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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------------

For the fiscal year ended January 31, 2001

Commission file number: 1-8366

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POLYDEX PHARMACEUTICALS LIMITED(Exact Name of Registrant as Specified in Its Charter)

|Commonwealth of the Bahamas                                    |  | None                                
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)
|421 Comstock Road, Toronto, Ontario, Canada                    |  | M1L 2H5                             
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

Registrant's
telephone number, including area code(416) 755-2231

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

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Shares, $.0167 Par Value

Boston Stock Exchange


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

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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. Yes /x/  No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/

The
aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant, computed by reference to the average bid and ask prices of such stock
as of April 23, 2001: $10,444,795.

The
number of Common Shares outstanding as of April 23, 2001: 3,027,477.

Documents Incorporated By Reference

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 22, 2001, are incorporated by
reference into Part III.

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PART I

ITEM 1.  BUSINESS

Introduction

Polydex Pharmaceuticals Limited (the "Registrant") was incorporated under the laws of the Commonwealth of the Bahamas on June 14, 1979 as Polydex
Chemicals Limited, and changed its name on March 28, 1984. The address of its statutory office in the Bahamas is c/o Higgs & Johnson, 83 Shirley Street, Nassau, Bahamas: telephone
(242) 322-8571. The Registrant's current business is conducted through two of its subsidiaries, Polydex Chemicals (Canada) Limited, a wholly-owned Canadian corporation incorporated
in 1969, which itself conducts its business through its wholly-owned subsidiary, Dextran Products Limited ("Dextran Products") (incorporated in Ontario in 1966) and Chemdex, Inc. ("Chemdex"), a
90% owned Kansas corporation incorporated in 1987. On November 30, 1992, Chemdex acquired from Continental Grain Company 100% of the issued and outstanding share capital of Veterinary
Laboratories Inc. ("Vet Labs"), a Kansas corporation, which previously had been wholly-owned by the Registrant. On December 1, 1992, Vet Labs and Sparhawk Laboratories Inc.
("Sparhawk") entered into a joint venture (the "Sparhawk Joint Venture") for the purpose of manufacturing and selling veterinary pharmaceutical products. Sparhawk is an affiliated company owned
primarily by the management of the Sparhawk Joint Venture. The Registrant controls the Sparhawk Joint Venture through its control of the board of directors. On May 9, 1995, the Registrant
acquired from its then Chairman (now Vice-Chairman), Thomas C. Usher, a 90% interest in Novadex International Inc. ("Novadex International"), a Bahamian corporation. The Registrant
acquired the remaining 10% interest in Novadex International from an unaffiliated third person on July 14, 1997. The principal asset of Novadex International is a patent, developed by
Mr. Usher, for the use of Cellulose Sulphate in a number of applications including the development of a new contraceptive gel.

General

The current business of the Registrant is the manufacture and sale of Dextran and several of its derivatives, including Iron Dextran and Dextran Sulphate,
veterinary pharmaceutical products and other
specialty chemicals, and cosmetic raw materials, with some related research and development. The Registrant is investigating the potential human applications of some of its products although it is
impossible to determine at this time if the products will reach market.

Dextran,
a generic name applied to certain synthetic compounds formed by bacterial growth on sucrose, is a polymer or giant molecule. The name Polydex combines the words "polymer" and
"dextran."

Description, Usage and Regulated Aspects of the Products

The operations of the Registrant are presently carried on through Dextran Products and Vet Labs. These subsidiaries operate in two industry segments: the
manufacture and sale of Dextran and derivatives and the manufacture and sale of veterinary pharmaceutical products.

Iron Dextran

Iron Dextran is a derivative of Dextran produced by complexing Iron with Dextran. Iron Dextran is injected into most pigs at birth as a treatment for anemia.

Sales
presently are being made by the Registrant in the following countries, which have approved the use of Iron Dextran for animals, require no approval, or accept the Canadian
registration: Canada, Denmark, France, Switzerland, Hong Kong, Germany, the Netherlands, Finland, Ecuador, Thailand, Hungary, Italy, Malaysia, the Philippines, Japan, Brazil, Korea, Spain, Sweden,
Israel, New Zealand, Mexico, Costa Rica, and Australia. In the United States, sale for veterinary use requires the approval

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of the U.S. Food and Drug Administration (the "FDA"). Chemdex has FDA approval for veterinary use of Iron Dextran in the United States. For classification purposes, the Registrant treats these sales
of the Iron Dextran raw materials as sales of Iron Dextran.

Dextran Sulphate

Dextran Sulphate is a specialty chemical which finds use in research applications of the pharmaceutical industry and other centers of chemical research.

The
Dextran Sulphate manufactured by the Registrant is sold in Australia, Switzerland, France, the Netherlands, New Zealand and the United States, where it is used in limited
quantities in the manufacture of film, as well as analytical chemical applications. This usage requires no regulatory approval.

Veterinary Products

The Registrant manufactures sterile injectable products, tablets and boluses, internal and external solutions, ointments and powders.

The
products are sold in the United States and are predominantly used by large animal veterinarians and by farmers for the treatment of various diseases and conditions that affect
farm animals. The Vet Labs facility is regulated and inspected by the FDA and the U.S. Drug Enforcement Agency.

Sales, Distribution and Reliance Upon Foreign Countries

Iron Dextran and Dextran Sulphate

The Registrant sells Iron Dextran on an exclusive basis in certain countries and on a non-exclusive basis elsewhere. Dextran Sulphate is sold on a
non-exclusive basis throughout the world. For the fiscal year ended January 31, 2001, no single customer accounted for 10% or more of total sales.

The
Registrant has not changed its mode of distribution of Iron Dextran or Dextran Sulphate during the past fourteen fiscal years. The Registrant sells its product primarily to
independent distributors and wholesalers throughout the world. Orders are forwarded to the Registrant's manufacturing facilities in Toronto, Ontario, Canada where they are processed and shipped. The
Canadian Embassies and Consulates in various countries also assist the Registrant by making available information regarding the Registrant and its products.

Veterinary Products

All of the sales of Vet Labs for the fiscal year ended January 31, 2001 were within the United States. Distribution is achieved through private label
buying groups who then distribute to their own distributors, and through full service independent distributors who purchase products under Vet Labs' house labels. Private label products accounted for
approximately 85% of sales with house label sales contributing approximately 11%. In addition, Vet Labs also does "contract filling" for other industry companies. Four customers (all private label
buying groups) accounted for 69% of sales at Vet Labs, with individual customer shares ranging from less than 1% to 22%. Management does not anticipate a significant decrease in sales volume from any
of these customers.

Working Capital Requirements

There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect upon the Registrant's working
capital.

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Patents, Trademarks and Licenses

Iron Dextran

Effective February 1, 1995, the Registrant entered into an agreement with Novadex Corp., an affiliated company, whereby Novadex Corp. granted the
Registrant the exclusive worldwide license to use a certain process developed by Novadex Corp. for producing Iron Dextran. This process allows the Registrant to produce Iron Dextran at a lower cost
than would otherwise be possible. The license agreement expires when the related patent expires. The Registrant pays a license fee based on production volumes. Upon the expiration of the license, the
technology relating to the process described above will belong to the Registrant, with no further obligation to make royalty payments to Novadex Corp.

During
July 1999, Novadex Corp. was liquidated, and all assets and liabilities of Novadex Corp. were assumed by the sole shareholder of Novadex Corp., the Vice Chairman of the
Registrant. The above-referenced license agreement was included in the assets transferred to the Vice Chairman. As of the effective date of the transfer, the Registrant is obligated to pay the license
fee to the Vice Chairman.

The
technology in the field of Dextran and its derivatives is undergoing continuous expansion and development. The manufacture of Dextran and its derivatives may be achieved by
different processes and variations (including glycoside, which is in the public domain). Therefore, the Registrant does not believe that the license agreement described above gives it any substantial
competitive advantage.

Dextran Sulphate

This material was patented under U.S. patent number 4,855,410 in August, 1989 and has been tested with other drugs for efficacy in controlling the HIV virus.
At this time research has been halted so that the Registrant can focus its resources on projects relating to cystic fibrosis and Cellulose Sulphate. Once these projects have been completed, the
Registrant expects to return its attention to Dextran Sulphate.

Veterinary Products

Vet Labs holds a New Animal Drug Application from the FDA for the production of 10% Iron Hydrogenated Dextran for injection. In addition, Chemdex holds a Drug
Master File for the manufacture of 10% Bulk Iron Hydrogenated Dextran which makes it the only approved source of Bulk Iron in the United States.

Elastin and Collagen

These materials were patented under U.S. patent numbers 4,659,740 and 4,784,986 on April 21, 1987 and November 15, 1988, respectively. The
patents cover a process whereby the materials are modified in such a way as to penetrate the skin and act as a hydrating agent.

Cellulose Sulphate

During the fiscal year ended January 31, 1996, a patent for a new method of manufacture of Cellulose Sulphate was purchased for $1 million. The
process was patented under U.S. patent number 5,378,828 in June of 1995. Prior to development of the patented process the manufacture of the compound required the use of dangerous and
environmentally sensitive chemicals. The new method is safer, and appears to produce a more consistent product. This material appears to have applications in film manufacture and capsule production
and is presently being investigated in conjunction with the Rush Medical Center in Chicago, Illinois as a potential contraceptive which also has antiviral capabilities.

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During the last fiscal year U.S. patent number 6,063,773, was granted to the Registrant and Co-inventors entitled "Cellulose Sulphate for use as Antimicrobial and
Contraceptive Agent". Further clinical trials are planned to show its safety and efficacy.

Cystic Fibrosis

Effective April 1, 1994, the Registrant entered into a Research Agreement (the "UBC Research Agreement") with an affiliated company and the University
of British Columbia ("UBC"). On April 1, 1996, the UBC Research Agreement was amended and expanded to include a number of Canadian hospitals. Under the terms of the UBC Research Agreement, the
Registrant has agreed to provide equipment and funding in return for continuing research on cystic fibrosis to be carried out in connection with two patents issued in 1996. U.S. patent number
5,441,938 is held jointly by UBC and the Registrant, whereas U.S. patent number 5,514,665 is held by UBC and licensed to the Registrant. In conjunction with the UBC Research Agreement, UBC granted the
Registrant, through a sub-licensing agreement with an affiliated company, an exclusive worldwide license to manufacture, distribute and sell products derived or developed from the research
performed. During fiscal 2000, the Registrant and UBC licensed the cystic fibrosis product to BCY Lifesciences Inc. (formerly BCY Ventures Inc.) ("BCY
Lifesciences") of Vancouver, British Columbia, Canada. Under this license agreement, BCY Lifesciences will pay a royalty to both the Registrant and UBC based on sales and sublicensing revenue in
return for the exclusive right to sublicense, manufacture, distribute and sell the developed products.

Status of New Products or Industry Segments

There has been no public announcement of, and no information otherwise has been made public about, a new product or industry segment that would require the
investment of a material amount of the assets of the Registrant or that otherwise is material.

Suppliers and Sales

Iron Dextran and Dextran Sulphate

With regard to its basic raw materials, the Registrant utilizes one basic supplier for its sugar requirements and one basic supplier for its Iron. Both of
these materials, as well as others used by the Registrant, are readily available from numerous suppliers at competitive prices in the market. The Registrant has no long-term contracts with
any of its suppliers.

The
Registrant is dependent upon a single source for a certain raw material used in the production of Dextran Sulphate. Such supply was adequate in fiscal 2001 and no shortages are
anticipated in the near term. However, any curtailment in availability of such raw material could be accompanied by production or other delays as well as increased raw material costs, with consequent
adverse effect on the Registrant's results of operations.

Veterinary Products

The Registrant has no long-term contracts with any of its suppliers. Other than with respect to euthanasia products, raw materials are readily
available from a variety of suppliers at competitive prices in the market. The sole supplier of euthanasia product Pentobarbital has experienced regulatory problems. Future sales of euthanasia
products will be limited until the supplier resolves these issues or until another manufacturer is approved.

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Backlog and Seasonality

The Registrant's backlog as at January 31, 2001 was approximately $1,600,000 whereas backlog as at January 31, 2000 was approximately $1,500,000.
All of these orders are expected to be filled within the current fiscal year. The Registrant's business is not seasonal to any material extent.

Competition

The Registrant is the only Canadian manufacturer of Iron Dextran and, as a result of its ownership of Vet Labs, the Registrant is also the only manufacturer of
the 10% Bulk Solution in the United States. There exist several European sources of Iron Dextran. However, the only other major supplier of Iron Dextran is located in Denmark. Dextran Sulphate is also
manufactured by several manufacturers in the U.S. and Europe. With regard to Iron Dextran and Dextran Sulphate, the Registrant competes on the basis of quality, service and price.

The
Registrant currently produces approximately 50 veterinary products including analgesics, anti-diarrheals, topical antiseptics, nutritional supplements, local and
general anesthesia agents and euthanizing agents. Primary market segments include beef and dairy cattle, swine, equine and to a small extent, companion animals (dogs and cats). With the exception of
Iron Dextran and Nitrofurazone ointment, the product offering is generic or non-licensed (non NADA). As such, all products are subject to numerous competitors. In addition to competing on
the basis of quality, service and price, the Registrant differentiates itself from competitors through its ability to supply multiple product dosage forms (i.e., injectables, boluses, tablets, liquids
and powders) and provide customers with technical and regulatory support and assistance from in-house quality control and regulatory departments.

Research and Development

During the fiscal years ended January 31, 2001, 2000, and 1999, the Registrant expended $1,158,729, $677,111, and $234,825 respectively, on research and
development relating primarily to the development of Cellulose Sulphate and a raw material for a human pharmaceutical product. The fiscal 2001 increase is due to the work on the Cellulose Sulphate
product and ongoing work on the human pharmaceutical project. During the years ended January 31, 2001, 2000 and 1999, the Registrant recognized investment tax credit benefits of $52,246,
$39,794 and $201,762.

Environmental Compliance

The Registrant believes that it is in substantial compliance with all existing applicable foreign, federal, state and local environmental laws and does not
anticipate that such compliance will have a material effect on its future capital expenditures, earnings or competitive position.

Governmental Contracts

No portion of the Registrant's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S.
Government.

Employees

As of March 31, 2001, the Registrant employed 86 employees, of whom 55 were engaged in production, 18 in quality control, 2 in research and development,
9 in administration and 2 in marketing and sales activities. Of such employees, 57 were employed by Vet Labs and 29 by Dextran Products. None of the Registrant's employees are covered by collective
bargaining agreements. Management considers its relations with employees to be good.

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Recent DevelopmentsNew Products

Activated Collagen and Elastin

Collodex, a modified collagen, has been formulated as a principal ingredient of a cosmetic skin cream. During fiscal 2000, the Registrant engaged several
marketing companies for the promotion of this product. To date, efforts by these companies have met with limited success. At the present time, minor sales are being made to cosmetic manufacturers in
the Pacific Rim with the potential for increased sales in the future.

Elastin,
a material with similar applications, has been developed by the Registrant. It has not been commercialized, however, and no sales are expected to occur in the current fiscal
year.

Cystic Fibrosis

Cystic fibrosis is a genetic disease which causes a cascade of effects, the most severe being a build up of mucus in the lungs. This mucus is difficult to
remove and also permits the colonization of bacteria which then cause secondary infections and often death. Research in collaboration with the University of British Columbia has shown that a special
form of Dextran, Usherdex 4, is effective in preventing the colonization of bacteria in the mouth and in stimulating the macrophages in the lungs to remove the bacteria present and lessen secondary
infections. BCY Lifesciences Inc. has been granted the exclusive right to sublicense, manufacture, distribute and sell any commercial products developed from Usherdex 4. BCY Lifesciences
successfully completed an animal toxicology study during fiscal 2001.

Cellulose Sulphate

As discussed above, research is underway in the United States to evaluate the use of this material as a contraceptive gel with antiviral capabilities. During
fiscal year 2000, the Registrant successfully completed a Phase I human clinical trial with support from the Consortium for Industrial Collaboration in Contraceptive Research ("CICCR"). Should
continued positive results be generated from this work, the Registrant has been advised that the funding from CICCR will continue through Phase II trials. The Registrant maintains an exclusive
worldwide license for this product.

Segmented Information

The information regarding the geographic distribution of revenue, operating results and assets set forth in Note 15 to the Registrant's Consolidated
Financial Statements included in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 2001 is incorporated herein by reference.

ITEM 2.  PROPERTIES

The Registrant's wholly-owned subsidiary, Polydex Chemicals (Canada) Limited, maintains its executive and sales offices and its manufacturing plant of
approximately 30,000 square feet in Toronto, Ontario, Canada.

The
Registrant operates a fermentation plant in Toronto, Ontario, Canada, having the capacity to produce both 10% and 20% Iron Dextran at the rate of up to 11,000 liters a week (there
are 1.057 quarts in one liter). Present production is approximately 8,000 liters a week. Complexing of the Iron Dextran takes place in Toronto, Ontario, Canada.

Dextran
Sulphate presently is manufactured at the Registrant's plant in Toronto, Ontario, Canada where reactors and spray drying equipment are available. The Registrant presently
manufactures approximately 250 kilos of Dextran Sulphate per quarter (there are 2.2 pounds in one kilo), and has

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the capacity to manufacture 500 kilos per month simultaneously with the 11,000 liters per week of Iron Dextran.

The
Toronto facility has been divided into 11 discrete production areas identified for refurbishment. During fiscal 2001 further planning was carried out but no significant work
undertaken so that all available resources could be focussed on the research projects. It is planned that work will be started in fiscal 2002.

Through
its subsidiary, Vet Labs, the Registrant manufactures tablets and boluses, internal and external solutions, ointments, powders and injectable products. The manufacturing
facility is located on 8 acres of land in Lenexa, Kansas. The plant is 55,000 square feet with separate production areas for each of the above product groups. The plant has the capacity to manufacture
over 200,000 boluses per day, 4,000 gallons of liquids per day, 1,500 pounds of powder per day and 1,000 gallons of injectable products per day. The facility is currently running at approximately 50%
of capacity.

Each
of the properties described above is owned by the Registrant. Management believes that the Registrant's facilities are adequate for its present requirements. These facilities
have additional capacity for expansion of production of existing and new products. The Registrant considers its current equipment to be in good condition and suitable for the operations involved.

ITEM 3.  LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Registrant or any of its subsidiaries is a party, or to which any of their property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the Registrant's fourth quarter ended
January 31, 2001.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The
Company's shares are listed for trading on the Nasdaq SmallCap Market System under the symbol POLXF, and on the Boston Stock Exchange under the symbol PXL.

The
reported high and low bid prices of the common shares on the Nasdaq SmallCap Market System for the past two calendar years were as follows (similar prices were quoted on the
Boston Stock Exchange):

(Low and High Bid)Stock Price
Quarter Ended2001

2000

1999March 31

$
3.063-3.125

$
7.875-9.250

$
2.375-2.500June 30





5.031-5.063


4.625-4.625September 30





4.906-5.688


2.781-2.781December 31





2.469-4.000


3.938-4.438


The
quotations set out above represent prices for the specific dates between dealers and do not include retail mark-up, mark-down or commission. They do not
represent actual transactions. These quotations have been supplied by the National Association of Securities Dealers, Inc.

As
of April 23, 2001 there were approximately 726 holders of record of the Company's Common Shares.

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The Company has paid no dividends in the past and does not consider likely the payment of any dividends in the foreseeable future.

There
are no governmental laws, decrees or regulations in the Commonwealth of the Bahamas applicable to the Registrant that restrict the export or import of capital, including foreign
exchange controls, or that affect the remittance of dividends or other payments to nonresident holders of the Registrant's Common Shares. Furthermore, U.S. holders of the Registrant's Common Shares
are not subject to taxes under Bahamian law.

ITEM 6.  SELECTED FINANCIAL DATA

Polydex Pharmaceuticals Limited        Financial Highlights        January 31, 2001

|                                      |  | 2001       |  | 2000       |  | 1999       |  | 1998      |  | 1997     
|------------------------------------- |  | ---------- |  | ---------- |  | ---------- |  | --------- |  | ---------
|Sales from continuing operations      |  | 13,646,158 |  | 13,096,449 |  | 11,721,020 |  | 9,842,365 |  | 9,344,089
|Net income from continuing operations |  | 131,284    |  | 969,843    |  | 572,393    |  | 488,162   |  | 122,390  
|Net income per common share           |  | 0.04       |  | 0.32       |  | 0.19       |  | 0.17      |  | 0.04     
|Total Assets                          |  | 11,217,326 |  | 11,814,833 |  | 10,456,264 |  | 9,740,947 |  | 8,627,517
|Long-term borrowings                  |  | 2,031,660  |  | 2,385,541  |  | 1,158,187  |  | 1,478,578 |  | 1,555,551

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company's fiscal year ends on January 31st therefore fiscal year 2001 refers to the Company's year ended January 31, 2001. The following
discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.

Results of Operations

The operations of the Company are carried on through Dextran Products Limited ("Dextran Products") in Canada and through Chemdex, Inc. ("Chemdex") in
the United States. The operations of Chemdex are carried on through its wholly-owned subsidiary, Veterinary Laboratories, Inc. ("Vet Labs"). Each of Dextran Products and Chemdex operates as a
strategic business unit. Dextran Products manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies throughout the world. Chemdex manuafactures
and sells veterinary pharmaceutical products and specialty chemicals in the United States. The primary customers are distributors and private labelers, who in turn sell to the end-user of
these products.

Sales
of the Company increased 4% or $549,709 to $13,646,158 in fiscal 2001 from $13,096,449 in fiscal 2000. The growth in sales was primarily due to a greater volume at Chemdex,
where sales increased by 4% or $321,878 to $9,142,855 in fiscal 2001 from $8,820,977 in fiscal 2000, and accounted for 67% of the Company's sales in each of fiscal 2001 and 2000. Sales of the Company
increased 12% or $1,375,429 to $13,096,449 in fiscal 2000 from $11,721,020 in fiscal 1999. The sales increase in 2000 was also primarily attributable to increased sales at Chemdex.

Chemdex
products are broken down into 4 product lines. Injectables is the largest product line accounting for 64% and 65% of Chemdex sales for fiscal 2001 and fiscal 2000,
respectively. Sales of injectable products increased by 3% or $169,894 to $5,882,513 in fiscal 2001 from $5,712,619 in fiscal 2000 due to general market trends and a particularly strong fall market.
Management expects the sales to continue to track with the general market in fiscal 2002. Management's expectations for the general market in fiscal 2002 are that sales will be consistent or slightly
down. Management is planning for the introduction of two to three new products for the fourth quarter of fiscal 2002, pending regulatory approval. Sales trends are expected to increase in fiscal 2003
and beyond with the introduction of these and other new products in the coming years.

Sales
at Dextran Products increased by 5% or $227,831 to $4,503,303 in fiscal 2001 from $4,275,472 in fiscal 2000, and accounted for 33% of the Company's sales in each of fiscal 2001
and 2000. Demand for Dextran and related products remained strong during the year and management expects such strong demand to continue. Sales levels are expected to increase slightly next year.

The
Company's gross profit increased 1% or $23,783 to $3,647,296 in fiscal 2001 from $3,623,513 in fiscal 2000. As a percentage of sales, the Company's gross profit decreased to 27%
from 28% in fiscal 2001. Chemdex' gross profit decreased 6% or $109,850 to $1,768,305 in fiscal 2001 from $1,878,155 in fiscal 2000. As a percentage of sales, Chemdex' gross profit decreased to 19% in
fiscal 2001 from 21% in fiscal 2000. This decrease in gross profit at Chemdex was attributable to increases in energy costs, labor rates and product mix. Energy cost increases resulted in cost
increases for utilities and freight. Chemdex had increased sales volume in its liquids and solid dosage product lines, which are more labor-intensive and lower margin product lines. Management
anticipates the approval of several Abbreviated New Animal Drug Applications ("ANADAs") during the coming years. Management believes that these approvals will result in an increase in profit margins.

Dextran
Products' gross profit, excluding profit on intercompany sales, was $1,744,716 in fiscal 2001 as compared to $1,642,483 in fiscal 2000. As a percentage of sales, Dextran's
gross profit increased to 39% in fiscal 2001 from 38% in fiscal 2000. Dextran Products' costs are incurred in

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Canadian dollars, while the majority of its sales are in U.S. dollars. Therefore if the Canadian dollar decreases in relation to the U.S. dollar, margins increase. In fiscal 2001 such currency
fluctuations resulted in a 1% increase in margins.

Other
revenue of $182,400 in fiscal 2001 resulted from a payment from a collaborator on a research and development project. There were no similar payments received in fiscal 2000.

Selling,
promotion, general and administrative expenses increased by 4% to $1,776,925 in fiscal 2001 from $1,716,445 in fiscal 2000. This increase is a result of hiring an investor
relations firm during the third quarter of fiscal 2000. Selling, promotion, general and administrative expenses decreased by 9% in fiscal 2000 from $1,881,378 in fiscal 1999 mainly due to a reduction
in senior management salaries. As a percentage of sales, selling, promotion, general, and administrative expenses remained constant at 13% in both fiscal 2001 and fiscal 2000.

In
fiscal 2001, the Company spent $1,158,729 on research and development expenditures as compared to $677,111 in fiscal 2000 and $234,825 in fiscal 1999. This increase of $442,286 or
188% from fiscal 1999 to fiscal 2000 and the further increase of $481,618 or 71% from fiscal 2000 to fiscal 2001 is due primarily to new product development costs relating to the development of a raw
material for a human pharmaceutical product and the cellulose sulfate project at Dextran Products, and the development of new products at Vet Labs. Development costs for new products are expected to
continue in fiscal 2002, but at reduced levels.

Investment
tax credits are claimed by Dextran Products to offset the cost of research and development. The total investment tax credit benefit recognized in fiscal 2001 was $52,246 as
compared to $39,794 in fiscal 2000 and $201,762 in fiscal 1999. The investment tax credit benefits recognized in fiscal 2001 and fiscal 2000 relate strictly to investment tax credits earned during the
respective years. The large benefit recognized in 1999 was a result of utilizing previously unrecognized investment tax credit benefits. As a result, the company recorded research and development
expense, net of investment tax credits, of $1,106,483, $637,317 and $33,063 in fiscal 2001, fiscal 2000 and fiscal 1999, respectively.

Depreciation
and amortization increased by 16% or $81,901 to $601,701 in fiscal 2001 from $519,800 in fiscal 2000. This increase is primarily attributable to the new production
equipment constructed at Dextran Products in the fourth quarter of fiscal 2000.

Interest
expense increased by 94% or $138,791 to $286,779 in fiscal 2001 from $147,988 in fiscal 2000. This increase is primarily attributable to imputed interest of $107,025 on
long-term payables incurred in the fourth quarter of fiscal 2000 and the financing of capital expenditures for production equipment constructed in the fourth quarter of fiscal 2000.

Income
from operations for the Company in fiscal 2001 totaled $57,808, a decrease of $544,155 or 90% from $601,963 in fiscal 2000. Income from operations at Chemdex decreased to
$639,539 in fiscal 2001, a decrease of $45,116 or 7% from $684,655 in fiscal 2000. This decrease in income from operations is a result of the decrease in gross profit, as described above.

Income
from operations at Dextran Products in fiscal 2001 was $159,216, a decrease of $500,778 or 76% from $659,994 in fiscal 2000. This decrease in income from operations is a result
of the significant increase in research and development expenses, primarily related to the human pharmaceutical project. In addition, there was an increase in depreciation expense due to the new
production equipment constructed in the fourth quarter of fiscal 2000.

Interest
and other non-operating income decreased by 10% or $23,353 to $217,079 in fiscal 2001 from $240,432 in fiscal 2000. In fiscal 2000, the deferred gain of $192,892
on the sale of Novatek International Inc. shares was recognized as other income due to settlement of a lawsuit. This reduction

11

---

in other income was partially offset by a foreign exchange gain at Dextran Products and the settlement of a class action lawsuit, in favor of Chemdex, against various vitamin suppliers.

The
provision for income taxes in fiscal 2001 was $143,603 as compared to a recovery of income taxes in fiscal 2000 of $127,448. A tax recovery of $400,000 was recorded in fiscal 2000
due to the reduction in the valuation allowance against the United States deferred tax assets.

A
tax provision of $27,405 relating to Dextran Products was recorded in fiscal 2001 as compared to $270,640 in fiscal 2000. The decrease in the Canadian tax provision is a result of
the decrease in profitability of Dextran Products in fiscal 2001. The Canadian operations continue to have significant research and development tax pools to offset current taxes payable.

As
a result of the foregoing, the Company recorded net income of $131,284 in fiscal 2001 as compared to a net income of $969,843 in fiscal 2000.

Certain
events occurring in fiscal 2001 could have an impact on future results as follows.

The
Foot and Mouth disease problem in Europe, following so closely on the heels of the Bovine Spongiform Encephalopathy outbreak, may be of concern. Dextran Products has been in
contact with its agents overseas and to date the problem seems to be more related to sheep and cattle. The modern practice of isolating pig units for health reasons and taking the animals directly to
slaughter has limited the impact on this sector. The Iron Dextran sold by Dextran Products is mainly for treatment of pigs. The situation is, however, very fluid and the Company continues to be in
contact with its distributors. Feedback from Asia, Europe and the United States shows limited effect to date. The impact of the Foot and Mouth disease problem has had minimal impact on Vet Labs.

The
Company is conducting part of its research through collaboration with scientists from the Program for the Topical Prevention of Conception and Disease (TOPCAD) based at the
Rush-Presbyterian-St. Luke's Medical Center and the University of Illinois in Chicago. The Company continues to be supported by assistance from the Contraceptive Research and
Development Program ("CONRAD").
During 1999, CONRAD and the company received approval to initiate a Phase I clinical trial for tolerance of the female contraceptive product, Ushercell, and this was successfully completed with
minimal side effects. In fiscal 2000, the Company received a patent on the Antimicrobial and Contraceptive properties of Ushercell in conjunction with TOPCAD. CONRAD continues to support this project
and management expects that funding for further clinical trials and research will continue due to the success of the work to date.

The
Company licensed the cystic fibrosis product, Usherdex, to BCY Lifesciences Inc. ("BCY Lifesciences") of Vancouver, British Columbia. Under this license agreement, BCY
Lifesciences will provide funding for research and development and will pay a royalty to the Company based on sales and sublicensing revenue in return for the exclusive right to sublicense,
manufacture, distribute and sell the product or products developed. BCY Lifesciences has since raised funds to continue the research and development of the product. BCY Lifesciences successfully
completed an animal toxicology study during fiscal 2001 and expects to begin a phase I clinical trial in the next one to two years.

Vet
Labs has a raw material supplier that continues to have regulatory problems with their production of Pentobarbital used in euthanasia product. Consequently, this has limited the
production and related sale of euthanasia products by Vet Labs during fiscal 2001. During the year, the United States Food and Drug Administration ("FDA") did grant an emergency release of raw
materials by the supplier, which allowed Vet Labs to produce and sell some euthanasia products. The release by the FDA was granted because of the short supply of euthanasia products in the field.
Management expects future sales of these products to remain limited until the supplier resolves their regulatory problems or until another manufacturer is approved. Sales of euthanasia products
totalled $256,000 in fiscal 2001, as compared to $347,000 in fiscal 2000.

12

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Liquidity and Capital Resources

For fiscal 2001 the Company generated cash of $837,954 from its operating activities compared to $871,521 for fiscal 2000. The decrease in earnings in fiscal
2001 included an increase in non-cash expenses consisting of depreciation, amortization and imputed interest. In addition, the earnings in fiscal 2000 included non-cash income
arising from the deferred tax recovery and the recognition of the deferred gain from the sale of the Novatek International Inc. shares. The Company maintained $1,639,513 of working capital and
a current ratio of 1.7:1 as of January 31, 2001 compared to $1,663,725 of working capital and a current ratio of 1.7:1 as of January 31, 2000.

At
January 31, 2001, the Company had accounts receivable of $1,138,872 and $2,206,637 in inventory compared to $1,204,495 and $2,051,251, respectively, at January 31,
2000. The decrease in accounts receivable was due to timing of sales at year-end. There were large sales at Chemdex at year-end in fiscal 2000, which increased the
year-end receivables balance. The increase in inventory levels was due to forecasted stocking for February sales.

During
fiscal 2001, capital expenditures totaled $595,293 as compared to $1,318,626 in fiscal 2000. This decrease is a result of the large additions of production equipment at the
Dextran Products plant in Toronto in fiscal 2000.

The
change in the accumulated other comprehensive income is entirely attributable to the currency translation adjustment of Dextran Products. Dextran Products' functional currency is
the Canadian dollar. This currency translation adjustment arises from the translation of Dextran Products' financial statements to U.S. dollars.

During
fiscal 2001, the Company negotiated an extension of payment terms on the long-term debt due to ContiGroup Companies, Inc. Under the new terms,
semi-annual repayments of $90,000 will be required on May 1 and November 1 each year commencing May 1, 2001 with a final lump-sum payment of $105,343 on
November 1, 2004. Management anticipates funding these payments with cash from existing operations.

Dextran
Products has a CDN$750,000 (US$500,000) line of credit. Management anticipates using the credit line for the purposes of funding a portion of the costs associated with the
refurbishment of the Toronto facility. The Vet LabsSparhawk Joint Venture has a $75,000 line of credit to fund operations. Vet Labs has a loan commitment for $400,000 to be used for
building construction. Management is not planning any construction at Vet Labs during fiscal 2002.

Management
expects the primary source of its future capital needs to be a combination of company earnings and borrowings. The Company, at present, does not have any material
commitments for capital expenditures, although management intends to continue the plant refurbishment at Dextran Products.

No
changes in accounting principles or their application have been implemented in the reporting period that would have a material effect on reported income. Changes in the relative
values of the Canadian dollar and the U.S. dollar occur from time to time and may, in certain instances, materially affect the Company's results of operations.

The
Company does not believe that the impact of inflation and changing prices on its operations are material.

Management Objectives

Management's primary objectives for the coming year are to further clinical trials on Ushercell and to increase sales and profitability.

13

---

Management's primary objective for the coming year at Dextran Products is to continue with plant refurbishment and new product development. Management has performed extensive planning
for the refurbishing process and believes that it will continue for another two years. This year, management plans to upgrade some production areas to increase capacity and install new production
equipment. There are no scheduled production interruptions as a result of this refurbishing in fiscal 2002. Although management believes that production interruptions will be minimal, management is
developing contingency plans in case there are unexpected production interruptions. When fully complete, management expects the refurbishing to increase capacity by 50 to 100% with increased operating
efficiencies. Until the refurbishing is complete, however, there could be decreases in profit margins due to the increased overhead costs and unexpected production interruptions.

Management's
primary objective at Vet Labs is product development and marketing of licensed products. These licensed products require individual approval by the United States Food and
Drug Administration ("FDA") and consequently offer greater profit margins. Primary emphasis will be placed on the approval of injectable ANADAs with secondary emphasis on the approval of solutions and
powders.

Forward-looking Statements Safe Harbor

This Annual Report, including the Management's Discussion and Analysis, contains various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events,
including, but not limited to statements regarding management's expectations of regulatory approval and the commencement of sales. In addition,
statements containing expressions such as "believes", "anticipates" or "expects" used in this Annual Report and the Company's periodic reports on Forms 10-K and 10-Q filed with
the Securities and Exchange Commission are intended to identify forward-looking statements. The Company cautions that these and similar statements in this Annual Report and in previously filed
periodic reports including reports filed on Forms 10-K and 10-Q are further qualified by important factors that could cause actual results to differ materially from those in
the forward-looking statements. These factors include, without limitation, changing market conditions, the progress of clinical trials, and the results obtained, the establishment of new corporate
alliances, the impact of competitive products and pricing, and the timely development, FDA approval and market acceptance of the Company's products, none of which can be assured. Results actually
achieved may differ materially from expected results included in these statements as a result of these or other factors.

14

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES        January 31, 2001        Interest Rate Sensitivity

The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. All financial instruments are held for other than
trading purposes. The Company does not have a material exposure to interest rate risk.

The
table presents principal cash flows and related weighted average interest rates by expected maturity dates.

|                  |                     | Expected Maturity Date |         |      |         |     
|----------------- | ------------------- | ---------------------- | ------- | ---- | ------- | ----
|
|
|
|Assets            |                     |                        |         |      |         |     
|Notes receivable: |                     |                        |         |      |         |     
|                  | Variable rate ($US) |                        | 10,465  |      | 11,407  |     
|                  |                     | Average interest rate  |         | 9.00 | %       | 9.00
|Liabilities:      |                     |                        |         |      |         |     
|Long-term debt:   |                     |                        |         |      |         |     
|                  | Fixed rate ($US)    |                        | 49,817  |      | 327,667 |     
|                  |                     | Average interest rate  |         | 9.31 | %       | 9.07
|                  | Fixed rate ($CDN)   |                        | 183,768 |      | 85,263  |     
|                  |                     | Average interest rate  |         | 9.03 | %       | 9.23
|                  | Variable rate ($US) |                        | (57,998 | )    | (55,416 | )   
|                  |                     | Average interest rate  |         | 9.00 | %       | 9.00

15

---

POLYDEX PHARMACEUTICALS LIMITED AND SUBSIDIARIES        January 31, 2001        Exchange Rate Sensitivity

The table below provides information about the Company's financial instruments that are sensitive to changes in foreign currency exchange rates. All financial instruments are held for
other than trading purposes. The Company's major exposure to exchange rate risk is that the Canadian dollar rises dramatically in relation to the U.S. dollar and that this significantly reduces the
gross margin experienced at Dextran Products. Management monitors the margin at Dextran to ensure that an acceptable margin level is maintained. Management has the ability, to some extent, to adjust
sales prices to maintain an acceptable margin level.

The
table presents principal cash flows and related weighted average interest rates by expected maturity dates.

|                |                   | Expected Maturity Date |         |      |        |     
|--------------- | ----------------- | ---------------------- | ------- | ---- | ------ | ----
|
|
|
|Liabilities:    |                   |                        |         |      |        |     
|Long-term debt: |                   |                        |         |      |        |     
|                | Fixed rate ($CDN) |                        | 183,768 |      | 85,263 |     
|                |                   | Average interest rate  |         | 9.03 | %      | 9.23

16

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements
[Expressed in United States Dollars]

Polydex Pharmaceuticals LimitedJanuary 31, 2001, 2000 and 1999

17

---



REPORT OF INDEPENDENT AUDITORS

To
the Board of Directors and Shareholders of Polydex Pharmaceuticals Limited

We
have audited the accompanying consolidated balance sheets ofPolydex Pharmaceuticals Limitedas of January 31, 2001 and 2000
and the related consolidated statements of shareholders' equity, operations and cash flows for each of the years in the three-year period ended January 31, 2001. 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 United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position ofPolydex
Pharmaceuticals Limitedas of January 31, 2001 and 2000 and the consolidated results of its operations and its cash flows for each of the years in the
three-year period ended January 31, 2001 in conformity with United States generally accepted accounting principles.



Toronto,
Canada,
March 9, 2001.

18

---



Polydex Pharmaceuticals Limited        CONSOLIDATED BALANCE SHEETS        [Expressed in United States dollars]        As at January 31

|                                                     |                        | 2001
$                                                                                                                                  |   | 2000
$      |  
|---------------------------------------------------- | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | -
|ASSETS[notes 7 and 8]                                |                        |                                                                                                                                         |   |             |  
|Current                                              |                        |                                                                                                                                         |   |             |  
|Cash                                                 |                        | 403,203                                                                                                                                 |   | 799,565     |  
|Trade accounts receivable[note 17]                   |                        | 1,138,872                                                                                                                               |   | 1,204,495   |  
|Inventories[note 3]                                  |                        | 2,206,637                                                                                                                               |   | 2,051,251   |  
|Prepaid expenses and other current assets            |                        | 82,832                                                                                                                                  |   | 73,072      |  
|                                                     |                        |                                                                                                                                         |   |             |  
|Total current assets                                 |                        | 3,831,544                                                                                                                               |   | 4,128,383   |  
|Property, plant and equipment, net[note 4]           |                        | 5,064,084                                                                                                                               |   | 5,154,333   |  
|Patents, net[note 5]                                 |                        | 131,428                                                                                                                                 |   | 153,611     |  
|Due from Sparhawk Laboratories, Inc.[note 6]         |                        | 138,247                                                                                                                                 |   | 71,437      |  
|Due from shareholder[note 6]                         |                        | 1,251,200                                                                                                                               |   | 1,396,615   |  
|Deferred income taxes[note 13]                       |                        | 781,764                                                                                                                                 |   | 871,040     |  
|Other assets                                         |                        | 19,059                                                                                                                                  |   | 39,414      |  
|                                                     |                        |                                                                                                                                         |   |             |  
|                                                     |                        | 11,217,326                                                                                                                              |   | 11,814,833  |  
|                                                     |                        |                                                                                                                                         |   |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                 |                        |                                                                                                                                         |   |             |  
|Current                                              |                        |                                                                                                                                         |   |             |  
|Accounts payable                                     |                        | 951,597                                                                                                                                 |   | 1,279,778   |  
|Accrued liabilities                                  |                        | 630,223                                                                                                                                 |   | 526,261     |  
|Customer deposits                                    |                        | 85,227                                                                                                                                  |   |            |  
|Income taxes payable                                 |                        | 4,657                                                                                                                                   |   | 17,072      |  
|Current portion of long-term debt[note 8]            |                        | 388,812                                                                                                                                 |   | 523,454     |  
|Current portion of capital lease obligations[note 8] |                        | 131,515                                                                                                                                 |   | 118,093     |  
|                                                     |                        |                                                                                                                                         |   |             |  
|Total current liabilities                            |                        | 2,192,031                                                                                                                               |   | 2,464,658   |  
|Long-term debt[note 8]                               |                        | 844,701                                                                                                                                 |   | 1,096,473   |  
|Capital lease obligations[note 8]                    |                        | 464,737                                                                                                                                 |   | 616,302     |  
|Due to shareholder[note 6]                           |                        | 722,222                                                                                                                                 |   | 672,766     |  
|                                                     |                        |                                                                                                                                         |   |             |  
|Total liabilities                                    |                        | 4,223,691                                                                                                                               |   | 4,850,199   |  
|                                                     |                        |                                                                                                                                         |   |             |  
|Shareholders' equity                                 |                        |                                                                                                                                         |   |             |  
|Capital stock[notes 10 and 11]                       |                        |                                                                                                                                         |   |             |  
|                                                     | Authorized             |                                                                                                                                         |   |             |  
|                                                     |                        | 100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
4,000,000 common shares of $0.0167 each |   |             |  
|                                                     | Issued and outstanding |                                                                                                                                         |   |             |  
|                                                     |                        | 899,400 Class B preferred shares                                                                                                        |   | 15,010      |  
|                                                     |                        | 3,027,477 common shares [20003,021,917]                                                                                                |   | 50,434      |  
|Contributed surplus                                  |                        | 23,221,104                                                                                                                              |   | 23,121,345  |  
|Deficit                                              |                        | (15,397,648                                                                                                                             | ) | (15,528,932 | )
|Accumulated other comprehensive income               |                        | (895,265                                                                                                                                | ) | (692,992    | )
|                                                     |                        |                                                                                                                                         |   |             |  
|Total shareholders' equity                           |                        | 6,993,635                                                                                                                               |   | 6,964,634   |  
|                                                     |                        |                                                                                                                                         |   |             |  
|                                                     |                        | 11,217,326                                                                                                                              |   | 11,814,833  |  
|                                                     |                        |                                                                                                                                         |   |             |  

See accompanying notes

|On behalf of the Board: |  |          |  |         
|----------------------- |  | -------- |  | --------
|                        |  | Director |  | Director

19

---

Polydex Pharmaceuticals Limited        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        [Expressed in United States dollars]        Years ended January
 31, 2001, 2000 and 1999

|                                                                                                 |                                 | Preferred
shares
$ |   | Common
shares
$ |   | Contributed
surplus
$ |   | Deficit
$   |         | Accumulated
other
comprehensive
income (loss)
$ |          | Total
shareholders'
equity
$ |          | Comprehensive
income
(loss)
$ |         
|------------------------------------------------------------------------------------------------ | ------------------------------- | ------------------ | - | --------------- | - | --------------------- | - | ----------- | ------- | ----------------------------------------------- | -------- | ---------------------------- | -------- | ----------------------------- | --------
|Balance, January 31, 1998                                                                        |                                 | 15,010             |   | 47,283          |   | 21,826,025            |   | (17,071,168 | )       | (665,768                                        | )        | 4,151,382                    |          |                              |         
|Renegotiation of Vet Labs agreement[note 11]                                                     |                                 |                   |   | 935             |   | 570,332               |   |            |         |                                                |          | 571,267                      |          |                              |         
|Common shares issued in exchange for research and development                                    |                                 |                   |   | 334             |   | 68,426                |   |            |         |                                                |          | 68,760                       |          |                              |         
|Comprehensive income                                                                             |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|                                                                                                 | Net income for the year         |                    |  |                 |  |                       |  |             | 572,393 |                                                 |         |                              | 572,393  |                               | 572,393 
|                                                                                                 | Currency translation adjustment |                    |  |                 |  |                       |  |             |        |                                                 | (117,774 | )                            | (117,774 | )                             | (117,774
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|Comprehensive income                                                                             |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          | 454,619                       |         
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|Balance, January 31, 1999                                                                        |                                 | 15,010             |   | 48,552          |   | 22,464,783            |   | (16,498,775 | )       | (783,542                                        | )        | 5,246,028                    |          |                               |         
|Reclassification from redeemable capital stock[note 11]                                          |                                 |                   |   | 1,568           |   | 441,822               |   |            |         |                                                |          | 443,390                      |          |                              |         
|Fair value adjustment of remaining purchase obligation[note 11]                                  |                                 |                   |   |                |   | 183,530               |   |            |         |                                                |          | 183,530                      |          |                              |         
|Common shares issued in exchange for research and development                                    |                                 |                   |   | 83              |   | 21,332                |   |            |         |                                                |          | 21,415                       |          |                              |         
|Common share options issued in exchange for research and development                             |                                 |                   |   |                |   | 9,878                 |   |            |         |                                                |          | 9,878                        |          |                              |         
|Comprehensive income                                                                             |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|                                                                                                 | Net income for the year         |                    |  |                 |  |                       |  |             | 969,843 |                                                 |         |                              | 969,843  |                               | 969,843 
|                                                                                                 | Currency translation adjustment |                    |  |                 |  |                       |  |             |        |                                                 | 90,550   |                              | 90,550   |                               | 90,550  
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|Comprehensive income                                                                             |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          | 1,060,393                     |         
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|Balance, January 31, 2000                                                                        |                                 | 15,010             |   | 50,203          |   | 23,121,345            |   | (15,528,932 | )       | (692,992                                        | )        | 6,964,634                    |          |                               |         
|Exercise of common share options                                                                 |                                 |                   |   | 147             |   | 29,740                |   |            |         |                                                |          | 29,887                       |          |                              |         
|Common shares issued in exchange for research and development                                    |                                 |                   |   | 84              |   | 20,516                |   |            |         |                                                |          | 20,600                       |          |                              |         
|Common share options issued in exchange for research and development and other services provided |                                 |                   |   |                |   | 49,503                |   |            |         |                                                |          | 49,503                       |          |                              |         
|Comprehensive income (loss)                                                                      |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|                                                                                                 | Net income for the year         |                    |  |                 |  |                       |  |             | 131,284 |                                                 |         |                              | 131,284  |                               | 131,284 
|                                                                                                 | Currency translation adjustment |                    |  |                 |  |                       |  |             |        |                                                 | (202,273 | )                            | (202,273 | )                             | (202,273
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         
|Comprehensive loss                                                                               |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          | (70,989                       | )       
|Balance, January 31, 2001                                                                        |                                 | 15,010             |   | 50,434          |   | 23,221,104            |   | (15,397,648 | )       | (895,265                                        | )        | 6,993,635                    |          |                               |         
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |         |                                                 |          |                              |          |                               |         

See accompanying notes

20

---



Polydex Pharmaceuticals Limited        CONSOLIDATED STATEMENTS OF OPERATIONS        [Expressed in United States dollars]        Years ended January 31

|                                                  |                                   | 2001
$ |            | 2000
$  |  | 1999
$    
|------------------------------------------------- | --------------------------------- | ------ | ---------- | ------- |  | ----------
|Sales                                             |                                   |        | 13,646,158 |         |  | 13,096,449
|Cost of goods sold                                |                                   |        | 9,998,862  |         |  | 9,472,936 
|                                                  |                                   |        |            |         |  |           
|Gross profit                                      |                                   |        | 3,647,296  |         |  | 3,623,513 
|                                                  |                                   |        |            |         |  |           
|Other revenue[note 12]                            |                                   |        | 182,400    |         |  |          
|                                                  |                                   |        |            |         |  |           
|Expenses                                          |                                   |        |            |         |  |           
|General and administrative                        |                                   |        | 1,596,830  |         |  | 1,595,088 
|Research and development, net[note 12]            |                                   |        | 1,106,483  |         |  | 637,317   
|Depreciation                                      |                                   |        | 579,518    |         |  | 497,822   
|Interest[note 6]                                  |                                   |        | 286,779    |         |  | 147,988   
|Selling and promotion                             |                                   |        | 180,095    |         |  | 121,357   
|Amortization                                      |                                   |        | 22,183     |         |  | 21,978    
|                                                  |                                   |        |            |         |  |           
|                                                  |                                   |        | 3,771,888  |         |  | 3,021,550 
|                                                  |                                   |        |            |         |  |           
|Income from operations                            |                                   |        | 57,808     |         |  | 601,963   
|Other income                                      |                                   |        |            |         |  |           
|                                                  | Interest and other[notes 6 and 9] |        |            | 217,079 |  |           
|                                                  |                                   |        |            |         |  |           
|Income before income taxes                        |                                   |        | 274,887    |         |  | 842,395   
|Provision for (recovery of) income taxes[note 13] |                                   |        | 143,603    |         |  | (127,448  
|                                                  |                                   |        |            |         |  |           
|Net income for the year                           |                                   |        | 131,284    |         |  | 969,843   
|                                                  |                                   |        |            |         |  |           
|Per share information                             |                                   |        |            |         |  |           
|Earnings per common share                         |                                   |        |            |         |  |           
|                                                  | Basic                             |        | $          | 0.04    |  | $         
|                                                  | Diluted                           |        | $          | 0.04    |  | $         
|                                                  |                                   |        |            |         |  |           

See accompanying notes

21

---

Polydex Pharmaceuticals Limited        CONSOLIDATED STATEMENTS OF CASH FLOWS        [Expressed in United States dollars]        Years ended January 31

|                                                                               |                                                                                     | 2001
$   |         | 2000
$     |          | 1999
$    |        
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | -------- | ------- | ---------- | -------- | --------- | -------
|OPERATING ACTIVITIES                                                           |                                                                                     |          |         |            |          |           |        
|Net income for the year                                                        |                                                                                     | 131,284  |         | 969,843    |          | 572,393   |        
|Add (deduct) items not affecting cash                                          |                                                                                     |          |         |            |          |           |        
|                                                                               | Depreciation and amortization                                                       |          | 601,701 |            | 519,800  |           | 514,439
|                                                                               | Imputed interest on long-term debt                                                  |          | 107,025 |            |         |           |       
|                                                                               | Deferred income taxes                                                               |          | 73,734  |            | (310,943 | )         | 363,125
|                                                                               | Legal expenses charged to deferred gain[note 9]                                     |          |        |            | (33,684  | )         | (13,351
|                                                                               | Gain on sale of Novatek International Inc. shares                                   |          |        |            | (192,892 | )         |       
|                                                                               | Royalty expense and interest income charged to due from shareholder                 |          | 117,487 |            | 55,915   |           | 53,611 
|                                                                               | Accrued interest income charged to due from Sparhawk Laboratories, Inc.             |          | (14,650 | )          |         |           |       
|                                                                               | Common shares issued in exchange for research and development[note 10]              |          | 20,600  |            | 21,415   |           | 68,760 
|                                                                               | Options issued in exchange for research and development and other services[note 10] |          | 49,503  |            | 9,878    |           |       
|Net change in non-cash working capital balances related to operations[note 14] |                                                                                     | (248,730 | )       | (167,811   | )        | 97,038    |        
|                                                                               |                                                                                     |          |         |            |          |           |        
|Cash provided by operating activities                                          |                                                                                     | 837,954  |         | 871,521    |          | 1,656,015 |        
|                                                                               |                                                                                     |          |         |            |          |           |        
|INVESTING ACTIVITIES                                                           |                                                                                     |          |         |            |          |           |        
|Additions to property, plant and equipment and patents                         |                                                                                     | (595,293 | )       | (1,318,626 | )        | (976,236  | )      
|Advance to Sparhawk Laboratories, Inc.                                         |                                                                                     | (52,160  | )       | (71,437    | )        |          |        
|Decrease in due from shareholder                                               |                                                                                     | 27,928   |         | 109,081    |          | 32,379    |        
|                                                                               |                                                                                     |          |         |            |          |           |        
|Cash used in investing activities                                              |                                                                                     | (619,525 | )       | (1,280,982 | )        | (943,857  | )      
|                                                                               |                                                                                     |          |         |            |          |           |        
|FINANCING ACTIVITIES                                                           |                                                                                     |          |         |            |          |           |        
|Proceeds from long-term debt                                                   |                                                                                     | 58,354   |         | 77,681     |          | 20,000    |        
|Repayment of long-term debt                                                    |                                                                                     | (548,761 | )       | (69,711    | )        | (60,321   | )      
|Proceeds from capital lease obligations                                        |                                                                                     |         |         | 610,566    |          | 158,473   |        
|Repayment of capital lease obligations                                         |                                                                                     | (115,576 | )       | (27,633    | )        | (7,012    | )      
|Payment of mandatorily redeemable capital stock                                |                                                                                     |         |         | (100,000   | )        |          |        
|Increase in due to shareholder                                                 |                                                                                     | 49,456   |         | 35,749     |          | 46,491    |        
|Repayment of amount due to affiliated companies                                |                                                                                     |         |         |           |          | (425,420  | )      
|Exercise of common share options                                               |                                                                                     | 29,887   |         |           |          |          |        
|                                                                               |                                                                                     |          |         |            |          |           |        
|Cash provided by (used in) financing activities                                |                                                                                     | (526,640 | )       | 526,652    |          | (267,789  | )      
|                                                                               |                                                                                     |          |         |            |          |           |        
|Effect of exchange rate changes on cash                                        |                                                                                     | (88,151  | )       | 27,243     |          | (77,765   | )      
|                                                                               |                                                                                     |          |         |            |          |           |        
|Net increase (decrease) in cash during the year                                |                                                                                     | (396,362 | )       | 144,434    |          | 366,604   |        
|Cash, beginning of year                                                        |                                                                                     | 799,565  |         | 655,131    |          | 288,527   |        
|                                                                               |                                                                                     |          |         |            |          |           |        
|Cash, end of year                                                              |                                                                                     | 403,203  |         | 799,565    |          | 655,131   |        
|                                                                               |                                                                                     |          |         |            |          |           |        

See accompanying notes

22

---

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in United States dollars]

January 31, 2001

1.  GENERAL

Polydex Pharmaceuticals Limited [the "Company"] is incorporated in the Commonwealth of the Bahamas and its principal business
activities, carried on through subsidiaries, include the manufacture and sale of veterinary pharmaceutical products and specialty chemicals. These consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles.

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been
eliminated on consolidation.

Use of estimates

The preparation of financial statements in conformity with United States generally accepted accounting 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 consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Inventories

Inventories of raw materials are stated at the lower of cost and net realizable value, cost being determined on a first-in, first-out
basis. Work-in-process and finished goods are valued at the lower of cost and net realizable value, and include the cost of raw materials, direct labour and overhead expenses.

Property, plant and equipment and patents

Property, plant and equipment are recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets
as follows:

Buildings

15 yearsMachinery and equipment

3 to 10 years


Patents
are amortized on a straight-line basis over their estimated useful lives of ten years.

Costs
related to plant refurbishments and equipment upgrades that represent improvements to existing facilities are capitalized. Costs related to repair and maintenance of buildings
and equipment are expensed. The Company has no major planned maintenance activity other than the plant refurbishment at one of its subsidiaries.

Revenue recognition

All revenue is from sales of manufactured products and is recognized upon shipment to customers.

23

---

Product sold in bulk quantities is tested, prior to release for shipment, to ensure that it meets customer specifications, and in many cases, customers receive samples for their own
testing. Approval is obtained from the customer prior to shipping. Further purchases by a customer of a bulk product with the same specifications do not require approvals. Returns of bulk product are
rare and generally are not accepted.

No
testing and approval is required for finished dosage product because of its nature. Returns of finished dosage product are rare and generally are not accepted.

Shipping and handling costs

Shipping and handling costs incurred by the Company for shipment of products to customers are classified as cost of goods sold.

Research and development

Research and development costs are expensed as incurred and are stated net of investment tax credits earned.

Foreign currency translation

The functional currency of the Company's Canadian operations has been determined to be Canadian dollars. All asset and liability accounts of these companies
have been translated into United States dollars using the current exchange rates at the consolidated balance sheet dates. Revenue and expense items are translated using the average exchange rates for
the year. The resulting gains and losses have been reported separately as other comprehensive income within shareholders' equity.

Stock options

The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ["APB
25"] and related interpretations in accounting for its employee stock options rather than the alternative fair value accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ["SFAS 123"]. Under APB 25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Earnings per common share

Basic earnings per common share are computed using the weighted average number of shares outstanding of 3,027,049 at January 31, 2001
[2000 - 3,017,542; 1999 - 2,999,415]. Diluted earnings per common share are computed using the weighted average number of
shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of 145,205, 1,228 and nil in
2001, 2000 and 1999, respectively, were used in the calculation of diluted earnings per common share. Options to purchase 25,000, 615,077 and 637,577 common shares in 2001, 2000 and 1999,
respectively, were not included in the computation of diluted earnings per common share because the option exercise price was greater than the average market price of the common shares.

24

---

3.  INVENTORIES

Inventories consist of the following:

2001
$

2000
$Finished goods

1,567,518

1,430,329Work-in-process

33,037

30,188Raw materials

606,082

590,7342,206,637

2,051,251


4.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

|                        |  | 2001       |  | 2000     
|----------------------- |  | ---------- |  | ---------
|
|Land and buildings      |  | 3,307,055  |  | 792,717  
|Machinery and equipment |  | 7,003,829  |  | 4,454,083
|                        |  |            |  |          
|                        |  | 10,310,884 |  | 5,246,800
|                        |  |            |  |          

Included
in machinery and equipment are assets under capital lease with a total cost of $879,881 [2000 - $883,400] and accumulated depreciation of $108,724
[2000 - $23,000]. Depreciation of assets under capital lease is included in depreciation expense.

5.  PATENTS

Patents consist of the following:

2001
$

2000
$Cost

395,133

395,133Less accumulated amortization

263,705

241,522131,428

153,611


6.  RELATED PARTY TRANSACTIONS

Amounts due from (to) related parties consist of the following:

2001
$

2000
$Amounts due from Sparhawk Laboratories, Inc.[i]

138,247

71,437Amounts due from shareholder[ii]

1,251,200

1,396,615Amounts due to shareholder[iii]

(722,222
)
(672,766
)


---

25

---



Interest
recorded with respect to amounts due from and due to related parties are as follows:

2001
$

2000
$

1999
$Interest income

75,500

60,626

38,472Interest expense

61,455

51,589

50,219


7.  BANK INDEBTEDNESS

The Company has a Canadian operating line of credit of Cdn. $750,000 [$500,000] [January 31,
2000 - Cdn. $750,000, $516,000] and a U.S. operating line of credit of $75,000, none of which were utilized at January 31, 2001 and 2000. The Canadian line of credit
bears interest at the Canadian banks' prime lending rate plus 1.25% [January 31, 2001 - 8.5%; January 31,
2000 - 7.75%]. The U.S. line of credit bears interest at the U.S. bank's prime lending rate plus 0.5% [January 31,
2001 - 9.5%]. Bank indebtedness is collateralized by a general security agreement over the Company's assets.

26

---

8.  LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2001
$    |  | 2000
$   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ---------
|Note payable to bank, maturing December 13, 2002, bearing interest at 9%, collateralized by assignments of land, building and equipment with a carrying value of $1,559,265 as at January 31, 2001                                                                                                                                                                                                                                                                                                   |  | 333,251   |  | 358,141  
|Share value guarantee payable in semi-annual repayments of $90,000 on May 30 and November 30 for each of the next four years and a lump-sum payment for the balance of $105,343 on November 30, 2004. The total amount of repayments are
presented at their net present value using a discount rate of 9%. The payments are non-interest bearing and are collateralized by the assets of Veterinary Laboratories, Inc. which have a carrying value of $3,111,000 as at January 31, 2001
[note 11[a]] |  | 628,133   |  | 701,813  
|Lawsuit settlement payable in 24 monthly payments of $13,542 commencing on March 15, 2000. The payments are non-interest bearing. The total amount of payments are presented at their net present value using a discount rate of 9% [note 9]                                                                                                                                                                                                                                                         |  | 164,189   |  | 432,442  
|Mortgage payable [Cdn.$52,308] in monthly instalments, bearing interest at 8.5%, and maturing January 2002, collateralized by land and building with a carrying value of $955,073 [Cdn.$1,432,609] as at January 31, 2001                                                                                                                                                                                                                                                                            |  | 34,872    |  | 69,546   
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 73,068    |  | 57,985   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |           |  |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 1,233,513 |  | 1,619,927
|Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 388,812   |  | 523,454  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |           |  |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 844,701   |  | 1,096,473
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |           |  |          

Principal
repayments on the long-term debt are as follows:

$2002

444,5752003

528,4122004

184,2422005

195,343Total principal repayments

1,352,572Less amount representing imputed interest

119,0591,233,513


27

---

|                                                                                                                                                                                                                                                                                      |  | 2001
$  |  | 2000
$ 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -------
|Obligation [Cdn.$89,348] under a capital lease, in monthly instalments, bearing interest at 8.5%, and maturing May 2002. The Company has an option to purchase the asset for $16,000 [Cdn.$24,000] in
November 2001, or at fair market value at the end of the lease term             |  | 59,565  |  | 111,670
|Obligation [Cdn.$805,031] under a capital lease, repayable in monthly instalments, bearing interest at 9%, and maturing November 2006. The Company has an option to purchase the asset for $70,000 [Cdn.$104,500] in April 2006, or at fair
market value at the end of the lease term |  | 536,687 |  | 622,725
|                                                                                                                                                                                                                                                                                      |  |         |  |        
|                                                                                                                                                                                                                                                                                      |  | 596,252 |  | 734,395
|Less current portion                                                                                                                                                                                                                                                                  |  | 131,515 |  | 118,093
|                                                                                                                                                                                                                                                                                      |  |         |  |        
|                                                                                                                                                                                                                                                                                      |  | 464,737 |  | 616,302
|                                                                                                                                                                                                                                                                                      |  |         |  |        

Future
annual minimum lease payments on the capital lease obligations are as follows:

$2002

179,7952003

117,3312004

117,3312005

117,3312006

117,331Thereafter

98,971Total minimum lease payments

748,090Less amount representing imputed interest

151,838596,252


9.  COMMITMENTS AND CONTINGENCIES

Deferred gain

During the year ended January 31, 1997, the Company sold its shares in Novatek International Inc., an unrelated company, for a gain of $878,412.
Prior to April 28, 1996, these shares were subject to options held by unrelated parties. After April 28, 1996, these options expired and the Company sold the shares in the open market
realizing the gain. Subsequently, the former option holders filed a lawsuit against the Company for unspecified damages alleging that the Company denied them the opportunity to exercise their options.
A settlement agreement was reached effective January 31, 2000. Under the terms of the settlement agreement, the Company paid $150,000 on February 10, 2000 and will pay $325,000 in 24
equal monthly installments of $13,542 commencing March 15, 2000. The net present value of the amount owing under the settlement agreement, determined using a discount rate of 9% at the date of
settlement, is included in long-term debt[note 8[a]].

The
Company had deferred the gain on this transaction prior to fiscal 2000 until the likelihood of the outcome of the lawsuit was determinable. As a result of the settlement of the
lawsuit, a gain of
$192,892 was recognized during the year ended January 31, 2000. The deferred gain had been reduced by legal fees of $33,684 in 2000 and $13,351 in 1999.

28

---

Other

During the year ended January 31, 2001, the Company received settlement as part of a class action lawsuit against a supplier, recording a gain of
$83,266.

10. CAPITAL STOCK

[a]  Share capital issued and outstanding



[b]  Share option plan



29

---



|                                                               |  | Share Options |   | Weighted Average
Exercise Price Per Share
|-------------------------------------------------------------- |  | ------------- | - | -----------------------------------------
|
|Options outstanding, beginning of year                         |  | 620,627       |   | 640,327                                  
|Granted                                                        |  | 69,350        |   | 113,127                                  
|Exercised                                                      |  | (8,800        | ) |                                         
|Cancelled or expired                                           |  | (260,577      | ) | (132,827                                 
|                                                               |  |               |   |                                          
|Options outstanding, end of year                               |  | 420,600       |   | 620,627                                  
|                                                               |  |               |   |                                          
|Weighted average fair value of options granted during the year |  |               |   |                                          
|                                                               |  |               |   |                                          



Exercise
Prices
      $

Number
Outstanding

Weighted Average
Remaining
Contractual Life
[Months]$3.50

15,000

45$3.75

340,000

40$4.59

6,600

60$5.00

4,000

64$5.25

30,000

48$6.80

25,000

23420,600

40




30

---



2001
$

2000
$

1999
$Pro forma net income (loss)

50,964

917,250

(35,974
)Pro forma earnings (loss) per common shareBasic

0.02

0.30

(0.01
)Diluted

0.02

0.30

(0.01
)


11. VETERINARY LABORATORIES, INC.

[a]  Purchase obligation to ContiGroup Companies, Inc. [formerly Continental Grain Company]



31

---



Common shares#

$Balance at January 31, 1998

149,899

2,000,000Reduction of liability due to sale of common shares by CGC

(56,000
)
(571,267
)Balance at January 31, 1999

93,899

1,428,733Reduction of liability due to payments



(100,000
)Reduction of liability due to sale of common shares by CGC

(93,899
)
(443,390
)Balance at January 31, 2000



885,343Less: total imputed interest at 9%



(183,530
)Balance at January 31, 2000, net present value



701,813


Since
then, the amount has been included in long-term debt.



12. LICENSE AGREEMENTS AND RESEARCH AND DEVELOPMENT

The Company has made claims for investment tax credits on research and development activities. Research and development expenditures have been reduced by
investment tax credits as follows:

2001
$

2000
$

1999
$Research and development expenditures

1,158,729

677,111

234,825Investment tax credits

(52,246
)
(39,794
)
(201,762
)Research and development expense

1,106,483

637,317

33,063


During
the year ended January 31, 2001, the Company received a payment of $182,400 from a collaborator on a research and development project. This amount was recorded as other
revenue.



32

---





13. INCOME TAXES



2001
$

2000
$

1999
$Bahamas

(740,138
)
(433,521
)
(579,880
)Canada

342,453

672,301

1,322,937United States

672,572

603,615

475,061274,887

842,395

1,218,118


33

---



2001
$

2000
$

1999
$Provision for income taxes based on Bahamian income





Foreign withholding taxes on Bahamian income

2,198

1,912

24,2222,198

1,912

24,222Provision for income taxes based on Canadian statutory income tax rates

123,283

270,640

621,503Reduction in tax reserve

(83,333
)


Benefit of research and development deductions

(12,545
)


27,405

270,640

621,503Provision for (recovery of) income taxes based on United States income tax rates

246,000

241,446

190,024Less tax on joint venture partner's share of income

(132,000
)
(133,718
)
(190,024
)Benefit of previously unrecorded United States tax items



(107,728
)
Reduction in valuation allowance



(400,000
)
114,000

(400,000
)
Provision for (recovery of) income taxes

143,603

(127,448
)
645,725




2001
$

2000
$

1999
$Canadian deferred tax recovery

(109,369
)
(113,983
)
(232,704
)Canadian deferred tax expense

69,103

203,040

595,829Canadian current tax expense

67,671

181,583

258,378United States deferred tax recovery



(400,000
)
United States deferred tax expense

114,000



Bahamian foreign withholding tax expense

2,198

1,912

24,222143,603

(127,448
)
645,725


34

---

2001
$

2000
$Deferred tax assets:CanadianUnclaimed research and development expenses[note 13[c]]

711,000

730,000Net capital losses and other items[note 13[c]]

123,000

173,000United StatesNet operating losses[note 13[d]]

286,000

416,0001,120,000

1,319,000Less valuation allowance

108,000

173,0001,012,000

1,146,000Deferred tax liabilities:Investment tax credits

(230,236
)
(274,960
)781,764

871,040




35

---

14. CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in non-cash working capital balances related to operations consists of the following:

2001
$

2000
$

1999
$Decrease (increase) in current assetsTrade accounts receivable

49,175

(200,474
)
(72,465
)Inventories

(183,284
)
(101,153
)
(274,495
)Prepaid expenses and other current assets

8,756

52,288

59,688(125,353
)
(249,339
)
(287,272
)Increase (decrease) in current liabilitiesAccounts payable

(309,352
)
67,045

208,628Accrued liabilities

112,119

50,604

123,220Customer deposits

85,795



Income taxes payable

(11,939
)
(36,121
)
52,462(248,730
)
(167,811
)
97,038


Cash
paid during the year for interest was $118,299 [2000$96,399; 1999$95,058]. Cash paid during the year for income taxes was
$23,354 [2000$103,843; 1999$1,142].

Excluded
from the consolidated statements of cash flows for the years ended January 31, 1999 and 2000 is the issuance of 20,000 common shares and 5,000 common shares,
respectively, of the Company in exchange for services rendered to the Company[note 10].

The
above transactions are considered non-cash financing and investing activities.

15. SEGMENTED INFORMATION

All of the operations of the Company are carried on through Dextran in Canada and through Chemdex in the United States. The operations of Chemdex represent the
veterinary products business and the operations are carried out through its wholly-owned subsidiary, Vet Labs. Each of Dextran and Chemdex operates as a strategic business unit offering different
products. Each subsidiary comprises a reportable segment as follows:



The
Company evaluates segment performance based primarily on operating income, excluding unusual items. The Company accounts for intersegment sales as if the sales were to third
parties at current market prices. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

36

---

2001Dextran
$

Veterinary
products
$

Total
$Gross sales

4,991,978

9,142,855

14,134,833Intercompany sales

488,675



488,675Interest expense

79,638

38,661

118,299Depreciation and amortization

379,118

206,796

585,914Operating income for segment

159,216

639,539

798,755Interest income

12,353

18,839

31,192Segment assets

5,546,048

4,348,354

9,894,402Capital expenditures

449,430

145,863

595,293


2000Dextran
$

Veterinary
products
$

Total
$Gross sales

4,753,007

8,820,977

13,573,984Intercompany sales

477,535



477,535Interest expense

62,770

33,629

96,399Depreciation and amortization

273,216

231,002

504,218Operating income for segment

659,994

684,655

1,344,649Interest income

38,837



38,837Segment assets

5,894,850

4,497,634

10,392,484Capital expenditures

1,194,869

114,570

1,309,439


1999Dextran
$

Veterinary
products
$

Total
$Gross sales

4,688,490

7,712,966

12,401,456Intercompany sales

680,436



680,436Interest expense

52,070

42,988

95,058Depreciation and amortization

198,967

277,854

476,821Operating income for segment

1,394,289

668,397

2,062,686Interest income

19,726



19,726Segment assets

4,975,015

4,156,641

9,131,656Capital expenditures

855,257

115,617

970,874


2001
$

2000
$

1999
$Gross salesGross sales from segments

14,134,833

13,573,984

12,401,456Intercompany sales elimination

(488,675
)
(477,535
)
(680,436
)13,646,158

13,096,449

11,721,020


37

---

2001
$

2000
$

1999
$Income before income taxesOperating income from segments

798,755

1,344,649

2,062,686Unallocated corporate expenses

(740,947
)
(742,686
)
(917,912
)Interest and other income

217,079

240,432

73,344274,887

842,395

1,218,118


2001
$

2000
$AssetsSegment

9,894,402

10,392,484Corporate

1,322,924

1,422,34911,217,326

11,814,833


2001Total
segments
$

Corporate
$

Consolidated
totals
$Other significant itemsInterest expense

118,299

168,480

286,779Depreciation and amortization

585,914

15,787

601,701Interest income

31,192

809

32,001Capital expenditures

595,293



595,293


2000Total
segments
$

Corporate
$

Consolidated
totals
$Other significant itemsInterest expense

96,399

51,589

147,988Depreciation and amortization

504,218

15,582

519,800Interest income

38,837

592

39,429Capital expenditures

1,309,439

9,187

1,318,626


1999Total
segments
$

Corporate
$

Consolidated
totals
$Other significant itemsInterest expense

95,058

50,219

145,277Depreciation and amortization

476,821

37,618

514,439Interest income

19,726

27,345

47,071Capital expenditures

970,874

5,362

976,236


38

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2001
$

2000
$

1999
$United States

9,544,206

9,556,972

8,321,738Canada

619,764

688,883

593,836Europe

1,877,209

1,689,738

1,621,951Pacific Rim

1,169,954

745,861

1,039,627Other

435,025

414,995

143,86813,646,158

13,096,449

11,721,020


2001
$

2000
$United States

1,930,500

1,991,434Canada

3,209,133

3,244,844Bahamas

55,879

71,6665,195,512

5,307,944


16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies.

The
carrying values of cash, trade accounts receivable, accounts payable and accrued liabilities approximate their fair values at January 31, 2001 because of the short
maturities of these financial instruments.

The
estimated fair values of the amounts due from Sparhawk, due to shareholder, long-term debt and capital lease obligations are not materially different from the carrying
values for financial statement purposes as at January 31, 2001 and January 31, 2000. The estimated fair value of the amount due from shareholder is not determinable because the amount
has no fixed terms of repayment.

17. OTHER DISCLOSURES



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18. NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ["SFAS 133"], "Accounting for
Derivative Instruments and Hedging Activities", as amended by Statements No. 137 and No. 138, which is effective for fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability, measured at its fair value. SFAS 133
also requires that changes in the derivative's fair value be recognized currently in income unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 will not
result in any cumulative effect of accounting change in the statement of operations.

19. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2001
consolidated financial statements.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this item is incorporated herein by reference from the material contained under the captions "Board of Directors," "Proposals,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference from the material contained under the captions "Board of Directors," "Board
Meetings and Committees," "Compensation of Executive Officers," "Employment Agreements" and "Company Stock Performance" in the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this item is incorporated herein by reference from the material contained under the caption "Ownership of Voting Securities" in
the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated herein by reference from the material contained under the caption "Transactions With the Company" in
the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year.

40

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PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K





| |  | 3.1  |  | Memorandum of Association of Polydex Pharmaceuticals Limited, as amended (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)                                                                                                                
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3.2  |  | Articles of Association of Polydex Pharmaceuticals Limited, as amended (filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed September 13, 1999, and incorporated herein by reference)                                                                                                           
| |  | 10.1 |  | Employment Agreement between Polydex Pharmaceuticals Limited and Thomas C. Usher dated December 22, 1993, as amended on November 1, 1996 (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K filed April 30,
1997, and incorporated herein by reference)*                                              
| |  | 10.2 |  | Amendment to Employment Agreement between Polydex Pharmaceuticals Limited and Thomas C. Usher dated February 1, 1999 (filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed April 29, 1999, and incorporated
herein by reference)*                                                                  
| |  | 10.3 |  | Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated December 22, 1993 (filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by
reference)*                                                                              
| |  | 10.4 |  | Amendment to Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated February 1, 1999 (filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K filed April 29, 1999, and incorporated
herein by reference)*                                                                  
| |  | 10.5 |  | Research Agreement among Dextran Products Limited, Canadian Microbiology Consortium, British Columbia's Children's Hospital and the University of British Columbia, dated April 1, 1996 (filed as Exhibit 10.4 to the Registrant's Annual Report
on Form 10-K filed April 30, 1997, and incorporated herein by reference)
| |  |      |  |                                                                                                                                                                                                                                                                                                                          

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| |  | 10.6 |  | Joint Venture Agreement among Chemdex, Inc., Veterinary Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992 (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K filed April 30,
1997, and incorporated herein by reference)                              
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.7 |  | Manufacturing Agreement among Sparhawk Laboratories, Inc., Agri Laboratories, Ltd. and Veterinary Laboratories Inc., dated September 23, 1996 (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K filed
April 30, 1997, and incorporated herein by reference)                  
| |  | 10.8 |  | Stock Sale and Purchase Agreement between Continental Grain Company and Polydex Pharmaceuticals Limited dated October 30, 1992, as amended on November 22, 1996 (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
filed April 30, 1997, and incorporated herein by reference)
| |  | 21   |  | Subsidiaries of Polydex Pharmaceuticals Limited (filed as Exhibit 21 to the Registrant's Annual Report on From 10-K filed on April 28, 2000, and incorporated herein by reference)                                                                                                               

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42

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|                     |  | POLYDEX PHARMACEUTICALS LIMITED
|-------------------- |  | -------------------------------
|                     |  |                                
|Dated April 27, 2000 |  | By:                            

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                     |  |                                                                                                                                             
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Date: April 27, 2000 |  | /s/GEORGE G. USHERGeorge G. Usher,Director, President and
Chief Executive Officer
(Principal Executive Officer)                             
|Date: April 27, 2000 |  | /s/SHARON WARDLAWSharon Wardlaw,Treasurer, Secretary and Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
|Date: April 27, 2000 |  | /s/JOSEPH BUCHMANJoseph Buchman,Director                                                                                                    
|Date: April 27, 2000 |  | /s/DEREK JOHN MICHAEL LEDERERDerek John Michael Lederer,Director                                                                            
|Date: April 27, 2000 |  | /s/JOHN L.E. SEIDLERJohn L.E. Seidler,Director                                                                                              
|Date: April 27, 2000 |  | /s/RUTH L. USHERRuth L. Usher,Director                                                                                                      
|Date: April 27, 2000 |  | /s/THOMAS C. USHERThomas C. Usher,Director                                                                                                  

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