disposition, subject to certain limitations) will be treated as ordinary.
Special rules apply to U.S. Holders who own their interests in a PFIC through
intermediate entities or persons.

         The Company believes that it was not a PFIC for its fiscal years ended
on or before December 31, 2000. If in its current or in a subsequent year the
Company concludes that it is a PFIC, it intends to make information available to
enable a U.S. Holder to make a QEF election in that year. There can be no
assurance that the Company's determination concerning PFIC status will not be
challenged by the IRS, or that it will be able to satisfy the record-keeping
requirements which are imposed on QEF's.

     CONTROLLED FOREIGN CORPORATION

If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Company is owned, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10% or more of the total combined voting power of all classes of stock
of the Company ("United States shareholder"), the Company could be treated as a
"controlled foreign corporation" ("CFC") under subpart F of the Code. This
classification would effect many complex tax results one of which is the
inclusion of certain income of a CFC in the gross income of its United States
shareholders. The United States generally taxes the United States shareholders
of a CFC currently on their pro rata shares of the subpart F income of the CFC.
In effect, the Code treats those United States shareholders as having received a
current distribution out of the CFC's subpart F income. Such shareholders also
are subject to current U.S. tax on their pro rata shares of the CFC's earnings
invested in U.S. property. The foreign tax credit may reduce the


                                       49
<PAGE>   53
U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain
from the sale or exchange of stock by a holder of the Company's Shares who is or
was a United States shareholder at any time during the five year period ending
with the sale or exchange is treated as ordinary dividend income to the extent
of earnings and profits of the Company attributable to the stock sold or
exchanged. Note that the overlap between the PFIC and CFC rules is generally
eliminated for United States shareholders of a CFC. Where a foreign corporation
is both a PFIC and a CFC, the foreign corporation is generally treated as a
non-PFIC with respect to United States shareholders of the CFC. Because of the
complexity of subpart F, and because it is not clear that subpart F would apply
to the holders of the Company's Shares, a more detailed review of these rules is
outside of the scope of this discussion.

DOCUMENTS ON DISPLAY

         The documents concerning the Company referred to in this annual report
may be inspected at the Company's office in Waltham, Massachusetts. The
Company's Investor Relations and Corporate Communications Department may be
reached at (888) 801-6665. Documents filed with the Securities and Exchange
Commission may also be read and copied at the SEC's public reference room at
Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         At December 31, 2000, the Company had cash, cash equivalents and
short-term investments of $13.2 million. Included in this balance were
short-term financial instruments with a carrying value, including accrued
interest, of $3.6 million, consisting of obligations of Canadian federal and
provincial governments, as well as corporate obligations. These instruments
carry maturities of nine months or less and their carrying value approximates
fair value. These instruments have a weighted average interest rate of 5.3%. The
Company purchased such financial instruments for investment purposes only and
not for trading or speculative purposes.

         The Company's risks relative to these securities are credit risk and
interest rate risk. Regarding credit risk, the Company mitigates such risk by
investing only in federal or provincial government securities or investment
grade corporate obligations in the form of commercial paper or bankers'
acceptances. Regarding interest rate risk, exposure results from changes in
short-term interest rates or early redemption of securities. These risks are
mitigated by the short-term nature of the portfolio.

     FOREIGN CURRENCY EXPOSURE

         The Company currently has a significant portion of its operations in
the United States, including the operation of its U.S. office and the ongoing
administration of clinical trials and development and production activities
related to the Company's products. Accordingly, a significant portion of the
Company's transactions are denominated in U.S. dollars and the Company has an
exposure risk to foreign exchange rates. The Company partially offsets this risk
by maintaining cash balances and short-term investments denominated in U.S.
currency. At December 31, 2000 the Company had $9.9 million (or 75%) of the
total cash and short-term investments invested in U.S. denominated financial
instruments and cash deposits. Other than as mentioned here, the Company does
not actively engage in hedging or other activities to control the risk of its
foreign currency exposure.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

                                     PART II

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.


                                       50
<PAGE>   54
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

         On November 21, 2000, the Company effected a consolidation of all of
the issued and outstanding Common Shares on a one-for-four basis.

                                    PART III

ITEM 17: FINANCIAL STATEMENTS

         See pages F-1 through F-17 incorporated herein by reference.

ITEM 18: FINANCIAL STATEMENTS

         Not applicable.

ITEM 19: EXHIBITS

         The following financial statements together with the reports of Arthur
Andersen LLP, Chartered Accountants and Ernst & Young LLP, Independent Chartered
Accountants thereon, are filed as part of this annual report as Exhibit A
hereto:

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
     INDEX TO THE FINANCIAL STATEMENTS

     Report of Arthur Andersen LLP, Chartered Accountants                                  F2
     Report of Ernst & Young LLP, Independent Chartered Accountants                        F3
     Consolidated balance sheets as at December 31, 2000 and December 31, 1999             F4
     Consolidated statements of loss for the years ended December 31, 2000, 1999 and
       1998, and for the period December 1, 1995 to December 31, 2000                      F5
     Consolidated statements of shareholders' equity and accumulated deficit for the
       years ended December 31, 2000, 1999, 1998, 1997, 1996 and 1995                      F6
     Consolidated statements of cash flows for the years ended December 31, 2000, 1999
       and 1998, and for the period December 1, 1995 to December 31, 2000                  F7
     Notes to Consolidated Financial Statements                                            F8
</TABLE>


     EXHIBITS

         The list of Exhibits filed as part of this annual report are set forth
on the Exhibit Index immediately preceding such Exhibits, and is incorporated
herein by this reference.



                                       51
<PAGE>   55
                                GLOSSARY OF TERMS

         In this annual report, the following terms have the following meanings
unless the context requires otherwise:


<TABLE>
<S>                                 <C>
Adjuvant:                           An immunogenic substance administered with a
                                    vaccine to increase the immune response.


Antibody:                           A protein agent developed in response to,
                                    and binding specifically with, an antigen.

Anti body-based Immune
Therapy or AIT(R):                  An immunotherapeutic antibody approach that
                                    induces the human immune system to produce
                                    its own anti-tumor response through several
                                    immune pathways.

Anti-idiotype Cascade or
Network:                            An in vivo immune response characterized by
                                    antibodies to antibodies resulting in
                                    antigen mimics and secondarily by native
                                    antibodies reactive to the same antigen as
                                    the antibody inducing the cascade.


Antigen:                            Substance which elicits a specific immune
                                    response.


Ascites-derived material:           Obtained from the fluid of the abdominal
                                    cavity of mice that have been implanted with
                                    cells that secrete the desired substance
                                    (antibody).


B-cell:                             A form of immune cell that produces
                                    antibodies and is a precursor to a plasma
                                    cell.

Cell culture-derived material:      Obtained from the secretion of cells grown
                                    in artificial media, often in flasks or
                                    tanks.


Cellular response:                  An immune system response mediated by immune
                                    cells, often cytotoxic and antigen specific.

Current Good
Manufacturing Practices or
cGMP:                               Government promulgated guidelines governing
                                    the manufacture of human and animal drugs
                                    and biologicals.

Chemotherapy
or chemotherapeutic:                Generally, the use of drugs in the treatment
                                    of disease. Specifically the use of
                                    cytotoxic drugs to treat cancer.


Cytokine:                           Low molecular weight proteins that can
                                    either stimulate or inhibit the
                                    proliferation or function of immune cells.


Cytotoxic T-cells:                  Immune system cells capable of killing other
                                    cells.


Epitope:                            Specific region on an antigen which is
                                    recognized by a specific antibody or T-cell.

European Agency for the
Evaluation of Medicinal
Products or EMEA:                   The agency responsible for drug product
                                    approval in the European Economic Community.


First line chemotherapy
(in ovarian cancer):                The administration of one or more of a
                                    combination of chemotherapeutic agent
                                    usually consisting of a platinum-based drug
                                    and paclitaxel.
</TABLE>


                                       52
<PAGE>   56
<TABLE>
<S>                                 <C>
Gene:                               The basic unit of heredity. Genes are
                                    nucleic acid sequences encoding specific
                                    proteins that occupy a specific location on
                                    a chromosome and are self-producing,
                                    submicroscopic structures capable under
                                    certain circumstances of giving rise to a
                                    new character.


Humoral response:                   An immune response mediated by antibodies in
                                    the blood.


Immunogenicity:                     The degree to which an antigen is capable of
                                    eliciting an immune response.


Immunotherapy:                      A therapeutic approach to treat diseases by
                                    modifying the immune response against the
                                    disease.


Immunological tolerance:            Characteristic state in which the immune
                                    system is rendered unresponsive to an
                                    antigen that, under other conditions, would
                                    provoke an immune response.

Investigational New Drug
Application or IND:                 An application to the FDA or other
                                    regulatory bodies, which is submitted for
                                    approval prior to beginning clinical trials.


Intravenous  infusion:              Administration of a medication directly into
                                    a vein.


In vitro:                           Studies or phenomena which take place
                                    outside the body.


In vivo:                            Studies or phenomena which take place in the
                                    body.


Master Cell Bank or MCB:            A well characterized stock containing
                                    specific hybridoma cells that are used in
                                    the manufacture of antibodies.


Master Working Cell Bank:           "Manufacturer's" or "Master" Working Cell
                                    Bank, often referred to as the "Working Cell
                                    Bank" (WCB): a bank derived from the Master
                                    Cell Bank which acts as the starting source
                                    for (antibody) bioproduction.

Monoclonal antibody
MAb:                                Antibody produced by hybridoma cells, which
                                    is homogeneous in structure and specificity.


MUC1:                               A mucinous antigen associated with breast
                                    and other cancers.


Multi-epitopic response:            Immune response to an antigen that is
                                    directed to multiple regions on the antigen
                                    recognized by antibodies or T-cells.


Multiple myeloma:                   A haematologic malignancy or blood cancer
                                    related to leukemia and lymphoma
                                    characterized by over-production of abnormal
                                    plasma cells in the bone marrow.


Murine:                             Of mouse origin.

New Drug Application or
NDA:                                A document submitted to the FDA or other
                                    regulatory bodies containing all the
                                    pre-clinical and clinical data collected on
                                    a drug to obtain approval for marketing.

New Drug Submission or
NDS:                                A document submitted to the TPP which is the
                                    Canadian counterpart to the NDA.
</TABLE>


                                       53
<PAGE>   57
<TABLE>
<S>                                 <C>
Potentially pivotal:                A term used to describe clinical trials that
                                    would form the basis for a submission
                                    seeking marketing approval from regulatory
                                    authorities if the statistical goals of the
                                    trial are met.


Primary endpoint:                   The primary clinical outcome which forms the
                                    a priori basis of the statistical hypothesis
                                    (including sample size estimation) of a well
                                    controlled clinical trial. A fully
                                    successful study confirms a treatment effect
                                    of the magnitude sufficient to provide a
                                    statistically significant demonstration of
                                    the "primary end point" for regulatory
                                    approval of a product.


PSA:                                An antigen associated with prostate cancer.


Sera:                               The fluid component of blood after
                                    separation of cellular components.


Secondary endpoint:                 Secondary clinical or biological outcomes
                                    that can be assessed in analysis of a
                                    clinical trial. Although supportive and
                                    potentially important, these endpoints are
                                    not the a priori primary experimental
                                    question proposed for a clinical protocol.

Second-line chemotherapy
(in ovarian cancer):                Any one of a combination of drugs consisting
                                    of Paclitaxel, Etoposide, CAP
                                    (cyclophosphamide, adriamycin, cis-platin)
                                    or HCAP (hexamethylmelamine and CAP) or
                                    other drugs administered into patients, who
                                    are either partial or non-responders to
                                    first line chemotherapy.


Surrogate endpoint:                 A laboratory or physical sign that is used
                                    in clinical trials as a substitute for a
                                    clinically meaningful endpoint that is a
                                    direct measure of how a patient feels,
                                    functions, or survives and that is
                                    reasonably likely to predict the effect of
                                    therapy.


Surrogate marker:                   A laboratory measurement of biological
                                    activity within the body that indirectly
                                    indicates the effect of treatment on disease
                                    state.


T-cell:                             A form of immune cell that mediates humoral
                                    and cellular immune responses.


Therapeutic Products
Programme or TPP of
Health Canada:                      The government department responsible for
                                    supervising the drug development and
                                    approval process in Canada.

Tumor:                              An abnormal proliferation of malignant cells.

Tumor antigen or tumor
associated antigen or TAA:          An antigen that is predominantly expressed
                                    in tumor tissues and may be released into
                                    the blood stream in association with the
                                    tumor.


Tumor marker:                       A biological product (protein or other) that
                                    is expressed on tumor cells and secreted
                                    usually into the serum, such that presence
                                    or activity of the tumor can be measured
                                    indirectly through measurement of the
                                    marker.

United States Food and
Drug Administration or
FDA:                                The regulatory body that oversees the drug
                                    development and approval process in the
                                    United States.
</TABLE>



                                       54
<PAGE>   58
                                   SIGNATURES

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


                                       ALTAREX CORP.


                                       By: /s/ Richard E. Bagley
                                           -------------------------------------
                                           Richard E. Bagley
                                           President and Chief Executive Officer


                                       By: /s/ Edward M. Fitzgerald
                                           -------------------------------------
                                           Edward M. Fitzgerald
                                           Senior Vice President and
                                           Chief Financial Officer

Waltham, Massachusetts
June 22, 2001





                                       55
<PAGE>   59

                                                                       EXHIBIT A

                                  ALTAREX CORP.

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                        Page
<S>                                                                     <C>
Report of Arthur Andersen LLP, Chartered Accountants................    F2

Report of Ernst & Young LLP, Independent Chartered Accountants......    F3

Consolidated Balance Sheets.........................................    F4

Consolidated  Statements of Loss....................................    F5

Consolidated Statements of Shareholders' Equity.....................    F6

Consolidated Statements of Cash Flows...............................    F7

Notes to Consolidated Financial Statements..........................    F8
</TABLE>
<PAGE>   60
AltaRex Corp.

(A DEVELOPMENT STAGE COMPANY)

AUDITORS' REPORT

To the Shareholders of
ALTAREX CORP.

We have audited the consolidated balance sheet of AltaRex Corp. (an Alberta
corporation in the development stage) as at December 31, 2000 and 1999 and the
consolidated statements of loss, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in Canada and the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of AltaRex Corp. as at December 31,
2000 and 1999 and the results of its operations and its cash flows for the years
then in accordance with generally accepted accounting principles in Canada.

                      COMMENTS BY AUDITOR FOR U.S. READERS
                     ON CANADA - U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated
February 13, 2001 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditor's
report when these are adequately disclosed in the financial statements.

                                           /s/ Arthur Andersen LLP


Boston, Massachusetts
February 13, 2001

                                      F-2
<PAGE>   61
ALTAREX CORP.

AUDITORS' REPORT

To the Shareholders of
ALTAREX CORP.

We have audited the consolidated statements of loss, shareholders' equity and
cash flows for the year ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of AltaRex Corp. for
the year ended December 31, 1998 in accordance with accounting principles
generally accepted in Canada.

                                             /s/ Ernst & Young LLP

                                             CHARTERED ACCOUNTANTS

Edmonton, Canada
February 12, 1999

                                      F-3
<PAGE>   62
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

  CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                                ------------------
                                                            2000                 1999
                                                            ----                 ----
                                                              (IN CANADIAN DOLLARS)
<S>                                                     <C>                  <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................      $  9,665,187         $  2,328,641
Short-term investments ...........................         3,591,323            4,878,039
Accounts and other receivables ...................            75,223               89,773
Prepaid expenses .................................           354,481               64,127
                                                        ------------         ------------
                                                          13,686,214            7,360,580
DEPOSITS AND OTHER ASSETS ........................           578,227              235,671
NOTES RECEIVABLE FROM EMPLOYEES ..................                --               36,285
CAPITAL ASSETS, NET ..............................           490,115              934,893
                                                        ------------         ------------
                                                        $ 14,754,556         $  8,567,429
                                                        ============         ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES...............................      $  3,793,766         $  2,302,960
                                                        ------------         ------------
Accounts payable and accrued liabilities..........         3,793,766            2,302,960

DEFERRED LEASE CREDIT ............................                --               46,513
                                                        ------------         ------------
         TOTAL LIABILITIES .......................         3,793,766            2,349,473
                                                        ------------         ------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY
Share capital ....................................        72,894,559           50,427,647
Accumulated deficit during the development stage .       (61,933,769)         (44,209,691)
                                                        ------------         ------------
         TOTAL SHAREHOLDERS' EQUITY ..............        10,960,790            6,217,956
                                                        ------------         ------------
                                                        $ 14,754,556         $  8,567,429
                                                        ============         ============
</TABLE>


On behalf of the Board:

/s/ Antoine A. Noujaim                             /s/ Richard E. Bagley

DIRECTOR                                           DIRECTOR



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-4
<PAGE>   63
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

  CONSOLIDATED STATEMENTS OF LOSS


<TABLE>
<CAPTION>
                                                                              YEARS ENDED                       DECEMBER 1, 1995-
                                                                              DECEMBER 31,                      DECEMBER 31, 2000
                                                              ------------------------------------------        -----------------
                                                              2000               1999               1998            (UNAUDITED)
                                                                                    (IN CANADIAN DOLLARS)
<S>                                                       <C>                <C>                <C>             <C>
REVENUES
Research contracts....................................    $         --       $     65,000       $     50,000       $    810,000
Sale of research materials............................              --                 --                 --             71,869
Interest income.......................................         389,826            622,710            963,742          2,941,022
                                                          ------------       ------------       ------------       ------------
                                                               389,826            687,710          1,013,742          3,822,891
                                                          ------------       ------------       ------------       ------------
EXPENSES
Research and development..............................      12,022,218         12,828,617          9,433,681         40,946,266
General and administrative............................       6,091,686          6,802,546          4,695,990         19,735,680
Settlement costs (Note 8).............................              --          5,074,714                 --          5,074,714
                                                          ------------       ------------       ------------       ------------
                                                            18,113,904         24,705,877         14,129,671         65,756,660
                                                          ------------       ------------       ------------       ------------
NET LOSS FOR THE PERIOD...............................    $(17,724,078)      $(24,018,167)      $(13,115,929)      $(61,933,769)
                                                          ------------       ------------       ------------       ------------
NET LOSS PER COMMON SHARE.............................    $      (1.08)      $      (2.32)      $      (3.18)
                                                          ------------       ------------       ------------
Weighted average number of common shares outstanding..      16,433,031         10,347,434          4,125,941
                                                          ============       ============       ============
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-5
<PAGE>   64
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                       ACCUMULATED
                                                                                                         DEFICIT
                                                                         COMMON STOCK                  DURING THE         TOTAL
                                                                  ------------------------------       DEVELOPMENT     SHAREHOLDERS'
                                                                     SHARES            AMOUNT             STAGE           EQUITY
                                                                  -----------------------------------------------------------------
                                                                                     (IN CANADIAN DOLLARS)
<S>                                                               <C>               <C>               <C>              <C>
BALANCE, DECEMBER 1, 1995.......................................       292,333      $         --      $         --     $         --
Issuance of shares..............................................         6,250                --                --               --
Initial capitalization of Company...............................            --         1,000,000                --        1,000,000
Net loss........................................................            --                --          (225,899)        (225,899)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 1995......................................       298,583         1,000,000          (225,899)         774,101
Private placement of shares of AltaRex Inc......................            --           175,200                --          175,200
Issuance of shares of AltaRex Inc. in settlement of interest
payable.........................................................            --            12,066                --           12,066
Shares issued in private placement of unit sales................       374,375         2,310,424                --        2,310,424
Shares issued to acquire AltaRex Inc. ..........................     1,881,250                 1                --                1
Exercise of Special Warrants....................................       199,375         1,210,000                --        1,210,000
Issuance of common shares in public offering....................     1,025,000        25,036,466                --       25,036,466
Exercise of stock options.......................................        29,233            76,014                --           76,014
Exercise of warrants............................................        10,825           103,920                --          103,920
Net loss........................................................            --                --        (2,172,059)      (2,172,059)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 1996......................................     3,818,641        29,924,091        (2,397,958)      27,526,133
Exercise of stock options.......................................        23,750           170,931                --          170,931
Exercise of warrants............................................       278,262         2,689,342                --        2,689,342
Net loss........................................................            --                --        (4,677,637)      (4,677,637)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 1997......................................     4,120,653        32,784,364        (7,075,595)      25,708,769
Exercise of stock options.......................................         7,500            54,000                --           54,000
Net loss........................................................            --                --       (13,115,929)     (13,115,929)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 1998......................................     4,128,153        32,838,364       (20,191,524)      12,646,840
Issuance of common shares in public offering....................     9,775,000        17,589,283                --       17,589,283
Net loss........................................................            --                --       (24,018,167)     (24,018,167)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 1999......................................    13,903,153        50,427,647       (44,209,691)       6,217,956
Exercise of Special Warrants....................................     1,421,889         5,443,617                --        5,443,617
Issuance of common shares in public offering....................     2,644,982         7,945,779                --        7,945,779
Issuance of common shares in private placements.................     3,559,989         8,048,100                          8,048,100
Exercise of stock options.......................................       502,187         1,029,416                --        1,029,416
Net loss........................................................            --                --       (17,724,078)     (17,724,078)
                                                                  ------------      ------------      ------------     ------------
BALANCE, DECEMBER 31, 2000......................................    22,032,200      $ 72,894,559      $(61,933,769)    $ 10,960,790
                                                                  ============      ============      ============     ============
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-6
<PAGE>   65
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                   ---------------------------------------------   DECEMBER 1, 1995-
                                                                       2000            1999             1998       DECEMBER 31, 2000
                                                                   -----------------------------------------------------------------
(IN CANADIAN DOLLARS)                                                                                                  (UNAUDITED)
<S>                                                                <C>             <C>              <C>               <C>
CASH USED IN OPERATING ACTIVITIES
Net loss...........................................................$(17,724,078)   $(24,018,167)    $(13,115,929)     $(61,933,769)
Adjustments to reconcile net loss to net cash used in
operating activities:
  Depreciation and amortization....................................     496,945         565,218          548,687         2,114,651
  Amortization of deferred lease credit............................     (21,691)        (78,920)        (168,551)         (333,486)
  Interest expense satisfied through issuance of common shares.....          --              --               --            12,066
  Net changes in non-cash working capital balances.................     882,171         291,491        1,301,468         2,795,562
                                                                   ------------    ------------     ------------      ------------
                                                                    (16,366,653)    (23,240,378)     (11,434,325)      (57,344,976)
                                                                   ------------    ------------     ------------      ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets.........................................     (86,714)       (154,026)        (573,698)       (2,281,007)
Maturities and purchases of short-term investments.................   1,286,716        (636,307)       4,794,268        (3,591,323)
Acquisition of AltaRex Corp........................................          --              --               --           (30,250)
                                                                   ------------    ------------     ------------      ------------
                                                                      1,200,002        (790,333)       4,220,570        (5,902,580)
                                                                   ------------    ------------     ------------      ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares, net........................................  22,466,912      17,589,283           54,000        72,912,743
Deferred finance costs.............................................          --         118,477         (118,477)               --
Employee relocation loans..........................................      36,285          69,904         (106,186)               --
                                                                   ------------    ------------     ------------      ------------
                                                                     22,503,197      17,777,664         (170,663)       72,912,743
                                                                   ------------    ------------     ------------      ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...............   7,336,546      (6,253,047)      (7,384,418)        9,665,187
Cash and cash equivalents, beginning of period.....................   2,328,641       8,581,688       15,966,106                --
                                                                   ------------    ------------     ------------      ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $  9,665,187    $  2,328,641     $  8,581,688      $  9,665,187
                                                                   ============    ============     ============      ============
Supplemental disclosure of noncash investing and financing
activities:
  Leasehold improvements financed with deferred lease credit...... $         --    $         --     $     46,641      $    666,641
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-7
<PAGE>   66
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)


1.  BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

AltaRex Corp. (the Company), incorporated under the Business Corporations Act
(Alberta), is a development-stage biotechnology company that is engaged in the
research and development of biopharmaceutical products for the therapy of
cancer.

GOING CONCERN MATTERS

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements, during the years ended December 31, 2000, 1999 and 1998,
the Company incurred losses of $17,724,078, $24,018,167 and $13,115,929,
respectively. The Company currently has adequate working capital to fund its
operations into the third quarter of 2001. These factors, among others, indicate
that the Company may be unable to continue as a going concern for a reasonable
period of time.

The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to (a) obtain additional financing as may
be required and (b) ultimately attain profitability. In December 2000 and
February 2001, the Company issued 3.5 million and 4.4 million Common Shares for
net proceeds of $7.7 million and $7.2 million, respectively. The Company is
pursuing additional financing through public or private equity or debt
instruments or through collaborative arrangements with potential partners.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada, which do not differ
materially from those established in the United States, except as disclosed in
Note 9. The preparation of financial statements in accordance with such
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. Actual results could
differ from those estimates.

CONSOLIDATION OF SUBSIDIARIES

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, AltaRex US, Corp. All significant intercompany
balances have been eliminated in consolidation.

REVENUE RECOGNITION

Research material sales are recognized as revenue when materials are delivered.

Revenue from research contracts, which includes government funding of research
projects, is recognized as the services are performed based on costs incurred
or, for those contracts that provide for milestone payments, as milestones are
achieved. Amounts received in advance of services to be performed are recorded
as unearned revenue.

                                      F-8
<PAGE>   67
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

CASH AND CASH EQUIVALENTS

Cash equivalents are stated at cost, which approximates fair value. The Company
considers highly liquid investments with original maturities of ninety days or
less to be cash equivalents and includes money market accounts and commercial
paper that are readily convertible to cash.

SHORT-TERM INVESTMENTS

Short-term investments consist of investments with original maturities between
three and twelve months. These investments consist of government and commercial
instruments and are carried at cost plus accrued interest, which approximates
their fair market value. At December 31, 2000, short term investments have
maturity periods averaging 1.8 months (December 31, 1999 -- 2.5 months) and
weighted average interest rates approximating 5.3% (December 31, 1999 -- 5.0%).

DEPOSITS AND OTHER ASSETS


Deposits and other assets primarily consist of down payments on service
contracts. These payments are deferred and expensed as services are provided
under the terms of the contract.

CAPITAL ASSETS

Capital assets are stated at cost, net of investment tax credits, accumulated
amortization and depreciation. Depreciation and amortization are provided at
rates which are designed to allocate the cost of the assets, on a straight-line
basis, over their estimated useful lives as follows:

<TABLE>
<S>                                                   <C>
Scientific equipment..............................    5 years
Computer software and equipment...................    3 years
Office equipment..................................    5 years
Leasehold improvements............................    Term of lease (3-5 years)
</TABLE>

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 2000                    DECEMBER 31, 1999
                                    ----------------------------------------------------------------------
                                                        ACCUMULATED                           ACCUMULATED
                                                       DEPRECIATION/                         DEPRECIATION/
                                        COST           AMORTIZATION           COST           AMORTIZATION
                                    ----------------------------------------------------------------------
<S>                                  <C>             <C>                   <C>             <C>
Scientific equipment ............... $1,199,908         $1,022,921         $1,195,173         $  783,076
Computer software and equipment .....   449,961            363,332            440,540            266,344
Office equipment ....................   438,184            292,054            424,836            205,525
Leasehold improvements ..............    95,298             64,929            281,040            151,751
                                     ----------         ----------         ----------         ----------
                                     $2,233,351         $1,743,236         $2,341,589         $1,406,696
                                     ----------         ----------         ----------         ----------
</TABLE>

<TABLE>
<S>                                           <C>                                   <C>
Net book value .............................. $  490,115                            $  934,893
                                              ==========                            ==========
</TABLE>

RESEARCH AND DEVELOPMENT COSTS

Research costs are expensed in the period incurred. Development costs are
expensed in the period incurred unless the Company believes a development
project meets generally accepted accounting principles for deferral and
amortization. No development costs have been deferred to date.

                                      F-9
<PAGE>   68
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

FOREIGN CURRENCY TRANSLATION

Monetary assets and liabilities in foreign currencies are translated into
Canadian dollars at the rate of exchange at the period end; transactions during
the period are translated at the rate of exchange in effect at the date of the
transaction. Gains and losses arising from these translation adjustments are
included in the consolidated statements of loss.

INVESTMENT TAX CREDITS

The Company is permitted to offset Canadian federal income taxes payable with
unapplied investment tax credits which are based on the cost of carrying on
qualifying research and development activities and the cost of qualifying new
equipment (see Note 5).

Refundable investment tax credits received by the Company relating to the
acquisition of assets are deducted from the cost of the related asset.
Refundable investment tax credits received by the Company relating to current
expenses have been included in the determination of net loss as a reduction of
research and development costs.

INCOME TAXES

Effective January 1, 2000, the Company adopted the liability method of
accounting for its income taxes. Under this method, future tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates. This
change did not have a material effect on the Company's consolidated financial
position or results of operations.

Prior to January 1, 2000, income taxes were provided on a deferred tax
allocation basis whereby the provision for income taxes is determined on the
basis of income and expenses included on the statement of income or loss rather
than the related amounts reported in the income tax returns of the Company.
Deferred income taxes relate primarily to differences between the amount of
depreciation and amortization recorded for accounting purposes and capital cost
allowance claimed for income tax purposes. Due to the fact that the Company has
incurred losses since inception, no income tax provision or benefit has been
recorded.

CONCENTRATION OF CREDIT RISK

The Company has no significant off-balance-sheet concentrations of credit risk
such as foreign exchange contracts, option contracts or other hedging
arrangements. Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash equivalents, short-term
investments, accounts receivable and accounts payable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments consist principally of cash and cash equivalents, accounts
receivable, notes receivable and accounts payable. The estimated fair value of
these instruments approximates their carrying value.

NET LOSS PER SHARE

Basic and diluted net loss per common share are determined by dividing net loss
by the weighted average common shares outstanding during the period. Basic and
diluted net loss per share are the same, as outstanding common stock options and
warrants are antidilutive as the Company has recorded a net loss for all periods
presented. Options and warrants to purchase a total of 2,699,287 common shares
have been excluded from the computation of diluted weighted average shares
outstanding for the year ended December 31, 2000 (1999 -- 1,504,201; 1998 --
578,101).

                                      F-10
<PAGE>   69
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

3.  NOTES RECEIVABLE FROM EMPLOYEES

The notes receivable from employees balance is comprised of employee relocation
loans. The notes are unsecured, non-interest bearing and denominated in U.S.
dollars. The notes have maturity dates ranging from March to October 2001 and
therefore are classified in accounts and other receivables at December 31, 2000.

4.  SHARE CAPITAL

AUTHORIZED AND OUTSTANDING

The authorized share capital of the Company consists of an unlimited number of
common shares and an unlimited number of preferred shares. The preferred shares
may be issued in one or more series and the directors are authorized to fix the
number of shares in each series and to determine the designation, rights,
privileges, restrictions and conditions attached to the shares of each series.

On November 21, 2000, the Company effected a one-for-four consolidation of its
common shares. All share and per share amounts in these consolidated financial
statements and notes have been adjusted to reflect this share consolidation as
of the earliest date presented.

On May 7 and June 1, 1999, the Company issued a total of 9,775,000 common shares
in a public offering for net proceeds of $17,589,283 after related issue
expenses of $1,960,717. In connection with this transaction, the Company granted
options to the agents of this issue to purchase 488,750 common shares at the
issue price of $2.00 per share for a period of two years as additional
compensation. These options were exercised in full in March 2000. In February
2000, the Company issued 1,421,889 special warrants resulting in net proceeds of
$5,443,617 after related issue expenses of $585,181. Each special warrant was
converted into one common share in April 2000. In August 2000, the Company
issued 2,644,982 common shares in a public offering for net proceeds of
$7,945,779 after related issue expenses of $1,047,221. In connection with this
transaction, the Company granted options to the agents of this issue to purchase
185,149 common shares at the issue price of $3.40 per share for periods of two
or three years as additional compensation. Also in August, the Company issued
37,262 common shares in two private placements for aggregate net proceeds of
$298,100. In December 2000, the Company issued 3,522,727 common shares in a
private placement for proceeds of $7,750,000.

As of December 31, 2000, no common shares of the Company were being held in
escrow for regulatory purposes (December 31, 1999 -- 9,562). A total of 9,562
and 652,825 common shares were released from escrow in 2000 and 1999,
respectively.

                                      F-11
<PAGE>   70
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

WARRANTS AND STOCK OPTION PLAN

The following table summarizes the common shares reserved for issuance and
outstanding options under the Company's stock option plan as of the dates
indicated:


<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING FOR:
                                        ------------------------
                         SHARES        DIRECTORS,                      OPTIONS
                         RESERVED      OFFICERS                       AVAILABLE
DATE                   FOR ISSUANCE   & EMPLOYEES     CONSULTANTS     FOR GRANT
----                   ------------   -----------     -----------     ---------
<S>                    <C>            <C>             <C>             <C>
December 31, 1999 ..    1,045,000        965,870         39,166          8,713
December 31, 2000 ..    2,875,000      2,456,638         57,500        316,175
</TABLE>

The following schedule details the warrants and stock options granted,
exercised, expired and cancelled.

<TABLE>
<CAPTION>
                                         SHARES ISSUABLE
                                         ON EXERCISE OF
                                         --------------
                                                     WARRANTS
                                      STOCK         AND OTHER       EXERCISE PRICE
                                     OPTIONS         OPTIONS           PER SHARE
                                     -------         -------           ---------
<S>                                <C>             <C>              <C>
BALANCE AT DECEMBER 31, 1997 .....   244,708          331,328       $ 7.20 -- 48.00
  Granted ........................   430,916                          2.12 -- 12.00
  Exercised ......................    (7,500)                                  7.20
  Cancelled ......................  (100,438)                         4.60 -- 23.60
  Expired ........................                   (320,913)        7.20 -- 12.00
                                   ---------       ----------       ---------------
BALANCE AT DECEMBER 31, 1998 .....   567,686           10,415         2.12 -- 48.00
  Granted ........................   467,350          488,750          1.84 -- 4.12
  Cancelled ......................   (30,000)                         7.20 -- 23.60
                                   ---------       ----------       ---------------
BALANCE AT DECEMBER 31, 1999 ..... 1,005,036          499,165         1.84 -- 48.00
  Granted ........................ 1,619,498        1,607,036          1.40 -- 5.96
  Exercised ......................   (13,439)      (1,910,637)         2.00 -- 8.72
  Cancelled ......................   (96,957)                         3.60 -- 14.72
  Expired ........................                    (10,415)                48.00
                                   ---------       ----------       ---------------
BALANCE AT DECEMBER 31, 2000       2,514,138          185,149       $ 1.40 -- 24.00
                                   =========       ==========       ===============
</TABLE>

The following table summarizes information relating to currently outstanding and
exercisable options as of December 31, 2000.

<TABLE>
<CAPTION>
                                                OUTSTANDING                                        EXERCISABLE
                          ---------------------------------------------------------       ------------------------------
                                                  WEIGHTED
                                                  AVERAGE              WEIGHTED             NUMBER          WEIGHTED
  RANGE OF                 NUMBER OF          CONTRACTUAL LIFE         AVERAGE                OF             AVERAGE
EXERCISE PRICE              SHARES                (YEARS)            EXERCISE PRICE         SHARES        EXERCISE PRICE
<S>                        <C>                <C>                    <C>                  <C>             <C>
 $ 1.40 -- 2.12              615,000                9.0                 $1.47               335,831            $1.47
   3.20 -- 4.16              882,931                8.9                  3.63               296,249             4.05
   4.60 -- 5.96              627,000                9.1                  5.93                37,498             5.62
   7.20 -- 8.72              150,249                6.1                  7.62               136,330             7.51
  12.00 -- 14.72             233,125                7.1                 12.31               164,375            12.43
  23.60 -- 24.00               5,833                6.1                 23.83                 5,833            23.83
                           ---------                                    -----               -------            -----
                           2,514,138                                    $4.64               976,116            $4.81
                           =========                                    =====               =======            =====
</TABLE>

                                      F-12
<PAGE>   71
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

The following warrants and options to purchase common shares are outstanding at
December 31, 2000.

<TABLE>
<CAPTION>
       SHARES ISSUABLE ON
           EXERCISE OF
------------------------------------
                        WARRANTS
STOCK                   AND OTHER               EXERCISE PRICE
OPTIONS                  OPTIONS                  PER SHARE            YEAR OF EXPIRY
-------                  -------                  ---------            --------------
<S>                <C>                         <C>                     <C>
                          76,234                         $3.40                 2002
                         108,915                          3.40                 2003
  108,499                                                 7.20                 2006
    2,500                                                23.60                 2006
   26,875                                       13.20 -- 14.72                 2007
    3,333                                                24.00                 2007
   95,833                                         2.12 -- 3.64                 2008
   18,750                                         4.60 -- 5.60                 2008
  248,000                                        8.72 -- 12.00                 2008
  495,437                                         1.40 -- 3.60                 2009
  382,911                                                 4.12                 2009
   98,750                                                 1.41                 2010
  141,250                                         3.64 -- 3.84                 2010
  283,750                                         4.04 -- 4.16                 2010
  608,250                                                 5.96                 2010
---------                -------
2,514,138                185,149
=========                =======
</TABLE>

5.  INCOME TAX

The Company is eligible for scientific research and development investment tax
credits which may be applied against federal taxes payable. The accumulated
non-refundable investment tax credits as of December 31, 2000 is approximately
$3,115,000 (December 31, 1999 -- $2,570,000).

As of December 31, 2000, the Company has scientific research and experimental
development expenditures for tax purposes of approximately $13,430,000 (December
31, 1999 -- $10,900,000) which may be carried forward indefinitely and utilized
by reducing income for income tax purposes. As of December 31, 2000, the Company
has approximately $51,200,000 (December 31, 1999 -- $35,900,000) of non-capital
losses available to be applied to taxable income in future years. These losses
expire between 2001 and 2007.

As of January 1, 2000, Canadian GAAP requires recognition of future tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
future tax assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities using enacted
tax rates. In addition, a future tax asset, net of a valuation allowance, would
be recorded to recognize the future benefit of loss carryforwards when the
realization of the benefit is determined to be more likely than not. Future tax
assets at December 31, 2000 consist primarily of net operating loss
carryforwards and other temporary differences. At December 31, 2000, the Company
had determined that the future tax asset net of a valuation allowance of
$32,100,000 (December 31, 1999 -- $23,700,000) would be nil (nil at December 31,
1999).

Due to the uncertainty surrounding the Company's ability to utilize its
carryforwards, no recognition has been given in these financial statements to
the potential tax benefits which may result from these carry forward amounts or
future tax assets.

                                      F-13
<PAGE>   72
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

6.  COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office and research facilities. Lease costs for its
facilities totaled approximately $474,000, $353,000 and $280,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. During 2000, the Company
entered into a new lease arrangement for its facilities in the United States,
which will expire in August 2001. In January 2001, the Company sublet a portion
of this facility with an estimated annual rental fee of $262,000. As of December
31, 2000, the Company is committed to annual minimum basic rent payments as
follows:

<TABLE>
<S>                                                                    <C>
2001................................................................   $ 506,635
2002................................................................     324,630
                                                                       ---------
                                                                       $ 831,265
                                                                       =========
</TABLE>

LICENSE AND OTHER AGREEMENTS

On December 1, 1995, the Company acquired from Biomira Inc. ("Biomira") an
exclusive world-wide right and license to a certain antibody, its cell bank,
related data, records and proprietary rights (the "Technology") for a
non-refundable cash fee of $150,000, which was charged to research and
development expenses. In 1999, in connection with the settlement of litigation
between the Company and Biomira (see note 8), the license agreement was amended
and restated. As amended, the license agreement requires the Company to use its
best efforts to commercialize the Technology, to spend certain minimum amounts
to develop the Technology and to pay royalties to Biomira upon commercialization
of products developed from the Technology. The term of the agreement extends to
the later of the ten year anniversary of first commercialization of a product or
the expiration date of certain patent rights included in the Technology. At the
end of the term of the agreement, the Company will have a world-wide, exclusive,
fully paid up right and license to use the Technology for certain applications.
The Company and Biomira have the right to terminate the agreement upon
forty-five days notice if the other party defaults in the performance,
observance or fulfillment of any of its obligations under the agreement.

The Company is party to an agreement with the Alberta Heritage Foundation for
Medical Research to jointly fund clinical trials, with the Company controlling,
through ownership or licensing, all of the technology. Total funding available
of $500,000 was received and recorded as revenue in 1997. The Company is
required to repay this funding and a royalty equivalent to the amount actually
received, from the commercial success of the resulting products and technology,
at a rate of the lesser of 5% of gross sales or $100,000 per annum. The maximum
total payments by the Company under this agreement are $1,000,000. In addition,
the Company granted warrants in connection with this agreement, which entitled
the holder to obtain 10,416 common shares. These warrants expired on February
29, 2000.

The Company had contracted certain research projects to a third party consultant
for a three year period which ended March 31, 2000. Under this agreement, the
Company will pay royalties to the consultant upon successful commercialization
of a prostate cancer immunotherapeutic product developed under this
collaboration. As of December 31, 2000, the Company has not paid any royalties
under this agreement and research fees paid to the consultant over the term of
the contract were approximately $775,000.

                                      F-14
<PAGE>   73
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

7.  SEGMENT DISCLOSURE

The Company has considered the reporting requirements of the Canadian Institute
of Chartered Accountants on segment disclosures. The Company has determined that
it manages its operations as one reportable segment of a biotechnology company
engaged in the research and development of biopharmaceutical products for the
therapy of cancer. All of the Company's revenues related to research contracts
and sales of materials were generated in Canada. The Company's capital assets
are located in Canada with the exception of $222,000 as of December 31, 2000
($336,000 as of December 31, 1999) located in the United States.

8.  LEGAL MATTERS

In September 1999, the Company reached a settlement of certain litigation with
Biomira, Inc. The litigation related to claims by Biomira of ownership of an
invention disclosed in an international patent application filed by the Company.
The settlement provides for:

-    The assignment to the Company of any interest Biomira might have in the
     patent application that was the subject of the lawsuit filed by Biomira,

-    The payment by the Company, on behalf of Biomira, of a $4.2 million
     liability of Biomira to Industry Canada, an agency of the Canadian
     government, under a 1991 contribution agreement which, in part, funded
     research related to the Technology licensed by Biomira to the Company, and
     termination of the contribution agreement,

-    The agreement by the Company to pay up to $250,000 to an agency of the
     government of the Province of Alberta upon successful commercialization of
     OvaRex(R) MAb, also related to funding provided to Biomira in support of
     the Technology, and

-    The amendment and restatement of the license agreement between the parties
     (see Note 6).

The Company incurred total costs related to this litigation and settlement,
including the settlement payment and legal fees, of $5,074,714 in 1999.

9.  RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
    STATES

These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP) which conform in all
material respects to those accounting principles generally accepted in the
United States (U.S. GAAP), except as follows:

    (a) Accounting for stock-based compensation

For U.S. GAAP purposes, the Company would account for stock-based compensation
to employees in accordance with Accounting Principles Board (APB) Opinion No.
25. For U.S. GAAP purposes, no compensation expense would be recognized on the
Company's stock options and warrants granted, if the exercise price of these
instruments equal the fair value of the Company's stock as at the date of the
grant. Stock-based compensation to non-employees would be recorded at the fair
value of the options and warrants granted.

The compensation expense related to the fair value of stock based compensation
to non-employees and the value of options issued to employees at less than fair
value on the grant date or other appropriate measurement date would be amortized
over the appropriate vesting periods. For Canadian GAAP purposes, no
compensation expense or deferral would be recognized in such circumstances.

                                      F-15
<PAGE>   74
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

As of December 31, 2000, the unamortized compensation benefit that the Company
would record as additional compensation expense in future periods amounts to
$449,000 (December 31, 1999 -- $12,000 and December 31, 1998 -- $89,000).

Additionally, during 2000 and 1999 the Company issued 185,149 and 488,750
options, respectively, to agents of its offerings of common shares. The
compensation related to these issuances of $378,000 and $554,000, respectively,
would be recognized as a reduction in the net proceeds of the offering and an
increase in share capital for the value of the options. Accordingly, there would
be no net effect on the share capital of the Company.

    (b) Reverse take-over costs

For Canadian GAAP purposes, costs incurred in connection with the Company's
reverse take-over are presented as a charge against share capital. For U.S. GAAP
purposes, these costs totaling $495,000 would be charged to expense.
Accordingly, net loss for the year ended December 31, 1996 and share capital for
each of the periods presented would increase by $495,000.

    (c) Comprehensive income (loss)

For U.S. GAAP purposes, the Company would adopt the disclosure requirements of
Statement of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130
requires the presentation of comprehensive income (loss) and its components.
Comprehensive income (loss) includes all changes in equity during a period
except shareholder transactions. For the periods presented, comprehensive income
(loss) would equal net loss determined for U.S. GAAP purposes as set out in the
following table.

The following table reconciles the net loss as reported on the statements of
loss to the net loss that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP.


<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                     -----------------------------------------         DEC. 1, 1995-
                                                                    2000               1999                1998        DEC. 31, 2000
                                                                    ----               ----                ----        -------------
<S>                                                             <C>                <C>                <C>               <C>
Net loss per Canadian GAAP....................................  $ 17,724,078       $ 24,018,167       $ 13,115,929      $ 61,933,769
Adjustment for stock-based compensation.......................     1,049,000             17,000            130,000         1,434,000
Adjustments of reverse take-over costs........................                               --                 --           495,000
                                                                ------------       ------------       ------------      ------------
Net loss per U.S. GAAP........................................  $ 18,773,078       $ 24,035,167       $ 13,245,929      $ 63,862,769
                                                                ============       ============       ============      ============
Basic and diluted net loss per share, U.S. GAAP...............  $      (1.14)      $      (2.32)      $      (3.21)
                                                                ============       ============       ============
Basic and diluted weighted-average number of common shares....    16,433,031         10,347,434          4,125,941
                                                                ============       ============       ============
</TABLE>

The following summarizes balance sheet items with material variations under U.S.
GAAP.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,   DECEMBER 31,
                                                                       2000          1999
                                                                       ----          ----
<S>                                                                <C>            <C>
Share capital.................................................     $74,823,559    $51,307,647
Accumulated deficit...........................................      63,862,769     45,089,691
</TABLE>

    (d) Auditors' Report

For U.S. GAAP purposes, the auditors' report would be modified to express
uncertainty as to the Company's ability to continue as a going concern. As
discussed in Note 1, due to insufficient working capital resources to fund its
operations for 2001, there is significant doubt concerning the Company's ability
to continue as a going concern. The Company's ability to continue as a going
concern is dependent upon its ability to obtain additional financing during
2001. As under Canadian GAAP, the financial statements would not include any
adjustments under U.S. GAAP that might result from the outcome of this
uncertainty.

                                      F-16
<PAGE>   75
ALTAREX CORP.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (IN
CANADIAN DOLLARS)

10. SUBSEQUENT EVENT

On February 13, 2001, the Company issued 4.4 million common shares in a public
offering at $1.90 per share. The estimated net proceeds of this sale, after
deducting offering expenses of approximately $1.1 million, are approximately
$7.2 million.


                                      F-17
<PAGE>   76
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DOCUMENT DESCRIPTION
------                            --------------------
<S>           <C>
1.1(1)        The Articles of the Company dated November 18, 1993 as amended by
              Articles of Amendment dated June 25, 1996 and November 28, 1996.

1.2(1)        Articles of Amalgamation of the Company dated May 31, 1997 as
              amended by Articles of Amendment dated June 27, 1997.

1.3(1)        The Bylaws of the Company dated March 1, 1995.

1.4(1)        Asset Purchase Agreement dated November 24, 1995 among AltaRex
              Inc., Biomira Research Inc. and Biomira Inc.*

1.5(1)        The Share Purchase Agreement.

1.6(2)        Settlement Agreement by and among Biomira Inc. and AltaRex Corp.,
              dated September 3, 1999.

1.7(1)        Letter Agreement dated February 20, 1996 between AltaRex Corp. and
              Merck Frosst Canada Inc.

1.8(2)        Amended and Restated License Agreement between Biomira Inc. and
              AltaRex Corp., dated September 3, 1999.*

1.9(2)        Patent License Agreement between AltaRex Corp. and the National
              Institute of Health, the Centers for Disease Control and
              Prevention and the Food and Drug Administration, dated September
              21, 1999.*

1.10(1)       License Agreement dated November 24, 1995 between Biomira Inc. and
              AltaRex Corp.*

1.11(1)       Assignment of Patent Agreement dated April 4, 1996 between Biomira
              Inc. and AltaRex Corp.

1.12(1)       Employment Contracts dated January 1, 1996, between AltaRex Corp.
              and Dr. Antoine Noujaim.

1.13(2)       Stock Option Plan.

1.15(1)       Assignment of Letter Agreement dated February 20, 1996 between
              AltaRex Corp. and Merck Frosst Canada Inc.

1.16(3)       Sublease Agreement by and between Tufts Associated Health Plans,
              Inc. and AltaRex U.S. Corp. dated April 15, 2000.

1.17(4)       Employment Arrangement dated February 18, 1998 and amended as of
              March 30, 1998 between AltaRex Corp. and Richard E. Bagley.

1.18(3)       Amendments to Employment Arrangement between AltaRex Corp. and
              Richard E. Bagley, dated June 1, 1999 and December 22, 1999.
</TABLE>
<PAGE>   77
<TABLE>
<S>           <C>
1.19(3)       Amendments to Employment Contract between AltaRex Corp. and Dr.
              Antoine Noujaim dated June 3, 1999 and December 22, 1999.

1.20(3)       Employment Contract between AltaRex Corp. and Dr. Christopher
              Nicodemus dated December 16, 1998, as amended on June 1, 1999 and
              December 22, 1999.

1.21(3)       Employment Contract between AltaRex Corp. and Edward Fitzgerald
              dated September 14, 1998, as amended on June 1, 1999 and December
              22, 1999.

1.22(3)       Employment Contract between AltaRex Corp. and Peter C. Gonze dated
              January 24, 2000.

1.23**        Sublease Agreement dated August 21, 2000 between Anadys Pharmaceuticals,
              Inc. and AltaRex US, Corp.

1.24***       Memorandum of Understanding between AltaRex Corp. and Dompe
              Farmaceutici S.p.A. dated November 15, 2000.

1.25***       Development and Supply Agreement dated May 1, 2001 between Abbott
              Laboratories and AltaRex US Corp.

1.26**        Special Warrant Indenture dated June 6, 2001 between AltaRex Corp.
              and Montreal Trust Company of Canada.

1.27**        List of Subsidiaries of AltaRex Corp.

23.1**        Consent of Arthur Andersen LLP.

23.2**        Consent of Ernst & Young LLP.
</TABLE>

(1)  Incorporated herein by reference from the Exhibits to the Company's
     Registration Statement on Form 20-F.

(2)  Incorporated herein by reference from the Exhibits to the Company's Amended
     Annual Report on Form 20-F/A for the year ended December 31, 1999.

(3)  Incorporated herein by reference from the Exhibits to the Company's Annual
     Report on Form 20-F for the year ended December 31, 1999.

(4)  Incorporated herein by reference from the Exhibits to the Company's Annual
     Report on Form 20-F for the year ended December 31, 1997.

*    Confidential treatment granted as to certain portions of this Exhibit. The
     confidential redacted information has been filed separately with the
     Securities and Exchange Commission.

**   Filed herewith.

***  To be filed by amendment.