**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

----

 

**FORM 10-Q**

 

**(Mark One)**

 

| **ý** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       | **For the quarterly period ended October 31, 2004**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **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   1-8366**

 

**POLYDEX PHARMACEUTICALS LIMITED**

(Exact Name of Registrant as Specified in ItsCharter)

 

| **Commonwealth of the Bahamas**                                             | ** ** | **None**                              |
|-----------------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization)             |       | (I.R.S. Employer  Identification No.) |
|                                                                        |       |                                  |
| **421 Comstock Road, Toronto, Ontario,  Canada**                       | ** ** | **M1L 2H5**                      |
| (Address of Principal Executive Offices)                                    |       | (Zip Code)                            |
|                                                                        |       |                                  |
| Registrant’s Telephone Number, Including  Area Code **(416) 755-2231** |

 

 

Former Name, Former Address and Former FiscalYear, if Changed Since Last Report

 

Indicate by check whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.              Yes   ý                  No o

 

Indicate by check whether the registrant is an accelerated filer (asdefined in Exchange Act Rule 12b-2).          Yeso                    No ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common shares, as of the latest practicable date.

 

| **Common Shares, $.0167 Par Value** | ** ** | **3,042,296 shares**               |
|-------------------------------------|------------|------------------------------------|
| (Title of Class)                    |       | (Outstanding at December 10, 2004) |

 

 

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**POLYDEX PHARMACEUTICALS LIMITED**

 

**TABLE OF CONTENTS**

 
| **PART I**  | **FINANCIAL INFORMATION**                                                                                              | ** ** |
|-------------|------------------------------------------------------------------------------------------------------------------------|------------|
| ** **  | ** **                                                                                                             | ** ** |
| Item 1      | CONSOLIDATED  FINANCIAL STATEMENTS (UNAUDITED)                                                                         |       |
|        |                                                                                                                   |       |
|        | Consolidated Balance Sheets  October 31, 2004 and January 31, 2004                                                |       |
|        |                                                                                                                   |       |
|        | Consolidated Statements of Operations  and Comprehensive Income  Three and Nine months ended October 31, 2004 and 2003 |       |
|        |                                                                                                                   |       |
|        | Consolidated Statements of Shareholders’ Equity  Nine months ended October 31, 2004 and 2003                      |       |
|        |                                                                                                                   |       |
|        | Consolidated Statements of Cash Flows  Nine months ended October 31, 2004 and 2003                                     |       |
|        |                                                                                                                   |       |
|        | Notes to Consolidated Financial Statements (Unaudited)                                                                 |       |
|        |                                                                                                                   |       |
| Item 2      | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |       |
|        |                                                                                                                   |       |
| Item 3      | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                                            |       |
|        |                                                                                                                   |       |
| Item 4      | CONTROLS AND PROCEDURES                                                                                                |       |
|        |                                                                                                                   |       |
| **PART II** | **OTHER  INFORMATION**                                                                                                 | ** ** |
| ** **  | ** **                                                                                                             | ** ** |
| Item 6      | EXHIBITS AND REPORTS ON FORM 8-K                                                                                       |       |
|        |                                                                                                                   |       |
|        | Signatures and Certifications                                                                                          |       |

 

2

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**PART I**

**FINANCIALINFORMATION**

 

**Item 1****.  Consolidated FinancialStatements (unaudited).**

 

**POLYDEX PHARMACEUTICALS LIMITED**

 

ConsolidatedBalance Sheets (Unaudited)

(Expressedin United States dollars)

 
| ** **                                | ** ** | **October 31  2004** | ** ** | **January 31  2004** | ** ** |
|-------------------------------------------|------------|----------------------|------------|----------------------|------------|
|                                      |       |                 |       |                 |       |
| **Assets**                                |       |                 |       |                 |       |
|                                      |       |                 |       |                 |       |
| Current assets:                           |       |                 |       |                 |       |
| Cash and cash equivalents (note 3)        |       | $                    | 2,967,198  |                 | $          | 59,455 |   |
| Trade accounts receivable                 |       | 638,072              |       | 503,864              |       |
| Inventories:                              |       |                 |       |                 |       |
| Finished goods                            |       | 1,072,557            |       | 943,373              |       |
| Work in process                           |       | 203,645              |       | 107,008              |       |
| Raw materials                             |       | 176,746              |       | 176,058              |       |
|                                      |       |                 |       |                 |       |
| Inventories                               |       | 1,452,948            |       | 1,226,439            |       |
| Prepaid expenses and other current assets |       | 138,690              |       | 42,730               |       |
| Deferred tax assets                       |       | —               |       | 267,500              |       |
| Assets subject to sale agreement          |       | —               |       | 4,285,666            |       |
|                                      |       |                 |       |                 |       |
|                                      |       | 5,196,908            |       | 6,385,654            |       |
|                                      |       |                 |       |                 |       |
| Property, plant and equipment, at cost    |       |                 |       |                 |       |
| Land and buildings                        |       | 1,522,626            |       | 1,391,141            |       |
| Machinery and equipment                   |       | 7,767,494            |       | 6,982,088            |       |
|                                      |       | 9,290,120            |       | 8,373,229            |       |
| Less accumulated depreciation             |       | (5,961,319           | )          | (5,124,887           | )          |
| Property, plant and equipment, net        |       | 3,328,801            |       | 3,248,342            |       |
| Patents and intangible assets, net        |       | 70,968               |       | 85,511               |       |
| Investments available for sale (note 4)   |       | 1,836,791            |       | —               |       |
| Due from shareholder                      |       | 753,546              |       | 791,006              |       |
|                                      |       |                 |       |                 |       |
|                                      |       | $                    | 11,187,014 |                 | $          | 10,510,513 |   |

 

3

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| ** **                                              | ** ** | **October 31  2004** | ** ** | **January 31  2004** | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
|                                                    |       |                 |       |                 |       |
| **Liabilities and Shareholders’ Equity**           |       |                 |       |                 |       |
|                                                    |       |                 |       |                 |       |
| Current liabilities:                                    |       |                 |       |                 |       |
| Bank indebtedness                                       |       | $                    | 46,759     |                 | $          | 165,609 |   |
| Accounts payable                                        |       | 400,780              |       | 515,092              |       |
| Accrued liabilities                                     |       | 220,475              |       | 163,463              |       |
| Payroll and related taxes payable                       |       | 183,854              |       | 173,583              |       |
| Customer deposits                                       |       | 97,860               |       | 100,925              |       |
| Income taxes payable                                    |       | 275,230              |       | 923                  |       |
| Liabilities subject to sale agreement                   |       | —               |       | 880,564              |       |
| Current portion of long-term debt                       |       | 62,714               |       | 281,015              |       |
| Current portion of capital lease  obligations           |       | 162,989              |       | 161,253              |       |
|                                                    |       |                 |       |                 |       |
|                                                    |       | 1,450,661            |       | 2,442,427            |       |
|                                                    |       |                 |       |                 |       |
| Long-term debt                                          |       | 4,672                |       | 45,517               |       |
| Capital lease obligations                               |       | 214,027              |       | 284,950              |       |
| Due to shareholder                                      |       | 681,950              |       | 683,234              |       |
| Deferred income taxes                                   |       | 230,661              |       | 147,054              |       |
|                                                    |       |                 |       |                 |       |
|                                                    |       | 1,131,310            |       | 1,160,755            |       |
|                                                    |       |                 |       |                 |       |
| Total liabilities                                       |       | 2,581,971            |       | 3,603,182            |       |
|                                                    |       |                 |       |                 |       |
| Shareholders’ equity:                              |       |                 |       |                 |       |
| Capital stock                                           |       |                 |       |                 |       |
| Authorized:                                             |       |                 |       |                 |       |
| 100,000 Class A preferred shares of $0.10  each         |       |                 |       |                 |       |
| 899,400 Class B preferred shares of $0.0167  each       |       |                 |       |                 |       |
| 10,000,000 common shares of $0.0167 each                |       |                 |       |                 |       |
| Issued and outstanding:                                 |       |                 |       |                 |       |
| 899,400 Class B preferred shares                        |       | 15,010               |       | 15,010               |       |
| 3,042,296 common shares (January 31, 2004 -  3,027,796) |       | 50,676               |       | 50,434               |       |
| Contributed surplus                                     |       | 23,289,506           |       | 23,236,498           |       |
| Deficit                                                 |       | (15,251,393          | )          | (16,284,268          | )          |
| Accumulated other comprehensive income  (loss)          |       | 501,244              |       | (110,343             | )          |
|                                                    |       |                 |       |                 |       |
|                                                    |       | 8,605,043            |       | 6,907,331            |       |
|                                                    |       |                 |       |                 |       |
|                                                    |       | $                    | 11,187,014 |                 | $          | 10,510,513 |   |

 

Seeaccompanying notes.

 

4

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**POLYDEX PHARMACEUTICALS LIMITED**

 

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(Expressed in United Statesdollars)

 
| ** **                                                           | ** ** | **Three Months Ended  October 31  2004** | ** ** | **Three Months Ended  October 31  2003** | ** ** | **Nine Months Ended  October 31  2004** | ** ** | **Nine Months Ended  October 31  2003** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Sales                                                                |       | $                                        | 1,205,859  |                                     | $          | 3,681,305                               |       | $                                       | 5,066,062  |   | $ | 10,036,192 |   |
| Cost of goods sold                                                   |       | 985,890                                  |       | 2,817,652                                |       | 3,497,068                               |       | 7,709,246                               |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
|                                                                 |       | 219,969                                  |       | 863,653                                  |       | 1,568,994                               |       | 2,326,946                               |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Expenses:                                                            |       |                                     |       |                                     |       |                                    |       |                                    |       |
| General and administrative                                           |       | 337,072                                  |       | 495,920                                  |       | 1,047,649                               |       | 1,459,777                               |       |
| Depreciation                                                         |       | 127,485                                  |       | 151,863                                  |       | 362,286                                 |       | 442,921                                 |       |
| Research and development                                             |       | 55,049                                   |       | 23,702                                   |       | 85,109                                  |       | 45,474                                  |       |
| Interest expense                                                     |       | 20,667                                   |       | 31,960                                   |       | 70,966                                  |       | 101,536                                 |       |
| Selling and promotion                                                |       | 34,750                                   |       | 30,173                                   |       | 83,376                                  |       | 112,571                                 |       |
| Foreign exchange (gain) loss                                         |       | (64,731                                  | )          | 196,388                                  |       | (75,864                                 | )          | 420,771                                 |       |
| Amortization                                                         |       | 2,008                                    |       | 6,688                                    |       | 14,543                                  |       | 17,779                                  |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
|                                                                 |       | 512,300                                  |       | 936,694                                  |       | 1,588,065                               |       | 2,600,829                               |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Loss before the following                                            |       | (292,331                                 | )          | (73,041                                  | )          | (19,071                                 | )          | (273,883                                | )          |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Other income (expense):                                              |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Gain on sale of assets (note 7)                                      |       | —                                   |       | —                                   |       | 1,859,471                               |       | —                                  |       |
| Other income (expense), net                                          |       | 25,705                                   |       | (76,099                                  | )          | 32,386                                  |       | (270,794                                | )          |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
|                                                                 |       | 25,705                                   |       | (76,099                                  | )          | 1,891,857                               |       | (270,794                                | )          |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Income (loss) before income taxes                                    |       | (266,626                                 | )          | (149,140                                 | )          | 1,872,786                               |       | (544,677                                | )          |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Provision for (recovery of) income taxes                             |       | (26,074                                  | )          | 52,286                                   |       | 839,911                                 |       | 183,124                                 |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Net income (loss) for the period                                     |       | (240,552                                 | )          | (201,426                                 | )          | 1,032,875                               |       | (727,801                                | )          |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Unrealized loss on investments available  for sale                   |       | (8,698                                   | )          | —                                   |       | (12,909                                 | )          | —                                  |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Currency translation adjustment                                      |       | 444,912                                  |       | 347,781                                  |       | 624,496                                 |       | 834,917                                 |       |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Comprehensive income for the period                                  |       | $                                        | 195,662    |                                     | $          | 146,355                                 |       | $                                       | 1,644,462  |   | $ | 107,116 |   |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Per share information:                                               |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Earnings (loss) per common share:                                    |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Basic                                                                |       | $                                        | (0.08      | )                                        | $          | (0.07                                   | )          | $                                       | 0.34       |   | $ | (0.24 | ) |
| Diluted                                                              |       | $                                        | (0.08      | )                                        | $          | (0.07                                   | )          | $                                       | 0.34       |   | $ | (0.24 | ) |
|                                                                 |       |                                     |       |                                     |       |                                    |       |                                    |       |
| Weighted average number of common shares outstanding  for the period |       | 3,042,296                                |       | 3,027,796                                |       | 3,035,852                               |       | 3,027,796                               |       |

 

See accompanying notes.

 

5

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**POLYDEXPHARMACEUTICALS LIMITED**

 

ConsolidatedStatements of Shareholders’Equity (Unaudited)

(Expressed in United Statesdollars)

 
| ** **                                         | ** ** | **Nine Months Ended  October 31  2004** | ** **  | **Nine Months Ended  October 31  2003** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------|-------------|-----------------------------------------|------------|
|                                               |       |                                    |        |                                    |       |
| Preferred Shares:                                  |       |                                    |        |                                    |       |
| Balance, beginning and end of period               |       | $                                       | 15,010      |                                    | $          | 15,010 |   |
|                                               |       |                                    |        |                                    |       |
| Common Shares:                                     |       |                                    |        |                                    |       |
| Balance, beginning of period                       |       | $                                       | 50,434      |                                    | $          | 50,434 |   |
| Common share options exercised                     |       | 242                                     |        | —                                  |       |
|                                               |       |                                    |        |                                    |       |
| Balance, end of period                             |       | $                                       | 50,676      |                                    | $          | 50,434 |   |
|                                               |       |                                    |        |                                    |       |
| Contributed Surplus:                               |       |                                    |        |                                    |       |
| Balance, beginning of period                       |       | $                                       | 23,236,498  |                                    | $          | 23,224,128 |   |
| Common share options exercised                     |       | 53,008                                  |        | —                                  |       |
|                                               |       |                                    |        |                                    |       |
| Balance, end of period                             |       | $                                       | 23,289,506  |                                    | $          | 23,224,128 |   |
|                                               |       |                                    |        |                                    |       |
| Deficit:                                           |       |                                    |        |                                    |       |
| Balance, beginning of period                       |       | $                                       | (16,284,268 | )                                       | $          | (16,278,269 | ) |
| Net income (loss) for the period                   |       | 1,032,875                               |        | (727,801                                | )          |
|                                               |       |                                    |        |                                    |       |
| Balance, end of period                             |       | $                                       | (15,251,393 | )                                       | $          | (17,006,070 | ) |
|                                               |       |                                    |        |                                    |       |
| Accumulated Other Comprehensive Income  (Loss):    |       |                                    |        |                                    |       |
| Balance, beginning of period                       |       | $                                       | (110,343    | )                                       | $          | (986,776 | ) |
| Unrealized loss on investments available  for sale |       | (12,909                                 | )           | —                                  |       |
| Currency translation adjustment for the  period    |       | 624,496                                 |        | 834,917                                 |       |
|                                               |       |                                    |        |                                    |       |
| Balance, end of period                             |       | $                                       | 501,244     |                                    | $          | (151,859 | ) |

 

See accompanying notes.

 

6

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**POLYDEX PHARMACEUTICALS LIMITED**

 

Consolidated Statements ofCash Flows (Unaudited)

(Expressedin United States dollars)

 
| ** **                                                             | ** ** | **Nine Months Ended  October 31  2004** | ** ** | **Nine Months Ended  October 31  2003** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                   |       |                                    |       |                                    |       |
| Cash provided by (used in):                                            |       |                                    |       |                                    |       |
|                                                                   |       |                                    |       |                                    |       |
| Operating activities:                                                  |       |                                    |       |                                    |       |
| Net income (loss) for the period                                       |       | $                                       | 1,032,875  |                                    | $          | (727,801 | ) |
| Add (deduct) items not affecting cash:                                 |       |                                    |       |                                    |       |
| Depreciation and amortization                                          |       | 376,829                                 |       | 460,700                                 |       |
| Imputed interest on long-term debt                                     |       | 11,853                                  |       | 18,802                                  |       |
| Deferred income taxes                                                  |       | 566,140                                 |       | 146,701                                 |       |
| Gain on sale of veterinary products  business                          |       | (1,859,471                              | )          | —                                  |       |
| Net change in non-cash working capital  balances related to operations |       | (129,750                                | )          | 65,680                                  |       |
|                                                                   |       |                                    |       |                                    |       |
|                                                                   |       | (1,524                                  | )          | (35,918                                 | )          |
|                                                                   |       |                                    |       |                                    |       |
| Investing activities:                                                  |       |                                    |       |                                    |       |
| Additions to property, plant and equipment  and patents                |       | (146,463                                | )          | (163,861                                | )          |
| Decrease in due from shareholder                                       |       | 37,460                                  |       | 57,434                                  |       |
| Acquisition of minority interest                                       |       | —                                  |       | (5,860                                  | )          |
| Unrealized loss on commercial paper available  for sale                |       | (736                                    | )          | —                                  |       |
| Acquisition of investments available for  sale                         |       | (1,712,958                              | )          | —                                  |       |
| Proceeds from sale of veterinary products  business                    |       | 4,599,218                               |       | —                                  |       |
|                                                                   |       |                                    |       |                                    |       |
|                                                                   |       | 2,776,521                               |       | (112,287                                | )          |
|                                                                   |       |                                    |       |                                    |       |
| Financing activities:                                                  |       |                                    |       |                                    |       |
| Repayment of long-term debt                                            |       | (276,682                                | )          | (135,295                                | )          |
| Repayment of capital lease obligations                                 |       | (118,230                                | )          | (89,628                                 | )          |
| Increase (decrease) in due to shareholder                              |       | (1,284                                  | )          | 1,344                                   |       |
| Increase (decrease) in bank indebtedness                               |       | (118,850                                | )          | 202,657                                 |       |
|                                                                   |       |                                    |       |                                    |       |
|                                                                   |       | (515,046                                | )          | (20,922                                 | )          |
|                                                                   |       |                                    |       |                                    |       |
| Effect of exchange rate changes on cash                                |       | 335,719                                 |       | 322,848                                 |       |
|                                                                   |       |                                    |       |                                    |       |
| Increase in cash and cash equivalents                                  |       | 2,595,670                               |       | 153,721                                 |       |
|                                                                   |       |                                    |       |                                    |       |
| Cash and cash equivalents, beginning of  period                        |       | 371,528                                 |       | 280,748                                 |       |
|                                                                   |       |                                    |       |                                    |       |
| Cash and cash equivalents, end of period                               |       | $                                       | 2,967,198  |                                    | $          | 434,469 |   |

 

See accompanying notes.

 

7

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**1.             Basis of Presentation:**

 

The informationcontained in the interim consolidated financial statements is condensed fromthat which would appear in annual consolidated financial statements.  The interim consolidated financial statementsincluded herein should be read in conjunction with the audited financialstatements, and notes thereto, and other financial information contained in the2004 Annual Report on Form 10-K for the fiscal year ended January 31, 2004 asfiled by Polydex Pharmaceuticals Limited (the “Company”) with the Securitiesand Exchange Commission.  The unauditedinterim consolidated financial statements as of October 31, 2004 and 2003include all normal recurring adjustments which management considers necessaryfor a fair presentation.  The results ofoperations for the interim periods presented are not necessarily indicative ofthe results that may be expected for the entire fiscal year.  The interim consolidated financial statementsinclude the accounts and transactions of the Company and its majority ownedsubsidiaries in which the Company has equal to or more than a 50% ownershipinterest and exercises control.

 

**2.             Significant Accounting Policies:**

 

**Basis of consolidation**

** **

The interim consolidated financial statements include the accounts ofthe Company and its subsidiaries.  Allinter-company accounts and transactions have been eliminated on consolidation.

 

**Use of estimates**

** **

The preparation of consolidated financial statements in conformity withUnited States generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe interim consolidated financial statements and the reported amounts ofrevenue and expenses during the reporting period.  Actual results could differ from these estimates.

 

**Cash and cash equivalents**

** **

**Cash andcash equivalents include cash and short-term deposits with maturities of lessthan three months at the date of purchase.**

** **

**Inventories**

** **

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

 

Investments available for sale

 

Investments available for sale consist of commercial paper andmedium-term fixed income investments and are stated at fair market value basedon quoted market prices.  Interest incomeis included in other income in the statement of operations as it isearned.  Changes in market values

 

8

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during the holding period are reported as unrealized gain (loss) oninvestments available for sale and are included in other comprehensive income.

 

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

** **

Property, plant and equipment are recorded at cost less accumulateddepreciation.  Depreciation is providedon a straight-line basis over the estimated useful lives of the assets asfollows:

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

 

Patents and intangible assets are recorded at cost and are amortized ona straight-line basis over their estimated useful lives of ten years.  Intangible assets consist of intellectualproperty, government licenses and government license applications.

 

Useful life is the period over which the asset is expected tocontribute to the Company’s future cash flows. The Company reviews the recoverability of its long-lived assets whenevents or changes in circumstances occur that indicate that the carrying valueof the asset may not be recoverable.  Theassessment of possible impairment is based on the Company’s ability to recoverthe carrying value of the asset from the expected future pre-tax cash flows ofthe related operations.  If these cashflows are less than the carrying value of such asset, an impairment loss isrecognized for the difference between estimated fair value and carrying value.

 

Costs related to plant refurbishments and equipment upgrades thatrepresent improvements to existing facilities are capitalized.  Costs related to repair and maintenance ofbuildings and equipment are expensed. The Company has no major planned maintenance activity.

 

**Revenue recognition**

** **

The majority of revenue is from sales of bulk manufacturedproducts.  There was also revenue fromfinished dosage manufactured products up to March 4, 2004, at which time theCompany’s investment in the Vet Labs – Sparhawk Joint Venture was sold (seenote 7).  Revenue is recognized whentitle and risk of ownership of products pass to the customer.  Title and risk of ownership pass to thecustomer pursuant to the applicable sales contract, either upon shipment ofproduct or upon receipt by the customer.

 

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

 

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

 

**Shipping and handling costs**

 

Shipping and handling costs incurred by the Company for shipment ofproducts to customers are included in cost of goods sold.

 

9

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**Research and development**

** **

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

 

**Foreign currency translation**

** **

The functional currency of the Company’s Canadian operations has beendetermined to be the Canadian dollar. All asset and liability accounts of the Company have been translatedinto United States dollars using the current exchange rates at the interimconsolidated balance sheet dates. Revenue and expense items are translated using the average exchange ratesfor the year.  The resulting gains andlosses have been reported separately as accumulated other comprehensive income(loss) within shareholders’ equity.

 

**Stockoptions**

** **

The Company has elected to follow Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).  Under SFAS 123, compensation expense isrecognized on the date of grant, based on the fair value of the optionsgranted.

 

**Earnings (loss) per common share**

** **

Basic earnings (loss) per common share are computed using the weightedaverage number of common shares outstanding of 3,035,852 for the nine monthsended October 31, 2004 (2003 - 3,027,796). Diluted earnings (loss) per common share are computed using the weightedaverage number of common shares outstanding adjusted for the incrementalshares, using the treasury stock method, attributed to outstanding options topurchase common stock.  Incrementalshares of 27,599 and nil at October 31, 2004 and October 31, 2003,respectively, were used in the calculation of diluted earnings (loss) percommon share.  Options to purchase 3,885and 431,550 common shares at October 31, 2004 and October 31, 2003,respectively, were not included in the computation of diluted earnings (loss)per common share because their effect was anti-dilutive.

 

**3.             Cash and Cash Equivalents:**

** **

**Cash and cash equivalents consistof the following:**

 
| ** **       | ** ** | **October 31  2004** | ** ** | **January 31  2004** | ** ** | ** ** | ** ** |
|------------------|------------|----------------------|------------|----------------------|------------|------------|------------|
|             |       |                 |       |                 |       |       |       |
| Cash             |       | $                    | 162,745    |                 | $          | 59,455     |       |   |   |
| Commercial paper |       | 2,804,453            |       | —               |       |       |       |
|             |       | $                    | 2,967,198  |                 | $          | 59,455     |       |   |   |

** **

**Commercial paper bears interest atrates of approximately 2% and has expiry dates extending up to threemonths.  Commercial paper is availablefor sale and is stated at fair market value based on quoted market prices.  An unrealized loss of $736 has been includedin accumulated other comprehensive loss.**

 

10

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**4.             Investments Available For Sale:**

 

**Investments available for saleconsist of Canadian medium-term fixed income instruments with maturity datesextending from one to three years and interest rates ranging from 2.26% to2.86%.  Investments available for saleare stated at fair market value, based on quoted market prices.  An unrealized loss of $12,173 has been includedin accumulated other comprehensive loss.**

** **

**5.             Commitments and Contingencies:**

** **

**During September 2004, the Companyentered into an agreement with a research organization to conduct a pilotclinical study on the use of cellulose sulphate for the treatment of bacterialvaginosis.  Payments of $43,112 were madeto the research organization and the principal investigator upon execution ofthe agreement.  The Company is committedto make an additional payment of $43,112 upon patient enrolment, which isexpected to occur during January 2005, and a final payment of $21,556 uponcompletion of the clinical study, which is expected to be in July 2005.**

** **

**During November 2004, the Companyentered into United States dollar forward contracts to lock in an exchange ratefor converting United States dollars to Canadian dollars.  The Company is committed to selling $250,000in each of November 2004 and December 2004 at exchange rates ranging from$1.1948 to $1.1950.  The Company is alsocommitted to selling $150,000 per month for the period from January 2005 toApril 2005 at an exchange rate of $1.1772.**

** **

**6.             Stock-based Employee Compensation:**

** **

The Company maintains an incentive share option plan for managementpersonnel for options to purchase up to 1,000,000 common shares.  The Company also issues options to certainconsultants for services provided to the Company.

 

All options granted have terms of five years and vest immediately.  At October 31, 2004, the Company had83,435 options outstanding at exercise prices ranging from $2.50 to $7.72 and aweighted average exercise price of $4.62. The options, which are immediately exercisable and expire on datesbetween January 11, 2005 and January 31, 2009, entitle the holder of an optionto acquire one common share of the Company.

 

The Company uses the fair value method in accordance with SFAS 123 toaccount for awards of stock-based employee compensation.  No stock-based employee compensation expensewas recorded during the period from February 1, 2004 to October  31, 2004,because there were no options granted during this period.  Similarly, no stock-based employeecompensation expense was recorded during the period from February 1, 2003 toOctober  31, 2003, because there were no options granted during thisperiod.

 

11

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**7.             Vet Labs – Sparhawk Joint Venture:**

** **

In 1992, Veterinary Laboratories, Inc. (“Vet Labs”) and SparhawkLaboratories, Inc. (“Sparhawk”) entered into the Vet Labs – Sparhawk JointVenture (the “Joint Venture”) for the manufacture and sale of veterinarypharmaceutical products.  Vet Labs andSparhawk each owned 50% of the Joint Venture.

 

On January 13, 2004, the Company entered into an Asset PurchaseAgreement with Sparhawk.  Pursuant tothis Asset Purchase Agreement, the Company agreed to sell the finished productveterinary pharmaceutical business, including substantially all of the assetsof Vet Labs, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004, thissale was completed.  Simultaneously, onMarch 4, 2004, Chemdex, Inc. (“Chemdex”), a wholly-owned subsidiary of theCompany, advanced $350,000 to Sparhawk in exchange for a promissory notebearing interest at 13% per annum and a warrant to purchase 4% of the equity ofSparhawk for no additional consideration. The promissory note is due in full on March 4, 2009.  Interest is payable annually, but can bedeferred and added to the principal balance of the promissory note each year atSparhawk’s discretion.  The warrantexpires at the earlier of payment in full of the promissory note or 10 yearsfrom date of issue.  The warrant becomesexercisable the day after the fifth anniversary from the date of issue.  Pursuant to a definitive supply agreement(the “Supply Agreement”) entered into on March 4, 2004, Chemdex agreed tosupply ferric hydroxide and hydrogenated dextran solution to Sparhawk on anexclusive basis in the United States for 10 years.  Chemdex also granted to Sparhawk an exclusivelicense to use the drug master file to manufacture 10% bulk Iron Dextran forveterinary use, and the use of certain equipment during the 10-year period ofthe Supply Agreement.  Pursuant todefinitive agreements, the Company made customary representations, warrantiesand indemnities and agreed to a full release of all claims against Sparhawkarising from the Joint Venture litigation. Similarly, Sparhawk agreed to a full release of all claims against theCompany arising from the Joint Venture litigation.

 

The sale resulted in a gain of $2,209,471, of which $1,859,471 wasrecognized in the interim consolidated statement of operations and $350,000 wasdeferred.  The deferred gain of $350,000relates to the promissory note receivable from Sparhawk as Sparhawk is thinlycapitalized and highly leveraged.  TheCompany will monitor the financial position of Sparhawk and will recognize thisdeferred gain at such time as Sparhawk’s cash flows from operations aresufficient to fund debt service on a full accrual basis.

 

**8.             Segmented Information:**

 

All operations are carried out through Dextran ProductsLimited (“Dextran”) in Canada and through Chemdex in the United States.  The operations of Chemdex represent theveterinary products business.  Each ofDextran and Chemdex operates as a strategic business unit offering differentproducts.  Each subsidiary comprises areportable segment as follows:

 
|   | Dextran - |   | manufactures and sells bulk quantities of dextran and  several of its derivatives to large pharmaceutical companies throughout the  world.                                                                                                                                                    |
|--------|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |      |   |                                                                                                                                                                                                                                                                                          |
|   | Chemdex - |   | manufactures and sells veterinary pharmaceutical  products and specialty chemicals in the United States. The primary customers  are distributors and private labelers, who in turn sell to the end user of  the products. The majority of this business was sold on March 4, 2004 *[note 7]*. |

 

12

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| ** **                                  | ** ** | **Three Months  Ended  October 31  2004** | ** ** | **Three Months  Ended  October 31  2003** | ** ** | **Nine Months  Ended  October 31  2004** | ** ** | **Nine Months  Ended  October 31  2003** | ** ** |
|---------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------|------------|
|                                        |       |                                           |       |                                           |       |                                          |       |                                     |       |
| **Sales:**                                  |       |                                           |       |                                           |       |                                          |       |                                     |       |
| Dextran                                     |       | $                                              | 1,200,905  |                                           | $          | 1,394,439                                     |       | $                                        | 4,064,595  |   | $ | 4,026,384 |   |
| Less: intercompany sales elimination        |       | 94,134                                         |       | 89,888                                         |       | 295,800                                       |       | 264,628                                  |       |
|                                        |       | 1,106,771                                      |       | 1,304,551                                      |       | 3,768,795                                     |       | 3,761,756                                |       |
| Chemdex                                     |       | 99,088                                         |       | 2,376,754                                      |       | 1,297,267                                     |       | 6,274,436                                |       |
| Total consolidated sales                    |       | $                                              | 1,205,859  |                                           | $          | 3,681,305                                     |       | $                                        | 5,066,062  |   | $ | 10,036,192 |   |
|                                        |       |                                           |       |                                           |       |                                          |       |                                     |       |
| **Income (loss) before income  taxes:**     |       |                                           |       |                                           |       |                                          |       |                                     |       |
| Dextran                                     |       | $                                              | (93,050    | )                                              | $          | (37,368                                       | )          | $                                        | 322,061    |   | $ | 111,908 |   |
| Chemdex                                     |       | 23,134                                         |       | 47,819                                         |       | 2,013,415                                     |       | (179,686                                 | )          |
| Total pre-tax income (loss) from  segments  |       | (69,916                                        | )          | 10,451                                         |       | 2,335,476                                     |       | (67,778                                  | )          |
| Less: Unallocated corporate expenses        |       | 196,710                                        |       | 159,591                                        |       | 462,690                                       |       | 476,899                                  |       |
| Total consolidated pre-tax  income (loss)   |       | $                                              | (266,626   | )                                              | $          | (149,140                                      | )          | $                                        | 1,872,786  |   | $ | (544,677 | ) |
|                                        |       |                                           |       |                                           |       |                                          |       |                                     |       |
| **Total revenue by significant  customer:** |       |                                           |       |                                           |       |                                          |       |                                     |       |
| Customer A                                  |       | $                                              | 250,336    |                                           | $          | 255,828                                       |       | $                                        | 782,273    |   | $ | 847,829 |   |
|                                        |       |                                           |       |                                           |       |                                          |       |                                     |       |
| **Sales revenue by product  group:**        |       |                                           |       |                                           |       |                                          |       |                                     |       |
| Bulk dextran and derivatives                |       | $                                              | 1,205,859  |                                           | $          | 1,304,551                                     |       | $                                        | 3,974,161  |   | $ | 3,761,756 |   |
| Sterile injectible veterinary products      |       | —                                         |       | 1,458,522                                      |       | 663,629                                       |       | 3,625,585                                |       |
| Oral and topical veterinary products        |       | —                                         |       | 918,232                                        |       | 428,272                                       |       | 2,648,851                                |       |
| Total consolidated sales                    |       | $                                              | 1,205,859  |                                           | $          | 3,681,305                                     |       | $                                        | 5,066,062  |   | $ | 10,036,192 |   |

 
|                       |   |   |   | **October 31, 2004** |       |   |   | **January 31, 2004** |   |
|----------------------------|--------|--------|--------|----------------------|------------|--------|--------|----------------------|--------|
|                       |   |   |   |                 |       |   |   |                 |   |
| **Assets:**                |   |   |   |                 |       |   |   |                 |   |
| Dextran                    |   |   |   | $                    | 10,212,966 |   |   |                 | $      | 5,045,899 |   |
| Chemdex                    |   |   |   | 137,636              |       |   |   | 4,281,084            |   |
| Total assets from segments |   |   |   | 10,350,602           |       |   |   | 9,326,983            |   |
| Corporate assets           |   |   |   | 836,412              |       |   |   | 1,183,530            |   |
| Total consolidated assets  |   |   |   | $                    | 11,187,014 |   |   |                 | $      | 10,510,513 |   |

 

13

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**9.             Recent Accounting Pronouncements:**

 

In December 2003, the FASB issued FASB Interpretation (“FIN”) No. 46R, “Consolidationof Variable Interest Entities an interpretation of ARB No. 51” (the “Interpretation”),which is a revision of FIN No. 46 originally issued in January 2003.  The Interpretation introduces a newconsolidation model - the variable interests model - which determines control[and consolidation] based on potential variability in gains and losses of theentity being evaluated for consolidation. It also requires application infinancial statements of public entities for periods ending after December 15,2003 for special purpose entities, and in financial statements for periodsending after March 15, 2004 for other types of variable interest entities.  The Company does not have any interests inspecial purpose entities and will account for any variable interest entities inaccordance with the Interpretation. The adoption of this Interpretation had noimpact on the Company’s consolidated financial statements.

 

14

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

*The Company’s fiscal year ends on January 31stof each year.  In this report, fiscal year 2005 refers to the Company’sfiscal year ended January 31, 2005.  The following discussion should beread in conjunction with the October 31, 2004 interim consolidated financialstatements and notes thereto included elsewhere in this report.  Operating results for the nine months endedOctober 31, 2004 are not necessarily indicative of the results that may beexpected for the fiscal year ended January 31, 2005.  For further information, refer to theconsolidated financial statements and footnotes thereto included in the Company’sannual report on Form 10-K for the fiscal year ended January 31, 2004.**The Company’s financial statements are prepared in accordance withUnited States generally accepted accounting principles.  All amounts arein United States dollars, unless otherwise denoted.*

 

**Overview**

 

The Company is engaged in the research,development, manufacture and marketing of biotechnology-based products for thehuman pharmaceutical market, and also manufactures bulk pharmaceuticalintermediates for the worldwide veterinary pharmaceutical industry.  TheCompany conducts its business operations through its subsidiaries, whichoperate as strategic business units:  Dextran Products and Chemdex.

 

***Dextran Products Business***

 

The manufacture and sale of bulk quantities ofdextran and derivative products for sale to large pharmaceutical companiesthroughout the world is conducted through a Canadian subsidiary, DextranProducts.

 

*Management Objectives for Fiscal 2005*.  Infiscal year 2005, management intends to focus on the core businesses of DextranProducts that have historically been the backbone of the Company.  Improving product quality and achieving costreductions is the priority for fiscal 2005 with respect to Dextran Products operations.

 

Research and development of the Company’s humanpharmaceutical products is coordinated at the Dextran Products facility. Ushercell, the Company’s leading human pharmaceutical compound, is a highmolecular weight Cellulose Sulphate envisioned for topical vaginal useprimarily in the prevention of transmission of AIDS and other sexuallytransmitted diseases, as well as unplanned pregnancies.  Multiple clinicaltrials have been completed, and additional trials have commenced or are beingactively planned, to evaluate various aspects of the use of Cellulose Sulphateas a contraceptive gel with antiviral capabilities.  The Company alsointends to significantly explore the use of Ushercell as a treatment forBacterial Vaginosis (BV), the most common vaginal disorder among reproductive-agewomen.  If effective, BV treatment may present an opportunity forcommercial viability of Ushercell in advance of the completion of the muchlengthier required testing for its use as an antiviral contraceptive gel.

 

15

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***Chemdex, Vet Labs and the JointVenture Business***

 

During February 2004, the Company also engagedin the finished product veterinary pharmaceutical business through its UnitedStates subsidiary Chemdex, which, in turn, conducted its operations through itssubsidiary, Vet Labs.  On December 1, 1992, Vet Labs and SparhawkLaboratories Inc. entered into a Joint Venture for the purpose of manufacturingand selling veterinary pharmaceutical products.

 

On January 13, 2004, the Company, Chemdex andVet Labs entered into an Asset Purchase Agreement with Sparhawk pursuant towhich the Company agreed to sell its finished product veterinary pharmaceuticalbusiness, including substantially all of the assets of Vet Labs and itsownership interest in the Joint Venture, to Sparhawk for $5,500,000 incash.  The sale was completed on March 4, 2004.  Simultaneously withthe closing, Chemdex advanced $350,000 to Sparhawk in exchange for an unsecuredsubordinated promissory note bearing interest at 13% per annum and a warrant topurchase 4% of the equity of Sparhawk.  The promissory note is payable infull on March 4, 2009.  Interest is payable annually, but can be deferredand added to the principal balance of the promissory note each year at Sparhawk’sdiscretion.  The warrant becomes exercisable on March 5, 2009 and expiresat the earlier of payment in full of the promissory note or March 4,2014.  Chemdex also entered into a supply agreement with Sparhawk tosupply ferric hydroxide and hydrogenated dextran solution to Sparhawk on anexclusive basis in the United States for 10 years.  In connection with thesale, the litigation involving the Joint Venture, *SparhawkLaboratories, Inc. v. Veterinary Laboratories, Inc., et al*, Case No.02CV07426, County of Johnson, State of Kansas, was settled, and a Motion ofApproval of Settlement and Stipulation of Dismissal with Prejudice was filedwith the Court on March 4, 2004.

 

**Results of Operations**

 

***Threeand nine months ended October 31, 2004 compared to three and nine months endedOctober 31, 2003***

 
| ** **                | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** |
|---------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Net income (loss)         |       | $                                             | (240,552   | )                                             | $          | (201,426                                     | )          | $                                            | 1,032,875  |   | $ | (727,801 | ) |
|                      |       |                                          |       |                                          |       |                                         |       |                                         |       |
| Earnings (loss) per share |       | (0.08                                         | )          | (0.07                                         | )          | 0.34                                         |       | (0.24                                        | )          |
|                           |            |                                               |            |                                               |            |                                              |            |                                              |            |  |  |  |  |

 

The increase in net loss for the third quarterof fiscal year 2005 ended October 31, 2004, as compared to the third quarter infiscal year 2004 is attributable to the increase in net loss at DextranProducts and the increased corporate expenses. The increase in year to date net income for fiscal year 2005 is a resultof the gain on sale of the Vet Labs assets in March 2004 and the 

 

16

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foreignexchange gain realized at Dextran Products in fiscal year 2005.  In addition, there were significant costsrelated to legal and receiver fees relating to the wind up of the Joint Ventureoperations in fiscal year 2004.

 
| **Income (loss)   before income   taxes** | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| Consolidated                              |       | $                                             | (266,626   | )                                             | $          | (149,140     | )          | 79                                           | %          | $                                            | 1,872,786  |         | $          | (544,677 | ) | 444 | % |
| Dextran Products                          |       | (93,050                                       | )          | (37,368                                       | )          | 149          | %          | 322,061                                      |       | 111,908                                      |       | 188          | %          |
| Chemdex                                   |       | 23,134                                        |       | 47,819                                        |       | (52          | )%         | 2,013,415                                    |       | (179,686                                     | )          | 1,221        | %          |
|                                           |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The decrease in operating results in the thirdquarter of fiscal year 2005 is primarily attributable to the decrease in incomeat Dextran Products and the increased corporate expenses.

 

*Dextran Products*.  Thedecrease in operating results at Dextran Products is due to decreased sales andgross margins during the third quarter of fiscal year 2005.  The sales decrease in the third quarter offiscal year 2005 is a result of decreased customer demand.  The decrease in gross margins is a result ofthe lower sales volume and the rise in the value of the Canadian dollarrelative to the United States dollar.  Sales at Dextran Products areprimarily denominated in the United States dollar, while the majority ofexpenses are incurred in Canadian dollars. Therefore, when the value of the Canadian dollar rises against theUnited States dollar, the gross margin percentage at Dextran Products declines.

 

The year to date increase in operating resultsat Dextran Products for fiscal year 2005 as compared to fiscal year 2004 is aresult of the foreign exchange gain realized in fiscal year 2005.  In fiscal year 2004, there was a large foreignexchange loss resulting from translation of intercompany receivables at DextranProducts, which were denominated in United States dollars.  This exposure to the United States dollar hasdecreased significantly due to the repayment of intercompany receivables byChemdex.

 

*Chemdex*.  OnMarch 4, 2004, the Company sold its finished product veterinary pharmaceuticalbusiness to Sparhawk.  The sale included substantially all of the assetsof Vet Labs and its ownership interest in the Joint Venture, and settled alloutstanding litigation among the parties.  The Company did not incur legalor receiver costs in connection with Vet Labs or the Joint Venture followingthe date of sale.  Chemdex operations arenow limited to the supply of materials to Sparhawk under the terms of thesupply agreement between the parties.

 

17

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| **Sales**                   | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| Consolidated                |       | $                                             | 1,205,859  |                                          | $          | 3,681,305    |       | (67                                          | )%         | $                                            | 5,066,062  |         | $          | 10,036,192 |   | (50 | )% |
| Dextran Products            |       | $                                             | 1,106,771  |                                          | $          | 1,304,551    |       | (15                                          | )%         | 3,768,795                                    |       | $            | 3,761,756  |   | 0 | % |
| Percentage of Company sales |       | 92                                            | %          | 35                                            | %          |         |       | 74                                           | %          | 37                                           | %          |         |       |
| Chemdex                     |       | $                                             | 99,088     |                                          | $          | 2,376,754    |       | (96                                          | )%         | $                                            | 1,297,264  |         | $          | 6,274,436 |   | (79 | )% |
| Percentage of Company sales |       | 8                                             | %          | 65                                            | %          |         |       | 26                                           | %          | 63                                           | %          |         |       |

 

The majority of the third quarter sales decreasein fiscal year 2005 was attributable to the Chemdex operating segment due tothe sale of the finished goods veterinary pharmaceutical business in the firstquarter of fiscal year 2005.

 

*Dextran Products*. Sales of dextran and related products in the third quarter of fiscal year 2005were less than the sales levels achieved during the third quarter of fiscalyear 2004 due to a decrease in customer demand.

 

Year to date sales at Dextran Products forfiscal year 2005 are consistent with year to date sales for fiscal year 2004.

 

*Chemdex*.  Thesale of the Joint Venture operations on March 4, 2004 resulted in adiscontinuance of sales of finished veterinary product.  Sales for Chemdex for the remainder of thefiscal year will be limited to sales of ferric hydroxide and hydrogenated dextransolution to Sparhawk.  Therefore Chemdexsales will continue to be significantly less than in fiscal year 2004.

 
| **Gross profit**    | ** ** | **Three Months   Ended  October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended  October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|---------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| Consolidated        |       | $                                            | 219,969    |                                          | $          | 863,653      |       | (75                                         | )%         | $                                            | 1,568,994  |         | $          | 2,326,946 |   | (33 | )% |
| Percentage of sales |       | 18                                           | %          | 23                                            | %          |         |       | 31                                          | %          | 23                                           | %          |         |       |
| Dextran Products    |       | $                                            | 194,791    |                                          | $          | 413,194      |       | (53                                         | )%         | $                                            | 1,215,242  |         | $          | 1,315,150 |   | (8 | )% |
| Percentage of sales |       | 18                                           | %          | 32                                            | %          |         |       | 32                                          | %          | 35                                           | %          |         |       |
| Chemdex             |       | $                                            | 4,809      |                                          | $          | 382,972      |       | (99                                         | )%         | $                                            | 280,816    |         | $          | 916,817 |   | (69 | )% |
| Percentage of sales |       | 5                                            | %          | 16                                            | %          |         |       | 22                                          | %          | 15                                           | %          |         |       |

 

The third quarter fiscal year 2005 decrease inconsolidated gross profit is a result of the sale of the Joint Venture operationsduring the first quarter of fiscal year 2005.  The decrease in grossprofit percentage during the third quarter of fiscal year 2005 is primarily dueto the decrease in the gross profit percentage realized by Dextran Products.  The year to date increase 

 

18

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ingross profit percentage for fiscal year 2005 is due to the sale of the JointVenture operations during the first quarter of fiscal year 2005.  The products sold by the Joint Venture weregenerally lower margin products than the products sold at Dextran Products.

 

*Dextran Products*. Decreased gross profit percentages were experienced at the Dextran Productsoperating segment because of the decreased sales volume and the rise in theCanadian dollar relative to the United States dollar.  Sales at Dextran Products are primarilydenominated in the United States dollar, while the majority of expenses areincurred in Canadian dollars.  Therefore,when the value of the Canadian dollar rises against the United States dollar,the gross margin percentage at Dextran Products declines.

 

*Chemdex*.  TheJoint Venture operations ceased on March 4, 2004 due to the sale of thatbusiness.  The decrease in gross profitis due to this loss of sales.

 
| ** **                                                   | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| **Selling, promotion, general and  administrative expenses** |       | $                                             | 371,822    |                                          | $          | 526,093      |       | (29                                          | )%         | $                                            | 1,131,025  |         | $          | 1,572,348 |   | (28 | )% |
|                                                              |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The decrease during the third quarter of fiscalyear 2005 in selling, promotion, general and administrative expenses isprimarily due to the sale of the Joint Venture operations on March 4,2004.  The majority of the selling, general and administrative expensesfor the Chemdex operating segment have been eliminated because of the sale ofthese operations.

 
| **Research and   development**        | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|---------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| Research and development expenditures |       | $                                             | 55,049     |                                          | $          | 23,702       |       | 132                                          | %          | $                                            | 85,109     |         | $          | 45,474 |   | 87 | % |
|                                       |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The increase in research and developmentexpenses during the third quarter of fiscal year 2005 is a result of thecommencement of a pilot clinical study on the use of cellulose sulphate for thetreatment of bacterial vaginosis.  Thisclinical study is related to an alternate use of cellulose sulphate andtherefore is outside the scope of funding provided by the Company’s researchand development partners for the investigation of this product as acontraceptive gel with antiviral properties. Expenses for this clinical study are expected to continue at similarlevels in the fourth quarter of fiscal year 2005.

 

Due to continued direct funding of research anddevelopment expenses by third party public and/or private sector groups, theCompany’s research and development expense continued at low levels in the thirdquarter of fiscal year 2005.

 

Funding for the Company’s primary developmentproducts is provided directly by third party public and/or private sectorgroups to the entities carrying out such research.  The 

 

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Companydoes not take possession or control over these funds.  The Companybenefits from the results of research projects through the ownership of patentsand/or licenses with respect to the products involved.  The Company has nocommitments to repay the funding or to purchase the results of the research.

 

Significant funding from research anddevelopment partners for the current phase of the project investigating the useof cellulose sulphate as a contraceptive gel with antiviral properties projectis expected to continue at necessary levels for the foreseeable future. The Company’s total research and development expenditures are expected toincrease in fiscal year 2005 over fiscal year 2004 due to additional productdevelopment activities the Company expects to perform and fund outside of itspartnership relationships.

 
| ** **                                | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| **Depreciation and amortization expense** |       | $                                             | 129,493    |                                          | $          | 158,551      |       | (18                                          | )%         | $                                            | 376,829    |         | $          | 460,700 |   | (18 | )% |
|                                           |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The decrease in depreciation and amortizationexpense in fiscal year 2005 is primarily attributable to the sale ofsubstantially all of the assets of Vet Labs on March 4, 2004.

 
| ** **           | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|----------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| **Interest expense** |       | $                                             | 20,667     |                                          | $          | 31,960       |       | (35                                          | )%         | $                                            | 70,966     |         | $          | 101,536 |   | (30 | )% |
|                      |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The decrease in interest expense in fiscal year2005 is primarily attributable to a decrease in long-term debt, as well as theassociated decrease in imputed interest due to the continuing repayment ofnon-interest bearing long-term debt.  The share value guarantee payablewas paid in full on March 4, 2004 when the Joint Venture operations were sold.

 
| ** **                       | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|----------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| **Foreign exchange gain (loss)** |       | $                                             | 64,731     |                                          | $          | (196,388     | )          | 133                                          | %          | $                                            | 75,864     |         | $          | (420,771 | ) | 118 | % |
|                                  |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

The increase in foreign exchange gain at DextranProducts in fiscal year 2005 was due to the significant decline in DextranProducts’ net exposure to the United States dollar. At October 31, 2004,Dextran Products has a net liability exposure to the United States dollarbecause intercompany payables denominated in United States dollars exceed itsUnited States dollar denominated accounts receivable balance.  Dextran Products realized a foreign exchangegain in fiscal 2005 because the Canadian dollar increased in value relative tothe United States dollar.  

 

20

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Duringfiscal year 2004, Dextran Products had large intercompany receivablesdenominated in United States dollars, and experienced a foreign exchange lossin fiscal year 2004 because the value of the Canadian dollar increased relativeto the United States dollar.  A largeportion of these intercompany receivables were repaid in March 2004 when theJoint Venture operations were sold.  As compared to fiscal year 2004,management does not expect that the Company will incur significant foreignexchange losses in fiscal year 2005.

 
| ** **                 | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|----------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| **Other income (expense)** |       | $                                             | 25,705     |                                          | $          | (76,099      | )          | 134                                          | %          | $                                            | 32,386     |         | $          | (270,794 | ) | 112 | % |
|                            |            |                                               |            |                                               |            |              |            |                                              |            |                                              |            |              |            |  |  |  |  |

 

Other income in the third quarter of fiscal year2005 is primarily related to interest income earned at Dextran Products.  The proceeds from the sale of the JointVenture operations have been invested in short and mid-term interest earningsecurities.  During fiscal year 2004,other expenses consisted almost entirely of legal and receiver costs associatedwith the winding-up of the Joint Venture, and the resulting litigation. This litigation was settled with the closing of the sale of the Joint Ventureon March 4, 2004.  Management expects nosimilar costs for the remainder of fiscal 2005.

 
| **Provision for  (recovery of)  income taxes** | ** ** | **Three Months   Ended   October 31,   2004** | ** ** | **Three Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** | **Nine Months   Ended   October 31,   2004** | ** ** | **Nine Months   Ended   October 31,   2003** | ** ** | **Variance** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------|------------|
| Consolidated                                   |       | $                                             | (26,074    | )                                             | $          | 52,286       |       | (150                                         | )%         | $                                            | 839,911    |         | $          | 183,124 |   | 359 | % |
| Dextran Products                               |       | $                                             | (35,074    | )                                             | $          | 52,286       |       | (167                                         | )%         | $                                            | 104,911    |         | $          | 183,124 |   | (43 | )% |
| Chemdex                                        |       | $                                             | 9,000      |                                          | —     |         | —     |                                         | $          | 735,000                                      |       | —       |       | — |   |

 

The decrease in tax provision at DextranProducts for the third quarter of fiscal year 2005 is a result of a decrease intaxable income.  During the third quarterof fiscal year 2004, Dextran Products incurred a foreign exchange loss that wasnot fully tax deductible.  The Canadian operations continue to havesignificant research and development tax pools to offset current taxes payable.

 

**Liquidity and Capital Resources**

 

As of October 31, 2004, the Company had cash andcash equivalents of $2,967,198, compared to cash and cash equivalents of$371,528, including amounts classified as assets subject to sale agreement of$312,073, at January 31, 2004.  In the third quarter of fiscal year 2005the Company generated cash of $51,733 in its operating activities, compared tonegative cash from operations of $232,090 for the third quarter of fiscal year2004.  There was an increase in current liabilities during the thirdquarter of fiscal year 2005, which generated the majority of the cash fromoperations.  In the third quarter offiscal year 2004, there were increases in receivables and inventory as well asthe loss for the period, which generated negative cash from operations.  Depreciation and amortization continues to bea large non-cash expense of the Company.

 

21

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The Company maintained $3,746,247 of workingcapital and a current ratio of 3.6 to 1 as of October 31, 2004, compared to$2,058,161 and 1.8 to 1 as of January 31, 2004.

 

Management expects the primary source of itsfuture capital needs to be a combination of company earnings andborrowings.  The Company, at present, does not have any materialcommitments for capital expenditures, although management intends to continuethe plant refurbishment process at Dextran Products in Toronto.

 

The Company believes that, based upon thecurrent levels of revenues and spending, its existing working capital resourceswill be sufficient to support continuing operations for the foreseeable future.

 

At October 31, 2004, the Company had accountsreceivable of $638,072 and inventory of $1,452,948, compared to $503,864 and$1,226,439 at January 31, 2004 and $681,126 and $1,351,927 at July 31,2004.  The decrease in accounts receivable at Dextran Products during thethird quarter ended October 31, 2004 is due to decreased sales towards the endof the quarter.

 

At October 31, 2004, the Company had accountspayable of $400,780 compared to $515,092 at January 31, 2004 and $368,554 atJuly 31, 2004.  The increase in accounts payable was due to timing ofsupplier payments and the increase in inventory.

 

During the third quarter of fiscal year 2005,capital expenditures totaled $89,852, as compared to $33,650 in the thirdquarter of fiscal year 2004.  All of the capital expenditures during thethird quarter of fiscal year 2005 were for production and office equipment atthe Dextran Products plant in Toronto. The third quarter of fiscal year 2004 included capital expenditures of$8,877 for the Joint Venture operations in Kansas.  Management intends tocontinue its plant refurbishment and expansion plan during the remainder offiscal year 2005, and expects capital expenditures to increase during thisperiod.

 

The change in accumulated other comprehensiveincome (loss) of the Company is primarily attributable to the currencytranslation adjustment of Dextran Products.  Dextran Products’ functionalcurrency is the Canadian dollar.  This currency translation adjustmentarises from the translation of Dextran Products’ financial statements to U.S.dollars.

 

Dextran Products has a Cdn. $1,250,000 (U.S.$1,026,000) line of credit, of which Cdn. $30,000 (U.S. $25,000) was utilizedat October 31, 2004.  At January 31, 2004, Cdn. $150,000 (U.S. $113,000)of this line of credit was utilized.  This line of credit bears interestat the Canadian banks’ prime lending rate plus 0.75% (October 31, 2004 – 5%;January 31, 2004 – 5%).  This indebtedness is collateralized by a generalsecurity agreement over the Company’s assets and a collateral mortgage of Cdn.$500,000 on the Dextran Products building in Toronto.  This line of credit is used periodically bythe Company to cover temporary short-term Canadian dollar cash needs.  For these short-term cash needs, the interestexpense on the credit line is typically less than the transaction costsincurred in selling short-term investments.

 

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Chemdex entered into a long-term debt obligationrelating to the redemption of the 10% minority interest in Chemdex in fiscalyear 2004.  The redemption amount was$146,500, which is to be paid in 25 equal monthly installments of $5,860.  The Company has timely made 14 paymentsthrough October 31, 2004.  Since thisinstallment contract is non-interest bearing, it has been discounted using adiscount rate of 9%.  The present valueof this installment contract is $61,883, which has been recorded as long-termdebt.

 

The significant decrease in long-term debt fromJanuary 31, 2004 is due to continuing payments by the Company, and the full repaymentof the share value guarantee.  The majority of the long-term debt is duein the next two years.

 

The Company entered into a capital leaseobligation for office equipment during the third quarter of fiscal year2005.  Capital lease obligations are due over the next five years.

 

Changes in the relative values of the Canadiandollar and the United States dollar occur from time to time and may, in certaininstances, materially affect the Company’s results of operations.

 

The Company does not believe that the impact ofinflation and changing prices has had a material effect on its operations orfinancial results at any time in the last three years.

 

**Related Party Transactions**

 

In August 1997, the Company loaned Thomas C.Usher, its Vice-Chairman, Director of Research and Development, a member of itsBoard of Directors and the beneficial owner of greater than 5% of theoutstanding common shares of the Company, $691,500 at an interest rate equal tothe prime rate of Toronto Dominion Bank plus 1.50% (the “Loan”).  The Loanwas used to partially fund a $1,000,000 payment to the State of Florida inorder to allow Thomas C. Usher to regain possession of 430,000 Common Shares ofthe Company then held by the State as collateral security relating to theliquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by monthly payments and through offsetsby the Company against royalty payments due Thomas C. Usher pursuant tointellectual property license agreements and bonus payments, if any, grantedThomas C. Usher as an employee of the Company.  The amount outstandingunder the Loan as of October 31, 2004 was $396,173, as compared to $417,467 atJanuary 31, 2004, including accrued interest.  The Company has taken acumulative provision of $258,843 against accrued interest on this loan atOctober 31, 2004, compared to a cumulative provision of $242,677 at January 31,2004.

 

In August 1999, Thomas C. Usher personallyassumed all of the assets and liabilities of Novadex Corp., including thebalance of receivables (the “Receivables”) due to the Company from NovadexCorp.  The Receivables have no specific repayment terms.  The totaloutstanding amount of the Receivables as of October 31, 2004 and January 31,2004 was $366,216.  Thomas C. Usher also owes $250,000 to a subsidiary ofthe Company, Novadex International Limited, as of October 31, 2004, pursuant toa non-interest bearing loan with no specific repayment terms.  Theoutstanding amount of this loan has not changed from January 31, 2004.

 

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Thomas C. Usher has pledged 328,051 commonshares of the Company as security for these amounts owing to the Company. These common shares have a market value of $2,480,914 at October 31, 2004,based on the closing price of the Company’s common shares on the NasdaqSmallCap market on October 29, 2004, the last trading day prior to October 31,2004.

 

The Company also has an outstanding loan payableto Ruth Usher, a member of the Board of Directors until her retirement onOctober 31, 2003, the beneficial owner of greater than 5% of the outstandingcommon shares of the Company, and the spouse of Thomas C. Usher.  Theamount due from the Company pursuant to this loan decreased to $681,950 at October31, 2004 from $683,234 at January 31, 2004 due to monthly payments by theCompany less interest charges.

 

**Off-Balance Sheet Arrangements**

 

TheCompany has no off-balance sheet arrangements.

 

**Tabular Disclosure of Contractual Obligations**

 

As of October 31, 2004, future minimum cashpayments due under contractual obligations, including, among others, theDextran Products line of credit, the loan payable to Ruth Usher, the long-termdebt obligation in connection with the Chemdex redemption, research and developmentagreements and capital lease agreements, are as follows:

 
| ** **                      | ** ** | **Payment due by period** | ** ** |
|---------------------------------|------------|---------------------------|------------|
| **Contractual Obligations**     | ** ** | **Total**                 | ** ** | **Less than   1 year** | ** ** | **1 – 3   years** | ** ** | **3 – 5   years** | ** ** | **More than   5 years** | ** ** |
| Long-term debt obligations (1)  |       | $                         | 753,641    |   | $ | 77,837 |   | $ | 26,755 |   | $ | 26,755 |   | $ | 622,294 |   |
| Capital lease obligations (2)   |       | 408,974                   |       | 189,710 |   | 205,944 |   | 11,840 |   | 1,480 |   |
| Operating Lease obligations (3) |       | 1,060                     |       | 530 |   | 530 |   | — |   | — |   |
| Purchase obligations (4)        |       | 64,668                    |       | 64,668 |   | — |   | — |   | — |   |
| Revolving loans (5)             |       | 24,631                    |       | 24,631 |   | — |   | — |   | — |   |
| Total                           |       | $                         | 1,252,974  |   | $ | 357,376 |   | $ | 233,229 |   | $ | 38,595 |   | $ | 623,774 |   |

 

----

1.  Consists of:

 

(a)                                  Note payablein monthly payments of $5,860 maturing September 19, 2005;

 

(b)                                 Note payablein quarterly payments of Cdn. $419, bearing interest at 10.43% and maturingDecember 2009; and

 

24

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(c)                                  Amounts dueto shareholder which bear interest at the Canadian banks’ prime lending rateplus 1.5%, with required minimum monthly payments, including interest, of$1,000.

 

2.  Consists of capital lease obligations for:

 

(a)                                  Productionequipment of Cdn. $38,734 (US $31,801) repayable in monthly installments,bearing interest at 6.65% and maturing December 2004;

 

(b)                                 Productionequipment of Cdn. $103,170 (US $84,704) repayable in monthly installments,bearing interest at 7.59% and maturing November 2006;

 

(c)                                  Productionequipment of Cdn. $449,937 (US $369,406) repayable in monthly installments,bearing interest at 9% and maturing November 2006; and

 

(d)                                 Officeequipment of Cdn. $29,824 (US $24,486) repayable in quarterly installments,bearing interest at 10.43% and maturing December 2009.

 

3.                                        Consists ofoperating lease obligations for office equipment requiring quarterly paymentsof Cdn. $161 (US $132) terminating June 2006.

 

4.                                        Consists ofpurchase obligations for research and development services payable as specifiedmilestones are achieved.

 

5.                                       Consists ofCanadian operating line of credit bearing interest at the Canadian banks’ primelending rate plus 0.75%, repayable upon demand.

 

**Risk Factors**

 

The risks, uncertainties and other factorsdescribed below could materially and adversely affect the Company’s business,financial condition, operating results and prospects.

 

***The Company’s product developmentefforts may be reduced or discontinued due to difficulties or delays inclinical trials.***

 

To achieve sustained profitability, the Companymust, alone or with corporate partners and collaborators, successfullyresearch, develop and commercialize identified technologies or productcandidates.  Current developmental product candidates are in variousstages of clinical and pre-clinical development and will require significantfurther funding, research, development, preclinical and/or clinical testing,regulatory approval and commercialization testing, and are subject to the risksof failure inherent in the development of products based on innovative or noveltechnologies.  These products are also rigorously regulated by the U.S.federal government, particularly the FDA, and by comparable agencies in stateand local jurisdictions and in foreign countries.  Specifically, each ofthe following results is possible with respect to any one of the Company’sdevelopmental product candidates:

 

25

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•                  that theCompany will not be able to maintain its current research and developmentschedules;

 

•                  that theCompany will not be able to enter into human clinical trials because ofscientific, governmental or financial reasons, or that it will encounterproblems in clinical trials that will cause a delay or suspension of thedevelopment of the product candidate;

 

•                  that thedevelopmental product will be found to be ineffective or unsafe;

 

•                  thatgovernment regulations will delay or prevent the product’s marketing for aconsiderable period of time and impose costly procedures upon the Company’sactivities;

 

•                  that the FDAor other regulatory agencies will not approve the product or the process bywhich the product is manufactured, or will not do so on a timely basis; and/or

 

•                  that theFDA’s policies may change and additional government regulations and policiesmay be instituted, which could prevent or delay regulatory approval of theproduct.

 

If any of the risks set forth above occurs, the Companymay not be able to successfully develop its identified developmental productcandidates.

 

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

 

It is possible that, for reasons including, butnot limited to those set forth below, the Company may be unable tocommercialize or receive royalties from the sale of any given developmentalproduct, even if it is shown to be effective, if:

 

•                  the productis uneconomical or if the market for the product does not develop or diminishes;

 

•                  the Companyis not able to enter into arrangements or collaborations to commercializeand/or market the product;

 

•                  the productis not eligible for third-party reimbursement from government or privateinsurers;

 

•                  others holdproprietary rights that preclude the Company from commercializing the product;

 

•                  others havebrought to market similar or superior products;

 

•                  others havesuperior resources to market similar products or technologies;

 

26

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•                  governmentregulation imposes limitations on the indicated uses of the product, or laterdiscovery of previously unknown problems with the product results in addedrestrictions on the product or results in the product being withdrawn from themarket; and/or

 

•                  the producthas undesirable or unintended side effects that prevent or limit its commercialuse.

 

***The Company depends onpartnerships with third parties for the development and commercialization ofits products.***

 

The Company’s strategy for development andcommercialization of its products is to rely on licensing agreements with thirdparty partners.  As a result, the ability of the Company to commercializefuture products is dependent upon the success of third parties in performingclinical trials, obtaining regulatory approvals, manufacturing and successfullymarketing its products.  There can be no assurance that such third partycollaborations will be successful.  Should any of the Company’s currentresearch and development partnerships be discontinued, it may not be able tofind others to develop and commercialize its current product candidates.

 

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

 

The commercialization of any of the Company’sdevelopmental products that receive FDA approval will depend upon the Company’sability to enter into agreements with companies that have sales and marketingcapabilities.  The Company currently intends to sell its products in theUnited States and internationally in collaboration with one or more marketingpartners.  The Company may not be able to enter into any suchcollaboration to market its developmental products in a timely manner or oncommercially reasonable terms, if at all.

 

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

 

The Company’s success depends in part on its abilityto obtain and maintain patents, protect trade secrets and operate withoutinfringing upon the proprietary rights of others.  In the absence ofpatent and trade secret protection, competitors may adversely affect theCompany’s business by independently developing and marketing substantiallyequivalent or superior products, possibly at lower prices.  The Companycould also incur substantial costs in litigation and suffer diversion ofattention of technical and management personnel if it is required to defendintellectual property infringement suits brought by third parties, with orwithout merit, or if required to initiate litigation against others to protector assert intellectual property rights.  Moreover, any such litigation maynot be resolved in favor of the Company.

 

The Company has received various patentscovering the uses of its developmental products.  However, the patentposition of companies in the pharmaceutical industry generally involves complexlegal and factual questions, and recently has been the subject of muchlitigation.  Any patents the Company has obtained, or may obtain in thefuture, may be

 

27

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challenged, invalidatedor circumvented.  To date, no consistent policy has been developed by theUnited States Patent and Trademark Office regarding the breadth of claimsallowed in biotechnology patents.

 

In addition, because patent applications in theUnited States are maintained in secrecy until patents issue, and becausepublication of discoveries in scientific or patent literature often lags behindactual discoveries, the Company cannot be certain that it and its licensors arethe first creators of inventions covered by any licensed patent applications orpatents or that the Company or such licensors are the first to file.  TheUnited States Patent and Trademark Office may commence interference proceedingsinvolving patents or patent applications, in which the question of firstinventorship is contested.  Accordingly, the patents owned by or licensedto the Company may not be valid or may not afford the Company protectionagainst competitors with similar intellectual property.

 

It is also possible that the Company’s patentsmay infringe on patents or other rights owned by others, licenses to which maynot be available to the Company.  The Company may have to alter itsproducts or processes, pay licensing fees or cease certain activitiesaltogether because of patent rights of third parties.

 

In addition to the products for which theCompany has patents or have filed patent applications, the Company relies uponunpatented proprietary technology and may not be able to meaningfully protectits rights with regard to that unpatented proprietary technology.

 

**Critical Accounting Policies**

 

The Company’s consolidated financial statementsare prepared in accordance with accounting principles generally accepted in theUnited States, applied on a consistent basis.  The critical accountingpolicies include the use of estimates of allowance for doubtful accounts, theuseful lives of assets and the realizability of deferred tax assets.  TheCompany’s accounting policies with respect to the Joint Venture and itsdisposition are also discussed below.

 

Management is required to make estimates andassumptions, in preparing the consolidated financial statements, that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the consolidated financial statements andthe reported amounts of revenue and expenses during the periods.  Theactual results could differ from these estimates.  Significant estimatesmade by management include the calculation of reserves for uncollectibleaccounts, inventory allowances, useful lives of long-lived assets and the realizabilityof deferred tax assets.

 

***Revenue Recognition***

 

Allrevenue is from sales of bulk and finished dosage manufactured products and isrecognized when title and risk of ownership of products pass to thecustomer.  Title and risk of ownership pass to the customer pursuant tothe applicable sales contract, either upon shipment of product or upon receiptby the customer.  Since returns are rare and generally not accepted,management has not made provision for returns.  In addition, product soldin bulk quantities is tested, prior to

 

28

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releasefor shipment, to ensure that it meets customer specifications, and in manycases, customers receive samples for their own testing.  Approval isobtained from the customer prior to shipping.

 

***Allowance for Doubtful Accounts***

 

Accounts receivable is stated net of allowancesfor doubtful accounts.  Allowances for doubtful accounts are determined byeach reporting unit on a specific item basis.  Management reviews thecredit worthiness of individual customers and past payment history to determinethe allowance for doubtful accounts.  Since the majority of sales atDextran Products are export, Dextran Products maintains credit insurancethrough a crown corporation for the majority of its customers receivables.

 

***Long-Lived Assets***

 

Long-lived assets are stated at cost, lessaccumulated depreciation or amortization computed using the straight-linemethod based on their estimated useful lives ranging from three to fifteenyears.  Useful life is the period over which the asset is expected tocontribute to the Company’s future cash flows.  A significant change inestimated useful lives could have a material impact on the results ofoperations.  The Company reviews the recoverability of its long-livedassets, including buildings, equipment and other intangible assets, when eventsor changes in circumstances occur that indicate that the carrying value of theasset may not be recoverable.  The assessment of possible impairment is basedon the Company’s ability to recover****the carryingvalue of the asset from the expected future pre-tax cash flows (undiscountedand****without interest charges) of therelated operations.  If these cash flows are less than the****carrying value of such asset, an impairment loss isrecognized for the difference between****estimated fairvalue and carrying value.  The measurement of impairment requiresmanagement to****make estimates of these cashflows related to long-lived assets as well as other fair value****determinations.

 

***Deferred Tax Assets***

 

The Company has recorded a valuation allowanceon deferred tax assets where there is uncertainty as to the ultimaterealization of the future tax deduction.  Dextran Products has incurredcapital losses, which are only deductible against capital gains.  It isnot certain that Dextran Products will realize capital gains in the future touse these Canadian capital loss deductions.

 

29

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***The Joint Venture***

 

In 1992, Vet Labs and Sparhawk entered into theJoint Venture for the manufacture and sale of veterinary pharmaceuticalproducts.  Vet Labs and Sparhawk each owned 50% of the Joint Ventureduring its operation. The Joint Venture was governed by the Agreement for theOperation of Veterinary Laboratories, Inc.’s Lenexa Facility and Sparhawk Labof KC as a Joint Venture, dated December 1, 1992, by and among Sparhawk,Chemdex and Vet Labs (the “Joint Venture Agreement”).

 

Pursuantto the Joint Venture Agreement, the Joint Venture Policy Committee wasresponsible for the overall management of the Joint Venture, including thedirection and control of the persons designated with the daily managementresponsibilities of the Joint Venture, and the general supervision of themanagement and conduct of the affairs of the Joint Venture.  The PolicyCommittee consisted of five members, three of which were selected by Vet Labsand two of which were selected by Sparhawk.  Decisions of the PolicyCommittee required a simple majority vote.

 

Becausethe Company controlled the operating, financing and investing decisions of theJoint Venture through Vet Labs’ control of the Policy Committee, itconsolidated the Joint Venture’s assets, liabilities, revenue and expenses inthe Company’s financial statements.  The Company has funded the JointVenture’s cumulative losses since 1992 and, accordingly, has recorded 100% ofthese losses in the consolidated financial statements.

 

On January 13, 2004, the Company, Chemdex andVet Labs entered into an Asset Purchase Agreement with Sparhawk.  Pursuantto the Asset Purchase Agreement, the Company agreed to sell substantially allof the assets of Vet Labs, including its interest in the Joint Venture, toSparhawk for $5,500,000 in cash.  Effective March 4, 2004, this sale wascompleted and a gain of $1,859,471 was recognized.  Simultaneously withthe closing, Chemdex advanced $350,000 to Sparhawk in exchange for an unsecuredsubordinated promissory note bearing interest at 13% per annum and a warrant topurchase 4% of the equity of Sparhawk.  The promissory note is payable infull on March 4, 2009.  Interest is payable annually, but can be deferredand added to the principal balance of the****promissorynote each year at Sparhawk’s discretion.  The warrant becomes exercisableon March 5, 2009 and expires at the earlier of payment in full of thepromissory note or March 4, 2014.  Chemdex also entered into a supplyagreement with Sparhawk to supply ferric hydroxide and hydrogenated dextransolution to Sparhawk on an exclusive basis in the United States for 10years.  In connection with the sale, the litigation involving the JointVenture, *Sparhawk Laboratories, Inc. v. VeterinaryLaboratories, Inc., et al*, Case No. 02CV07426, County of Johnson,State of Kansas, was settled, and a Motion of Approval of Settlement andStipulation of Dismissal with Prejudice was filed with the Court on March 4,2004.

 

Since Sparhawk is thinly capitalized and highlyleveraged, the Company has deferred $350,000 of the gain relating to thepromissory note receivable from Sparhawk. The Company will monitor the financial position of Sparhawk and willrecognize this deferred gain at such time

 

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as Sparhawk’s cash flowsfrom operations are sufficient to fund debt service on a full accrual basis.

 

There will be significant changes in theCompany’s results of operations due to the sale of the Vet Labs assets and itsownership interest in the Joint Venture.  Sales of the Joint Ventureaccounted for 66% of the Company’s total sales in fiscal year 2004. Income before income taxes from Vet Labs and the Joint Venture amounted to$408,667 in fiscal year 2004.  Management expects that gross profit as apercentage of sales for the Company will increase because the Joint Venture’smargins were generally lower than those of Dextran Products.

 

**Changes in Accounting Policies**

 

No changes in accounting principles or theirapplication have been implemented in the reporting period that would have amaterial effect on reported income.

 

**Recent Accounting Pronouncements**

 

In December 2003, the FASB issued FASBInterpretation [“FIN”] No. 46R, “Consolidation of Variable Interest Entities aninterpretation of ARB No. 51” [the “Interpretation”], which is a revision ofFIN No. 46 originally issued in January 2003. The Interpretation introduces a new consolidation model - the variableinterests model - which determines control [and consolidation] based onpotential variability in gains and losses of the entity being evaluated forconsolidation. It also requires application in financial statements of publicentities for periods ended after December 15, 2003 to special purpose entities,and in financial statements for periods ending after March 15, 2004 to othertypes of variable interest entities.  TheCompany does not have any interests in special purpose entities, and willaccount for any variable interest entities in accordance with theInterpretation. The adoption of this Interpretation had no impact on theCompany’s consolidated financial statements.

 

**Forward-looking Statements**

 

This Form 10-Q, including the Management’sDiscussion and Analysis of Financial Condition and Results of Operations,contains various “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended, which represent the Company’s expectations orbeliefs concerning future events, including, but not limited to statementsregarding management’s expectations of regulatory approval and the commencementof sales.  In addition, statementscontaining expressions such as “believes”, “anticipates”, “plans” or “expects”used in this Form 10-Q, the Company’s Annual Report, and the Company’s periodicreports on Forms 10-K and 10-Q previously filed with the Securities andExchange Commission are intended to identify forward-looking statements.  The Company cautions that various risks anduncertainties and other factors could cause actual results to differ materiallyfrom those expressed in or implied by the forward-looking statements.  These factors include, without limitation,changing market conditions, the progress of clinical trials, and the resultsobtained, the establishment of new corporate alliances, the impact ofcompetitive products and pricing, the timely development,

 

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FDA approval and marketacceptance of the Company’s products, and the other risks discussed above, noneof which can be assured.

 

The forward-looking statementscontained in this quarterly report speak only as to the date of thisreport.  Except as otherwise required byfederal securities laws, we undertake no obligation to publicly update orrevise any forward-looking statements or the risk factors described in thisquarterly report, whether as a result of new information, future events,changed circumstances or any other reason after the date of this report.

 

The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance with UnitedStates generally accepted accounting principles for interim financialinformation and the instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, all adjustments (consisting of normallyrecurring accruals) considered necessary for a fair presentation have been included.

 

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**Item 3****  Quantitative and QualitativeDisclosures About Market Risk**

 

**Exchange Rate Sensitivity**

 

TheCompany’s operations consist of manufacturing activities in the United Statesand Canada.  The Company’s products aresold in North America, Europe and the Pacific Rim.  While the majority of the sales of DextranProducts, the Company’s Canadian operation, are denominated in United Statesdollars, the majority of its expenses are incurred in Canadian dollars.  The majority of the assets and liabilities ofDextran Products are denominated in Canadian dollars prior to the currencytranslation adjustment necessary for preparation of the financial statements ofthe Company contained in this report. Therefore, Dextran Products has a net asset exposure to the UnitedStates dollar.  When the Canadian dollarrises in value relative to the United States dollar, the carrying value of theassets and liabilities of Dextran Products as stated in United States dollarsincreases.  A rise in the Canadian dollarrelative to the United States dollar also results in a decrease in grossmargins and net income of Dextran Products.  Dextran Products alsoexperiences a foreign exchange loss when the Canadian dollar rises in relationto the United States dollar due to this net asset exposure.  Similarly, a decline in the Canadian dollarrelative to the United States dollar results in a foreign exchange gain andincreased gross margins and net income at Dextran Products.  Management monitors currency fluctuations toensure that an acceptable margin level at Dextran Products is maintained.  Management has the ability, to some extent,to adjust sales prices to maintain an acceptable margin level.  The following table presents informationabout the Company’s financial instruments other than accounts receivable thatare sensitive to changes in foreign currency exchange rates.  All financial instruments are held for otherthan trading purposes.  The tablepresents principal cash flows and related weighted average interest rates byexpected maturity dates.

 
| ** **              | ** ** | **Expected Maturity Date** | ** ** | ** **  | ** ** | **Fair**    | ** ** |
|-------------------------|------------|----------------------------|------------|-------------|------------|-------------|------------|
| ** **              | ** ** | **1/31/05**                | ** ** | **1/31/06** | ** ** | **1/31/07** | ** ** | **1/31/08** | ** ** | **1/31/09** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Value** | ** ** |
| ** **              | ** ** | **(US$ Equivalent)**  | ** ** |
| **Assets:**             |       |                       |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Short-term investments: |       |                       |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | 2,935,139                  |       | —      |       | —      |       | — |   | — |   | — |   | 2,935,139 |   | 2,804,453 |   |
| Average interest rate   |       | 2.00                       | %          | —      |       | —      |       | — |   | — |   | — |   | 2.00 | % |   |   |
| Marketable securities:  |       |                       |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | —                     |       | 570,386     |       | 1,308,564   |       | — |   | — |   | — |   | 1,878,950 |   | 1,807,544 |   |
| Average interest rate   |       | —                     |       | 2.60        | %          | 2.60        | %          | — |   | — |   | — |   | 2.60 | % |   |   |
| **Liabilities:**        |       |                       |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Long-term debt:         |       |                       |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | 177,693                    |       | 161,384     |       | 158,451     |       | 5,558 |   | 6,617 |   | 6,842 |   | 516,095 |   | 509,429 |   |
| Average interest rate   |       | 8.37                       | %          | 8.78        | %          | 8.81        | %          | 10.43 | % | 10.43 | % | 10.43 | % | 9.54 | % |   |   |

 

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**Interest Rate Sensitivity**

 

TheCompany has interest earning assets consisting of investment grade or highershort-term commercial paper.  Asignificant portion of the Company’s debt is at fixed rates.  The variable rate debt represents theshareholder loan payable, which is approximately offset with the shareholderloan receivable.  Both of these financialinstruments carry the same interest rate.  As such, the Company has nosignificant risk exposure to changes in interest rates.  The following table presents informationabout the Company’s financial instruments that are sensitive to changes ininterest rates.  All financialinstruments are held for other than trading purposes.  The table presents principal cash flows andrelated weighted average interest rates by expected maturity dates.

 
| ** **              | ** ** | **Expected Maturity Date** | ** ** | ** **  | ** ** | **Fair ** | ** ** |
|-------------------------|------------|----------------------------|------------|-------------|------------|----------------|------------|
| ** **              | ** ** | **1/31/05**                | ** ** | **1/31/06** | ** ** | **1/31/07**    | ** ** | **1/31/08** | ** ** | **1/31/09** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Value** | ** ** |
| ** **              | ** ** | **(US$ Equivalent)**  | ** ** |
| **Assets:**             |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Short-term investments: |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | 2,935,139                  |       | —      |       | —         |       | — |   | — |   | — |   | 2,953,139 |   | 2,804,453 |   |
| Average interest rate   |       | 2.00                       | %          | —      |       | —         |       | — |   | — |   | — |   | 2.00 | % |   |   |
| Marketable securities:  |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | —                     |       | 570,386     |       | 1,308,564      |       | — |   | — |   | — |   | 1,878,950 |   | 1,807,544 |   |
| Average interest rate   |       | —                     |       | 2.60        | %          | 2.60           | %          | — |   | — |   | — |   | 2.60 | % |   |   |
| Notes receivable:       |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Variable rate ($US)     |       | 54,861                     |       | 58,153      |       | 61,642         |       | 65,340 |   | 69,261 |   | 108,209 |   | 417,466 |   | 417,466 |   |
| Average interest rate   |       | 6.00                       | %          | 6.00        | %          | 6.00           | %          | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % |   |   |
| **Liabilities:**        |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Long-term debt:         |       |                       |       |        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Fixed rate ($Cdn.)      |       | 177,693                    |       | 161,384     |       | 158,451        |       | 5,558 |   | 6,167 |   | 6,842 |   | 516,095 |   | 509,429 |   |
| Average interest rate   |       | 8.37                       | %          | 8.78        | %          | 8.81           | %          | 10.43 | % | 10.43 | % | 10.43 | % | 9.54 | % |   |   |
| Variable rate ($US)     |       | 1,007                      |       | 1,068       |       | 1,132          |       | 1,200 |   | 1,272 |   | 677,535 |   | 683,214 |   | 683,214 |   |
| Average interest rate   |       | 6.00                       | %          | 6.00        | %          | 6.00           | %          | 6.00 | % | 6.00 | % | 6.00 | % | 6.00 | % |   |   |

 

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**Item 4****.  Controls and Procedures.**

 

The Company completed an evaluation as of theend of the period covered by this report under the supervision and with theparticipation of management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of itsdisclosure controls and procedures pursuant to Rule 13a-14 of the SecuritiesExchange Act of 1934.  Based upon thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective in alertingthem on a timely basis of material information relating to the Company(including its consolidated subsidiaries) required to be included in itsperiodic Securities and Exchange Commission filings.

 

There have been no changes in the Company’sinternal control over financial reporting identified in connection with theevaluation discussed above that occurred in the Company’s last fiscal quarterthat has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 6****. Exhibits and Reports on Form 8-K.**

 

(a)                                  Exhibits

 

3.1                                 Memorandum of Association of PolydexPharmaceuticals Limited, as amended to date (filed as Exhibit 3.1 to the AnnualReport on Form 10-K filed April 30, 1997, and incorporated herein by reference)

 

3.2                                 Articles of Association of PolydexPharmaceuticals Limited, as amended to date (filed as Exhibit 3.2 to theQuarterly Report on Form 10-Q filed September 13, 1999, and incorporated hereinby reference)

 

31.1                           Certification of Chief Executive Officerpursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

31.2                           Certification of Chief Financial Officerpursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

32.1                           Certification of Chief Executive Officerpursuant to 19 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

32.2                           Certification of Chief Financial Officerpursuant to 19 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

(b)                                 Reports on Form 8-K

 

None.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| Date:  | December 15, 2004               |                                                                                |   |
|--------|---------------------------------|-------------------------------------------------------------------------------------|--------|
|   |                            |
|   | POLYDEX PHARMACEUTICALS LIMITED |
|   | (Registrant)                    |
|   |                            |
|   | By                              | /s/ George G. Usher                                                                 |   |
|   |                            | George G. Usher, Chairman, President and Chief                                 |
|   |                            | Executive Officer                                                                   |
|   |                            | (Principal Executive Officer)                                                       |
|   |                            |                                                                                |
|   |                            |                                                                                |
|   | By                              | /s/ Sharon L. Wardlaw                                                               |   |
|   |                            | Sharon L. Wardlaw, Treasurer, Secretary and  Chief Financial and Accounting Officer |
|   |                            | (Principal Financial Officer)                                                       |

 

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| **Exhibit  Index** | ** ** | ** **                                                                                                                                          |
|--------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|               |       |                                                                                                                                                |
| 31.1               |       | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)  under the Securities Exchange Act of 1934                                      |
|               |       |                                                                                                                                                |
| 31.2               |       | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)  under the Securities Exchange Act of 1934                                      |
|               |       |                                                                                                                                                |
| 32.1               |       | Certification of Chief Executive Officer pursuant to 19 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|               |       |                                                                                                                                                |
| 32.2               |       | Certification of Chief Financial Officer pursuant to 19 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |

 

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