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**SECURITIES AND EXCHANGE      COMMISSION**

**WASHINGTON, D.C.      20549**

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**Amendment        No. 1 to**
**FORM        10-K**

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

**Commission file number:      1-8366**

**POLYDEX PHARMACEUTICALS      LIMITED**

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

**(416) 755-2231**

|                |   |                                                       |
|---------------------|--------|------------------------------------------------------------|
| Title of Each Class |   | Name of Each Exchange on Which                  Registered |
|                |   |                                                       |
|                |   |                                                       |

**Common Shares, $.0167 par      value**

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**Cautionary Note Regarding Forward-Looking      Statements**

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**PART I**

|    |     |
|---------|----------|
| ITEM 1. | BUSINESS |

**Introduction**

**Products and Sales**

**Iron      Dextran**

***          Dextran      Sulphate***

***Veterinary      Products***

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**Patents, Trademarks and Licenses**

***Cellulose      Sulphate***

***Cystic      Fibrosis***

***          Iron      Dextran***

***          Dextran      Sulphate***

***          Elastin      and Collagen***

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**Suppliers**

**           *Dextran      Products***

**Backlog and Seasonality**

**Competition**

**Environmental Compliance**

**Employees**

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**Research and Development**

***          Cellulose      Sulphate (Ushercell)***

|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | A clinical study of sexually active women conducted                in                collaboration with Family Health International in Cameroon, has been                completed.  The final report concluded that 3.5 ml 6% Cellulose                Sulphate gel was as safe and acceptable to users as a placebo compound,                and remained acceptable when used four times per day for 14 consecutive                days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | A study in collaboration with the World Health                Organization of 180 healthy women in Uganda, Nigeria and India has                been                completed.  The final report concluded that twice daily vaginal                applications of 6% Cellulose Sulphate appeared to be as safe and                well                tolerated as the placebo compound also used in the                study.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | A study conducted by the HIV Prevention Trials                Network                to establish the safety and tolerance of the product among HIV-infected                women, as a precursor to clinical trials designed to assess HIV                prevention. One objective of this trial was to study changes in vaginal                flora associated with repeated microbicide use. The study was completed                in                fiscal year 2004, and the report was presented at the                12thConference on Retroviruses and Opportunistic Infections                in                Boston in February of 2005, indicating that Cellulose Sulphate was                not                disruptive to the vaginal PH and also resulted in clearance of Bacterial                Vaginosis (BV) in patients who had BV at the time of enrollment in                this                study, concluding with recommendations that further study of the                impact of                Cellulose Sulphate on BV is warranted. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | A Phase I study in collaboration with Family                Health                International involving 60 healthy women in the United States to                assess                the safety and acceptability among sexually active and abstinent                women of                Cellulose Sulphate used intra-vaginally twice daily for 14 consecutive                days has been completed. The final report indicates a continued safety                and                acceptability profile.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Large-scale Phase II human clinical trials of                the                contraceptive efficacy of Ushercell in the United States began in                January                and February 2004 in collaboration with the California Family Health                Council. One of the two trials was suspended due to lack of enrollment                in                a study that sought couples desiring pregnancy, but                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    | willing to postpone conception. The clinical                portion of                the remaining study involving couples that do not desire a pregnancy                is                expected to be completed this summer and a report on findings is                expected                in 2006.                                                                                                                                |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |    | Additionally, the following clinical studies                have been                commenced or are being actively planned:                                                                                                                                                                                                                                                                                                               |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | • | A tolerance study of 42 HIV-infected men in                collaboration with theInstitute of Tropical Medicine in Belgium has                been                planned.                                                                                                                                                                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | • | A further study planned in collaboration with                the                University of California to be conducted with 180 sexually active                women in                Zimbabwe to assess the safety and acceptability of Ushercell in use                with a                diaphragm has been planned.                                                                                                               |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | • | A study to determine the effectiveness of Cellulose                Sulphate gel as a treatment for Bacterial Vaginosis, a common disorder                among reproductive-age women, has been planned, funded and clinical                trial                supplies have been shipped to Brazil.  The trial is expected to                commence in April 2005, with a report on findings expected in                mid-2006. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | • | A further large-scale Phase III clinical trial                is                planned to assess the effect of Ushercell on vaginal HIV                acquisition.  This study design will enroll more than 2,000 sexually                active women with a high risk of HIV infection.  A projected start                timeline has been scheduled for June                2005.                                           |

***          Cystic      Fibrosis***

**Segmented Information**

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|    |       |
|---------|------------|
| ITEM 2. | PROPERTIES |

|    |                             |
|---------|----------------------------------|
| ITEM 3. | LEGAL                PROCEEDINGS |

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

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**PART II**

|    |                                                                                                                                             |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                             |
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED                STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY                SECURITIES |
|    |                                                                                                                                             |

|                      |   |     |   |    |   |   |   |
|---------------------------|--------|----------|--------|---------|--------|--------|--------|
| **Fiscal Year 2005**      |   |     |   |    |   |   |   |
| **fiscal quarter ended:** |   | **High** |   | **Low** |   |
|                      |   |     |   |    |   |
| April 30, 2004            |   | $        | 8.50   |    |   | 6.91   |   |
| July 31, 2004             |   |     | 7.56   |    |   | 5.78   |   |
| October 31, 2004          |   |     | 7.65   |    |   | 4.92   |   |
| January 31, 2005          |   |     | 8.00   |    |   | 5.75   |   |

|                      |   |     |   |    |   |   |   |
|---------------------------|--------|----------|--------|---------|--------|--------|--------|
| **Fiscal Year 2004**      |   |     |   |    |   |   |   |
| **fiscal quarter ended:** |   | **High** |   | **Low** |   |
|                      |   |     |   |    |   |
| April 30, 2003            |   | $        | 2.67   |    |   | 2.03   |   |
| July 31, 2003             |   |     | 4.85   |    |   | 2.26   |   |
| October 31, 2003          |   |     | 6.00   |    |   | 3.20   |   |
| January 31, 2004          |   |     | 8.62   |    |   | 5.01   |   |
|                      |   |     |   |    |   |   |   |

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|    |                    |
|---------|-------------------------|
| ITEM 6. | SELECTED FINANCIAL DATA |
|    |                    |

|                                                        |   |                                             |       |     |   |       |   |     |       |     |   |       |   |   |       |   |
|-------------------------------------------------------------|--------|--------------------------------------------------|------------|----------|--------|------------|--------|----------|------------|----------|--------|------------|--------|--------|------------|--------|
|                                                        |   |                                             |       |
|                                                        |   | **Fiscal year ended January                31,** |       |
|                                                        |   |                                             |       |
|                                                        |   | **2005**                                         |       | **2004** |   | **2003**   |   | **2002** |       | **2001** |   |
|                                                        |   |                                             |       |     |   |       |   |     |       |     |   |
| Sales                from continuing operations             |   |                                             | 6,372,359  |     |   | 14,092,189 |   |     | 12,786,343 |     |   | 12,167,530 |   |   | 13,646,158 |   |
| Net                income (loss) from continuing operations |   |                                             | 1,139,911  |     |   | (5,999     | )      |     | (673,741   | )        |   | (206,880   | )      |   | 131,284    |   |
| Net                income (loss) per common share           |   |                                             | 0.38       |     |   | —    |   |     | (0.22      | )        |   | (0.07      | )      |   | 0.04       |   |
| Total                assets                                 |   |                                             | 10,811,873 |     |   | 10,510,513 |   |     | 9,712,574  |     |   | 10,080,880 |   |   | 11,217,326 |   |
| Long-term                borrowings                         |   |                                             | 833,631    |     |   | 1,013,701  |   |     | 1,188,603  |     |   | 1,724,159  |   |   | 2,031,660  |   |

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|   |   |
|--------|--------|

|    |                                                                                                       |
|---------|------------------------------------------------------------------------------------------------------------|
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL                CONDITION AND RESULTS OF OPERATIONS |
|    |                                                                                                       |

**Overview**

***          Dextran      Products Business***

***Chemdex,      Vet Labs and the Joint Venture Business***

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**Results of Operations**

|   |                                                                                                                                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                |
|   | ***Fiscal Year ended January 31, 2005                compared                to Fiscal Year ended January 31, 2004 compared to Fiscal Year ended                January 31, 2003*** |

|                      |   |        |      |        |   |        |   |   |     |   |
|---------------------------|--------|-------------|-----------|-------------|--------|-------------|--------|--------|----------|--------|
|                      |   | **FY 2005** |      | **FY 2004** |   | **FY 2003** |   |
|                      |   |        |      |        |   |        |   |
| Net income (loss)         |   | $           | 1,139,911 |        | $      | (5,999      | )      | $      | (673,741 | )      |
|                      |
| Earnings (loss) per share |   |        | 0.38      |        |   | 0.00        |   |   | (0.22    | )      |
|                      |   |        |      |        |   |        |   |   |     |   |

|                                                |        |   |        |   |        |     |        |                                       |        |   |   |
|-----------------------------------------------------|-------------|--------|-------------|--------|-------------|----------|-------------|--------------------------------------------|-------------|--------|--------|
| **Income (loss) beforeincome                taxes** |        |   |        |   |        |     |        | **Fiscal                Years**            |        |
|                                                |        |   |        |   |        |     |        |                                       |
|                                                | **FY 2005** |   | **FY 2004** |   | **FY 2003** |     | **05 v 04** |                                       | **04 v 03** |   |
|                                                |        |   |        |   |        |     |        |                                       |        |   |   |
|                                                |        |   |        |   |        |     |        | **(% increase                (decrease))** |        |
| Consolidated                                        |        | $      | 1,706,777   |   | $           | (395,967 | )           | $                                          | 77,625      |   | 5,310  | % |   | (612 | )% |   |
| Dextran Products                                    |        |   | 256,169     |   |        | 58,703   |        |                                       | 872,291     |   | 336    | % |   | (93 | )% |   |
| Chemdex                                             |        |   | 2,093,478   |   |        | (63,029  | )           |                                       | (247,682    | )      | 3,421  | % |   | 75 | % |   |
|                                                |        |   |        |   |        |     |        |                                       |        |   |   |   |   |   |   |   |

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|                        |   |        |      |        |   |        |   |                                       |       |        | **Fiscal                Years** |   |
|-----------------------------|--------|-------------|-----------|-------------|--------|-------------|--------|--------------------------------------------|------------|-------------|---------------------------------|--------|
|                        |   |        |      |        |   |        |   |                                       |       |        |                            |   |
| **Sales**                   |   | **FY 2005** |      | **FY 2004** |   | **FY 2003** |   | **05 v 04**                                |       | **04 v 03** |                            |
|                        |   |        |      |        |   |        |   |                                       |       |        |                            |
|                        |   |        |      |        |   |        |   | **(% increase                (decrease))** |       |
| Consolidated                |   | $           | 6,372,359 |        | $      | 14,092,189  |   | $                                          | 12,786,343 |        | (55                             | )%     |   | 10 | % |   |
| Dextran Products            |   |        | 4,916,213 |        |   | 4,742,519   |   |                                       | 4,575,359  |        | 4                               | %      |   | 4 | % |   |
| Percentage of Company sales |   |        | 77        | %           |   | 34          | %      |                                       | 36         | %           |                            |   |   |   |   |   |
| Chemdex                     |   |        | 1,456,146 |        | $      | 9,349,670   |   | $                                          | 8,210,984  |        | (84                             | )%     |   | 14 | % |   |
| Percentage of Company sales |   |        | 23        | %           |   | 66          | %      |                                       | 64         | %           |                            |   |   |   |   |   |

|                |   |        |      |        |   |        |   |                                       |      |        |                            |   |
|---------------------|--------|-------------|-----------|-------------|--------|-------------|--------|--------------------------------------------|-----------|-------------|---------------------------------|--------|
|                |   |        |      |        |   |        |   |                                       |      |        | **Fiscal                Years** |   |
|                |   |        |      |        |   |        |   |                                       |      |        |                            |   |
| **Gross profit**    |   | **FY 2005** |      | **FY 2004** |   | **FY 2003** |   | **05 v 04**                                |      | **04 v 03** |                            |
|                |   |        |      |        |   |        |   |                                       |      |        |                            |   |
|                |   |        |      |        |   |        |   | **(% increase                (decrease))** |      |
| Consolidated        |   | $           | 1,516,418 |        | $      | 2,785,865   |   | $                                          | 2,740,115 |        | (46                             | )%     |   | 2 | % |   |
| Percentage of sales |   |        | 24        | %           |   | 20          | %      |                                       | 21        | %           |                            |   |   |   |   |   |
| Dextran Products    |   | $           | 1,037,368 |        | $      | 1,153,659   |   | $                                          | 1,556,220 |        | (10                             | )%     |   | (26 | )% |   |
| Percentage of sales |   |        | 21        | %           |   | 24          | %      |                                       | 34        | %           |                            |   |   |   |   |   |
| Chemdex             |   | $           | 279,827   |        | $      | 1,597,345   |   | $                                          | 1,121,810 |        | (82                             | )%     |   | 42 | % |   |
| Percentage of sales |   |        | 19        | %           |   | 17          | %      |                                       | 14        | %           |                            |   |   |   |   |   |

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|                                                                                  |   |        |      |        |   |        |   |        |      |        |                                       |   |   |   |   |   |
|---------------------------------------------------------------------------------------|--------|-------------|-----------|-------------|--------|-------------|--------|-------------|-----------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                                                                                  |   |        |      |        |   |        |   |        |      |        | **Fiscal                Years**            |   |
|                                                                                  |   |        |      |        |   |        |   |        |      |        |                                       |   |
|                                                                                  |   | **FY 2005** |      | **FY 2004** |   | **FY 2003** |   | **05 v 04** |      | **04 v 03** |                                       |
|                                                                                  |   |        |      |        |   |        |   |        |      |        |                                       |
|                                                                                  |   |        |      |        |   |        |   |        |      |        | **(% increase                (decrease))** |   |
| Selling,                promotion, general and administrative                expenses |   | $           | 1,566,746 |        | $      | 2,096,108   |   | $           | 1,799,292 |        | (25                                        | )%     |   | 16     | %      |   |

|                                                 |        |   |        |   |        |    |        |   |        |   |                                       |   |   |   |   |   |
|------------------------------------------------------|-------------|--------|-------------|--------|-------------|---------|-------------|--------|-------------|--------|--------------------------------------------|--------|--------|--------|--------|--------|
| **Research                anddevelopment**           |        |   |        |   |        |    |        |   |        |   | **Fiscal                Years**            |   |
|                                                 |        |   |        |   |        |    |        |   |        |   |                                       |
|                                                 | **FY 2005** |   | **FY 2004** |   | **FY 2003** |    | **05 v 04** |   | **04 v 03** |   |
|                                                 |        |   |        |   |        |    |        |   |        |   |                                       |
|                                                 |        |   |        |   |        |    |        |   |        |   | **(% increase                (decrease))** |   |
| Research                and development expenditures |        | $      | 127,847     |   | $           | 73,635  |        | $      | 193,284     |   | 74                                         | %      |   | (62    | )%     |   |
| Investment                tax credits                |        |   | (13,105     | )      |        | (12,684 | )           |   | (21,186     | )      | 3                                          | %      |   | (40    | )%     |   |
| Net                research and development expense  |        |   | 114,742     |   |        | 60,951  |        |   | 172,098     |   | 88                                         | %      |   | (65    | )%     |   |

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|                                                     |   |        |    |        |   |        |   |                            |    |        |                                       |   |   |   |   |   |
|----------------------------------------------------------|--------|-------------|---------|-------------|--------|-------------|--------|---------------------------------|---------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                                                     |   |        |    |        |   |        |   | **Fiscal                Years** |    |
|                                                     |   |        |    |        |   |        |   |                            |    |
|                                                     |   | **FY 2005** |    | **FY 2004** |   | **FY 2003** |   | **04 v 03**                     |    | **04 v 03** |                                       |
|                                                     |   |        |    |        |   |        |   |                            |    |        |                                       |
|                                                     |   |        |    |        |   |        |   |                            |    |        | **(% increase                (decrease))** |   |
| **Depreciation and amortization                expense** |   | $           | 513,095 |        | $      | 617,685     |   | $                               | 572,129 |        | (17                                        | )%     |   | 8      | %      |   |

|                 |   |        |   |        |   |        |   |                            |    |        |                                       |   |   |   |   |   |
|----------------------|--------|-------------|--------|-------------|--------|-------------|--------|---------------------------------|---------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                 |   |        |   |        |   |        |   | **Fiscal                Years** |    |
|                 |   |        |   |        |   |        |   |                            |    |
|                 |   | **FY 2005** |   | **FY 2004** |   | **FY 2003** |   | **05 v 04**                     |    | **04 v 03** |                                       |
|                 |   |        |   |        |   |        |   |                            |    |        |                                       |   |
|                 |   |        |   |        |   |        |   |                            |    |        | **(% increase                (decrease))** |   |
| **Interest expense** |   | $           | 91,210 |        | $      | 133,382     |   | $                               | 150,527 |        | (32                                        | )%     |   | (11    | )%     |   |

|                                            |   |        |   |        |   |        |   |        |     |        |                                       |   |   |   |   |   |
|-------------------------------------------------|--------|-------------|--------|-------------|--------|-------------|--------|-------------|----------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                                            |   |        |   |        |   |        |   |        |     |        | **Fiscal                Years**            |   |
|                                            |   |        |   |        |   |        |   |        |     |        |                                       |   |
|                                            |   | **FY 2005** |   | **FY 2004** |   | **FY 2003** |   | **05 v 04** |     | **04 v 03** |                                       |
|                                            |   |        |   |        |   |        |   |        |     |        |                                       |
|                                            |   |        |   |        |   |        |   |        |     |        | **(% increase                (decrease))** |   |
| **Foreign exchange gain                (loss)** |   | $           | 46,172 |        | $      | (447,602    | )      | $           | (113,602 | )           | 110                                        | %      |   | (294   | )%     |   |

----

|                       |   |        |    |        |   |        |   |        |     |        |                                       |   |   |   |   |   |
|----------------------------|--------|-------------|---------|-------------|--------|-------------|--------|-------------|----------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                       |   |        |    |        |   |        |   |        |     |        | **Fiscal                Years**            |   |
|                       |   |        |    |        |   |        |   |        |     |        |                                       |   |
|                       |   | **FY 2005** |    | **FY 2004** |   | **FY 2003** |   | **05 v 04** |     | **04 v 03** |                                       |
|                       |   |        |    |        |   |        |   |        |     |        |                                       |
|                       |   |        |    |        |   |        |   |        |     |        | **(% increase                (decrease))** |   |
| **Other income (expense)** |   | $           | 105,883 |        | $      | (389,735    | )      | $           | (372,111 | )           | 127                                        | %      |   | (5     | )%     |   |

|                                        |   |        |     |        |   |        |   |        |    |        |                                       |   |   |   |   |   |
|---------------------------------------------|--------|-------------|----------|-------------|--------|-------------|--------|-------------|---------|-------------|--------------------------------------------|--------|--------|--------|--------|--------|
|                                        |   |        |     |        |   |        |   |        |    |        | **Fiscal                Years**            |   |
|                                        |   |        |     |        |   |        |   |        |    |        |                                       |   |
| **Tax provision                (recovery)** |   | **FY 2005** |     | **FY 2004** |   | **FY 2003** |   | **05 v 04** |    | **04 v 03** |                                       |
|                                        |   |        |     |        |   |        |   |        |    |        |                                       |
|                                        |   |        |     |        |   |        |   |        |    |        | **(% increase                (decrease))** |   |
| Consolidated                                |   | $           | 566,866  |        | $      | (389,968    | )      | $           | 751,366 |        | 245                                        | %      |   | (152   | )%     |   |
| Dextran Products                            |   |        | (193,134 | )           |   | 110,032     |   |        | 430,886 |        | (276                                       | )%     |   | (74    | )%     |   |
| Chemdex                                     |   |        | 637,000  |        |   | (500,000    | )      |        | 320,480 |        | 227                                        | %      |   | (256   | )%     |   |

**Liquidity and Capital Resources**

----

----

**Related Party Transactions**

**Off-Balance Sheet Arrangements**

**Tabular Disclosure of Contractual      Obligations**

----

|                                       |   |                                     |      |                               |   |         |   |          |    |                                |   |    |   |   |    |   |
|--------------------------------------------|--------|------------------------------------------|-----------|------------------------------------|--------|--------------|--------|---------------|---------|-------------------------------------|--------|---------|--------|--------|---------|--------|
|                                       |   | **Payment due by                period** |      |
|                                       |   |                                     |      |
| **Contractual                Obligations** |   | **Total**                                |      | **Less than1                year** |   | **1-3years** |   | **3-5 years** |    | **More than5                years** |   |
|                                       |   |                                     |      |                               |   |         |   |          |    |                                |   |
| Long-term debt obligations (1)             |   | $                                        | 734,942   |                               | $      | 108,232      |   | $             | 122,703 |                                | $      | 122,703 |   | $      | 381,304 |   |
| Capital lease obligations (2)              |   |                                     | 350,391   |                               |   | 180,300      |   |          | 158,472 |                                |   | 11,619  |   |   | — |   |
| Operating lease obligations (3)            |   |                                     | 780       |                               |   | 520          |   |          | 260     |                                |   | — |   |   | — |   |
| Purchase obligations                       |   |                                     | 64,668    |                               |   | 64,668       |   |          | — |                                |   | — |   |   | — |   |
| Revolving loans (4)                        |   |                                     | 24,170    |                               |   | 24,170       |   |          | — |                                |   | — |   |   | — |   |
| Total                                      |   | $                                        | 1,174,951 |                               | $      | 377,890      |   | $             | 281,435 |                                | $      | 134,322 |   | $      | 381,304 |   |

----

| 1.                                                                                                                                                                                                                                                              | Consists of:                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
|                                                                                                                                                                                                                                                            |                                                      |
|                                                                                                                                                                                                                                                            | (a)                                                       | Note payable in monthly payments of $5,860 maturing                September 19, 2005; |
|                                                                                                                                                                                                                                                            |                                                      |   |
|                                                                                                                                                                                                                                                            | (b)                                                       | Note payable in quarterly payments of Cdn. $419                maturing                December 2009; and |
|                                                                                                                                                                                                                                                            |                                                      |   |
|                                                                                                                                                                                                                                                            | (c)                                                       | Amounts due to shareholder which bear interest                at the                Canadian banks’ prime lending rate plus 1.5%, with required minimum                monthly payments, including interest, of $5,000. |
|                                                                                                                                                                                                                                                            |                                                      |   |
| 2.                                                                                                                                                                                                                                                              | Consists of capital lease obligations                for: |
|                                                                                                                                                                                                                                                            |                                                      |
|                                                                                                                                                                                                                                                            | (a)                                                       | Production equipment of Cdn. $308,703 (US $248,713)                repayable in monthly installments, bearing interest at 9% and maturing                November 2006; |
|                                                                                                                                                                                                                                                            |                                                      |   |
|                                                                                                                                                                                                                                                            | (b)                                                       | Production equipment of Cdn. $69,253 (US $55,795)                repayable in monthly installments, bearing interest at 7.59% and                maturing                November 2006; and |
|                                                                                                                                                                                                                                                            |                                                      |   |
|                                                                                                                                                                                                                                                            | (c)                                                       | Office equipment of Cdn. $27,761 (US $22,366)                repayable                in quarterly installments, bearing interest at 10.4% and maturing                December                2009. |
|                                                                                                                                                                                                                                                            |                                                      |   |
| 3.        Consists of                operating lease obligations for office equipment requiring quarterly                payments of Cdn. $161 (US $121) terminating June 2006                                          |
|                                                                                                                                                                                                                                                            |
| 4.        Consists of                Canadian operating line of credit bearing interest at the Canadian                banks’                prime lending rate plus 0.75%, repayable upon                demand. |

**Risk Factors**

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

----

|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | that the Company will not be able to maintain                its                current research and development schedules;                                                                                                                                                                                                                                                       |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|   | • | that the Company will not be able to enter into                human                clinical trials because of scientific, governmental or financial                reasons,                or that it will encounter problems in clinical trials that will cause                a                delay or suspension of the development of the product                candidate; |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|   | • | that the developmental product will be found                to be                ineffective or unsafe;                                                                                                                                                                                                                                                                           |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|   | • | that government regulations will delay or prevent                the                product’s marketing for a considerable period of time and impose costly                procedures upon the Company’s activities;                                                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|   | • | that the FDA or other regulatory agencies will                not                approve the product or the process by which the product is manufactured,                or will not do so on a timely basis; and/or                                                                                                                                                              |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |
|   | • | that the FDA’s policies may change and additional                government regulations and policies may be instituted, which could                prevent                or delay regulatory approval of the product.                                                                                                                                                      |
|   |    |                                                                                                                                                                                                                                                                                                                                                                              |

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

|   | • | the product is uneconomical or if the market                for the                product does not develop or diminishes;                                                                                                                                                                                                                                  |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
|   | • | the Company is not able to enter into arrangements                or                collaborations to commercialize and/or market the                product;                                                                                                                                                                                               |
|   |
|   | • | the product is not eligible for third-party                reimbursement from government or private insurers;                                                                                                                                                                                                                                               |
|   |
|   | • | others hold proprietary rights that preclude                the Company                from commercializing the product;                                                                                                                                                                                                                                    |
|   |
|   | • | others have brought to market similar or superior                products;                                                                                                                                                                                                                                                                                  |
|   |
|   | • | others have superior resources to market similar                products or technologies;                                                                                                                                                                                                                                                                   |
|   |
|   | • | government regulation imposes limitations on                the                indicated uses of the product, or later discovery of previously unknown                problems with the product results in added restrictions on the product                or                results in the product being withdrawn from the market;                and/or |
|   |
|   | • | the product has undesirable or unintended side                effects                that prevent or limit its commercial use.                                                                                                                                                                                                                              |
|   |    |                                                                                                                                                                                                                                                                                                                                                        |

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

----

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

***          The      Company may be unable to commercialize its products if it is unable to protect      its proprietary rights, and may be liable for significant costs and damages      if      it faces a claim of intellectual property infringement by a third      party.***

**Critical Accounting Policies**

----

***          Revenue      Recognition***

***          Allowance      for Doubtful Accounts***

***          Long-Lived      Assets***

***          Deferred      Tax Assets***

***          The      Joint Venture***

----

**Changes in Accounting Policies**

**Recent Accounting Pronouncements**

----

----

|     |                                                                                     |
|----------|------------------------------------------------------------------------------------------|
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES                ABOUT MARKET                RISK |

**Exchange Rate Sensitivity**

|                                       |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
|--------------------------------------------|--------|-------------------------------------------|-----------|-------------|--------|-------------|--------|-------------|---------|-------------|--------|----------------|--------|-----------|---------|---------------|--------|---------|--------|--------|-----------|--------|--------|-----------|--------|
|                                       |   | **Expected Maturity                Date** |      |        |   |        |   |        |    |
|                                       |   |                                      |      |        |   |        |   |        |    |
|                                       |   | **1/31/06**                               |      | **1/31/07** |   | **1/31/08** |   | **1/31/09** |    | **1/31/10** |   | **Thereafter** |   | **Total** |    | **FairValue** |   |
|                                       |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |
|                                       |   | **(US$                Equivalent)**       |      |
| **Assets:**                                |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Short-term                investments:     |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)          |   |                                      | 2,258,842 |        |   | —     |   |        | — |        |   | —        |   |      | — |          |   | — |   |   | 2,258,842 |   |   | 2,271,233 |   |
| Average                interest rate       |   |                                      | 2.45      | %           |   | —     |   |        | — |        |   | —        |   |      | — |          |   | — |   |   | 2.45      | %      |   |      |   |
| Marketable                securities:      |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)          |   |                                      | 596,190   |        |   | 591,488     |   |        | 676,891 |        |   | —        |   |      | — |          |   | — |   |   | 1,864,569 |   |   | 1,770,130 |   |
| Average                interest rate       |   |                                      | 2.66      | %           |   | 2.85        | %      |        | 2.86    | %           |   | —        |   |      | — |          |   | — |   |   | 2.79      | %      |   |      |   |
|                                       |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| **Liabilities:**                           |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Foreign                exchange contracts: |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Forward                purchase contracts  |   |                                      | 450,000   |        |   | —     |   |        | — |        |   | —        |   |      | — |          |   | — |   |   | 450,000   |   |   | 23,203    |   |
| Contract                exchange rate      |   |                                      | 1.1772    |        |   | —     |   |        | — |        |   | —        |   |      | — |          |   | — |   |   | 1.1772    |   |   |      |   |
| Long-term                debt:             |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |          |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)          |   |                                      | 158,368   |        |   | 155,489     |   |        | 5,455   |        |   | 6,052          |   |      | 6,714   |          |   |    |   |   | 332,078   |   |   | 318,242   |   |
| Average                interest rate       |   |                                      | 8.78      | %           |   | 8.81        | %      |        | 10.43   | %           |   | 10.43          | %      |      | 10.43   | %             |   |    |   |   | 8.88      | %      |   |      |   |

----

**Interest Rate Sensitivity**

|                                   |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
|----------------------------------------|--------|-------------------------------------------|-----------|-------------|--------|-------------|--------|-------------|---------|-------------|--------|----------------|--------|-----------|---------|---------------------|--------|---------|--------|--------|-----------|--------|--------|-----------|--------|
|                                   |   | **Expected Maturity                Date** |      |        |   |        |   |        |    |
|                                   |   |                                      |      |        |   |        |   |        |    |
|                                   |   | **1/31/05**                               |      | **1/31/06** |   | **1/31/07** |   | **1/31/08** |    | **1/31/09** |   | **Thereafter** |   | **Total** |    | **Fair Value** |   |
|                                   |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |
|                                   |   | **(US$                Equivalent)**       |      |
| **Assets:**                            |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Short-term                investments: |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)      |   |                                      | 2,258,842 |        |   | —     |   |        | — |        |   | —        |   |      | — |                |   | — |   |   | 2,258,842 |   |   | 2,271,233 |   |
| Average                interest rate   |   |                                      | 2.45      | %           |   | —     |   |        | — |        |   | —        |   |      | — |                |   | — |   |   | 2.45      | %      |   |      |   |
| Marketable                securities:  |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)      |   |                                      | 596,190   |        |   | 591,488     |   |        | 676,891 |        |   | —        |   |      | — |                |   | — |   |   | 1,864,569 |   |   | 1,770,130 |   |
| Average                interest rate   |   |                                      | 2.66      | %           |   | 2.85        | %      |        | 2.86    | %           |   | —        |   |      | — |                |   | — |   |   | 2.79      | %      |   |      |   |
| Notes                receivable:       |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Variable                rate ($US)     |   |                                      | 58,165    |        |   | 61,655      |   |        | 65,354  |        |   | 69,275         |   |      | 73,432  |                |   | 45,493  |   |   | 373,374   |   |   | 373,374   |   |
| Average                interest rate   |   |                                      | 6.00      | %           |   | 6.00        | %      |        | 6.00    | %           |   | 6.00           | %      |      | 6.00    | %                   |   | 6.00    | %      |   | 6.00      | %      |   |      |   |
|                                   |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| **Liabilities:**                       |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Long-term                debt:         |   |                                      |      |        |   |        |   |        |    |        |   |           |   |      |    |                |   |    |   |   |      |   |   |      |   |
| Fixed                rate ($Cdn.)      |   |                                      | 158,368   |        |   | 155,489     |   |        | 5,455   |        |   | 6,052          |   |      | 6,714   |                |   | — |   |   | 332,078   |   |   | 318,242   |   |
| Average                interest rate   |   |                                      | 8.78      | %           |   | 8.81        | %      |        | 10.43   | %           |   | 10.43          | %      |      | 10.43   | %                   |   | — |   |   | 8.88      | %      |   |      |   |
| Variable                rate ($US)     |   |                                      | 17,622    |        |   | 20,179      |   |        | 21,390  |        |   | 22,673         |   |      | 24,034  |                |   | 575,407 |   |   | 681,305   |   |   | 681,305   |   |
| Average                interest rate   |   |                                      | 6.00      | %           |   | 6.00        | %      |        | 6.00    | %           |   | 6.00           | %      |      | 6.00    | %                   |   | 6.00    | %      |   | 6.00      | %      |   |      |   |

----

|    |                                                       |
|---------|------------------------------------------------------------|
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY                DATA |

**Polydex Pharmaceuticals      LimitedQuarterly Financial HighlightsJanuary 31,      2005**

|                                                        |   |                                         |      |                                        |   |                                         |   |                                        |      |     |   |      |   |     |      |     |   |      |   |   |      |   |   |      |   |
|-------------------------------------------------------------|--------|----------------------------------------------|-----------|---------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                        |   |                                         |      |                                        |   |                                         |   |                                        |      |     |   |      |   |     |      |     |   |      |   |   |      |   |   |      |   |
|                                                        |   | **Fourth QuarterFiscal                Year** |      | **Third QuarterFiscal                Year** |   | **Second QuarterFiscal                Year** |   | **First QuarterFiscal                Year** |      |
|                                                        |   |                                         |      |                                        |   |                                         |   |                                        |      |
|                                                        |   | **2005**                                     |      | **2004**                                    |   | **2005**                                     |   | **2004**                                    |      | **2005** |   | **2004**  |   | **2005** |      | **2004** |   |
|                                                        |   |                                         |      |                                        |   |                                         |   |                                        |      |     |   |      |   |     |      |     |   |
| Sales                from continuing operations             |   |                                         | 1,306,297 |                                        |   | 4,055,997                                    |   |                                        | 1,205,859 |     |   | 3,681,305 |   |     | 1,338,409 |     |   | 3,058,369 |   |   | 2,521,794 |   |   | 3,296,518 |   |
| Gross                profit                                 |   |                                         | 415,636   |                                        |   | 1,022,550                                    |   |                                        | 219,969   |     |   | 863,653   |   |     | 473,860   |     |   | 685,005   |   |   | 875,165   |   |   | 778,288   |   |
| Net                income (loss) from continuing operations |   |                                         | 107,036   |                                        |   | 721,802                                      |   |                                        | (240,552  | )        |   | (201,426  | )      |     | 12,759    |     |   | (236,805  | )      |   | 1,260,668 |   |   | (289,570  | )      |
| Net                income (loss) per common share           |   |                                         | 0.04      |                                        |   | 0.25                                         |   |                                        | (0.08     | )        |   | (0.07     | )      |     | —   |     |   | (0.08     | )      |   | 0.42      |   |   | (0.10     | )      |

----

**MANAGEMENT’S REPORT**

|                                 |                                   |
|--------------------------------------|----------------------------------------|
| **George G. Usher**                  | **Sharon Wardlaw**                     |
| Chairman and Chief Executive Officer | Chief Financial                Officer |

----

**REPORT OF INDEPENDENT      AUDITORS**

**Polydex Pharmaceuticals      Limited**

**Polydex Pharmaceuticals Limited **

**Polydex Pharmaceuticals Limited **

|                                 |   |
|--------------------------------------|--------|
| Toronto, Canada,March 10, 2005.      |        |
| Chartered                Accountants |

----

**Polydex Pharmaceuticals Limited **

**CONSOLIDATED BALANCE      SHEETS**

|                                                                            |   |      |            |       |   |        |   |
|---------------------------------------------------------------------------------|--------|-----------|-----------------|------------|--------|-------------|--------|
|                                                                            |   | **2005$** |            | **2004 $** |   |
|                                                                            |   |
| **ASSETS***[notes                9 and                10]*                      |   |      |            |       |   |        |   |
| **Current**                                                                     |   |      |            |       |   |        |   |
| Cash and cash equivalents *[note 3][note                12[a]]*                 |   |      | **2,401,051**   |       |   | 371,528     |   |
| Trade accounts receivable *[note                19]*                            |   |      | **922,267**     |       |   | 503,864     |   |
| Interest receivable                 [note 12[a]]                                |   |      | **41,511**      |       |   | —     |   |
| Inventories *[note 4]*                                                          |   |      | **1,516,893**   |       |   | 1,226,439   |   |
| Prepaid expenses and other current                assets                        |   |      | **115,542**     |       |   | 42,730      |   |
| Deferred tax assets *[note                  14]*                                |   |      | **—**     |       |   | 267,500     |   |
| Assets subject to sale agreement *[note                12[a]]*                  |   |      | **—**     |       |   | 3,973,593   |   |
|                                                                            |   |
| **Total current assets**                                                        |   |      | **4,997,264**   |       |   | 6,385,654   |   |
| Property, plant and equipment, net *[note                5]*                    |   |      | **3,124,185**   |       |   | 3,248,342   |   |
| Patents and intangible assets, net *[note                6]*                    |   |      | **68,959**      |       |   | 85,511      |   |
| Investments available for sale *[note                7]*                        |   |      | **1,909,305**   |       |   | —     |   |
| Due from shareholder *[note 8]*                                                 |   |      | **643,867**     |       |   | 791,006     |   |
| Promissory note [net of deferred gain of                $350,000]*[note 12[a]]* |   |      | 0               |       |   | —     |   |
| Assets held for sale                                                            |   |      | **12,085**      |       |   | —     |   |
| Deferred tax assets *[note                  14]*                                |   |      | **56,208**      |       |   | —     |   |
|                                                                            |   |
|                                                                            |   |      | **10,811,873**  |       |   | 10,510,513  |   |
|                                                                            |   |      |            |       |   |        |   |
|                                                                            |   |
| **LIABILITIES AND SHAREHOLDERS’                EQUITY**                   |   |      |            |       |   |        |   |
| **Current**                                                                     |   |      |            |       |   |        |   |
| Bank indebtedness *[note 9]*                                                    |   |      | **24,170**      |       |   | 165,609     |   |
| Accounts payable                                                                |   |      | **463,579**     |       |   | 515,092     |   |
| Accrued liabilities                                                             |   |      | **365,267**     |       |   | 337,046     |   |
| Customer deposits                                                               |   |      | **97,859**      |       |   | 100,925     |   |
| Income taxes payable *[note                  14]*                               |   |      | **129,702**     |       |   | 923         |   |
| Liabilities subject to sale agreement *[note                12[a]]*             |   |      | **—**     |       |   | 880,564     |   |
| Current portion of long-term debt *[note                10[a]]*                 |   |      | **46,353**      |       |   | 281,015     |   |
| Current portion of capital lease obligations*[note                10[b]]*       |   |      | **157,531**     |       |   | 161,253     |   |
| Current portion of due to shareholder *[note                8]*                 |   |      | **21,385**      |       |   | —     |   |
|                                                                            |   |
| **Total current                liabilities**                                    |   |      | **1,305,846**   |       |   | 2,442,427   |   |
|                                                                            |   |
| Long-term debt* [note 10[a]]*                                              |   |      | **4,368**       |       |   | 45,517      |   |
| Capital lease obligations *[note                10[b]]*                         |   |      | **169,344**     |       |   | 284,950     |   |
| Due to shareholder* [note 8]*                                              |   |      | **659,919**     |       |   | 683,234     |   |
| Deferred tax liabilities *[note                  14]*                           |   |      | **121,507**     |       |   | 147,054     |   |
|                                                                            |   |
| **Total long-term                liabilities**                                  |   |      | **955,138**     |       |   | 1,160,755   |   |
|                                                                            |   |
| **Total liabilities**                                                           |   |      | **2,260,984**   |       |   | 3,603,182   |   |
|                                                                            |   |
|                                                                            |   |
| **Shareholders’ equity**                                                  |   |      |            |       |   |        |   |
| Capital stock *[notes 11 and                12[b]]*                             |   |      |            |       |   |        |   |
| 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**      |       |   | 15,010      |   |
| 3,042,296                common shares [2004 - 3,027,796]                       |   |      | **50,676**      |       |   | 50,434      |   |
| Contributed surplus                                                             |   |      | **23,303,718**  |       |   | 23,236,498  |   |
| Deficit                                                                         |   |      | **(15,144,357** | **)**      |   | (16,284,268 | )      |
| Accumulated other comprehensive income (loss)*[note                  19]*       |   |      | **325,842**     |       |   | (110,343    | )      |
|                                                                            |   |
| **Total shareholders’                equity**                             |   |      | **8,550,889**   |       |   | 6,907,331   |   |
|                                                                            |   |
|                                                                            |   |      | **10,811,873**  |       |   | 10,510,513  |   |
|                                                                            |   |      |            |       |   |        |   |

----

**Polydex Pharmaceuticals Limited**

**CONSOLIDATED STATEMENTS OF      SHAREHOLDERS’ EQUITY**

|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |
|------------------------------------------------------------------|--------|---------------|---------|------------|--------|-----------------|--------|-------------|------------|----------------------------------|-----------|-------------|-------------------------|--------|------------|--------|--------|-----------|
|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        | **Accumulated**         |   |       |   |   |
|                                                             |   |          |    |       |   |            |   |        |       |                             | **other** |        | **Total**               |   |
|                                                             |   | **Preferred** |    | **Common** |   | **Contributed** |   |        |       | **comprehensive**                |      |        | **shareholders’** |   |
|                                                             |   | **shares**    |    | **shares** |   | **surplus**     |   | **Deficit** |       | **income                (loss)** |      | **equity**  |                    |
|                                                             |   | **$**         |    | **$**      |   | **$**           |   | **$**       |       | **$**                            |      | **$**       |                    |
|                                                             |   |          |    |
| **Balance, January 31,                2002**                     |   |          | 15,010  |       |   | 50,434          |   |        | 23,224,128 |                             |      | (15,604,528 | )                       |   | (1,199,627 | )      |   | 6,485,417 |   |
|                                                             |   |
|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Comprehensive income (loss):                                     |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Net                loss for the year                             |   |          | — |       |   | —         |   |        | —    |                             |      | (673,741    | )                       |   | —    |   |   | (673,741  | ) |
| Currency                translation adjustment                   |   |          | — |       |   | —         |   |        | —    |                             |      | —     |                    |   | 212,851    |   |   | 212,851   |   |
|                                                             |   |
| **Balance, January 31,                2003**                     |   |          | 15,010  |       |   | 50,434          |   |        | 23,224,128 |                             |      | (16,278,269 | )                       |   | (986,776   | )      |   | 6,024,527 |   |
|                                                             |   |
|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Common share options issued                                      |   |          | — |       |   | —         |   |        | 12,370     |                             |      | —     |                    |   | —    |   |   | 12,370    |   |
| Comprehensive income (loss):                                     |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Net                loss for the year                             |   |          | — |       |   | —         |   |        | —    |                             |      | (5,999      | )                       |   | —    |   |   | (5,999    | ) |
| Currency                translation adjustment                   |   |          | — |       |   | —         |   |        | —    |                             |      | —     |                    |   | 876,433    |   |   | 876,433   |   |
|                                                             |   |
| **Balance, January 31,                2004**                     |   |          | 15,010  |       |   | 50,434          |   |        | 23,236,498 |                             |      | (16,284,268 | )                       |   | (110,343   | )      |   | 6,907,331 |   |
|                                                             |   |
|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Common share options exercised                                   |   |          | — |       |   | 242             |   |        | 53,008     |                             |      | —     |                    |   | —    |   |   | 53,250    |   |
| Common share options issued                                      |   |          | — |       |   | —         |   |        | 14,212     |                             |      | —     |                    |   | —    |   |   | 14,212    |   |
| Comprehensive income (loss):                                     |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |
| Net                income for the year                           |   |          | — |       |   | —         |   |        | —    |                             |      | 1,139,911   |                    |   | —    |   |   | 1,139,911 |   |
| Unrealized                loss on investments available for sale |   |          | — |       |   | —         |   |        | —    |                             |      | —     |                    |   | (15,760    | )      |   | (15,760   | ) |
| Currency                translation adjustment                   |   |          | — |       |   | —         |   |        | —    |                             |      | —     |                    |   | 451,945    |   |   | 451,945   |   |
|                                                             |   |
| Balance, January 31, 2005                                        |   |          | 15,010  |       |   | 50,676          |   |        | 23,303,718 |                             |      | (15,144,357 | )                       |   | 325,842    |   |   | 8,550,889 |   |
|                                                             |   |          |    |       |   |            |   |        |       |                             |      |        |                    |   |       |   |   |      |   |

----

**Polydex Pharmaceuticals Limited **

**CONSOLIDATED STATEMENTS OF      OPERATIONS**

|                                                                    |   |     |           |     |   |       |   |   |       |   |
|-------------------------------------------------------------------------|--------|----------|----------------|----------|--------|------------|--------|--------|------------|--------|
|                                                                    |   | **2005** |           | **2004** |   | **2003**   |   |
|                                                                    |   | **$**    |           | **$**    |   | **$**      |   |
|                                                                    |   |
| **Sales**                                                               |   |     | **6,372,359**  |     |   | 14,092,189 |   |   | 12,786,343 |   |
| Cost of goods sold                                                      |   |     | **4,855,941**  |     |   | 11,306,324 |   |   | 10,046,228 |   |
|                                                                    |   |
| **Gross profit**                                                        |   |     | **1,516,418**  |     |   | 2,785,865  |   |   | 2,740,115  |   |
|                                                                    |   |
|                                                                    |   |     |           |     |   |       |   |   |       |   |
| **Expenses**                                                            |   |     |           |     |   |       |   |   |       |   |
| General and administrative *[notes 11[b][i] and                12[a]]*  |   |     | **1,465,849**  |     |   | 2,334,642  |   |   | 2,040,384  |   |
| Selling and promotion                                                   |   |     | **128,731**    |     |   | 158,846    |   |   | 140,281    |   |
| Research and development, net *[note                13]*                |   |     | **114,742**    |     |   | 60,951     |   |   | 172,098    |   |
| Interest *[note 8]*                                                     |   |     | **91,210**     |     |   | 133,382    |   |   | 150,527    |   |
| Depreciation                                                            |   |     | **36,365**     |     |   | 38,267     |   |   | 39,073     |   |
| Amortization                                                            |   |     | **8,518**      |     |   | 15,787     |   |   | 15,787     |   |
| Foreign exchange (gain) loss                                            |   |     | **(46,172**    | **)**    |   | 447,602    |   |   | 113,602    |   |
| Gain                on sale of veterinary products assets *[note12[a]]* |   |     | **(1,859,471** | **)**    |   | —    |   |   | —    |   |
| Interest and other income                                               |   |     | **(130,131**   | **)**    |   | (7,645     | )      |   | (9,262     | )      |
|                                                                    |   |
| Total expenses (income)                                                 |   |     | **(190,359**   | **)**    |   | 3,181,832  |   |   | 2,662,490  |   |
| Income (loss) before income taxes                                       |   |     | **1,706,777**  |     |   | (395,967   | )      |   | 77,625     |   |
| Provision for (recovery of) income taxes *[note                14]*     |   |     | **566,866**    |     |   | (389,968   | )      |   | 751,366    |   |
|                                                                    |   |     |           |     |   |       |   |   |       |   |
| **Net income (loss) for the                year**                       |   |     | **1,139,911**  |     |   | (5,999     | )      |   | (673,741   | )      |
| Unrealized loss on investments available for                sale        |   |     | **(15,760**    | **)**    |   | —    |   |   | —    |   |
| Currency translation adjustment                                         |   |     | **451,945**    |     |   | 876,433    |   |   | 212,851    |   |
|                                                                    |   |     |           |     |   |       |   |   |       |   |
| **Comprehensive income (loss) for the                year**             |   |     | **1,576,096**  |     |   | 870,434    |   |   | (460,890   | )      |
|                                                                    |   |     |           |     |   |       |   |   |       |   |
|                                                                    |   |     |           |     |   |       |   |   |       |   |
| **Per share information**                                               |   |     |           |     |   |       |   |   |       |   |
| Earnings (loss) per common share                                        |   |     |           |     |   |       |   |   |       |   |
| Basic                                                                   |   |     | **0.38**       |     |   | —    |   |   | (0.22      | )      |
| Diluted                                                                 |   |     | **0.37**       |     |   | —    |   |   | (0.22      | )      |
|                                                                    |   |     |           |     |   |       |   |   |       |   |

----

**Polydex Pharmaceuticals Limited **

**CONSOLIDATED STATEMENTS OF CASH      FLOWS**

|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------|----------------|----------|--------|----------|--------|--------|----------|--------|
|                                                                                                           |   | **2005** |           | **2004** |   | **2003** |   |
|                                                                                                           |   | **$**    |           | **$**    |   | **$**    |   |
|                                                                                                           |   |
| **OPERATING ACTIVITIES**                                                                                       |   |     |           |     |   |     |   |   |     |   |
| Net income (loss) for the year                                                                                 |   |     | **1,139,911**  |     |   | (5,999   | )      |   | (673,741 | )      |
| Add (deduct) items not affecting cash                                                                          |   |     |           |     |   |     |   |   |     |   |
| Depreciation                and amortization                                                                   |   |     | **513,095**    |     |   | 617,685  |   |   | 572,129  |   |
| Imputed                interest on long-term debt                                                              |   |     | **14,648**     |     |   | 25,760   |   |   | 33,177   |   |
| Deferred                income taxes                                                                           |   |     | **417,003**    |     |   | (414,594 | )      |   | 684,474  |   |
| Loss                on disposal of equipment                                                                   |   |     | **3,586**      |     |   | —  |   |   | —  |   |
| Gain                on sale of veterinary products business *[note                12[a]]*                      |   |     | **(1,859,471** | **)**    |   | —  |   |   | —  |   |
| License                fee charged to due from shareholder                                                     |   |     | **81,179**     |     |   | 60,239   |   |   | 68,276   |   |
| Provision                for due from Sparhawk Laboratories, Inc. *[note                12[a]]*           |   |     | **—**    |     |   | —  |   |   | 132,614  |   |
| Options                issued in exchange for services *[note                11[b][i]]*                        |   |     | **14,212**     |     |   | 12,370   |   |   | —  |   |
| Net                change in non-cash working capital balances related to operations*[note                15]* |   |     | **(634,514**   | **)**    |   | (74,036  | )      |   | 124,630  |   |
|                                                                                                           |   |
| **Cash provided by (used in) operating                activities**                                             |   |     | **(310,351**   | **)**    |   | 221,425  |   |   | 941,559  |   |
|                                                                                                           |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
| **INVESTING ACTIVITIES**                                                                                       |   |     |           |     |   |     |   |   |     |   |
| Additions to property, plant and equipment and                patents                                          |   |     | **(159,554**   | **)**    |   | (183,124 | )      |   | (367,868 | )      |
| Proceeds                from sale of veterinary products business *[note                12[a]]*                |   |     | **4,599,218**  |     |   | —  |   |   | —  |   |
| Decrease in due from shareholder                                                                               |   |     | **65,960**     |     |   | 129,908  |   |   | 48,713   |   |
| Purchase of investments available for                sale                                                      |   |     | **(1,841,854** | **)**    |   | —  |   |   | —  |   |
| Acquisition of minority interest *[note                12[b]]*                                                 |   |     | **—**    |     |   | (5,860   | )      |   | —  |   |
| Proceeds from sale of equipment                                                                                |   |     | **5,148**      |     |   | —  |   |   | —  |   |
|                                                                                                           |   |
| **Cash provided by (used in) investing                activities**                                             |   |     | **2,668,918**  |     |   | (59,076  | )      |   | (319,155 | )      |
|                                                                                                           |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
| **FINANCING ACTIVITIES**                                                                                       |   |     |           |     |   |     |   |   |     |   |
| Repayment of long-term debt                                                                                    |   |     | **(296,035**   | **)**    |   | (453,805 | )      |   | (252,256 | )      |
| Proceeds from long-term debt                                                                                   |   |     | **5,383**      |     |   | —  |   |   | —  |   |
| Repayment of capital lease obligations                                                                         |   |     | **(167,531**   | **)**    |   | (126,703 | )      |   | (73,599  | )      |
| Increase (decrease) in due to                shareholder                                                       |   |     | **(1,930**     | **)**    |   | 1,009    |   |   | 262      |   |
| Increase (decrease) in bank indebtedness                                                                       |   |     | **(147,140**   | **)**    |   | 165,609  |   |   | (179,286 | )      |
| Exercise of common share options                                                                               |   |     | **53,250**     |     |   | —  |   |   | —  |   |
|                                                                                                           |   |
| **Cash used in financing                activities**                                                           |   |     | **(554,003**   | **)**    |   | (413,890 | )      |   | (504,879 | )      |
|                                                                                                           |   |
| Effect of exchange rate changes on cash                                                                        |   |     | **224,959**    |     |   | 342,321  |   |   | 39,805   |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
| **Net                increase in cash and cash equivalents during the                year**                    |   |     | **2,029,523**  |     |   | 90,780   |        |   | 157,330  |   |
| Cash, beginning of year                                                                                        |   |     | 371,528        |     |   | 280,748  |   |   | 123,418  |   |
|                                                                                                           |   |
| **Cash, end of year**                                                                                          |   |     | **2,401,051**  |     |   | 371,528  |   |   | 280,748  |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |
| Cash is comprised of the following                                                                             |   |     |           |     |   |     |   |   |     |   |
| Cash                                [note 12[a]]                                                               |   |     | **129,818**    |     |   | 371,528  |   |   | 280,748  |   |
| Cash                equivalents                                                                                |   |     | **2,271,233**  |     |   | —  |   |   | —  |   |
|                                                                                                           |   |
|                                                                                                           |   |     | **2,401,051**  |     |   | 371,528  |   |   | 280,748  |   |
|                                                                                                           |   |     |           |     |   |     |   |   |     |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |        |
|--------|-------------|
|   |        |
| **1.** | **GENERAL** |
|   |        |

|   |                                               |
|--------|----------------------------------------------------|
| **2.** | **SIGNIFICANT ACCOUNTING                POLICIES** |

**Basis of consolidation**

**Use of estimates**

**Inventories**

**Investments available for sale**

----

**Polydex Pharmaceuticals Limited **

**NOTES        TO CONSOLIDATED FINANCIAL        STATEMENTS**

**Property, plant and equipment and patents and      intangible assets**

|                    |   |   |          |   |
|-------------------------|--------|--------|---------------|--------|
| Buildings               |   |   | 15 years      |   |
| Machinery and equipment |   |   | 3 to 10 years |   |

**Revenue recognition**

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

**Shipping and handling costs**

**Research and development**

**Foreign currency translation**

**Derivative financial instruments**

**Stock options**

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

**Earnings (loss) per common share**

|   |                                         |
|--------|----------------------------------------------|
| **3.** | **CASH AND CASH                EQUIVALENTS** |

|                |   |     |          |     |   |    |   |
|---------------------|--------|----------|---------------|----------|--------|---------|--------|
|                |   | **2005** |          | **2004** |   |
|                |   | **$**    |          | **$**    |   |
|                |   |
| Cash                |   |     | **129,818**   |     |   | 59,455  |   |
| Short-term deposits |   |     | **2,271,233** |     |   | — |   |
|                |   |
|                |   |     | **2,401,051** |     |   | 59,455  |   |
|                |   |     |          |     |   |    |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |            |
|--------|-----------------|
| **4.** | **INVENTORIES** |

|            |   |     |          |     |   |      |   |
|-----------------|--------|----------|---------------|----------|--------|-----------|--------|
|            |   | **2005** |          | **2004** |   |
|            |   | **$**    |          | **$**    |   |
|            |   |     |          |     |   |
| Finished goods  |   |     | **1,187,158** |     |   | 943,373   |   |
| Work-in-process |   |     | **123,730**   |     |   | 107,008   |   |
| Raw materials   |   |     | **206,005**   |     |   | 176,058   |   |
|            |   |     |          |     |   |      |   |
|            |   |     | **1,516,893** |     |   | 1,226,439 |   |
|            |   |     |          |     |   |      |   |

|   |                                             |
|--------|--------------------------------------------------|
| **5.** | **PROPERTY, PLANT AND                EQUIPMENT** |

|                    |   |     |          |             |            |          |     |     |          |             |   |            |   |     |      |    |   |      |   |
|-------------------------|--------|----------|---------------|------------------|-----------------|---------------|----------|----------|---------------|------------------|--------|-----------------|--------|----------|-----------|---------|--------|-----------|--------|
|                    |   | **2005** |          | **2004**         |            |
|                    |   |     |          |             |            |
|                    |   |     |          |             |            |          |     | **Net**  |          |             |   |            |   |     |      | **Net** |   |
|                    |   |     |          |             | **Accumulated** |          | **book** |     |          |             |   | **Accumulated** |   | **book** |      |
|                    |   | **Cost** |          | **depreciation** |            | **value**     |     | **Cost** |          | **depreciation** |   | **value**       |   |
|                    |   | **$**    |          | **$**            |            | **$**         |     | **$**    |          | **$**            |   | **$**           |   |
|                    |   |     |          |             |            |          |     |     |          |             |   |            |   |
| Land and buildings      |   |     | **1,494,166** |             |            | **614,974**   |     |     | **879,192**   |             |   | 1,391,141       |   |     | 496,720   |    |   | 894,421   |   |
| Machinery and equipment |   |     | **7,564,545** |             |            | **5,319,552** |     |     | **2,244,993** |             |   | 6,982,088       |   |     | 4,628,167 |    |   | 2,353,921 |   |
|                    |   |     |          |             |            |          |     |     |          |             |   |            |   |     |      |    |   |      |   |
|                    |   |     | **9,058,711** |             |            | **5,934,526** |     |     | **3,124,185** |             |   | 8,373,229       |   |     | 5,124,887 |    |   | 3,248,342 |   |
|                    |   |     |          |             |            |          |     |     |          |             |   |            |   |     |      |    |   |      |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                             |
|--------|--------------------------------------------------|
| **6.** | **PATENTS AND INTANGIBLE                ASSETS** |

|                          |   |     |       |     |   |    |   |
|-------------------------------|--------|----------|------------|----------|--------|---------|--------|
|                          |   | **2005** |       | **2004** |   |
|                          |   | **$**    |       | **$**    |   |
|                          |   |     |       |     |   |
| Cost                          |   |     | **80,341** |     |   | 283,199 |   |
| Less accumulated amortization |   |     | **11,382** |     |   | 197,688 |   |
|                          |   |     |       |     |   |    |   |
|                          |   |     | **68,959** |     |   | 85,511  |   |
|                          |   |     |       |     |   |    |   |

|   |                                              |
|--------|---------------------------------------------------|
| **7.** | **INVESTMENTS AVAILABLE FOR                SALE** |

|                                                                                                                                                                                                    |   |     |          |     |   |    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------------|----------|--------|---------|--------|
|                                                                                                                                                                                                    |   | **2005** |          | **2004** |   |
|                                                                                                                                                                                                    |   | **$**    |          | **$**    |   |
|                                                                                                                                                                                                    |   |     |          |     |   |
| Debt                security in the amount of Cdn. $700,000 from the Province of Alberta                bearing interest at 7.5% and maturing on December 1, 2005                                       |   |     | **588,375**   |     |   | — |   |
| Debt                security in the amount of Cdn. $718,000 from GE Capital Canada bearing                interest at 4.35% and maturing on February 6, 2006                                       |   |     | **595,335**   |     |   | — |   |
| Debt                security in the amount of Cdn. $750,000 from General Motors Acceptance                Corp. maturing on June 7, 2007;  floating rate interest is paid                quarterly |   |     | **599,305**   |     |   | — |   |
| 15,000                units of Barclays Top 100 Equal Weighted Income Fund                                                                                                                              |   |     | **126,290**   |     |   | — |   |
|                                                                                                                                                                                                    |   |     |          |     |   |    |   |
|                                                                                                                                                                                                    |   |     | **1,909,305** |     |   | — |   |
|                                                                                                                                                                                                    |   |     |          |     |   |    |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                          |
|--------|-----------------------------------------------|
| **8.** | **RELATED PARTY                TRANSACTIONS** |

|                               |   |     |         |     |   |     |   |
|------------------------------------|--------|----------|--------------|----------|--------|----------|--------|
|                               |   | **2005** |         | **2004** |   |
|                               |   | **$**    |         | **$**    |   |
|                               |   |     |         |     |   |
| Amounts due from shareholder *[i]* |   |     | **643,867**  |     |   | 791,006  |   |
|                               |   |     |         |     |   |     |   |
|                               |   |     |         |     |   |     |   |
| Amounts due to shareholder *[ii]*  |   |     | **(681,304** | **)**    |   | (683,234 | )      |
|                               |   |     |         |     |   |     |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| [i]    | Amounts due from shareholder are due from an                officer and                director, who is also a major shareholder of the Company [the “Major                Shareholder”], and bear interest at the Canadian banks’ prime lending rate                plus 1.5% [2005 - 5.75%; 2004 - 5.75%], except for an amount of $535,037                [2004 - $616,216] which is non-interest bearing.  Interest income on                this loan is recognized when realized.  These amounts have no fixed                terms of repayment.  The Major Shareholder has pledged 323,051 shares                of the Company and has pledged future license fee payments from the                Iron                Dextran process license agreement *[note 13]*as collateral for this                loan.  During 2005, $78,168 [2004 - $60,239; 2003 - $66,727] of                license fee payments were made.  Subsequent to year end, the Major                Shareholder passed away.  The shares of the Company and the Iron                Dextran process license agreement passed to the Major Shareholder’s                estate, along with the loans due to the Company.  The Company will                continue to hold the pledged assets as collateral until the loan                is                repaid.  The Company has a commitment to pay a death benefit of                $110,000 to the estate of the Major Shareholder by February                2006. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| [ii]   | Amounts due to shareholder bear interest at the                Canadian                banks’ prime lending rate plus 1.5% [2005 - 5.75%; 2004 - 5.75%].                 The Company is required to make monthly payments, inclusive of accrued                interest, of $1,000.  Upon the death of the Major Shareholder in                February 2005, the required monthly payment increases to $5,000.                 Based on the current rate of interest, the principal repayment on                this                loan for fiscal 2006 would be approximately $21,000.  This loan may                not be called.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|             |   |     |       |     |   |     |   |   |   |   |
|------------------|--------|----------|------------|----------|--------|----------|--------|--------|--------|--------|
|             |   | **2005** |       | **2004** |   | **2003** |   |
|             |   | **$**    |       | **$**    |   | **$**    |   |
|             |   |     |       |     |   |     |   |
| Interest expense |   |     | **37,569** |     |   | 42,006   |   |   | 39,263 |   |
|             |   |     |       |     |   |     |   |   |   |   |

|   |                                 |
|--------|--------------------------------------|
| **9.** | **BANK                INDEBTEDNESS** |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|    |                                                            |
|---------|-----------------------------------------------------------------|
| **10.** | **LONG-TERM DEBT AND CAPITAL LEASE                OBLIGATIONS** |
|    |                                                            |
| [a]     | Long-term debt consists of the                following:        |

|                                                                                                                                                                                                                                                                                                                                                            |   |     |        |     |   |    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|---------|--------|
|                                                                                                                                                                                                                                                                                                                                                            |   | **2005** |        | **2004** |   |
|                                                                                                                                                                                                                                                                                                                                                            |   | **$**    |        | **$**    |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     |        |     |   |
| Note                payable in monthly payments of $5,860 maturing September 19, 2005.                 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 unsecured *[note 12[b]]*                      |   |     | **45,517**  |     |   | 108,862 |   |
| Note                payable in blended quarterly payments of Cdn. $419 [U.S. $338], bearing                interest at a fixed rate of 10%                                                                                                                                                                                                                      |   |     | **5,204**   |     |   | — |   |
| Share                value guarantee payable, repaid on March 4, 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 were                collateralized by theassets of Veterinary Laboratories,                Inc. |   |     | **—** |     |   | 217,670 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     |        |     |   |    |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     | **50,721**  |     |   | 326,532 |   |
| Less                current portion                                                                                                                                                                                                                                                                                                                             |   |     | **46,353**  |     |   | 281,015 |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     |        |     |   |    |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     | **4,368**   |     |   | 45,517  |   |
|                                                                                                                                                                                                                                                                                                                                                            |   |     |        |     |   |    |   |

|                                                     |   |   |   |   |
|----------------------------------------------------------|--------|--------|--------|--------|
|                                                     |   | **$**  |   |
|                                                     |   |   |   |
| 2006                                                     |   |   | 47,716 |   |
| 2007                                                     |   |   | 929    |   |
| 2008                                                     |   |   | 1,030  |   |
| 2009                                                     |   |   | 1,142  |   |
| 2010                                                     |   |   | 1,267  |   |
|                                                     |   |   |   |   |
| Total long-term debt repayments                          |   |   | 52,084 |   |
| Less amount representing imputed                interest |   |   | 1,363  |   |
|                                                     |   |   |   |   |
|                                                     |   |   | 50,721 |   |
|                                                     |   |   |   |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                               |
|--------|--------------------------------------------------------------------|
| [b]    | Capital lease obligations consist of the                following: |

|                                                                                                                                                                                                                                                                                                                                                                                   |   |     |        |     |   |    |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|---------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                   |   | **2005** |        | **2004** |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   | **$**    |        | **$**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     |        |     |   |
| Obligation                [Cdn. $308,703] 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 $89,800                [Cdn. $111,500] in April 2006, or at fair market value at the end                of the                lease term |   |     | **248,714** |     |   | 339,217 |   |
| Obligation                [Cdn. $69,253] under a capital lease, repayable in                monthly instalments, bearing interest at 7.59% and maturing November                2006.  The Company has an option to purchase the asset for $1 at the                end of the lease term                                                                                         |   |     | **55,795**  |     |   | 77,783  |   |
| Obligation                [Cdn. $27,761] under a capital lease, repayable in                quarterly instalments, bearing interest at 10.43% and maturing December                2009.  The Company has an option to purchase the asset for fair value                at the end of the lease term                                                                              |   |     | **22,366**  |     |   | — |   |
| Obligation                under a capital lease, repayable in monthly instalments,                bearing interest at 6.65% and maturing December 2004.  The Company                purchased the asset for $1 at the end of the lease term                                                                                                                                       |   |     | **—** |     |   | 29,203  |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     |        |     |   |    |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     | **326,875** |     |   | 446,203 |   |
| Less                current portion                                                                                                                                                                                                                                                                                                                                                    |   |     | **157,531** |     |   | 161,253 |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     |        |     |   |    |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     | **169,344** |     |   | 284,950 |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |     |        |     |   |    |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                                                     |   |   |    |   |
|----------------------------------------------------------|--------|--------|---------|--------|
|                                                     |   | **$**  |    |
|                                                     |   |   |    |
| 2006                                                     |   |   | 180,300 |   |
| 2007                                                     |   |   | 163,034 |   |
| 2008                                                     |   |   | 5,809   |   |
| 2009                                                     |   |   | 5,809   |   |
| 2010                                                     |   |   | 5,809   |   |
|                                                     |   |   |    |   |
| Total minimum lease payments                             |   |   | 360,761 |   |
| Less amount representing imputed                interest |   |   | 33,886  |   |
|                                                     |   |   |    |   |
|                                                     |   |   | 326,875 |   |
|                                                     |   |   |    |   |

**11. CAPITAL STOCK**

|    |                                                                                                                                                                                                                                                                                                                                                 |                                        |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| **[a]** | **Share capital issued and                outstanding**                                                                                                                                                                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                                                                 |                                        |
|    | **[i]**                                                                                                                                                                                                                                                                                                                                              | **Class A preferred                shares** |
|    |                                                                                                                                                                                                                                                                                                                                                 |                                        |
|    | 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. |
|    |                                                                                                                                                                                                                                                                                                                                                 |
|    | **[ii]**                                                                                                                                                                                                                                                                                                                                             | **Class B preferred                shares** |
|    |                                                                                                                                                                                                                                                                                                                                                 |                                        |
|    | The Class B preferred shares carry no dividends,                are                non-convertible and entitle the holder to two votes per                share.                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                 |
|    | **[iii]**                                                                                                                                                                                                                                                                                                                                            | **Common shares**                           |
|    |                                                                                                                                                                                                                                                                                                                                                 |                                        |
|    | During the year ended January 31, 2005, 14,500                common                share options were exercised for $53,008 resulting in the issuance                of                14,500 common shares.                                                                                                                                        |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                    |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| **[b]** | **Share option plan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                    |
|    | **[i]**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **Options outstanding** |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                    |
|    | 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 a term of five years                and vest                immediately.  At January 31, 2005, the Company has 86,300                options outstanding at exercise prices ranging from $2.50 to $7.72                and a                weighted average exercise price of $4.75.  The options, which are                immediately exercisable and expire on dates between February 1, 2005                and                January 31, 2010, entitle the holder of an option to acquire one                common                share of the Company.                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | During the year ended January 31, 2005, 4,365                common                share options were issued to the independent directors of the                Company.  These options were valued at $14,212 and were charged to                general and administrative expense, in accordance with SFAS 123.  The                fair value for these options was estimated at the date of grant using                the                Black-Scholes option pricing model with the following assumptions:                 risk-free interest rate of 3.71%; dividend yield of nil; volatility                factor                of the expected market price of the Company’s common stock of 0.681, and                an expected life of the options of five years.  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | During the year ended January 31, 2004, 3,885                common                share options were issued to the independent directors of the                Company.  These options were valued at $12,370 and were charged to                general and administrative expense, in accordance with SFAS 123.  The                fair value for these options was estimated at the date of grant using                the                Black-Scholes option pricing model with the following assumptions:                 risk-free interest rate of 3.12%; dividend yield of nil; volatility                factor                of the expected market price of the Company’s common stock of 0.701, and                an expected life of the options of five years.  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | 12,000 common share options granted to the independent                directors of the Company during 2003 were not expensed as the Company                adopted SFAS 123 prospectively in fiscal 2004.  The impact of these                common share option grants on the earnings of the Company for 2003                if                SFAS 123 had been adopted in that year is presented in note                11[b][ii].                                                                                                                                                                                                                                                                                                                                                            |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     |                                |     |   |   |    |   |   |    |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------|--------------|---------------------------------------------|--------|----------|--------|----------|---------|----------|-------------------------------------|----------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     | **Weighted                average** |     |
|                                                                                             |   | **Share                options** |         | **exercise price per                share** |   |
|                                                                                             |   |                             |         |                                        |   |
|                                                                                             |   | **2005**                         |         | **2004**                                    |   | **2003** |   | **2005** |    | **2004** |                                | **2003** |   |
|                                                                                             |   | **#**                            |         | **#**                                       |   | **#**    |   | **$**    |    | **$**    |                                | **$**    |   |
|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     |                                |     |   |
| **Options                outstanding, beginning of                year**                         |   |                             | **427,935**  |                                        |   | 431,550  |   |     | 419,550 |     |                                | **3.92** |   |   | 3.88    |   |   | 3.91    |   |
| Granted                                                                                          |   |                             | **4,365**    |                                        |   | 3,885    |   |     | 12,000  |     |                                | **6.86** |   |   | 7.72    |   |   | 2.50    |   |
| Exercised                                                                                        |   |                             | **(14,500**  | )                                           |   | —  |   |     | — |     |                                | **3.67** |   |   | — |   |   | — |   |
| Expired                                                                                          |   |                             | **(331,500** | )                                           |   | (7,500   | )      |     | — |     |                                | **3.75** |   |   | 3.50    |   |   | — |   |
| **Options                outstanding, end of year**                                              |   |                             | **86,300**   |                                        |   | 427,935  |   |     | 431,550 |     |                                | **4.75** |   |   | 3.92    |   |   | 3.88    |   |
|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     |                                |     |   |   |    |   |   |    |   |
|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     |                                |     |   |   |    |   |   |    |   |
| **Weighted                average fair value of options granted during the                year** |   |                             |         |                                        |   |     |   |     |    |     | **$**                               | **3.26** |   | $      | 3.18    |   | $      | 1.28    |   |
|                                                                                             |   |                             |         |                                        |   |     |   |     |    |     |                                |     |   |   |    |   |   |    |   |

|         |   |            |       |                                |                                |   |   |   |   |   |
|--------------|--------|-----------------|------------|-------------------------------------|-------------------------------------|--------|--------|--------|--------|--------|
|         |   |            |       |                                | **Weighted                average** |   |
| **Exercise** |   | **Number**      |       | **remaining**                       |                                |
| **price**    |   | **outstanding** |       | **contractual                life** |                                |
| **$**        |   |            |       |                                | [months]                            |   |
|         |   |            |       |                                |                                |   |
| **2.50**     |   |            | **12,000** |                                |                                | **36** |   |   |   |
| **2.75**     |   |            | **10,950** |                                |                                | **24** |   |   |   |
| **3.00**     |   |            | **3,000**  |                                |                                | **16** |   |   |   |
| **3.50**     |   |            | **1,500**  |                                |                                | **12** |   |   |   |
| **4.59**     |   |            | **6,600**  |                                |                                | **12** |   |   |   |
| **5.00**     |   |            | **4,000**  |                                |                                | **16** |   |   |   |
| **5.25**     |   |            | **30,000** |                                |                                | **1**  |   |   |   |
| **6.80**     |   |            | **10,000** |                                |                                | **4**  |   |   |   |
| **6.86**     |   |            | **4,365**  |                                |                                | **60** |   |   |   |
| **7.72**     |   |            | **3,885**  |                                |                                | **48** |   |   |   |
|         |   |            |       |                                |                                |   |   |   |   |
|         |   |            | **86,300** |                                |                                | **16** |   |   |   |
|         |   |            |       |                                |                                |   |   |   |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|   | **[ii]**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **Pro forma                information** |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |
|   | As required by SFAS 123 [and modified by SFAS                148], pro                forma information regarding net loss and net loss per common share                has                been determined as if the Company had accounted for its employee                stock                options under the fair value method for the year ended January 31,                2003.  The fair value for these options was estimated at the date of                grant using the Black-Scholes option pricing model with the following                weighted average assumptions:  risk-free interest rate of 2.96%;                dividend yield of nil; volatility factor of the expected market price                of                the Company’s common stock of 0.660; and an expected life of the options                of five years.  For purposes of pro forma disclosures, the estimated                fair value of the options is expensed immediately. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Since changes in 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The Company’s pro forma net loss and net loss per common                share following SFAS 123 are as                follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|                                                                                             |   |     |     |   |
|--------------------------------------------------------------------------------------------------|--------|----------|----------|--------|
|                                                                                             |   | **2003** |     |
|                                                                                             |   | **$**    |     |
|                                                                                             |   |     |     |
| Net loss as reported                                                                             |   |     | (673,741 | )      |
| Stock-based employee compensation cost using                the fair                value method |   |     | (9,216   | )      |
|                                                                                             |   |     |     |   |
| **Pro forma net loss**                                                                           |   |     | (682,957 | )      |
|                                                                                             |   |     |     |   |
|                                                                                             |   |     |     |   |
| Pro forma net loss per common share                                                              |   |     |     |   |
| Basic                                                                                            |   |     | (0.23    | )      |
| Diluted                                                                                          |   |     | (0.23    | )      |
|                                                                                             |   |     |     |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **12.** | **VETERINARY LABORATORIES,                INC.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **[a]** | **Sparhawk Laboratories,                Inc.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | In 1992, Veterinary Laboratories, Inc. [“Vet Labs”] and                Sparhawk Laboratories, Inc. [“Sparhawk”] entered into the Vet Labs -                Sparhawk Joint Venture [the “Joint Venture”] for the manufacture and sale                of veterinary pharmaceutical products.  Vet Labs and Sparhawk each                owned 50% of the Joint Venture.  The Company controlled the Joint                Venture through its control of the Joint Venture Policy Committee                and                therefore consolidated its assets, liabilities, revenue and expenses                in                these consolidated financial statements until March 4, 2004.  The                Company had funded the Joint Venture’s losses since 1992 and, accordingly,                has recorded 100% of these cumulative losses in the consolidated                financial                statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | On January 13, 2004, the Company entered into                  an Asset                  Purchase Agreement with Sparhawk.  Pursuant to this Asset Purchase                  Agreement, the Company agreed to sell the finished product veterinary                  pharmaceutical business, including substantially all of the assets                  of Vet                  Labs, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004,                  this                  sale was completed.  Simultaneously, on March 4, 2004, Chemdex, Inc.                  [“Chemdex”], a wholly-owned subsidiary of the Company, advanced $350,000                  to Sparhawk in exchange for a promissory note bearing interest                  at 13% per                  annum and a warrant to purchase 4% of the equity of Sparhawk for                  no                  additional consideration.  The promissory note is due in full on                  March 4, 2009.  Interest is payable annually on the anniversary date,                  but can be deferred and added to the principal balance of the promissory                  note each year at Sparhawk’s discretion. At January 31, 2005, interest of                  $41,511 was accrued and reported as interest receivable on the                  balance                  sheet.  On March 3, 2005, Sparhawk paid interest on the promissory                  note of $45,500 in cash. In fiscal year 2006 and subsequent fiscal                  years,                  should Sparhawk pay the interest due subsequent to year end, the                  amount of                  interest relating to the period up to January 31 will be accrued                  as                  interest receivable at the fiscal year-end. If interest is not                  paid on the                  anniversary date, no interest income will be recorded and the interest                  receivable amount will be fully provided for. The warrant expires                  at the                  earlier of payment in full of the promissory note or 10 years from                  date of                  issue.  The warrant becomes exercisable the day after the fifth                  anniversary from the date of issue.  Pursuant to a definitive supply                  agreement [the “Supply Agreement”] entered into on March 4, 2004, Chemdex                  agreed to supply ferric hydroxide and hydrogenated dextran solution                  to                  Sparhawk on an exclusive basis in the United States for 10 years.                   Chemdex also granted to Sparhawk an exclusive license to use the                  drug                  master file to manufacture 10% bulk Iron Dextran for veterinary                  use, and                  the use of certain equipment during the 10-year period of the Supply                  Agreement.  Pursuant to definitive agreements, the Company made                  customary representations, warranties and indemnities and agreed                  to a full                  release of all claims against Sparhawk arising from the Joint Venture                  litigation.  Similarly, Sparhawk agreed to a full release of all                  claims against the Company arising from the Joint Venture                  litigation. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | The sale resulted in a gain of $2,209,471,                  of which                  $1,859,471 was recognized in the consolidated statements of operations                  and                  $350,000 was deferred.  The deferred gain of $350,000 is a result of                  the promissory note receivable from Sparhawk as Sparhawk is thinly                  capitalized and highly leveraged.  The Company will monitor the                  financial position of Sparhawk and will recognize this deferred                  gain at                  such time as Sparhawk’s cash flows from operations are sufficient to fund                  debt service on a full accrual basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|   | Assets (excluding cash of $312,000 which is                  included in                  cash and cash equivalents on the balance sheet) that were included                  in the                  disposal were reclassified to assets subject to sale agreement                  in the                  accompanying consolidated balance sheets as at January 31 and are                  as                  follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                                                     |   |     |        |     |   |      |   |
|----------------------------------------------------------|--------|----------|-------------|----------|--------|-----------|--------|
|                                                     |   | **2005** |        | **2004** |   |
|                                                     |   | **$**    |        | **$**    |   |
|                                                     |   |     |        |     |   |      |   |
| **Assets subject to sale                agreement**      |   |     |        |     |   |      |   |
| Trade accounts receivable                                |   |     | **—** |     |   | 536,868   |   |
| Inventories                                              |   |     | **—** |     |   | 1,466,873 |   |
| Prepaid expenses and other current                assets |   |     | **—** |     |   | 84,786    |   |
| Land and building                                        |   |     | **—** |     |   | 1,459,681 |   |
| Machinery and equipment                                  |   |     | **—** |     |   | 136,258   |   |
| Patents and intangible assets                            |   |     | **—** |     |   | 56,627    |   |
| Deferred income taxes                                    |   |     | **—** |     |   | 232,500   |   |
|                                                     |   |     |        |     |   |      |   |
|                                                     |   |     | **—** |     |   | 3,973,593 |   |
|                                                     |   |     |        |     |   |      |   |

|   | Liabilities that were assumed by the purchaser                were                reclassified to liabilities subject to sale agreement in the accompanying                consolidated balance sheets as at January 31 and are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   |     |        |     |   |    |   |
|----------------------------------------------------------|--------|----------|-------------|----------|--------|---------|--------|
|                                                     |   | **2005** |        | **2004** |   |
|                                                     |   | **$**    |        | **$**    |   |
|                                                     |   |     |        |     |   |    |   |
| **Liabilities subject to sale                agreement** |   |     |        |     |   |    |   |
| Accounts payable                                         |   |     | **—** |     |   | 584,644 |   |
| Accrued liabilities                                      |   |     | **—** |     |   | 175,654 |   |
| Due to Sparhawk Laboratories, Inc.                       |   |     | **—** |     |   | 101,453 |   |
| Customer deposits                                        |   |     | **—** |     |   | 18,813  |   |
|                                                     |   |     |        |     |   |    |   |
|                                                     |   |     | **—** |     |   | 880,564 |   |
|                                                     |   |     |        |     |   |    |   |

|    | As described in note 10[a], long-term debt of                the                Company included an amount due under a share value guarantee which                arose                upon the acquisition of Vet Labs in 1992 *[note 12[c]]*.  This                share value guarantee was collateralized by the assets of Vet Labs                including the land and building.  To release the charge against the                Vet Labs assets, this share value guarantee had to be paid in full.                 This payment of $225,353 was made on March 4, 2004 from the sale                proceeds.  |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | The Joint Venture operations comprised substantially                all of the operations of the Chemdex segment *[note 17]*.  Legal                and receiver costs relating to the Joint Venture were included in                general                and administrative expense on the consolidated statements of operations.                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | During the year ended January 31, 2003, an amount                due                from Sparhawk of $132,614 was fully provided for and included in                general                and administrative expense.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **[b]** | **Acquisition of minority                interest**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | On September 19, 2003, Chemdex redeemed all of                the                common shares held by the 10% minority interest shareholder, which                resulted in the Company controlling 100% of the issued and outstanding                shares of Chemdex.  The redemption amount was $146,500, which is to                be                                                                                                                                                                                                                                                                                          |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | paid in 25 equal monthly installments of $5,860,                which                commenced on September 19, 2003.  Since this installment                contract is non-interest bearing, it has been discounted using a                discount                rate of 9%.  The present value has been recorded in long-term                debt.  The Company has recorded this acquisition as a step purchase                and has allocated the purchase price based on fair values of the                assets as                follows: |

|                                                                                                         |   |   |    |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                                                         |   | **$**  |    |
|                                                                                                         |   |   |    |
| Land and building, included in assets subject                to sale                agreement *[note 12[a]]* |   |   | 43,549  |   |
| Equipment                                                                                                    |   |   | 555     |   |
| Equipment, included in assets subject to sale                agreement                *[note 12[a]]*         |   |   | 10,157  |   |
| Patents and intangible assets                                                                                |   |   | 80,341  |   |
|                                                                                                         |   |   |    |   |
|                                                                                                         |   |   | 134,602 |   |
|                                                                                                         |   |   |    |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **[c]** | **Purchase obligation to ContiGroup Companies,                Inc. [formerly Continental Grain Company]                [“CGC”]**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    | In 1992, the Company acquired 100% of the issued                and                outstanding share capital of Vet Labs from 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.  CGC disposed of all of the common                shares of the Company and a shortfall resulted.  On January 25, 2001,                the terms of the purchase agreement were revised whereby the repayment                terms for the outstanding repurchase obligation were extended.  The                revised agreement required 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.  On April 9, 2003, the terms                of the purchase agreement were revised to amend the repayment terms                for                the outstanding repurchase obligation.  This revised agreement                required the Company to make quarterly payments of $50,000 on each                of May                1, August 1, November 1 and February 1 until August 1, 2004 and a                final                payment of $75,343 on November 1, 2004.  This amount was included in                long-term debt*[note 10[a]]*and was repaid on March 4, 2004 as                described in *note 12[a]*. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **13.** | **LICENSE AGREEMENTS AND RESEARCH AND                DEVELOPMENT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|                                                |   |     |        |     |   |     |   |   |    |   |
|-----------------------------------------------------|--------|----------|-------------|----------|--------|----------|--------|--------|---------|--------|
|                                                |   | **2005** |        | **2004** |   | **2003** |   |
|                                                |   | **$**    |        | **$**    |   | **$**    |   |
|                                                |   |     |        |     |   |     |   |
| Research and development expenditures               |   |     | **127,847** |     |   | 73,635   |   |   | 193,284 |   |
| Investment tax credits                              |   |     | **(13,105** | **)**    |   | (12,684  | )      |   | (21,186 | )      |
|                                                |   |     |        |     |   |     |   |   |    |   |
| **Research and development                expense** |   |     | **114,742** |     |   | 60,951   |   |   | 172,098 |   |
|                                                |   |     |        |     |   |     |   |   |    |   |

**Iron Dextran process**

**Cellulose Sulphate BV Clinical Evaluation      Program**

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                                                                                                                                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 14.    | **INCOME TAXES**                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                         |
| [a]    | Substantially all of the Company’s activities are                carried out through operating subsidiaries in Canada and the United                States.  The Company’s effective income tax rate is dependent on the                tax legislation in each country and the operating results of each                subsidiary and the parent company. |
|   |                                                                                                                                                                                                                                                                                                                                                                         |
|   | The components of income (loss) before income                taxes are                as follows:                                                                                                                                                                                                                                                                            |

|          |   |     |          |     |   |     |   |   |     |   |
|---------------|--------|----------|---------------|----------|--------|----------|--------|--------|----------|--------|
|          |   | **2005** |          | **2004** |   | **2003** |   |
|          |   | **$**    |          | **$**    |   | **$**    |   |
|          |   |     |          |     |   |     |   |   |     |   |
| Bahamas       |   |     | **(642,870**  | **)**    |   | (391,641 | )      |   | (360,664 | )      |
| Canada        |   |     | **250,863**   |     |   | 61,980   |   |   | 940,088  |   |
| United States |   |     | **2,098,784** |     |   | (66,306  | )      |   | (501,799 | )      |
|          |   |     |          |     |   |     |   |   |     |   |
|          |   |     | **1,706,777** |     |   | (395,967 | )      |   | 77,625   |   |
|          |   |     |          |     |   |     |   |   |     |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------------|-----------|--------|-----------|--------|--------|----------|--------|
|                                                                                                                                                                                     |   | **2005$** |         | **2004$** |   | **2003$** |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |
| Foreign                withholding taxes and other on Bahamian                income                                                                                                     |   |      | **123,000**  |      |   | —   |   |   | —  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |
|                                                                                                                                                                                     |
| Provision                for income taxes based on Canadian statutory income tax                rates                                                                                    |   |      | **92,819**   |      |   | 22,933    |   |   | 311,357  |   |
| Increase                (decrease) in tax reserve                                                                                                                                        |   |      | **(232,739** | **)**     |   | —   |   |   | 147,012  |   |
| Increase                (decrease) in valuation allowance                                                                                                                                |   |      | **(36,009**  | **)**     |   | 53,900    |   |   | 3,506    |   |
| Tax                rate changes on deferred tax items                                                                                                                                    |   |      | **4,654**    |      |   | (20,203   | )      |   | (21,612  | )      |
| Items                not deductible for tax                                                                                                                                              |   |      | **(21,859**  | **)**     |   | 53,402    |   |   | (9,377   | )      |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
|                                                                                                                                                                                     |   |      | **(193,134** | **)**     |   | 110,032   |   |   | 430,886  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
| Provision                for (recovery of) income taxes based on United States                income tax rates                                                                           |   |      | **776,550**  |      |   | (24,533   | )      |   | (185,666 | )      |
| Tax                recovery on Joint Venture partner’s share of income                                                                                                             |   |      | **(160,697** | **)**     |   | (132,282  | )      |   | (32,319  | )      |
| Tax                on                non-deductible items                                                                                                                                |   |      | **(23,511**  | **)**     |   | —   |   |   | —  |   |
| Increase                (decrease) in valuation allowance                                                                                                                                |   |      | **44,658**   |      |   | (343,185  | )      |   | 538,465  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
|                                                                                                                                                                                     |   |      | **637,000**  |      |   | (500,000  | )      |   | 320,480  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
| **Provision                for (recovery of) income                taxes**                                                                                                               |   |      | **566,866**  |      |   | (389,968  | )      |   | 751,366  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
| Significant components of the provision                for                (recovery of) income taxes attributable to continuing operations                are as                follows: |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |
|                                                                                                                                                                                     |   | **2005$** |         | **2004$** |   | **2003$** |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |
| Canadian                deferred tax recovery                                                                                                                                            |   |      | **(280,453** | **)**     |   | (38,083   | )      |   | (21,307  | )      |
| Canadian                deferred tax expense                                                                                                                                             |   |      | **197,456**  |      |   | 128,440   |   |   | 385,301  |   |
| Canadian                current tax expense                                                                                                                                              |   |      | **12,863**   |      |   | 19,675    |   |   | 66,892   |   |
| United                States deferred tax recovery                                                                                                                                       |   |      | **—**  |      |   | (500,000  | )      |   | —  |   |
| United                States deferred tax expense                                                                                                                                        |   |      | **500,000**  |      |   | —   |   |   | 320,480  |   |
| United                States current tax expense                                                                                                                                         |   |      | **137,000**  |      |   | —   |   |   | —  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |
|                                                                                                                                                                                     |   |      | **566,866**  |      |   | (389,968  | )      |   | 751,366  |   |
|                                                                                                                                                                                     |   |      |         |      |   |      |   |   |     |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| [b]    | Deferred tax assets and liabilities have been                provided                on temporary differences that consist of the                following: |

|                                                                         |   |     |         |     |   |      |   |   |      |   |
|------------------------------------------------------------------------------|--------|----------|--------------|----------|--------|-----------|--------|--------|-----------|--------|
|                                                                         |   | **2005** |         | **2004** |   | **2003**  |   |
|                                                                         |   | **$**    |         | **$**    |   | **$**     |   |
|                                                                         |   |     |         |     |   |      |   |
| **Deferred tax assets**                                                      |   |     |         |     |   |      |   |   |      |   |
| Canadian                                                                     |   |     |         |     |   |      |   |   |      |   |
|    Unclaimed research and development                expenses |   |     | **255,485**  |     |   | 307,180   |   |   | 342,000   |   |
|    Net capital losses *[note                15[c]]*           |   |     | **140,173**  |     |   | 102,800   |   |   | 81,000    |   |
|    Other items                                                |   |     | **84,566**   |     |   | 90,200    |   |   | 9,000     |   |
| United States                                                                |   |     |         |     |   |      |   |   |      |   |
|    Net operating loss                carryforwards            |   |     | **—**  |     |   | 580,000   |   |   | 600,000   |   |
|    Unpaid intercompany                interest                |   |     | **149,706**  |     |   | 150,000   |   |   | —   |   |
|    Allowance on Sparhawk note *[note                12[a]]*   |   |     | **84,206**   |     |   | —   |   |   | —   |   |
|                                                                         |   |     |         |     |   |      |   |   |      |   |
|                                                                         |   |     | **714,136**  |     |   | 1,230,180 |   |   | 1,032,000 |   |
| Less valuation allowance                                                     |   |     | **421,160**  |     |   | 627,000   |   |   | 899,207   |   |
|                                                                         |   |     |         |     |   |      |   |   |      |   |
|                                                                         |   |     | **292,976**  |     |   | 603,180   |   |   | 132,793   |   |
|                                                                         |   |     |         |     |   |      |   |   |      |   |
|                                                                         |
| **Deferred tax                liabilities**                                  |   |     |         |     |   |      |   |   |      |   |
| Excess of carrying value over tax value of depreciable                assets |   |     | **(214,560** | **)**    |   | (249,000  | )      |   | (160,000  | )      |
| Investment tax credits and other items                                       |   |     | **(143,715** | **)**    |   | (1,234    | )      |   | (22,543   | )      |
|                                                                         |   |     |         |     |   |      |   |   |      |   |
| **Net deferred tax assets                (liabilities)**                     |   |     | **(65,299**  | **)**    |   | 352,946   |   |   | (49,750   | )      |
|                                                                         |   |     |         |     |   |      |   |   |      |   |

| [c]    | The Canadian subsidiaries have deductions available                to                reduce future years’ income for tax purposes on account of net temporary                differences resulting from expense items reported for income tax                purposes                in different periods than for financial statement purposes totalling                approximately $974,000 and $424,000 for federal and provincial purposes,                respectively.  Certain Canadian subsidiaries also have net capital                losses available for carryforward of approximately $405,000 available                to                offset future taxable capital gains.  These potential deductions and                net capital losses have an indefinite carryforward                period. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [d]    | The Company has not recorded a deferred tax liability                related to its investment in foreign subsidiaries.  The Company has                determined that its investment in these subsidiaries is permanent                in                nature and does not intend to dispose of or realize dividends from                these                investments in the foreseeable future. However, if either of these                events                were to occur, the Company will be liable for withholding taxes.  The                amount of the deferred tax liability related to the Company’s investment                in foreign subsidiaries is not reasonably                determinable.                                                                                           |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                     |
|--------|----------------------------------------------------------|
| 15.    | **CONSOLIDATED STATEMENTS OF CASH                FLOWS** |

|                                                          |   |     |         |     |   |     |   |   |     |   |
|---------------------------------------------------------------|--------|----------|--------------|----------|--------|----------|--------|--------|----------|--------|
|                                                          |   | **2005** |         | **2004** |   | **2003** |   |
|                                                          |   | **$**    |         | **$**    |   | **$**    |   |
|                                                          |   |     |         |     |   |     |   |
| **Decrease (increase) in current                assets**      |   |     |         |     |   |     |   |   |     |   |
| Trade accounts receivable                                     |   |     | **(371,170** | **)**    |   | 402,848  |   |   | (262,397 | )      |
| Interest receivable                                           |   |     | **(41,511**  | **)**    |   | —  |   |   | —  |   |
| Inventories                                                   |   |     | **(196,214** | **)**    |   | (270,190 | )      |   | (111,260 | )      |
| Prepaid expenses and other current                assets      |   |     | **(69,916**  | **)**    |   | (45,350  | )      |   | 594      |   |
|                                                          |   |     |         |     |   |     |   |   |     |   |
|                                                          |   |     | **(678,811** | **)**    |   | 87,308   |   |   | (373,063 | )      |
| **Increase (decrease) in current                liabilities** |   |     |         |     |   |     |   |   |     |   |
| Accounts payable                                              |   |     | **(83,326**  | **)**    |   | (171,739 | )      |   | 254,664  |   |
| Accrued liabilities                                           |   |     | **12,274**   |     |   | 66,878   |   |   | 102,453  |   |
| Customer deposits                                             |   |     | **(13,190**  | **)**    |   | (20,660  | )      |   | 131,744  |   |
| Income taxes payable                                          |   |     | **128,539**  |     |   | (35,823  | )      |   | 8,832    |   |
|                                                          |   |     |         |     |   |     |   |   |     |   |
|                                                          |   |     | **(634,514** | **)**    |   | (74,036  | )      |   | 124,630  |   |
|                                                          |   |     |         |     |   |     |   |   |     |   |

|   |                                     |
|--------|------------------------------------------|
| 16.    | **SEGMENTED                INFORMATION** |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Dextran Products - manufactures and sells bulk                quantities of Dextran and several of its derivatives to large                pharmaceutical companies throughout the world.                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| • | Chemdex - manufactured and sold veterinary                pharmaceutical products and specialty chemicals in the United States                until                March 4, 2004.  The primary customers were distributors and private                labelers, who in turn sold to the end user of these products.  Since                March 4, 2004, the operations of Chemdex have been limited to the                sale of                bulk Iron Dextran to Sparhawk. |

|   |                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| [a]    | The following is condensed segment financial                information                as at and for the years ended                January 31: |

|                          |   |        |          |        |   |          |   |   |           |   |
|-------------------------------|--------|-------------|---------------|-------------|--------|---------------|--------|--------|----------------|--------|
|                          |   | **2005**    |          |
|                          |   |        |          |
|                          |   | **Dextran** |          | **Chemdex** |   | **Total**     |   |
|                          |   | **$**       |          | **$**       |   | **$**         |   |
|                          |   |        |          |        |   |          |   |
| Gross sales                   |   |        | **5,362,948** |        |   | **1,456,146** |   |   | **6,819,094**  |   |
| Intercompany sales            |   |        | **446,735**   |        |   | **—**   |   |   | **446,735**    |   |
| Interest expense              |   |        | **38,993**    |        |   | **6,975**     |   |   | **45,968**     |   |
| Depreciation and amortization |   |        | **496,072**   |        |   | **8,505**     |   |   | **504,577**    |   |
| Income before income taxes    |   |        | **256,169**   |        |   | **2,093,478** |   |   | **2,349,647**  |   |
| Interest income               |   |        | **91,563**    |        |   | **41,554**    |   |   | **133,117**    |   |
| Segment assets                |   |        | **9,933,254** |        |   | **233,539**   |   |   | **10,166,793** |   |
| Capital expenditures          |   |        | **182,691**   |        |   | **—**   |   |   | **182,691**    |   |
|                          |   |        |          |        |   |          |   |   |           |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                              |   |        |      |        |   |      |   |   |       |   |
|-----------------------------------|--------|-------------|-----------|-------------|--------|-----------|--------|--------|------------|--------|
|                              |   | **2004**    |      |
|                              |   |        |      |
|                              |   | **Dextran** |      | **Chemdex** |   | **Total** |   |
|                              |   | **$**       |      | **$**       |   | **$**     |   |
|                              |   |        |      |        |   |      |   |
| Gross sales                       |   |        | 5,142,881 |        |   | 9,349,670 |   |   | 14,492,551 |   |
| Intercompany sales                |   |        | 400,362   |        |   | —   |   |   | 400,362    |   |
| Interest expense                  |   |        | 48,294    |        |   | 20,883    |   |   | 69,177     |   |
| Depreciation and amortization     |   |        | 459,054   |        |   | 142,844   |   |   | 601,898    |   |
| Income (loss) before income taxes |   |        | 58,703    |        |   | (63,029   | )      |   | (4,326     | )      |
| Interest income                   |   |        | 445       |        |   | —   |   |   | 445        |   |
| Segment assets                    |   |        | 5,045,899 |        |   | 4,281,084 |   |   | 9,326,983  |   |
| Capital expenditures              |   |        | 218,859   |        |   | 177,845   |   |   | 396,704    |   |
|                              |   |        |      |        |   |      |   |   |       |   |
|                              |   |        |      |        |   |      |   |   |       |   |
|                              |   | **2003**    |      |
|                              |   |        |      |
|                              |   | **Dextran** |      | **Chemdex** |   | **Total** |   |
|                              |   | **$**       |      | **$**       |   | **$**     |   |
|                              |   |        |      |        |   |      |   |
| Gross sales                       |   |        | 4,917,446 |        |   | 8,210,984 |   |   | 13,128,430 |   |
| Intercompany sales                |   |        | 342,087   |        |   | —   |   |   | 342,087    |   |
| Interest expense                  |   |        | 50,716    |        |   | 27,120    |   |   | 77,836     |   |
| Depreciation and amortization     |   |        | 388,954   |        |   | 167,388   |   |   | 556,342    |   |
| Income (loss) before income taxes |   |        | 872,291   |        |   | (247,682  | )      |   | 624,609    |   |
| Interest income                   |   |        | 1,667     |        |   | 395       |   |   | 2,062      |   |
| Segment assets                    |   |        | 4,918,829 |        |   | 3,569,090 |   |   | 8,487,919  |   |
| Capital expenditures              |   |        | 340,203   |        |   | 27,665    |   |   | 367,868    |   |
|                              |   |        |      |        |   |      |   |   |       |   |

| [b] | The following reconciles segment information                presented                above to the consolidated financial statements as at and for the                years                ended January 31: |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   |     |          |     |   |       |   |   |       |   |
|--------------------------------|--------|----------|---------------|----------|--------|------------|--------|--------|------------|--------|
|                           |   | **2005** |          | **2004** |   | **2003**   |   |
|                           |   | **$**    |          | **$**    |   | **$**      |   |
|                           |   |     |          |     |   |       |   |
| **Gross sales**                |   |     |          |     |   |       |   |   |       |   |
| Gross sales from segments      |   |     | **6,819,094** |     |   | 14,492,551 |   |   | 13,128,430 |   |
| Intercompany sales elimination |   |     | **(446,735**  | **)**    |   | (400,362   | )      |   | (342,087   | )      |
|                           |   |     |          |     |   |       |   |   |       |   |
|                           |   |     | **6,372,359** |     |   | 14,092,189 |   |   | 12,786,343 |   |
|                           |   |     |          |     |   |       |   |   |       |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                                                           |   |     |          |     |   |     |   |
|----------------------------------------------------------------|--------|----------|---------------|----------|--------|----------|--------|
|                                                           |   | **2005** |          | **2004** |   | **2003** |   |
|                                                           |   | **$**    |          | **$**    |   | **$**    |   |
|                                                           |   |     |          |     |   |     |   |
| **Income (loss) before income taxes**                          |   |     |          |     |   |     |   |   |   |   |
| Income                (loss) before income taxes from segments |   |     | **2,349,647** |     |   | (4,326   | )      |   | 624,609 |   |
| Unallocated corporate expenses                                 |   |     | **(642,870**  | **)**    |   | (391,641 | )      |   | (546,984 | ) |
|                                                           |   |     |          |     |   |     |   |   |   |   |
|                                                           |   |     | **1,706,777** |     |   | (395,967 | )      |   | 77,625 |   |
|                                                           |   |     |          |     |   |     |   |   |   |   |

|       |   |     |           |     |   |
|------------|--------|----------|----------------|----------|--------|
|       |   | **2005** |           | **2004** |   |
|       |   | **$**    |           | **$**    |   |
|       |   |     |           |     |   |
| **Assets** |   |     |           |     |   |   |   |
| Segment    |   |     | **10,166,793** |     |   | 9,326,983 |   |
| Corporate  |   |     | **645,080**    |     |   | 1,183,530 |   |
|       |   |     |           |     |   |   |   |
|       |   |     | **10,811,873** |     |   | 10,510,513 |   |
|       |   |     |           |     |   |   |   |

|                          |   |         |        |          |   |             |   |
|-------------------------------|--------|--------------|-------------|---------------|--------|------------------|--------|
|                          |   | **2005**     |        |
|                          |   |         |        |
|                          |   | **Total**    |        |          |   | **Consolidated** |   |
|                          |   | **segments** |        | **Corporate** |   | **totals**       |   |
|                          |   | **$**        |        | **$**         |   | **$**            |   |
|                          |   |         |        |          |   |             |   |
| **Other significant items**   |   |         |        |          |   |             |   |   |   |   |
| Interest expense              |   |         | **45,968**  |          |   | **45,242**       |   |   | **91,210** |   |   |
| Depreciation and amortization |   |         | **504,577** |          |   | **8,518**        |   |   | **513,095** |   |   |
| Interest income               |   |         | **133,117** |          |   | **—**      |   |   | **133,117** |   |   |
| Capital expenditures          |   |         | **182,691** |          |   | **—**      |   |   | **182,691** |   |   |
|                          |   |         |        |          |   |             |   |   |   |   |

|                          |   |         |    |          |   |             |    |   |   |   |    |   |   |
|-------------------------------|--------|--------------|---------|---------------|--------|------------------|---------|--------|--------|--------|---------|--------|--------|
|                          |   | **2004**     |    |
|                          |   |         |    |
|                          |   | **Total**    |    |          |   | **Consolidated** |    |
|                          |   | **segments** |    | **Corporate** |   | **totals**       |    |
|                          |   | **$**        |    | **$**         |   | **$**            |    |
|                          |   |         |    |          |   |             |    |
| **Other significant items**   |   |         |    |          |   |             |    |   |   |   |
| Interest expense              |   |         | 69,177  |          |   |             | 64,205  |   |   |   | 133,382 |   |   |
| Depreciation and amortization |   |         | 601,898 |          |   |             | 15,787  |   |   |   | 617,685 |   |   |
| Interest income               |   |         | 445     |          |   |             | — |   |   |   | 445     |   |   |
| Capital expenditures          |   |         | 396,704 |          |   |             | — |   |   |   | 396,704 |   |   |
|                          |   |         |    |          |   |             |    |   |   |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|                          |   |         |    |          |   |             |   |   |    |   |
|-------------------------------|--------|--------------|---------|---------------|--------|------------------|--------|--------|---------|--------|
|                          |   | **2003**     |    |
|                          |   |         |    |
|                          |   | **Total**    |    |          |   | **Consolidated** |   |
|                          |   | **segments** |    | **Corporate** |   | **totals**       |   |
|                          |   | **$**        |    | **$**         |   | **$**            |   |
|                          |   |         |    |          |   |             |   |
| **Other significant items**   |   |         |    |          |   |             |   |   |    |   |
| Interest expense              |   |         | 77,836  |          |   | 72,691           |   |   | 150,527 |   |
| Depreciation and amortization |   |         | 556,342 |          |   | 15,787           |   |   | 572,129 |   |
| Interest income               |   |         | 2,062   |          |   | —          |   |   | 2,062   |   |
| Capital expenditures          |   |         | 367,868 |          |   | —          |   |   | 367,868 |   |
|                          |   |         |    |          |   |             |   |   |    |   |

|   |                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------|
| [c]    | Consolidated sales for the years ended January                31 by                destination are as follows: |

|          |   |     |          |     |   |       |   |   |       |   |
|---------------|--------|----------|---------------|----------|--------|------------|--------|--------|------------|--------|
|          |   | **2005** |          | **2004** |   | **2003**   |   |
|          |   | **$**    |          | **$**    |   | **$**      |   |
|          |   |     |          |     |   |       |   |
| Europe        |   |     | **2,130,180** |     |   | 2,207,104  |   |   | 1,991,107  |   |
| United States |   |     | **1,950,761** |     |   | 10,008,794 |   |   | 8,923,364  |   |
| Pacific Rim   |   |     | **873,872**   |     |   | 692,980    |   |   | 714,072    |   |
| Canada        |   |     | **854,989**   |     |   | 655,471    |   |   | 510,499    |   |
| Other         |   |     | **562,557**   |     |   | 527,840    |   |   | 647,301    |   |
|          |   |     |          |     |   |       |   |   |       |   |
|          |   |     | **6,372,359** |     |   | 14,092,189 |   |   | 12,786,343 |   |
|          |   |     |          |     |   |       |   |   |       |   |

|   |                                                                                   |
|--------|----------------------------------------------------------------------------------------|
| [d]    | Long-lived assets by country of domicile are                as                follows: |

|          |   |     |          |     |   |      |   |
|---------------|--------|----------|---------------|----------|--------|-----------|--------|
|          |   | **2005** |          | **2004** |   |
|          |   | **$**    |          | **$**    |   |
|          |   |     |          |     |   |
| Canada        |   |     | **3,135,872** |     |   | 3,247,473 |   |
| United States |   |     | **69,357**    |     |   | 1,621,828 |   |
| Bahamas       |   |     | **—**   |     |   | 8,518     |   |
|          |   |     |          |     |   |      |   |
|          |   |     | **3,205,229** |     |   | 4,877,819 |   |
|          |   |     |          |     |   |      |   |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| [e]    | The following summarizes significant customer                sales                information for the years ended January 31.  Customer A is a                Dextran customer, while the other customers were all customers of                Chemdex. |

|       |   |     |          |     |   |      |   |   |      |   |
|------------|--------|----------|---------------|----------|--------|-----------|--------|--------|-----------|--------|
|       |   | **2005** |          | **2004** |   | **2003**  |   |
|       |   | **$**    |          | **$**    |   | **$**     |   |
|       |   |     |          |     |   |      |   |
| Customer A |   |     | **886,749**   |     |   | 762,330   |   |   | 815,907   |   |
| Customer B |   |     | **268,186**   |     |   | 1,920,282 |   |   | 1,858,236 |   |
| Customer C |   |     | **246,296**   |     |   | 2,133,597 |   |   | 1,590,126 |   |
| Customer D |   |     | **143,258**   |     |   | 1,567,135 |   |   | 1,420,554 |   |
|       |   |     |          |     |   |      |   |   |      |   |
|       |   |     | **1,544,489** |     |   | 6,383,344 |   |   | 5,684,823 |   |
|       |   |     |          |     |   |      |   |   |      |   |

|   |                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| [f]    | The following summarizes significant enterprise-wide                product group sales information of the Company for the years ended                January                31:  |

|                                   |   |     |          |     |   |       |   |   |       |   |
|----------------------------------------|--------|----------|---------------|----------|--------|------------|--------|--------|------------|--------|
|                                   |   | **2005** |          | **2004** |   | **2003**   |   |
|                                   |   | **$**    |          | **$**    |   | **$**      |   |
|                                   |   |     |          |     |   |       |   |
| Bulk Dextran and derivatives           |   |     | **5,280,458** |     |   | 4,742,519  |   |   | 4,575,359  |   |
| Sterile injectible veterinary products |   |     | **663,629**   |     |   | 5,697,292  |   |   | 4,480,327  |   |
| Oral and topical veterinary products   |   |     | **428,272**   |     |   | 3,652,378  |   |   | 3,730,657  |   |
|                                   |   |     |          |     |   |       |   |   |       |   |
|                                   |   |     | **6,372,359** |     |   | 14,092,189 |   |   | 12,786,343 |   |
|                                   |   |     |          |     |   |       |   |   |       |   |

|   |                                                   |
|--------|--------------------------------------------------------|
| 17.    | **FAIR VALUE OF FINANCIAL                INSTRUMENTS** |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS **

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 18.     | **OTHER DISCLOSURES**                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **[a]** | **Concentration of accounts                receivable**                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | As at January 31, 2005, three [2004 - three]                customers                of the Company comprised 61% [2004 - 59%] 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                risk**                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | 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                risk                exposure.   The Company has entered into foreign exchange                contracts to manage exposure to currency fluctuations as described                in note                9. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 19.     | **COMPREHENSIVE INCOME                (LOSS)**                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|                                                             |   |     |        |     |   |     |   |
|------------------------------------------------------------------|--------|----------|-------------|----------|--------|----------|--------|
|                                                             |   | **2005** |        | **2004** |   |
|                                                             |   | **$**    |        | **$**    |   |
|                                                             |   |     |        |     |   |
| Unrealized loss on investments available for                sale |   |     | **(15,760** | **)**    |   | —  |   |
| Currency translation                                             |   |     | **341,602** |     |   | (110,343 | )      |
|                                                             |   |     |        |     |   |     |   |
| **Accumulated other comprehensive income                (loss)** |   |     | **325,842** |     |   | (110,343 | )      |
|                                                             |   |     |        |     |   |     |   |

|   |                                                |
|--------|-----------------------------------------------------|
| 20.    | **RECENT ACCOUNTING                PRONOUNCEMENTS** |

----

**Polydex Pharmaceuticals Limited **

**NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS**

|   |                                                             |
|--------|------------------------------------------------------------------|
| 21.    | **COMPARATIVE CONSOLIDATED FINANCIAL                STATEMENTS** |

----

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

|     |                                   |
|----------|----------------------------------------|
| ITEM 9A. | CONTROLS AND                PROCEDURES |

|     |                             |
|----------|----------------------------------|
| ITEM 9B. | OTHER                INFORMATION |

----

**PART III**

|     |                                                              |
|----------|-------------------------------------------------------------------|
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE                REGISTRANT |
|     |                                                              |

**Code of Ethics**

|     |                   |
|----------|------------------------|
| ITEM 11. | EXECUTIVE COMPENSATION |
|     |                   |

|     |                                                                                                                         |
|----------|------------------------------------------------------------------------------------------------------------------------------|
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                OWNERS AND                MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|     |                                                                                                                         |

|     |                                                          |
|----------|---------------------------------------------------------------|
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED                TRANSACTIONS |
|     |                                                          |

|     |                                                  |
|----------|-------------------------------------------------------|
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND                SERVICES |
|     |                                                  |

----

**PART IV**

|     |                                                      |
|----------|-----------------------------------------------------------|
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT                SCHEDULES |

|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (a)    |   | The following documents are filed as a part of                this                Annual Report on Form 10-K:                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | (1)    | Financial Statements of Polydex                Pharmaceuticals                                                                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | Report of Independent Auditors — Ernst & Young LLP                Chartered Accountants                                                                                                                                                                                                         |
|   |   |   | Consolidated Balance Sheets                                                                                                                                                                                                                                                                               |
|   |   |   | Consolidated Statements of Shareholders’                Equity                                                                                                                                                                                                                                      |
|   |   |   | Consolidated Statements of Operations                                                                                                                                                                                                                                                                     |
|   |   |   | Consolidated Statements of Cash Flows                                                                                                                                                                                                                                                                     |
|   |   |   | Notes to Consolidated Financial                Statements                                                                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | (2)    | Financial Statement Schedules                                                                                                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | Schedules for which provision is made in the                applicable                accounting regulation of the Securities and Exchange Commission are                not                required under the related instructions or are inapplicable, and                therefore, have been omitted. |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | (3)    | Exhibits                                                                                                                                                                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 3.1                                                                                                                                                                                                                                                                                                       | Memorandum of Association of Polydex Pharmaceuticals                Limited, as amended (filed as Exhibit 3.1 to the Annual Report on                Form 10-K filed April 30, 1997, and incorporated herein by                reference)                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 3.2                                                                                                                                                                                                                                                                                                       | Articles of Association of Polydex Pharmaceuticals                Limited, as amended (filed as Exhibit 3.2 to the Quarterly Report on                Form 10-Q filed September 13, 1999, and incorporated herein by                reference)                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 10.1                                                                                                                                                                                                                                                                                                      | Employment Agreement between Polydex Pharmaceuticals                Limited and George G. Usher dated December 22, 1993 (filed as                Exhibit 10.2 to the Annual Report on Form 10-K filed                April 30, 1997, and incorporated herein by                reference)*                                                                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 10.2                                                                                                                                                                                                                                                                                                      | Amendment to Employment Agreement between Polydex                Pharmaceuticals Limited and George G. Usher dated February 1, 1999                (filed                as Exhibit 10.4 to the Annual Report on Form 10-K filed April 29,                1999,                and incorporated herein by reference)*                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 10.3                                                                                                                                                                                                                                                                                                      | Research Agreement among Dextran Products Limited,                Canadian Microbiology Consortium, British Columbia’s Children’s Hospital                and the University of British Columbia, dated April 1, 1996 (filed                as                Exhibit 10.4 to the Annual Report on Form 10-K filed                April 30, 1997, and incorporated herein by                reference) |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 10.4                                                                                                                                                                                                                                                                                                      | Joint Venture Agreement among Chemdex, Inc.,                Veterinary                Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1,                1992 (filed as Exhibit 10.5 to the Annual Report on Form 10-K                filed April 30, 1997, and incorporated herein by                reference)                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |   | 10.5                                                                                                                                                                                                                                                                                                      | Asset Purchase Agreement dated as of January                13, 2004,                by and among Sparhawk Laboratories, Inc., Polydex Pharmaceuticals                Limited,                Chemdex, Inc. and Veterinary Laboratories, Inc. (filed as                Exhibit 10.9 to the Annual Report on Form 10-K filed                April 30, 2004, and                                                     |

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|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   | incorporated herein by reference)                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 10.6   | Supply Agreement, dated as of March 1, 2004,                by and                between Chemdex, Inc. and Sparhawk Laboratories, Inc. (filed as                Exhibit 10.10 to the Annual Report on Form 10-K filed                April 30, 2004, and incorporated herein by                reference)                               |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 10.7   | Unsecured Subordinated Promissory Note dated                March 4,                2004 made by Sparhawk Laboratories, Inc. in favor of Chemdex, Inc.                (filed                as Exhibit 10.11 to the Annual Report on Form 10-K filed                April 30, 2004, and incorporated herein by                reference) |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 10.8   | Warrant and Repurchase Agreement, dated March                4, 2004                issued by Sparhawk Laboratories, Inc. to Chemdex, Inc. (filed as                Exhibit 10.12 to the Annual Report on Form 10-K filed                April 30, 2004, and incorporated herein by                reference)                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 21     | Subsidiaries of Polydex Pharmaceuticals Limited                (filed                as Exhibit 21 to the Annual Report on Form 10-K filed April 28, 2000,                and                incorporated herein by reference)                                                                                                                          |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 31.1   | Certification of Chief Executive Officer Pursuant                to                Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 31.2   | Certification of Chief Financial Officer Pursuant                to                Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 32.1   | Certification of Chief Executive Officer Pursuant                to                Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                    |
|   |   |   | 32.2   | Certification of Chief Financial Officer Pursuant                to                Section 906 of Sarbanes-Oxley Act of                2002                                                                                                                                                                                                             |

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|                       |                                               |                |
|----------------------------|----------------------------------------------------|---------------------|
|                       | POLYDEX PHARMACEUTICALS LIMITED                    |
| Date:  March 21, 2006 | By:                                                | /s/ George G. Usher |
|                       |                                               |                |
|                       | George G. Usher, President and                     |
|                       |   Chief Executive                Officer |

|                                           |                                                                      |   |
|------------------------------------------------|---------------------------------------------------------------------------|--------|
| Date:** **March 21,                  2006 | /s/ George G. Usher                                                       |   |
|                                           |                                                                      |   |
|                                           | George G. Usher, Director, President                                      |
|                                           |   and Chief Executive                  Officer                  |
|                                           |   (Principal Executive                  Officer)                |
|                                           |                                                                      |   |
| Date:  March 21, 2006                     | /s/ Sharon Wardlaw                                                        |   |
|                                           |                                                                      |   |
|                                           | Sharon Wardlaw, Treasurer, Secretary                                      |
|                                           |   and Chief Financial                  Officer                  |
|                                           |   (Principal Financial and Accounting                  Officer) |   |
|                                           |                                                                      |   |
| Date:  March 21, 2006                     | /s/ Joseph Buchman                                                        |   |
|                                           |                                                                      |   |
|                                           | Joseph Buchman, Director                                                  |
|                                           |                                                                      |   |
| Date:  March 21, 2006                     | /s/ Derek John Michael Lederer                                            |   |
|                                           |                                                                      |   |
|                                           | Derek John Michael Lederer, Director                                      |
|                                           |                                                                      |   |
| Date:  March 21, 2006                     | /s/ John L.E. Seidler                                                     |   |
|                                           |                                                                      |   |
|                                           | John L.E. Seidler,                  Director                              |

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|   |                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1   | Certification of Chief Executive Officer Pursuant                to                Section 302 of Sarbanes-Oxley Act of 2002                         |
|   |                                                                                                                                                 |
| 31.2   | Certification of Chief Financial Officer Pursuant                to                Section 302 of Sarbanes-Oxley Act of 2002                         |
|   |                                                                                                                                                 |
| 32.1   | Certification of Chief Executive Officer pursuant                to                Section 906 of the Sarbanes-Oxley Act of 2002                     |
|   |                                                                                                                                                 |
| 32.2   | Certification of Chief Financial Officer pursuant                to                Section 906 of the Sarbanes-Oxley Act of                2002 |

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