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SEC 1852(02-2002) Persons who potentially are to respond to the collection of
information contained in this form are not required to respond unless the form
displays a currently valid OMB control number.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)



|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------------

OR



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended May 31, 2002
|- |  | ----------------------------------------------------------------------------------------------------------------------------

OR



|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from  to
|- |  | ---------------------------------------------------------------------------------------------------------------------------

Commission file number 0-19763

LORUS THERAPEUTICS INC.

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NOT APPLICABLE

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ONTARIO, CANADA

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2 MERIDIAN ROAD, TORONTO, ONTARIO M9W 4Z7

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

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|NONE                |  |                                          
|                    |  |                                          
|                    |  |                                          
|                    |  |                                          

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

COMMON SHARES (NO PAR VALUE)

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NONE

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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

NONE

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Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

As of December 6, 2002, the Company had
144,422,262 common shares outstanding.

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

|     |  |    
|---- |  | ---
|Yesx |  | Noo

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

|         |  |         
|-------- |  | --------
|Item 17x |  | Item 18o



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2



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TABLE OF CONTENTS



|                                 |                                                                                         |  |  |  |  |  |  | 
|-------------------------------- | --------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                          
|                                 | Item 1.   Identity of Directors, Senior Management and Advisers                        
|                                 | Item 2.   Offer Statistics and Expected Timetable                                      
|                                 | Item 3.   Key Information                                                              
|                                 | Item 4.   Information on the Company                                                   
|                                 | Item 5.   Operating and Financial Review and Prospects                                 
|                                 | Item 6.   Directors, Senior Management and Employees                                   
|                                 | Item 7.   Major Shareholders and Related Party Transactions                            
|                                 | Item 8.   Financial Information                                                        
|                                 | Item 9.   The Offer and Listing                                                        
|                                 | Item 10.   Additional Information                                                      
|                                 | Item 11.   Quantitative and Qualitative Disclosures About Market Risk.                 
|                                 | Item 12.   Description of Securities Other than Equity Securities                      
|PART II                         
|                                 | Item 13.   Defaults, Dividend Arrearages and Delinquencies                             
|                                 | Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                 | Item 15.   [Reserved]                                                                  
|                                 | Item 16.   [Reserved]                                                                  
|PART III                        
|                                 | Item 17.   Financial Statements                                                        
|                                 | Item 18.   Financial Statements                                                        
|                                 | Item 19.   EXHIBITS                                                                    
|SIGNATURES                      
|CERTIFICATIONS                  
|CERTIFICATIONS                  
|Industrial Lease                
|Certification - Jim A. Wright   
|Certification - James T. Parsons



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TABLE OF CONTENTS

|         |                                                                                       |  |  |    | 
|-------- | ------------------------------------------------------------------------------------- |  |  | -- | 
|PART I   |                                                                                       |  |  |   
|         | Item 1. Identity of Directors, Senior Management and Advisers                         |  |  | 3  | 
|         | Item 2. Offer Statistics and Expected Timetable                                       |  |  | 3  | 
|         | Item 3. Key Information                                                               |  |  | 3  | 
|         | Item 4. Information on the Company                                                    |  |  | 10 | 
|         | Item 5. Operating and Financial Review and Prospects                                  |  |  | 18 | 
|         | Item 6. Directors, Senior Management and Employees                                    |  |  | 37 | 
|         | Item 7. Major Shareholders and Related Party Transactions                             |  |  | 51 | 
|         | Item 8. Financial Information                                                         |  |  | 51 | 
|         | Item 9. The Offer and Listing                                                         |  |  | 52 | 
|         | Item 10. Additional Information                                                       |  |  | 54 | 
|         | Item 11. Quantitative and Qualitative Disclosures About Market Risk                   |  |  | 61 | 
|         | Item 12. Description of Securities Other than Equity Securities                       |  |  | 61 | 
|PART II  |                                                                                       |  |  |   
|         | Item 13. Defaults, Dividend Arrearages and Delinquencies                              |  |  | 61 | 
|         | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |  |  | 61 | 
|         | Item 15. [Reserved]                                                                   |  |  | 61 | 
|         | Item 16. [Reserved]                                                                   |  |  | 62 | 
|PART III |                                                                                       |  |  |   
|         | Item 17. Financial Statements                                                         |  |  | 62 | 
|         | Item 18. Financial Statements                                                         |  |  | 80 | 
|EXHIBITS |                                                                                       |  |  |   
|         | Item 19. Exhibits                                                                     |  |  | 84 | 
|         |                                                                                       |  |  |   




PART I




Item 1.   Identity of Directors, Senior Management and Advisers

Not applicable to Form 20-F filed as an Annual Report.




Item 2.   Offer Statistics and Expected Timetable

Not applicable to Form 20-F filed as an Annual Report.




Item 3.   Key Information

The financial statements of Lorus Therapeutics Inc. (Lorus or the
Company) have been prepared in accordance with generally accepted accounting
principles (GAAP) as applied in Canada and in all material respects comply
with U.S. GAAP. The Company also identifies significant differences between
Canadian and United States GAAP in note 13 to the consolidated financial
statements. All amounts are expressed in Canadian dollars unless otherwise
noted. Annual references are to Loruss fiscal years which end on May 31.

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Currency Exchange Rates

Loruss accounts are maintained in Canadian dollars. In this Annual
Report, all dollar amounts are expressed in Canadian dollars except where
otherwise indicated.

The following table sets out, for the periods indicated, the high and low
noon buying rates in New York City for cable transfers in foreign currencies,
the average of such exchange rates on the last day of each month during the
periods, and the end period rates, for Canadian dollars expressed in United
States dollars, as certified for customs purposes by the Federal Reserve Bank
of New York:

|           |  |              |        |              |  |              |        |              |  |              |        |  |  |  |        |  |  |  |        | 
|---------- |  | ------------ | ------ | ------------ |  | ------------ | ------ | ------------ |  | ------------ | ------ |  |  |  | ------ |  |  |  | ------ | 
|           |  | Year End     |        | Year End     |  | Year End     |        | Year End     |  | Year End    
|           |  | May 31, 2002 |        | May 31, 2001 |  | May 31, 2000 |        | May 31, 1999 |  | May 31, 1998
|           |  |              |        |              |  |              |        |              |  |             
|Period End |  |              | 0.6547 |              |  |              | 0.6468 |              |  |              | 0.6677 |  |  |  | 0.6791 |  |  |  | 0.6863 | 
|Average    |  |              | 0.6380 |              |  |              | 0.6602 |              |  |              | 0.6794 |  |  |  | 0.6626 |  |  |  | 0.7092 | 
|High       |  |              | 0.6622 |              |  |              | 0.6831 |              |  |              | 0.6969 |  |  |  | 0.6891 |  |  |  | 0.7305 | 
|Low        |  |              | 0.6200 |              |  |              | 0.6333 |              |  |              | 0.6607 |  |  |  | 0.6341 |  |  |  | 0.6832 | 

As at December 6, 2002, the noon buying rate in New York City for Canadian
dollars expressed in United States dollars, as certified for customs purposes
by the Federal Reserve Bank of New York, was 0.6386.

A.   Selected Financial Data

Consolidated Statement of Loss and Deficit Data
For the five most recent financial years ended May 31

|                                                                                                              |  |      |         |      |  |      |         |      |  |      |        |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | - |  |  | ------ | - |  |  | ------ | -
|In thousands of Canadian dollars except per share amount                                                      |  | 2002 |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                                                              |  |      |         |      |  |      |         |      |  |     
|Net sales or operating revenues                                                                               |  |      |        |      |  |      |        |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net income (loss)                                                                                             |  |      | (13,487 | )    |  |      | (15,213 | )    |  |      | (8,599 | ) |  |  | (4,623 | ) |  |  | (4,742 | )
|Loss from continuing
operations per share                                                                     |  |      | (0.09   | )    |  |      | (0.11   | )    |  |      | (0.10  | ) |  |  | (0.12  | ) |  |  | (0.13  | )
|Basic and fully diluted net
loss from operations per share                                                    |  |      | (0.09   | )    |  |      | (0.11   | )    |  |      | (0.10  | ) |  |  | (0.12  | ) |  |  | (0.13  | )
|Weighted average number of
shares used in computing basic
and fully diluted net loss per
share (in thousands) |  |      | 143,480 |      |  |      | 140,776 |      |  |      | 86,121 |   |  |  | 37,858 |   |  |  | 36,567 |  

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Consolidated balance sheet data
For the five most recent financial years ended May 31

|                                                         |  |      |         |      |  |      |         |      |  |      |         |  |  |  |        |  |  |  |        | 
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------ |  |  |  | ------ | 
|In thousands of Canadian dollars except per share amount |  | 2002 |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                         |  |      |         |      |  |      |         |      |  |     
|Total assets                                             |  |      | 47,572  |      |  |      | 61,807  |      |  |      | 72,363  |  |  |  | 3,250  |  |  |  | 5,917  | 
|Net assets                                               |  |      | 44,140  |      |  |      | 55,942  |      |  |      | 68,755  |  |  |  | 1,920  |  |  |  | 4,785  | 
|Capital stock                                            |  |      | 119,009 |      |  |      | 117,324 |      |  |      | 114,924 |  |  |  | 39,490 |  |  |  | 37,732 | 

B.   Capitalization and Indebtedness

Not applicable to Form 20-F filed as an Annual Report.

C.   Reason for the Offer and Use of Proceeds

Not applicable to Form 20-F filed as an Annual Report.

D.   Risk Factors

Forward Looking Statements

This and other sections of this annual report on Form 20-F (the Annual
Report) contain forward-looking statements, reflecting the Companys current
expectations regarding future events. Readers are cautioned that these
forward-looking statements involve risks and uncertainties, including, without
limitation, changing market conditions, the successful and timely completion of
clinical studies, the impact of competitive products and pricing, new product
development, uncertainties related to the regulatory approval process, product
development delays, the Companys ability to attract and retain business
partners, future levels of government funding and the Companys ability to
obtain the capital required for research, product development, operations and
marketing. These factors should be carefully considered and readers should not
place undue reliance on the Companys forward-looking statements. Actual events
may differ materially from the Companys current expectations due to risks and
uncertainties. Certain of the risks and uncertainties are discussed in the
section entitled Risk Factors.

Loruss statements of belief are based upon its results derived to date
from its research and development program with animals and its clinical trials
in humans and upon which the Company believes there is a reasonable scientific
basis to expect the particular results to occur. It is not possible to predict,
based upon studies in animals, whether a new therapeutic will be proved to be
safe and effective in humans. There can be no assurance that the particular
result expected by the Company will occur. Except as required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements for any reason after the date of this Annual Report or to conform
these statements to actual results or to changes in the Companys expectations.

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THE COMPANYS BUSINESS IS SUBJECT TO A NUMBER OF RISK FACTORS THAT ARE SET
OUT BELOW:

No Assurance of Successful Development

Lorus has not produced or commercially marketed any product. Although the
Company has entered into an agreement in respect of the commercial sale of
Virulizin® in Mexico, there can be no assurance that any
sales of the product will be made. There can be no assurance that the Company
will ever successfully develop commercial products, that the Company will ever
achieve significant revenues from such products if they are successfully
developed, or that the Company will ever be profitable.

Lack of Operating Profits

Lorus commenced its research and development activities in 1986. To date,
the Company has not earned any operating revenue, generated positive cash flow
or earned operating profits, and the Company expects to incur significant
operating losses for the foreseeable future. To date, there have been no
revenues recorded from the sale of any products. Lorus expects to accumulate
losses as it continues its product research and development and continues its
clinical trials and applies for regulatory approval for the sale of its
products. The Company expects to continue to incur substantial operating losses
unless and until such time as product sales and royalty payments generate
sufficient revenues to fund its continuing operations. The Company expects to
have quarter-to-quarter fluctuations in revenues, expenses and losses, some of
which could be significant. The Companys ability to achieve a profitable level
of operations is dependent, in large part, on completing product development,
obtaining regulatory approvals, and commercializing its products. There can be
no assurance that the Company will ever achieve a profitable level of
operations.

Liquidity and Capital Requirements

As at May 31, 2002, the Companys current assets exceeded current
liabilities by $35.6 million. Lorus will require substantial additional funds
for clinical trials. The Company may seek to obtain additional funds for these
purposes through public or private equity or debt financings, collaborative
arrangements with pharmaceutical companies and/or from other sources. Any such
financing may have a dilutive effect on the holdings of shareholders. There can
be no assurance that additional funding will be available at all or on
acceptable terms to permit successful commercialization of the Companys
products.

Patents and Proprietary Technology

The Companys success depends in part on its ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of third parties. The Company has filed patent applications in Canada,
the United States and internationally. Other than the patents granted by the
patent offices in Canada, the United States and internationally to date, there
can be no assurance that these patent applications will be allowed, that the
Company will develop additional proprietary products that are patentable, that
patents that have already been granted to the Company will provide it with any
competitive advantage or will not be challenged by any third parties, or that
patents of others will not have an adverse effect on the Companys ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any of the Companys
products, or design around the products patented, if any, by the Company. In
addition, the Company may be required to obtain licences under patents or other
proprietary rights of third parties. There can be no assurance that any
licences required under such patents or proprietary rights will be available on
terms acceptable to the Company. If Lorus does not obtain such licences,

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it could encounter delays in introducing one or more of its products to
the market, while it attempts to design around third party patents, or the
Company could find that the development, manufacturing or sale of products
requiring such licences could be foreclosed. In addition, Lorus could incur
substantial costs in defending suits brought against it on patents or in suits
in which it attempts to enforce its own patents, if any, against other parties.

Until such time as further patents are issued to the Company, its ability
to maintain the confidentiality of its technology is crucial to its ultimate
possible commercial success. While the Company has adopted procedures designed
to protect the confidentiality of its technology, there can be no assurance
that such arrangements will be effective, that third parties will not gain
access to the Companys trade secrets or disclose the technology, or that the
Company can meaningfully protect its rights to its trade secrets. Further, by
seeking patent protection in various countries, it is inevitable that a
substantial portion of the Companys technology will become available to its
competitors, through publication of such patent applications. In addition, the
Company uses contract manufacturers to manufacture its products. In order for
these manufacturers to produce the Companys products, the Company must provide
them with valuable confidential information regarding their formulation. If the
Company is unable to maintain the confidentiality of its technology, this could
have a material adverse impact on the Companys business and financial
condition.

Dependence on the Successful Outcome of Clinical Trials

In order to commercialize its products, Lorus must obtain approval from
governmental regulatory agencies. Regulatory approval can take several years
and can involve substantial expenditures. There can be no assurance that
difficulties or excessive costs will not be encountered by the Company in its
efforts to secure necessary approvals or licences, which could delay or prevent
the Company from marketing its products. There can be no assurance that the
Company will ever obtain necessary regulatory approvals or licences for any of
its products.

Before obtaining regulatory approval for the sale of the Companys
products, they must be subjected to extensive preclinical and clinical testing
to demonstrate their safety and efficacy for humans. Loruss success will
depend on the success of its currently ongoing clinical trials and subsequent
clinical trials that have not yet begun. There are a number of difficulties and
risks associated with clinical trials. The possibility exists that:



| |  |  | the Company may discover that a product
candidate does not exhibit the expected therapeutic results
in humans;                                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | results may not be statistically significant or
predictive of results that will be obtained from large-scale,
advanced clinical trials;                                                                
|
| |  |  | patient recruitment may be slower than
expected;                                                                                                                                                       
|
| |  |  | the Company or the United States Food and Drug
Administration (FDA) or the Health Products and Food Branch
of Health Canada (HPFB) may suspend the clinical trials of
the Companys product candidates;
|
| |  |  | the Company may discover that a product may cause harmful side effects; and                                                                                                                            
|
| |  |  | patients may drop out of Loruss clinical trials.                                                                                                                                                      

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Given the uncertainty surrounding the regulatory and clinical trial
process, the Company may not be able to develop safe, commercially viable
products. If Lorus is unable to successfully develop and commercialize any of
its products, this would severely harm its business, financial condition and
results of operations and have an adverse impact on the Companys share price.

Reliance on Clinical Investigators and Contract Research Organizations

Lorus depends on independent clinical investigators and contract research
organizations to conduct its clinical trials. Contract research organizations
also assist it in the collection and analysis of the Companys data. These
investigators and contract research organizations are not the Companys
employees and it cannot control, other than by contract, the amount of
resources, including time, that they devote to the Companys products. If
independent investigators fail to devote sufficient resources to the
development of the Companys products, or if their performance is substandard,
it will delay the approval and commercialization of the Companys products.
Further, the FDA and the HPFB require that the Company comply with standards,
commonly referred to as good clinical practice, for conducting, recording and
reporting clinical trials to assure that data and reported results are credible
and accurate and that the rights, integrity and confidentiality of trial
subjects are protected. If the Companys independent clinical investigators and
contract research organizations fail to comply with good clinical practice, the
results of its clinical trials could be called into question and the clinical
development of the Companys products could be delayed. Failure of clinical
investigators and contract research organizations to meet their obligations to
the Company or comply with good clinical practice procedures could adversely
affect the clinical development of Loruss products, and have a material
adverse effect on its business and financial condition.

Reliance on Contract Manufacturing

The Company currently relies upon contract manufacturers to manufacture
small quantities of its products for use in clinical trials. The Company
intends to continue to rely upon these and other third parties to manufacture
its products in the future. Lorus has limited manufacturing experience and no
manufacturing facilities. If Lorus is unable to obtain new or retain its
current contract manufacturers, it will not be able to effectively conduct its
clinical trials or ultimately commercialize its products. In addition, the
Companys current and any future contract manufacturers may not comply with
government regulations, or other regulatory requirements relating to the
manufacturing of its products, including compliance with good manufacturing
practice, or GMP. GMP requires that the methods, facilities or controls used
for a drug products manufacture, processing, packing or holding follow rules
and guidelines to meet certain safety requirements and to ensure the drug has
the characteristics and strength the Company claims it has, and meets quality
and purity requirements. The risks associated with the Companys reliance on
contract manufacturers include the following:



| |  |  | Contract manufacturers may encounter
difficulties in achieving volume production, quality control
and quality assurance, and also may experience shortages in
qualified personnel. As a result, the Companys contract
manufacturers might not be able to meet its clinical
development schedules or adequately manufacture the Companys
products in commercial quantities when required.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Switching manufacturers may be difficult
because the number of potential manufacturers is limited. It
may be difficult for the Company to find a replacement
manufacturer quickly or on terms acceptable to it, or at all.                                                                                                                                                                                                                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Companys contract manufacturers may not
remain in the contract manufacturing business for the time
required to successfully produce, store and distribute its
products.                                                                                                                                                                                                                                                                    
|
| |  |  | The Companys contract manufacturers are
subject to ongoing periodic, unannounced inspection by the
FDA and the HPFB and corresponding governmental agencies to
ensure strict compliance with, among other things, GMP, in
addition to other governmental regulations and corresponding
foreign standards. Lorus does not have control over, other
than by contract, third party manufacturers compliance with
these regulations and standards.
|
| |  |  | If Lorus needs to change manufacturers, the FDA
and the HPFB and corresponding regulatory agencies must
approve these manufacturers in advance, which will involve
testing and additional inspections to ensure compliance with
these regulations and standards.                                                                                                                                                                                

The Companys dependence on third parties for the manufacture of its
products may have an adverse impact on its ability to develop and deliver
products on a timely and competitive basis and may have a material adverse
effect on its business and financial condition.

Sales, Marketing and Distribution Capabilities

Lorus does not have any sales, marketing or distribution capabilities. In
order to commercialize its products, if any are approved, the Company must
either acquire or internally develop sales, marketing and distribution
capabilities or make arrangements with third parties to perform these services
for it. If Lorus obtains regulatory approval for its existing products, it
intends to rely on relationships with one or more pharmaceutical companies or
other third parties with established distribution systems and direct sales
forces to market its products. If the Company decides to market any of its
products directly, it must either acquire or internally develop a marketing and
sales force with technical expertise and with supporting distribution
capabilities. The acquisition or development of a sales and distribution
infrastructure would require substantial resources, which may divert the
attention of management and key personnel, and have a negative impact on the
Companys product development efforts. Moreover, Lorus may not be able to
establish in-house sales and distribution capabilities or relationships with
third parties. The inability to market its products could have a material
adverse effect on the Companys business and financial condition.

Technology and Competition

Loruss success depends on developing and maintaining a competitive
position in the development of products and technologies in its area of
expertise. Biotechnology is a rapidly evolving field in which new developments
are expected to continue at a fast pace. Technological competition in the
industry from other biotechnology companies and others diversifying into the
field is intense and expected to increase. Many of these companies have
substantially greater research and development capability and experience, and
marketing, financial and managerial resources than Lorus does, and represent
significant long-term competition for Lorus. The acquisition of competing
biotechnology companies by large There can be no assurance that

9



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developments by others will not render Loruss products or technologies
non-competitive or obsolete, or that Lorus will be able to achieve the level of
acceptance within the medical community necessary to compete successfully.
Lorus is aware of several potential competitors that are at various stages of
development or that have commercial sale of products that may address similar
cancer indications. The success of the Companys competitors and their products
may have a material adverse impact on Loruss business and financial condition.

Product Liability and Insurance

The clinical testing and proposed commercialization of Virulizin® and the
clinical testing of GTI-2040 and GTI-2501 involve risks of product liability as
well as patient injury. While the Company currently maintains limited product
liability insurance, there can be no assurance that product liability insurance
will continue to be available to the Company on commercially reasonable terms.
Product liability claims might also exceed the amounts of such coverage. If
Lorus is unable to obtain insurance, is unable to obtain insurance on
commercially reasonable terms or if any claims against Lorus exceed the amounts
of its insurance coverage, this could have a material adverse impact on Loruss
business and financial condition.

Dependence on Key Personnel

The Companys success depends in large part upon its ability to attract
and retain highly qualified scientific and management personnel. Lorus faces
competition for such personnel from other companies, academic institutions,
government entities and other organizations. There can be no assurance that the
Company will retain its current personnel and will be able to continue to
attract qualified personnel.

Volatility of Share Price

Historically, the market price for securities of biopharmaceutical
companies, including Loruss, has been volatile. Future announcements
concerning Lorus or its competitors, including the results of testing,
technological innovations or commercial products, government regulations,
developments concerning proprietary rights, litigation and public concerns as
to the safety of the Companys products may have a significant impact on the
market price of its common shares. In addition, the Companys share price may
be affected by sales by existing shareholders.

Dividend Policy

The Company has never paid dividends on its common shares and does not
anticipate paying dividends on its common shares in the foreseeable future.




Item 4.   Information on the Company

A.   History and Development of the Company

Lorus Therapeutics Inc. was incorporated under the Business Corporations
Act(Ontario) on September 5, 1986 under the name RML Medical Laboratories Inc.
On October 28, 1991, RML Medical Laboratories Inc. amalgamated with Mint Gold
Resources Ltd., resulting in the Company becoming a reporting issuer (as
defined under applicable securities law) in Ontario, on such date. On August
25, 1992, the Company changed its name to IMUTEC Corporation. On November 27,
1996, the Company changed its name to Imutec Pharma Inc., and on November 19,
1998, the Company changed its name to Lorus Therapeutics Inc.

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The address of the Companys head and principal office is 2 Meridian Road,
Toronto, Ontario, Canada, M9W 4Z7.

Unless otherwise noted or the context otherwise indicates, references to
the Company include Lorus together with its subsidiaries. Loruss subsidiaries
are GeneSense Technologies Inc. (GeneSense), a company incorporated under the
laws of Canada of which the Company owns 100% of the issued and outstanding
share capital and NuChem Pharmaceuticals Inc. (NuChem), a company
incorporated under the laws of Ontario of which Lorus owns 80% of the issued
and outstanding share capital.

Certain terms not otherwise defined in this Annual Report are found in the
Glossary, located at pages 80 through 82 of this Annual Report.

B.   Business Overview

Lorus is a biopharmaceutical company focused on the research and
development of cancer therapies. Loruss goal is to capitalize on its
research, pre-clinical, clinical and regulatory expertise by developing new
drug candidates that can be used, either alone or in combination, to
successfully manage cancer. Through its own discovery efforts and an
in-licensing and acquisition program, the Company is building a portfolio of
promising anti-cancer drugs. With products entering all stages of evaluation,
from pre-clinical through Phase III trials, the Company is a leader in the
development of therapeutics that complement the new cancer treatment paradigm
that seeks to manage the disease with efficacious, non-toxic compounds that
improve patients quality of life.

Lorus seeks to reduce the risk associated with individual products or
single technology platforms by pursuing a wide variety of promising anti-cancer
compounds derived from different platform technologies. Lorus intends to
develop compounds that are efficacious and have low-toxicity, ensuring the
drugs will be well tolerated by patients and will be able to be tested in
combination with other approved compounds on the market.

From January 1987 to December 1997, the Company focused its efforts solely
on the development of VIRULIZIN®, a potential new drug functioning as a
biologic response modifier for the treatment of cancer. In November 1997, the
Company sub-licensed, on an exclusive world-wide basis until the later of
patent expiry or marketing approval, from Ion Pharmaceuticals, Inc. (Ion) (a
wholly-owned subsidiary of Sheffield Pharmaceuticals, Inc.) analogues of
clotrimazole (CLT), a molecule with anti-angiogenic and anti-proliferative
properties, for anti-cancer indications as well as actinic keratosis.

On October 29, 1999, Lorus acquired all of the issued and outstanding
shares of GeneSense (the GeneSense Acquisition), a private biopharmaceutical
company that specializes in developing novel oligonucleotide therapeutics for
cancer and infectious diseases. Pursuant to the GeneSense Acquisition, the
Company obtained two anti-cancer products in late-stage, pre-clinical
development, in addition to several other products in the research stage.
Lorus believes that the GeneSense Acquisition also added depth to its research
and development capabilities.

As a consequence of the GeneSense Acquisition, Lorus now holds an
exclusive worldwide license from the University of Manitoba and Cancer Care
Manitoba (formerly The Manitoba Cancer Treatment and Research Foundation) to
develop certain oligonucleotide technologies. Antisense technology, one of the
oligonucleotide technologies, works at the genetic level to interrupt the
process by which disease-causing proteins are produced in order to treat a wide
range of diseases, including cancer and infectious diseases.

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Business Strategy

By developing cancer therapeutics using different mechanisms of action
that may be efficacious against a wide variety of cancers, the Company seeks to
maximize its opportunity to address multiple cancer therapeutic markets. In
its efforts to obtain the greatest return on its investment in each drug
candidate, the Company separately evaluates the merits of each candidate
throughout the clinical trial process and considers commercialization
opportunities when appropriate. The Company intends to partner with
pharmaceutical companies for the sales, marketing and distribution of products.
See Co-development, Marketing and Distribution.

Production and Testing

Preclinical testing and certain research and development work has been
performed at various contract laboratories. Clinical trials have been
undertaken at various medical centers in Canada, the United States and Mexico.

Manufacturing

On May 12, 1998, the Company signed an agreement with Torcan Chemicals for
the manufacture of five NuChem Analogues. The compounds were synthesized in
sufficient quantity for use in the pre-clinical toxicity and efficacy
studies.

The Company has entered into a contract with Proligo LLC, a cGMP
manufacturer, to produce its bulk active drug substance for its antisense
compounds. The manufacturer supplied bulk active drug for Good Laboratory
Practices (GLP) toxicology studies and drug stability studies and has supplied
bulk active drug, subsequently formulated, for both the GTI-2040 and GTI-2501
clinical trials. Proligo has filed a drug master file (DMF) with the FDA and
have supplied the necessary documentation to support the IND submission.

In March 2001, the Company signed an agreement with Dalton Chemical
Laboratories Inc. for the manufacturing of its immunotherapeutic compound
VIRULIZIN®. The drug is being manufactured for the Phase III clinical trial
program that the Company initiated in fiscal 2002 and for the planned supply of VIRULIZIN® for the
Companys licensee, Mayne Pharma Inc. (formerly Faulding Canada
Inc.) for malignant melanoma treatment in Mexico.

Intellectual property and Protection of Confidential Information and Technology

The Company regards its issued patents and pending applications as
important in establishing and maintaining a competitive position with respect
to its products and technology. As at November 30, 2002, the Company owns or
has rights under 40 issued or pending patents in Canada and the United States
as well as a number of other pending patent applications in multiple
jurisdictions.

With regard to antisense compounds, the Company has protected its
intellectual property rights by, among other things, filing patent applications
with respect to intellectual property considered important to the development
of its business. The Company also relies upon trade secrets, unpatented
know-how and continuing technology innovation to develop and maintain its
competitive position.

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There can be no assurance, however, that pending applications will result
in issued patents, or that issued patents will be held valid and enforceable if
challenged, or that a competitor will not be able to circumvent any such issued
patents by adoption of a competitive, though non-infringing product or process.
Interpretation and evaluation of pharmaceutical or biotechnology patent claims
present complex and often novel legal and factual questions. The Companys
business could be adversely affected by increased competition in the event that
any patent granted to it is held to be invalid or unenforceable or is
inadequate in scope to protect the Companys operations.

While the Company believes that its products and technology do not
infringe proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims in the future or that such claims
will not be successful. Furthermore, the Company could incur substantial costs
in defending itself against patent infringement claims brought by others or in
prosecuting suits against others.

In addition, no assurance can be given that others will not obtain patents
that the Company would need to license, or that if a licence is required that
it would be available on reasonable terms, or that if a licence is not obtained
that the Company would be able to circumvent, through a reasonable investment
of time and expense, such outside patents. Whether the Company obtains a
licence would depend on the terms offered, the degree of risk of infringement,
the vulnerability of the patent to invalidation, and the ease of circumventing
the patent.

Until such time, if ever, that further patents are issued to the Company,
the Company will rely upon the law of trade secrets to the extent possible
given the publication requirements under international patent treaty laws
and/or requirements under foreign patent laws to protect its technology and the
products incorporating the technology. In this regard, the Company has adopted
certain confidentiality procedures. These include: limiting access to its
confidential information to certain key personnel; requiring all of its
directors, officers, employees and consultants and others who may have access
to the Companys intellectual property to enter into confidentiality agreements
which prohibit the use of or disclosure of confidential information to third
parties; and implementing physical security measures designed to restrict
access to such confidential information and products. The ability of the
Company to maintain the confidentiality of its technology is crucial to its
ultimate possible commercial success. No assurance can be given that the
procedures adopted by the Company to protect the confidentiality of its
technology will be effective, that third parties will not gain access to
Registrants trade secrets or disclose the technology, or that the Company can
meaningfully protect its rights to its technology. Further, by seeking the
aforementioned patent protection in various countries, it is inevitable that a
substantial portion of the Companys technology will become available to its
competitors, through publication of such patent applications.

License Agreement

The University of Manitoba (the University), Cancer Care Manitoba
(formerly the Manitoba Cancer Treatment and Research Foundation) (Cancer
Care), Dr. Jim Wright and Dr. Aiping Young entered into an exclusive license
agreement (the License Agreement) with GeneSense dated June 20, 1997 pursuant
to which GeneSense was granted an exclusive world-wide license to certain
patent rights with the right to sub-license. In consideration for the
exclusive license to GeneSense of the patent rights, the University and Cancer
Care are entitled to an aggregate of 1.67% of the net sales received by
GeneSense from the sale of products or processes derived from the patent rights
and 1.67% of all monies received by GeneSense from sub-licenses of the patent
rights. GeneSense is solely responsible for the preparation, filing,
prosecution and maintenance of all patent applications and patents included in
the patent rights and all related expenses. Pursuant to the terms of

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the License Agreement, any and all improvements to any of the patent
rights derived in whole or in part by GeneSense after the date of the License
Agreement are not included within the scope of the License Agreement and do not
trigger any payment of royalties.

Regulatory Requirements

Regulation by government authorities in Canada, the United States, Mexico
and the European Union is a significant factor in the current research and drug
development activities of the Company. In order to clinically test,
manufacture and market drug products for therapeutic use, the Company must
satisfy the rigorous mandatory procedures and standards established by the
regulatory agencies in the countries in which it currently operates or intends
to operate.

The laws of most of these countries require the licensing of manufacturing
facilities, carefully controlled research and the extensive testing of
products. Biotechnology companies must establish the safety and efficacy of
their new products in clinical trials, as well as satisfy all regulatory
requirements. The safety and efficacy of a new drug must be shown through
clinical trials of the drug carried out in accordance with the mandatory
procedures and standards established by regulatory agencies.

Regulatory compliance can take several years and can involve substantial
expenditures. There can be no assurance that difficulties or excessive costs
will not be encountered by the Company in its efforts to secure necessary
approvals, which could delay or prevent the Company from manufacturing or
marketing its products.

Canada

In Canada, the manufacture and sale of new drugs are controlled by the
Therapeutic Products Programme (TPP). New drugs must pass through a number
of testing stages, including pre-clinical testing and clinical trials.
Preclinical testing involves testing the new drugs chemistry, pharmacology and
toxicology in vitroand in animals. Successful results (that is, potentially
valuable pharmacological activity combined with an acceptable low level of
toxicity) enable the manufacturer of the new drug to file an IND submission to
begin clinical trials involving humans.

In order to study a drug in Canadian patients, an IND submission must be
filed with the TPP. The IND submission must contain specified information,
including the results of the pre-clinical tests completed at the time of the
submission and any available information regarding use of the drug in humans.
In addition, since the method of manufacture may affect the efficacy and safety
of a new drug, information on manufacturing methods and standards and the
stability of the substance and dosage form must be presented. Production
methods and quality control procedures must be in place to ensure an acceptably
pure product, essentially free of contamination, and to ensure uniformity with
respect to all quality aspects.

Provided the TPP does not reject an IND submission, clinical trials can
begin. Clinical trials are carried out in three phases or a combination
thereof. Phase I involves studies to evaluate toxicity in humans. The new
drug is administered to human patients who have met the clinical trial entry
criteria to determine pharmacokinetics, human tolerance and prevalence of
adverse side effects. Phases II and III involve therapeutic studies. In Phase
II, efficacy, dosage, side effects and safety are established in a small number
of patients who have the disease or disorder that the new drug is intended to
treat. In Phase III, there are controlled clinical trials in which the new
drug is administered to a large number of patients who are likely to receive
benefit from

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the new drug. In Phase III, the effectiveness of the new drug is compared
to that of standard accepted methods of treatment in order to provide
sufficient data for the statistical proof of safety and efficacy for the new
drug.

If clinical studies establish that a new drug has value, the manufacturer
submits a NDS application to the TPP for marketing approval. The NDS contains
all information known about the new drug, including the results of pre-clinical
testing and clinical trials. Information about a substance contained in an NDS
includes its proper name, its chemical name, details on its method of
manufacturing and purification and its biological, pharmacological and
toxicological properties. The NDS also provides information about the dosage
form of the new drug, including a quantitative listing of all ingredients used
in its formulation, its method of manufacture, packaging and labelling, the
results of stability tests, and its diagnostic or therapeutic claims and side
effects, as well as details of the clinical trials to support the safety and
efficacy of the new drug. All aspects of the NDS are critically reviewed by
the TPP. If an NDS is found satisfactory, a notice of compliance is issued
permitting the new drug to be sold.

The TPP has a policy of priority evaluation of new drug submissions for
all drugs intended for serious or life-threatening diseases for which no drug
product has received regulatory approval in Canada and for which there is
reasonable scientific evidence to indicate that the proposed new drug is safe
and may provide effective treatment.

The monitoring of a new drug does not cease once it is on the market. For
example, a manufacturer of a new drug must report any new information received
concerning serious side effects, as well as the failure of the new drug to
produce desired effects. As well, if the TPP determines it to be in the
interest of public health, a notice of compliance for a new drug may be
suspended and the new drug may be removed from the market.

An exception to the foregoing requirements relating to the manufacture and
sale of a new drug is the limited authorization that may be available in
respect of the sale of new drugs for emergency treatment. Under the special
access program, the TPP may authorize the sale of a quantity of a new drug for
human use to a specific practitioner for the emergency treatment of a patient
under the practitioners care. Prior to authorization, the practitioner must
supply the TPP with information concerning the medical emergency for which the
new drug is required, such data as is in the possession of the practitioner
with respect to the use, safety and efficacy of the new drug, the names of the
institutions at which the new drug is to be used and such other information as
may be requested by the TPP. In addition, the practitioner must agree to
report to both the drug manufacturer and the TPP the results of the new drugs
use in the medical emergency, including information concerning adverse
reactions, and must account to the TPP for all quantities of the new drug made
available.

The Canadian regulatory approval requirements for new drugs outlined above
are similar to those of other major pharmaceutical markets. While the testing
carried out in Canada is often acceptable for the purposes of regulatory
submissions in other countries, supplementary testing may be requested by
individual regulatory authorities during their assessment of any submission.
There can be no assurance that the clinical testing conducted under the TPP
authorization or the approval of regulatory authorities of other countries will
be accepted by regulatory authorities outside Canada or such other countries.

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United States

In the United States, the manufacture and sale of new drugs are controlled
by the FDA. New drugs require FDA approval of a marketing application (e.g.,
an NDA or product licence application) prior to commercial sale. To obtain
marketing approval, data from adequate and well-controlled clinical
investigations, demonstrating to the FDAs satisfaction a new drugs safety and
effectiveness for its intended use, are required. Such data are generated in
studies conducted pursuant to an IND submission, similar to that required in
Canada. As in Canada, clinical studies are characterized as Phase I, Phase II
and Phase III trials or a combination thereof. In a marketing application, the
manufacturer must also demonstrate the identity, potency, quality and purity of
the active ingredients of the new drug involved, and the stability of those
ingredients. Further, the manufacturing facilities, equipment, processes and
quality controls for the new drug must comply with the FDAs cGMP regulations
for drugs or biologic products both in a pre-licensing inspection before
product licensing and in subsequent periodic inspections after licensing. In
the case of a biologic product, an establishment licence must be obtained prior
to marketing and batch releasing.

A five-year period of market exclusivity for a drug comprising a New
Chemical Entity (NCE) is available to an applicant that succeeds in obtaining
FDA approval of a NCE, provided the active ingredient of the NCE has never
before been approved in a NDA. During this exclusivity period, the FDA may not
approve any abbreviated application filed by another sponsor for a generic
version of the NCE. Further, a three-year period of market exclusivity for a
new use or indication for a previously approved drug is available to an
applicant that submits new clinical studies that are essential to support the
new use or indication. During the latter period of exclusivity, the FDA may not
approve an abbreviated application filed by another sponsor for a generic
version of the product for that use or indication.

The FDA has fast track regulations intended to accelerate the approval
process for the development, evaluation and marketing of new drugs used to
diagnose or treat life-threatening and severely debilitating illnesses for
which no satisfactory alternative therapies exist. Fast track designation
affords early interaction with the FDA in terms of protocol design, and
permits, although it does not require, the FDA to issue marketing approval
after completion of early stage clinical trials (although the FDA may require
subsequent clinical trials or even post-approval efficacy studies).

Mexico

In Mexico, the manufacture and sale of new drugs are controlled by the
SSA. The regulatory requirements in Mexico operate under similar regulatory
principles as other international jurisdictions.

Summary

The process of completing clinical trials and obtaining regulatory
approval for a new drug takes a number of years and require the expenditure of
substantial resources. Once a new drug or product licence application is
submitted, there can be no assurance that a regulatory agency will review and
approve the application in a timely manner. Even after initial approval has
been obtained, further studies, including post-marketing studies, may be
required to provide additional data on safety necessary to gain approval for
the use of the new drug as a treatment for clinical indications other than
those for which the new drug was initially tested. Also, regulatory agencies
may require post-marketing surveillance programs to monitor a new drugs side
effects. Results of post-marketing programs may limit or expand the further
marketing of new drugs. A serious

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safety or effectiveness problem involving an approved new drug may result
in a regulatory agency requiring withdrawal of the new drug from the market and
possible civil action.

In addition to the regulatory product approval framework, biotechnology
companies, including the Company, are subject to regulation under local
provincial, state and federal law, including requirements regarding
occupational safety, laboratory practices, environmental protection and
hazardous substance control, and may be subject to other present and future
local, provincial, state, federal and foreign regulation, including possible
future regulation of the biotechnology industry.

Regulatory Strategy

The Companys overall regulatory strategy is to work with the TPP in
Canada, the FDA in the United States, the EMEA in Europe, the SSA in Mexico and
any other local regulatory agencies to have drug applications approved for use
of VIRULIZIN®, GTI-2040, GTI-2501, and NuChem analogues in clinical trials
(alone and/or in combination with chemotherapeutic compounds) and subsequently
for sale in international markets. Where possible, the Company intends to take
advantage of opportunities for accelerated consideration of drugs designed to
treat rare and serious or life-threatening diseases. The Company also intends
to pursue priority evaluation of any application for marketing approval filed
in Canada, the United States, the European Economic Community or Mexico. The
Company also intends to file additional drug applications in other markets
where commercial opportunities exist. There can be no assurance that the
Company will be able to pursue these opportunities successfully.

Co-Development, Marketing and Distribution

The Companys objective is to maximize the therapeutic value and potential
commercial success of VIRULIZIN®, its antisense technology, and the NuChem
analogues. In its efforts to obtain the greatest return on its investment in
each drug candidate, the Company separately evaluates the merits of each
candidate throughout the development process and will consider
commercialization opportunities when appropriate. The Company intends to
partner with pharmaceutical companies for the sales, marketing and distribution
of the Companys products.

The Company has a variety of academic partnerships including: Hospital for
Sick Children; McGill University; Ontario Cancer Institute; United States
NCI; University of Western Ontario, and the University of Chicago Cancer
Center.

In July 2000, the Company entered into a five year agreement with AVI
BioPharma Inc. (AVI) Portland, Oregon, U.S.A. (a leading U.S. company in the
area of antisense technology) for the evaluation and co-development of
antisense drug therapies for cancer and infectious diseases. Under the terms
of the agreement, the Company and AVI will each retain an ownership interest in
any jointly developed compound. Drugs discovered together may also be
developed independently with royalty payments to the other party.

In September 2001, the Company executed a licence and distribution
agreement with Mayne Pharma Inc. (formerly Faulding Canada Inc.). Mayne Pharma
will distribute and sell VIRULIZIN® in Mexico for the treatment of malignant
melanoma. Under the terms of the agreement, Mayne Pharma has exercised its
option to obtain the rights to distribute and sell VIRULIZIN® in Brazil and
also for Argentina. The Company will arrange for the manufacture of VIRULIZIN®
and receive a royalty on sales.

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Competition

The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. There are many companies
in both these industries that are focusing their efforts on activities similar
to those of the Company. Some of these are companies with established
positions in the pharmaceutical industry and may have substantially more
financial and technical resources, more extensive research and development
capabilities, and greater marketing, distribution, production and human
resources than the Company. In addition, the Company may face competition from
other companies for opportunities to enter into collaborative agreements with
biotechnology and pharmaceutical companies and academic institutions. Many of
these other companies are not solely focused on cancer, as is the mission of
the Companys drug development. The Company specializes in the development of
drugs that will help manage cancer. With products in late stage pre-clinical
through to Phase III development, spanning three different platform
technologies focused on cancer, the Company believes it has multiple
opportunities for success.

Products that may compete with the Companys include chemotherapeutic
agents, monoclonal antibodies, antisense therapies and immunotherapies with
novel mechanisms of action. These are drugs that are delivered by specific
means and are targeting cancers with large disease populations. The Company
also expects it may experience competition from established and emerging
pharmaceutical and biotechnology companies that have other forms of treatment
for the cancers targeted by the Company. There are many drugs currently in
development for the treatment of cancer that employ a number of novel
approaches for attacking these cancers. Cancer is a complex disease with more
than 100 indications requiring drugs for treatment. The drugs in competition
with the Companys drugs have specific targets for attacking the disease,
targets which are not necessarily the same as the Companys. These competitive
drugs therefore could potentially also be used together in combination
therapies with the Companys drugs to manage the disease.

C.   Organizational Structure

Lorus subsidiaries are GeneSense, a company incorporated under the laws
of Canada of which the Company owns 100% of the issued and outstanding share
capital and NuChem, a company incorporated under the laws of Ontario of which
Lorus owns 80% of the issued and outstanding common share capital.

D.   Property, Plants and Equipment

The Companys head office, which occupies 20,500 square feet, is located
at 2 Meridian Road, Toronto, Ontario. The premises include approximately 8,000
square feet of laboratory and research space.




Item 5.   Operating and Financial Review and Prospects

A.   Operating Results

The following discussion should be read in conjunction with the audited
consolidated financial statements and notes prepared in accordance with
Canadian generally accepted accounting principles (GAAP). The Company also
identifies significant differences between Canadian and United States GAAP in
note 13 to the consolidated financial statements. All amounts are expressed in
Canadian dollars unless otherwise noted. Annual references are to the Companys
fiscal years which end on May 31.

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The Company is a biopharmaceutical company specializing in the research,
development and commercialization of pharmaceutical products and technologies
for the management of cancer. With products in all stages of evaluation, from
preclinical through Phase III trials, and a product approved in Mexico for
malignant melanoma, the Company is a leader in the development of therapeutics
that seek to manage cancer with efficacious non-toxic compounds that improve
patients quality of life.

The success of the Company depends on the efficacy and safety of its
products in clinical trials and on obtaining the necessary regulatory approvals
to market its products. The Company believes that the treatment and management
of cancer will continue to be addressed through combinations of different
therapies. Many cancer drugs currently approved for use are very toxic with
severe side effects. The Company is a leader in the development of cancer drugs
with low toxicity. Effective drugs with lower toxicity and fewer side effects
could have broad application in cancer treatment while improving the quality of
life of a patient with cancer.

The Companys strategy is to pursue the development of drug candidates
using several therapeutic approaches, dependent upon different technologies,
which mitigates the development risks associated with a single technology
platform. The Companys most advanced anticancer drugs in its pipeline flow
from three platform technologies: Immunotherapeutics (Virulizin®); Antisense
(GTI compounds); and small molecule or Chemotherapeutics (NuChem compounds).

Critical Accounting Policies

We periodically review our financial reporting and disclosure practices
and accounting policies to ensure that our financial reporting and disclosure
system provided accurate and transparent information relative to current
economic and business environment. As part of this process, we have reviewed
our selection, application and communication of critical accounting policies
and financial disclosures. We have determined that our critical accounting
policies relating to our core ongoing business activities are primarily those
that relate to our research and development programs. Other important
accounting policies are described in Note 2 to our consolidated financial
statements for the year ended May 31, 2002.

Research and Development

The Company incurs research and development costs in connection with
advancing its compounds through pre clinical and clinical trials. Research and
development costs include internal resource costs as well as external suppliers
for the manufacturing of drugs and for the performance of clinical trials and
other related activities. Research costs are charged to expense as incurred as
required under generally accepted accounting principles. Development costs,
including the cost of drugs for use in clinical trials, are expensed as
incurred unless they meet the criteria under generally accepted accounting
principles for deferral and amortization. To date, no development costs have
been capitalized, as the criteria for capitalization have not been met. The
Company does not believe that any development costs will be capitalized over
the next twelve months given the current stage of our drug development programs
and the planned activities for fiscal 2003.

The Company capitalizes costs of acquired research and development from
third parties. The Company assesses the nature of the underlying assets
acquired to determine if the asset has an indefinite life. If the asset has an
indefinite life, the acquired asset is not amortized but is instead tested
annually for impairment. If the asset is determined to have a finite life, the
acquired asset is amortized over its expected useful life.

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Results of Operations

The Company has incurred annual operating losses since inception related
to the research, manufacturing, and clinical development of its proprietary
compounds. The Company has not received any revenue from the sales of products
to date. Three products are in the clinical trial stage of development and
several potential compounds exist in preclinical studies. Losses will continue
as the Company invests in these preclinical research and clinical drug
development programs.

Research and Development

Research and development expenditures totaled $8.7 million in 2002
compared to $9.8 million in 2001 and $4.2 million in 2000. The decrease in 2002
from 2001 resulted from the cost of antisense drugs purchased in 2001 which are
being used in fiscal 2002 and future years, but were expensed when purchased.
This decrease in cost more than offset the increased expenditures in 2002 for
an expanded clinical program including the Phase III Virulizin® clinical trial,
Phase II GTI-2040 combination chemotherapy trial and Phase I GTI-2501 trial.
Regulatory costs were also higher in 2002 due mainly to the initiation of the
Phase III clinical trial in the United States. The increase in 2001 over 2000
was due mainly to the cost of antisense and Virulizin® drug development
programs, the operating costs of the Companys research facilities and the
amortization of acquired research and development for a full year in 2001
compared to seven months post-acquisition of GeneSense in 2000.

General and Administrative

General and administrative expenses totaled $4.9 million in 2002 compared
to $6.4 million in 2001 and $3.7 million in 2000. The decrease in 2002 expenses
over 2001 was due mainly to lower spending on patent fees and advisory services
as well as lower recruiting costs. The 2001 results include a full year of
administration costs related to GeneSense compared to seven months in 2000,
with higher costs relating to intellectual property, recruiting and advisory
services, and licensing activities.

Depreciation and Amortization

Depreciation and amortization expenses totaled $2.0 million in 2002
compared to $1.9 million in 2001 and $1.2 million in 2000. The increase in 2002
and 2001 over 2000 related primarily to the amortization of goodwill
established on the acquisition of GeneSense for twelve months in 2001 and seven
months in 2000. Consistent with the application of new accounting
pronouncements the Company will not amortize goodwill in future periods and
will be assessing acquired intangible assets to determine if continued
amortization is appropriate.

Interest Income

Interest income totaled $2.0 million in 2002 compared to $2.9 million in
2001 and $0.5 million in 2000. The decrease in 2002 compared to 2001 was due to
lower cash and short-term investment balances in 2002 and the decline in market
interest rates. The increase in 2001 over 2000 was due primarily to a higher
average cash and investment balance than the previous year. Net cash proceeds
of $61.1 million were raised from the issue of common shares and the exercise
of warrants in 2000, with $42.0 million of this raised in the last month of
2000.

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Loss for the Period

The loss for the year totaled $13.5 million in 2002 compared to $15.2
million in 2001 and $8.6 million in 2000. The decrease in 2002 from 2001 was
primarily due to reduced spending on general and administrative expenses and
net spending reductions on research and development activities due to lower
drug purchases partially offset by lower interest income. The increase in 2001
over 2000 resulted mainly from higher clinical development costs, which
included higher trial initiation and monitoring costs, manufacturing and
regulatory costs in preparation for the Virulizin® phase III trial and
antisense drug costs. Additionally, 2001 results included twelve months of
research and development costs, amortization of acquired research and
development and goodwill, and administration costs related to the GeneSense
Acquisition compared to seven months in 2000.

The loss per common share was $0.09 in 2002 compared to $0.11 in 2001 and
$0.10 in 2000. The loss per share in each year was comparable although the
average number of shares increased significantly in 2001 over 2000.

Financial Summary

The following table summarizes selected unaudited quarterly financial data
over the past two fiscal years ended May 31 in each year. The information
should be read in conjunction with the Companys consolidated financial
statements and related notes. The operating results for any quarter are not
necessarily indicative of results for any future period.

Fiscal 2002

|                                 |  |         |       |         |  |         |       |         |  |   |       |  |  |   |       | 
|-------------------------------- |  | ------- | ----- | ------- |  | ------- | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                                 |  | Fourth  |       | Third   |  | Second  |       | First  
|                                 |  | Quarter |       | Quarter |  | Quarter |       | Quarter
|                                 |  |         |       |         |  |         |       |        
|Net loss                         |  | $       | 3,720 |         |  | $       | 3,028 |         |  | $ | 3,683 |  |  | $ | 3,056 | 
|Basic and diluted loss per share |  | $       | 0.02  |         |  | $       | 0.02  |         |  | $ | 0.03  |  |  | $ | 0.02  | 

Fiscal 2001

|                                 |  |         |       |         |  |         |       |         |  |   |       |  |  |   |       | 
|-------------------------------- |  | ------- | ----- | ------- |  | ------- | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                                 |  | Fourth  |       | Third   |  | Second  |       | First  
|                                 |  | Quarter |       | Quarter |  | Quarter |       | Quarter
|                                 |  |         |       |         |  |         |       |        
|Net loss                         |  | $       | 6,133 |         |  | $       | 2,738 |         |  | $ | 3,806 |  |  | $ | 2,536 | 
|Basic and diluted loss per share |  | $       | 0.04  |         |  | $       | 0.02  |         |  | $ | 0.03  |  |  | $ | 0.02  | 

B.   Liquidity and Capital Resources

Since inception, the Company has financed its operations and technology
acquisitions primarily from equity financing, the exercise of warrants and
stock options, and interest income on funds held for future investment. The
Company believes that its available cash, cash equivalents and short-term
investments, and the interest earned thereon, should be sufficient to finance
its operations and capital needs for at least the next twelve months.

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Financing

In 2002, the Company issued common shares on the exercise of stock options
and warrants for proceeds of $1.4 million. In 2001, the Company issued common
shares on the exercise of warrants and stock options, and under the alternate
compensation plan in the aggregate amount of $2.0 million.

In 2000, the Company raised gross proceeds of $64.5 million from two
public offerings and the exercise of outstanding warrants, and completed a
major acquisition through the issuance of common shares. In October 1999, the
Company issued 36,050,000 common shares and converted existing GeneSense
warrants to new warrants for the acquisition of GeneSense valued at $14.8
million. These new warrants were exercised in early 2000 for gross proceeds of
$5.0 million. Cash paid on the acquisition of GeneSense net of cash received
totaled $0.5 million.

In May 2000, the Company issued 15,333,334 common shares at $3.00 per
share for gross proceeds of $46.0 million. Additional warrant exercises during
2000 provided an additional $3.5 million in cash proceeds.

Operating Cash Requirements

The Companys cash burn (cash used in operating activities) totaled $11.9
million in 2002 compared to $9.7 million in 2001 and $5.4 million in 2000. The
cash burn increased in 2002 over 2001 mainly due to changes in the timing of
accounts payable partially offset by reduced expenditures in operating
activities. The cash burn increased in 2001 over 2000 due mainly to a higher
level of research and development activity and higher clinical development
costs. In 2001 research and development expenses and general and administrative
costs increased also due to a full year of costs related to GeneSense
activities compared to seven months in 2000.

The Companys cash burn is expected to increase in 2003 due to increased
clinical development activity.

Cash Position

At May 31, 2002 the Company had cash and cash equivalents and short-term
investments totaling $37.8 million compared to $48.8 million at the end of
2001. The Company invests in highly rated and liquid government and corporate
debt instruments. Investment decisions are made in accordance with an
established investment policy administered by senior management and overseen by
the Board of Directors.

Working capital (representing primarily cash and cash equivalents and
short-term investments) at May 31, 2002 was $35.6 million ($44.5 million in
2001). The Company does not expect to generate a positive cash flow from
operations for several years due to substantial additional research and
development costs, including costs related to drug discovery, preclinical
testing, clinical trials, manufacturing costs and operating expenses associated
with supporting these activities. The Company may need to raise additional
capital to fund operations over the long-term.

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The Company intends to raise additional funds through equity financings,
collaborative arrangements, acquisitions or otherwise. The Company may seek to
access the public or private equity markets from time to time, even if it does
not have an immediate need for additional capital at that time.

The Company intends to use its resources to fund its existing drug
development programs and develop new programs from its portfolio of preclinical
research technologies. The amounts actually expended for research and drug
development activities and the timing of such expenditures will depend on many
factors, including the progress of the Companys research and drug development
programs, the results of preclinical and clinical trials, the timing of
regulatory submissions and approvals, the ability of the Company to establish
collaborative research or drug development arrangements with other
organizations, the impact of any in-licensed or acquired technologies, the
impact from technological advances, determinations as to the commercial
potential of the Companys compounds, and the timing and status of competitive
products.

Risks and Uncertainties

Funding needs may vary depending on many factors including: the progress
and number of research and drug development programs; costs associated with
clinical trials and the regulatory process; costs related to maintaining drug
manufacturing sources; costs of prosecuting or enforcing patent claims and
other intellectual property rights; collaborative and license agreements with
third parties; and opportunities to in-license or acquire new products.

The Companys interest income is subject to fluctuations due to changes in
interest rates in its investment portfolio of debt securities. Investments are
held to maturity and have staggered maturities to minimize interest rate risk.

The Company purchases some services and manufactured drugs in U.S.
currency, and conducts clinical trials in the United States. U.S. dollar
expenditures are expected to increase in 2003 from additional clinical activity
in the United States. The Company does not currently engage in hedging its
U.S. currency requirements to reduce exchange rate risk, but may do so in the
future if conditions warrant.

Recent Accounting Pronouncements

In August 2001, the Canadian Accounting Standards board (AcSB) issued
Handbook Section 1581, Business Combinations, and Handbook Section 3062,
Goodwill and Other Intangible Assets. Section 1581 requires that all business
combinations be accounted for by the purchase method and it sets out criteria
in determining the valuation and allocation of the purchase price in a business
combination to tangible assets, intangible assets and goodwill. Section 3062
requires that goodwill no longer be amortized to earnings, but instead be
periodically reviewed for impairment. Section 3062 also requires that
intangible assets be assessed to determine if they have an estimated useful
life or whether they have an indefinite life. Intangible assets that have an
estimated useful life will continue to be amortized systematically over the
useful life. Intangible assets with indefinite useful lives are not to be
amortized but are instead to be tested for impairment annually.

Upon adoption of the new Section 3062 in fiscal 2003, the Company must
perform transitional impairment tests on goodwill and intangible assets with
indefinite lives. Any impairment losses are to be measured as of the date of
adoption. Impairment losses assessed on transition, if any, will be recorded as
an adjustment to retained earnings. The impact of adopting Section 1581 and
3062 has not yet been determined.

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In July 2001, the U.S. Financial Accounting Standards Board (USAcSB)
issued Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations and SFAS 142 Goodwill and Other Intangible Assets which are
consistent with Sections 1581 and 3062, respectively, except for certain
remaining generally accepted accounting principles differences, including the
accounting for purchased in-process research and development and the recording
of any impairment charge determined on transition as a period cost which are
required under U.S. GAAP.

In December 2001, the AcSB issued Handbook Section 3870 Stock-Based
Compensation and Other Stock-Based Payments. Section 3870 establishes
standards for the recognition, measurement, and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees. It applies to transactions in
which common shares, stock options, or other equity instruments are granted or
liabilities incurred based on the price of common stock or other equity
instruments.

The Company will adopt Section 3870 for its fiscal year beginning June 1,
2002. The Company does not believe that the adoption of this standard will have
a material impact on the Companys financial condition or results of operations
as the Companys current accounting policies, as disclosed above, comply with
the new standard.

U.S. and Canada GAAP Difference

The Companys financial statements have been prepared in accordance with
generally accepted accounting principles as applied in Canada. In certain
respects, GAAP as applied in the United States differs from that applied in
Canada.

SFAS 123 Employee Stock Compensation

SFAS No. 123 encourages, but does not require, the recording of
compensation costs for stock options issued to employees to be valued at fair
value. For companies choosing not to adopt the fair value measurement for stock
based compensation, the pronouncement requires the Company to disclose pro
forma net income and earnings per share information as if the Company had
accounted for its stock options under the fair value method since 1995. The
Company has elected not to adopt the recording of compensation costs for stock
options at fair value and, accordingly, a summary of the pro forma impact on
the statement of loss is presented in the table below:

|                                                                |  |      |        |      |  |      |        |  |  |   |       | 
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|(amounts in 000's)                                              |  | 2002 |        | 2001 |  | 2000
|                                                                |  |      |        |      |  |     
|Loss for the year                                               |  | $    | 13,487 |      |  | $    | 15,213 |  |  | $ | 8,599 | 
|Compensation expense related to the
fair value of stock options |  |      | 1,278  |      |  |      | 1,059  |  |  |   | 1,285 | 
|Pro forma loss for the period                                   |  | $    | 14,765 |      |  | $    | 16,272 |  |  | $ | 9,884 | 
|Pro forma loss per common share                                 |  | $    | 0.10   |      |  | $    | 0.12   |  |  | $ | 0.11  | 

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The fair value of each option granted has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for options granted in the years ended May 31, 2002, 2001, and
2000: (i) dividend yield of 0%; (ii) expected volatility of 80% (2001  95%,
2000  95%); (iii) risk-free interest rate of 3.6% (2001  5.4%, 2000  6.0%)
and (iv) expected lives of 5 years. The Company has assumed no forfeiture rate
as adjustments for actual forfeitures are made in the year they occur. The
weighted-average grant-date fair values of options issued in the years ended
May 31, 2002, 2001, and 2000 were $ 0.71, $1.56, and $0.60 respectively.

SFAS 130 Reporting Comprehensive Income

SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income. This standard defines comprehensive income as the changes
in equity of an enterprise except those resulting from shareholder
transactions. Comprehensive loss for the periods presented in the Companys
financial statements equaled the loss for the period.

C.   Research and Development, Patents and Licenses, etc.

See Note 8 to the Financial Statements at Item 17.

Cancer Therapy Technologies

Cancer Biotherapy

Chemotherapeutic drugs have been a major medical treatment for cancer for the past 30 years. However, a wide range
of new cancer drugs have been developed by biotechnology companies that help
improve patients quality of life. Unlike chemotherapies which are chemically
based, these new drugs are biological, based on naturally occurring proteins or
genetic material. The biotherapies in development include immunotherapy, gene
therapy, and angiogenesis inhibitors. While chemotherapy drugs are typically
toxic and delivered systemically, these biological agents are targeted to the
tumor and, more specifically, to individual molecules or genes. These agents
promise to have few and only mild side effects which means that, in theory,
larger, and therefore more effective, doses can be administered.

The Companys lead products span three classes of anti-cancer therapies:
(i) immunotherapy, based on macrophage stimulating biologic response modifiers;
(ii) antisense therapies, based on synthetic segments of DNA designed to bind
to the messenger RNA (mRNA) that is responsible for the production of proteins
over-expressed in cancer cells, and (iii) small molecule chemotherapies based
on anti-angiogenic, anti-proliferative and anti-metastatic agents. The Company
has a number of other anti-cancer technologies in the research and pre-clinical
stages of development, including gene therapy and U-Sense technology.

The Companys product pipeline is illustrated below, summarizing the stage
of development of the Companys products.

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PRODUCT PIPELINE

Graph describing state of product development



---

|* |  | Approved for sale in the private market in Mexico
|- |  | -------------------------------------------------

PRINCIPAL PRODUCTS

Immunotherapy

VIRULIZIN®

Immunotherapy is a form of treatment that stimulates the bodys immune
system to fight diseases such as cancer. Immunotherapy may help the immune
system to fight cancer by recognizing the difference between healthy cells and
cancer cells, or it might stimulate the production of certain cancer fighting
cells. VIRULIZIN® has been shown to be a non-toxic immunotherapy that
recruits monocytes and macrophages to attack tumor cells. Since the drug works
by encouraging the immune system to attack the cancer, rather than killing the
cancerous cells itself, it can demonstrate fewer negative side effects than
commonly used chemotherapy agents.

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The human immune system and the bodys other protective cellular and
molecular systems constitute a complex network of organs, tissues and cells
which protect the body against foreign substances such as viruses, foreign
tissue and cancer. Appropriate immune system response is critical to both
health and survival. When the immune system functions properly, the system
recognizes and effectively eliminates foreign substances. Conversely,
inadequate or suppressed immune function may result in disease and, possibly,
death. When inadequate or suppressed immune function occurs, modification or
enhancement of the immune system may restore normal function. Immune system
modification or enhancement may be achieved through the use of therapeutic
products that stimulate or activate the immune system to achieve a desired
response.

In recent years, a major focus of the biotechnology industry has been to
develop naturally occurring human therapeutics, which are referred to broadly
as biologic response modifiers (BRMs), and are so described because they are
able to influence certain cellular events in the body. Many different
substances are classified as BRMs and they have varied biological activities.
Some of the major categories of BRMs include interferons (naturally occurring
proteins capable of killing cancer cells or inhibiting their growth),
interleukins (growth factors that stimulate cells of the immune system to fight
cancer) and cytokines (substances produced by immune system cells, usually to
send messages to other cells). BRMs have applications in a variety of
diseases, including cancer, and are currently being employed in the area of
cancer immunotherapy. BRMs may be used alone, in various combinations with
other BRMs, or as adjuncts to other therapies.

VIRULIZIN®, the Companys immunotherapeutic drug, has been shown to be a
non-toxic immunotherapy that recruits monocytes and macrophages to attack tumor
cells. Types of white blood cells, monocytes and macrophages are key players
in the immune response to foreign invaders, including tumor cells. When
macrophages and monocytes are activated, they produce proteins called
cytokines, which have the ability to kill tumor cells directly. VIRULIZIN®
stimulates the release of tumor necrosis factor (TNF-alpha), one type of
cytokine, in immune cells to induce apoptosis (programmed cell death) of tumor
cells. It is likely that the drug works by encouraging the immune
system to attack the cancer, rather than killing the cancerous cells itself,
studies suggest that VIRULIZIN® produces fewer negative side effects than
commonly used chemotherapy agents.

Pre-clinical Testing

Toxicity studies conducted at independent laboratories have shown
VIRULIZIN® to have a good safety profile. No demonstrable
LD50 was determined
during these studies, and repeated administrations of VIRULIZIN® did not result
in organ system toxicities. In November 1998, additional preclinical data on
the efficacy of VIRULIZIN® was obtained from studies performed at the
University of Nebraska Medical Center. The Company performed these supporting
studies to determine the efficacy of VIRULIZIN® in connection with gemcitabine,
an Eli Lilly product that is the standard for first-line treatment of
pancreatic cancer, in a human tumor xenograft model commonly used for
pancreatic cancer. After extended daily administration, VIRULIZIN®
significantly inhibited tumor growth in this model compared to a placebo.
VIRULIZIN® also showed a trend towards an additive anti-tumor activity when
combined with gemcitabine.

In January 2001, the Company reported that VIRULIZIN® demonstrated better
anti-tumor activity in mice containing human breast cancer tumor cells than
Taxol, one of the current standard treatments available for breast cancer.
Additional findings revealed that the most outstanding anti-tumor activity
occurred when VIRULIZIN® and Taxol were used in combination. Also, in August
2001, the Company announced pre-clinical results of VIRULIZIN® at the
international conference, Drug Discovery Technology 2001. The results

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of four independent tests with mice inoculated with human large cell lung
carcinoma cells, small cell lung carcinoma cells, ovarian adenocarcinoma cells
and prostatic carcinoma cells showed significant improvement over the current
standard of treatment or the saline control.

Clinical Development Program

The clinical trials conducted by the Company were primarily established to
determine the safety and efficacy of VIRULIZIN® as a single therapeutic agent
for treating the most serious or life threatening cancer indications. These
clinical trials involved Stage III and Stage IV cancer patients who had been
diagnosed with cancers that were life-threatening and for which there were no
established effective therapies. Approximately 250 patients had been enrolled
in the clinical trials conducted in the United States, Canada, and Mexico and
others have received VIRULIZIN® through the Companys special access program.

The Company received orphan drug designation from the United States Food
and Drug Administration (FDA) in February 2001 for VIRULIZIN® in the
treatment of pancreatic cancer. Orphan drug status is awarded to drugs used in
the treatment of a disease that afflicts less than 200,000 patients annually in
the U.S. to encourage research and testing. This status means that the FDA
will help to facilitate the drugs development process by providing financial
incentives and granting seven years of market exclusivity in the U.S.
(independent of patent protection) upon approval of the drug in the United
States.

The Company has initiated a Phase III clinical trial to evaluate
VIRULIZIN® for the treatment of advanced pancreatic cancer. The Company
intends to present the results of this clinical trial to the FDA in a new drug
application at the completion of the study. This double-blind, randomized
clinical trial is designed to be conducted at approximately 40 North American
medical centres with the goal of enrolling 350 patients with advanced
pancreatic cancer. Patients enrolled in the study will be randomised to
receive either treatment with gemcitabine or treatment with gemcitabine in
combination with VIRULIZIN®. Those patients who fail or become resistant to
gemcitabine will then be treated with 5-Fluorouracil (5-FU) or with 5-FU in
combination with VIRULIZIN®. The Companys study protocol provides that all
study subjects will be monitored throughout the remainder of their lifespan.
The end points of the study will be survival and clinical benefits, and the
duration is expected to be approximately four years. If the trial is
successful, the Company intends to file an NDA with the FDA.

In June 2002, the Company announced that the FDA had granted fast track
designation for VIRULIZIN® in the treatment of pancreatic cancer. This
designation means that the FDA will assist in facilitating the development and
expediting the review of VIRULIZIN®. Drugs given a fast track designation are
intended for the treatment of a life-threatening condition and have
demonstrated the potential to address unmet medical needs. Fast track products
usually meet the FDAs criteria for priority review.

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Clinical Trial Results

In September 1992, the Company completed a Phase II clinical trial of
VIRULIZIN® in Canada for the treatment of pancreatic adenocarcinoma.
Pancreatic adenocarcinoma develops in the glands that produce enzymes that
travel through the pancreatic duct to the small intestine to aid digestion.
Approximately 90% of pancreatic cancers are pancreatic adenocarcinomas. The
historic median survival from date of diagnosis for late stage pancreatic
adenocarcinoma patients is approximately 120 days with a one-year survival rate
of 13.8% (Brijir Gudjonsson, Cancer of the Pancreas  50 Years of Surgery
(1987) 60 Cancer2284). In the Companys Phase II clinical trial, the median
survival for advanced pancreatic adenocarcinoma patients with an expectation of
at least three months survival treated with VIRULIZIN® was 219 days, and the
one-year survival rate was 35%. Disease stabilization was reported in 35% of
the evaluable patients for more than three months. None of these patients
developed any clinical or laboratory evidence of drug-related toxicity ((1994)
17 Clinical Investigative Magazine37-41).

In September 1993, the Company completed a Phase II clinical trial of
VIRULIZIN® in Mexico in the treatment of advanced malignant melanoma. Advanced
malignant melanoma is a type of skin cancer with a tendency to spread via the
lymphatic system and blood supply to other organs and tissues. The historic
median survival from the date of diagnosis of advanced malignant melanoma was
93 days with a one-year survival rate of 13% (C.M. Balch, et al., eds.,
Cutaneous Melanoma, 2nd ed. (Philadelphia: J.B. Lippincott, 1992)). In the
Companys Phase II trial, the median survival from the date of diagnosis for
advanced malignant melanoma patients treated with VIRULIZIN® was 396 days and
the one-year survival rate was 54%. Only a few mild to moderate adverse events
related to treatment with VIRULIZIN® were reported including pain at the
injection site and fever. The interim results from this multi-center Phase II
clinical trial were presented at the Baylor College of Medicine Research
Symposium in April 1993. Based upon the results of the Mexican trial, the
Company filed an NDA in November 1996, to obtain marketing approval of
VIRULIZIN® in Mexico as a treatment for advanced malignant melanoma. In
October 1997, the Company received a license from the SSA to sell VIRULIZIN® in
Mexico in the private market for the treatment of malignant melanoma.

In August 1998, the Company released results of the Phase I/II trial
evaluating VIRULIZIN® in patients with pancreatic cancer at the Rush Cancer
Institute. Of the 26 patients enrolled, 19 were deemed evaluable according to
the study protocol. The Company announced that the overall median survival for
all evaluable patients was 6.7 months and the six-month survival rate was 58%.
These results confirm and extend previous studies performed by the Company in
Canada in pancreatic cancer patients. Results of the current study have also
shown that VIRULIZIN® continues to show an excellent safety profile, and there
is an increasing trend and a statistically significant improvement in total
quality-of-life change score.

The first peer-reviewed presentation of the U.S. preclinical and clinical
trial results of VIRULIZIN® was presented at the 90th Annual Meeting of the
American Association for Cancer Research (the AACR) in Philadelphia on April
13, 1999. A scientific abstract, entitled A Novel Immunotherapeutic Agent for
Pancreatic Cancer: Results of Preclinical and Clinical Trials Using VIRULIZIN®
was submitted to the AACR in October 1998. During the AACR meeting, it was
announced that in a preclinical study in mouse models of human pancreatic
cancer, VIRULIZIN® significantly inhibited tumor growth. Among treated mice,
tumors were only 60% of the size of the tumors in the untreated mice. The
response was even greater when the chemotherapeutic agent gemcitabine was added
to the treatment, with tumors in the treated mice only 26% of the size of the
tumors in the untreated mice.

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Future Applications

The Company believes that in vitroand in vivoresearch supports the
therapeutic potential of VIRULIZIN® in the treatment of diseases associated
with immune system disorders other than cancer. The Company previously
sponsored research studies at Rush-Presbyterian-St. Lukes Medical Center in
Chicago to study the potential of VIRULIZIN® in the treatment of endometriosis.
The Companys scientists have also conducted pre-clinical research in the use
of VIRULIZIN® in combination with known cytotoxic or chemotherapeutic agents in
the treatment of cancer. The Company intends that the results from these
studies will form the basis for a potential clinical program of VIRULIZIN® in
combination with other cancer therapeutic agents. However, there can be no
assurance that the Company will enter into this clinical program.

In April 2002, the Company presented data supporting both the mechanism of
action and the characterization of VIRULIZIN®, at the American Association for
Cancer Research Conference. This knowledge of the composition of VIRULIZIN®
has enabled the Company to initiate a pre-clinical research program for the
development of novel immunotherapeutic products. One such product has recently
been tested in vivoand compared to VIRULIZIN® for anticancer activity.
Results from these pre-clinical tests indicated that VIRULIZIN® and the new
immunotherapeutic product exhibited strong antitumor activity in mouse models
with human pancreatic carcinoma tumors.

Antisense therapies

Many chemotherapeutic drugs are chemicals designed to induce or inhibit
the function of a target molecule, typically an enzyme or receptor. The
selectivity of these drugs is usually determined by only a few, generally two
or three, points of interaction at the binding site of a target molecule.
Frequently, sites on other non-target molecules resemble the target-binding
site sufficiently to permit the conventional drug to bind to some degree. This
indiscriminate affinity or lack of specificity can result in decreased
efficacy, unwanted side effects, and increased toxicity. Overcoming these
limitations has been a primary goal for recent anti-cancer drug development.
One such method involves the use of antisense therapies.

The human metabolism is essentially controlled by proteins produced by the
body. Since most human diseases, including cancer, can be traced to faulty
protein production, traditional therapeutics are designed to interact with the
disease causing proteins. Antisense therapeutics take a different approach to
treatment: they are designed to prevent the production of the proteins causing
the disease.

Antisense oligonucleotides are synthetic segments of DNA designed to bind
to the mRNA that is responsible for the production of disease-associated
proteins. The sequence of nucleic acid bases in an antisense oligonucleotide is
complementary to its nucleic acid target sequence on the mRNA. Thus, the
antisense oligonucleotide binds at a significant number of points to the target
site, and hybridizes (binds) tightly to the selected mRNA. Since a single mRNA
may be translated repeatedly into a protein, a single antisense oligonucleotide
may inhibit the synthesis of many copies of a protein. Moreover, in vitro
tests have shown that these antisense/mRNA complexes activate enzyme activity
that destroys the mRNA to which the oligonucleotide is bound, without
destroying the oligonucleotide itself. This frees the oligonucleotide to bind
with another identical target mRNA and repeat the inhibitory process.
Furthermore, it is possible that an antisense molecule may inhibit specific
expression by binding to the gene responsible for coding for the mRNA molecule
preventing the mRNA molecule from being synthesized. It may also bind to an
unprocessed mRNA

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molecule, preventing it from developing into a mature mRNA, or it may bind
to a specific mRNA molecule preventing it from translocating from the nucleus
of the cell to the cytoplasm where protein synthesis occurs.

The main attributes of antisense therapies are specificity and rational
design. As a function of the simple nucleotide base-pairing rules, therapeutic
intervention using antisense compounds can be a universal approach to a number
of diseases whose causative agents or targets have been characterized at the
DNA level. The specificity of an antisense therapeutic is determined by the
occurrence of a given nucleotide sequence. It has been calculated that a
17-mer (17 nucleotides) oligonucleotide sequence should theoretically appear
only once in the human genome. Furthermore, the binding affinity between
complementary strands of nucleic acids is exceptionally high. It is expected
that antisenses combination of high specificity and affinity, which is
difficult to achieve with conventional protein-targeted drugs, could
substantially reduce side effects due to unwanted interference with other
essential cellular activities.

The rational design of oligonucleotides aimed at the inhibition of gene
expression is based on targeting nucleotide sequences. Thus, an advantage of
developing antisense compounds is that the design and synthesis are relatively
straightforward. The structure of 20-mer antisense oligonucleotides, which is
complementary to all possible 20 base sequences within a 1,000 base mRNA
sequence, is strictly defined.

The unique premise of this therapeutic approach is to target an earlier
stage of the biochemical process than is usually possible with conventional
drugs. Traditional therapies usually interact with the final synthesized or
processed protein, whereas this newer approach alters an earlier expression of
the gene that codes for such a protein. Therefore, it is believed that drugs
based on this approach may have broad applicability, greater efficacy and fewer
side effects than conventional drugs.

The effectiveness of an antisense drug is largely dependent on the protein
targeted. When examining antisense targets, the Company chose ribonucleotide
reductase (RNR) because of its significance in the uncontrolled cell growth
associated with essentially every cancer. RNR, which is composed of two
protein components called R1 and R2, is a highly regulated cell enzyme that is
essential for DNA synthesis and repair. RNR catalyzes the formation of
deoxyribonucleotides, which are required for building the cells DNA and thus
responsible for cell replication. The Companys antisense therapeutics are
designed to inhibit this process, and in turn, the Company anticipates that
this will inhibit the growth of tumor cells.

GTI-2040

The Companys lead antisense therapy is GTI-2040. GTI-2040 is an
antisense agent that targets the R2 component of RNR. The R2 component is an
unusually effective target for drug intervention because it is the
rate-limiting component in the ribonucleotide reductase activity important for
cancer cell proliferation. It is also bi-functional since an elevation in the
R2 component in cancer cells also alters the activity of an important
biochemical signal pathway called the MAP Kinase Pathway, which is known to
play a role in mechanisms leading to the development of cancer. The Company
has designed antisense molecules that specifically target the R2 mRNA,
resulting in:



| |  |  | reduced R2 protein and R2 mRNA levels in human tumor cells grown in culture;                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | significant inhibition of tumor cell growth in vitro; and                                                      
|
| |  |  | statistically significant reduction of tumor growth and tumor cell
dissemination (metastasis) in animal models.

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Since it has been noted that levels of R2 are elevated in cancer cells, an
antisense molecule that binds to the mRNA coding for R2 inhibits the
replication of diseased cells. Further, research indicates that reducing
levels of R2 expressed in cells lowers resistance levels to other
pharmaceutical compounds that might be used in combination therapy with
GTI-2040.

GTI-2501

The Companys other antisense therapy is GTI-2501, designed to
specifically target the R1 mRNA, resulting in:



| |  |  | reduced R1 protein and R1 mRNA levels;                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------
|
| |  |  | significant inhibition of tumor cell growth in vitro;                                                              
|
| |  |  | statistically significant reduction of tumor growth and tumor cell
dissemination (metastasis) in animal models; and
|
| |  |  | total regression in some tumor models.                                                                             

GTI-2501 is an antisense agent that targets the R1 component of human RNR
and research indicates that it prevents the formation of the R1 protein
required for ribonucleotide reductase activity.

Pre-Clinical Testing

Pre-clinical studies have demonstrated that both GTI-2040 and GTI-2501 are
well tolerated in humans at concentrations that exceed therapeutic doses. All
observed toxicities are consistent with phosphorothioated oligonucleotide
compounds, and include increased blood clotting times as well as some signs of
complement activation at high doses.

In the presence of GTI-2040, both R2 protein and R2 mRNA levels in tumor
cells in vitrowere dramatically reduced. Experiments have demonstrated that
GTI-2040 specifically alters the expression of its target, R2, in cancer cells.
Tumor suppression in a widely accepted mouse model has been demonstrated in a
variety of tumor types, including colon, pancreas, liver, lung, breast,
ovarian, brain, kidney and skin. The effect on tumor suppression is
statistically significant in all cases, with significance at
p [less than or equal to] 0.0001 for
colon, pancreas, kidney and lung cancers. These results suggest that GTI-2040
has the potential to be a strong drug candidate for the treatment of a broad
range of human cancer types.

On November 22, 1999, the Company announced results of anti-tumor studies
with GTI-2040, including complete tumor regressions, when used in combination
with certain chemotherapeutic agents. The results were based on in vivo
studies performed using recognized human kidney cancer, colon cancer and
melanoma models. The studies were performed at the Companys research
facilities at the Sunnybrook Health Sciences Centre in Toronto, Canada and have
been confirmed through repeat experiments.

The Company reported that when SCID mice bearing a human kidney cancer
line were treated with a combination of GTI-2040 and two commonly used
chemotherapy drugs (5-FU or vinblastine), complete tumor regression was
observed in all the mice treated. The Company also reported that similar tumor
regressions were observed in studies combining GTI-2040 and another commonly
used chemotherapy drug, mitomycin C, in in vivomouse models of human melanoma
and human colon cancer. GTI-2040 also significantly enhanced the anti-tumor
effects of other well-known anti-cancer drugs such as gemcitabine, estramustine
and paclitaxel in a standard human colon carcinoma mouse model.

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In July 2001 the Company announced that GTI-2040 demonstrated anti-tumor
activity in animal models with human lymphoma tumors, adding to the already
broad range of cancers in which GTI-2040 has shown anti-tumor activity.

GTI-2501 targets R1 and has been selected as the Companys second
antisense drug candidate. Complete tumor regression was seen in mice bearing
human breast and renal derived tumors. These findings have been reproduced by
both academic laboratories and interested partners. The compound was also
found to be highly active against a broad range of other human tumors in these
animal models. On November 29, 1999, the Company reported that GTI-2501 was an
effective anti-cancer agent when tested in standard mouse models bearing a
variety of different human cancer lines including tumor cells derived from
lung, breast, colon, kidney, ovary, pancreas and skin cancer. The greatest
anti-tumor activity was found with human tumor cells derived from kidney and
breast cancers treated with GTI-2501. In three independent tests using two
different human kidney cancer lines, the Company observed complete tumor
regressions in all 20 mice tested.

The anti-tumor activity of both GTI-2040 and GTI-2501 was further
demonstrated in mouse models containing human prostate cancer cells. In
February 2000, the Company observed that while both drugs produced marked
reductions in tumor growth, the GTI-2501 treatment also led to disease
stabilization (i.e. very little or no tumor growth).

Clinical Development Program

Formal preclinical development of GTI-2040, including manufacturing and
toxicology studies, was initiated in mid-1998. An IND application filed with
the FDA was approved on December 7, 1999 for a Phase I/II clinical trial of
GTI-2040, given as a 21-day continuous intravenous infusion in the treatment of
solid tumor and lymphoma. This trial was initiated in December 1999 under the
direction of Dr. Richard Schilsky of the Chicago Cancer Research
Center. 30 patients with advanced or metastatic solid tumors were enrolled
in this study. Phase I clinical
endpoints for safety and tolerability were met. Doses ranging from 18.5
mg/m2/day to 222.0 mg/m2/day have been studied and found to display favourable
safety profiles. Based on studies indicating that the R2 target would be
down-regulated at concentrations of GTI-2040 of 185.0 mg/m2/day, the
recommended Phase II dose for GTI-2040 administered as a single agent
was 185.0
mg/m2/day. An additional six patients with renal cell
carcinoma were enrolled in this study to further characterize the toxicity in this patient
population.

The Company has a Phase II program underway for GTI-2040. This program
includes an open-label, non-randomized study of GTI-2040 in combination with
capecitabine in patients with advanced metastatic renal cell carcinoma. This
trial is being conducted by Dr. Frank Torti at Wake Forest University in North
Carolina. The decision to select this drug combination (GTI-2040 and
capecitabine) was based on pre-clinical and clinical studies that
indicated that
GTI-2040 or the combination of GTI-2040 and 5-FU, the active ingredient in
capecitabine, should provide benefits for patients with renal cell carcinoma.

In June 2002, the Company announced that it has been approved by the Drug
Development Group of the Division of Cancer Treatment and Diagnosis, the
National Cancer Institute (NCI), to supply the Companys lead antisense drug,
GTI-2040, for multiple clinical trials to evaluate its efficacy in a range of
cancers. The NCI approved GTI-2040 after an analysis of pre-clinical, good
laboratory practice toxicology and Phase I clinical data. The Company intends
to work together with the NCI to select cancer indications and suitable
development programs for a number of clinical trials. The NCI has also
indicated it will sponsor trials conducted with GTI-2040 alone or in
combination with other cancer therapies.

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GLP-toxicology studies for GTI-2501 were completed in November 2000, and
approval of an IND was received from the U.S. FDA February 2001. This Phase I
dose-escalating study is underway at the University of Chicago Medical Centre
and is designed to establish the recommended clinical Phase II dose as well as
look at the safety profile of GTI-2501. Patients with solid tumors or lymphoma
are being enrolled.

Small Molecule Chemotherapies

Most currently employed anti-cancer chemotherapeutic drugs are DNA
damaging, cytotoxic agents, designed to act on rapidly dividing cells. These
drugs typically include unpleasant or even serious side-effects due to their
non-specificity to cancer cells, and frequently lead to tumor-acquired drug
resistance. As a result of these limitations, there is an ongoing intensive
world-wide effort to discover more effective anti-cancer drugs.

In December 1997, the Company, through NuChem, acquired certain patent
rights and a sublicense from Ion to develop and commercialize the anti-cancer
applications of CLT and new chemical entities related to CLT (the NuChem
Analogues). The consideration for this acquisition was Ions 20% common share
interest in NuChem, US$350,000 in common shares of the Company and amounts
totalling up to US$3,500,000 payable in cash. On June 15, 1998, the Company
issued from treasury 583,188 common shares in settlement of the US$350,000
obligation. To August 31, 1999, NuChem had made cash payments totalling
$714,750 (US$500,000) to Ion. The balance is payable upon the achievement of
certain milestones based on the commencement and completion of clinical trials
related to the NuChem Analogues.

All research and development activities to be undertaken by NuChem are to
be funded by the Company through subscriptions for non-participating preference
shares of NuChem. As at May 31, 2002, the Company had provided a total of
$5,983,000 of funding to NuChem.

NuChem has agreed to actively proceed with research and development
programs relating to the NuChem Analogues. If NuChem fails to make any of the
payments described above, discontinues its research and development activities
related to the NuChem Analogues or commits an act of insolvency or bankruptcy,
Ion has the right to re-acquire the NuChem Analogues assigned to NuChem and to
terminate the sublicense, upon the payment by Ion of a certain amount and
subject to certain other conditions.

The Company and Ion are parties to a unanimous shareholders agreement
relating to NuChem. Under that agreement, the Company has the right to appoint
NuChems officers and a majority of the members of NuChems board of directors.
The Company directs the business and operations of NuChem, subject to the
terms of an annual business plan that Ion is entitled to approve. Any profits
that are distributed from NuChem will be shared between the Company and Ion in
proportion to their ownership of NuChem common shares. The unanimous
shareholders agreement provides mutual restrictions on the transfer of NuChem
shares, as well as mutual rights of first refusal, drag-along and piggyback
rights. If Ion becomes entitled to re-acquire the NuChem Analogues assigned to
NuChem and to terminate the sublicense, the Company is entitled to purchase
Ions NuChem shares for their stated capital amount.

Pre-clinical and Investigational Studies

Through NuChem, the Company is currently pursuing research and
pre-clinical development of NuChem Analogues for the treatment of a wide
variety of cancers.

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In March 1998, the Company signed an agreement with the Developmental
Therapeutics Branch, Division of Cancer Treatment of NCI, under which that
organization will screen anti-cancer compounds in its panel of cancerous cell
lines. The data from these tests was used, in part, as the basis for selecting
the compounds which will be given priority for entering clinical trials. The
Company also signed an agreement with Harvard Medical School for the conduct of
various research projects related to the further development of CLT and the
NuChem Analogues as anti-cancer agents.

On February 9, 1999 the Company announced, on behalf of NuChem, additional
positive preclinical efficacy data on four of NuChems novel anti-cancer
compounds. This in vivostudy performed by Dr. José Halperin at Harvard
Medical School involved a murine (mouse) KLN squamous cell cancer prevention
model. The goal of the study was to specifically assess the efficacy of the
analogues upon oral administration. Relative to controls, this efficacy study
showed significant inhibition of squamous cell carcinoma tumors by the test
compounds and no apparent toxic effect due to the treatment regimen was noted
in the animals. The results confirm the efficacy results obtained in an
earlier study for several of NuChems novel anti-cancer compounds.

Agreements were concluded in 1998 and 1999 with other institutions and
contract research organizations for the conduct of studies on certain NuChem
Analogues to support the selection of one or more lead compounds for
pre-clinical development toward an IND submission. The University of Nebraska
Medical Center (Omaha, Nebraska) conducted studies of pre-clinical toxicity in
normal mice and efficacy studies in human cancer xenograft (mouse) models.
Phoenix International Life Sciences Inc. (Montréal, Québec) conducted studies
to measure CLT analogues in biological matrices by a LC-MS/MS method, and to
determine the metabolic stability and metabolite profile of certain CLT
analogues by in vitromethods. McMaster University (Professor Jack Rosenfeld)
conducted bioanalytical method development for the measurement of CLT analogues
in plasma and tissues of mice by HPLC.

On February 1, 1999, positive preclinical data on the efficacy of the
Companys anti-cancer compounds were obtained from a second study performed at
the University of Nebraska Medical Center (Omaha, Nebraska). This study was
designed to confirm the efficacy of certain novel anti-cancer (CLT Analogues)
compounds in a human tumor xenograft model commonly used for colon cancer. The
Company announced on behalf of NuChem independent confirmation by NCI of the in
vitroanti-cancer activity of its novel compounds currently under development.
Later in 1999, the Company announced on behalf of NuChem that the NCI had
agreed to allocate resources for the further development of three novel
anti-cancer compounds discovered at Harvard Medical School to investigate
formulation development and the pharmacology of the compounds.

On February 7, 2000, the Company announced that NuChem had determined that
one of its key anti-cancer CLT analogues, NC381, showed positive pre-clinical
results in inhibiting the spread of human melanoma tumor cells in mice. NC381,
whether administered through injection or orally, exhibited anti-metastatic
activity with few apparent side effects on 16 mice.

NC381 has demonstrated pre-clinical activity in lung, pancreatic and
kidney cancers as well as anti-angiogenic, anti-proliferative, and
anti-metastatic properties. Research suggests that it can be taken orally,
which positions it as a potential maintenance therapy. NC381 requires further
testing to complete its ongoing pre-clinical development in Canada and the
United States before the Company can file an IND to obtain approval to initiate
human clinical trials either in Canada or the United States as a treatment for
various forms of cancer. However, there can be no assurance that such approval
will be obtained on a timely basis, if ever. See Business of
the Company 
Regulatory Strategy.

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Other Technologies

Several promising new product opportunities have been introduced to the
Companys portfolio and are being assessed for their potential as new drug
candidates. They include platform technologies in areas of tumor suppressor
gene therapy, and U-Sense compounds that the Company believes to have the
potential to work through a unique mechanism of action to decrease the
expression of cancer relevant genes. Further antisense approaches for the
treatment of cancer and drug resistant bacteria are also being investigated in
the Companys laboratory. The Company intends to continue developing these
compounds with the aim to identify new drug candidates for clinical trials as
the three lead drugs make their way through clinical trials and to market.

D.   Trend Information

Lorus has not produced or commercially marketed any product. Although the
Company has entered into an agreement in respect of the commercial sale of
Virulizin® in Mexico, there can be no assurance that any sales of the product
will be made. The Companys future profitability is dependent on the successful
outcome of clinical trials and the subsequent successful marketing and/or
partnering of its products.

The Company does not expect to generate a positive cash flow from
operations for several years due to substantial additional research and
development costs, including costs related to drug discovery, preclinical
testing, clinical trials, manufacturing costs and operating expenses associated
with supporting these activities. The Company may need to raise additional
capital to fund operations over the long-term.

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Item 6.   Directors, Senior Management and Employees

A.   Directors and Senior Management

The following table and notes thereto provide the name, municipality of
residence, positions with the Company, term of office and principal occupation
of each person who serves as a director or officer of the Company as at
November 30, 2002. Officers serve at the discretion of the Board of Directors.

Each director has been elected or appointed to serve until the next annual
meeting or until a successor is elected or appointed. The Company has an Audit
Committee, an Environmental Committee, a Corporate Governance Committee and a
Human Resources and Compensation Committee and the members of each such
committee are shown below. As at December 6, 2002, the directors and executive
officers of the Company, as a group, beneficially owned, directly or
indirectly, or exercised control over 14,292,880 or approximately 10% of the
common shares.

|                                            |  |                                                                              |  |               |  |     |    | 
|------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------- |  | --- | -- | 
|Name and Municipality                       |  |                                                                              |  | Director or   |  |     |    | 
|of Residence                                |  | Position                                                                     |  | Officer Since |  | Age
|                                            |  |                                                                              |  |               |  |    
|ROBERT BÉCHARD(1)(2)
Montreal, Quebec       |  | Director                                                                     |  | October 1999  |  |     | 44 | 
|SUZANNE CADDEN
Mississauga, Ontario         |  | Vice President, Clinical and Regulatory Affairs                              |  | July 2001     |  |     | 44 | 
|GEOFFREY COLLETT
Mississauga, Ontario       |  | Vice President, Corporate Development                                        |  | March 2000    |  |     | 49 | 
|SHANE A. ELLIS
Toronto, Ontario             |  | Corporate Secretary, Vice President of Legal Affairs                         |  | April 1998    |  |     | 49 | 
|JAMES T. PARSONS
Mississauga, Ontario       |  | Vice President, Finance and Administration and
Chief Financial Officer       |  | March 2000    |  |     | 37 | 
|DONALD W. PATERSON(1)
Toronto, Ontario      |  | Director                                                                     |  | July 1991     |  |     | 70 | 
|ELLY REISMAN
Toronto, Ontario               |  | Director                                                                     |  | November 1999 |  |     | 52 | 
|ALAN STEIGROD(2)
Newport Beach, California  |  | Director                                                                     |  | May 2001      |  |     | 65 | 
|GRAHAM STRACHAN(1)(3)(4)
Etobicoke, Ontario |  | Chair of the Board of Directors, Director                                    |  | May 2001      |  |     | 64 | 
|DR. JIM WRIGHT
Oakville, Ontario            |  | Chief Executive Officer, Director                                            |  | October 1999  |  |     | 60 | 
|DR. AIPING YOUNG(4)
Toronto, Ontario        |  | Senior Vice President, Research and Development and
Chief Technology Officer |  | October 1999  |  |     | 46 | 



---

|(1) |  | Member of Audit Committee.                               
|--- |  | ---------------------------------------------------------
|   
|(2) |  | Member of the Human Resources and Compensation Committee.
|   
|(3) |  | Member of the Corporate Governance Committee             
|   
|(4) |  | Member of Environmental Committee.                       

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The principal occupation and employment of each of the foregoing persons
for the past five years is set forth below:

Robert Béchard: Mr. Béchard is currently a partner of RBC Capital
Partners. From 1991 to 1996, Mr. Béchard was an Account Manager with a
Canadian chartered bank and from 1996 to 1998, was an Investment Manager of
Sofinov Société Financière DInnovation Inc.

Suzanne Cadden:Ms. Cadden joined the Company in February 2001 as
Director, Regulatory Affairs and Compliance. Prior to joining Lorus, Ms.
Cadden was a Senior Director and Director of Regulatory Affairs and Compliance
with Glaxo Wellcome Canada from 1996 to 2000. Prior to August 1996, Ms. Cadden
was a Director of Regulatory Affairs and Pharmacoeconomics with CIGA-Geigy
Canada.

Geoffrey Collett:Prior to joining the Company in March 2000, Mr. Collett
was a Vice President within MDS Capital Corp., from October 1997 to March 2000.
From 1988 to 1997, Mr. Collett worked with GlaxoWellcome as Licensing Manager
and Director of Business Development and Planning.

Shane A. Ellis: From 1994 to 1997, Mr. Ellis lectured in business law at
the School of Business Management, Ryerson Polytechnical University. From 1996
to 1998, Mr. Ellis acted as counsel for the Bennett & Wright Group of
Companies.

James T. Parsons: Prior to joining the Company in March 2000, Mr. Parsons
was Controller and Assistant Treasurer for Timminco Limited. Prior to November
1998, Mr. Parsons was Controller for Timminco.

Donald W. Paterson: Mr. Paterson is President of Cavandale Corporation, a
company principally engaged in providing strategic corporate consulting to
emerging growth companies within the technology industry. Prior to founding
Cavandale Corporation, Mr. Paterson was a Director and Vice-President of Wood
Gundy Inc., a Canadian investment bank, where he was directly involved in
leading the firms activities in financing Canadian and international high
technology companies.

Elly Reisman:Mr. Reisman is the President and Chief Executive Officer of
Great Gulf Group, a real estate company. Mr. Reisman has held that position
for more than the last five years.

Alan Steigrod:Mr. Steigrod is Managing Director of Newport Healthcare
Ventures, a consulting firm for the healthcare industry, located in Newport
Beach, California. Mr. Steigrod has held that position for more than the last
five years.

Graham Strachan:Mr. Strachan is President of GLS Business Development
Inc. a life-science consulting firm, located in Etobicoke, Ontario. Prior to
1999, Mr. Strachan was President, Chief Executive Officer and Director of
Allelix Biopharmaceuticals Inc.

Dr. Jim Wright: Dr. Wrights present principal occupation is Chief
Executive Officer of the Company. He is also a member of the Lorus Board of
Directors. Prior to October 1, 2001, Dr. Wright was President of the Company,
a position he held since October 29, 1999. Prior to October 29, 1999, Dr.
Wright was President and Chief Scientific Officer of GeneSense and a member of
the board of GeneSense. He also served as Chairman of the Board. Prior to
September 1998, Dr. Wright was Professor of Microbiology, Professor of
Biochemistry and Molecular Biology, and Adjunct Professor of Internal Medicine
at the University
of Manitoba, Senior Scientist and Associate Director of the Manitoba
Institute of Cell Biology and Terry Fox Senior Scientist of the National Cancer
Institute of Canada.

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Dr. Aiping Young: Prior to June 1996, Dr. Young was Senior Scientist,
Group Leader and Medical and Scientific Advisor for Pias Corporation in Japan.
From 1996 to 1999, Dr. Young was Vice President of Research and Development,
and a member of the Board of Directors for GeneSense Technologies Inc. She has
also been an Adjunct Scientist at the Manitoba Institute of Cell Biology at the
Manitoba Cancer Foundation.

Medical and Scientific Advisory Board

On October 2, 2002 the Company announced the appointment of Mace L.
Rothenberg M.D., as its external medical advisor providing strategic medical
advice on the Companys growing international clinical and drug development
programs. Dr. Rothenberg is an internationally recognized oncologist. His
research focuses on the evaluation of the effects of new drugs in humans from
clinical pharmacologic, biologic and genetic perspectives. Dr. Rothenberg is
an Ingram Professor of Cancer Research at the Vanderbilt-Ingram Cancer Center
as well as Professor of Medicine at the Vanderbilt University Medical Center
and a Direct of Drug Development.

The Company has a Medical and Scientific Advisory Board (MSAB) comprised
of certain medical and scientific experts whom the Company believes will
enhance its capabilities. Members of the MSAB meet periodically to review the
progress of the Companys research and development activities and the results
of ongoing clinical trials. The MSAB also advises the Company generally as to
specific research programs, and as to advances in biotechnology, immunology and
other areas of scientific expertise relevant to the further development of the
Companys technologies.

As at December 6, 2002, the members of the MSAB were:

Dr. Donald P. Braun, Ph.D.:Dr. Braun is a Professor, Department of
Surgery at the Medical College of Ohio in Toledo, Ohio, and Administrative
Director of the Cancer Institute. Dr. Braun is a member of the Scientific
Advisory Committee on Immunology of the American Cancer Society and is Chair of
the Companys MSAB.

Dr. Gregory Curt, M.D.:Dr. Curt is a Clinical Director of the NCI in
Bethesda, Maryland. He received his M.D. with Distinction in Research from the
University of Rochester School of Medicine in 1977. After completing his
training in Internal Medicine at Harvard, he came to the NCI for subspecialty
training in Medical Oncology.

Dr. Jaime G. de la Garza Salazar, M.D.:Dr. de la Garza, a member of the
Mayo Graduate School of Medicine, has been the Director General of the National
Cancer Institute of Mexico since 1993. He is also the President of the Mexican
Oncology Board. Prior to his appointment as Director, Dr. de la Garza was
Associate Director in Clinical Research at the NCI.

Dr. Robert Kerbel, Ph.D.:Dr. Kerbel obtained his Ph.D. in microbiology
and immunology from Queens University in 1972. Dr. Kerbel is currently the
Director of Biological Sciences and the Division of Cancer Biology Research at
the Sunnybrook Health Science Centre in Toronto and is also the John &
Elizabeth Tory Professor of Experimental Oncology at the University of Toronto.
He is a member of the editorial board of many international scientific
journals and is editor-in-chief of Cancer Metastatis Review.

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Dr. Bishnu D. Sanwal, Ph.D., D.Sc., F.R.S.C.:Dr. Sanwal is a Professor
Emeritus and former Chairman of the Department of Biochemistry at the
University of Western Ontario, London, Ontario. He has a long and
distinguished career in biological and medical research. With over 146
publications, Dr. Sanwal is a member of or advisor to numerous scientific
committees and journals such as the editorial board of Archives of Biochemistry
and Biophysicsand member of the Royal Society of London, and Fellow of the
Royal Society of Canada. He received a Ph.D. from the University of Delhi and
a Doctor of Sciences from the Federal Institute of Technology, Zurich.

Dr. Lesley Seymour, MBBCh, FCP (SA):Dr. Seymour is a Co-Director of the
Investigational New Drug Program of the National Cancer Institute of Canada
Clinical Trials Group. She received her M.D. at the University of the
Witwatersrand in South Africa in 1978 and subsequently completed Specialist
training in Internal Medicine as well as Clinical Hematology and Medical
Oncology.

Dr. Louis Siminovitch, O.C., Ph.D., D.Sc., F.R.S.C., F.R.S.:Dr.
Siminovitch is a former founder and director of the Department of Medical
Genetics, University of Toronto, the Department of Genetics, Hospital for Sick
Children, the Samuel Lunenfeld Research Institute at Mount Sinai Hospital,
former Director and President of the National Cancer Institute of Canada and is
presently on the Scientific Advisory Board of the Canadian Medical Discoveries
Fund, several biotechnology companies and institutes. He is a founding member
and former Senior Editor of Virology, founding member and former member of the
editorial board of Cell, the editorial board of Annual Review of Genetics,
founding member and former Senior Editor of Molecular and Cellular Biology,
former member of the editorial board of Geneticsand of the advisory board of
Molecular Biology and Medicine. Dr. Siminovitch received a Ph.D. from McGill
University and was awarded a Doctor of Science, Honoris Causa, for his
distinguished scientific research contributions from several Canadian
universities: Memorial University, McMaster University, University of Montreal,
McGill University, University of Western Ontario and University of Toronto.
Dr. Siminovitch is a Companion of the Order of Canada and was inducted into the
Canadian Medical Hall of Fame in 1997.

Dr. George R. Stark, Ph.D., F.R.S.:Dr. Stark is the Sherwin-Page
Chairman of the Research Institute, The Cleveland Clinic Foundation, Cleveland,
Ohio. He received a Ph.D. from Columbia University and completed postdoctoral
studies at Rockefeller University. Dr. Stark has made significant contributions
to the field of molecular biology. Dr. Stark led the development of the
Northern and Western Blot techniques for analysis of specific RNAs and
proteins. Much of his work has focused on the process of gene amplification in
mammalian cells, leading to an appreciation both of the mechanisms that
generate amplified structures in cell lines and tumor cells and the regulatory
processes that prevent amplification from occurring in normal cells. Very
recent work has led to the discovery of a new signal pathway that regulates
gene expression in cancer cells. A former Professor of Biochemistry at
Stanford University, Dr. Stark moved to London as the Associate Director of
Research at the Imperial Cancer Research Fund in London, England (1983-1992).
Dr. Stark received the H. A. Sober award of the American Society of Biological
Chemists in 1986, was elected to the U.S.A. National Academy of Science in 1986
and to the Fellowship of the Royal Society in Britain in 1990.

B.   Executive Compensation

Summary Compensation

The following Summary Compensation Table, presented in accordance with the
regulation to the Securities Act(Ontario), sets forth the compensation paid in
respect of individuals who were, in respect of the
financial year ended May 31, 2002, the Chief Executive Officer and the
four other most highly compensated executive officers of the Company
(collectively, the Named Executives).

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Summary Compensation Table

|                            |  |      |      |     |  |                     |         |            |  |              |        |              |  |              |           |              |         |              |         |     |        |  |  | 
|--------------------------- |  | ---- | ---- | --- |  | ------------------- | ------- | ---------- |  | ------------ | ------ | ------------ |  | ------------ | --------- | ------------ | ------- | ------------ | ------- | --- | ------ |  |  | 
|                            |  |      |      |     |  |                     |         |            |  |              |        |              |  |              |           |              |         | Long-Term    |         |     |        | 
|                            |  |      |      |     |  |                     |         |            |  |              |        |              |  |              |           |              |         | Compensation |         |     |        | 
|                            |  |      |      |     |  |                     |         |            |  |              |        |              |  |              |           |              |         | Awards       |         |     |        | 
|                            |  |      |      |     |  | Annual Compensation |         | Securities |  |              |        |             
|                            |  |      |      |     |  |                     |         | Under      |  |              |        |             
|                            |  |      |      |     |  |                     |         |            |  |              |        |              |  | Other Annual |           | Options/SARs |         |              |         |    
|                            |  |      |      |     |  | Salary              |         | Bonus      |  | Compensation |        | Granted      |  | All Other   
|Name and Principal Position |  | Year |      | ($) |  | ($)                 |         | ($)        |  | (#)          |        | Compensation
|                            |  |      |      |     |  |                     |         |            |  |              |        |             
|Dr. Jim A. Wright(1)        |  |      | 2002 |     |  |                     | 274,885 |            |  |              | 61,480 |              |  | Nil          |           |              | 300,000 |              |         | Nil
|Chief Executive Officer     |  |      | 2001 |     |  |                     | 196,231 |            |  |              | 65,675 |              |  | Nil          |           |              | 150,000 |              |         | Nil
|                            |  |      | 2000 |     |  |                     | 109,237 |            |  |              | 43,750 |              |  | Nil          |           | Nil          |         | Nil         
|Dr. Raafat Fahim(2)         |  |      | 2002 |     |  |                     | 150,831 |            |  | Nil          |        | Nil          |  |              | 1,500,000 |              |         |              | 463,669 |    
|Former President and Chief  |  |      | 2001 |     |  | Nil                 |         | Nil        |  | Nil          |        | Nil          |  | Nil         
|Operating Officer           |  |      | 2000 |     |  | Nil                 |         | Nil        |  | Nil          |        | Nil          |  | Nil         
|Dr. Aiping Young(1)         |  |      | 2002 |     |  |                     | 190,154 |            |  |              | 24,480 |              |  | Nil          |           |              | 200,000 |              |         | Nil
|Senior Vice President,      |  |      | 2001 |     |  |                     | 167,538 |            |  |              | 30,030 |              |  | Nil          |           |              | 163,297 |              |         | Nil
|Research and Development    |  |      | 2000 |     |  |                     | 94,654  |            |  |              | 36,075 |              |  | Nil          |           | Nil          |         | Nil         
|Mr. Geoffrey Collett(3)     |  |      | 2002 |     |  |                     | 165,846 |            |  |              | 20,073 |              |  | Nil          |           |              | 225,000 |              |         | Nil
|Vice President, Corporate   |  |      | 2001 |     |  |                     | 152,000 |            |  |              | 24,850 |              |  | Nil          |           |              | 50,000  |              |         | Nil
|Development                 |  |      | 2000 |     |  |                     | 29,167  |            |  |              | 6,795  |              |  | Nil          |           |              | 100,000 |              |         |     | 20,000 | 
|Mr. James T. Parsons(3)     |  |      | 2002 |     |  |                     | 155,846 |            |  |              | 19,865 |              |  | Nil          |           |              | 100,000 |              |         | Nil
|Vice President, Finance     |  |      | 2001 |     |  |                     | 142,000 |            |  |              | 23,075 |              |  | Nil          |           |              | 50,000  |              |         | Nil
|and Administration and CFO  |  |      | 2000 |     |  |                     | 30,038  |            |  |              | 6,310  |              |  | Nil          |           |              | 120,000 |              |         | Nil



---

|(1) |  | Dr. Wright and Dr. Young joined the Company on October 29, 1999, the date
of acquisition of GeneSense Technologies Inc. by the Company.                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Dr. Raafat Fahim resigned from his position as President and Chief
Operating Officer on July 31, 2002. The amount of All Other
Compensation relates to June and July, 2002 compensation, a signing bonus
at the time of hire, and a lump sum payment agreed with Dr. Fahim.
|   
|(3) |  | Mr. Collett and Mr. Parsons joined the Company in March 2000.                                                                                                                                                                                                                

Executive officers of the Company, including the Named Executives
(collectively the Executive Officers), are eligible to participate in a
performance related compensation plan (the Compensation Plan). The
Compensation Plan provides for potential annual cash bonus payments and annual
granting of options to purchase common shares under the Companys stock option
plan. The potential annual cash bonus and annual granting of options to each
Executive Officer are conditional upon the achievement by the Company and each
Executive Officer of predetermined objectives reviewed by the Compensation
Committee and approved by the board of directors of the Company. See
Compensation Committee and Report on Executive Compensation.

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Stock Option Incentive Compensation

The Company has in place a Stock Option Plan for its directors, officers
and employees. The Stock Option Plan provides that the Board of Directors of
the Company may from time to time in its discretion grant to directors,
officers and employees of the Company options to purchase Common Shares. The
Board of Directors determine the exercise price per Common Share and the number
of Common Shares which may be allotted to each designated director, officer or
employee and all other terms and conditions of the option, in accordance with
the applicable policies of any relevant regulatory authority. These options
are exercisable for a period not exceeding five years from the date of grant.
The Board of Directors has reserved for issuance under the Stock Option Plan an
aggregate of 12,000,000 of the Common Shares issued and outstanding from time
to time.

The following tables set forth the options granted to and exercised by
each of the Named Executives during the year ended May 31, 2002:

Option/SAR Grants During the Most Recently Completed Financial Year

|                                                              |  |                  |           |              |  |              |       |                     |  |                       |      |                 |  |   |      |  |  |              |  | 
|------------------------------------------------------------- |  | ---------------- | --------- | ------------ |  | ------------ | ----- | ------------------- |  | --------------------- | ---- | --------------- |  | - | ---- |  |  | ------------ |  | 
|                                                              |  |                  |           |              |  | % of Total   |       |                     |  |                       |      |                 |  |   |      |  |  |             
|                                                              |  |                  |           |              |  | Options/SARs |       |                     |  |                       |      | Market Value of |  |   |      | 
|                                                              |  | Securities Under |           | Granted to   |  |              |       |                     |  | Securities Underlying |      |                 |  |  
|                                                              |  | Options/SARs     |           | Employees in |  | Exercise or  |       | Options/SARs on the |  |                       |      |                
|                                                              |  | Granted          |           | Financial    |  | Base Price   |       | Date of Grant       |  | Expiration           
|Name                                                          |  | (#)              |           | Year         |  | ($/Security) |       | ($/Security)        |  | Date                 
|                                                              |  |                  |           |              |  |              |       |                     |  |                      
|Dr. Jim A. Wright
Chief Executive Officer                     |  |                  | 300,000   |              |  |              | 10.94 | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06(2)
|Dr. Raafat Fahim
Former President and
Chief Operating Officer |  |                  | 1,500,000 |              |  |              | 54.69 | %                   |  | $                     | 0.87 |                 |  | $ | 0.87 |  |  | 30-Sep-06(1)
|Dr. Aiping Young                                              |  |                  | 75,000    |              |  |              | 2.73  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06   
|Senior Vice President, Research and Development               |  |                  | 125,000   |              |  |              | 4.56  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06(2)
|Mr. Geoffrey Collett                                          |  |                  | 75,000    |              |  |              | 2.73  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06   
|Vice President, Corporate Development                         |  |                  | 150,000   |              |  |              | 5.47  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06(2)
|Mr. James T. Parsons                                          |  |                  | 75,000    |              |  |              | 2.73  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06   
|Vice President, Finance and Administration and CFO            |  |                  | 25,000    |              |  |              | 0.91  | %                   |  | $                     | 0.95 |                 |  | $ | 0.95 |  |  | 17-Sep-06(2)



---

|(1) |  | Dr. Raafat Fahim was granted options to purchase 1,500,000 common shares
on October 1, 2001 at the time of hire. 1,000,000 options expired upon his
resignation from his position as President and Chief Operating Officer on
July 31, 2002. The remaining 500,000 options expire July 31, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The officers were granted special incentive options to purchase common
shares of the Company. The options vest immediately upon the attainment
of specific undertakings; failing to achieve the undertakings will result
in forfeiture on the specified deadline.                               

Other than as described in the above footnotes, the foregoing options were
granted on September 18, 2001 in respect of corporate and personal performance
during the year ended May 31, 2002. The options vest on the basis of 50% on
the first anniversary and 25% on the second and third anniversary of the date
of granting. The exercise price of all the $0.95 options was the closing price
of the Companys common shares on the Toronto Stock Exchange on September 17,
2001.

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Aggregated Option/SAR Exercises During the Most Recently Completed
Financial Year and Financial Year-End Option/SAR Values

|                                                                        |  |                                  |  |                           |  |                                                                    |  |                                                                                       
|----------------------------------------------------------------------- |  | -------------------------------- |  | ------------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------
|Name                                                                    |  | SecuritiesAcquiredon
Exercise(#) |  | AggregateValueRealized($) |  | UnexercisedOptions/SARs
atMay 31, 2002(#)Exercisable/Unexercisable |  | Value
ofUnexercisedin-the-MoneyOptions/SARs atMay 31,
2002($)Exercisable/Unexercisable
|                                                                        |  |                                  |  |                           |  |                                                                    |  |                                                                                       
|Dr. Jim A. Wright
Chief Executive Officer                               |  | Nil                              |  | Nil                       |  | 75,000/375,000                                                     |  | Nil/Nil                                                                               
|Dr. Raafat Fahim
Former President and
Chief Operating Officer           |  | Nil                              |  | Nil                       |  | Nil/1,500,000                                                      |  | Nil/Nil                                                                               
|Dr. Aiping Young
Senior Vice President, Research and
Development        |  | Nil                              |  | Nil                       |  | 81,649/281,648                                                     |  | Nil/Nil                                                                               
|Mr. Geoffrey Collett
Vice President, Corporate Development              |  | Nil                              |  | Nil                       |  | 125,000/250,000                                                    |  | Nil/Nil                                                                               
|Mr. James T. Parsons
Vice President, Finance and
Administration and CFO |  | Nil                              |  | Nil                       |  | 140,000/130,000                                                    |  | Nil/Nil                                                                               

Employees (the Employees) of the Company, other than Executive Officers,
participate in a separate performance bonus plan which provides for the annual
granting of options to purchase common shares under the Companys Stock Option
Plan. The Company also grants options to purchase common shares to certain
employees upon commencement of their employment with the Company. During the
year ended May 31, 2002, the Company granted options to Employees to purchase
229,491 common shares, being 8.4% of the total incentive stock options granted
under the Stock Option Plan during the year to Employees and Executive
Officers.

Pension Plan

Currently, the Company does not maintain a pension plan for its Executive
Officers or its Employees. Instead of a pension plan, the Company maintains a
Stock Option Plan which is available for its executive officers and employees.
See Stock Option Incentive Compensation above. Also, the Company has a
Deferred Profit Sharing Plan (DPSP) matching program which is available to
all employees. The DPSP matching program provides 100% matching of employee
contributions into the employees Group RRSP account up to a maximum of three
percent (3%) of the employees gross earnings. Contributions made by the
Company began in fiscal 1998 and were made to the employees Group Retirement
Savings Plan. From February 2001, the Companys contributions were paid into
an employer-sponsored DPSP.

Directors and Officers Alternate Compensation Plan

The Company has created a directors and officers alternate compensation
plan (the Alternate Compensation Plan). Under the Alternate Compensation
Plan, the Company has the option of paying annual fees (the Annual Fees) to
directors who are not full time employees of the Company (Participating
Directors) by the allotment and issuance from treasury to each of the
Participating Directors of such number of common shares as is equivalent to the
cash value of the Annual Fees. Under the Alternate Compensation Plan, the
Compensation Committee may at any time during the period between annual
meetings of the

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shareholders of the Company recommend the allotment and issuance of common
shares from treasury in satisfaction of Annual Fees otherwise payable in cash
to Participating Directors. The board of directors may then formally allot and
issue the common shares at an issue price equal to the closing price of the
common shares of the Company on the Toronto Stock Exchange on the day of, or
the day immediately preceding such recommendation by the Compensation Committee
or such other amount as determined by the board of directors and permitted by
the stock exchange, exchanges or other market upon which the common shares are
from time to time listed for trading and any other applicable regulatory
authority (collectively, the Regulatory Authorities).

In addition, the Alternate Compensation Plan permits the Company, at its
option, to satisfy the meeting attendance fees (the Meeting Fees) earned by
the Participating Directors as a result of attendance at meetings of the board
of directors held between annual meetings of the Companys shareholders by the
allotment and issuance of common shares at an issue price equal to the closing
price of the common shares on the Toronto Stock Exchange on the day of, or the
day immediately preceding such recommendation by the Compensation Committee or
such other amount as determined by the board of directors and permitted by the
Regulatory Authorities.

The Alternate Compensation Plan also permits the Company, at its option,
to provide for the payment of all or part of the performance bonuses (the
Performance Bonuses) for certain employees of the Company (the Participating
Employees), which bonuses would otherwise be payable entirely in cash, through
the issuance of common shares. Under this aspect of the Alternate Compensation
Plan, the Compensation Committee may at any time recommend the allotment and
issuance of common shares from treasury to one or more Participating Employees
in satisfaction of Performance Bonuses established in accordance with criteria
set by the board of directors (in consultation with the Compensation
Committee). The issue price for the common shares will be at a price equal to
the closing price of the common shares of the Company on the Toronto Stock
Exchange on the day of, or the day immediately preceding such recommendation by
the Compensation Committee or such other amount as determined by the board of
directors and permitted by the Regulatory Authorities. The board of directors
will not be obliged to allot and issue common shares to Participating
Employees. However, if the board of directors elects to meet its obligations to
satisfy Performance Bonuses through the allotment and issuance of common
shares, it will do so by passing a resolution allotting and issuing the
appropriate number of common shares only if and when the criteria for payment
of the related Performance Bonuses are met.

The Alternate Compensation Plan is administered by the board of directors
(in consultation with the Compensation Committee) and, subject to regulatory
requirements, may be amended by the board of directors without shareholder
approval, provided that the maximum number of common shares which may be issued
under the Alternate Compensation Plan is not in excess of 2,500,000 common
shares. common shares issued under the Alternate Compensation Plan will be
subject to trading or resale restrictions under any applicable laws. The board
of directors may terminate the Alternate Compensation Plan any time before or
after any reservation, allotment or issuance of common shares thereunder.

Directors and Officers Deferred Share Unit Plan

The Company has created a deferred share unit plan for directors and
officers (the Deferred Share Unit Plan). Under the Deferred Share Unit Plan,
participating directors may elect to receive a portion or all of their Annual
Fees from the Company in deferred share units. Under the Deferred Share Unit
Plan, the Compensation Committee may at any time during the period between
annual meetings of shareholders of the

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Company, recommend the Company credit to each Participating Director who
has elected under the terms of the Deferred Share Unit Plan, the number of
units equal to the gross amount of the Annual Fees to be deferred divided by
the fair market value of the shares. The fair market value of the shares is
determined as the closing price of the common shares of the Company on the
Toronto Stock Exchange on the day immediately preceding such recommendation by
the Compensation Committee or such other amount as determined by the board of
directors and permitted by the Regulatory Authorities.

In addition, the participating directors may elect under the Deferred
Share Unit Plan to receive deferred share units in satisfaction for Meeting
Fees earned by the Participating Directors as a result of attendance at
meetings of the board of directors held between annual meetings of the
Companys shareholders by the credit to each Participating Director of the
number of units equal to the gross amount of the Meeting Fees to be deferred
divided by the fair market value of the shares, being the closing price of the
common shares on the Toronto Stock Exchange on the day immediately preceding
the recommendation by the Compensation Committee or such other amount as
determined by the board of directors and permitted by the Regulatory
Authorities.

The Deferred Share Unit Plan is administered by the board of directors (in
consultation with the Compensation Committee) and, subject to regulatory
requirements, may be amended by the board of directors without shareholder
approval. When a Participating Director ceases to hold the position of
director and is no longer otherwise employed by the Company, the Participating
Director receives either (a) a lump sum cash payment equal to the number of
deferred share units held multiplied by the then fair market value of the
common shares of the Company on the date of termination or (b) the number of
common shares that can be acquired in the open market with the amount described
in (a), either case being subject to withholding for income tax. The board of
directors may terminate the Deferred Share Unit Plan any time before or after
any allotment or accrediting of deferred share units thereunder.

Termination of Employment, Change in Responsibilities and Employment Contracts

The Company has employment agreements (the Agreements) with each of the
Named Executives.

The Agreements for Mr. Collett and Mr. Parsons provide for notice periods
in the event of termination without cause equal to six months, plus one
additional month for each year of completed service after the first year of
employment. The Agreements for Dr. Wright and Dr. Young provide for a notice
period of 12 months.

Dr. Fahim resigned as an employee of the Company effective July 31, 2002.

C.   Board Practices

Composition of the Corporate Governance and Compensation Committee

The board of directors, upon the advice of the Compensation Committee of
the board, determines executive compensation. The Compensation Committee was
comprised of two directors who were not employees or officers of the Company
during the period June 1, 2001 to May 31, 2002. The members of the
Compensation Committee during the above period were: Peter Campbell, Barry
Reiter, Robert Béchard and Alan Steigrod. In November 2001 Mr. Béchard and
Mr. Steigrod replaced Mr. Campbell and Mr. Reiter as

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members of the Compensation Committee and Mr. Béchard was appointed Chair
of the Compensation Committee. The Compensation Committee met four times
during the above period.

Report on Executive Compensation

The Compensation Committees mandate is to review, and advise the board of
directors on, the recruitment, appointment, performance, compensation, benefits
and termination of Executive Officers. The Compensation Committee also
administers and reviews procedures and policies with respect to the Companys
Stock Option Plan, employee benefit programs, pay equity and employment equity.
The philosophy of the Compensation Committee towards Executive Officer
compensation is to reward performance and to provide a total compensation
package that will attract and retain qualified, motivated and achievement
oriented Executive Officers.

The Compensation Committee attempts to create compensation arrangements
that will align the interests of the Executive Officers and the shareholders of
the Company. The key components of Executive Officer compensation are base
salary, potential annual cash bonuses and annual participation in the Stock
Option Plan.

Base Salary  Initial Stock Options

Base salary for each Executive Officer is a function of the individuals
experience, past performance and anticipated future contribution. The
Compensation Committee uses private and public compensation surveys to assist
with the determination of an appropriate compensation package for each
Executive Officer.

Executive Officers are granted stock options on the commencement of
employment with the Company in accordance with the responsibility delegated to
each Executive Officer for achieving corporate objectives and enhancing
shareholder value.

Potential Annual Cash Bonuses and Annual Participation in the Stock Option Plan

Generally, potential annual cash bonuses and annual awards of options
under the Stock Option Plan for each Executive Officer are conditional in part
upon the achievement by the Company of predetermined scientific, clinical,
regulatory, intellectual property, business and corporate development and
financial objectives, and in part upon the achievement by each Executive
Officer of individual performance objectives. Executive Officer individual
performance objectives for each fiscal year are consistent with corporate
objectives and each Executive Officers role in achieving them. All Corporate
and Executive Officer objectives are predetermined by the board of directors
after review by the Compensation Committee. Seventy-five percent (75%) of each
Executive Officers potential annual cash bonus is conditional upon the
achievement of corporate objectives with the remaining twenty-five percent
(25%) being conditional upon the achievement of individual Executive Officer
objectives. The Compensation Committee reserves the right to recommend to the
board of directors the awarding of bonuses, payable in cash, stock or stock
options, to reward extraordinary individual performance.

For each Executive Officer, during the year ended May 31, 2002, the
potential annual cash bonuses ranged from 20% to 40% of base salary when all
corporate and individual Executive Officer objectives

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were achieved. For each Executive Officer, the potential annual cash
bonuses range increased to 30% to 60% of base salary when the Corporate and
individual Executive Officer objectives were significantly over-achieved.

Cash bonuses are determined as soon as practicable after the end of the
fiscal year and are included in the Summary Compensation Table in the year in
respect of which they are earned.

There is a potential for an annual allocation from the Companys Stock
Option Plan for each Executive Officer when all Corporate and Executive Officer
objectives are achieved. The allocation of options is approved by the
Compensation Committee of the Company and Options are priced using the closing
market price of the Companys common shares on the last trading day prior to
the date of grant. Options to purchase common shares expire five years from
the date of grant and vest over three years. The granting of options to
purchase common shares is included in the Summary Compensation Table in the
year that they are earned.

Chief Executive Officer Compensation

The performance of the Chief Executive Officer is measured in the following areas:



| |  |  | attainment of predetermined corporate objectives; 
| | - |  | --------------------------------------------------
|
| |  |  | attainment of predetermined individual objectives;
|
| |  |  | corporate governance;                             
|
| |  |  | financial condition;                              
|
| |  |  | human resource management; and                    
|
| |  |  | strategic positioning.                            

Compensation of Directors

During the fiscal year ended May 31, 2002, each director who was not an
officer of the Company or a representative of a shareholder was entitled to
receive stock options and, at his election, shares, deferred share units and/or
cash compensation for attendance at board committee meetings. Compensation is
comprised of an annual fee of $5,000 ($15,000 to the chairman of the board) $1,000
per board meeting attended ($4,500 to the chairman of a board meeting) and $750
per audit, corporate governance, compensation or environmental committee
meeting ($1,000 for the chairman of a committee) attended. In November 2001,
stock options to purchase 270,000 common shares at a price of $1.47 per share
expiring November 2006, were granted, in aggregate, to directors of the Company
in this regard. In November 2000, stock options to purchase 150,000 common
shares at a price of $2.12 per share expiring November 2005, were granted, in
aggregate, to directors of the Company in this regard. In December 1999, a
compensatory grant of stock options to purchase 330,000 common shares in
aggregate, at a price of $0.82 per share expiring December 22, 2004, was made
to directors of the Company. In addition, the Company reimbursed the directors
for expenses incurred in attending meetings of the board of directors and
committees of the board.

Mr. Barry J. Reiter resigned as a director of the Company on September 11,
2002. The law firm of Torys LLP, of which Barry J. Reiter is a partner,
received legal fees in the amount of $376,000 for the year ended May 31, 2002
for acting as counsel to the Company on various matters.

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DIRECTORS AND OFFICERS LIABILITY

The Company purchases and maintains liability insurance for the benefit of
directors and officers to cover any liability incurred by such person in such
capacities. The policy provides for coverage in the amount of $10,000,000 with
a deductible amount of $100,000. For the period June 1, 2001 to May 31, 2002,
the premium cost of this insurance was $68,850.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as set forth above under the heading Executive Compensation,
during the financial year of the Company ended May 31, 2002, no director,
senior officer or associate of a director or senior officer nor, to the
knowledge of the directors or senior officers of the Company after having made
reasonable inquiry, any person or company who beneficially owns, directly or
indirectly, common shares carrying more than 10% of the voting rights attached
to all common shares outstanding at the date hereof, or any associate or
affiliate thereof, had any material interest, direct or indirect, in any
material transaction of the Company, nor do any such persons have a material
interest, direct or indirect, in any proposed transaction of the Company.

D.   Employees

As at December 6,2002, the Company had a staff of 40 full-time persons
and two part-time persons, who are involved in research and drug development,
and administration activities. Of the Companys employees, eleven are medical
doctors and/or Ph.D.s. The Company has a Medical and Scientific Advisory Board
comprised of eight members who are each medical doctors or Ph.D.s. To
encourage a focus on achieving long term performance, employees and members of
the board of directors have the ability to acquire an ownership interest in the
Company through the Companys stock option plan.

E.   Share Ownership

The following tables summarizes the common shares owned by the directors of the Company:

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|                                                                                             |  |                           |            |             |  |  |      | 
|-------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ----------- |  |  | ---- | 
|                                                                                             |  | Ownership or Control over
|                                                                                             |  | common
shares(1)         
|                                                                                             |  |                          
|                                                                                             |  | Number of shares          |            | % ownership
|                                                                                             |  |                           |            |            
|DONALD W. PATERSON, Toronto, Ontario
President, Cavandale Corporation
(corporate consulting) |  |                           | 125,260    |             |  |  | *    | 
|ELLY REISMAN, Richmond Hill, Ontario
President, Great Gulf Group                             |  |                           | 1,443,208  |             |  |  | 1%   | 
|JIM A. WRIGHT, Oakville, Ontario
Chief Executive Officer of the Company                      |  |                           | 11,412,800 |             |  |  | 7.9% | 

To the knowledge of
the Company, no other directors or named executive officers
beneficially own common shares in excess of 1% of the issued and outstanding
capital of the Company.

Outstanding options owned by the
Named Executive officers and directors of the Company

|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|---------------- |  | ------- | ------- | -------------------- |  | -------- | ------- | ------ |  | - | ---- |  |  | --------- |  | 
|                 |  | # of    |         | # of shares          |  | Purchase |         | Expiry
|Optionee         |  | options |         | entitled to purchase |  | Price    |         | Date  
|                 |  |         |         |                      |  |          |         |       
|Geoffrey Collett |  |         | 100,000 |                      |  |          | 100,000 |        |  | $ | 2.70 |  |  | 14-Feb-05
|                 |  |         | 50,000  |                      |  |          | 50,000  |        |  | $ | 1.61 |  |  | 17-Dec-05
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.95 |  |  | 17-Sep-06
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.95 |  |  | 7-Jul-07 
|                 |  |         | 100,000 |                      |  |          | 100,000 |        |  | $ | 0.33 |  |  | 25-Sep-07
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                 |  |         | 400,000 |                      |  |          | 400,000 |        |  |   |      |  |  |           |  | 
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Raafat Fahim(1)  |  |         | 500,000 |                      |  |          | 500,000 |        |  | $ | 0.87 |  |  | 31-Jul-03
|James T. Parsons |  |         | 120,000 |                      |  |          | 120,000 |        |  | $ | 3.63 |  |  | 20-Feb-05
|                 |  |         | 50,000  |                      |  |          | 50,000  |        |  | $ | 1.61 |  |  | 17-Dec-05
|                 |  |         | 100,000 |                      |  |          | 100,000 |        |  | $ | 0.95 |  |  | 17-Sep-06
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.95 |  |  | 7-Jul-07 
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.33 |  |  | 25-Sep-07
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                 |  |         | 420,000 |                      |  |          | 420,000 |        |  |   |      |  |  |           |  | 
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Aiping Young     |  |         | 50,000  |                      |  |          | 50,000  |        |  | $ | 2.50 |  |  | 10-Oct-05
|                 |  |         | 113,297 |                      |  |          | 113,297 |        |  | $ | 1.61 |  |  | 17-Dec-05
|                 |  |         | 150,000 |                      |  |          | 150,000 |        |  | $ | 0.95 |  |  | 17-Sep-06
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.95 |  |  | 7-Jul-07 
|                 |  |         | 75,000  |                      |  |          | 75,000  |        |  | $ | 0.33 |  |  | 25-Sep-07
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                 |  |         | 463,297 |                      |  |          | 463,297 |        |  |   |      |  |  |           |  | 
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Jim A. Wright    |  |         | 150,000 |                      |  |          | 150,000 |        |  | $ | 2.50 |  |  | 10-Oct-05
|                 |  |         | 117,000 |                      |  |          | 117,000 |        |  | $ | 0.58 |  |  | 25-Aug-07
|                 |  |         | 110,000 |                      |  |          | 110,000 |        |  | $ | 0.95 |  |  | 17-Sep-06
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                 |  |         | 377,000 |                      |  |          | 377,000 |        |  |   |      |  |  |           |  | 
|                 |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 

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Outstanding options owned by the
Named Executive officers and directors of the Company

|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|------------------ |  | ------- | ------- | -------------------- |  | -------- | ------- | ------ |  | - | ---- |  |  | --------- |  | 
|                   |  | # of    |         | # of shares          |  | Purchase |         | Expiry
|Optionee           |  | options |         | entitled to purchase |  | Price    |         | Date  
|                   |  |         |         |                      |  |          |         |       
|Robert Béchard     |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 2.12 |  |  | 14-Nov-05
|                   |  |         | 5,000   |                      |  |          | 5,000   |        |  | $ | 2.40 |  |  | 7-Feb-06 
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 1.47 |  |  | 26-Nov-06
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 0.57 |  |  | 13-Nov-07
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                   |  |         | 95,000  |                      |  |          | 95,000  |        |  |   |      |  |  |           |  | 
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Donald W. Paterson |  |         | 7,500   |                      |  |          | 7,500   |        |  | $ | 0.80 |  |  | 28-Jun-03
|                   |  |         | 50,000  |                      |  |          | 50,000  |        |  | $ | 0.40 |  |  | 25-Nov-04
|                   |  |         | 100,000 |                      |  |          | 100,000 |        |  | $ | 0.82 |  |  | 22-Dec-04
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 2.12 |  |  | 14-Nov-05
|                   |  |         | 7,500   |                      |  |          | 7,500   |        |  | $ | 2.40 |  |  | 7-Feb-06 
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 1.47 |  |  | 26-Nov-06
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 0.57 |  |  | 13-Nov-07
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                   |  |         | 255,000 |                      |  |          | 255,000 |        |  |   |      |  |  |           |  | 
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Elly Reisman       |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 0.82 |  |  | 22-Dec-04
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 2.12 |  |  | 14-Nov-05
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 1.47 |  |  | 26-Nov-06
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 0.57 |  |  | 13-Nov-07
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                   |  |         | 120,000 |                      |  |          | 120,000 |        |  |   |      |  |  |           |  | 
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Alan Steigrod      |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 1.47 |  |  | 26-Nov-06
|                   |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 0.57 |  |  | 13-Nov-07
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                   |  |         | 60,000  |                      |  |          | 60,000  |        |  |   |      |  |  |           |  | 
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|Graham Strachan    |  |         | 30,000  |                      |  |          | 30,000  |        |  | $ | 1.47 |  |  | 26-Nov-06
|                   |  |         | 125,000 |                      |  |          | 125,000 |        |  | $ | 0.58 |  |  | 25-Aug-07
|                   |  |         | 90,000  |                      |  |          | 90,000  |        |  | $ | 0.57 |  |  | 13-Nov-07
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 
|                   |  |         | 245,000 |                      |  |          | 245,000 |        |  |   |      |  |  |           |  | 
|                   |  |         |         |                      |  |          |         |        |  |   |      |  |  |           |  | 

Notes:



---

|(1) |  | Dr. Fahim resigned from the Company on July 31, 2002.
|--- |  | -----------------------------------------------------

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Item 7.   Major Shareholders and Related Party Transactions

A.   Major shareholders

The following table provides information regarding the beneficial
ownership of the Companys common shares as of December 6, 2002 for each person
or entity who is known to the Company to own beneficially more than 5% of the
Companys outstanding common shares. As used in the table, beneficial
ownership means the sole or shared power to vote or direct the voting or to
dispose or direct the disposition of any security. A person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from the
date of this Annual Report. The amounts and percentages are based upon
144,412,000 common shares outstanding as of May 31, 2002.

|                         |  |                           |            |                    |  |                      |      |  
|------------------------ |  | ------------------------- | ---------- | ------------------ |  | -------------------- | ---- | -
|                         |  |                           |            |                    |  | Percentage of Shares
|Name of Beneficial Owner |  | Shares Beneficially Owned |            | Beneficially Owned
|                         |  |                           |            |                   
|Jim Wright               |  |                           | 11,412,800 |                    |  |                      | 7.90 | %

B.   Related Party Transactions

During the year ended May 31, 2002, consulting fees of $68,000 were paid
to individuals (or companies controlled by those individuals) who were either
officers or directors of the Company (2001  nil and 2000  nil).

The Company received services from a law firm in which a former director
of the Company is a partner. Fees related primarily to consultations in the
normal course of business for an aggregate of $376,000 for the year ended May 31, 2002 (2001  $357,000 and 2000  $425,000).

The amount payable to related parties as at May 31, 2002 was $46,000 (2001  $140,000 and 2000  $179,000).

C.   Interests of Experts and Counsel

Not applicable.




Item 8.   Financial Information

A.   Consolidated Statements and Other Financial Information

For the Companys consolidated financial statements, see Item 17
Financial Statements.

There are currently no outstanding material legal proceedings to which the
Company is a party or any of the Companys properties is subject, nor does the
Company know if there are any material threatened or contemplated proceedings
against it.

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B.   Significant Changes

Since May 31, 2002, there have been no significant changes in the
Companys financial condition or results of operations.




Item 9.   The Offer and Listing

A.   Offer and Listing Details

The common shares are registered shares. Computershare Trust Company of
Canada acts as transfer agent in Canada.

The following tables show for the periods indicated the high and low
closing market prices for trading taking place on both the OTC Bulletin Board
(OTCBB) and the Toronto Stock Exchange (TSX).

|                        |      |                   |       |                       |     |  |  |      | 
|----------------------- | ---- | ----------------- | ----- | --------------------- | --- |  |  | ---- | 
|                        |      |                   | OTCBB |                       | TSX
|                        |      |                   |       |                       |    
|Most recent five years  |      | (In U.S. dollars) |       | (In Canadian dollars)
|                        |      |                   |       |                      
|Year ended May 31, 2002 |      |                   |       |                       |     |  |  |     
|                        | High |                   |       | 1.15                  |     |  |  | 1.80 | 
|                        | Low  |                   |       | 0.41                  |     |  |  | 0.65 | 
|Year ended May 31, 2001 |      |                   |       |                       |     |  |  |     
|                        | High |                   |       | 2.38                  |     |  |  | 3.43 | 
|                        | Low  |                   |       | 0.73                  |     |  |  | 1.05 | 
|Year ended May 31, 2000 |      |                   |       |                       |     |  |  |     
|                        | High |                   |       | 5.44                  |     |  |  | 7.95 | 
|                        | Low  |                   |       | 0.22                  |     |  |  | 0.30 | 
|Year ended May 31, 1999 |      |                   |       |                       |     |  |  |     
|                        | High |                   |       | 0.67                  |     |  |  | 1.00 | 
|                        | Low  |                   |       | 0.16                  |     |  |  | 0.26 | 
|Year ended May 31, 1998 |      |                   |       |                       |     |  |  |     
|                        | High |                   |       | 1.00                  |     |  |  | 1.39 | 
|                        | Low  |                   |       | 0.44                  |     |  |  | 0.65 | 

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|                           |                   |  |                   |      |                       |  |      |      |     |  |  |      |  |  |  |      | 
|-------------------------- | ----------------- |  | ----------------- | ---- | --------------------- |  | ---- | ---- | --- |  |  | ---- |  |  |  | ---- | 
|                           |                   |  | OTCBB             |      | TSX                  
|                           |                   |  |                   |      |                      
|                           |                   |  | (In U.S. dollars) |      | (In Canadian dollars)
|                           |                   |  |                   |      |                      
|                           |                   |  | High              |      | Low                   |  | High |      | Low
|                           |                   |  |                   |      |                       |  |      |      |    
|Most recent eight quarters |                   |  |                   |      |                       |  |      |      |     |  |  |      |  |  |  |     
|Ended                      |                   |  |                   |      |                       |  |      |      |     |  |  |      |  |  |  |     
|                           | November 30, 2002 |  |                   | 0.45 |                       |  |      | 0.18 |     |  |  | 0.69 |  |  |  | 0.31 | 
|                           | August 31, 2002   |  |                   | 0.72 |                       |  |      | 0.37 |     |  |  | 1.09 |  |  |  | 0.58 | 
|                           | May 31, 2002      |  |                   | 0.71 |                       |  |      | 0.41 |     |  |  | 1.11 |  |  |  | 0.65 | 
|                           | February 28, 2002 |  |                   | 0.84 |                       |  |      | 0.65 |     |  |  | 1.37 |  |  |  | 1.03 | 
|                           | November 30, 2001 |  |                   | 0.92 |                       |  |      | 0.52 |     |  |  | 1.47 |  |  |  | 0.81 | 
|                           | August 31, 2001   |  |                   | 1.15 |                       |  |      | 0.70 |     |  |  | 1.80 |  |  |  | 1.07 | 
|                           | May 31, 2001      |  |                   | 1.29 |                       |  |      | 0.95 |     |  |  | 1.98 |  |  |  | 1.54 | 
|                           | February 29, 2001 |  |                   | 1.66 |                       |  |      | 0.73 |     |  |  | 2.59 |  |  |  | 1.05 | 
|Most recent six months     |                   |  |                   |      |                       |  |      |      |     |  |  |      |  |  |  |     
|                           | November, 2002    |  |                   | 0.45 |                       |  |      | 0.35 |     |  |  | 0.65 |  |  |  | 0.57 | 
|                           | October, 2002     |  |                   | 0.31 |                       |  |      | 0.20 |     |  |  | 0.69 |  |  |  | 0.34 | 
|                           | September, 2002   |  |                   | 0.38 |                       |  |      | 0.18 |     |  |  | 0.56 |  |  |  | 0.31 | 
|                           | August, 2002      |  |                   | 0.51 |                       |  |      | 0.37 |     |  |  | 0.71 |  |  |  | 0.58 | 
|                           | July, 2002        |  |                   | 0.65 |                       |  |      | 0.44 |     |  |  | 0.95 |  |  |  | 0.72 | 
|                           | June, 2002        |  |                   | 0.72 |                       |  |      | 0.47 |     |  |  | 1.09 |  |  |  | 0.75 | 

B.   Plan of distribution

Not applicable to Form 20-F filed as an Annual Report.

C.   Markets

The Companys shares are listed on the OTC Bulletin Board under the symbol
LORFF and on the Toronto Stock Exchange under the symbol LOR.

The National Association of Securities Dealers has submitted a proposal to
the SEC to create a new marketplace to be called the BBX, which will eventually
take the place of the OTC Bulletin Board. The proposed BBX will have
qualitative listing standards but will have no minimum share price, income or
asset requirements. This proposal is still being reviewed by the SEC and may
be subject to further change and the Company will continue to analyze any impact the new proposed marketplace
may have on the Company.

D.   Selling Shareholders

Not applicable to Form 20-F filed as an Annual Report.

E.   Dilution

Not applicable to Form 20-F filed as an Annual Report.

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F.   Expenses of the Issue

Not applicable to Form 20-F filed as an Annual Report.




Item 10.   Additional Information

A.   Share Capital

Not applicable to Form 20-F filed as an Annual Report.

B.   Memorandum and Articles of Association

The Companys Articles of Amalgamation and Bylaws, which were included as
Exhibits 1.1 and 1.3 to the Companys Registration Statement on Form 20-F, file
number 0-19763, filed for March 4, 1992; Articles of Amendment changing the
Companys name which were included as Exhibits to the Companys Annual Report
on Form 20-F, file number 0-19763, filed for September 28, 1992, November 18,
1998 and November 30, 1999; are hereby incorporated by reference.



| | 1. |  | Lorus Therapeutics Inc. was incorporated under the
Business Corporations Act(Ontario) on September 5, 1986 under
the name RML Medical Laboratories Inc. On October 28, 1991, RML
Medical Laboratories Inc. amalgamated with Mint Gold Resources
Ltd., resulting in the Company becoming a reporting issuer (as
defined under applicable securities law) in Ontario, on such
date. On August 25, 1992, the Company changed its name to
IMUTEC Corporation. On November 27, 1996, the Company changed
its name to Imutec Pharma Inc., and on November 19, 1998, the
Company changed its name to Lorus Therapeutics Inc.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | With respect to directors:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |    |  |                                                                                                                                                                                                                                                                                            
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. |  | A directors power to
vote on a proposal, arrangement or contract in
which the director is materially interested is
limited by the Bylaws and the governing statute.
A Companys director cannot vote in respect of
any contract or transaction with the Company in
which he is interested.



| |    |  |                                                                                                                                                                                               
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. |  | The Directors may from
time to time on behalf of the Company borrow
money in such manner and amount, on such
security, from such sources and upon such terms
and conditions as they think fit.



| |    |  |                                                                                                                                                                                                                                                
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. |  | At each annual
shareholders meeting the directors are elected to
hold office until the close of the first annual
meeting following his election. A director must
be at least eighteen years of age. The number of
annual terms is unrestricted.



| | 3. |  | Lorus is authorized to issue an unlimited
number of common shares. The holders of common shares are
entitled to one vote per share at meetings of shareholders,
to receive such dividends as declared by us and to receive
Loruss remaining property and assets
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |    |  | upon Lorus dissolution or winding up. Loruss common shares
are not subject to any future call or assessment and there are
no pre-emptive, conversion or redemption rights attached to
such shares.                                                                                                          
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 4. |  | Changes to Loruss articles must be approved by
the affirmative vote of shareholders holding 66-2/3 of the
issued and outstanding shares present in person or by proxy
at a duly called meeting of shareholders of the Company.                                                                               
|
| | 5. |  | Pursuant to the rules of the TSX, annual
general meetings of shareholders of the Company must be held
within 6 months after the Companys fiscal year end. Special
meetings of shareholders may be held on appropriate notice.                                                                                
|
| | 6. |  | There are no limitations on the rights to own
the Companys securities.                                                                                                                                                                                                                                       
|
| | 7. |  | There are no provisions in the Companys
articles or bylaws that would have an effect of delaying,
deferring or preventing a change in control of the company
and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the company
(or any of its subsidiaries).
|
| | 8. |  | There are no bylaw provisions governing the
ownership threshold above which shareholder ownership must be
disclosed. Securities law, however, requires the disclosure
of ownership of shares of the Company above certain
thresholds.                                                                         

C.   Material Contracts

Not Applicable.

D.   Exchange Controls

There is no law, regulation or governmental decree in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of the Company, other than withholding tax requirements. See Taxation.

There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident of Canada
to hold or vote common shares of the Company, other than as provided in the
Investment Canada Act(Canada) (the Investment Canada Act). The following
summarizes the principal features of the Investment Canada Act.

Under the Investment Canada Act, the acquisition of control of a Canadian
business by a non-Canadian (which would include an entity organized in the
United States) is subject either to a notification or review procedure. A
non-Canadian would acquire control of the Company for purposes of the
Investment Canada Act if it acquired a majority of the common shares of the
Company or all or substantially all the assets of the Company. The acquisition
of less than a majority but one-third or more of the common shares of the
Company would be presumed to be an acquisition of control of the Company unless
it could be established that the Company was not controlled in fact by the
acquirer through the ownership of common shares.

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The size of the Canadian business is measured against thresholds to
determine if review or notification is required. Where the acquiror is a WTO
investor (as defined in the Investment Canada Act; in general, an individual is
a WTO investor if he or she is a national or a WTO member (a member of the
World Trade Organization) and a Registrant or other entity is a WTO investor if
it is a WTO investor-controlled entity, as determined in accordance with
detailed rules set out in the Investment Canada Act), the transaction is
reviewable only if, in the case of a direct acquisition of control, the
Canadian business has gross assets of at least a specified amount, currently
$179 million. Except in limited circumstances, an indirect acquisition of
control of a Canadian business by a WTO investor is not reviewable. In
circumstances where the acquiror is not a WTO investor, the threshold for a
direct acquisition is $5 million and for an indirect acquisition is $50
million. In any case where an acquisition of control is reviewable, the
acquiror must be able to demonstrate that the investment is likely to be of
net benefit to Canada.

Where an investment is subject to notification, the non-Canadian is
required to provide certain information concerning the investment to the
Government prior to implementation of the investment or within 30 days
thereafter; however, the Government retains the right to review any investment
that is related to Canadas cultural heritage or national identity or, if
within a specified period, the federal cabinet considers it within the public
interest on the recommendation of the Minister responsible for the Investment
Canada Actto issue an order for the review of the investment.

E.   Taxation

Certain Canadian Federal Income Tax Consequences to United States Shareholders

The following general discussion sets forth a summary of the material
Canadian federal income tax consequences of acquiring, holding and disposing of
common shares for a shareholder of the Company who is not resident in Canada
for purposes of the Income Tax Act(Canada) (the Canadian Tax Act), and who
is resident in the United States for purposes of the Canada-United States
Income Tax Convention (1980) as amended (the Convention), and who, for
purposes of the Canadian Tax Act, holds its common shares as capital property,
deals at arms length with the Company, and does not use or hold and is not
deemed to use or hold such common shares in connection with a business carried
on in Canada.

The following discussion is based on the current provisions of the
Canadian Tax Act and the regulations thereunder and on the Companys
understanding of the current administrative practices of Canada Customs and
Revenue Agency and takes into account all specific proposals to amend the
Canadian Tax Act or regulations made by the Minister of Finance of Canada
before the date hereof. The discussion is general only and is not a substitute
for independent advice from a holders own tax adviser.

The provisions of the Tax Act are subject to income tax treaties to which
Canada is a party, including the Convention.

Dividends on common shares

Under the Canadian Tax Act, a non-resident of Canada is generally subject
to Canadian withholding tax at the rate of 25% on dividends paid or credited to
the non-resident by a Registrant resident in Canada. The Convention limits the
rate to 15% if the shareholder is resident in the United States and the
dividends are beneficially owned by him and to 5% if the shareholder is also a
Registrant that owns at least 10% of the voting stock of the payer Registrant.

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Disposition of common shares

A non-resident of Canada will not be subject to tax in Canada on any
capital gain realized on a disposition of common shares, provided that the
common shares do not constitute taxable Canadian property of the
non-resident. The common shares will not generally constitute taxable
Canadian property of a non-resident unless, at any time within the five-year
period immediately preceding the disposition, the non-resident
owned, had an interest in or had the right to acquire, either alone or
together with persons with whom the non-resident does not deal at arms length,
25% of more of the issued shares of any series or class of the capital stock of
the Company. If common shares are taxable Canadian property to a shareholder
that is resident in the United States, such shareholder may be exempted from
Canadian capital gains tax under the Convention.

Certain United States Federal Income Tax Considerations for United States Shareholders

The following general discussion sets forth a summary of the material U.S.
federal income tax considerations that are applicable to the following persons
who hold common shares as capital assets (U.S. Shareholders): (i) citizens
or residents (as specially defined for U.S. federal income tax purposes) of
the United States, (ii) companies created or organized in the United States or
under the laws of the United States or of any state or the District of
Columbia, (iii) estates, the income of which is subject to U.S. federal income
taxation regardless of its source, and (iv) a trust whose administration is
subject to the primary supervision of a U.S. court and which has one or more
U.S. fiduciaries who have the authority to control all substantial decisions of
the trust.

This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the Code), current and proposed Treasury
regulations promulgated thereunder (Treasury Regulations), and administrative
and judicial interpretations thereof, all as in effect on the date hereof and
all of which are subject to change, possibly on a retroactive basis. This
discussion does not address all of the aspects of U.S. federal income taxation
that may be relevant to any particular shareholders circumstances. This
discussion does not address the tax treatment of the following types of
shareholders, who may be subject to special rules not discussed below:
shareholders who own (directly, indirectly or through attribution) 10% or more
of the Companys outstanding voting stock, who hold common shares as a hedge or
who are broker-dealers, insurance companies, tax exempt organizations,
financial institutions, or taxpayers whose functional currency is not the U.S.
dollar. Additionally, this summary does not address the possible application of
U.S. federal gift or estate taxes, or any aspect of state, local or non-U.S.
tax laws. Each U.S. Shareholder is advised to consult such persons own tax
advisor with respect to the specific U.S. federal income and other tax
consequences to such person of purchasing, holding or disposing of the common
shares.

Passive Foreign Investment Companies

For any taxable year of the Company, if 75% or more of the Companys gross
income (including the Companys share of the gross income for any company in
which the Company is considered to own 25% or more of the shares by value) is
passive income (as defined in the relevant provision of the Code) or if at
least 50% of the Companys assets (including the Companys share of the value
of the assets of any Corporation in which the Company is considered to own 25%
or more of the shares by value), by average fair market value, are assets that
produce or are held for the production of passive income, the Company will be a
Passive Foreign Investment (PFIC). The Company currently is a PFIC and
expects to be a PFIC for the foreseeable future.

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A U.S. Shareholder of a PFIC is subject to special U.S. federal income tax
rules contained in Sections 1291 to 1297 of the Code. As described below,
these provisions set forth three alternative tax regimes applicable at the
election of each U.S. Shareholder, depending upon whether the U.S. Shareholder
elects to treat the Company as a qualified electing fund (a QEF Election)
to market (a Mark to Market Election) or elects to mark the PAC stock.

U.S. SHAREHOLDERS ARE URGED TO CONSIDER MAKING A QEF ELECTION TO AVOID CERTAIN POTENTIALLY SIGNIFICANT ADVERSE U.S. TAX CONSEQUENCES.

1.   The QEF Election Alternative

Each U.S. Shareholder is urged to consider making a QEF Election because
of the potential benefits of such election that are discussed below and because
the Company anticipates that it will not have any earnings and profits (as
computed for U.S. federal income tax purposes) for the current taxable year and
little, if any, earnings and profits for any future taxable year in which the
Company is a PFIC. There can be no assurance, however, that this will be the
case. Accordingly, the timely making of the QEF Election, as discussed below,
generally should avoid any significant adverse U.S. federal income tax
consequences resulting from any classification of the Company as a PFIC,
although this may depend on a particular U.S. Shareholders circumstances.

A U.S. Shareholder who elects in a timely manner to treat the Company as a
QEF (an Electing U.S. Shareholder) will be subject to federal income tax on
a current basis for any taxable year in which the Company is a PFIC (or is
treated as a PFIC with respect to the U.S. Shareholder) on such Electing U.S.
Shareholders pro-rata share of the Companys (i) net capital gain (the
excess of net long-term capital gain over net short-term capital loss, but not
in excess of the Companys current earnings and profits), which will be taxed
as long-term capital gain to the Electing U.S. Shareholder and (ii) ordinary
earnings (the excess of earnings and profits over net capital gain), which
will be taxed as ordinary income to the Electing U.S. Shareholder, in each
case, for the shareholders taxable year in which (or with which) the Companys
taxable year ends, regardless of whether such amounts actually are
distributed. Adjustments are provided generally to prevent double taxation at
the time of later distributions on or dispositions of common shares.

The QEF Election also allows an Electing U.S. Shareholder (i) generally to
treat any gain realized on the disposition of common shares (or deemed to be
realized on the pledge of such shareholders common shares) as capital gain;
and (ii) generally to avoid interest charges resulting from PFIC status
altogether.

The Company undertakes to provide its U.S. Shareholders with timely and
accurate information as to its status as a PFIC and to comply with all record
keeping, reporting and other requirements so that each U.S. Shareholder may
elect to treat the Company as a QEF. Such an election must be made by
attaching the following documents to the timely filed U.S. federal income tax
return for the first taxable year of the U.S. Shareholder in which or with
which falls the end of a taxable year of the Company during which the Company
was a PFIC and the U.S. Shareholder held (or was considered to have held)
common shares: (i) a Shareholder Section 1295 Election Statement executed by
the U.S. Shareholder, (ii) a PFIC Annual Information Statement received by
the U.S. Shareholder from the Company, and (iii) a Form 8621. In addition, the
Electing U.S. Shareholder must file a copy of the Shareholder Section 1295
Election Statement with the Internal Revenue Service Center, P.O. Box 21086,
Philadelphia, PA 19114.

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The following three paragraphs apply to Electing U.S. Shareholders:

Dividends Paid on common shares. Any dividends paid to an Electing U.S.
Shareholder on common shares (including any Canadian taxes withheld) will be
treated as ordinary dividend income for U.S. federal income tax purposes to the
extent of the Companys current and accumulated earnings and profits (as
computed for U.S. federal income tax purposes) unless paid out of earnings and
profits that previously were taxed to the Electing U.S. Shareholder under the
QEF rules. Such dividends generally will not qualify for the
dividends-received deduction otherwise available to US corporations. Amounts
in excess of such earnings and profits will be applied against the Electing
U.S. Shareholders tax basis in the common shares and, to the extent in excess
of such tax basis, will be treated as gain from a sale or exchange of such
common shares.

Credit for
Canadian Taxes Withheld. Subject to the limitations in the Code the
Canadian tax withheld or paid with respect to dividends on the common shares
generally may be taken as a foreign tax credit against U.S. federal income
taxes by an Electing U.S. Shareholder who chooses to claim such a credit for
the taxable year. Electing U.S. Shareholders who do not choose to claim
foreign tax credits for a taxable year may claim a U.S. tax deduction for such
Canadian tax for that taxable year.

Disposition of common shares.An Electing U.S. Shareholder will recognize
capital gain or loss for U.S. federal income tax purposes upon the sale or
other disposition of common shares in an amount equal to the difference between
the net amount realized on the disposition and the U.S. Shareholders adjusted
tax basis in the common shares. In the case of non-corporate U.S. Shareholders,
such gain or loss will be (i) short-term gain or loss for common shares held
for one year or less, and (ii) long-term gain or loss for common shares held
for more than one year. Currently, the maximum rate of U.S. federal income tax
on individuals long-term capital gains is 20%. Capital losses of individuals
may offset any capital gains plus $3,000 ($1,500 for married persons filing
separately) of ordinary income. For taxable years beginning after December 31,
2000, some individuals may be entitled to lower capital gain rates with respect
to common shares held for more than five years.

2.   The Non-QEF Election Alternative

If a U.S. Shareholder does not make a timely QEF Election for the first
taxable year of the Company during which he holds (or is considered to hold)
the common shares in question and the Company is a PFIC (a Non-Electing U.S.
Shareholder), or makes a Mark to Market Election as
discussed below, then
special rules under Section 1291 of the Code will apply to (i) gains realized
on the disposition (or deemed to be realized by reason of a pledge) of common
shares, and (ii) certain distributions by the Company (collectively, excess
distributions). The Company has never made any distributions with respect to
the common shares and it does not anticipate making any such distributions in
the foreseeable future.

A Non-Electing U.S. Shareholder generally would be required to pro-rate
all gains realized on the disposition of common shares, and all excess
distributions, over such shareholders entire holding period for the common
shares. All portions of excess distributions allocated to prior years of the
U.S. Shareholder (provided that such periods are not prior to the first day of
the first taxable year of the Company during such U.S. Shareholders holding
period and beginning after December 31, 1986 for which it was a PFIC) would be
taxed at the highest tax rates applicable to ordinary income for each such
prior year. The Non-Electing U.S. Shareholder also would be liable for interest
with respect to the tax liability for each such prior year, calculated as if
such tax had been due with respect to each such prior year. All portions of
excess distributions allocated to periods prior to the first day of the first
taxable year of the Company during the U.S. Shareholders holding period for
which it was a PFIC, and all excess distributions allocated to the current
year, will be treated as

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ordinary income in the year of the distribution and no interest charge
will be incurred with respect to such amounts.

If the Company is a PFIC for any taxable year during which a Non-Electing
U.S. Shareholder holds (or is considered to hold) common shares, then the
Company will continue to be treated as a PFIC with respect to such common
shares, even if the Company does not qualify as a PFIC in a later year. A
Non-Electing U.S. Shareholder may terminate this deemed PFIC status by electing
to recognize gain (which will be taxed under the rules discussed above for
Non-Electing U.S. Shareholders) as if such common shares had been sold on the
last day of the last taxable year for which it was a PFIC. Certain other
elections are also available to Non-Electing U.S. Shareholders.

3.   Mark to Market Election Alternative

Effective for taxable years ending after 1997, a U.S. Shareholder of
certain publicly traded PFIC stock, including the Company, may elect to mark
such stock to market annually, recognizing as ordinary income or loss each year
an amount equal to the difference between the holders adjusted tax basis in
PFIC stock and its fair market value. Losses are allowed only to the extent of
net mark-to-market gain previously included by the U.S. Shareholder pursuant to
elections for prior taxable years. If a mark-to-market election is made, any
further gain or loss realized on a disposition of common shares will be treated
as ordinary income or loss. The source of any income or losses recognized
pursuant to a mark-to-market election is determined as if the amount were gain
or loss from the sale of PFIC stock. The tax basis of PFIC stock for which an
election is made will be increased by the income recognized pursuant to the
election and decreased by the deductions allowed under the election. If the
mark-to-market election is made, then the rules for Non-Electing U.S.
Shareholders described in the preceding paragraphs will not apply for the
periods covered by the election. The mark-to-market election applies to the
taxable year for which made and to all subsequent taxable years, unless the
PFIC stock ceases to be publicly traded or the Treasury Secretary consents to
the revocation of the election.

Future Developments

The foregoing discussion is based on current provisions of the Code,
existing and proposed regulations thereunder, and current administrative
rulings and court decisions, all of which are subject to change. Any such
changes could affect the validity of this discussion. In addition, the
implementation of certain aspects of the PFIC rules requires the issuance of
regulations which in many instances have not yet been promulgated and which may
have retroactive effect.

ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING OR HOLDING COMMON SHARES.

F.   Dividends and Paying Agents

Not applicable to Form 20-F filed as an Annual Report.

G.   Statement by Experts

Not applicable to Form 20-F filed as an Annual Report.

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H.   Documents on Display

The documents concerning the Company which are referred to in this Annual
Report are either annexed hereto as exhibits, or may be inspected at the
principal executive offices of the Company at 2 Meridian Road, Toronto,
Ontario, Canada, M9W 4Z7.

I.   Subsidiary Information

Lorus subsidiaries are GeneSense, a company incorporated under the laws
of Canada of which the Company owns 100% of the issued and outstanding share
capital and NuChem, a company incorporated under the laws of Ontario of which
Lorus owns 80% of the issued and outstanding common share capital.




Item 11.   Quantitative and Qualitative Disclosures About Market Risk.

Impact of interest rate exposure

As of May 31, 2002, the Company had $37,822,000 in cash, cash equivalent
and short-term investments, of which $36,657,000 were short-term investments. A
significant portion of the short-term investments are debt securities.
Interest income is subject to fluctuations due to changes in interest rates.
Investments are held to maturity and have staggered maturities to minimize
interest rate risk. The Company purchases some services and manufactured drugs
in U.S. currency, and conducts clinical trials in the United States. U.S.
dollar expenditures are expected to increase in 2003 with additional clinical
trials beginning in the United States. the Company does not currently engage
in hedging its U.S. currency requirements to reduce exchange rate risk.
Exchange gain or loss realized in the past years were minimal.

Financial instruments potentially expose the Company to a concentration of
credit risk. The Companys financial instruments consist principally of cash
equivalents and short-term investments. The Company mitigates the risk by
investing in high grade fixed income securities.




Item 12.   Description of Securities Other than Equity Securities

Not applicable to Form 20-F filed as an Annual Report.




PART II




Item 13.   Defaults, Dividend Arrearages and Delinquencies

Not applicable.




Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.




Item 15.   [Reserved]

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Item 16.   [Reserved]




PART III




Item 17.   Financial Statements

The financial statements of the Company have been prepared on the basis of
Canadian GAAP and in all material respects comply with U.S. GAAP.

The auditors report, financial statements and notes thereto, schedules
thereto as required under Item 17 are found immediately below. The Audit
Report of KPMG LLP, Chartered Accountants, is included herein immediately
preceding the respective financial statements, notes, schedules, etc.

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TABLE OF CONTENTS

|                                                     |  |        |       | 
|---------------------------------------------------- |  | ------ | ----- | 
|Sections                                             |  | Page #
|                                                     |  |       
|Managements responsibility for Financial statements |  |        | 64    | 
|Auditors report                                     |  |        | 65    | 
|Balance Sheet                                        |  |        | 66    | 
|Statement of loss and deficit                        |  |        | 67    | 
|Statement of cash flow                               |  |        | 68    | 
|Notes to the financial statements                    |  |        | 69-80 | 

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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements and all information in this
annual report have been prepared by management and have been approved by the
Board of Directors.

The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and include amounts that are based on
the best estimates and judgements of management. Financial information
presented elsewhere in the annual report is consistent with that in the
financial statements.

The integrity and objectivity of these financial statements are the
responsibility of management. In support of this responsibility, management
maintains a system of internal controls to provide reasonable assurance as to
the reliability of financial information and the safeguarding of assets.

The Audit Committee reviews the consolidated financial statements, adequacy of
internal controls, audit process and financial reporting with management and
with the external auditors. The Audit Committee, which consists of three
directors not involved in the daily operations of the Company, reports to the
Board of Directors prior to the approval of the audited consolidated financial
statements for publication.

The external auditors have free and full access to the Audit Committee with
respect to their findings concerning the fairness of financial reporting and
the adequacy of internal controls. These financial statements have been
audited by the shareholders independent auditors, KPMG LLP.

|                        |  |                                                          
|----------------------- |  | ---------------------------------------------------------
|Jim A. Wright           |  | James T. Parsons                                         
|Chief Executive Officer |  | VP Finance and Administration and
Chief Financial Officer
|                       
|June 28, 2002           |  |                                                          

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KPMG Logo

|                            |  |             |  |              
|--------------------------- |  | ----------- |  | -------------
|KPMGLLP                     |  |             |  |              
|Chartered Accountants       |  | Telephone   |  | (416)228-7000
|Yonge Corporate Centre      |  | Telefax     |  | (416)228-7123
|4100 Yonge Street Suite 200 |  | www.kpmg.ca |  |              
|Toronto ON M2P 2H3          |  |             |  |              
|Canada                      |  |             |  |              

AUDITORS REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Lorus Therapeutics Inc. as
at May 31, 2002 and 2001 and the consolidated statements of loss and deficit
and cash flows for each of the years in the three-year period ended May 31,
2002 and the related consolidated statements of loss and deficit and cash flows
for the period from inception on September 5, 1986 to May 31, 2002. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 2002 and
2001 and the results of its operations and its cash flows for each of the years
in the three-year period ended May 31, 2002 and for the period from inception
on September 5, 1986 to May 31, 2002 in accordance with Canadian generally
accepted accounting principles.

We did not audit the consolidated financial statements of Lorus Therapeutics
Inc. for the period from inception on September 5, 1986 to May 31, 1994. Those
consolidated financial statements were audited by other auditors who issued a
report without reservation on July 8, 1994.

-s- KPMG

Chartered Accountants

Toronto, Canada

June 28, 2002

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Lorus Therapeutics Inc.

Consolidated Balance Sheets
As at May 31

|                                                  |                                                |      |                                         |      |   |         |         |      |   |         | 
|------------------------------------------------- | ---------------------------------------------- | ---- | --------------------------------------- | ---- | - | ------- | ------- | ---- | - | ------- | 
|(Amounts in 000's) (Canadian Dollars)             |                                                | 2002 |                                         | 2001
|                                                  |                                                |      |                                         |     
|ASSETS                                            |                                                |      |                                         |      |   |         |         |     
|Current assets                                    |                                                |      |                                         |      |   |         |         |     
|Cash and cash equivalents                         |                                                | $    | 1,165                                   |      |   | $       | 2,783   |     
|Short-term investments                            |                                                |      | 36,657                                  |      |   |         | 46,035  |     
|Prepaid expenses and amounts receivable           |                                                |      | 1,195                                   |      |   |         | 1,504   |     
|                                                  |                                                |      |                                         |      |   |         |         |     
|Total current assets                              |                                                |      | 39,017                                  |      |   |         | 50,322  |     
|Fixed assets (note 4)                             |                                                |      | 533                                     |      |   |         | 262     |     
|Goodwill (note 3 (a))                             |                                                |      | 606                                     |      |   |         | 2,060   |     
|Acquired research and development (notes 5 and 8) |                                                |      | 7,416                                   |      |   |         | 9,163   |     
|                                                  |                                                |      |                                         |      |   |         |         |     
|                                                  |                                                | $    | 47,572                                  |      |   | $       | 61,807  |     
|                                                  |                                                |      |                                         |      |   |         |         |     
|LIABILITIES AND SHAREHOLDERS EQUITY              |                                                |      |                                         |      |   |         |         |     
|Current liabilities                               |                                                |      |                                         |      |   |         |         |     
|Accounts payable                                  |                                                | $    | 442                                     |      |   | $       | 3,128   |     
|Accrued liabilities                               |                                                |      | 2,990                                   |      |   |         | 2,737   |     
|                                                  |                                                |      |                                         |      |   |         |         |     
|Total current liabilities                         |                                                |      | 3,432                                   |      |   |         | 5,865   |     
|Shareholders equity                              |                                                |      |                                         |      |   |         |         |     
|Share capital (note 6)                            |                                                |      |                                         |      |   |         |         |     
|                                                  | Common shares                                  |      |                                         |      |   |         |         |      |  
|                                                  |                                                |      | Authorized: unlimited number of shares; |      |   |         |         |      |   |         | 
|                                                  |                                                |      | Issued and outstanding (000s):         |      |   |         |         |      |   |         | 
|                                                  |                                                |      | May 31,
2002  144,412                  |      |   |         |         |      |   |         | 
|                                                  |                                                |      | May 31, 2001  142,411                  |      |   | 119,168 |         |      |   | 117,150 | 
|                                                  | Warrants                                       |      |                                         |     |   |         |         | 729  |  
|                                                  | Deferred stock-based compensation (note 6 (h)) |      |                                         | (159 | ) |         |         | (555 | )
|Deficit accumulated during development stage      |                                                |      | (74,869                                 | )    |   |         | (61,382 | )   
|                                                  |                                                |      |                                         |      |   |         |         |     
|Total shareholders equity                        |                                                |      | 44,140                                  |      |   |         | 55,942  |     
|                                                  |                                                |      |                                         |      |   |         |         |     
|                                                  |                                                | $    | 47,572                                  |      |   | $       | 61,807  |     
|                                                  |                                                |      |                                         |      |   |         |         |     

Commitments (Notes 3(b) and 10)

Canada and United States accounting policy differences (note 13)

See accompanying notes to consolidated financial statements

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Lorus Therapeutics Inc.

Consolidated Statements of Loss and Deficit

|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ------------ |  | - | ------ | - |  | ----------- | ------ | -
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  | Period from
|                                                                                                                 |  | Years Ended May 31 |         | inception       
|(Amounts in 000's except for per common share data)                                                              |  |                    |         | Sept. 5, 1986 to
|(Canadian Dollars)                                                                                               |  | 2002               |         | 2001             |  | 2000 |         | May 31, 2002
|                                                                                                                 |  |                    |         |                  |  |      |         |             
|EXPENSES                                                                                                         |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|Research and development (note 8)                                                                                |  | $                  | 8,659   |                  |  | $    | 9,797   |              |  | $ | 4,244  |   |  | $           | 46,509 |  
|General and administrative                                                                                       |  |                    | 4,867   |                  |  |      | 6,414   |              |  |   | 3,652  |   |  |             | 28,588 |  
|Depreciation and amortization                                                                                    |  |                    | 1,956   |                  |  |      | 1,903   |              |  |   | 1,245  |   |  |             | 7,401  |  
|Interest income                                                                                                  |  |                    | (1,995  | )                |  |      | (2,901  | )            |  |   | (542   | ) |  |             | (7,629 | )
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|Loss for the period                                                                                              |  |                    | 13,487  |                  |  |      | 15,213  |              |  |   | 8,599  |   |  |             | 74,869 |  
|Deficit, beginning of period                                                                                     |  |                    | 61,382  |                  |  |      | 46,169  |              |  |   | 37,570 |   |  |             |       |  
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|Deficit, end of period                                                                                           |  | $                  | 74,869  |                  |  | $    | 61,382  |              |  | $ | 46,169 |   |  | $           | 74,869 |  
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|Basic and diluted loss
per common share (note 2)                                                                 |  | $                  | 0.09    |                  |  | $    | 0.11    |              |  | $ | 0.10   |   |  |             |        |  
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  
|Weighted average number of
common shares outstanding
used in the calculation of basic
and diluted loss per share |  |                    | 143,480 |                  |  |      | 140,776 |              |  |   | 86,121 |   |  |             |        |  
|                                                                                                                 |  |                    |         |                  |  |      |         |              |  |   |        |   |  |             |        |  

See accompanying notes to consolidated financial statements

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Lorus Therapeutics Inc.

Consolidated Statements of Cash Flows

|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |        | 
|------------------------------------------------------------------------------ | ----------------------------- | ---- | ------------------ | ---------------- | --------- | ---- | ------- | ------------ |  | - | ------ | ----- |  | - | ----------- | ------ | 
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   | Period from
|                                                                               |                               |      | Years Ended May 31 |                  | inception
|(Amounts in 000's)                                                             |                               |      |                    | Sept. 5, 1986 to
|(Canadian Dollars)                                                             |                               | 2002 |                    | 2001             |           | 2000 |         | May 31, 2002
|                                                                               |                               |      |                    |                  |           |      |         |             
|OPERATING ACTIVITIES                                                           |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Loss for the period                                                            |                               | $    | (13,487            | )                |           | $    | (15,213 | )            |  | $ | (8,599 | )     |  | $ | (74,869     | )     
|Add items not requiring a
current outlay of cash:                              |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|                                                                               | Depreciation and amortization |      |                    | 3,703            |           |      |         | 3,703        |  |   |        | 2,662 |  |   |             | 12,590 | 
|                                                                               | Other                         |      |                    |                 |           |      |         |             |  |   |        |      |  |   |             | 500    | 
|Net change in non-cash working capital
balances related to operations (note 9) |                               |      | (2,124             | )                |           |      | 1,848   |              |  |   | 575    |       |  |   | 1,330       |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Cash used in operating activities                                              |                               |      | (11,908            | )                |           |      | (9,662  | )            |  |   | (5,362 | )     |  |   | (60,449     | )     
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|INVESTING ACTIVITIES                                                           |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Sale (purchase) of short-term investments, net                                 |                               |      | 9,378              |                  |           |      | (40,376 | )            |  |   | (5,659 | )     |  |   | (36,657     | )     
|Acquisition, net of cash received (note 3(a))                                  |                               |      |                   |                  |           |      |        |              |  |   | (539   | )     |  |   | (539        | )     
|Acquired research and development                                              |                               |      |                   |                  |           |      |        |              |  |   |       |       |  |   | (715        | )     
|Additions to fixed assets                                                      |                               |      | (477               | )                |           |      | (172    | )            |  |   | (19    | )     |  |   | (3,732      | )     
|Cash proceeds on sale of fixed assets                                          |                               |      |                   |                  |           |      |        |              |  |   | 116    |       |  |   | 348         |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Cash provided by (used in)
investing activities                                |                               |      | 8,901              |                  |           |      | (40,548 | )            |  |   | (6,101 | )     |  |   | (41,295     | )     
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|FINANCING ACTIVITIES                                                           |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Issuance of warrants                                                           |                               |      |                   |                  |           |      |        |              |  |   | 9,512  |       |  |   | 31,877      |       
|Issuance of common shares                                                      |                               |      | 1,389              |                  |           |      | 2,065   |              |  |   | 51,592 |       |  |   | 71,032      |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Cash provided by financing activities                                          |                               |      | 1,389              |                  |           |      | 2,065   |              |  |   | 61,104 |       |  |   | 102,909     |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Increase (decrease) in cash and cash
equivalents during the period             |                               |      | (1,618             | )                |           |      | (48,145 | )            |  |   | 49,641 |       |  |   | 1,165       |       
|Cash and cash equivalents,
beginning of period                                 |                               |      | 2,783              |                  |           |      | 50,928  |              |  |   | 1,287  |       |  |   |            |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       
|Cash and cash equivalents,
end of period                                       |                               | $    | 1,165              |                  |           | $    | 2,783   |              |  | $ | 50,928 |       |  | $ | 1,165       |       
|                                                                               |                               |      |                    |                  |           |      |         |              |  |   |        |       |  |   |             |       

See accompanying notes to consolidated financial statements

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For the years ended May 31, 2002, 2001 and 2000

1.   Description of Business

Lorus Therapeutics Inc. (Lorus or the Company) is a biopharmaceutical company specializing in the research, development and commercialization of pharmaceutical
products and technologies for the management of cancer. With products in all stages of evaluation, from pre-clinical through Phase III trials, and a product approved
in Mexico for malignant melanoma, Lorus develops therapeutics that seek to manage cancer with efficacious non-toxic compounds that improve patients quality of life.

2.   Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Lorus, its 80% owned subsidiary NuChem Pharmaceuticals Inc. (NuChem), and its wholly-owned subsidiary
GeneSense Technologies Inc. (GeneSense). The results of operations for acquisitions are included in these consolidated financial statements from the date of
acquisition. All significant intercompany balances and transactions have been eliminated on consolidation.
The consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada and comply in all
material respects with accounting principles generally accepted in the United States, except as disclosed below under Recent Accounting Pronouncements and in note
13 Canada and United States Accounting Policy Differences.

Cash Equivalents and Short-Term Investments

Lorus invests in high quality government and corporate issuers with low credit risk. Cash equivalents consist of highly liquid investments with a maturity of three
months or less at the time of purchase.
Short-term investments, which consist of fixed income securities with a maturity of three months or more, are recorded at their accreted value as they are held to
maturity instruments.

Fixed Assets

Fixed assets are recorded at cost. The Company provides depreciation and amortization at rates which are expected to charge operations with the cost of the assets
over their estimated useful lives as follows:

|                                               |  |                                                                         
|---------------------------------------------- |  | ------------------------------------------------------------------------
|Furniture and equipment
Leasehold improvements |  | straight-line over three to five years
straight-line over the lease term

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The Company regularly reviews the carrying value of its fixed assets by comparing the carrying amount of the assets to the expected future cash flows to be generated
by the assets. If the carrying value exceeds the amount recoverable, a write-down is charged to the statement of operations.

Research and Development

Research costs are charged to expense as incurred. Development costs, including the cost of drugs for use in clinical trials, are expensed as incurred unless they
meet the criteria under generally accepted accounting principles for deferral and amortization. No development costs have been deferred to date.

The Company capitalized the cost of acquired research and development on the acquisitions of GeneSense and the NuChem compounds and is amortizing these costs on a
straight-line basis over seven years. Management reviews the carrying value of acquired research and development and accounts for any permanent impairment in value as
a charge to operations in the year incurred.

The carrying value of acquired research and development does not necessarily reflect its present or future value. The amount recoverable is dependent upon the
continued advancement of the drugs through research, clinical trials and ultimately to commercialization. It is not possible to predict the outcome of future research
and development programs.

The Company has not earned revenues from its drug candidates and is therefore considered to be in the development stage.

Goodwill

Goodwill represents the excess of the cost of the GeneSense acquisition over the fair value of the net assets acquired and is being amortized on a straight line basis
over three years. Management reviews the carrying value of goodwill and accounts for any permanent impairment in value as a charge to operations in the year incurred.
Commencing June 1, 2002, the Company will adopt the new accounting standard related to goodwill as described below under Recent Accounting Pronouncements.

Stock-Based Compensation

Stock options granted to employees are accounted for using the intrinsic value method. Under the intrinsic value method, compensation cost is recorded if, on the
measurement date of the grant, the fair value of an underlying common share exceeds the exercise price per share. For options with contingent vesting criteria, the
option is treated as a variable award and is revalued, using the intrinsic value method of accounting, at the end of each reporting period until the final measurement
date. Compensation cost is amortized over the vesting period of the option.

The Company has a deferred share unit plan that provides directors the alternative to receive payment for their current services in the form of share units rather
than common shares or cash. Share units entitle the holder to receive, in the future, either an equivalent number of common shares or the cash equivalent of the
shares at the date the units are exercised. As the award entitles the holder to settle the award through the receipt of cash, the value of the share units are
recorded as a liability and the share units are revalued each reporting date with any increase or decrease in value being recorded in the consolidated statement of
loss.

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Stock options granted to consultants and other non-employees are accounted for using the fair value method. Under this method, options granted are recognized at their
fair value as services are performed and/or options are earned.

Income Taxes

Income taxes are reported using the asset and liability method, where future tax assets and liabilities are recorded for the future tax consequences attributable to
differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating loss and research and development
expenditure carryforwards. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply when the asset is
realized or the liability is settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive
enactment or enactment occurs. A valuation allowance is recorded for the portion of the future tax assets where the realization of any value is uncertain.

Earnings Per Share

On June 1, 2001, the Company adopted, on a retroactive basis, the new accounting recommendations of the Canadian Institute of Chartered Accountants with respect to
calculating loss per share. Basic net loss per common share is based on the weighted average number of shares outstanding during each period.

Under the new recommendations, the treasury stock method is used in the calculation of dilutive loss per common share instead of the previously applied imputed
earnings approach for determining the effect of all dilutive elements. The adoption of the new method had no effect on the diluted loss per share because there are no
dilutive elements under either standard. Stock options and warrants are not included in the computation of the weighted average number of shares outstanding for
dilutive net loss per common share when the effect would be anti-dilutive.

Segmented Information

The Company is organized and operates as one operating segment, the research and development of cancer therapies.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts presented in the financial statements and the
accompanying notes. Actual results could differ from these estimates.

Foreign Currency Translation

Foreign currency transactions are translated into Canadian dollars at rates prevailing on the transaction dates. Monetary assets and liabilities are translated into
Canadian dollars at the rates on the balance sheet dates. Gains or losses resulting from these transactions are accounted for in the loss for the period and are not
significant.

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Recent Accounting Pronouncements

In August 2001, the Canadian Accounting Standards board (AcSB) issued Handbook Section 1581, Business Combinations, and Handbook Section 3062, Goodwill and Other
Intangible Assets. Section 1581 requires that all business combinations be accounted for by the purchase method and it sets out criteria in determining the valuation
and allocation of the purchase price in a business combination to tangible assets, intangible assets and goodwill. Section 3062 requires that goodwill no longer be
amortized to earnings, but instead be periodically reviewed for impairment. Section 3062 also requires that intangible assets be assessed to determine if they have an
estimated useful life or whether they have an indefinite life. Intangible assets that have an estimated useful life will continue to be amortized systematically over
the useful life. Intangible assets with indefinite useful lives are not to be amortized but are instead to be tested for impairment annually. Upon adoption of the new
Section 3062 in fiscal 2003, the Company must perform transitional impairment tests on goodwill and intangible assets with indefinite lives. Any impairment losses are
to be measured as of the date of adoption. Impairment losses assessed on transition, if any, will be recorded as an adjustment to retained earnings. The impact of
adopting Section 1581 and 3062 has not yet been determined.

In July 2001, the U.S. Financial Accounting Standards Board (AcSB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations and
SFAS 142 Goodwill and Other Intangible Assets which are consistent with Sections 1581 and 3062, respectively, except for certain remaining generally accepted
accounting principles (GAAP) differences, including the accounting for purchased in-process research and development and the recording of any impairment charge
determined on transition as a period cost which are required under U.S. GAAP.

In December 2001, the AcSB issued Handbook Section 3870 Stock-Based Compensation and Other Stock-Based Payments. Section 3870 establishes standards for the
recognition, measurement, and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services provided by employees and
non-employees. It applies to transactions in which common shares, stock options, or other equity instruments are granted or liabilities incurred based on the price of
common stock or other equity instruments.

The Company will adopt Section 3870 for its fiscal year beginning June 1, 2002. The Company does not believe that the adoption of this standard will have a material
impact on the Companys financial condition or results of operations as the Companys current accounting policies, as disclosed above, comply with the new standard.

3.   Acquisitions



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)      In October 1999, the Company completed the acquisition of all of the issued and outstanding shares of GeneSense Technologies Inc. a molecular genetic drug
development company specializing in oligonucleotide therapies for the treatment of cancer and infectious diseases.

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The acquisition was accounted for using the purchase method. The total cost of the acquisition of $14,775,000 was allocated to the fair value of the net assets
acquired as follows:

|                                  |  |   |        |  
|--------------------------------- |  | - | ------ | -
|Amounts in 000's                  |  |   |        |  
|                                  |  |   |        |  
|Current assets                    |  | $ | 822    |  
|Fixed assets                      |  |   | 83     |  
|Acquired research and development |  |   | 11,000 |  
|Goodwill                          |  |   | 4,363  |  
|Current liabilities               |  |   | (1,493 | )
|                                  |  |   |        |  
|                                  |  | $ | 14,775 |  
|                                  |  |   |        |  

The purchase price was satisfied by the issuance of 36,050,000 Lorus common shares. In addition, the Company issued 7,210,000 common share purchase warrants and
903,825 employee stock options in exchange for 1,400,000 common share purchase warrants and 175,500 employee stock options of GeneSense which were outstanding
immediately prior to the acquisition. The purchase warrants entitled the holder to acquire one common share of Lorus for $0.6932 per share. The employee stock options
have an exercise price of $0.40 per common share and maintain their original vesting terms. The total purchase price includes $775,000 in cash paid for costs related
to the acquisition. All common share
purchase warrants issued in connection with the acquisition were exercised in the 2001 fiscal year for proceeds of $4,998,000.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b)      In December 1997, NuChem acquired certain patent rights and a sub-license to develop and commercialize the anti-cancer application of certain compounds in
exchange for a 20% share interest in NuChem, the payment of US$350,000 in shares of Lorus, and up to US$3,500,000 in cash. In 1999, the Company issued 583,188 common
shares from treasury in settlement of the US$350,000 and made cash payments of US$500,000 (Cdn. $715,000). The remaining balance of up to US$3,000,000 remains payable
upon the achievement of certain milestones based on the commencement and completion of clinical trials. The payments made to date of $1,228,000 have been classified
as acquired research and development. Lorus funds all research and development expenses of NuChem.

4.   Fixed Assets

|                                          |  |      |       |      |  |   |      |  
|----------------------------------------- |  | ---- | ----- | ---- |  | - | ---- | -
|As at May 31 (amounts in 000's)           |  | 2002 |       | 2001
|                                          |  |      |       |     
|Furniture and equipment                   |  | $    | 1,171 |      |  | $ | 765  |  
|Leasehold improvements                    |  |      | 139   |      |  |   | 68   |  
|                                          |  |      |       |      |  |   |      |  
|                                          |  |      | 1,310 |      |  |   | 833  |  
|Accumulated depreciation and
amortization |  |      | (777  | )    |  |   | (571 | )
|                                          |  |      |       |      |  |   |      |  
|                                          |  | $    | 533   |      |  | $ | 262  |  
|                                          |  |      |       |      |  |   |      |  

5.   Acquired Research and Development

|                                |  |      |        |      |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|As at May 31 (amounts in 000's) |  | 2002 |        | 2001
|                                |  |      |        |     
|Cost                            |  | $    | 12,228 |      |  | $ | 12,228 |  
|Accumulated amortization        |  |      | (4,812 | )    |  |   | (3,065 | )
|                                |  |      |        |      |  |   |        |  
|                                |  | $    | 7,416  |      |  | $ | 9,163  |  
|                                |  |      |        |      |  |   |        |  

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6.   Share Capital



| |                                                  
| | -------------------------------------------------
| | (a)      Continuity of common shares and warrants

|                                                |  |        |     |        |  |               |         |          |  |        |         |   |  |  |         |   |  |   |        |  
|----------------------------------------------- |  | ------ | --- | ------ |  | ------------- | ------- | -------- |  | ------ | ------- | - |  |  | ------- | - |  | - | ------ | -
|                                                |  |        |     |        |  | Common Shares |         | Warrants
|                                                |  |        |     |        |  |               |         |         
|Amounts in 000's                                |  | Note 6 |     | Number |  | Amount        |         | Number   |  | Amount
|                                                |  |        |     |        |  |               |         |          |  |       
|Balance at May 31, 1999                         |  |        |     |        |  |               | 42,747  |          |  | $      | 38,955  |   |  |  | 4,093   |   |  | $ | 535    |  
|Exercise of purchase warrants                   |  |        | (b) |        |  |               | 893     |          |  |        | 1,821   |   |  |  | (893    | ) |  |   | (321   | )
|Exercise of purchase warrants                   |  |        | (c) |        |  |               | 3,200   |          |  |        | 1,333   |   |  |  | (3,200  | ) |  |   | (213   | )
|Issuance of special and purchase warrants       |  |        | (d) |        |  |               |        |          |  |        |        |   |  |  | 33,128  |   |  |   | 8,853  |  
|Exercise of special warrants                    |  |        | (d) |        |  |               | 30,303  |          |  |        | 8,438   |   |  |  | (30,303 | ) |  |   | (8,438 | )
|Exercise of purchase warrants                   |  |        | (d) |        |  |               | 2,181   |          |  |        | 1,215   |   |  |  | (2,181  | ) |  |   | (321   | )
|Issuance in public offering                     |  |        | (e) |        |  |               | 15,333  |          |  |        | 41,952  |   |  |  | 766     |   |  |   | 659    |  
|Issued on acquisition of GeneSense
(note 3 (a)) |  |        |     |        |  |               | 36,050  |          |  |        | 14,000  |   |  |  | 7,210   |   |  |   |       |  
|Exercise of purchase warrants (note 3 (a))      |  |        |     |        |  |               | 7,210   |          |  |        | 4,998   |   |  |  | (7,210  | ) |  |   |       |  
|Issuance under alternate compensation plan      |  |        | (f) |        |  |               | 18      |          |  |        | 15      |   |  |  |        |   |  |   |       |  
|Exercise of stock options                       |  |        |     |        |  |               | 1,730   |          |  |        | 1,113   |   |  |  |        |   |  |   |       |  
|Stock-based compensation                        |  |        |     |        |  |               |        |          |  |        | 869     |   |  |  |        |   |  |   |       |  
|                                                |  |        |     |        |  |               |         |          |  |        |         |   |  |  |         |   |  |   |        |  
|Balance at May 31, 2000                         |  |        |     |        |  |               | 139,665 |          |  |        | 114,709 |   |  |  | 1,410   |   |  |   | 754    |  
|Exercise of purchase warrants                   |  |        | (d) |        |  |               | 168     |          |  |        | 93      |   |  |  | (168    | ) |  |   | (25    | )
|Issuance under alternate compensation plan      |  |        | (f) |        |  |               | 28      |          |  |        | 49      |   |  |  |        |   |  |   |       |  
|Exercise of stock options                       |  |        |     |        |  |               | 2,550   |          |  |        | 1,866   |   |  |  |        |   |  |   |       |  
|Stock-based compensation                        |  |        |     |        |  |               |        |          |  |        | 351     |   |  |  |        |   |  |   |       |  
|Other                                           |  |        |     |        |  |               |        |          |  |        | 82      |   |  |  |        |   |  |   |       |  
|                                                |  |        |     |        |  |               |         |          |  |        |         |   |  |  |         |   |  |   |        |  
|Balance at May 31, 2001                         |  |        |     |        |  |               | 142,411 |          |  |        | 117,150 |   |  |  | 1,242   |   |  |   | 729    |  
|Exercise of compensation warrants               |  |        | (d) |        |  |               | 476     |          |  |        | 265     |   |  |  | (476    | ) |  |   | (70    | )
|Expiry of compensation warrants                 |  |        | (e) |        |  |               |        |          |  |        | 659     |   |  |  | (766    | ) |  |   | (659   | )
|Exercise of stock options                       |  |        |     |        |  |               | 1,525   |          |  |        | 1,194   |   |  |  |        |   |  |   |       |  
|Stock-based compensation                        |  |        |     |        |  |               |        |          |  |        | (100    | ) |  |  |        |   |  |   |       |  
|                                                |  |        |     |        |  |               |         |          |  |        |         |   |  |  |         |   |  |   |        |  
|Balance at May 31, 2002                         |  |        |     |        |  |               | 144,412 |          |  | $      | 119,168 |   |  |  | 0       |   |  | $ | 0      |  
|                                                |  |        |     |        |  |               |         |          |  |        |         |   |  |  |         |   |  |   |        |  



| |                                
| | -------------------------------
| | (b)      1997 Private Placement

In May 2000, 892,857 common share purchase warrants related to an April 30, 1997 private placement were exercised to acquire
892,857 common shares at $1.68 per common share for aggregate cash proceeds of $1,500,000.



| |                                                            
| | -----------------------------------------------------------
| | (c)      January 1999 Private Placement of Special Warrants

On January 8, 1999, the Company completed a private placement of 5,333,333 special warrants for gross proceeds of $1,600,000
($0.30 per special warrant) before deducting expenses of $383,000. Each special warrant granted the holder the right to
acquire, without additional payment, one common share (stated capital $0.272 per common share) and one-half of one Series A
purchase warrant (stated capital $0.028 per one-half common share purchase warrant). Each whole common share purchase
warrant entitled the holder to acquire one common share for $0.36 at any time on or before January 8, 2000. On May 7, 1999
the special warrants were converted into 5,333,333 common shares and 2,666,667 purchase warrants. In addition, the Company
granted 483,333 broker warrants and 50,000 compensation options (stated capital $0.12 per broker warrant and compensation
option) to agents of the Company in connection with the completion of the offering. Each broker warrant and compensation
option entitled the holder to acquire one common share for $0.30. All purchase warrants, broker warrants and compensation
options related to this offering were exercised in the 2000 fiscal year.

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| |                                                            
| | -----------------------------------------------------------
| | (d)      October 1999 Private Placement of Special Warrants

On October 27, 1999 the Company issued 30,303,031 special warrants for gross proceeds of $10,000,000 ($0.33 per special
warrant) before deducting expenses of $1,562,000. The special warrants grant the holder the right to acquire, without
additional payment, one common share of the Company (stated capital $0.316 per common share). The expenses include the
issuance of 2,824,849 compensation warrants (stated capital $0.147 per warrant) for services in connection with the
completion of the offering. Each compensation warrant entitles the holder to acquire one common share for $0.41 at any time
prior to October 27, 2001. In the third quarter of 2000, the special warrants were converted into 30,303,031 common shares.
During 2002, 475,700 compensation warrants were exercised. (2001
 167,750 and 2000  2,181,399). As at May 31, 2002, no
compensation warrants remain outstanding.



| |                                     
| | ------------------------------------
| | (e)      May 2000 Common Share Issue

On May 2, 2000 the Company issued 15,333,334 common shares for gross proceeds of $46,000,000 ($3.00 per common share) before
deducting expenses of $4,048,000. The expenses include the issuance of 766,666 compensation warrants (stated capital $0.86 per
warrant) for services in connection with the completion of the offering. Each compensation warrant entitles the holder to acquire one
common share for $3.30. The warrants vested 50% on November 2, 2000 and 50% on May 2, 2001. All compensation warrants expired
unexercised on November 2, 2001.



| |                                      
| | -------------------------------------
| | (f)      Alternate Compensation Plans

In 2000, the Company established a compensation plan for directors and officers, which allows the Company, in certain circumstances,
to issue common shares to pay directors fees or performance bonuses of officers in lieu of cash. The number of common shares
reserved for issuance under this plan is 2,500,000. Since inception, 46,000 shares have been issued under this plan.

The Company also established a deferred share unit plan that provides directors the option of receiving payment for their services in
the form of share units rather than common shares or cash. Share units entitle the director to receive, on termination of their
services to the Company, an equivalent number of common shares, or the cash equivalent of the market value of the common shares at
that future date. The share units are granted based on the market value of the common shares on the date of issue. As of May 31, 2002
83,057 deferred share units have been issued, with a cash value of $62,000 being recorded in accrued liabilities.

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| |                           
| | --------------------------
| | (g)      Stock Option Plan

Under the Companys stock option plan, options may be granted to directors, officers, employees and consultants of the Company to purchase up to 12,000,000 common shares. Options are granted at the
fair market value of the common shares on the date of grant. Options vest at various rates and have a term of five years. Stock option transactions for the three years ended May 31, 2002 are
summarized as follows:

|                                 |  |         |        |          |  |           |      |          |  |         |        |           |  |   |      |  |  |           |        |   |  |   |      | 
|-------------------------------- |  | ------- | ------ | -------- |  | --------- | ---- | -------- |  | ------- | ------ | --------- |  | - | ---- |  |  | --------- | ------ | - |  | - | ---- | 
|                                 |  | 2002    |        | 2001     |  | 2000     
|                                 |  |         |        |          |  |          
|                                 |  |         |        |          |  | Weighted- |      |          |  |         |        | Weighted- |  |   |      |  |  | Weighted-
|                                 |  |         |        |          |  | average   |      |          |  |         |        | average   |  |   |      |  |  | average  
|                                 |  | Options |        | exercise |  | Options   |      | exercise |  | Options |        | exercise 
|                                 |  | (000's) |        | price    |  | (000's)   |      | price    |  | (000's) |        | price    
|                                 |  |         |        |          |  |           |      |          |  |         |        |          
|Outstanding at beginning
of year |  |         | 4,144  |          |  | $         | 1.19 |          |  |         | 6,310  |           |  | $ | 0.80 |  |  |           | 3,094  |   |  | $ | 1.00 | 
|Granted                          |  |         | 3,188  |          |  | $         | 0.98 |          |  |         | 1,281  |           |  | $ | 2.08 |  |  |           | 5,135  |   |  | $ | 0.75 | 
|Exercised                        |  |         | (1,525 | )        |  | $         | 0.78 |          |  |         | (2,550 | )         |  | $ | 0.73 |  |  |           | (1,730 | ) |  | $ | 0.64 | 
|Forfeited                        |  |         | (382   | )        |  | $         | 1.39 |          |  |         | (897   | )         |  | $ | 1.00 |  |  |           | (189   | ) |  | $ | 1.10 | 
|                                 |  |         |        |          |  |           |      |          |  |         |        |           |  |   |      |  |  |           |        |   |  |   |      | 
|Outstanding at end of year       |  |         | 5,425  |          |  | $         | 1.17 |          |  |         | 4,144  |           |  | $ | 1.19 |  |  |           | 6,310  |   |  | $ | 0.80 | 
|                                 |  |         |        |          |  |           |      |          |  |         |        |           |  |   |      |  |  |           |        |   |  |   |      | 
|Exercisable at end of year       |  |         | 2,183  |          |  | $         | 1.32 |          |  |         | 2,486  |           |  | $ | 0.95 |  |  |           | 3,515  |   |  | $ | 0.78 | 
|                                 |  |         |        |          |  |           |      |          |  |         |        |           |  |   |      |  |  |           |        |   |  |   |      | 

The following table summarizes information about stock options outstanding at May 31, 2002:

|                         |  |                     |       |                     |  |                  |     |             |  |                |      |  |  |  |       |  |  |   |      | 
|------------------------ |  | ------------------- | ----- | ------------------- |  | ---------------- | --- | ----------- |  | -------------- | ---- |  |  |  | ----- |  |  | - | ---- | 
|                         |  | Options outstanding |       | Options exercisable
|                         |  |                     |       |                    
|                         |  |                     |       |                     |  | Weighted-average |     |             |  |                |      |  |  |  |       |  |  |  
|                         |  | Options             |       | remaining           |  | Weighted-        |     | Options     |  | Weighted-     
|                         |  | outstanding         |       | contractual life    |  | average          |     | exercisable |  | average       
|Range of Exercise prices |  | (000's)             |       | (years)             |  | exercise price   |     | (000's)     |  | exercise price
|                         |  |                     |       |                     |  |                  |     |             |  |               
|$0.33 to $0.49           |  |                     | 609   |                     |  |                  | 2.3 |             |  | $              | 0.39 |  |  |  | 519   |  |  | $ | 0.39 | 
|$0.50 to $0.99           |  |                     | 3,368 |                     |  |                  | 4.0 |             |  | $              | 0.89 |  |  |  | 825   |  |  | $ | 0.86 | 
|$1.00 to $1.99           |  |                     | 625   |                     |  |                  | 3.4 |             |  | $              | 1.52 |  |  |  | 449   |  |  | $ | 1.50 | 
|$2.00 to $3.63           |  |                     | 823   |                     |  |                  | 3.3 |             |  | $              | 2.59 |  |  |  | 565   |  |  | $ | 2.58 | 
|                         |  |                     |       |                     |  |                  |     |             |  |                |      |  |  |  |       |  |  |   |      | 
|                         |  |                     | 5,425 |                     |  |                  |     |             |  | $              | 1.17 |  |  |  | 2,358 |  |  | $ | 1.29 | 
|                         |  |                     |       |                     |  |                  |     |             |  |                |      |  |  |  |       |  |  |   |      | 



| |                                           
| | ------------------------------------------
| | (h)      Deferred Stock-based Compensation

The Company recorded deferred stock-based compensation recovery relating to options issued under the Companys stock option plan amounting to $100,000 for the year ended May 31, 2002 (2001  charge
$351,000 and 2000  charge $869,000). Amortization of deferred stock-based compensation was $296,000 for the year ended May 31, 2002 (2001  $335,000 and 2000  $330,000).

7.   Income Taxes

Income tax recoveries attributable to losses from operations differ from the amounts computed by applying the combined Canadian federal and provincial income tax rates to pretax income from
operations primarily as a result of the provision of a valuation allowance on net future income tax benefits.

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Significant components of the Companys future tax assets are as follows:

|                                      |  |      |         |      |  |   |         |  
|------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|As at May 31 (amounts in 000's)       |  | 2002 |         | 2001
|                                      |  |      |         |     
|Non-capital loss carryforwards        |  | $    | 7,870   |      |  | $ | 9,976   |  
|Research and development expenditures |  |      | 11,218  |      |  |   | 12,770  |  
|Book over tax depreciation            |  |      | 1,537   |      |  |   | 1,819   |  
|Other                                 |  |      | 787     |      |  |   | 1,984   |  
|                                      |  |      |         |      |  |   |         |  
|Future tax assets                     |  |      | 21,412  |      |  |   | 26,549  |  
|Valuation allowance                   |  |      | (21,412 | )    |  |   | (26,549 | )
|                                      |  |      |         |      |  |   |         |  
|                                      |  | $    |        |      |  | $ |        |  
|                                      |  |      |         |      |  |   |         |  

In assessing the realizable benefit from future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not
be realized. The ultimate realization of future tax assets is dependent on the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax
planning strategies in making this assessment. Due to the Companys stage of development and operations, and uncertainties related to
the industry in which the Company operates, the tax benefit of the above carried forward amounts have been completely offset by a valuation allowance.

Research and development expenditures can be carried forward indefinitely. To the extent that the non-capital loss carryforwards are not used, they expire as follows:

|                                  |  |                    |        | 
|--------------------------------- |  | ------------------ | ------ | 
|Year of expiry (amounts in 000's) |  | Non-capital losses
|                                  |  |                   
|2003                              |  | $                  | 2,140  | 
|2004                              |  |                    | 2,022  | 
|2005                              |  |                    | 2,295  | 
|2006                              |  |                    | 3,633  | 
|2007                              |  |                    | 3,630  | 
|2008                              |  |                    | 5,977  | 
|2009                              |  |                    | 5,627  | 
|                                  |  |                    |        | 
|                                  |  | $                  | 25,324 | 
|                                  |  |                    |        | 

8.   Research and Development Program

The Companys cancer drug research and development program focuses primarily on the following technology platforms:



| |                       
| | ----------------------
| | (a)      Immunotherapy

This clinical approach stimulates the bodys natural defenses against cancer. The Companys lead drug Virulizin® is currently in a North American Phase III clinical trial for
the treatment of pancreatic cancer.

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| |                   
| | ------------------
| | (b)      Antisense

Antisense drugs are genetic molecules that inhibit the production of disease-causing proteins. GTI-2040 and GTI-2501, our lead antisense drugs, have shown pre-clinical
anti-cancer activity across a broad range of cancers and are currently in phase II and phase I trials, respectively.



| |                         
| | ------------------------
| | (c)      Small Molecules

Anti-cancer activity was discovered with an anti-fungal agent Clotrimazole (CLT). Based on the structural feature found to be responsible for the anti-cancer effect of CLT,
chemical analogues of CLT have been designed and tested. The lead analogue NC381 is in the pre-clinical stage of development.

|                         |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |   |             |        | 
|------------------------ |  | -------- | -------------- | ---------------- | ----------------- | ---- | --------- | ------------ | ----- | - | ----- | - | ------ | ------ | ------ | - | ----------- | ------ | 
|                         |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |   | Period from
|                         |  |          |                |                  | Year ended May 31 |      | inception
|(amounts in 000's)       |  |          |                | Sept. 5, 1986 to
|Research and Development |  | 2002     |                | 2001             |                   | 2000 |           | May 31, 2002
|                         |  |          |                |                  |                   |      |           |             
|Immunotherapy            |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  
|                         |  | Acquired |                | $                |                  |      |           | $            |      |   |       | $ |       |        |        | $ |            |       
|                         |  | Expensed |                |                  | 4,612             |      |           |              | 2,161 |   |       |   | 887    |        |        |   | 29,488      |       
|Antisense                |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  
|                         |  | Acquired |                |                  |                  |      |           |              |      |   |       |   | 11,000 |        |        |   | 11,000      |       
|                         |  | Expensed |                |                  | 3,410             |      |           |              | 7,116 |   |       |   | 2,772  |        |        |   | 13,298      |       
|Small Molecules          |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  
|                         |  | Acquired |                |                  |                  |      |           |              |      |   |       |   |       |        |        |   | 1,228       |       
|                         |  | Expensed |                |                  | 637               |      |           |              | 520   |   |       |   | 585    |        |        |   | 3,723       |       
|                         |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  
|                         |  |          | Total acquired |                  | $                 |     |           |              | $     |  |       |   | $      | 11,000 |        |   | $           | 12,228 | 
|                         |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  
|Total expensed           |  | $        | 8,659          |                  |                   | $    | 9,797     |              |       | $ | 4,244 |   |        | $      | 46,509 |  
|                         |  |          |                |                  |                   |      |           |              |       |   |       |   |        |        |        |  

9.   Supplementary Cash Flow Information

Changes in non-cash working capital balances for each of the periods ended are summarized as follows:

|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  |                  |       |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | ------------ |  | - | ---- | - |  | ---------------- | ----- | -
|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  | Period from     
|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  | inception       
|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  | Sept. 5, 1986 to
|Years ended May 31 (amounts in 000's)   |  | 2002 |        | 2001 |  | 2000 |       | May 31, 2002
|                                        |  |      |        |      |  |      |       |             
|(Increase) decrease                     |  |      |        |      |  |      |       |              |  |   |      |   |  |                  |       |  
|Prepaid expenses and amounts receivable |  | $    | 309    |      |  | $    | (409  | )            |  | $ | (440 | ) |  | $                | (618  | )
|Deferred charges                        |  |      |       |      |  |      |      |              |  |   | 221  |   |  |                  |      |  
|Increase(decrease)                      |  |      |        |      |  |      |       |              |  |   |      |   |  |                  |       |  
|Accounts payable                        |  |      | (2,686 | )    |  |      | 988   |              |  |   | 728  |   |  |                  | (802  | )
|Accrued liabilities                     |  |      | 253    |      |  |      | 1,269 |              |  |   | 66   |   |  |                  | 2,750 |  
|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  |                  |       |  
|                                        |  | $    | (2,124 | )    |  | $    | 1,848 |              |  | $ | 575  |   |  | $                | 1,330 |  
|                                        |  |      |        |      |  |      |       |              |  |   |      |   |  |                  |       |  

During the year ended May 31, 2002, the Company received interest of $2,488,000 (2001  $2,607,000 and 2000  $542,000).

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10.   Commitments

The Company has entered into operating leases for premises under which
it is obligated to make minimum annual payments of approximately
$210,000 in 2003, $230,000 in 2004 and $100,000 in 2005.

During the year ended May 31, 2002, operating lease expenses were
$118,000 (2001  $206,000 and 2000  $146,000).

11.   Related Party Transactions

During the year ended May 31, 2002, consulting fees of $68,000 were
paid to individuals (or companies controlled by those individuals) who
were either officers or directors of the Company (2001  nil and
2000  nil).

The Company received services from a law firm in which a director of
the Company is a partner. Fees related primarily to consultations in
the normal course of business for an aggregate of $376,000 for the
year ended May 31, 2002 (2001  $357,000 and 2000  $425,000).

The amount payable to related parties as at May 31, 2002 was $46,000
(2001  $140,000 and 2000  $179,000).

12.   Financial Instruments

The carrying values of cash and cash equivalents, short-term
investments, accounts payable and accrued liabilities approximate
their fair values due to the short-term nature of these instruments.

Financial instruments potentially exposing the Company to a
concentration of credit risk consist principally of cash equivalents
and short-term investments. The Company mitigates this risk by
investing in high grade fixed income securities.

13.   Canada and United States Accounting Policy Differences

These financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) as applied in
Canada. In certain respects, GAAP as applied in the United States
differs from that applied in Canada.



| |                                              
| | ---------------------------------------------
| | (a)      SFAS 123 Employee Stock Compensation

SFAS No. 123 encourages, but does not require, the recording of
compensation costs for stock options issued to employees to be valued
at fair value. For companies choosing not to adopt the fair value
measurement for stock based compensation, the pronouncement requires
the Company to disclose pro forma net income and earnings per share
information as if the Company had accounted for its stock options
under the fair value method since 1995. The Company has elected not to
adopt the recording of compensation costs for stock options at fair
value and, accordingly, a summary of the pro forma impact on the
statement of loss is presented in the table below:

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|                                                                |  |      |        |      |  |      |        |  |  |   |       | 
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|(Amounts in 000's)                                              |  | 2002 |        | 2001 |  | 2000
|                                                                |  |      |        |      |  |     
|Loss for the year                                               |  | $    | 13,487 |      |  | $    | 15,213 |  |  | $ | 8,599 | 
|Compensation expense related to the
fair value of stock options |  |      | 1,278  |      |  |      | 1,059  |  |  |   | 1,285 | 
|                                                                |  |      |        |      |  |      |        |  |  |   |       | 
|Pro forma loss for the period                                   |  | $    | 14,765 |      |  | $    | 16,272 |  |  | $ | 9,884 | 
|                                                                |  |      |        |      |  |      |        |  |  |   |       | 
|Pro forma loss per common share                                 |  | $    | 0.10   |      |  | $    | 0.12   |  |  | $ | 0.11  | 
|                                                                |  |      |        |      |  |      |        |  |  |   |       | 

The fair value of each option granted has been estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions used for options
granted in the years ended May 31, 2002, 2001, and 2000: (i) dividend yield of 0%; (ii)
expected volatility of 80% (2001  95%, 2000  95%); (iii) risk-free interest rate of
3.6% (2001  5.4%, 2000  6.0%) and (iv) expected lives of 5 years. The Company has
assumed no forfeiture rate as adjustments for actual forfeitures are made in the year
they occur. The weighted-average grant-date fair values of options issued in the years
ended May 31, 2002, 2001, and 2000 were $ 0.71, $1.56, and $0.60 respectively.



| |                                                 
| | ------------------------------------------------
| | (b)      SFAS 130 Reporting Comprehensive Income

SFAS No. 130 establishes standards for reporting and presentation of comprehensive income. This standard
defines comprehensive income as the changes in equity of an enterprise except those resulting from
shareholder transactions. Comprehensive loss for the periods presented in these financial statements equaled
the loss for the period.




Item 18.   Financial Statements

The Company has elected to report under Item No. 17.

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GLOSSARY

The following is a glossary of terms that are used in this Annual Report

|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Actinic keratosis:                 |  | a condition that arises on the skins surface. It can be the first
step in the development of skin cancer and therefore is a precursor
of cancer, or a precancer.                                                                                                                                                                               
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Analogue:                          |  | a chemical derivative or variation of a parent molecule                                                                                                                                                                                                                                                                                         
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Anti-angiogenic:                   |  | preventing blood vessel formation                                                                                                                                                                                                                                                                                                               
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Anti-metastatic                    |  | the ability to inhibit the movement of tumor cells from a
primary/original site to other organs in the body                                                                                                                                                                                                                                     
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Anti-proliferative:                |  | preventing cancer cell division                                                                                                                                                                                                                                                                                                                 
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Apoptosis:                         |  | programmed cell death                                                                                                                                                                                                                                                                                                                           
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|BCD:                               |  | Bureau of Control of Drugs, the regulatory agency controlling
pharmaceutical drugs in Mexico                                                                                                                                                                                                                                                    
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Biologic response
modifier or BRM: |  | a substance which stimulates, modifies or enhances the bodys response, including the response of the bodys immune and other
protective cellular and molecular systems, to certain diseases                                                                                                                                                    
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Carcinoma:                         |  | any cancerous tumor that starts with the cells that cover the inner
and outer body surfaces                                                                                                                                                                                                                                                     
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Clinical trials:                   |  | the investigational use of a new drug in humans: Phase I clinical
trials test a drug for safety, Phase II clinical trials test a drug
for efficacy and safety in a relatively small sample of patients, and
Phase III clinical trials test the drug for efficacy in larger
numbers of patients and compares the drug with conventional therapies
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|cGMP:                              |  | current good manufacturing practices, as mandated from time to time
by the TPP and the FDA                                                                                                                                                                                                                                                      
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|CLT:                               |  | Clotrimazole                                                                                                                                                                                                                                                                                                                                    
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Cytokine:                          |  | a generic term for a non-antibody protein released by a cell
population (e.g., activated macrophages) of the immune system on
contact with chemical or biological stimuli                                                                                                                                                                       
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Cytostatic:                        |  | pertaining to the inhibition of cell growth without cell destruction                                                                                                                                                                                                                                                                            
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Cytotoxic:                         |  | pertaining to the destruction of cells                                                                                                                                                                                                                                                                                                          
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Deoxyribonucleic
acid (DNA):       |  | DNA is the carrier of genetic information which exists in all cells
of the body. The building blocks of DNA are called nucleotides                                                                                                                                                                                                              
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Efficacy:                          |  | the ability of a drug to produce a desired result                                                                                                                                                                                                                                                                                               
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|EMEA:                              |  | European Medicine Evaluation Agency                                                                                                                                                                                                                                                                                                             
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|FDA:                               |  | Food and Drug Administration, the government agency which regulates
the use and sale of diagnostic and therapeutic drug products in the
United States                                                                                                                                                                                           
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|Gene expression:                   |  | the synthesis of specific proteins on the basis of inherited or
acquired genetic information                                                                                                                                                                                                                                                    
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|GeneSense:                         |  | GeneSense Technologies Inc., a subsidiary of the Company                                                                                                                                                                                                                                                                                        
|                                   |  |                                                                                                                                                                                                                                                                                                                                                 
|HIV:                               |  | Human Immunodeficiency Virus, the virus which causes AIDS                                                                                                                                                                                                                                                                                       

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|                       |  |                                                                                                                                                                                                                                
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Immune system:         |  | the totality of organs and cells involved in the bodys immunologic
response to foreign antigens and malignant tissue                                                                                                          
|                       |  |                                                                                                                                                                                                                                
|IND:                   |  | investigational new drug                                                                                                                                                                                                       
|                       |  |                                                                                                                                                                                                                                
|In situ:               |  | in position                                                                                                                                                                                                                    
|                       |  |                                                                                                                                                                                                                                
|In vitro:              |  | in the test tube; referring to chemical reactions, fermentation,
etc., occurring therein e.g., in cell-free extracts                                                                                                           
|                       |  |                                                                                                                                                                                                                                
|In vivo:               |  | in the living body; referring to chemical processes occurring within
cells, etc., as distinguished from those occurring in cell-free
extracts (in vitro)                                                                       
|                       |  |                                                                                                                                                                                                                                
|LD50:                  |  | the measure (quantity) of a drug that, when administered to
experimental animals in acute toxicity studies, is lethal to 50
percent of such animals                                                                            
|                       |  |                                                                                                                                                                                                                                
|Macrophage:            |  | a large scavenger white blood cell that engulfs and digests invading
micro-organisms and cell debris, and also participates in many
complex immunologic processes                                                              
|                       |  |                                                                                                                                                                                                                                
|Malignant/
malignancy: |  | describes a tumor that is cancerous. Two important qualities of
malignancies are the tendency to invade surrounding tissues and to
break off and spread elsewhere (metastasis)                                                 
|                       |  |                                                                                                                                                                                                                                
|MAP Kinase Pathway:    |  | the pathway of mitogenic signal transduction through the cascade of
mitogen-activated protein (MAP) kinases which ultimately lead to
alteration in regulatory events such as cell proliferation,
differentiation and apoptosis.
|                       |  |                                                                                                                                                                                                                                
|Metabolism:            |  | the overall biochemical reactions that take place in a living
organism including the building up of complex molecules or breakdown
of molecules to provide energy                                                              
|                       |  |                                                                                                                                                                                                                                
|Metastasis:            |  | the process by which tumor cells are spread to other parts of the body                                                                                                                                                         
|                       |  |                                                                                                                                                                                                                                
|mRNA:                  |  | messenger, or mRNA, is a copy of the information carried by a gene on
the DNA. The role of mRNA is to move the information contained in
DNA to the translation machinery.                                                      
|                       |  |                                                                                                                                                                                                                                
|NDA:                   |  | new drug application, the application to obtain marketing approval
filed with the FDA or BCD after completion of human clinical trials                                                                                         
|                       |  |                                                                                                                                                                                                                                
|NDS:                   |  | new drug submission, the application to obtain marketing approval
filed with the TPP after completion of human clinical trials                                                                                                 
|                       |  |                                                                                                                                                                                                                                
|NuChem:                |  | NuChem Pharmaceuticals Inc., a subsidiary of the Company                                                                                                                                                                       
|                       |  |                                                                                                                                                                                                                                
|NuChem Analogues:      |  | analogues of CLT licensed by the Company for anti-cancer indications                                                                                                                                                           
|                       |  |                                                                                                                                                                                                                                
|Nucleic acid:          |  | DNA and RNA, each of which are formed by the combination of
nucleotides; it is found in all living cells and contains the genetic
code required to transfer genetic information from one generation to
the next                
|                       |  |                                                                                                                                                                                                                                
|Nucleotide:            |  | a compound consisting of a purine or pyrimidine base, a pentose sugar
and a phosphoric acid; they are the building blocks from which
nucleic acids (DNA or RNA) are constructed                                                
|                       |  |                                                                                                                                                                                                                                
|Oligonucleotides:      |  | oligonucleotides are short chains of nucleotides, which are the
building blocks of DNA and RNA                                                                                                                                 
|                       |  |                                                                                                                                                                                                                                
|Peptide:               |  | a molecule containing two or more amino acids, most frequently linked
in a single chain; amino acids form the constituent parts of proteins
(see protein)                                                                      

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|                         |  |                                                                                                                                                                                                                                                          
|------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pharmacokinetics:        |  | the action of drugs in the body over a period of time, including the
process of absorption, distribution, localization in tissues,
biotransformation and excretion                                                                                       
|                         |  |                                                                                                                                                                                                                                                          
|Pre-clinical testing:    |  | testing that is conducted in the laboratory (chemistry and
pharmacology) and with animals to help determine a products
chemical, pharmacological and pharmaceutical characteristics
(including mechanism of action), toxicity, efficacy and side effects
|                         |  |                                                                                                                                                                                                                                                          
|Proteins:                |  | large molecules composed of long chains of sub-units of amino acids                                                                                                                                                                                      
|                         |  |                                                                                                                                                                                                                                                          
|R1 and R2:               |  | components of ribonucleotide reductase                                                                                                                                                                                                                   
|                         |  |                                                                                                                                                                                                                                                          
|Ribonucleic acid
(RNA):  |  | a nucleic acid found in both the nucleus and the cytoplasm of all
cells. It carries genetic information from the nucleus to the
cytoplasm, where it also reacts as a template in association with
ribosomes to synthesize proteins                       
|                         |  |                                                                                                                                                                                                                                                          
|Salvage therapy:         |  | therapies for patients who have exhausted all standard treatment
options                                                                                                                                                                                 
|                         |  |                                                                                                                                                                                                                                                          
|SCID:                    |  | severe combined immunodeficiency disease                                                                                                                                                                                                                 
|                         |  |                                                                                                                                                                                                                                                          
|Squamous cell
carcinoma: |  | second most common skin cancer                                                                                                                                                                                                                           
|                         |  |                                                                                                                                                                                                                                                          
|SSA:                     |  | Secretaria de Salud (the Ministry of Health for Mexico)                                                                                                                                                                                                  
|                         |  |                                                                                                                                                                                                                                                          
|Stage IV cancer:         |  | distant metastatic cancer spread                                                                                                                                                                                                                         
|                         |  |                                                                                                                                                                                                                                                          
|Toxicity:                |  | a condition that results from exposure to a substance at levels
causing deleterious side effects which may be harmful to an organism                                                                                                                     
|                         |  |                                                                                                                                                                                                                                                          
|TPP:                     |  | Therapeutic Products Programme. A division of the Health Protection
Branch, Department of National Health and Welfare (Canada), the
government agency which regulates the use and sale of therapeutic
drug products in Canada                            
|                         |  |                                                                                                                                                                                                                                                          
|Tumor:                   |  | an abnormal swelling or lump in the body caused by the growth of new
tissues which differ in structure from the part of the body in which
they are growing. A tumor may be benign or malignant                                                           
|                         |  |                                                                                                                                                                                                                                                          
|Tumor necrosis:          |  | tumor deterioration and death                                                                                                                                                                                                                            
|                         |  |                                                                                                                                                                                                                                                          
|Xenograft:               |  | an implant of a foreign substance                                                                                                                                                                                                                        

VIRULIZIN® is a trademark of the Company. All other trademarks or trade names referred to in
this Annual Report are the property of their respective owners.

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Item 19.   EXHIBITS

Report of Independent Chartered Accountants.

The following exhibits are filed as part of this Annual Report.

|      |  |      |  |                                                                                                                                                                
|----- |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|*     |  | 1.1  |  | Articles of Amalgamation.                                                                                                                                      
|*     |  | 1.2  |  | Bylaws.                                                                                                                                                        
|**    |  | 1.3  |  | Articles of Amendment.                                                                                                                                         
|****  |  | 1.4  |  | Articles of Amendment, dated November 27, 1996, regarding name change of Company to Imutec Pharma Inc.                                                         
|***** |  | 1.5  |  | Articles of Amendment dated November 19, 1998, regarding name change of Company to Lorus Therapeutics Inc.                                                     
|*     |  | 2.1  |  | Form of stock option agreement for officers, directors and employees.                                                                                          
|***   |  | 2.2  |  | Stock Option Plan of the Company dated June 3, 1993, as amended.                                                                                               
|****  |  | 2.3  |  | Stock Option Plan of the Company dated December 11, 1997, as amended.                                                                                          
|***** |  | 2.4  |  | Stock Option Plan of the Company dated November 19, 1998, as amended.                                                                                          
|*     |  | 4.1  |  | Amalgamation Agreement dated August 23, 1991, among the Company, Mint Gold Resources Ltd., Harry J. Hodge and Wayne Beach.                                     
|      |  | 4.2  |  | Lease of Premises between the Company and 565991 Ontario Limited dated July 27, 2001.                                                                          
|*     |  | 4.3  |  | Shareholders Agreement dated October 2, 1989.                                                                                                                  
|*     |  | 4.4  |  | Shareholders Agreement termination agreement dated July 29, 1991.                                                                                              
|**    |  | 4.5  |  | Amended and Restated Escrow Agreement
dated as of October 28, 1991 among the Company, Montreal Trust Company of Canada and certain shareholders of the Company.
|**    |  | 4.6  |  | Offer to Lease dated May 11, 1992
between the Company and Morningside Properties Limited, as amended on May 26, 1992.                                          
|      |  | 10.1 |  | Certification pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                          
|      |  | 10.2 |  | Certification pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                          



---

|*     |  | Incorporated by reference to File 0-19763, Registration Statement on Form 20-FR, dated March 4, 1992.
|----- |  | -----------------------------------------------------------------------------------------------------
|     
|**    |  | Incorporated by reference to File 0-19763, Annual Report on Form 20-F, dated September 28, 1992.     
|     
|***   |  | Incorporated by reference to File 0-19763, Annual Report on Form 20-F, dated December 14, 1995.      
|     
|****  |  | Incorporated by reference to File 0-19763, Annual Report on Form 20-F, dated November 18, 1998.      
|     
|***** |  | Incorporated by reference to File 0-1963, Annual Report on Form 20-F dated November 30, 1999.        

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##### Table of Contents






SIGNATURES

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

|                        |  |                                
|----------------------- |  | -------------------------------
|                        |  | Lorus Therapeutics Inc.        
|                        |  |                                
|                        |  | (Company)                      
|                        |  |                                
|                        |  |                                
|                        |  | /s/ Jim A.
Wright
Jim A. Wright
|                        |  | Chief Executive Officer        
|Date: December 13, 2002 |  |                                




CERTIFICATIONS

I, Jim A. Wrightcertify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Lorus Therapeutics
Inc.;                                                                                                                                                                                                                                                 
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                       

|                        |  |                                
|----------------------- |  | -------------------------------
|Date: December 13, 2002 |  |                                
|                        |  |                                
|                        |  | /s/ Jim A. Wright
Jim A. Wright
|                        |  | Chief Executive Officer        

85



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##### Table of Contents






CERTIFICATIONS

I, James T. Parsonscertify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Lorus Therapeutics
Inc.;                                                                                                                                                                                                                                                 
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                       

|      |  |                   |  |                                                          
|----- |  | ----------------- |  | ---------------------------------------------------------
|Date: |  | December 13, 2002 |  |                                                          
|      |  |                   |  |                                                          
|      |  |                   |  | /s/ James T. ParsonsJames T. Parsons                     
|      |  |                   |  | VP Finance and Administration and
Chief Financial Officer

86