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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

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

For the fiscal year ended January 31, 2002

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(State or Other Jurisdiction of
Incorporation or Organization)

None(I.R.S. Employer
Identification No.)421 Comstock Road, Toronto, Ontario, Canada(Address of Principal Executive Offices)

M1L 2H5(Zip Code)


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

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 ý    No o

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. Yes o    No ý

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 29, 2002: $5,107,088

The
number of Common Shares outstanding as of April 29, 2002: 3,027,777

Documents Incorporated By Reference

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 21, 2002, are incorporated by reference
into Part III.

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PART I

ITEM 1.BUSINESS

This report contains statements of a forward-looking nature relating to future events or future performance. These statements are only
predictions and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various factors identified in this report which could cause actual
results to differ materially from those indicated in any forward-looking statements, including those set forth in "Risk Factors" in this Annual Report on
Form 10-K.

Introduction

Polydex Pharmaceuticals Limited (the "Company") 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 Company'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 Company. On December 1, 1992, Vet Labs and Sparhawk Laboratories Inc. ("Sparhawk") entered into a joint venture (the
"Vet Labs  Sparhawk Joint Venture") for the purpose of manufacturing and selling veterinary pharmaceutical products. Sparhawk is not an affiliated company, but is owned
primarily by the management of the Vet Labs  Sparhawk Joint Venture. The Company controls the Vet LabsSparhawk Joint Venture through its control of the board of
directors.

On
May 9, 1995, the Company acquired from its then Chairman (now Vice-Chairman), Thomas C. Usher, a 90% interest in Novadex International Inc. ("Novadex
International"), a Bahamian corporation. The Company 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 Company consists of 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 Company is investigating the potential human applications
of certain of its products, although it is impossible to determine at this time if these products will be successfully commercialized in the human pharmaceutical 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."

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Description, Usage and Regulated Aspects of the Products

The operations of the Company 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 Company 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 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 Company treats these sales of the Iron Dextran raw materials as sales of Iron Dextran.

Dextran Sulphate

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

The
Dextran Sulphate manufactured by the Company 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 Company 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 Company 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, 2002, no single customer accounted for 10% or more of total sales.

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

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Veterinary Products

All of the sales of Vet Labs for the fiscal year ended January 31, 2002 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 80% of sales with house label sales contributing approximately 13%. 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 believe that the loss of any one or more of these customers
would have a material adverse effect upon Vet Labs' results of operations.

Patents, Trademarks and Licenses

Iron Dextran

Effective February 1, 1995, the Company entered into an agreement with Novadex Corp., an affiliated company, whereby Novadex Corp. granted the Company the
exclusive worldwide license to use a certain process developed by Novadex Corp. for producing Iron Dextran. This process allows the Company to produce Iron Dextran at a lower cost than would otherwise
be possible. The license
agreement expires when the related patent expires. The Company 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 Company, 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
Company. The above-referenced license agreement was included in the assets transferred to the Vice Chairman. As of the effective date of the transfer, the Company 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 Company 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 Company can focus its resources on projects relating to cystic fibrosis and Cellulose Sulphate. Once these projects have been completed, the Company
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.

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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.

During
fiscal year 2001 U.S. patent number 6,063,773, was granted to the Company 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 Company 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
Company 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 Company, whereas U.S. patent number 5,514,665 is held by UBC and licensed to the Company. In conjunction with the UBC Research Agreement, UBC granted the Company,
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 Company 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 Company and UBC based on sales and sublicensing revenue in return for the exclusive right to sublicense,
manufacture, distribute and sell the developed products.

Suppliers and Sales

Iron Dextran and Dextran Sulphate

With regard to its basic raw materials, the Company 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 Company, are readily available from numerous suppliers at competitive prices in the market. The Company has no long-term contracts with any of its
suppliers.

The
Company is dependent upon a single source for a certain raw material used in the production of Dextran Sulphate. Such supply was adequate in fiscal 2002 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 Company's results of operations.

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Veterinary Products

Raw materials are readily available from a variety of suppliers at competitive prices in the market. The Company has no long-term contracts with any
of its suppliers.

Backlog and Seasonality

The Company's backlog as at January 31, 2002 was approximately $1,300,000 whereas backlog as at January 31, 2001 was approximately $1,600,000. All
of these orders are expected to be filled within the current fiscal year. The Dextran Product's business is not seasonal to any material extent, while Vet Labs typically experiences reduced sales in
the spring and summer months as animals are put out to pasture and consequently have less need for vitamin supplements.

Competition

The Company is the only Canadian manufacturer of Iron Dextran and, as a result of its ownership of Vet Labs, the Company 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 Company competes on the basis of quality, service and price.

The
Company currently produces approximately 35 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 Company 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.

Environmental Compliance

The Company 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.

Employees

As of March 31, 2002, the Company employed 85 employees, of whom 54 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 28 by Dextran Products. None of the Company's employees are covered by collective bargaining
agreements. Management considers its relations with employees to be good.

Research and Development

Expenditures and Tax Credits

During the fiscal years ended January 31, 2002, 2001, and 2000, the Company expended $506,980, $1,158,729, and $677,111 respectively, on research and
development relating primarily to the development of Cellulose Sulphate and a raw material for a human pharmaceutical product. The fiscal 2002 decrease is a result of sustained funding by research and
development partners. During the years

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ended January 31, 2002, 2001 and 2000, the Company recognized investment tax credit benefits of $42,375, $52,246 and $39,794.

New Products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 relating to cystic fibrosis 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. Research into the
identification of the most effective components of Usherdex 4 is complete. BCY has now identified Usherdex (now DCF 987) as its lead drug candidate, and has completed animal toxicology studies, and
entered phase I human clinical trials. In fiscal 2002, that trial came to a successful conclusion. A phase II trial is planned for fiscal 2003. Polydex may eventually receive substantial royalties on
revenues generated by a successfully marketed product.

New Products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 Company successfully completed a Phase I human clinical trial with support from the Consortium for Industrial Collaboration in Contraceptive Research ("CICCR").

In
fiscal 2002, Polydex Pharmaceuticals took a number of steps towards advancing Ushercell to phase II/III human clinical trials. After an exhaustive year-long search
involving a substantial contribution by our strategic partner CONRAD, Polydex completed the drug supply chain by contracting Organichem Corp. to manufacture Ushercell for clinical purposes. Developing
this supply chain has raised production issues associated with moving manufacturing to additional sites. Different equipment and procedures at the new sites have necessitated additional laboratory
work to refine techniques for synthesizing and analyzing Ushercell. This work is crucial to ensuring that the contract manufacturers can create and validate a stable product in advance of pilot- and
plant-scale production. At Polydex, much of fiscal 2002 was devoted to these issues, which are now approaching final resolution.

Fiscal
2002 also saw the successful completion of two additional phase I human clinical trials. The first was a 10-month-long, double-blind study testing the
safety of 6% cellulose sulfate gel (the chemical name of Ushercell) for vaginal use in 48 woman. The results, based on five distinct observations, indicate that Ushercell is less irritating than both
the widely available spermicide and a well-known over-the-counter personal lubricant. The second trial, another double-blind study, tested the safety of penile
applications of 6% cellulose sulfate gel in 36 men. After four months, the study concluded that men tolerate Ushercell as well as they do products with similar applications.

Should
continued positive results be generated from this work, the Company has been advised that the funding from CICCR will continue through Phase II trials. A large American
pharmaceutical company has agreed to assist the Company with the production of material for future clinical trials, which are presently being planned. The Company maintains an exclusive worldwide
license for this product.

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 Company 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

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

Risk Factors

You should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely
affect the Company's business, financial condition, operating results and prospects.

The Company's product development efforts may be reduced or discontinued due to difficulties or delays in clinical trials.

To achieve sustained profitability, the Company must, alone or with corporate partners and collaborators, successfully research, develop and commercialize
identified technologies or product candidates. Current developmental product candidates are in various stages of clinical and pre-clinical development and will require significant further
funding, research, development, preclinical and/or clinical testing, regulatory approval and commercialization testing, and are subject to the risks of failure inherent in the development of products
based on innovative or novel technologies. They are also rigorously regulated by the federal government, particularly the FDA, and by comparable agencies in state and local jurisdictions and in
foreign countries. Specifically, each of the following is possible with respect to any one of the Company's developmental product candidates:



If
any of the risks set forth above occurs, the Company may not be able to successfully develop its identified developmental product candidates.

The Company's developmental product commercialization efforts may not be successful.

It is possible that, for reasons including, but not limited to those set forth below, the Company may be unable to commercialize or receive royalties from the
sale of any given developmental product, even if it is shown to be effective, if:



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The Company depends on partnerships with third parties for the development and commercialization of its products.

The Company's strategy for development and commercialization of its products is to rely on licensing agreements with third party partners. As a result, the
ability of the Company to commercialize future products is dependent upon the success of third parties in performing clinical trials, obtaining regulatory approvals, manufacturing and successfully
marketing its products. There can be no assurance that such third party collaborations will be successful.

If
any of the Company's current research and development partnerships are discontinued, it may not be able to find others to develop and commercialize its current product candidates.

The Company does not currently have agreements with third parties to market its developmental products.

The commercialization of any of the Company's developmental products that receive FDA approval will depend upon the Company's ability to enter into agreements
with companies that have sales and marketing capabilities. The Company currently intend to sell our products in the United States and internationally in collaboration with one or more marketing
partners. No assurance can be given that the Company will be able to enter into any such collaboration to market its developmental products in a timely manner or on commercially reasonable terms, if
at all.

ITEM 2.PROPERTIES

The Company'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
Company 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 Company's plant in Toronto, Ontario, Canada where reactors and spray drying equipment are available. The Company presently manufactures
approximately 250 kilos of Dextran Sulphate per quarter (there are 2.2 pounds in one kilo), and has 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 2002 new equipment was installed to replace older less efficient
equipment to maintain production.

Through
its subsidiary, Vet Labs, the Company 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

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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 Company. Management believes that the Company's facilities are adequate for its present requirements. These facilities have
additional capacity for expansion of production of existing and new products. The Company 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 Company 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 Company's fourth quarter ended
January 31, 2002.

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PART II

ITEM 5.MARKET FOR COMPANY'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):

Stock Price (Low and High Bid)
Quarter Ended

2002

2001

2000March 31

$
2.950-3.050

$
3.063-3.125

$
7.875-9.250June 30





2.860-2.860


5.031-5.063September 30





1.950-2.050


4.906-5.688December 31





2.050-2.340


2.469-4.000


The
quotations set out above represent the 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 March 29, 2002 there were approximately 710 holders of record of the Company's Common Shares

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 Company 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 Company's Common Shares. Furthermore, U.S. holders of the Company's Common Shares are not
subject to taxes under Bahamian law.

ITEM 6.SELECTED FINANCIAL DATA

Polydex Pharmaceuticals Limited  Financial Highlights  January 31, 2002

|                                             |  | 2002       |   | 2001       |  | 2000       |  | 1999       |  | 1998      |  | 1997     
|-------------------------------------------- |  | ---------- | - | ---------- |  | ---------- |  | ---------- |  | --------- |  | ---------
|Sales from continuing operations             |  | 12,167,530 |   | 13,646,158 |  | 13,096,449 |  | 11,721,020 |  | 9,842,365 |  | 9,344,089
|Net income (loss) from continuing operations |  | (206,880   | ) | 131,284    |  | 969,843    |  | 572,393    |  | 488,162   |  | 122,390  
|Net income (loss) per common share           |  | (0.07      | ) | 0.04       |  | 0.32       |  | 0.19       |  | 0.17      |  | 0.04     
|Total Assets                                 |  | 10,080,880 |   | 11,217,326 |  | 11,814,833 |  | 10,456,264 |  | 9,740,947 |  | 8,627,517
|Long-term borrowings                         |  | 1,724,159  |   | 2,031,660  |  | 2,385,541  |  | 1,158,187  |  | 1,478,578 |  | 1,555,551

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 2002 refers to the Company's year ended January 31, 2002. The Company's
financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars, unless

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otherwise denoted. 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 manufactures
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 decreased 11% or $1,478,628 to $12,167,530 in fiscal 2002 from $13,646,158 in fiscal 2001. The decline in sales was primarily due to a decline in volume at Chemdex,
where sales decreased by 13% or $1,221,960 to $7,920,895 in fiscal 2002 from $9,142,855 in fiscal 2001, and accounted for 65% of the Company's sales in fiscal 2002. Chemdex sales accounted for 67% of
the Company's sales in fiscal 2001. Sales of the Company increased 4% or $549,709 to $13,646,158 in fiscal 2001 from $13,096,449 in fiscal 2000. The sales increase in 2001 was primarily attributable
to increased sales at Chemdex.

Chemdex
products are broken down into 4 product lines. Injectables is the largest product line accounting for 55% and 64% of Chemdex sales for fiscal 2002 and fiscal 2001, respectively.
Sales of injectable products decreased by 25% or $1,491,546 to $4,390,967 in fiscal 2002 from $5,882,513 in fiscal 2001 due to overall weak market demand in the food producing animal sector along with
unit sales price reductions caused by competitive pricing. These market conditions decreased both sales and gross margins particularly in the second and third quarters and accounted for almost 80% of
the fiscal 2002 declines. Management expects these factors to continue for the first two quarters of fiscal 2003. Management expects improvement during the third and fourth quarters of fiscal 2003 but
overall expectations for the general market in fiscal 2003 are that sales will be level for the current product lines. Management expects total sales for fiscal 2003 to increase and exceed that of
fiscal 2002 as a result of expanding the existing product lines to include new products assuming the United States Food and Drug Administration ("FDA") grants approval of pending Abbreviated New
Animal Drug Applications ("ANADAs"). There are several ANADA submissions currently awaiting approval by the FDA. Management is planning for the introduction of several new products, the first of which
will commence sales in the third quarter of fiscal 2003, pending this regulatory approval.

Sales
at Dextran Products decreased by 6% or $256,668 to $4,246,635 in fiscal 2002 from $4,503,303 in fiscal 2001, and accounted for 35% of the Company's sales in fiscal 2002. Dextran
Products sales accounted for 33% of the Company's sales in fiscal 2001. Demand for Dextran and related products remained consistent during the year and management expects such consistent demand to
continue. Sales levels are expected to increase slightly next year.

The
Company's gross profit decreased 25% or $910,875 to $2,736,421 in fiscal 2002 from $3,647,296 in fiscal 2001. As a percentage of sales, the Company's gross profit decreased to 22%
from 27% in fiscal 2002. Chemdex' gross profit decreased 41% or $716,993 to $1,051,312 in fiscal 2002 from $1,768,305 in fiscal 2001. As a percentage of Chemdex sales, Chemdex' gross profit decreased
to 13% in fiscal 2002 from 19% in fiscal 2001. This decrease in gross profit at Chemdex was attributable to a reduction in sales due to market weakness and pricing declines. Management anticipates the
FDA approval of pending ANADAs during the coming year will result in an increase in profit margins.

Dextran
Products' gross profit, excluding profit on intercompany sales, was $1,593,497 in fiscal 2002 as compared to $1,744,716 in fiscal 2001. As a percentage of Dextran Products'
sales, Dextran

12

---

Products' gross profit decreased to 38% in fiscal 2002 from 39% in fiscal 2001. The majority of Dextran Products' costs are incurred in 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. The increase in margin resulting from the increase in the U.S. dollar relative to the Canadian
dollar was offset by an increase in costs which could not be passed along to customers.

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 2002.

Selling,
promotion, general and administrative expenses decreased by 6% to $1,670,338 in fiscal 2002 from $1, 776,925 in fiscal 2001. This decrease is a result of senior management
foregoing bonuses in fiscal 2002. Senior management bonuses totaled $135,000 in fiscal 2001. Selling, promotion, general and administrative expenses increased by 4% in fiscal 2001 from $1,716,445 in
fiscal 2000 mainly due to hiring an investor relations firm during the third quarter of fiscal 2000. As a percentage of sales, selling, promotion, general, and administrative expenses increased from
13% in fiscal 2001 to 14% in fiscal 2002.

In
fiscal 2002, the Company spent $506,980 on research and development expenditures as compared to $1,158,729 in fiscal 2001 and $677,111 in fiscal 2000. This decrease of $651,749 or 56%
from fiscal 2001 to fiscal 2002 is a result of sustained funding by research and development partners. Although funding from all sources for these research and development projects is expected to
continue, the Company does not expect its portion of these costs to increase in the short term. The 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 sulphate project
at Dextran Products, and the development of new products at Vet Labs. Development costs for new products are expected to continue in fiscal 2003, but at similar 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 2002 was $42,375 as
compared to $52,246 in fiscal 2001 and $39,794 in fiscal 2000. As a result, the Company recorded research and development expense, net of investment tax credits, of $464,605, $1,106,483 and $637,317
in fiscal 2002, fiscal 2001 and fiscal 2000, respectively.

Depreciation
and amortization decreased by 9% or $52,770 to $548,931 in fiscal 2002 from $601,701 in fiscal 2001. This decrease is primarily attributable to a piece of production
equipment being sold during the year at Dextran Products and certain production equipment becoming fully depreciated.

Interest
expense decreased by 28% or $80,728 to $206,051 in fiscal 2002 from $286,779 in fiscal 2001. This decrease is primarily attributable to a decrease in imputed interest on
long-term payables of $51,263 to $55,762 in fiscal 2002 from $107,025 in fiscal 2001. The decrease in imputed interest is due to the repayment of this non-interest bearing
debt. In addition Dextran Products extinguished two long-term debt obligations during fiscal 2002.

Loss
from operations for the Company in fiscal 2002 totaled $75,695 as compared to income from operations of $146,372 in fiscal 2001. Chemdex experienced a loss from operations of
$36,147 in fiscal 2002, as compared to income from operations of $639,539 in fiscal 2001. This decrease in income from operations is a result of the decrease in sales and gross profit, as described
above.

Income
from operations at Dextran Products in fiscal 2002 was $689,978, an increase of $530,762 or 333% from $159,216 in fiscal 2001. This increase in income from operations is a result
of the significant decrease in research and development expenses, as described above.

Interest
and other non-operating income decreased by 71% or $90,718 to $37,797 in fiscal 2002 from $128,515 in fiscal 2001. In fiscal 2001, other income included $92,839 as a
preliminary settlement of a class action lawsuit, in favor of Chemdex, against various vitamin suppliers. In fiscal 2002,

13

---

Chemdex received a final settlement payment of $48,643 for this lawsuit. In fiscal 2002, Dextran Products incurred a loss of $27,269 on disposal of production equipment that is netted against other
income. There was no such loss in fiscal 2001. In addition, interest income earned at Dextran Products in fiscal 2002 is less than in fiscal 2001 because of the lower average cash balance during
fiscal 2002.

The
provision for income taxes in fiscal 2002 was $168,982 as compared to $143,603 in fiscal 2001. The provision for income taxes exceeds income before income taxes because of the losses
incurred in the Bahamas, for which there is no tax recovery.

A
tax provision of $202,650 relating to Dextran Products was recorded in fiscal 2002 as compared to $27,405 in fiscal 2001. The increase in the Canadian tax provision is a result of the
increase in profitability of Dextran Products in fiscal 2002. 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 a net loss of $206,880 or $0.07 per share in fiscal 2002 as compared to net income of $131,284 or $0.04 per share in fiscal 2001 and
$969,843 or $0.32 per share in fiscal 2000.

Certain
events occurring in fiscal 2002 could have an impact on future results as follows.

The
company is conducting part of its research through important 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 fiscal 2002, CONRAD and the company received approval to initiate two additional Phase I human clinical trials. The first was a 10-month long,
double-blind study testing the safety of cellulose sulphate (Ushercell) gel for vaginal use in 48 women. The results, based on five distinct observations, indicate that Ushercell is less irritating
than products with similar indications. The second trial, another double blind study, tested the safety of penile applications of Ushercell in 36 men. After four months, the study concluded that men
tolerate Ushercell as well as they do other compounds they might encounter during intercourse.

Since
licensing Usherdex to BCY Lifesciences Inc. ("BCY Lifesciences"), BCY LifeSciences identified Usherdex (now DCF 987) as its lead drug candidate, completed animal toxicology
studies and entered Phase I human clinical trials. During fiscal 2002, the Phase I trial came to a successful conclusion with a Phase II trial planned for fiscal 2003.

In
1992, Chemdex, through its Vet Labs subsidiary, entered into a joint venture (the "Joint Venture") for the manufacture and sale of veterinary pharmaceutical products with Sparhawk
Laboratories, Inc. ("Sparhawk"). Chemdex owns 50% of the Joint Venture and controls its Board of Directors. The Company consolidates the assets, liabilities, revenue and expenses of the Joint Venture
in its financial statements. The Joint Venture Agreement expires by its terms on December 1, 2002. Sparhawk has an option to purchase 40% of the assets held by Vet Labs for a price equal to 40%
of the fair market value of the land, building and equipment owned by Vet Labs plus $1,000,000. The Company is currently in negotiations with Sparhawk regarding the future of the Joint Venture.

Liquidity and Capital Resources

For fiscal 2002 the Company generated cash of $443,765 from its operating activities compared to $837,954 for fiscal 2001. The decrease in earnings in fiscal 2002
was the major reason for this decrease in operating cash flow. In addition, there was a decrease in fiscal 2002 in non-cash expenses consisting of depreciation, amortization, imputed
interest and royalty and interest charged to shareholder. The Company maintained $1,481,138 of working capital and a current ratio of 1.8:1 as of January 31, 2002 compared to $1,639,513 of
working capital and a current ratio of 1.7:1 as of January 31, 2001.

14

---

At
January 31, 2002, the Company had accounts receivable of $1,067,709 and $2,112,854 in inventory compared to $1,138,872 and $2,206,637, respectively, at January 31, 2001.
The decrease in accounts receivable was due to timing of sales at year-end. Dextran Products had lower sales in January 2002 than January 2001, which decreased the
year-end receivables balance. The decrease in inventory levels was due to inventory reductions, primarily at Chemdex as management expects sales to continue to be slow until third quarter
of fiscal 2003.

During
fiscal 2002, capital expenditures totaled $510,113 as compared to $595,293 in fiscal 2001. The majority of the capital expenditures were for production equipment at the Dextran
Products plant in Toronto in both fiscal 2001 and 2002.

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 of $304,362 in fiscal 2002 and $202,273 in fiscal 2001 arises from the translation of Dextran Products' financial statements to U.S. dollars.

Dextran
Products has a CDN$750,000 (US$471,000) 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 $175,000 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 2003.

During
fiscal 2002, the mortgage on the Company's Toronto facility was paid in full. Management does not expect to borrow against the value of this property during the next fiscal year.

The
amount due from shareholder decreased from $1,251,200 at January 31, 2001 to $1,098,142 at January 31, 2002 due to monthly repayments from the shareholder and the
netting of royalty payments owed to the shareholder against the outstanding loan. The amount due to shareholder also decreased during the year to $681,963 at January 31, 2002 from $722,222 at
January 31, 2001.

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 focus its research and development efforts on Ushercell in an effort to enter further clinical trials
this year, and to increase sales and profitability.

Management's
primary objective at Chemdex continues to be product development and the marketing of licensed products. These licensed products require individual approval by the FDA and
consequently offer greater profit margins. Primary emphasis has been placed on the approval of injectable ANADA's with secondary emphasis on the approval of solutions and powders.

15

---

Forward-Looking Statements

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.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's operations consist of manufacturing activities in the United States and Canada. The Company's products are sold in the United States, Canada, Europe
and the Pacific Rim. Sales are primarily made in U.S. dollars, except for a relatively small portion of the sales in Canada. The Company's operating results are exposed to changes in exchange rates
between the U.S. and the Canadian dollar, but only to the extent of operating expenses in Canada. When the Canadian dollar rises in relation to the U.S. dollar, the gross margin will decrease.
Management monitors the margin in Canada 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. All financial instruments are held for other than trading purposes.

The
following table presents information about the Company's financial instruments that are sensitive to changes in foreign currency exchange rates. The table presents principal cash
flows and related weighted average interest rates by expected maturity dates.

POLYDEX PHARMACEUTICALS LIMITED  January 31, 2002  Exchange Rate Sensitivity

|                |                   | Expected Maturity Date |         |      |         |     
|--------------- | ----------------- | ---------------------- | ------- | ---- | ------- | ----
|
|
|
|Liabilities:    |                   |                        |         |      |         |     
|Long-term debt: |                   |                        |         |      |         |     
|                | Fixed rate ($CDN) |                        | 103,634 |      | 105,999 |     
|                |                   | Average interest rate  |         | 8.65 | %       | 8.45

The
Company has no significant interest earning assets and the majority of its debt is at fixed rates. The variable rate debt represents the shareholder loan payable, which is
approximately offset with the shareholder loan receivable. Both of these financial instruments carry the same interest rate. As such, the Company has no significant risk exposure to changes in
interest rates. All financial instruments are held for other than trading purposes.

16

---

The
following table presents information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related
weighted average interest rates by expected maturity dates.

POLYDEX PHARMACEUTICALS LIMITED  January 31, 2002  Interest Rate Sensitivity

|                  |                     | Expected Maturity Date |         |      |         |     
|----------------- | ------------------- | ---------------------- | ------- | ---- | ------- | ----
|
|
|
|Assets            |                     |                        |         |      |         |     
|Notes receivable: |                     |                        |         |      |         |     
|                  | Variable rate ($US) |                        | 64,385  |      | 68,570  |     
|                  |                     | Average interest rate  |         | 6.50 | %       | 6.50
|Liabilities:      |                     |                        |         |      |         |     
|Long-term debt:   |                     |                        |         |      |         |     
|                  | Fixed rate ($US)    |                        | 48,427  |      | 284,609 |     
|                  |                     | Average interest rate  |         | 8.25 | %       | 8.13
|                  | Fixed rate ($CDN)   |                        | 103,634 |      | 105,999 |     
|                  |                     | Average interest rate  |         | 8.65 | %       | 8.45
|                  | Variable rate ($US) |                        | (7,326  | )    | (7,803  | )   
|                  |                     | Average interest rate  |         | 6.50 | %       | 6.50

17

---



ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Polydex Pharmaceuticals Limited  Quarterly Financial Highlights  January 31, 2002

|                                             |  | Fourth Quarter |  | Third Quarter |  | Second Quarter |  | First Quarter
|-------------------------------------------- |  | -------------- |  | ------------- |  | -------------- |  | -------------
|
|Sales from continuing operations             |  | 3,095,468      |  | 3,093,657     |  | 3,126,682      |  | 4,053,774    
|Gross Profit                                 |  | 629,048        |  | 840,918       |  | 809,441        |  | 1,026,291    
|Net income (loss) from continuing operations |  | 7,470          |  | 143,663       |  | 49             |  | 62,301       
|Net income (loss) per common share           |  |               |  | 0.04          |  |               |  | 0.02         

18

---

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, 2002 and 2001 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, 2002. 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, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the years in the
three-year period ended January 31, 2002 in conformity with United States generally accepted accounting principles.

|Toronto, Canada,
March 15, 2002. |  | Chartered Accountants
|-------------------------------- |  | ---------------------

19

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

|                                                     |                        | 2002
$                                           |   | 2001
$      |  
|---------------------------------------------------- | ---------------------- | ------------------------------------------------ | - | ----------- | -
|ASSETS[notes 7 and 8]                                |                        |                                                  |   |             |  
|Current                                              |                        |                                                  |   |             |  
|Cash                                                 |                        | 123,418                                          |   | 403,203     |  
|Trade accounts receivable[note 17]                   |                        | 1,067,709                                        |   | 1,138,872   |  
|Inventories[note 3]                                  |                        | 2,112,854                                        |   | 2,206,637   |  
|Prepaid expenses and other current assets            |                        | 48,461                                           |   | 82,832      |  
|                                                     |                        |                                                  |   |             |  
|Total current assets                                 |                        | 3,352,442                                        |   | 3,831,544   |  
|Property, plant and equipment, net[note 4]           |                        | 4,726,458                                        |   | 5,064,084   |  
|Patents, net[note 5]                                 |                        | 109,245                                          |   | 131,428     |  
|Due from Sparhawk Laboratories, Inc.[note 6]         |                        | 132,614                                          |   | 138,247     |  
|Due from shareholder[note 6]                         |                        | 1,098,142                                        |   | 1,251,200   |  
|Deferred tax assets[note 13]                         |                        | 630,406                                          |   | 781,764     |  
|Other assets                                         |                        | 31,573                                           |   | 19,059      |  
|                                                     |                        |                                                  |   |             |  
|                                                     |                        | 10,080,880                                       |   | 11,217,326  |  
|                                                     |                        |                                                  |   |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                 |                        |                                                  |   |             |  
|Current                                              |                        |                                                  |   |             |  
|Bank indebtedness[note 7]                            |                        | 179,286                                          |   |            |  
|Accounts payable                                     |                        | 935,419                                          |   | 951,597     |  
|Accrued liabilities                                  |                        | 314,236                                          |   | 528,770     |  
|Due to Sparhawk Laboratories, Inc.[note 6]           |                        | 101,453                                          |   | 101,453     |  
|Customer deposits                                    |                        | 4,936                                            |   | 85,227      |  
|Income taxes payable                                 |                        | 23,020                                           |   | 4,657       |  
|Current portion of long-term debt[note 8]            |                        | 215,504                                          |   | 388,812     |  
|Current portion of capital lease obligations[note 8] |                        | 97,450                                           |   | 131,515     |  
|                                                     |                        |                                                  |   |             |  
|Total current liabilities                            |                        | 1,871,304                                        |   | 2,192,031   |  
|Long-term debt[note 8]                               |                        | 629,300                                          |   | 844,701     |  
|Capital lease obligations[note 8]                    |                        | 412,896                                          |   | 464,737     |  
|Due to shareholder[note 6]                           |                        | 681,963                                          |   | 722,222     |  
|                                                     |                        |                                                  |   |             |  
|Total liabilities                                    |                        | 3,595,463                                        |   | 4,223,691   |  
|                                                     |                        |                                                  |   |             |  
|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 |   |             |  
|                                                     |                        | 10,000,000 common shares of $0.0167 each         |   |             |  
|                                                     | Issued and outstanding |                                                  |   |             |  
|                                                     |                        | 899,400 Class B preferred shares                 |   | 15,010      |  
|                                                     |                        | 3,027,477 common shares [20013,027,477]         |   | 50,434      |  
|Contributed surplus                                  |                        | 23,224,128                                       |   | 23,221,104  |  
|Deficit                                              |                        | (15,604,528                                      | ) | (15,397,648 | )
|Accumulated other comprehensive loss                 |                        | (1,199,627                                       | ) | (895,265    | )
|                                                     |                        |                                                  |   |             |  
|Total shareholders' equity                           |                        | 6,485,417                                        |   | 6,993,635   |  
|                                                     |                        |                                                  |   |             |  
|                                                     |                        | 10,080,880                                       |   | 11,217,326  |  
|                                                     |                        |                                                  |   |             |  

See accompanying notes

On
behalf of the Board:

|Director |  | Director
|-------- |  | --------

20

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Polydex Pharmaceuticals Limited        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY  [Expressed in United States dollars]        Years ended January 31, 2002, 2001 and 2000

|                                                                                                 |                                 | Preferred
shares
$ |   | Common
shares
$ |   | Contributed
surplus
$ |   | Deficit
$   |          | Accumulated
other
comprehensive
income (loss)
$ |          | Total
shareholders'
equity
$ |          | Comprehensive
income (loss)
for the
year
$ |         
|------------------------------------------------------------------------------------------------ | ------------------------------- | ------------------ | - | --------------- | - | --------------------- | - | ----------- | -------- | ----------------------------------------------- | -------- | ---------------------------- | -------- | ------------------------------------------ | --------
|Balance, January 31, 1999                                                                        |                                 | 15,010             |   | 48,552          |   | 22,464,783            |   | (16,498,775 | )        | (783,542                                        | )        | 5,246,028                    |          | 454,619                                    |         
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|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  
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|Balance, January 31, 2000                                                                        |                                 | 15,010             |   | 50,203          |   | 23,121,345            |   | (15,528,932 | )        | (692,992                                        | )        | 6,964,634                    |          | 1,060,393                                  |         
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|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
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|Balance, January 31, 2001                                                                        |                                 | 15,010             |   | 50,434          |   | 23,221,104            |   | (15,397,648 | )        | (895,265                                        | )        | 6,993,635                    |          | (70,989                                    | )       
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|Common share options issued in exchange for research and development and other services provided |                                 |                   |   |                |   | 3,024                 |   |            |          |                                                |          | 3,024                        |          |                                           |         
|Comprehensive loss                                                                               |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|                                                                                                 | Net loss for the year           |                    |  |                 |  |                       |  |             | (206,880 | )                                               |         |                              | (206,880 | )                                          | (206,880
|                                                                                                 | Currency translation adjustment |                    |  |                 |  |                       |  |             |         |                                                 | (304,362 | )                            | (304,362 | )                                          | (304,362
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         
|Balance, January 31, 2002                                                                        |                                 | 15,010             |   | 50,434          |   | 23,224,128            |   | (15,604,528 | )        | (1,199,627                                      | )        | 6,485,417                    |          | (511,242                                   | )       
|                                                                                                 |                                 |                    |   |                 |   |                       |   |             |          |                                                 |          |                              |          |                                            |         

See accompanying notes

21

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

|                                                  |                                   | 2002
$ |            | 2001
$ |   | 2000
$     |        
|------------------------------------------------- | --------------------------------- | ------ | ---------- | ------ | - | ---------- | -------
|Sales                                             |                                   |        | 12,167,530 |        |   | 13,646,158 |        
|Cost of goods sold                                |                                   |        | 9,431,109  |        |   | 9,998,862  |        
|                                                  |                                   |        |            |        |   |            |        
|Gross profit                                      |                                   |        | 2,736,421  |        |   | 3,647,296  |        
|                                                  |                                   |        |            |        |   |            |        
|Other revenue[note 12]                            |                                   |        |           |        |   | 182,400    |        
|                                                  |                                   |        |            |        |   |            |        
|Expenses                                          |                                   |        |            |        |   |            |        
|General and administrative                        |                                   |        | 1,527,316  |        |   | 1,596,830  |        
|Depreciation                                      |                                   |        | 526,748    |        |   | 579,518    |        
|Research and development, net[note 12]            |                                   |        | 464,605    |        |   | 1,106,483  |        
|Interest[note 6]                                  |                                   |        | 206,051    |        |   | 286,779    |        
|Selling and promotion                             |                                   |        | 143,022    |        |   | 180,095    |        
|Amortization                                      |                                   |        | 22,183     |        |   | 22,183     |        
|Foreign exchange gain                             |                                   |        | (77,809    | )      |   | (88,564    | )      
|                                                  |                                   |        |            |        |   |            |        
|                                                  |                                   |        | 2,812,116  |        |   | 3,683,324  |        
|                                                  |                                   |        |            |        |   |            |        
|Income (loss) from operations                     |                                   |        | (75,695    | )      |   | 146,372    |        
|Other income                                      |                                   |        |            |        |   |            |        
|                                                  | Interest and other[notes 6 and 9] |        |            | 37,797 |   |            | 128,515
|                                                  |                                   |        |            |        |   |            |        
|Income (loss) before income taxes                 |                                   |        | (37,898    | )      |   | 274,887    |        
|Provision for (recovery of) income taxes[note 13] |                                   |        | 168,982    |        |   | 143,603    |        
|                                                  |                                   |        |            |        |   |            |        
|Net income (loss) for the year                    |                                   |        | (206,880   | )      |   | 131,284    |        
|                                                  |                                   |        |            |        |   |            |        
|Per share information                             |                                   |        |            |        |   |            |        
|Earnings (loss) per common share                  |                                   |        |            |        |   |            |        
|                                                  | Basic                             |        | $          | (0.07  | ) | $          | 0.04   
|                                                  | Diluted                           |        | $          | (0.07  | ) | $          | 0.04   
|                                                  |                                   |        |            |        |   |            |        

See
accompanying notes

22

---



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

|                                                                               |                                                                                     | 2002
$   |         | 2001
$   |         | 2000
$     |         
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | -------- | ------- | -------- | ------- | ---------- | --------
|OPERATING ACTIVITIES                                                           |                                                                                     |          |         |          |         |            |         
|Net income (loss) for the year                                                 |                                                                                     | (206,880 | )       | 131,284  |         | 969,843    |         
|Add (deduct) items not affecting cash                                          |                                                                                     |          |         |          |         |            |         
|                                                                               | Depreciation and amortization                                                       |          | 548,931 |          | 601,701 |            | 519,800 
|                                                                               | Imputed interest on long-term debt                                                  |          | 55,762  |          | 107,025 |            |        
|                                                                               | Deferred tax provision                                                              |          | 125,947 |          | 73,734  |            | (310,943
|                                                                               | Loss on disposal of equipment                                                       |          | 27,269  |          |        |            |        
|                                                                               | Legal expenses charged to deferred gain[note 9]                                     |          |        |          |        |            | (33,684 
|                                                                               | Gain on sale of Novatek International Inc. shares                                   |          |        |          |        |            | (192,892
|                                                                               | Royalty expense and interest income charged to due from shareholder                 |          | 46,389  |          | 117,487 |            | 55,915  
|                                                                               | 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  
|                                                                               | Options issued in exchange for research and development and other services[note 10] |          | 3,024   |          | 49,503  |            | 9,878   
|Net change in non-cash working capital balances related to operations[note 14] |                                                                                     | (156,677 | )       | (248,730 | )       | (167,811   | )       
|                                                                               |                                                                                     |          |         |          |         |            |         
|Cash provided by operating activities                                          |                                                                                     | 443,765  |         | 837,954  |         | 871,521    |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|INVESTING ACTIVITIES                                                           |                                                                                     |          |         |          |         |            |         
|Additions to property, plant and equipment and patents                         |                                                                                     | (510,113 | )       | (595,293 | )       | (1,318,626 | )       
|Repayment from (advance to) Sparhawk Laboratories, Inc.                        |                                                                                     | 5,633    |         | (52,160  | )       | (71,437    | )       
|Decrease in due from shareholder                                               |                                                                                     | 106,669  |         | 27,928   |         | 109,081    |         
|Proceeds from sale of equipment                                                |                                                                                     | 110,000  |         |         |         |           |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|Cash used in investing activities                                              |                                                                                     | (287,811 | )       | (619,525 | )       | (1,280,982 | )       
|                                                                               |                                                                                     |          |         |          |         |            |         
|FINANCING ACTIVITIES                                                           |                                                                                     |          |         |          |         |            |         
|Proceeds from long-term debt                                                   |                                                                                     |         |         | 58,354   |         | 77,681     |         
|Repayment of long-term debt                                                    |                                                                                     | (442,077 | )       | (548,761 | )       | (69,711    | )       
|Proceeds from capital lease obligations                                        |                                                                                     | 75,957   |         |         |         | 610,566    |         
|Repayment of capital lease obligations                                         |                                                                                     | (128,362 | )       | (115,576 | )       | (27,633    | )       
|Payment of mandatorily redeemable capital stock                                |                                                                                     |         |         |         |         | (100,000   | )       
|Increase (decrease) in due to shareholder                                      |                                                                                     | (40,259  | )       | 49,456   |         | 35,749     |         
|Increase in bank indebtedness                                                  |                                                                                     | 179,286  |         |         |         |           |         
|Exercise of common share options                                               |                                                                                     |         |         | 29,887   |         |           |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|Cash provided by (used in) financing activities                                |                                                                                     | (355,455 | )       | (526,640 | )       | 526,652    |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|Effect of exchange rate changes on cash                                        |                                                                                     | (80,284  | )       | (88,151  | )       | 27,243     |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|Net increase (decrease) in cash during the year                                |                                                                                     | (279,785 | )       | (396,362 | )       | 144,434    |         
|Cash, beginning of year                                                        |                                                                                     | 403,203  |         | 799,565  |         | 655,131    |         
|                                                                               |                                                                                     |          |         |          |         |            |         
|Cash, end of year                                                              |                                                                                     | 123,418  |         | 403,203  |         | 799,565    |         
|                                                                               |                                                                                     |          |         |          |         |            |         

See accompanying notes

23

---



Polydex Pharmaceuticals Limited        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  [Expressed in United States dollars]        January 31, 2002

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.

24

---

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 the Canadian dollar. 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 (loss) 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 (loss) per common share

Basic earnings (loss) per common share is computed using the weighted average number of shares outstanding of 3,027,477 at January 31, 2002
[2001  3,027,049; 2000  3,017,542]. Diluted earnings (loss) per common share is 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 nil, 145,205 and 1,228 in
2002, 2001 and 2000, respectively, were used in the calculation of diluted earnings per common share. Options to purchase 419,550, 25,000 and 615,077 common shares in 2002, 2001 and 2000,
respectively, were not included in the computation of diluted earnings per common share because their effect was antidilutive.

25

---

3. INVENTORIES

Inventories consist of the following:

2002
$

2001
$Finished goods

1,479,941

1,567,518Work-in-process

58,593

33,037Raw materials

574,320

606,0822,112,854

2,206,637


4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

|                        |  | 2002       |  | 2001     
|----------------------- |  | ---------- |  | ---------
|
|Land and buildings      |  | 3,265,741  |  | 910,808  
|Machinery and equipment |  | 7,006,467  |  | 4,634,942
|                        |  |            |  |          
|                        |  | 10,272,208 |  | 5,545,750
|                        |  |            |  |          

Included
in machinery and equipment are assets under capital lease with a total cost of $742,224 [2001$879,881] and accumulated depreciation of
$137,359 [2001$108,724]. Depreciation of assets under capital lease is included in depreciation expense.

5. PATENTS

Patents consist of the following:

2002
$

2001
$Cost

395,133

395,133Less accumulated amortization

285,888

263,705109,245

131,428


6. RELATED PARTY TRANSACTIONS

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

2002
$

2001
$Amounts due from Sparhawk Laboratories, Inc.[i]

132,614

138,247Amounts due to Sparhawk Laboratories, Inc.[i]

(101,453
)
(101,453
)Amounts due from shareholder[ii]

1,098,142

1,251,200Amounts due to shareholder[iii]

(681,963
)
(722,222
)


---

26

---





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

2002
$

2001
$

2000
$Interest income

50,527

75,500

60,626Interest expense

48,578

61,455

51,589


7. BANK INDEBTEDNESS

The Company has a Canadian operating line of credit of Cdn. $750,000 [U.S. $471,000] [2001Cdn. $750,000, U.S.
$500,000], none of which was utilized at January 31, 2002 and 2001. The Company also has a U.S. operating line of credit of $175,000
[2001$75,000]. At January 31, 2002, this line was fully utilized [January 31, 2001nil]. The Canadian line of
credit bears interest at the Canadian banks' prime lending rate plus 1.25% [January 31, 2002  5%; January 31,
2001  8.5%]. The U.S. line of credit bears interest at the U.S. bank's prime lending rate plus 0.5% [January 31,
2002  5.25%; January 31, 2001  9.5%]. Bank indebtedness is collateralized by a general security agreement over the Company's
assets and is due on demand.

27

---

8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

[a]  Long-term
debt consists of the following:

2002
$

2001
$Note payable to bank, maturing April 23, 2003, bearing interest at 9%, collateralized by assignments of land, building and equipment with a carrying value of $1,765,998 as at January 31, 2002

307,863

333,251Share value guarantee payable in semi-annual repayments of $90,000 on May 30 and November 30 for each of the next three 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 $3,530,000 as
at January 31, 2002[note 11[a]]

492,293

628,133Lawsuit 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]

13,290

164,189Other

31,358

107,940844,804

1,233,513Less current portion

215,504

388,812629,300

844,701


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

$2003

248,9252004

463,8302005

195,343Total principal repayments

908,098Less amount representing imputed interest

63,294844,804


28

---

[b]  Capital
lease obligations consist of the following:

2002
$

2001
$Obligation [Cdn.$115,516] under a capital lease, repayable in monthly instalments, bearing interest at 6.65%, and maturing December 2004. The Company has an option to purchase the asset for $1 at the end of the lease
term

72,547

Obligation [Cdn.$697,107] 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.$111,500] in April
2006, or at fair market value at the end of the lease term

437,799

536,687Other



59,565510,346

596,252Less current portion

97,450

131,515412,896

464,737


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

$2003

137,9562004

137,9562005

135,6702006

110,5302007

93,236Total minimum lease payments

615,348Less amount representing imputed interest

105,002510,346


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.

29

---

Other

During each of the years ended January 31, 2002 and 2001, the Company received settlement as part of a class action lawsuit against a group of suppliers,
recording gains of $48,643 and $92,839, respectively.

10. CAPITAL STOCK

[a] Share capital issued and outstanding



On January 11, 1999, the Company entered into an agreement to grant common shares and common share options to individuals involved in obtaining research
grants for the Company. On January 11, 1999, 20,000 common shares were granted. A further 5,000 common shares were granted to these individuals on each of January 11, 2000 and
January 11, 2001. The 5,000 common shares issued on January 11, 2000 and January 11, 2001 were valued at $21,415 and $20,600, respectively, using the closing market price on the
issue date. The 20,000 common shares issued on January 11, 1999 were valued at $68,760, using the closing market price on that day. The value of the common shares issued was charged to research
and development expense.

During
the year ended January 31, 2001, the Company issued 8,800 common shares, through the exercise of common share options, for cash consideration of $29,887. During the same
year, 8,240 common shares held in treasury were cancelled.



The Class A preferred shares will carry dividends, will be convertible into common shares of the Company and will be redeemable, all at rates as shall be
determined by resolution of the Board of Directors. No Class A preferred shares have been issued to date.



The Class B preferred shares carry no dividends, are non-convertible and entitle the holder to two votes per share.

[b] Share option plan



The Company maintains an incentive share option plan for management personnel for 1,000,000 options to purchase common shares. The Company also issues options to
certain consultants for services provided to the Company.

All
options granted have terms ranging from two to five years and vest immediately. At January 31, 2002, the Company has 419,550 options outstanding at exercise prices ranging
from $2.75 to $6.80 and a weighted average price of $3.91. The options, which are immediately exercisable and expire on dates between January 11, 2004 and January 31, 2007, entitle the
holder of an option to acquire one common share of the Company.

Pursuant
to the agreement entered into on January 11, 1999 to grant common shares and common share options to individuals involved in obtaining research grants for the Company [note 10[a]],7,500
common share options were granted on January 11, 1999. A further 3,750
common share options were granted to these individuals on each of January 11, 2000 and January 11, 2001. The value of the common share options issued on January 11, 1999 was not
significant and, therefore, was not recorded in the accounts. The common share options issued on January 11, 2000 and January 11, 2001 were

30

---

valued at $9,878 and $6,615; respectively, using a Black-Scholes option pricing model. The value of these options was charged to research and development expense. All common share options granted to
these individuals have an exercise price of $3.50 and a term of 5 years from the date of issue.

During
the year ended January 31, 2001, 24,000 common share options were also issued to certain individuals for services provided to the Company. These options were valued at
$42,888 using a Black-Scholes option pricing model.

During
the year ended January 31, 2002, 3,000 common share options were issued to a certain individual for services provided to the Company. These options were valued at $3,024
using a Black-Scholes option pricing model and were charged to research and development expense.

Details
of the outstanding options, which are all currently exercisable, are as follows:

|                                                               |  | Share options |   | Weighted average
exercise price per share
|-------------------------------------------------------------- |  | ------------- | - | -----------------------------------------
|
|Options outstanding, beginning of year                         |  | 420,600       |   | 620,627                                  
|Granted                                                        |  | 13,950        |   | 69,350                                   
|Exercised                                                      |  |              |   | (8,800                                   
|Expired                                                        |  | (15,000       | ) | (260,577                                 
|                                                               |  |               |   |                                          
|Options outstanding, end of year                               |  | 419,550       |   | 420,600                                  
|                                                               |  |               |   |                                          
|Weighted average fair value of options granted during the year |  |               |   |                                          
|                                                               |  |               |   |                                          

The
following table summarizes information relating to the options outstanding at January 31, 2002:

Exercise
prices
$

Number
outstanding

Weighted average
remaining
contractual life
[months]2.75

10,950

603.00

3,000

523.50

15,000

333.75

340,000

284.59

6,600

485.00

4,000

525.25

30,000

366.80

10,000

40419,550

31




As required by SFAS 123, pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average
assumptions for 2002: risk-free interest rates of 4.47% [2001  6.22%; 2000  4.94%]; dividend yields of nil
[2001nil; 2000nil]; volatility factors of the expected market price of the Company's common stock of 0.634
[2001  0.668; 2000  0.690], and an expected life of the options of 5 years
[2001  4.19 years; 2000  1.13 years]. Since changes in

31

---

subjective input assumptions can materially affect the fair value estimate, in management's opinion, the above pro forma adjustments for SFAS 123 are not necessarily a reliable single measure
of the fair value of the Company's employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is expensed immediately.

The
Company's pro forma net income (loss) and earnings (loss) per share following SFAS 123 are as follows:

2002
$

2001
$

2000
$Pro forma net income (loss)

(216,341
)
50,964

917,250Pro forma earnings (loss) per common shareBasic

(0.07
)
0.02

0.30Diluted

(0.07
)
0.02

0.30


11. VETERINARY LABORATORIES, INC.

In
1992, the Company acquired 100% of the issued and outstanding share capital of Veterinary Laboratories, Inc. ["Vet Labs"] from ContiGroup
Companies, Inc. [formerly Continental Grain Company] ["CGC"] for a total purchase price of $3,894,980, which was satisfied by issuing 194,749
common shares of the Company. The Company had guaranteed that CGC would realize a value of $3,894,980 on the eventual sale of these shares or CGC could put its remaining shares to the Company at such
price to bring CGC's total consideration to $3,894,980.

As
a result of a subsequent transaction with CGC during the year ended January 31, 1997, CGC agreed to reduce the maximum repurchase obligation of the Company to $2,000,000.

During
the year ended January 31, 1999, CGC disposed of 56,000 common shares, and as a result, the purchase obligation was decreased and share capital increased by $571,267. In
addition, the Company agreed to make periodic cash payments beginning in 2000, to reduce the remaining outstanding purchase obligations.

During
the year ended January 31, 2000, CGC disposed of all its shareholdings of the Company for a cash consideration of $443,390, and therefore, the remaining purchase obligation
is no longer contingent on the share price of the Company. Accordingly, the fair value of the remaining purchase obligation has been reclassified from redeemable capital stock to long-term
debt[note 8[a]].

On
January 25, 2001, the terms of the purchase agreement were revised whereby the repayment terms for the outstanding repurchase obligation was extended. The revised agreement
requires the Company to make semi-annual payments of $90,000 on each of May 1 and November 1 until May 1, 2004 and a final payment of $105,343 on November 1,
2004.

32

---

A continuity of this purchase obligation is as follows:nk]

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.

[b] Sparhawk

In 1992, Vet Labs and Sparhawk entered into a joint venture [collectively referred to as the "Joint Venture"] for the purpose of
manufacturing and selling veterinary pharmaceutical products. Sparhawk is not affiliated with the Company, and is owned primarily by the management of the Joint Venture. The Company controls the Joint
Venture through its control of the Board of Directors and therefore consolidated its assets, liabilities, revenue and expenses in these financial statements. The Company has funded the Joint Venture's
losses since 1992 and, accordingly, has recorded 100% of these losses in the consolidated financial statements. As at January 31, 2002, future profits of approximately $841,000 will accrue to
the Company until Sparhawk's share of losses since 1992 have been recovered. Subsequent income will be allocated 50% to Vet Labs and 50% to Sparhawk.

The
operations of the Joint Venture represent the entire operations of the Company's veterinary products business, accounting for sales of $7,920,895 during the year
(2001$9,142,855; 2000$8,820,977). At January 31, 2002, the Joint Venture has current assets, consisting primarily of trade accounts receivable and inventories, of
$1,914,312 and plant improvements, machinery and equipment with a carrying value of $268,852. The Joint Venture has current liabilities of $1,026,468 and long-term debt of $283,829 at
January 31, 2002. The Joint Venture's line of credit and note payable to the bank are jointly and severally guaranteed by the Company and Sparhawk. The land and building, a majority of the
equipment and certain New Animal Drug Applications ("NADAs") used in the Joint Venture operations are owned by Vet Labs or Chemdex. The assets owned by Vet Labs or Chemdex and used by the Joint
Venture have a carrying value of $1,566,299. All new products developed by the Joint Venture remain the property of the Joint Venture.

Sparhawk
has an option to purchase 40% of the assets held by Vet Labs. The purchase price will be 40% of the fair market value of the land, building and equipment owned by Vet Labs plus
$1,000,000. The land, building, equipment and NADAs currently owned by Vet Labs have a carrying value of $1,558,801. The Company is currently in negotiations with Sparhawk regarding the future of the
Joint Venture. If the Company continues to control the Board of Directors of the Joint Venture after the exercise of the Sparhawk option, it will continue to consolidate the operations of the Joint
Venture in the Company's books. If the Company does not control the Joint Venture after the exercise of the option, the Company will cease to consolidate the operations of the Joint Venture. This
option and the Joint Venture Agreement expire on December 1, 2002.

33

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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:

2002
$

2001
$

2000
$Research and development expenditures

506,980

1,158,729

677,111Investment tax credits

(42,375
)
(52,246
)
(39,794
)Research and development expense

464,605

1,106,483

637,317


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.

Iron Dextran process

Effective February 1, 1995, the Company entered into an agreement with Novadex Corp., a company controlled by the Major Shareholder, whereby Novadex Corp.
granted the Company the exclusive worldwide license to use a certain process developed by Novadex Corp. for producing Iron Dextran. This license agreement expires in 2014. The Company pays a license
fee based on production volumes. The total royalty expense incurred during the year was $47,346 [2001$72,087; 2000$55,915].

During
July 1999, Novadex Corp. was liquidated. All assets and liabilities of Novadex Corp. were assumed by the Major Shareholder. This license agreement was included in the
assets assumed by the Major Shareholder. The Company now pays this license fee to the Major Shareholder. These payments are applied to the balance owing by the Major Shareholder [note 6].

13. INCOME TAXES

The
components of income before income taxes are as follows:

2002
$

2001
$

2000
$Bahamas

(634,637
)
(740,138
)
(433,521
)Canada

725,475

342,453

672,301United States

(128,736
)
672,572

603,615(37,898
)
274,887

842,395


34

---

The
provision for (recovery of) income taxes consists of the following:

2002
$

2001
$

2000
$Provision for income taxes based on Bahamian income





Foreign withholding taxes on Bahamian income

812

2,198

1,912812

2,198

1,912Provision for income taxes based on Canadian statutory income tax rates

275,680

123,283

270,640Reduction in tax reserve

(50,820
)
(83,333
)
Decrease in valuation allowance

(8,947
)


Tax rate changes on deferred tax items

5,913



Non-taxable income

(19,176
)


Benefit of research and development deductions



(12,545
)
202,650

27,405

270,640Provision for income taxes based on United States income tax rates

(47,632
)
246,000

241,446Tax recovery (tax) on joint venture partner's share of income

547

(132,000
)
(133,718
)Tax on non-deductible items

12,605



Benefit of previously unrecorded United States tax items





(107,728
)Increase (reduction) in valuation allowance





(400,000
)(34,480
)
114,000

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

168,982

143,603

(127,448
)


Significant
components of the provision for (recovery of) income taxes attributable to continuing operations are as follows:

2002
$

2001
$

2000
$Canadian deferred tax recovery

(61,054
)
(109,369
)
(113,983
)Canadian deferred tax expense

221,481

69,103

203,040Canadian current tax expense

42,223

67,671

181,583United States deferred tax recovery

(34,480
)


(400,000
)United States deferred tax expense



114,000

Bahamian foreign withholding tax expense

812

2,198

1,912168,982

143,603

(127,448
)


35

---

2002
$

2001
$Deferred tax assetsCanadianUnclaimed research and development expenses[note 13[c]]

526,000

711,000Net capital losses and other items[note 13[c]]

88,000

123,000United StatesNet operating losses[note 13[d]]

368,000

334,000982,000

1,168,000Less valuation allowance

147,000

156,000835,000

1,012,000Deferred tax liabilitiesExcess of carrying value over tax value of depreciable assets

(118,000
)
(90,000
)Investment tax credits and other items

(86,594
)
(140,236
)630,406

781,764


36

---

14. CONSOLIDATED STATEMENTS OF CASH FLOWS

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

2002
$

2001
$

2000
$Decrease (increase) in current assetsTrade accounts receivable

39,101

49,175

(200,474
)Inventories

38,394

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

19,368

8,756

52,28896,863

(125,353
)
(249,339
)Increase (decrease) in current liabilitiesAccounts payable

6,192

(309,352
)
67,045Accrued liabilities

(201,844
)
112,119

50,604Customer deposits

(76,906
)
85,795

Income taxes payable

19,018

(11,939
)
(36,121
)(156,677
)
(248,730
)
(167,811
)


Cash
paid during the year for interest was $101,711 [2001$118,299; 2000$96,399]. Cash paid during the year for income taxes was $8,139
[2001$23,354; 2000$103,843].

Excluded
from the consolidated statements of cash flows for each of the years ended January 31, 2000 and 2001 is the issuance of 5,000 common shares 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 Products Limited ["Dextran"] in Canada and through Chemdex Inc.
["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.

37

---



2002Dextran
$

Veterinary
products
$

Total
$Gross sales

4,529,397

7,920,895

12,450,292Intercompany sales

282,762



282,762Interest expense

64,133

37,578

101,711Depreciation and amortization

352,481

180,663

533,144Operating income (loss) for segment

689,978

(36,147
)
653,831Interest income

7,843

1,049

8,892Segment assets

4,842,192

4,100,454

8,942,646Capital expenditures

424,800

85,313

510,113


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


38

---

2002
$

2001
$

2000
$Gross salesGross sales from segments

12,450,292

14,134,833

13,573,984Intercompany sales elimination

(282,762
)
(488,675
)
(477,535
)12,167,530

13,646,158

13,096,4492002
$

2001
$

2000
$Income (loss) before income taxesOperating income from segments

653,831

798,755

1,344,649Unallocated corporate expenses

(729,526
)
(740,947
)
(742,686
)Interest and other income

37,797

217,079

240,432(37,898
)
274,887

842,395


2002
$

2001
$AssetsSegment

8,942,646

9,894,402Corporate

1,138,234

1,322,92410,080,880

11,217,326


2002Total
segments
$

Corporate
$

Consolidated
totals
$Other significant itemsInterest expense

101,711

104,340

206,051Depreciation and amortization

533,144

15,787

548,931Interest income

8,892

331

9,223Capital expenditures

510,113



510,113


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


39

---

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


2002
$

2001
$

2000
$United States

8,582,049

9,544,206

9,556,972Canada

593,019

619,764

688,883Europe

1,574,065

1,877,209

1,689,738Pacific Rim

962,231

1,169,954

745,861Other

456,166

435,025

414,99512,167,530

13,646,158

13,096,449


2002
$

2001
$United States

1,835,151

1,930,500Canada

2,960,460

3,209,133Bahamas

40,092

55,8794,835,703

5,195,512


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, 2002 because of the short term
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, 2002 and January 31, 2001. The estimated fair value of the amount due from shareholder is not determinable because the amount
has no fixed terms of repayment.

40

---

17. OTHER DISCLOSURES

[a] Concentration of trade accounts receivable

At January 31, 2002, there were four [2001two] customers of the Company which comprised 49%
[2001  29%] of the trade accounts receivable balance. No other customers had trade accounts receivable outstanding at year-end that
represented more than 10% of the Company's trade accounts receivable balance.

[b] Foreign currency transactions

The Company is exposed to foreign currency risk through its net investment in its Canadian operations. The Company has not entered into hedging arrangements
related to the foreign currency exposure.

18. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2002
consolidated financial statements.

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

Not applicable.

41

---



PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

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 Company'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 Company'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
Company'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
Company'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.

PART IV

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

| |  | (a) |  | The following documents are filed as a part of this Annual Report on Form 10-K:
| |  | --- |  | -------------------------------------------------------------------------------
| |  |     |  | (1)                                                                            
| |  |     |  |                                                                                
| |  |     |  | (2)                                                                            
| |  |     |  |                                                                                

42

---

| |  |                                                                       |  | (3)                 |  | Exhibits
| |  | --------------------------------------------------------------------- |  | ------------------- |  | --------
| |  |                                                                       |  |                     |  | 3.1     
| |  |                                                                       |  |                     |  | 3.2     
| |  |                                                                       |  |                     |  | 10.1    
| |  |                                                                       |  |                     |  | 10.2    
| |  |                                                                       |  |                     |  | 10.3    
| |  |                                                                       |  |                     |  | 10.4    
| |  |                                                                       |  |                     |  | 10.5    
| |  |                                                                       |  |                     |  | 10.6    
| |  |                                                                       |  |                     |  | 10.7    
| |  |                                                                       |  |                     |  | 10.8    
| |  |                                                                       |  |                     |  | 21      
| |  |                                                                       |  |                    
| |  | * Indicates a management contract or compensatory plan or arrangement
| |  | (b)                                                                   |  | Reports on Form 8-K
| |  |                                                                       |  | Not applicable.    

43

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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 30, 2002 |  | 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 30, 2002 |  | /s/GEORGE G. USHERGeorge G. Usher, Director, President
and Chief Executive Officer
(Principal Executive Officer)                             
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Date: April 30, 2002 |  | /s/SHARON WARDLAWSharon Wardlaw, Treasurer, Secretary
and Chief Financial and Accounting
Officer (Principal Financial and
Accounting Officer)
|Date: April 30, 2002 |  | /s/JOSEPH BUCHMANJoseph Buchman, Director                                                                                                    
|Date: April 30, 2002 |  | /s/DEREK JOHN MICHAEL LEDERERDerek John Michael Lederer, Director                                                                            
|Date: April 30, 2002 |  | /s/JOHN L.E. SEIDLERJohn L.E. Seidler, Director                                                                                              
|Date: April 30, 2002 |  | /s/RUTH L. USHERRuth L. Usher, Director                                                                                                      
|Date: April 30, 2002 |  | /s/THOMAS C. USHERThomas C. Usher, Director                                                                                                  

44

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