~~SECURITIES~~United States ~~AND~~ Securities ~~EXCHANGE~~and ~~COMMISSION~~Exchange Commission

WASHINGTON, D.C. 20549

WASHINGTON, D.C. 20549
FORM 10-K

(Mark One)

~~x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~Q

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2008

~~For~~or ~~the fiscal year ended January 31, 2005~~

~~Commission~~£ Transition ~~file~~Report ~~number:~~pursuant ~~1-8366~~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 its charter)

Commonwealth of the Bahamas None (~~Exact~~State ~~Name~~or other jurisdiction of ~~Registrant~~incorporation asor ~~Specified~~organization) in(I.R.S. ~~Its Charter~~Employer Identification No.)

Commonwealth of the Bahamas		None
421 Comstock Road, Toronto, Ontario, Canada MIL 2H5	(416) 755-2231
(State or Other Jurisdiction of		(I.R.S. Employer
(Address of principal executive offices)	Telephone No.
Incorporation or Organization)		Identification No.)
421 Comstock Road, Toronto, Ontario, Canada		M1L 2H5
(Address of Principal Executive Offices)		(Zip Code)

~~Registrant’s telephone~~Securities ~~number,~~Registered ~~including~~Pursuant ~~area~~to ~~code~~ Section 12(~~416~~b) of the Act: ~~755-2231~~

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

Title of each class	Name of each exchange which registered
Common Shares, par value $0.0167 per share	NASDAQ Capital Market

Title of Each Class Name of Each Exchange on Which Registered
Common Shares, $.0167 par value Boston Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:

None

~~Securities~~Indicate by check mark if the registrant is a ~~registered~~well-known ~~pursuant~~seasoned toissuer, ~~Section 12(g)~~as defined in Rule 405 of the Securities Act:. Yes

£ No Q

~~Common~~Indicate ~~Shares,~~by ~~$.0167~~check ~~par~~mark ~~value~~if the registrant is not required to file reports pursuant to Section 13 or Section 15(~~Title~~d) of ~~Class)~~the Act. Yes £ No Q

Indicate by check mark whether the ~~Registrant:~~ registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~Registrant~~ registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Q No o £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of ~~Registrant’~~registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ~~Yes~~ ~~o No x~~

~~Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x~~1

~~The aggregate~~Indicate ~~market value of the Registrant’s voting common shares held~~ by ~~non-affiliates~~ ofcheck ~~the~~mark ~~Registrant,~~whether ~~based upon~~ the ~~$6.98~~registrant ~~per~~is ~~share~~a ~~closing price~~large ofaccelerated ~~the~~filer, ~~Registrant’s~~an ~~common~~accelerated ~~shares~~filer, ona ~~July~~non-accelerated 30filer, ~~2004~~or ~~(the~~a ~~last business day of~~smaller ~~the~~reporting ~~Registrant’s~~company. ~~most~~See ~~recently~~definition ~~completed~~of ~~second~~"large ~~fiscal~~accelerated ~~quarter)~~filer," ~~was~~"accelerated ~~approximately~~filer" ~~$16,331,106~~and ~~(for~~"smaller ~~this~~reporting ~~purpose,~~company" ~~the~~in ~~Registrant~~Rule ~~has~~12b-2 ~~assumed that directors, executive officers and holders~~ of ~~more than 10% of~~ the ~~Company’s common~~Exchange ~~stock~~Act. ~~are affiliates~~(Check one).:

~~The number~~Large ofaccelerated ~~common~~filer ~~shares~~£ ofAccelerated ~~the~~filer ~~Registrant~~£ ~~outstanding~~Non-accelerated asfiler of£ ~~April~~Smaller ~~28,~~reporting ~~2005~~company ~~was 3,042,296.~~Q

~~Portions of~~Indicate ~~the~~by ~~Registrant’s~~check ~~Notice~~mark ofwhether ~~Annual Meeting and Proxy Statement for~~ the ~~Registrant’s~~ ~~Annual~~registrant ~~Meeting~~is ofa ~~Members, scheduled to be held on July 8, 2005,~~shell ~~are~~company ~~incorporated~~(as bydefined ~~reference~~in ~~into~~Rule ~~Part III~~12b-2 of ~~this~~the ~~Report~~Act). Yes

£ No Q

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter was $ 4,137,069. There were 3,072,846 common shares outstanding as of March 31, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement relating to the registrant's Annual Meeting of Stockholders, to be held on July 11, 2008, is incorporated by reference in Part III to the extent described therein.


POLYDEX PHARMACEUTICALS LIMITED
		Page
TABLE OF CONTENTS

	Cautionary Note Regarding Forward-Looking Statements


PART I
Item 1.	Business	5
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12

PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28
Item 9A.	Controls and Procedures	28
Item 9B.	Other Information
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	29
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item 13.	Certain Relationships and Related Transactions, and Director Independence	29
Item 14.	Principal Accountant Fees and Services	29

PART IV
Item 15.	Exhibits and Financial Statement Schedules	30
SIGNATURES		32

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains various “"forward-looking statements”" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company’'s expectations or beliefs concerning future events, including, but not limited to statements regarding the Company’'s future growth, results of operations, liquidity and capital resources, expectations of ~~regulatory~~ regulatory approvals and the commencement of sales of products. The Company has tried to identify such forward-looking statements by use of words such as “"believes,~~” “~~" "anticipates,~~” “~~" "intends,”" “"plans,”" “"will,”" “"should,”" “"expects”" and similar expressions, but these words are not the exclusive means of identifying such statements. The Company cautions that these and similar statements in this Annual Report on Form 10-K and in previously filed periodic reports, including reports filed on Forms 10-K and 10-Q, are further qualified by various risks, uncertainties and other factors that could cause actual results to differ materially from 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 results obtained, the establishment of new corporate alliances, the impact of competitive products and pricing, and the timely development, regulatory approval and market acceptance of the Company’'s products, as well as the other risks discussed herein, none of which can be assured. The forward-looking statements contained herein speak only as to the date of this report. Except as otherwise required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report on Form 10-K, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

PART I

ITEM 1. BUSINESS

Introduction

Polydex Pharmaceuticals Limited (the “ "Company”") is engaged in the research, development, manufacture and marketing of biotechnology-based products for the human pharmaceutical market, and also manufactures bulk pharmaceutical intermediates for the worldwide veterinary pharmaceutical industry. ~~The~~ Company focuses on the manufacture and sale of Dextran and derivative products, including Iron Dextran and Dextran Sulphate, and other specialty chemicals. Dextran, a generic name applied to certain synthetic compounds formed by bacterial growth on sucrose, is a polymer or giant molecule. The name Polydex combines the words “polymer” and “dextran.”

The Company ~~was~~focuses ~~incorporated~~on ~~under~~ the manufacture ~~laws~~and sale of ~~the~~Dextran ~~Commonwealth~~and ofderivative ~~the~~products, ~~Bahamas~~including onIron Dextran ~~June~~and 14Dextran Sulphate, ~~1979~~and asother ~~Polydex~~specialty ~~Chemicals~~chemicals. ~~Limited~~Dextran, ~~and~~a ~~changed~~generic ~~its~~ name applied to certain synthetic compounds formed by bacterial growth on ~~March 28~~ sucrose, ~~1984~~is a polymer or giant molecule. The ~~address~~name ofPolydex ~~its~~combines the words "polymer" and "dextran." ~~statutory~~The ~~office~~Company inwas incorporated under the ~~Bahamas~~laws isof ~~c/o~~the ~~Higgs~~Commonwealth &of ~~Johnson,~~the ~~83 Shirley~~Bahamas ~~Street,~~on ~~Nassau~~June 14, ~~Bahamas~~1979 as Polydex Chemicals Limited, ~~telephone~~and ~~(242)~~changed ~~322-8571~~its name on March 28, 1984.

The Company conducts its business operations through its two wholly-owned subsidiaries. The manufacture and sale of Dextran and derivative products is conducted through both Dextran Products Limited, incorporated in Canada in 1966 (“"Dextran Products”"), and Chemdex Inc ("Chemdex") which is incorporated in the state of Kansas, United States.

During approximately one month of the Company’s fiscal year ended January 31, 2005 (the “2005 fiscal year”), the Company also engaged in the finished product veterinary pharmaceutical business through its subsidiary Chemdex, Inc., incorporated in Kansas in 1987, which, in turn, conducted its operations through its subsidiary, Veterinary Laboratories, Inc. (“Vet Labs”). On December 1, 1992, Vet Labs and Sparhawk Laboratories Inc. (“Sparhawk”) entered into a Joint Venture for the purpose of manufacturing and selling veterinary pharmaceutical products. On March 4, 2004, the Company sold its finished product veterinary pharmaceutical business to Sparhawk. The sale included substantially all of the assets of Vet Labs and its ownership interest in the Joint Venture.
Products and Sales

Iron Dextran

Iron Dextran is a derivative of Dextran produced by complexing iron with Dextran. Iron Dextran is injected into most pigs at birth as a treatment for anemia. The Company sells Iron Dextran to independent distributors and wholesalers primarily in Europe, the United States and Canada, with less significant sales in Pacific Rim countries. ~~Dextran~~ ~~Products has regulatory approval to sell Iron Dextran from Canadian authorities~~Chemdex, ~~while Chemdex~~Inc. has United States FDA approval for the manufacture and sale of Iron Dextran for veterinary use. On March 4, 2004, Sparhawk ~~and~~Laboratories Inc. ("Sparhawk") and Chemdex entered into an exclusive Supply Agreement under which ~~Sparkawk~~ ~~agreed~~Sparhawk agreed to purchase 100% of its product needs for bulk Iron Dextran solution from Chemdex for a period of 10 years, and Chemdex agreed to sell such products in the United States exclusively to Sparhawk, subject to minimum ~~purchase~~ purchase requirements. Concurrently with the Supply Agreement, the Company sold its finished product veterinary pharmaceutical business to Sparhawk.

Dextran Sulphate

Dextran Sulphate is a specialty chemical derivative of Dextran used in research applications by the pharmaceutical industry and other centers of chemical research. Dextran Sulphate manufactured by the Company is sold primarily to independent distributors and wholesalers in ~~Australia, France,~~ the ~~Netherlands,~~ ~~New Zealand and the~~ United States, ~~where it is used in limited quantities in the manufacture of film,~~ as ~~well as~~ analytical chemical applications. This usage requires no regulatory approval.

~~Veterinary Products~~5

During approximately one month of the 2005 fiscal year, the Company manufactured sterile injectable products, tablets and boluses, internal and external solutions, ointments and powders through its Vet Labs subsidiary

and the Joint Venture, and Vet Labs also performed contract filling for other industry companies. On March 4, 2004, the Company sold its finished product veterinary pharmaceutical business to Sparhawk. The sale included substantially all of the assets of Vet Labs and its ownership interest in the Joint Venture.

Patents, Trademarks and Licenses

Cellulose Sulphate

During the fiscal year ended January 31, 1996, a patent for a new method of manufacture of Cellulose Sulphate was purchased for $1 million. The process was patented under U.S. patent number 5,378,828 in June 1995. Prior to development of the patented process, the manufacture of the compound required the use of dangerous and environmentally sensitive chemicals. The new method is safer and produces a more consistent product.

During fiscal year ended January 31, 2001, a patent bearing U.S. patent number 6,063,773 was ~~granted~~issued to the Company ~~and~~ Coand co-inventors entitled “"Cellulose Sulphate for use as Antimicrobial and Contraceptive Agent”". Various clinical trials with respect to the safety and efficacy of this product have been ~~completed~~ ~~or are in process, and further trials are planned by the Company~~completed.

~~Cystic~~During ~~Fibrosis~~fiscal year ended January 31, 2006, a patent bearing European Patent No. 1296691 entitled "Cellulose Sulfate and Other Sulfated Polysaccharides to Prevent and Treat Papilloma Virus and Other Infections" was issued. This patent is effective in the following countries: France, Germany, United Kingdom, Austria, Belgium, Switzerland, Denmark, Spain, Finland, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, Turkey and Hong Kong. This patent is directed to treating, inhibiting and preventing papilloma virus infections using sulfated polysaccharides.

~~The Company~~Low isMolecular aWeight party to a Research Agreement with the University of British Columbia, a number of Canadian hospitals and a company owned by an affiliate. Under the terms of this Research Agreement, the Company agreed to provide equipment and funding for continuing research on cystic fibrosis treatment in exchange for an exclusive worldwide license to manufacture, distribute and sell any products developed from the research. Two patents with respect to research products were issued by the United States in 1996. U.S. patent number 5,441,938 is held jointly by the University of British Columbia and the Company, and U.S. patent number 5,514,665 is held by the University of British Columbia and licensed to the Company. Rights to a certain cystic fibrosis treatment product, a low molecular weight dextran, were licensed to BCY LifeSciences, Inc. of Canada in 1999. Under this license agreement, BCY LifeSciences will pay a royalty to both the Company and the University of British Columbia based on sales and sublicensing revenue in return for the exclusive right to sublicense, manufacture, distribute and sell developed products.Dextran

The Company is a party to a Research Agreement with the University of British Columbia, and a number of Canadian hospitals. Under the terms of this Research Agreement, the Company agreed to provide equipment and funding for continuing research on a low molecular weight dextran, initially studied for a cystic fibrosis treatment, in exchange for an exclusive worldwide license to manufacture, distribute and sell any products developed from the research. Two patents with respect to research products were issued by the United States in 1996. U.S. patent number 5,441,938 is held jointly by the University of British Columbia and the Company, and U.S. patent number 5,514,665 is held by the University of British Columbia and licensed to the Company. Rights to the low molecular weight dextran, were licensed to BCY LifeSciences, Inc. of Canada in 1999. Under this license agreement, BCY LifeSciences will pay a royalty to both the Company and the University of British Columbia based on sales and sublicensing revenue in return for the exclusive right to sublicense, manufacture, distribute and sell developed products. In February 2005, BCY Lifesciences sublicensed the low molecular weight dextran to ALIGN Pharmaceuticals, a private United States based company.

Iron Dextran

Effective February 1, 1995, the Company entered into an agreement with Novadex Corp., an affiliated company, under which Novadex granted the Company the exclusive worldwide license to use a certain process developed by Novadex for producing Iron Dextran. This process allows the Company to produce Iron Dextran at a lower cost than would otherwise be possible given the Company’'s plant and equipment. The license agreement expires when the related patent expires in 2014. The Company pays a license fee based on production volumes. Upon the expiration of the license, the technology relating to the process described above will belong to the Company, with no further obligation to make royalty payments. During July 1999, Novadex was liquidated, and all of its assets and liabilities, including the above-referenced license agreement, were assumed by its sole shareholder, the former Vice Chairman of the Company, Thomas C. Usher, who passed away on February 26, 2005. The Company remains obligated under the license agreement to continue license fee payments.

Dextran Sulphate

The Company was granted U.S. patent number 4,855,410 in August 1989 with respect to Dextran Sulphate.

~~Elastin and Collagen~~6

Suppliers

Certain processes with respect to these materials were patented by the Company under U.S. patent numbers 4,659,740 and 4,784,986 on April 21, 1987 and November 15, 1988, respectively. These patents cover a process whereby the materials are modified in such a way as to penetrate the skin and act as a hydrating agent.
Suppliers
Dextran Products

In the manufacture of Dextran and Dextran derivative products, the Company uses ~~a single~~two ~~supplier~~suppliers for its sugar raw material requirements. The Company also uses atwo ~~single~~suppliers ~~supplier~~ for its iron requirements with respect to the manufacture of Iron Dextran. Both sugar and iron are readily available from numerous suppliers at competitive prices in the market.

The Company is dependent upon a single source for a certain raw material used in the production of Dextran Sulphate. Such supply was adequate in fiscal year ~~2005~~2008, and no shortages are anticipated in the near term. However, any curtailment in availability of such raw material could be accompanied by production or other delays as well as increased raw material costs, with consequent adverse effect on the Company’'s results of operations. The Company has no long-term contracts with any of its suppliers.

~~Backlog~~Order Book and Seasonality

The Company’'s ~~backlog~~order book as at January 31, ~~2005~~2008 was ~~approximately~~consistent ~~$350,000,~~with ~~whereas backlog~~the asorders aton hand for January 31, ~~2004 was approximately $750,000~~2007. All of these orders are expected to be filled within the current fiscal year. ~~The~~ The Company’'s bulk pharmaceutical intermediate business ~~may~~has bebecome ~~characterized~~less as seasonal with the sale of the Veterinary Laboratories Inc. ("Vet Labs") business in Kansas ~~that~~City ~~many~~to ~~end-users~~Sparhawk ofin ~~the~~March ~~finished~~2004. The bulk product ~~veterinary~~sold by Dextran Products ~~pharmaceuticals~~is ~~manufactured~~primarily ~~from~~targeted ~~these~~to ~~intermediates~~the ~~require~~swine ~~fewer~~industry ~~vitamins~~where modern animal husbandry ~~and~~techniques ~~other~~maintain ~~supplements~~most ~~during~~animals indoors. Certain producers in less developed countries may raise animals outdoors thereby reducing the ~~summer~~amount ~~months~~of ~~when~~product required ~~livestock~~but such markets are ~~put~~small ~~out~~and ~~to pasture~~decreasing in size as they modernize. ~~However,~~ Therefore the Company does not believe that such seasonality is material to its financial results as a whole. The Company's sale of Dextran Sulphate is not subject to seasonality.

Competition

The Company is the only Canadian manufacturer of Iron Dextran. ~~and~~On March 4, as2004, aSparhawk ~~result~~and ofChemdex entered ~~its~~into ~~ownership~~an ofexclusive ~~Chemdex~~Supply ~~during~~Agreement ~~fiscal~~under ~~year~~which ~~2005,~~Sparhawk ~~the~~agreed ~~Company~~to ~~was~~purchase ~~also~~100% of ~~the~~its ~~only manufacturer~~product ofneeds ~~10%~~for bulk Iron Dextran solution infrom ~~the~~Chemdex ~~United~~for ~~States. The only~~a ~~other~~period ~~major supplier~~ of 10 ~~Iron Dextran is located in Denmark~~years, ~~although~~and ~~there exist~~Chemdex ~~several~~agreed ~~smaller~~to ~~European~~sell ~~sources~~such ofproducts ~~Iron Dextran. Dextran Sulphate is manufactured by several manufacturers~~ in the ~~U.S.~~United ~~and Europe. With~~States ~~regard~~exclusively to ~~Iron Dextran and Dextran Sulphate~~Sparhawk, ~~the~~subject ~~Company~~to ~~competes~~minimum onpurchase ~~the basis of quality, service and price~~requirements.

The only other major supplier of Iron Dextran is located in Denmark, although there exist several smaller European and Chinese sources of Iron Dextran. Dextran Sulphate is manufactured by several manufacturers in the United States and Europe. With regard to Iron Dextran and Dextran Sulphate, the Company competes on the basis of quality, service and price.

The technology in the field of Dextran and its derivatives is undergoing continuous expansion and development. The manufacture of Dextran and its derivatives may be achieved by different processes and variations (including by means of a process known as glycoside, which is in the public domain). Therefore, the Company does not believe that its licensed, patented process for the production of Iron Dextran gives it any substantial competitive advantage.

On March 4, 2004, the Company sold its finished product veterinary pharmaceutical business to Sparhawk. The sale included substantially all of the assets of Vet Labs and its ownership interest in the Joint Venture. In connection with the sale, Sparhawk and Chemdex entered into an exclusive Supply Agreement under which Sparkawk agreed to purchase 100% of its product needs for bulk Iron Dextran solution from Chemdex for a period of 10 years, and Chemdex agreed to sell such products in the United States exclusively to Sparhawk, subject to minimum purchase requirements.7

Environmental Compliance

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

Employees

As of March 31, ~~2005~~2008, the Company employed 2623 employees, of whom 1614 were engaged in production, 6 in quality control, 12 in ~~research and development, 2 in~~ administration and 1 in marketing and sales activities. None of ~~the~~ the Company’'s employees ~~are~~is covered by collective bargaining agreements. Management considers its relations with employees to be good.

Research and Development

During the fiscal years ended January 31, ~~2005~~2008, 2007 and ~~2004~~2006, the Company expended $~~127~~135,~~847 and~~821, $73214,~~635,~~865 and $215,482 respectively, on research and development, primarily relating to the development of Cellulose Sulphate. ~~Increases~~ inResearch ~~research~~ and development expenditures are a result of additional product development activities performed by the Company and funded outside of its partnership relationships. During the fiscal years ended January 31, ~~2005~~2008 and ~~2004~~2007, the Company ~~recognized~~did not recognize any investment tax credit benefits of (2006-$139,~~105 and $12,684, respectively~~681).

Cellulose Sulphate (Ushercell)

Ushercell~~, the~~ ~~Company’s leading human pharmaceutical compound,~~ is a high molecular weight Cellulose Sulphate envisioned for topical vaginal use primarily in the prevention ofand transmission of AIDS and other sexually transmitted diseases, as well as unplanned pregnancies.

~~Research and~~Up to January 31, 2007, research and development with respect to the Company’'s Cellulose Sulphate product ~~is being~~was being conducted with the assistance and financial support of CONRAD, formerly known as the Contraceptive Research and Development Program, with funding from ~~various~~ various private and public sector sources. CONRAD ~~provides~~provided direct financial assistance in support of, and/or actually ~~conducts~~conducted specific research studies involving the Cellulose Sulphate product in conjunction with various public health-oriented entities, such as Family Health International, USAID (The United States Agency for International Development), the World Health Organization, the Centers for Disease Control and the HIV Prevention Trials Network, and many other universities, research centers and philanthropic organizations.

~~During~~On January 31, 2007, the Independent ~~fiscal~~Review ~~year~~Board ~~2005~~in ~~phase~~conjunction ~~I/II~~with CONRAD, WHO, FHI and Polydex announced the halting of Two Phase III clinical trials ~~were~~to ~~conducted. Highlights~~assess the effect of ~~selected~~Ushercell ~~completed~~on vaginal HIV acquisition which had been started in six clinical ~~studies~~ ~~outlined~~trial sites located in ~~CONRAD’s~~India ~~Development~~and ~~Plan~~Africa. ~~are~~The astrials ~~follows:~~were halted due to a possible higher than expected incidence of HIV. An investigation is now underway to determine the cause, with a report due towards the end of fiscal year 2009.

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

~~willing~~Cystic tofibrosis ~~postpone~~is ~~conception. The clinical portion of the remaining study involving couples that do not desire~~ a ~~pregnancy~~genetic isdisease, which ~~expected~~causes ~~to be completed this summer and~~ a ~~report~~cascade onof ~~findings is expected in 2006. Additionally~~effects, the ~~following~~most ~~clinical~~severe ~~studies have been commenced or are~~ being ~~actively~~a ~~planned:~~build •up ~~A tolerance study~~ of 42mucus ~~HIV-infected men~~ in the ~~collaboration with theInstitute of Tropical Medicine in Belgium has been planned~~lungs. •This Amucus ~~further~~is ~~study~~difficult ~~planned in collaboration with the University of California~~ to beremove ~~conducted~~and ~~with~~also ~~180~~permits ~~sexually active women in Zimbabwe to assess~~ the ~~safety and acceptability~~ colonization of ~~Ushercell~~bacteria, inwhich ~~use~~then ~~with~~cause asecondary ~~diaphragm~~infections ~~has~~and ~~been~~often ~~planned~~death. •Research relating ~~A study~~ to ~~determine~~cystic ~~the~~fibrosis ~~effectiveness~~has ofshown ~~Cellulose~~that ~~Sulphate gel as~~ a ~~treatment~~special ~~for~~form ~~Bacterial~~of ~~Vaginosis~~Dextran, anamed ~~common~~by the ~~disorder~~Company ~~among~~as ~~reproductive-age~~Usherdex ~~women~~4, ~~has been planned, funded and clinical trial supplies have been shipped to Brazil. The trial~~ is ~~expected~~effective ~~to commence~~ in ~~April~~preventing ~~2005,~~the ~~with~~colonization aof bacteria ~~report~~in onthe ~~findings~~mouth ~~expected~~and in ~~mid-2006.~~stimulating •the Amacrophages ~~further~~in ~~large-scale~~the ~~Phase~~lungs ~~III clinical trial is planned~~ to ~~assess~~ remove the ~~effect~~bacteria ofpresent ~~Ushercell~~and onlessen ~~vaginal~~secondary ~~HIV acquisition~~infections. ~~This study design will enroll more than 2,000 sexually active women with a high risk of HIV infection. A projected start timeline has been scheduled for June 2005.~~

~~Should~~As noted above, in 1999, the ~~continued~~Company's ~~positive~~cystic ~~results~~fibrosis beproduct ~~generated~~was ~~from~~licensed ~~this~~to ~~work,~~BCY LifeSciences. In November 2003 BCY LifeSciences announced its completion of the ~~Company~~analysis ~~has~~of ~~been~~a Phase II ~~advised~~clinical trial of the product designed to assess the efficacy and safety of the product on pulmonary function in adult cystic fibrosis patients. The results indicated that the ~~funding~~product ~~from~~(known ~~CONRAD~~as ~~will~~DCF ~~continue~~987) ~~through~~was ~~Phase~~well ~~III~~tolerated and may have ~~trials~~shown positive trends in the improvement of FEV1 (forced expiratory volume in one second), a measure of lung function, and the reduction of Pseudomonas aeruginosa bacterial load in patient sputum. BCY LifeSciences was also granted a patent entitled "Use of Dextran and Other Polysaccharides to Improve Mucus Clearance" by the European Patent Office. The Company ~~maintains~~will anreceive royalty ~~exclusive~~payments ~~worldwide~~based ~~license~~upon ~~for~~sales ~~this~~and other revenues upon approval of any developed product pursuant to its license agreement with BCY LifeSciences. In February of 2005, BCY LifeSciences entered into a development agreement with Align Pharmaceuticals to fund ongoing studies on the compound.

          Cystic Fibrosis
           Cystic fibrosis is a genetic disease, which causes a cascade of effects, the most severe being a build up of mucus in the lungs. This mucus is difficult to remove and also permits the colonization of bacteria, which then cause secondary infections and often death. Research relating to cystic fibrosis has shown that a special form of Dextran, named by the Company Usherdex 4, is effective in preventing the colonization of bacteria in the mouth and in stimulating the macrophages in the lungs to remove the bacteria present and lessen secondary infections.
           As noted above, in 1999, the Company’s cystic fibrosis product was licensed to BCY LifeSciences. In November, 2003 BCY LifeSciences announced its completion of the analysis of a Phase II clinical trial of the product designed to assess the efficacy and safety of the product on pulmonary function in adult cystic fibrosis patients. The results indicated that the product (known as DCF 987) was well tolerated and may have shown positive trends in the improvement of FEV1(forced expiratory volume in one second), a measure of lung function, and the reduction of Pseudomonas aeruginosa bacterial load in patient sputum. BCY LifeSciences was also granted a patent entitled “Use of Dextran and Other Polysaccharides to Improve Mucus Clearance” by the European Patent Office. The Company will receive royalty payments based upon sales and other revenues upon approval of any developed product pursuant to its license agreement with BCY LifeSciences. In February of 2005, BCY LifeSciences entered into a development agreement with Align Pharmaceuticals to fund and commence the necessary Phase III clinical trials.
Segmented Information

The information regarding the geographic distribution of revenue, ~~operating results~~ and ~~assets~~revenue ~~set~~by significant customer is set forth in Note 1716 to the Company’'s Consolidated Financial Statements for the fiscal year ended January 31, ~~2005~~2008 under Item 8 Financial Statements and Supplementary Data.

ITEM 1A. RISK FACTORS

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

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

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

that the Company will not be able to maintain its current research and development schedules;
that the Company will not be able to enter into human clinical trials because of scientific, governmental or financial reasons, or that it will encounter problems in clinical trials that will cause a delay or suspension of the development of the product candidate as, for example, occurred when the Independent Review Board and CONRAD suspended two Phase III clinical trials of Ushercell pending an investigation;
that the developmental product will be found to be ineffective or unsafe;
that government regulations will delay or prevent the product's marketing for a considerable period of time and impose costly procedures upon the Company's activities;
that the FDA or other regulatory agencies will not approve the product or the process by which the product is manufactured, or will not do so on a timely basis; and/or
that the FDA's policies may change and additional government regulations and policies may be instituted, which could prevent or delay regulatory approval of the product.

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

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

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

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

the product has undesirable or unintended side effects that prevent or limit its commercial use.

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

The Company's strategy for development and commercialization of its products is to rely on licensing agreements with third party partners. As a result, the ability of the Company to commercialize future products is dependent upon the success of third parties in performing clinical trials, obtaining regulatory approvals, manufacturing and successfully marketing its products. There can be no assurance that such third party collaborations will be successful. If any of the Company's current research and development partnerships are discontinued, it may not be able to find others to develop and commercialize its current product candidates.

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

The commercialization of any of the Company's developmental products that receive FDA approval will depend upon the Company's ability to enter into agreements with companies that have sales and marketing capabilities. The Company currently intends to sell its products in the United States and internationally in collaboration with one or more marketing partners. The Company may not be able to enter into any such collaboration to market its developmental products in a timely manner or on commercially reasonable terms, if at all.

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

The Company's success depends in part on its ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of others. In the absence of patent and trade secret protection, competitors may adversely affect the Company's business by independently developing and marketing substantially equivalent or superior products, possibly at lower prices. The Company could also incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if it is required to defend intellectual property infringement suits brought by third parties, with or without merit, or if required to initiate litigation against others to protect or assert intellectual property rights. Moreover, any such litigation may not be resolved in favor of the Company.

The Company has received various patents covering the uses of its developmental products. However, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents the Company has obtained, or may obtain in the future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed by the United States Patent and Trademark Office regarding the breadth of claims allowed in biotechnology patents.

In addition, because patent applications in the United States are maintained in secrecy until patents issue, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it and its licensors are the first creators of inventions covered by any licensed patent applications or patents or that the Company or such licensors are the first to file. The United States Patent and Trademark Office may commence interference proceedings involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned by, or licensed to, the Company may not be valid or may not afford the Company protection against competitors with similar intellectual property.

It is also possible that the Company's patents may infringe on patents or other rights owned by others, licenses to which may not be available to the Company. The Company may have to alter its products or processes, pay licensing fees or cease certain activities altogether because of patent rights of third parties.

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

If the Company is delisted from The NASDAQ Capital Market, it would seriously impair the liquidity of our common shares and limit our ability to raise capital.

The Company's common stock trades on The NASDAQ Capital Market, which has certain compliance requirements for continued listing of common stock, including a series of financial tests relating to shareholder equity, public float, number of market makers and shareholders, and maintaining a minimum bid price per share for the Company's common stock.

In January of 2008, the Company received a NASDAQ Staff Deficiency Letter from The NASDAQ Stock Market notifying it that the Company's bid price per share for its common shares had closed below the $1.00 minimum bid price for 30 consecutive business days. As a result, the Company no longer meets the requirements of Marketplace Rule 4310(c)(4) for continued listing on The NASDAQ Capital Market and has 180 calendar days, or until July 14, 2008, to regain compliance. To regain compliance, the Company's closing bid price for its common shares must remain at or above $1.00 for a minimum of 10 consecutive business days prior to the end of the 180 calendar day period. If the Company does not regain compliance by the end of the compliance period (or any extension thereof) and chooses not to appeal the decision of The NASDAQ Stock Market to delist its common shares, the Company's common shares will be delisted from The NASDAQ Capital Market.

If we are delisted from The NASDAQ Capital Market, our common shares would likely trade on the over-the-counter bulletin board, commonly referred to as the "pink sheets". This alternative is generally considered to be a less efficient market and would seriously impair the liquidity of our common shares and limit our potential to raise future capital through the sale of our common shares. This, in turn, would likely have a material adverse effect on the price of our common shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

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

The Company owns and operates a fermentation plant in Toronto, Ontario, Canada. This plant has the capacity to simultaneously produce both 10% and 20% Iron Dextran at the rate of up to 11,000 liters per week (there are 1.057 quarts in one liter), and 500 kilograms (there are 2.2 pounds in one kilogram) per month of Dextran Sulphate. Current production is approximately 810,000 liters of Iron Dextran per week and approximately ~~250~~500 kilos of Dextran Sulphate per quarter.

~~Management~~Continuing in fiscal year 2008, ~~believes~~management ~~that~~proceeded with expansion of the Company’'s facility isand ~~adequate~~modernization of ~~for~~ its ~~present requirements. The~~powder-producing ~~facility~~equipment ~~has~~in ~~the~~Toronto in order to increase production capacity and also improve quality for a ~~limited~~significant ~~expansion~~portion of ~~production~~the Company's powdered products. The Company had embarked upon a major plant refurbishment project that included the purchase and installation of ~~existing~~more modern drying equipment with increased throughput. Engineers prepared drawings and permits were issued, allowing construction of a new drying facility to begin in the ~~products~~fourth quarter of fiscal year 2007. The ~~Company~~actual ~~considers~~drying ~~its~~equipment is now installed ~~current~~and ~~equipment~~is expected to be operational in ~~good~~the ~~condition~~second ~~and~~quarter ~~suitable~~of ~~for~~fiscal year 2009. It is expected that improved quality of the ~~operations~~finished product will result in new ~~involved~~markets becoming available.

During approximately one month of the 2005 fiscal year, Vet Labs owned a 55,000 square foot finished product veterinary pharmaceutical manufacturing facility located on eight acres of land in Lenexa, Kansas. On March 4, 2004, the Company sold its finished product veterinary pharmaceutical business to Sparhawk. The sale included substantially all of the assets of Vet Labs, including this manufacturing facility, and its ownership interest in the Joint Venture.11

ITEM 3. LEGAL PROCEEDINGS

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

The litigation involving the Joint Venture, Sparhawk Laboratories, Inc. v. Veterinary Laboratories, Inc., et al, Case No. 02CV07426, County of Johnson, State of Kansas, was settled on March 4, 2004, and a Motion of Approval of Settlement and Stipulation of Dismissal with Prejudice was filed with the Court on that date.

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

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the Company’'s fourth fiscal quarter ended January 31, ~~2005~~ 2008.

PART II

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

The principal market for the Company’'s common shares is the NASDAQ ~~SmallCap~~ Capital Market. The Company’'s common ~~shares~~ shares trade under the symbol “"POLXF.~~” The Company’s~~" ~~common shares also trade on the Boston Stock Exchange under the symbol “PXL.”~~

The reported high and low closing prices of the Company’'s common shares as reported on the NASDAQ ~~SmallCap~~Capital Market for each full quarterly period within the two most recent fiscal years of the Company were as follows ~~(similar prices were quoted on the Boston Stock Exchange)~~:

Fiscal Year 2005
Fiscal Year 2008
fiscal quarter ended:	High	~~High~~Low		~~Low~~
April 30, 2004		$	8.50		6.91
April 30, 2007	$3.01	1.90
July 31, 2004			7.56		5.78
July 31, 2007	2.17	1.53
October 31, 2004			7.65		4.92
October 31, 2007	1.86	1.18
January 31, 2005			8.00		5.75
January 31, 2008	1.35	0.53
Fiscal Year 2007
fiscal quarter ended:	High	Low
April 30, 2006	$10.43	7.03
July 31, 2006	10.50	8.55
October 31, 2006	9.30	6.81
January 31, 2007	8.00	2.61

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

The quotations set out above represent the prices for the specific dates between dealers and do not include retail mark-up, markdown or commission. They do not represent actual transactions.

~~The quotations~~As ~~set~~of ~~out~~April ~~above~~23, ~~represent~~2008 ~~the~~there ~~prices for the specific dates between~~were ~~dealers~~approximately ~~and~~347 doholders ~~not~~of ~~include~~record ~~retail~~of ~~mark-up,~~the ~~mark-down~~Company's orcommon ~~commission~~shares. ~~They~~ ~~do not represent actual transactions.~~

As of April 28, 2005 there were approximately 361 holders of record of the Company’s common shares.

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

~~There are~~The noCompany ~~governmental~~did ~~laws,~~not ~~decrees~~sell ~~or regulations in the Commonwealth of the~~any ~~Bahamas~~unregistered ~~applicable~~common toshares ~~the~~during ~~Company that restrict~~ the ~~export~~fiscal oryear ~~import~~ended ~~of capital~~January 31, ~~including foreign exchange controls~~2008, ordid not ~~that~~make ~~affect~~any ~~the~~repurchases ~~remittance~~ of ~~dividends~~ orits ~~other~~common ~~payments~~shares toand ~~nonresident~~does ~~holders~~not ofcurrently ~~the~~have ~~Company’s~~a ~~common~~plan ~~shares. Furthermore,~~to ~~U.S.~~repurchase ~~holders~~any of ~~the~~ ~~Company’s~~its common shares ~~are not subject to taxes under Bahamian law~~.

~~The Company did not sell any unregistered common shares during its 2005 fiscal year and does not currently have a plan to repurchase any of its common shares.~~12

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial and other data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements and notes thereto included elsewhere in this report. The Company’'s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars.

	Fiscal year ended January 31,	~~Fiscal year ended January 31,~~
		2005			2004			2003			2002			2001
	2008	2007	2006	2005	2004
Sales from continuing operations	5,734,858	6,499,287	65,~~372~~265,~~359~~209	6,372,359	14,092,189	~~14,092,189~~			~~12,786,343~~			~~12,167,530~~			~~13,646,158~~
Net income (loss) from continuing operations	(885,211)	(260,623)	(1,~~139~~489,~~911~~053)	1,139,911	(5,999)	~~(5,999~~	)		~~(673,741~~	)		~~(206,880~~	)		~~131,284~~
Net income (loss) per common share	(0.29)	(0.09)	(0.3849)	0.38	—	—			~~(0.22~~	)		~~(0.07~~	)		~~0.04~~
Total assets	9,763,270	10,127,298	109,~~811~~910,~~873~~445	10,811,873	10,510,513	~~10,510,513~~			~~9,712,574~~			~~10,080,880~~			~~11,217,326~~
Long-term borrowings	1,033,843	1,058,835	~~833~~691,~~631~~178	833,631	1,013,701	~~1,013,701~~			~~1,188,603~~			~~1,724,159~~			~~2,031,660~~

~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~13

~~The Company’s~~ITEM ~~fiscal year ends on January 31stof each year~~7. In this report, fiscal year 2005 refers to the Company’s fiscal year ended January 31, 2005. The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars, unless otherwise denoted. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For a discussion of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in, or implied by the forward-looking statements, see the discussion of Risk Factors below and “Cautionary Note Regarding Forward-Looking Statements” above.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company's fiscal year ends on January 31^stof each year. In this report, fiscal year 2008 refers to the Company's fiscal year ended January 31, 2008. The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The Company's financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars, unless otherwise denoted. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For a discussion of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in, or implied by the forward-looking statements, see the discussion of Risk Factors and "Cautionary Note Regarding Forward-Looking Statements" above.

Overview

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

Dextran Products Business

The manufacture and sale of bulk quantities of Dextran and derivative products for sale to large pharmaceutical companies throughout the world is conducted through a Canadian subsidiary, Dextran Products.

In fiscal year ~~2006~~2008, management intends to continue its focus on the core ~~businesses~~ business of Dextran Products that have historically been the backbone of the Company. Opportunities to increase ~~distribution chains~~ sales for existing Dextran products in certain overseas markets, ~~such~~are asbeing ~~India,~~explored ~~China~~by management. ~~and~~New ~~Russia are~~customers ~~being~~have ~~explored~~also bybeen ~~management~~identified in Europe. Expanding current market opportunities and the potential for new market penetration has led management to make plant refurbishments and the expansion of production capacity a priority for fiscal year ~~2006~~2008 with respect to Dextran Products operations. The first step has been installation of new drying equipment to produce increased quantities of higher quality powdered product. These products have traditionally generated higher margins.

~~Research and development of the Company’s human pharmaceutical products is coordinated at the Dextran Products facility.~~ Ushercell, ~~the Company’s leading human pharmaceutical compound,~~ is a high molecular weight Cellulose Sulphate that was envisioned for topical vaginal use primarily in the prevention of unplanned pregnancies, as well as the transmission of AIDS and other sexually transmitted diseases~~, as well as unplanned pregnancies~~. ~~Multiple~~ ~~clinical~~On ~~trials~~January ~~have~~31, ~~been completed~~2007, ~~and~~the ~~additional~~Company announced that trials, ~~have~~originally ~~commenced~~intended ~~or are being actively planned,~~ to evaluate various aspects of the use of Cellulose Sulphate as a contraceptive gel with antiviral capabilities~~. The~~, ~~Company~~were being ~~also~~halted ~~intends~~due to ~~significantly~~a ~~explore~~possible ~~the~~increase ~~use~~ in transmission of ~~Ushercell~~HIV. asAnnouncements were aprepared ~~treatment~~and ~~for~~distributed ~~Bacterial~~in ~~Vaginosis~~conjunction ~~(BV),~~with ~~the~~CONRAD ~~most~~and ~~common~~other agencies ~~vaginal~~which ~~disorder~~were ~~among~~involved ~~reproductive-age~~with ~~women~~the trials. If ~~effective,~~A BVfull ~~treatment~~investigation is now underway as to ~~may~~the ~~present~~potential ancause ~~opportunity~~and ~~for~~to ~~commercial~~determine ~~viability~~exactly ofwhat ~~Ushercell~~occurred. inThe ~~advance~~final ofreport is expected towards the ~~completion~~end of fiscal year 2009. Until the ~~much~~report ~~lengthier~~is ~~required~~available, ~~testing~~it is impossible to plan future developments of this product for ~~its~~any ~~use~~of asthe indications anthat have been identified to date. The Company had never received ~~antiviral~~any financial gain from this project, and as a result, there is no immediate or direct ~~contraceptive~~effect ~~gel~~on sales or revenues.

Chemdex, Vet Labs and the Joint Venture Business

During approximately one month of the 2005 fiscal year, the Company also engaged in the finished product veterinary pharmaceutical business through its United States subsidiary Chemdex, which, in turn, conducted its operations through its subsidiary, Vet Labs. On December 1, 1992, Vet Labs and Sparhawk Laboratories Inc. entered into a ~~Joint~~joint ~~Venture~~venture for the purpose of manufacturing and selling veterinary pharmaceutical products. (the "Joint Venture") On January 13, 2004, the Company, Chemdex and Vet Labs entered into an Asset Purchase Agreement with Sparhawk pursuant to which the Company agreed to sell its finished product veterinary pharmaceutical business, including substantially all of the assets of Vet Labs and its ownership interest in the Joint Venture, to Sparhawk for $5,500,000 in cash. The sale was completed on March 4, 2004. Simultaneously with the closing, Chemdex advanced $350,000 to Sparhawk in exchange for an unsecured subordinated promissory note bearing interest at 13% per annum and a warrant to purchase 4% of the equity of Sparhawk. The promissory note iswas payable in full on March 4, 2009. Interest iswas payable annually, but ~~can~~could be deferred and added to the principal balance of the promissory note each year at Sparhawk's discretion. On May 31, 2006, payment in full for principal and interest was received. The warrant expired at the earlier of payment in full of the promissory note or March 4, 2014, and therefore expired before it could be exercised. Chemdex also entered into a supply agreement with Sparhawk to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive basis in the United States for 10 years.

atManagement ~~Sparhawk’s discretion. The~~considered ~~warrant~~the ~~becomes exercisable on March 5, 2009 and expires~~finished atgoods ~~the~~veterinary ~~earlier~~pharmaceuticals ofindustry ~~payment~~to inbe ~~full~~a ofhighly ~~the promissory note or March 4~~competitive, mature ~~2014. Chemdex~~industry, ~~also~~and ~~entered~~believed ~~into~~that ameaningful ~~supply~~growth ~~agreement~~in ~~with~~this ~~Sparhawk~~industry towould require ~~supply~~significant ~~ferric~~investment ~~hydroxide~~in ~~and~~new ~~hydrogenated~~product ~~dextran~~development. ~~solution~~The toCompany's ~~Sparhawk~~investment ~~on an~~in ~~exclusive~~this ~~basis~~industry inthrough the ~~United~~Joint ~~States~~Venture ~~for~~required 10the ~~years. In~~sharing ~~connection~~of profits with ~~the~~its ~~sale,~~partner. ~~the~~Management ~~litigation~~believed ~~involving~~that the ~~Joint~~Company ~~Venture,~~could ~~Sparhawk~~expect ~~Laboratories,~~to ~~Inc.~~obtain v.a higher ~~Veterinary~~return ~~Laboratories,~~on ~~Inc.,~~investment etby ~~al,~~focusing ~~Case~~on ~~No.~~its ~~02CV07426,~~current ~~County~~Dextran ~~of Johnson,~~Products ~~State~~business ofand ~~Kansas,~~on human ~~was~~pharmaceutical ~~settled,~~research and adevelopment ~~Motion~~projects. ofThe ~~Approval~~sale of ~~Settlement~~this ~~and~~business ~~Stipulation~~segment ofresulted ~~Dismissal~~in ~~with~~a ~~Prejudice~~significant ~~was~~reduction ~~filed~~in ~~with~~consolidated ~~the~~sales ~~Court~~and gross onprofits ~~March 4,~~during ~~2004~~fiscal year 2006.

Management considered the finished goods veterinary pharmaceuticals industry to be a highly competitive, mature industry, and believed that meaningful growth in this industry would require significant investment in new product development. The Company’s investment in this industry through the Joint Venture required the sharing of profits with its partner. Management believed that the Company could expect to obtain a higher return on investment by focusing on its current Dextran Products business and on human pharmaceutical research and development projects. The sale of this business segment resulted in a significant reduction in consolidated sales and gross profits during fiscal year 2005.15

Results of Operations

Fiscal Year ended January 31, 2008 compared to Fiscal Year ended January 31, 2007 compared to Fiscal Year ended January 31, 2006

Fiscal Year ended January 31, 2005 compared to Fiscal Year ended January 31, 2004 compared to Fiscal Year ended January 31, 2003

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Loss before taxes	$ (967,155)	$ (375,818)	$ (1,308,296)	(157)%	71%
Net Loss	(885,211)	(260,623)	(1,489,053)	(240)%	83%
Loss per share	(0.29)	(0.09)	(0.49)

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

The increase in net loss for the fiscal year 2008 as compared to fiscal year 2007 is due primarily to the rise of the Canadian dollar relative to the United States dollar and the significant portion of Company expenses that are denominated in Canadian dollars. Because the majority of the Company's revenue is denominated in United States dollars while the majority of its cost of sales is denominated in Canadian dollars, at its Dextran Products subsidiary, when the value of the Canadian dollar increases in relation to the United States dollar, margins decrease and expenses increase. Exchange rate fluctuations resulted in a 13% decrease in margins at Dextran Products in fiscal year 2008 compared to the previous fiscal year (4% decrease in fiscal year 2007). The results for fiscal year 2007 also included the recognition of the deferred gain on the promissory note related to the sale of the veterinary products assets to Sparhawk (Note 13).

The ~~fiscal~~ ~~year~~reduction ~~2005 increase~~ in net ~~income~~loss isfor ~~attributable to~~ the ~~gain on sale of~~ ~~the~~fiscal ~~Vet~~year ~~Labs~~2007 ~~assets. This~~as ~~gain~~compared ~~is partially~~to ~~offset by an increased tax provision. The~~ fiscal year ~~2004~~2006 ~~reduction in net loss~~ is ~~attributable~~due to ~~the recovery~~several ~~of income tax expense. In fiscal year 2004~~factors, including ~~there~~the ~~was~~increase ain ~~recovery of~~sales ~~income~~and ~~taxes~~gross ~~of $389~~margins,~~968~~ asthe ~~compared~~decrease ~~to a provision for income taxes of $751,366~~ in ~~fiscal year 2003~~expenses, ~~due to~~ and the recognition of the ~~tax~~deferred ~~benefit~~gain ofon the ~~non-operating~~ ~~losses~~promissory atnote ~~Chemdex,~~related asto ~~described~~the ~~below. The provision for~~sale ~~income~~of ~~taxes~~the inveterinary ~~fiscal~~products ~~year~~assets ~~2003~~to ~~significantly~~Sparhawk ~~exceeded~~(Note ~~income~~13). ~~before~~These ~~income~~gains were ~~taxes~~partially ~~because~~offset ofby the ~~losses~~poor ~~incurred~~margins atin the ~~Company~~fourth ~~level~~quarter inof ~~the~~fiscal ~~Bahamas,~~year ~~for~~2007, ~~which~~and nothe ~~tax~~continued ~~recovery~~increase isin ~~available,~~value ~~and~~of ~~because~~the aCanadian ~~full~~dollar ~~valuation~~relative ~~allowance~~to ~~was~~the ~~taken~~United ~~against~~States ~~the~~dollar, ~~deferred~~which ~~tax~~negatively ~~assets~~affected ~~relating~~gross tomargins ~~non-operating losses~~ at Dextran ~~Chemdex~~Products.

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

The fiscal year 2006 net loss is primarily due to the decrease in gross margin at Dextran Products, which was primarily a result of the continued increase in value of the Canadian dollar relative to the United States dollar, as well as increased research and development costs.

The fiscal year 2005 improvement in operating results is primarily attributable to the gain on sale of the Vet Labs assets at Chemdex and the reduction in the foreign exchange loss at Dextran Products. The fiscal year 2004 decline in operating results is primarily attributable to the large foreign exchange loss and gross margin decline at Dextran Products due to the decline in the United States dollar relative to the Canadian dollar. The United States dollar continued to decline in value relative to the Canadian dollar during fiscal year 2005, which negatively affected gross margins at Dextran Products, since the majority of its revenue is denominated in United States dollars while the majority of its cost of sales is denominated in Canadian dollars. Therefore, if the value of the Canadian dollar increases in relation to the United States dollar, margins decrease. Exchange rate fluctuations resulted in a 4% decrease in margins at Dextran Products in fiscal year 2005. Dextran Products realized a foreign exchange gain in fiscal year 2005 because it has a net liability exposure to the United States dollar. During fiscal year 2004, Dextran Products had a significant net asset exposure to the United States dollar because the majority of its accounts

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Sales	$5,734,858	$6,499,287	$5,265,209	(12)%	23%

~~receivable~~Sales decreased in fiscal year 2008 ~~balance~~as a result of decreased demand from existing customers and ~~intercompany~~production ~~receivables~~problems which ~~were~~primarily ~~denominated~~affected inour ~~United~~powdered ~~States~~products. ~~dollars~~Lower customer demand, primarily ~~while~~related ~~the~~to ~~majority~~our oflower ~~its~~margin ~~liabilities~~products, ~~and~~resulted ~~expenses~~from ~~are~~overall inselling ~~Canadian~~price ~~dollars. During~~increases, ~~March~~which ~~2004,~~in ~~Chemdex~~turn ~~repaid~~were ~~its~~necessitated ~~intercompany~~by ~~debt~~the increase in value of the Canadian dollar relative to the United States dollar. Total production volume in ~~Dextran~~fiscal ~~Products~~year ~~and~~2008 ~~advanced~~decreased ~~additional~~by ~~funds~~31% compared to ~~Dextran~~fiscal ~~Products~~year 2007.

~~Dextran Products. The~~Sales increased in fiscal year ~~2005 increase in~~2007 ~~income~~compared ~~before~~to ~~income~~fiscal ~~taxes~~year is2006 primarily as a result of ~~the~~increased ~~foreign~~demand ~~exchange gain~~from ~~described~~existing ~~above. In addition~~customers, ~~there~~accompanied ~~is an~~by ~~increase~~price ~~in investment income because of the purchase of marketable securities. These~~ increases that were ~~partially~~ ~~offset~~implemented ~~by a decrease~~ in ~~gross margin and increased selling, general~~the ~~and~~third ~~administrative expenses~~quarter. ~~The~~ ~~fiscal year~~Total ~~2004~~production ~~decrease~~ in ~~income~~fiscal ~~before~~year ~~income~~2007 ~~taxes~~increased isby a10% ~~result~~compared ~~of the rise in the~~to ~~value~~fiscal ofyear the Canadian dollar, which resulted in the decrease in profit margins described above, as well as an increase in selling, general and administrative expenses, which are stated in United States dollars, and a foreign exchange loss2006.

Chemdex. The fiscal year 2005 increase in income before income taxes is due to the gain on the sale of the Vet Labs assets. Since March 4, 2004, the only operations for Chemdex have been the supply of raw materials to Sparhawk. The fiscal year 2004 decrease in loss before income taxes is a result of the increase in sales and profit margins.

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Gross profit	$375,064	$832,443	$429,185	(55)%	94%
Percentage of sales	6.5%	13%	8%

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

The decrease in gross profit in fiscal year 2008 is a result of the decrease in sales noted above, combined with increased direct costs resulting from the increase in value of the Canadian dollar. Significant cost savings were realized in almost all direct costs, including payroll reductions of more than 10%, but these savings were not sufficient to offset the effect of the exchange rate increase of the Canadian dollar.

The significant decrease in sales during fiscal year 2005 is due to the sale of the Vet Labs business on March 4, 2004. This business represented virtually all of the Chemdex operating segment. The majority of the fiscal year 2004 sales increase was attributable to the Chemdex operating segment. 16

~~Dextran Products. Demand~~The ~~for~~increase ~~Dextran~~in ~~and~~gross ~~related products~~profit ~~increased~~ in ~~both~~ fiscal year ~~2005~~2007 ~~and~~was ~~fiscal~~a ~~year~~result ~~2004~~of ~~due~~the ~~primarily to~~increase ~~favorable~~in ~~pricing. Since~~sales ~~Dextran~~due ~~Products~~to ~~pricing~~price ~~of product is~~increases ~~primarily~~and ~~denominated~~customer indemand ~~United~~noted ~~States dollars~~above, ~~the~~combined ~~decline~~with inongoing ~~value~~control of ~~the~~direct costs ~~United~~by ~~States~~management. ~~dollar~~Overall ~~relative~~margins towere ~~the~~negatively ~~Euro~~impacted ~~resulted~~during inthe ~~lower pricing for~~fourth ~~European~~quarter ~~agents,~~of ~~increasing~~fiscal ~~demand~~year ~~for~~2007 ~~the~~due ~~products~~to ofunusually ~~Dextran Products. Management~~large ~~expects~~ sales ~~levels~~of tolower ~~increase~~margin products ~~slightly in fiscal year 2006 due~~ to ~~increased~~some ~~sales~~major ~~in Europe~~customers, ~~absent~~combined awith ~~significant~~unexpected ~~rise~~increases in equipment ~~the~~repairs ~~value~~and ofutility ~~the United States dollar~~costs.

Chemdex. As described above, the finished goods veterinary pharmaceutical business was sold on March 4, 2004 resulting in the significant decline in sales for this operating segment. Under a supply agreement with Sparhawk, Chemdex continues to supply raw materials for the manufacture of bulk iron dextran by Sparhawk. The introduction of three new products in the finished goods veterinary pharmaceutical business accounted for $938,307 of the fiscal year 2004 sales increase.

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))

Selling, promotion, general and administrative expenses	$1,211,172	$1,376,960	$1,550,735	(12)%	(11)%

										Fiscal Years
Gross profit	FY 2005			FY 2004			FY 2003			05 v 04		04 v 03
										(% increase (decrease))
Consolidated	$	1,984,630		$	3,349,496		$	3,257,384		(41	)%	3	%
Percentage of sales		31	%		24	%		25	%
Dextran Products	$	1,504,616		$	1,539,164		$	1,889,001		(2	)%	(19	)%
Percentage of sales		31	%		32	%		41	%
Chemdex	$	288,332		$	1,739,558		$	1,281,409		(83	)%	36	%
Percentage of sales		20	%		19	%		16	%

In fiscal year 2008, management continued its efforts to reduce overall selling, promotion and general and administrative expenses. The most significant reductions occurred in professional and reporting fees, insurance, legal fees, and options expense. The Company also eliminated travel to various conferences that had been attended in previous years that related to the Ushercell project.

~~The~~ In fiscal year ~~2005~~2007, ~~decrease~~management reduced inoverall ~~gross~~selling, ~~profit~~promotion ~~resulted~~and ~~from~~general ~~the~~and ~~decrease~~administrative expenses. While cost reductions were realized in ~~sales~~the majority of general and ~~from~~administrative areas, the ~~Chemdex~~most ~~operating~~notable ~~segment~~reductions ~~due~~occurred toin ~~the~~outside professional ~~sale~~and ofreporting ~~the~~fees, ~~finished~~insurance, ~~goods~~and directors' expenses, though ~~veterinary~~options ~~pharmaceutical~~expense ~~business~~was higher than in fiscal year 2006. ~~The~~ Offsetting these cost savings was an increase in ~~gross~~selling ~~profit~~and ~~percentage~~promotion isexpenses. aDuring ~~result~~fiscal ofyear 2007, the ~~finished~~Company ~~goods veterinary~~attended ~~pharmaceutical~~several ~~business~~functions ~~being~~relating ato ~~lower~~the ~~margin~~cellulose ~~business~~sulphate project.

than the Dextran Products operating segment. The fiscal year 2004 increase in gross profit resulted from increased sales at the Chemdex operating segment. The concurrent decline in gross profit percentage is primarily due to declines at the Dextran Products operating segment due to exchange rate fluctuations, which caused a decrease in margins.

				Fiscal Years
Research and development	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Research and development
Expenditures	$135,821	$214,865	$215,482	(37)%	—
Investment tax credits	—	—	(9,681)	—	(100)%
Net research and development expense	$135,821	$214,865	$205,801	(37)%	4%

~~Dextran Products. Dextran~~In ~~Products’~~ fiscal year ~~2005~~2008, ~~and~~the Company ~~2004~~continued ~~gross~~to ~~profit~~reduce ~~decrease~~its ~~was~~research ~~due~~and todevelopment ~~the~~expenditures. ~~significant~~Final ~~rise~~payments were inmade ~~the~~with ~~Canadian dollar~~respect ~~relative~~ to ~~the~~clinical ~~United~~studies ~~States~~related ~~dollar~~to ~~over~~ the ~~two~~Ushercell ~~year~~project, ~~period. The~~and ~~majority~~a ofsmall ~~Dextran~~amount ~~Products’~~was ~~costs~~expended ~~are~~on ~~incurred~~process inimprovement ~~Canadian~~projects ~~dollars,~~related ~~while~~to the ~~majority~~Company's ofongoing ~~its~~product ~~sales are in United States dollars~~lines. ~~Therefore,~~ asPatent ~~the value~~fees ofhave ~~the~~been ~~Canadian~~reduced ~~dollar rises in relation~~ to the ~~United States dollar,~~minimum ~~Dextran~~necessary ~~Products’~~to ~~margins~~maintain ~~decrease. Exchange~~only ~~rate~~certain ~~fluctuations~~existing ~~resulted in~~patent arights. 4%It ~~and~~is anexpected 8%that the ~~decrease~~report infrom ~~margins~~the atIndependent ~~Dextran~~Review ~~Products~~Board inoverseeing ~~fiscal~~the ~~years~~Phase ~~2005 and~~III ~~2004, respectively. Excluding~~Clinical ~~the~~trials ~~impact~~will ofbe ~~exchange~~available ~~rates,~~in ~~Dextran~~the ~~Products~~third ~~realized~~or anfourth ~~increase~~quarter inof ~~margins during~~ fiscal year ~~2005~~2009, ~~due to cost control measures over materials and~~at ~~increased~~which ~~productivity. A~~time ~~modest~~a ~~price increase~~decision ~~for~~can ~~certain~~be ~~products~~made ~~also~~on ~~occurred~~further ~~at Dextran Products in fiscal year 2005~~activities.

~~Chemdex.~~ In fiscal year ~~2005~~2007, ~~Chemdex~~the ~~operations~~Company's research ~~consist~~and ofdevelopment ~~approximately~~expenditures ~~one~~were ~~month~~consistent ~~of results~~with ~~from~~ the ~~finished~~level ~~goods~~of expenditures ~~veterinary~~in ~~pharmaceutical~~fiscal ~~business~~year 2006. ~~The~~ In fiscal year ~~2004~~2007, ~~increase~~the inmajority ~~gross~~of expenses ~~profit~~were relatively evenly split between patent work, and ~~margin~~consultants atworking ~~Chemdex~~on production ~~was~~process ~~primarily~~improvements, ~~attributable~~with some funds allocated to the ~~increased~~bacterial vaginosis ~~sales~~trial. Almost all work has been halted on the project since the ~~levels,~~Independent ~~particularly~~Review inBoard overseeing the ~~high-margin~~Phase ~~injectables~~III ~~product~~Clinical ~~line,~~Trials ~~which~~discovered ~~resulted~~some ininconsistent ~~lower~~results ~~average~~and ~~fixed~~halted ~~costs~~those trials.

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

~~The fiscal~~Funding ~~year~~for ~~2005~~the ~~decrease~~Company's inprimary development ~~selling,~~products ~~promotion,~~has ~~general~~been ~~and~~provided ~~administrative expenses~~directly isby athird ~~result~~party ofpublic ~~the~~and/or private ~~sale~~sector ofgroups to the ~~finished~~entities ~~goods~~carrying ~~veterinary pharmaceutical~~out ~~business~~such inresearch. ~~March,~~The ~~2004.~~ Company ~~The~~did ~~Dextran~~not ~~Products~~take ~~operating~~possession ~~segment~~or ~~experienced~~control anover ~~increase~~these ~~in selling,~~funds. ~~promotion,~~The ~~general~~Company ~~and~~benefits ~~administrative~~from the ~~expenses~~results inof ~~fiscal~~research ~~year 2005. These~~projects ~~costs~~through ~~were~~the ~~incurred~~ownership ~~in Canadian~~of ~~dollars,~~patents ~~resulting~~and/or licenses inwith ~~increased~~respect ~~expenses~~to ~~upon~~the ~~translation~~products toinvolved. ~~United States~~The ~~dollars~~Company ~~due~~has no commitments to repay the ~~significant~~funding ~~rise~~or into purchase the ~~Canadian~~results ~~dollar~~of asthe ~~discussed above~~research.

The fiscal year 2004 increase in selling, promotion, general and administrative expenses is a result of three main factors. The cost of the Company’s director and officer liability insurance increased by 144% as compared to fiscal year 2003, due to general market conditions. The Company has not made a claim under any director and officer liability policy. Management salaries at Chemdex also included a full year of salary for the general manager who was hired in the fourth quarter of fiscal year 2003. Finally, the selling, promotion, general and administrative expenses incurred at Dextran Products were incurred in Canadian dollars, resulting in increased expenses upon translation to United States dollars due to the significant rise in the Canadian dollar as discussed above.

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))

Depreciation and amortization expense	$559,866	$547,297	$543,023	2%	1%

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

The increase in depreciation and amortization in fiscal years 2008, 2007 and 2006 is due primarily to the increased investments in capital equipment during the year, and the increase in the value of the Canadian dollar relative to the United States dollar. Included in the depreciation and amortization expense above are allocations to cost of goods sold in the amount of $519,787 for fiscal year 2008 (2007 - $505,111; 2006 - $481,863).

As expected, the Company’s research and development expenditures increased in fiscal year 2005 due to additional product development activities performed by the Company and funded outside of its partnership relationships. The majority of this increase related to funding of the commencement of a pilot clinical study on the use of cellulose sulphate for the treatment of bacterial vaginosis. This clinical study is related to an alternate use of cellulose sulphate and therefore is outside the scope of funding provided by the Company’s research and development partners for the investigation of this product as a contraceptive gel with antiviral properties. The current stage of the cellulose sulphate project is such that a lesser portion of development is being performed in-house and significant funding from research and development partners for the current phase of the project is

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Interest expense	$96,818	$94,790	$81,509	2%	16%

~~expected~~The ~~to continue~~increase atin ~~necessary~~interest ~~levels~~expense ~~for~~in fiscal ~~the~~year ~~foreseeable~~2008 ~~future. The~~is ~~Company’s~~primarily ~~research~~attributable ~~and~~to ~~development expenditures~~the ~~are~~rise ~~expected~~in tothe ~~increase~~Canadian indollar relative ~~fiscal~~to ~~year~~the ~~2006~~United ~~due~~States todollar. ~~additional product~~This ~~development~~is ~~activities~~partially offset by the ~~Company~~decrease in ~~expects~~other tolong-term ~~perform~~debt and ~~fund~~capital ~~outside of~~lease ~~its partnership relationships~~obligations.

~~Funding for~~The ~~the~~increase ~~Company’s~~in ~~primary~~interest ~~development~~expense ~~products is provided directly by third~~in ~~party~~fiscal ~~public~~year ~~and/or~~2007 ~~private~~is ~~sector~~attributable ~~groups~~ to the ~~entities~~interest ~~carrying~~on ~~out~~the ~~such research. The~~capital ~~Company~~equipment ~~does~~loan obtained ~~not~~in ~~take~~March ~~possession~~2006, oras ~~control~~well ~~over~~as ~~these funds. The~~the ~~Company~~rise ~~benefits~~in ~~from~~ the ~~results~~Canadian ofdollar ~~research~~relative ~~projects through~~to the ~~ownership~~United ofStates ~~patents and/or licenses with respect to the products involved~~dollar. ~~The~~ ~~Company~~This ~~has~~is nopartially ~~commitments~~offset toby ~~repay~~ the ~~funding~~decrease orin ~~to purchase~~other ~~the~~long-term ~~results~~debt ofand ~~the~~capital ~~research~~lease obligations.

Due to continued direct funding of research and development expenses by third party public and/or private sector groups, as well as investment tax credits claimed by Dextran Products, the Company’s research and development expense decreased in fiscal year 2004.

				Fiscal Years
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))
Foreign exchange loss (gain)	$43,256	$(22,857)	$(18,139)	(289)%	26%

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

In fiscal year 2008, the Company experienced a foreign exchange loss due to Dextran Products' exposure to the United States dollar, combined with the continued decline in value of the Canadian dollar relative to the United States dollar. Throughout fiscal year 2008, Dextran Products generally had a net asset exposure to the United States dollar because accounts receivable balances denominated in United States dollars normally exceeded its United States dollar denominated intercompany payables.

~~The~~ In fiscal year ~~2005~~2007, ~~decrease~~the inincrease ~~depreciation and amortization expense is~~in ~~attributable to~~ the ~~sale~~foreign ofexchange ~~the~~gain ~~finished~~was ~~goods~~due ~~veterinary~~primarily ~~pharmaceutical business~~to inDextran ~~March~~Products' ~~2004. The fiscal year~~fluctuating ~~2004~~exposure ~~increase in depreciation and amortization expense is primarily attributable~~ to ~~new~~the ~~production~~United ~~equipment~~States ~~purchased~~dollar ~~during~~throughout the fiscal year, ~~2003~~combined atwith ~~Dextran Products and~~ the continued increase in ~~the~~ value of the Canadian dollar relative to the United States dollar.

				Fiscal Years					~~Fiscal Years~~
		FY 2005			FY 2004		FY 2003		05 v 04		04 v 03
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))					~~(% increase (decrease))~~
Interest expense		$	91,210		$	133,382	$	150,527	(32	)%	(11	)%
Interest and other income	$184,821	$497,663	$148,166	(63)%	236%

The decrease in interest expense in fiscal year 2005 is primarily attributable to a decrease in long-term debt, as well as the associated decrease in imputed interest due to the continuing repayment of non-interest bearing long-term debt. The share value guarantee payable was paid in full on March 4, 2004 when the Joint Venture operations were sold. The fiscal year 2004 decrease in interest expense is primarily attributable to a decrease in long-term debt, as well as the associated decrease in imputed interest due to the continuing repayment of non-interest bearing long-term debt. 18

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

The decrease in interest and other income in fiscal year 2008 compared to fiscal year 2007 is due primarily to the recognition of the deferred gain of $350,000 on the promissory note from Sparhawk in fiscal year 2007, as explained above. Investment income decreased in fiscal year 2008 as a result of the decrease in investments available for sale and amounts included in cash equivalents, partially offset by the cash surrender of a life insurance policy on a departed Company officer.

The increase in ~~foreign~~interest ~~exchange~~and ~~gain~~other income ~~at Dextran Products~~ in fiscal year ~~2005~~2007 ~~was due~~compared to ~~the~~fiscal ~~significant~~year ~~decline~~2006 inis ~~Dextran~~due ~~Products’~~primarily ~~net exposure~~ to the ~~United~~ ~~States~~recognition ~~dollar. Dextran~~of ~~Products has a net liability exposure to~~ the ~~United~~deferred ~~States dollar because intercompany payables denominated in United States dollars exceed its United States dollar denominated accounts receivable balance. Dextran Products realized a foreign exchange~~ gain inof ~~fiscal~~$350,000 ~~2005~~on ~~because~~ the ~~Canadian~~promissory ~~dollar~~note ~~increased in value relative to the United States~~from ~~dollar. During~~Sparhawk ~~fiscal~~as ~~year~~explained ~~2004~~above, ~~Dextran~~ ~~Products~~as ~~had~~well ~~large~~as ~~intercompany~~investment ~~receivables~~gains ~~denominated~~during ~~in United States dollars, and experienced a foreign exchange loss in fiscal year 2004 because~~ the value of the Canadian dollar increased relative to the United States dollar. A large portion of these intercompany receivables were repaid in March 2004 when the Joint Venture operations were sold. As compared to fiscal year ~~2004, management does not expect that the Company will incur significant foreign exchange losses in fiscal year 2006~~.

				Fiscal Years							~~Fiscal Years~~
		FY 2005			FY 2004			FY 2003			05 v 04		04 v 03
	FY 2008	FY 2007	FY 2006	08 v 07	07 v 06
				(% increase (decrease))							~~(% increase (decrease))~~
Other income (expense)		$	105,883		$	(389,735	)	$	(372,111	)	127	%	(5	)%
Tax provision (recovery)	$(81,944)	$(115,195)	$180,757	(29)%	(163)%

In The fiscal year ~~2005,~~2008 ~~the~~decrease ~~Company~~in ~~earned~~tax provision ~~interest~~is ~~income~~due ofto ~~$133,117~~a ~~from~~decrease ~~the investment~~in ofdeferred ~~the~~tax ~~proceeds~~liabilities ~~from the sale~~ of ~~the Vet Labs assets. In fiscal year 2004~~$83,317, ~~the other expenses~~combined ~~relate~~with ~~almost~~an ~~entirely~~increase toin ~~legal~~current ~~and~~tax ~~receiver~~expense ~~costs associated with the winding-up~~ of ~~the~~$1,373. ~~Joint~~The ~~Venture,~~decrease ~~and~~in the ~~resulting litigation. In fiscal~~deferred ~~year~~tax ~~2004,~~liability ~~legal~~is ~~and~~due ~~receiver fees relating~~ to ~~this~~the ~~process~~decrease ~~totaled $397,380, as compared to $27,834~~ in ~~fiscal~~the ~~year~~timing ~~2005. Additionally,~~difference ~~due~~related to the ~~uncertainty~~excess ~~related~~of tocarrying ~~this~~value ~~situation,~~of indepreciable ~~fiscal~~assets ~~year~~over ~~2003~~tax value, ~~the~~which ~~Company~~in turn ~~provided~~reduces anfuture ~~allowance~~income ~~for~~tax ~~the entire receivable balances of $132,614 due from Sparhawk~~liabilities.

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

The fiscal year 2007 decrease in tax provision is due to a decrease in deferred tax liabilities of $69,140, combined with a reduction in the current tax liability of $46,055. The decrease in the deferred tax liability is due to the decrease in the timing difference related to the excess of carrying value of depreciable assets over tax value, which in turn reduces future income tax liabilities. The decrease in the current tax liability is necessary because no tax liabilities are expected.

The fiscal year 2005 decrease in tax provision at Dextran Products is a result of a decrease in deferred tax liabilities. The fiscal year 2004 decrease in tax provision at Dextran Products is a result of the decrease in profitability in fiscal year 2004 as described above. The tax provision at Dextran Products exceeded its income before taxes because a significant portion of the foreign exchange loss is related to intercompany financing and consequently is deductible only against capital gains. The Canadian operations continue to have significant research and development tax pools to offset current taxes payable.
The fiscal year 2005 tax provision at Chemdex is a result of the gain recognized on the sale of the Vet Labs assets. The fiscal year 2004 Chemdex tax benefit was recorded because there was no longer uncertainty as to the ability of Chemdex to use non-operating losses following the sale of the Vet Labs assets for a gain subsequent to the end of fiscal year 2004.
Liquidity and Capital Resources

As of January 31, ~~2005~~2008, the Company had cash and cash equivalents of $2468,~~401~~570,~~051,~~ compared to ~~cash of~~ $591,~~455~~384,995 at January 31, ~~2004~~ 2007. In fiscal year ~~2005~~2008, the Company ~~used~~expended cash of $~~310~~297,~~351~~899 in its operating activities, compared to generating ~~cash from operations of~~ $~~221~~661,~~425~~607 for fiscal year ~~2004.~~ 2007 and ~~Although~~expending ~~there~~$425,185 ~~was~~for ~~a significant increase in net income in~~ fiscal year ~~2005, this increase resulted from the gain on sale of the finished products veterinary pharmaceutical business, which proceeds are classified as an investing activity~~2006. The ~~decrease in~~ cash ~~generated~~expended ~~from~~in operations in fiscal year ~~2005~~2008 as compared to the cash generated in fiscal year ~~2004~~2007 is ~~because~~due of to the decrease in earnings ~~when the gain on sale of the finished products veterinary pharmaceutical business is removed~~. ~~The~~ ~~cash~~Depreciation ~~generated~~and ~~from operations~~amortization incontinues ~~fiscal~~to ~~year~~be 2004 was less than that generated in fiscal year 2003, even though the net loss was significantly less in fiscal year 2004, because the reduction in the net loss resulted from the deferred tax recovery, which was a ~~non-cash item. There were~~large ~~significant~~ non-cash ~~expenses~~expense ~~relating~~of tothe ~~deferred~~Company, ~~income~~which ~~taxes~~is ~~and~~expected ~~the writedown of loan~~ to ~~Sparhawk,~~increase in fiscal year ~~2003, which were not incurred in~~ ~~fiscal~~2009 ~~year~~as ~~2004. Depreciation~~result ~~and amortization~~of ~~continues~~assets toacquired beas apart ~~large non-cash expense~~ of the ~~Company~~refurbishment become operational.

~~The Company~~Working ~~maintained~~capital decreased to $32,~~712~~403,~~803~~042, ofbut ~~working~~the ~~capital and a~~ current ratio ofincreased to 3.843 to 1 as of January 31, ~~2005~~2008, compared to $2,~~058~~375,~~161~~436 and 12.850 to 1 as of January 31, ~~2004,~~ ~~and $1,528,856 and 1~~2007.6 ~~to 1 as of January 31, 2003.~~

Management expects the primary source of its future capital needs towill be a combination of existing cash and cash ~~equivalent reserves generated from the sale of the Vet~~ ~~Labs assets~~equivalents, ~~company~~Company earnings and borrowings. ~~The Company,~~ As at ~~present,~~ ~~does~~January ~~not~~31, ~~have~~2008, ~~any~~the Company ~~material~~had commitments of $20,024 for capital expenditures~~, although~~ ~~Management~~related ~~intends~~ to ~~continue~~ the plant refurbishment ~~process~~ at Dextran Products in Toronto.

At January 31, 2008, the Company had accounts receivable of $611,975 and inventory of $1,350,490, compared to $1,139,186 and $1,338,857, respectively, at January 31, 2007. The decrease in ~~Company~~accounts ~~believes~~receivable ~~that~~at ~~based~~January ~~upon~~31, 2008 is due to the ~~current~~timing ~~levels~~of payments and the lower volume of ~~revenues~~sales in the fourth quarter compared to the same period in fiscal year 2007. At January 31, 2008, the Company had accounts payable of $399,820, compared to $1,213,518 at January 31, 2007. The decrease as at January 31, 2008 was due primarily to the timing of supplier payments, and ~~spending~~lowered production costs as a result of lower sales in the fourth quarter. In addition, ~~its~~accrued ~~existing~~liabilities ~~working~~at January 31, 2008 included costs related to the plant refurbishment of $129,500. During fiscal year 2008, capital ~~resources~~expenditures ~~will~~totaled $1,486,866, beas ~~sufficient~~compared to ~~support~~$1,724,440 ~~continuing~~in fiscal year 2007. The majority of the ~~operations~~capital expenditures were for production equipment at the ~~foreseeable~~Dextran ~~future~~Products plant in Toronto in both these fiscal years. Management intends to complete its current plant refurbishment and expansion plan in the second quarter of fiscal year 2009.

At January 31, 2005, the Company had accounts receivable of $922,267 and inventory of $1,516,893, compared to $1,040,732 and $2,693,312, respectively, at January 31, 2004. The January 31, 2004 balances included amounts classified as assets subject to sale agreement, which represented amounts for the finished product veterinary pharmaceutical business. The decrease in both accounts receivable and in inventory levels is due to the sale of the Vet Labs assets in March 2004. At January 31, 2003, the Company had accounts receivable of $1,351,515 and inventory of $2,265,963. The decrease in accounts receivable from fiscal year 2003 to fiscal year 2004 was due to the timing of collections at year-end, while the increase in inventory levels was due to the stocking of new products at Chemdex.19

At As at January 31, ~~2005~~2008, the Company's investments ~~had~~consisted ~~accounts~~of ~~payable~~fixed ofincome ~~$463,579,~~short ~~compared~~term ~~to $1,099,736~~money atmarket ~~January~~mutual 31funds, preferred ~~2004. The~~share ~~January~~trust 31units, ~~2004~~and ~~balance~~fixed ~~included~~income and diversified mutual funds, all ~~amounts~~denominated ~~classified~~in asCanadian ~~liabilities~~dollars. ~~subject~~Unrealized togains ~~sale~~and ~~agreement,~~losses ~~which~~will ~~represented amounts~~occur ~~for~~as the market ~~finished~~interest ~~product~~rates ~~veterinary~~and ~~pharmaceutical~~investment ~~business~~valuations vary. ~~The~~ ~~decrease~~Management indoes ~~accounts~~not ~~payable~~expect significant ~~levels~~gains is or losses in the future due to the ~~sale~~relatively short term to maturity of the ~~Vet~~debt-based ~~Labs~~money ~~assets~~market infunds, ~~March~~and ~~2004. At~~the ~~January~~nature ~~31, 2003,~~of the ~~Company~~trust ~~had~~unit and ~~accounts~~mutual ~~payable~~funds. ofManagement ~~$1,205,383,~~plans ~~with~~to ~~the~~convert ~~decrease~~a ~~between~~portion of these investments to ~~fiscal~~cash ~~year~~as ~~2004~~needed ~~and~~for ~~fiscal~~working ~~year~~capital ~~2003~~or ~~due~~other ~~primarily~~cash toneeds ~~timing~~such ofas ~~supplier~~plant ~~payments~~refurbishments and equipment.

~~During fiscal~~The ~~year~~change ~~2005,~~in ~~capital~~accumulated ~~expenditures totaled $182,691, as compared to~~other ~~$396,704~~comprehensive inincome ~~fiscal~~of ~~year~~the ~~2004~~Company ~~and~~is ~~$367,868~~almost inentirely ~~fiscal~~attributable ~~year~~to ~~2003. The~~the ~~majority~~currency oftranslation ~~the~~adjustment ~~capital~~of ~~expenditures~~Dextran ~~were~~Products. ~~for production equipment at the~~ Dextran Products' functional ~~plant~~currency inis ~~Toronto~~the inCanadian ~~these fiscal years~~dollar. ~~Management intends~~ toThis ~~continue~~currency ~~its~~translation ~~plant~~adjustment arises ~~refurbishment~~from ~~and~~the ~~expansion~~translation ~~plan~~of inDextran ~~fiscal~~Products' ~~year 2006,~~financial ~~and~~statements ~~expects capital expenditures~~ to ~~increase~~United States ~~in that period~~dollars.

~~During~~Dextran Products had a Cdn. $750,000 ~~fiscal~~(U.S. ~~year~~$636,000) ~~2005~~(2007 – Cdn. $750,000; ~~the~~U.S. ~~Company~~$636,000) ~~invested~~line aof ~~portion~~credit, of ~~the~~which none ~~proceeds~~was ~~from~~utilized ~~the~~at ~~sale~~January 31, 2008 and 2007. This line of ~~the~~credit bears ~~finished~~interest ~~product~~at ~~veterinary~~the ~~pharmaceutical~~Canadian ~~business~~banks' inprime ~~medium-term,~~lending ~~investment-grade,~~rate plus 0.75% (2007 – 6.00%; ~~debt~~2006 ~~securities~~– ~~denominated~~5.25%) inand ~~Canadian~~is ~~dollars~~repayable on demand. ~~These~~This ~~securities~~indebtedness ~~have~~is ~~maturities~~collateralized ~~ranging~~by ~~from~~a ~~December~~general 1,security ~~2005~~agreement toover ~~June~~the 7,Company's ~~2007~~assets and a collateral mortgage of Cdn. ~~Unrealized~~$500,000 ~~gains~~on ~~and~~the ~~losses~~Dextran ~~will~~Products ~~occur~~building asin Toronto. In March of 2006, the ~~market~~Company ~~interest~~secured an additional Cdn $500,000 fixed rate ~~varies~~term loan primarily to fund capital purchases, with interest at 0.75% ~~Management~~over ~~does~~Canadian ~~not~~banks' prime ~~expect~~lending ~~significant~~rate ~~gains~~(2008 or– ~~losses~~6.95%). inSubsequent to the ~~future~~end ~~due~~of tofiscal year 2008 the Company ~~relatively~~received ~~short~~notice ~~term~~from toits ~~maturity~~Canadian bank that it was in default of one of ~~the~~its ~~debt~~covenants, ~~securities.~~and ~~Management~~that ~~plans~~this covenant is to ~~hold~~be ~~these~~met ~~debt~~on ~~securities~~a togoing ~~maturity~~forward ~~unless~~basis. The ~~such~~Company's ~~funds~~operating ~~are~~line ~~needed~~of ~~for~~credit ~~working~~was ~~capital~~also ortemporarily ~~other~~reduced ~~cash~~to ~~needs~~Cdn. $250,000 (U.S. $249,053).

The ~~change~~ decrease in ~~accumulated~~capital ~~other~~lease obligations ~~comprehensive~~during ~~income~~fiscal ~~(loss)~~year of2008 ~~the~~was ~~Company~~due ~~is almost entirely attributable~~ to ~~the~~repayments ~~currency~~on ~~translation~~capital ~~adjustment~~leases. ~~of Dextran~~The ~~Products. Dextran~~balance ~~Products’~~for ~~functional~~the ~~currency~~two isremaining ~~the~~capital ~~Canadian dollar. This~~leases ~~currency~~is ~~translation~~$12,805, ~~adjustment~~and ~~arises~~are ~~from~~expected ~~the~~to ~~translation~~be ofrepaid ~~Dextran~~in ~~Products’~~fiscal ~~financial~~year ~~statements to U~~2009.S. ~~dollars.~~

Dextran Products has a Cdn. $1,250,000 (U.S. $1,007,000) line of credit, of which Cdn. $30,000 (U.S. $24,000) was utilized at January 31, 2005. At January 31, 2004, Cdn. $150,000 (U.S. $113,000) of the line of credit was utilized. This line of credit bears interest at the Canadian banks’ prime lending rate plus 0.75% (2005 – 5%; 2004 – 5%). This indebtedness is collateralized by a general security agreement over the Company’s assets and a collateral mortgage of Cdn. $500,000 on the Dextran Products building in Toronto.

The significant decrease in long-term debt from fiscal year 2004 to fiscal year 2005 is due to the full repayment of the share value guarantee on March 4, 2004. The majority of the long-term debt is due in the next fiscal year. Dextran Products entered into one new long-term debt obligation during fiscal year 2005, which related to the buyout of a piece of office equipment.

Chemdex entered into a long-term debt obligation on September 19, 2003, which related to the redemption of the 10% minority interest in Chemdex. The redemption amount was $146,500, which is to be paid in 25 equal monthly installments of $5,860, commencing on the redemption date. Since this installment contract is non-interest bearing, it has been discounted using a discount rate of 9%. The present value of this installment contract is $45,517, which has been recorded as long-term debt.

The Company entered into one new capital lease obligation at Dextran Products during fiscal year 2005, for a piece of office equipment. Capital lease obligations are due over the next five years, the majority of which are due in the next two years.

No changes in accounting principles or their application have been implemented in the reporting period that would have a material effect on reported income.

Changes in the relative values of the Canadian dollar and the United States dollar occur from time to time and may, in certain instances, materially affect the Company’'s results of operations. See Item 7A.

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

Management's plan to improve the Results of Operations.

As at January 31, 2008, there were certain negative financial indicators reflected in our financial statements. These include an accumulated deficit of $17,779,244, a loss of $ 885,211 for the year and cash used in operations of $ 297,899.

The causes of these poor results are due to extreme fluctuations in the value of the Canadian dollar versus the US Dollar as previously discussed, but also the relatively low margin of the main product base being Iron Dextran.

To offset these poor results the Company has undertaken an active program to improve results with the following activities:

New Drying Equipment.

For the past 5 years the Company has experienced increase interest in its powdered products. Traditionally powdered products have provided at least 25% gross margin.

The existing equipment was old and in need of replacement and upgrading. As a result a new spray dryer was purchased with the installation completed at the end of fiscal 2008. The site has been visited by existing and new potential customers with positive feed back. The cost of the renovations amounted to $3.4 million

Price adjustment.

Where possible prices have been adjusted up. In certain cases unprofitable contracts have not been renewed enabling the company to focus resources on those more profitable.

Production efficiencies.

The company has always operated as carefully as possible but a greater emphasis has been placed on achieving maximum batch yields while reducing the use of more costly raw materials and negotiating even better prices on raw material supplies including utilities.

Overhead costs.

Significant savings have been negotiated in head office expenses by minimizing the reliance on legal and audit resources without jeopardizing the company's compliance with all regulations and statutes.

Related Party Transactions

In August 1997, the Company loaned Thomas C. Usher, formerly its Vice-Chairman, Director of Research and Development, a member of its Board of Directors and the beneficial owner of greater than 5% of the outstanding common shares of the Company, $691,500 at an interest rate equal to the ~~prime~~United ~~rate~~States' ofbank ~~Toronto Dominion~~prime ~~Bank~~rate plus 1.50% (the “ "Loan”"). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by ~~monthly~~periodic payments and through offsets by the Company against royalty payments due Thomas C. Usher pursuant to intellectual property license agreements and, in the past, bonus payments, if any, granted to Thomas C. Usher as an employee of the Company. The amount outstanding under the Loan as of January 31, ~~2005~~ 2008 was $~~373~~297,~~373~~321, as compared to $~~417~~306,~~467~~827 at January 31, ~~2004~~2007, including accrued interest. The Company has taken a cumulative provision of $~~264~~323,~~543~~ 490 against ~~accrued interest on~~ this loan atand ~~January~~other ~~31,~~amounts ~~2005, compared to a~~described ~~cumulative~~below ~~provision~~as ~~of $242,677~~ at January 31, ~~2004~~2008 (2007 - $323,490). Thomas C. Usher passed away on February 26, 2005. Obligations with respect to the Loan transferred to the estate of Thomas C. Usher. The Company continues to be obligated to make royalty payments pursuant to the license agreements, and intends to continue to offset such payments against the Loan.

In August 1999, Thomas C. Usher personally assumed all of the assets and liabilities of Novadex Corp., including the balance of receivables (the “ "Receivables”") due to the Company from Novadex Corp. The Receivables have no specific repayment terms. The total outstanding amount of the Receivables as of January 31, ~~2005~~2008 was $~~285~~60,~~037~~339, as compared to $~~366~~130,~~216~~619 at January 31, ~~2004~~ 2007. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of January 31, ~~2005~~2008, pursuant to a non-interest bearing loan with no specific repayment terms. The ~~outstanding~~ outstanding amount of this loan has not changed from January 31, ~~2004~~2007. The amounts continue to remain owing from the estate of Thomas C. Usher.

The estate of Thomas C. Usher ~~had~~ has pledged ~~323~~270,~~051~~763 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $2213,~~216,100~~902 at January 31, ~~2005~~2008, based on the closing price of the Company’'s common shares on the NASDAQ ~~SmallCap~~Capital ~~market~~Market on January 31, ~~2005~~2008. The Company intends to continue to hold the pledged assets as collateral until the amounts owing discussed above ~~are~~ are repaid.

The Company ~~has~~had a commitment to pay an amount equal to one year’'s salary, $110,000, to Thomas C. Usher’'s estate. ~~within~~The amount ~~one~~owing ~~year~~on ofthis ~~his~~commitment ~~death~~as at January 31, 2008 is $36,908 (2007 - $39,519).

The Company also has an outstanding loan payable to Ruth Usher, a member of the Board of Directors ~~through~~until her retirement on October 31, 2003, the beneficial owner of greater than 5% of the outstanding common shares of the Company, a former director, and the widow of Thomas C. Usher. The amount due from the Company pursuant to this loan decreased to $~~681~~658,~~304~~541 at January 31, ~~2005~~ 2008 from $~~683~~679,~~234~~309 at January 31, ~~2005~~2007 due to ~~interest charges less~~ monthly ~~payments~~ payments by the Company~~. Commencing~~ inexceeding ~~March 2005,~~interest ~~the~~charges. The Company is required to make blended monthly payments of $58,000~~. The~~ ~~Company~~(2007 ~~made~~- ~~a blended payment of~~ $36,~~500 in February 2005~~000).

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

As of January 31, ~~2005~~2008, future minimum cash payments due under contractual obligations, including, among others, the Dextran Products line of credit, the loan payable to Ruth Usher, ~~the long-term debt obligation in connection with the Chemdex redemption,~~ and capital lease agreements, are as follows:

	Payment due by period	~~Payment due by period~~
Contractual Obligations		Total			Less than 1 year		1-3 years		3-5 years		More than 5 years
		Less than			More than
Long-term debt obligations (1)		$	734,942		$	108,232	$	122,703	$	122,703	$	381,304
Contractual Obligations	Total	1 year	1-3 years	3-5 years	5 years
Capital lease obligations (2)			350,391			180,300		158,472		11,619		—
Long-term debt obligations (1)	$1,233,176	$166,919	$332,153	$330,482	$403,622
Operating lease obligations (3)			780			520		260		—		—
Capital lease obligations (2)	14,366	7,183	7,183	—	—
Purchase obligations			64,668			64,668		—		—		—
Operating lease obligations (3)	214	214	—	—	—
Revolving loans (4)			24,170			24,170		—		—		—
Purchase obligations	20,024	20,024	—	—	—
Total		$	1,174,951		$	377,890	$	281,435	$	134,322	$	381,304
Revolving loans (4)	—	—	—	—	—
Total	$1,267,780	$194,340	$339,336	$330,482	$403,622

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

~~Risk~~Consists ~~Factors~~of:

~~The~~ ~~risks, uncertainties and other factors described below could materially and~~(a) ~~adversely affect the Company’s business, financial condition, operating results and prospects.~~

~~The Company’s~~Note ~~product~~payable ~~development~~in quarterly ~~efforts~~payments ~~may~~of beCdn. ~~reduced~~$419 ormaturing ~~discontinued~~December ~~due~~2009; ~~to difficulties~~and ~~or delays in clinical trials.~~

To(b) achieve sustained profitability, the Company must, alone or with corporate partners and collaborators, successfully research, develop and commercialize identified technologies or product candidates. Current developmental product candidates are in various stages of clinical and pre-clinical development and will require significant further funding, research, development, preclinical and/or clinical testing, regulatory approval and

~~commercialization testing,~~Amounts ~~and~~due ~~are subject~~ to shareholder ~~the~~which ~~risks~~bear ofinterest ~~failure~~at ~~inherent in~~ the ~~development~~Canadian ~~of products~~banks' ~~based~~prime onlending ~~innovative~~rate ~~or novel technologies. These products are~~plus ~~also rigorously regulated by the U~~1.S.5%, ~~federal~~with ~~government,~~required ~~particularly~~minimum ~~the~~monthly ~~FDA~~payments, ~~and~~ byincluding ~~comparable agencies in state and local jurisdictions and in foreign countries. Specifically~~interest, ~~each~~ of ~~the~~$8,000; ~~following results is possible with~~and ~~respect to any one of the Company’s developmental product candidates:~~

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

IfEquipment ~~any~~purchase ofterm ~~the~~loan ~~risks~~of ~~set~~Cdn ~~forth~~$438,765 ~~above~~(US ~~occurs~~$437,104) ~~the~~repayable ~~Company~~to ~~may~~a ~~not~~Canadian bebank ~~able to~~in ~~successfully~~monthly ~~develop~~payments ~~its~~of ~~identified~~Cdn ~~developmental~~$5,792 ~~product~~including ~~candidates~~interest at 6.95%, maturing May 2011.

~~The Company’s developmental product commercialization efforts may not be successful~~2.

ItConsists of iscapital ~~possible~~lease ~~that,~~obligations for ~~reasons~~office equipment ~~including,~~of ~~but~~Cdn. ~~not~~$12,854 ~~limited~~(US ~~to those set forth below~~$12,805) ~~the~~repayable ~~Company~~in ~~may~~quarterly ~~be unable to commercialize or receive royalties from the~~installments, ~~sale~~bearing ofinterest ~~any~~at ~~given~~10.4% ~~developmental~~and ~~product,~~maturing ~~even~~December ~~if it is shown to be effective,~~2009. ~~if:~~

• the product is uneconomical or if the market for the product does not develop or diminishes; • the Company is not able to enter into arrangements or collaborations to commercialize and/or market the product; • the product is not eligible for third-party reimbursement from government or private insurers; • others hold proprietary rights that preclude the Company from commercializing the product; • others have brought to market similar or superior products; • others have superior resources to market similar products or technologies; • government regulation imposes limitations on the indicated uses of the product, or later discovery of previously unknown problems with the product results in added restrictions on the product or results in the product being withdrawn from the market; and/or • the product has undesirable or unintended side effects that prevent or limit its commercial use3.

~~The~~Consists of ~~Company~~operating ~~depends~~lease onobligations ~~partnerships~~for ~~with~~office ~~third~~equipment ~~parties~~requiring ~~for~~quarterly ~~the~~payments ~~development and~~of ~~commercialization~~Cdn. of$72 ~~its~~(US ~~products~~$74) terminating December 2008.

~~The Company’s strategy for development and commercialization of its products is to rely on licensing agreements with third party partners~~4. As ~~a result, the ability of the Company to commercialize future products is~~

~~dependent~~Consists ~~upon the success~~ of ~~third parties in performing clinical trials, obtaining~~ ~~regulatory~~Canadian ~~approvals,~~operating ~~manufacturing~~line ~~and~~of ~~successfully~~credit ~~marketing~~bearing ~~its products. There~~interest ~~can~~at ~~be no assurance that such third party collaborations will be successful. If any of~~ the ~~Company’s~~Canadian ~~current~~banks' ~~research and~~prime ~~development~~lending ~~partnerships~~rate ~~are~~plus ~~discontinued~~0.75%, itrepayable ~~may~~upon ~~not be able to find others to develop and commercialize its current product candidates~~demand.

          The Company does not currently have agreements with third parties to market its developmental products.
          The commercialization of any of the Company’s developmental products that receive FDA approval will depend upon the Company’s ability to enter into agreements with companies that have sales and marketing capabilities. The Company currently intends to sell its products in the United States and internationally in collaboration with one or more marketing partners. The Company may not be able to enter into any such collaboration to market its developmental products in a timely manner or on commercially reasonable terms, if at all.
          The Company may be unable to commercialize its products if it is unable to protect its proprietary rights, and may be liable for significant costs and damages if it faces a claim of intellectual property infringement by a third party.
          The Company’s success depends in part on its ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of others. In the absence of patent and trade secret protection, competitors may adversely affect the Company’s business by independently developing and marketing substantially equivalent or superior products, possibly at lower prices. The Company could also incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if it is required to defend intellectual property infringement suits brought by third parties, with or without merit, or if required to initiate litigation against others to protect or assert intellectual property rights. Moreover, any such litigation may not be resolved in favor of the Company.
          The Company has received various patents covering the uses of its developmental products. However, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents the Company has obtained, or may obtain in the future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed by the United States Patent and Trademark Office regarding the breadth of claims allowed in biotechnology patents.
          In addition, because patent applications in the United States are maintained in secrecy until patents issue, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it and its licensors are the first creators of inventions covered by any licensed patent applications or patents or that the Company or such licensors are the first to file. The United States Patent and Trademark Office may commence interference proceedings involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned by or licensed to the Company may not be valid or may not afford the Company protection against competitors with similar intellectual property.
          It is also possible that the Company’s patents may infringe on patents or other rights owned by others, licenses to which may not be available to the Company. The Company may have to alter its products or processes, pay licensing fees or cease certain activities altogether because of patent rights of third parties.
          In addition to the products for which the Company has patents or have filed patent applications, the Company relies upon unpatented proprietary technology and may not be able to meaningfully protect its rights with regard to that unpatented proprietary technology.
Critical Accounting Policies

The Company’'s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, applied on a consistent basis. The critical accounting policies include the use of estimates of allowance for doubtful accounts, the useful lives of assets and the realizability of deferred tax assets. The Company’'s accounting policies with respect to the Joint Venture and its disposition are also discussed below.

Management is required to make estimates and assumptions, in preparing the consolidated financial statements, that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the periods. The actual results could differ from these estimates. Significant estimates made by management include the calculation of reserves for uncollectible accounts, inventory allowances, useful lives of long-lived assets and the realizability of deferred tax assets.

Revenue Recognition

All revenue is from sales of bulk and finished dosage manufactured products and is recognized when title and risk of ownership of products pass to the customer. Title and risk of ownership pass to the customer pursuant to the applicable sales contract, either upon shipment of product or upon receipt by the customer. Since returns are rare and generally not accepted, management has not made provision for returns. In addition, product sold in bulk quantities is tested, prior to release for shipment, to ensure that it meets customer specifications, and in many cases, customers receive samples for their own testing. Approval is obtained from the customer prior to shipping.

Allowance for Doubtful Accounts

Accounts receivable is stated net of allowances for doubtful accounts. Allowances for doubtful accounts are determined by each reporting unit on a specific item basis. Management reviews the credit worthiness of individual customers and past payment history to determine the allowance for doubtful accounts. Since the majority of sales at Dextran Products are export, Dextran Products maintains credit insurance through a crown corporation, which is supported by the Canadian government, for the majority of its customers' receivables. There has been no allowance for doubtful accounts during the past three fiscal years.

Long-Lived Assets

Long-lived assets are stated at cost, less accumulated depreciation or amortization computed using the straight-line method based on their estimated useful lives ranging from three to fifteen years. Useful life is the period over which the asset is expected to contribute to the Company’'s cash flows. A significant change in estimated useful lives could have a material impact on the results of operations. The Company reviews the recoverability of its long-lived assets, including buildings, equipment and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. ~~The~~ The assessment of possible impairment is based on the Company’'s ability to ~~recoverthe~~recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted ~~andwithout~~ and without interest charges) of the related operations. If these cash flows are less than ~~thecarrying~~ the carrying value of such asset, an impairment loss is recognized for the difference ~~betweenestimated~~ between estimated fair value and carrying value. The measurement of impairment requires management ~~tomake~~to make estimates of these cash flows related to long-lived assets as well as other fair ~~valuedeterminations~~value determinations.

Deferred Tax Assets

The Company has recorded a valuation allowance on deferred tax assets where there is uncertainty as to the ultimate realization of the future tax deduction. Dextran Products has incurred capital losses, which are only deductible against capital gains. It is not certain that Dextran Products will realize capital gains in the future to use these Canadian capital loss deductions.

The Joint Venture

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

Pursuant to the Joint Venture Agreement, the Joint Venture Policy Committee was responsible for the overall management of the Joint Venture, including the direction and control of the persons designated with the daily management responsibilities of the Joint Venture, and the general supervision of the management and conduct of the affairs of the Joint Venture. The Policy Committee consisted of five members, three of which were selected by Vet Labs and two of which were selected by Sparhawk. Decisions of the Policy Committee required a simple majority vote.

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

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

Since Sparhawk is thinly capitalized and highly leveraged, the Company has deferred $350,000 of the gain relating to the promissory note receivable from Sparhawk. The Company will monitor the financial position of Sparhawk and will recognize this deferred gain at such time as Sparhawk’s cash flows from operations are sufficient to fund debt service on a full accrual basis.

The assets and liabilities of Vet Labs and the Joint Venture at January 31, 2004 that were subject to the Asset Purchase Agreement were reclassified to assets and liabilities subject to sale agreement. All liabilities subject to sale agreement were current liabilities at January 31, 2004. All assets subject to sale agreement at January 31, 2004 were considered current assets because the sale closed less than two months after fiscal year-end. Effective January 13, 2004, depreciation and amortization of the long-lived assets ceased.

Changes in Accounting Policies

No changes in accounting principles or their application have been implemented in the reporting period that would have a material adverse effect on reported income.

Effective February 1, 2003, the Company adopted the fair value accounting method provided for under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” in accounting for its employee stock options. The adoption of this accounting policy reduced net income by $14,212 in fiscal year 2005 and by $12,370 in fiscal year 2004 as compared to the Company’s previous accounting policy of using the intrinsic value method as provided for in Accounting Principles Board Opinion (“APB”) No. 25.
Recent Accounting Pronouncements

In ~~December~~ ~~2004~~March 2006, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards~~SFAS No. ~~Board~~156, ~~[the~~Accounting ~~“FASB”]~~for ~~issued FASB~~Servicing ~~Statement~~of ~~No.~~Financial ~~123~~Assets-an ~~(Revised~~amendment ~~2004),~~of ~~Share-Based~~FASB Statement ~~Payment,~~No. ~~which~~140. isSFAS aNo. ~~revision of~~156 amends FASB Statement No. ~~123~~140, Accounting for ~~Stock-Based~~Transfers ~~Compensation. Statement~~and ~~123(R)~~Servicing ~~supercedes~~of ~~APB~~Financial ~~Opinion~~Assets ~~No.~~and Extinguishments of 25Liabilities, ~~Accounting~~with ~~for~~respect ~~Stock~~to ~~Issued~~the toaccounting ~~Employees~~for separately recognized servicing assets and ~~amends~~servicing ~~FASB~~liabilities. ~~Statement~~SFAS No. ~~95,~~156 is effective It the ~~Statement~~beginning of ~~Cash~~the ~~Flows. Generally~~first fiscal year that begins after September 15, ~~the~~2006. The ~~approach~~Company indoes ~~Statement~~not ~~123(R)~~anticipate isthat ~~similar~~the toapplication ~~the~~of ~~approach~~SFAS ~~described~~156 inwill ~~Statement~~have an impact ~~123. However,~~on ~~Statement~~the ~~123(R)~~consolidated ~~requires all~~financial ~~share-based~~statements of the Company.

payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Effective February 1, 2003, the Company has adopted the fair value accounting method provided for under Statement 123 to apply recognition provisions to its employee stock options granted, modified or settled after February 1, 2003. Statement 123(R) will have no impact on the financial statements of the Company.23

In ~~November~~ ~~2004~~September 2006, the FASB issued SFAS ~~Statement~~No. ~~151~~157, ~~Inventory~~Fair ~~Costs,~~Value ~~which~~Measurements. ~~clarifies~~SFAS No. 157 defines fair value, ~~that~~establishes ~~abnormal~~a ~~amounts~~framework offor ~~idle~~measuring ~~facility~~fair ~~expense,~~value ~~freight,~~in ~~handling~~generally ~~costs~~accepted accounting principles '''GAAP''), and expands disclosures about fair value ~~wasted~~measurements. ~~materials~~SFAS ~~should~~No. be157 ~~recognized~~is aseffective ~~current-period~~for ~~charges~~financial ~~and~~statements ~~requires~~issued for ~~the~~fiscal ~~allocation~~years ofbeginning ~~fixed~~after ~~production~~November ~~overheads~~15, to2007, ~~inventory~~and ~~based~~interim onperiods ~~the~~within ~~normal~~those ~~capacity~~fiscal ofyears. ~~the~~As ~~production~~such, ~~facilities. This~~the ~~guidance~~Company is ~~effective~~required ~~for~~to ~~inventory~~adopt ~~costs~~these ~~incurred~~provisions ~~during~~at ~~fiscal~~the ~~years~~ beginning ~~after~~of ~~June~~he 15fiscal year ending December 31, ~~2005~~2008. The Company ~~does~~is ~~not~~currently evaluating ~~anticipate~~the ~~that~~impact ~~this~~of ~~guidance~~SFAS ~~will~~No. ~~impact~~157 ~~the financial~~on ~~statements~~its offinancial ~~the Company~~statements.

In ~~December~~ ~~2004~~June 2006, the FASB issued ~~Statement~~FASB Interpretation ~~153,~~("FIN") ~~Exchanges~~No. of48 ~~Nonmonetary~~"Accounting ~~Assets, an~~for ~~amendment~~Uncertainty ofin ~~APB~~income ~~Opinion~~Taxes." FIN No. ~~29,~~48 ~~Accounting~~clarifies the accounting for ~~Nonmonetary Transactions. Statement~~uncertainty ~~153~~in isincome ~~based~~taxes ~~on the~~recognized ~~principle~~in ~~that~~an enterprise's ~~exchanges~~financial ofstatements ~~nonmonetary~~in ~~assets~~accordance ~~should~~with beFASB ~~measured~~Statement ~~based~~No. on109 ~~the~~"Accounting ~~fair~~for ~~value~~Income ofTaxes." ~~the~~FIN ~~assets exchanged~~No. ~~Statement~~ ~~153~~48 ~~eliminates~~prescribes ~~the~~a ~~narrow~~recognition ~~exception~~threshold ~~for nonmonetary exchanges~~and measurement of ~~similar~~a ~~productive~~tax ~~assets~~position ~~and~~taken ~~replace~~or itexpected ~~with~~to be taken in a ~~broader~~tax ~~exception~~return. ~~for~~FIN ~~exchanges~~No. of48 ~~nonmonetary~~also ~~assets~~provides ~~that~~guidance doon ~~not~~derecognition, ~~have~~classification, ~~commercial~~interest ~~substance. Statement~~and penalties, ~~153~~accounting isin ~~effective~~interim ~~for~~periods, ~~nonmonetary asset~~disclosure ~~exchanges~~and ~~occurring~~transition. inFIN No. 48 is effective for fiscal ~~periods~~years beginning after ~~June~~December 15, ~~2005~~2006. ~~The~~ ~~provisions~~Earlier application ofis ~~this~~encouraged ~~Statement~~if ~~should~~the ~~be applied~~enterprise ~~prospectively. The~~has ~~Company~~not ~~does~~yet issued financial ~~not~~statements, ~~anticipate~~including ~~that~~interim financial statements, in the ~~application~~period of ~~this~~adoption. The ~~Statement~~adoption of FIN No. 48 will not have ana material impact on ~~the~~ our consolidated financial statements ~~of the Company~~.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Management does not expect that SFAS No. 158 will have an impact on the consolidated financial statements of the Company.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The adoption of SAB 108 does not have an impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The adoption of SFAS 159 does not have an impact on our consolidated financial statements.

In December 2007, the FASB revised SFAS No. 141, Business Combinations. SFAS No. 141 (revised 2007) improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141 (revised 2007) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is not permitted before that date. As such, the Company is required to adopt these provisions during the fiscal year ending January 31, 2010. The Company is currently evaluating the impact of SFAS No. 141 (revised 2007) on its financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. SFAS 160 improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, earlier adoption is prohibited. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending January 31, 2010. The Company is currently evaluating the impact of SFAS No. 160 on its financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008, with early adoption encouraged. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended January 31, 2010. The Company is currently evaluating the impact of SFAS No. 161 on its financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exchange Rate Sensitivity

The Company’'s operations consist of manufacturing activities in ~~the United States and~~ Canada. The Company’'s products are sold in North America, Europe and the Pacific Rim. While the majority of the sales of Dextran Products, the Company’'s Canadian operation, are denominated in United States dollars, the majority of its expenses are incurred in Canadian dollars. ~~The~~ The majority of the assets and liabilities of Dextran Products are denominated in Canadian dollars prior to the currency translation adjustment necessary for preparation of the financial statements of the Company contained in this report. When the Canadian dollar rises in value relative to the United States dollar, the carrying value of the assets and liabilities of Dextran Products as stated in United States dollars increases. A rise in the Canadian dollar relative to the United States dollar also results in a decrease in gross margins and net income of Dextran Products. Dextran Products also experiences a foreign exchange gain when the Canadian dollar rises in relation to the United States dollar because it has a net liability exposure to the United States dollar resulting from a United States dollar denominated intercompany loan. Similarly, a decline in the Canadian dollar relative to the United States dollar results in a foreign exchange loss and increased gross margins and net income at Dextran Products. Management monitors currency fluctuations to ensure 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.

~~Dextran~~The ~~Products~~following ~~has~~table ~~entered into United~~presents ~~States~~information ~~dollar~~about ~~forward~~the ~~purchase~~Company's ~~contracts,~~financial ~~covering~~instruments another ~~aggregate~~than ~~of $450,000, to~~accounts ~~lock~~receivable inthat anare ~~exchange~~sensitive ~~rate~~to ~~for~~changes ~~converting~~in ~~United~~foreign ~~States~~currency ~~dollars~~exchange ~~to Canadian dollars~~rates. ~~Dextran Products~~All isfinancial ~~committed~~instruments toare ~~selling~~held ~~$150,000~~for ~~per~~other ~~month~~than ~~for~~trading ~~the~~purposes. ~~period~~The ~~from~~table presents ~~February~~principal ~~2005~~cash toflows ~~April~~and ~~2005~~related atweighted anaverage ~~exchange~~interest ~~rate~~rates ofby expected $1maturity dates.~~1772.~~

The following table presents information about the Company’s financial instruments other than accounts receivable that are sensitive to changes in foreign currency exchange rates. All financial instruments are held for other than trading purposes. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.

Expected Maturity Date
								Fair
	1/31/09	1/31/10	1/31/11	1/31/12	1/31/13	Thereafter	Total	Value
	(US$ Equivalent)
Assets:
Short-term investments:
Fixed rate ($Cdn.)	1,174,599	—	—	—	—	—	1,174,599	1,144,517
Average interest rate	3.42%	—	—	—	—	—	3.42%
Marketable securities:
Fixed rate ($Cdn.)	—	—	—	—	—	—	—	—
Average interest rate	—	—	—	—	—	—	—

Liabilities:
Long-term debt:
Fixed rate ($Cdn.)	49,182	49,745	46,097	49,405	52,950	205,510	452,889	452,889
Average interest rate	9.26%	9.19%	9.00%	9.00%	9.00%	9.00%	9.08%

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

Interest Rate Sensitivity

The Company has interest earning assets consisting of investment grade or higher short-term commercial paper and medium-term fixed income instruments. A significant portion of the Company’'s ~~debt~~ debt is at fixed rates. The variable rate debt represents the shareholder loan payable, which is partially offset with the shareholder loan receivable. Both of of these financial instruments carry the same interest rate. As such, the ~~Company~~ Company has no significant risk exposure to changes in interest rates. The following table presents information about the Company’'s financial instruments that are sensitive to changes in interest rates. All financial instruments are held for other than trading purposes. The table presents principal cash flows and related ~~weighted~~ weighted average interest rates by expected maturity dates.

Expected Maturity Date		~~Expected Maturity Date~~
		1/31/05			1/31/06			1/31/07			1/31/08			1/31/09			Thereafter			Total			Fair Value
								Fair
		(US$ Equivalent)
	1/31/09	1/31/10	1/31/11	1/31/12	1/31/13	Thereafter	Total	Value
Assets:
	(US$ Equivalent)
Short-term investments:
Assets:
Fixed rate ($Cdn.)			2,258,842			—			—			—			—			—			2,258,842			2,271,233
Short-term investments:
Average interest rate			2.45	%		—			—			—			—			—			2.45	%
Fixed rate ($Cdn.)	1,174,599	—	—	—	—	—	1,174,599	1,144,517
Marketable securities:
Average interest rate	3.42%	—	—	—	—	—	3.42%
Fixed rate ($Cdn.)			596,190			591,488			676,891			—			—			—			1,864,569			1,770,130
Marketable securities:
Average interest rate			2.66	%		2.85	%		2.86	%		—			—			—			2.79	%
Fixed rate ($Cdn.)	—	—	—	—	—	—	—	—
Notes receivable:
Average interest rate	—	—	—	—	—	—	—
Variable rate ($US)			58,165			61,655			65,354			69,275			73,432			45,493			373,374			373,374
Notes receivable:
Average interest rate			6.00	%		6.00	%		6.00	%		6.00	%		6.00	%		6.00	%		6.00	%
Variable rate ($US)	13,728	14,895	16,161	17,534	19,025	215,979	297,321	297,321
Liabilities:
Average interest rate	8.50%	8.50%	8.50%	8.50%	8.50%	8.50%	8.50%
Long-term debt:
Liabilities:
Fixed rate ($Cdn.)			158,368			155,489			5,455			6,052			6,714			—			332,078			318,242
Long-term debt:
Average interest rate			8.78	%		8.81	%		10.43	%		10.43	%		10.43	%		—			8.88	%
Fixed rate ($Cdn.)	49,182	49,745	46,097	49,405	52,950	205,510	452,889	452,889
Variable rate ($US)			17,622			20,179			21,390			22,673			24,034			575,407			681,305			681,305
Average interest rate	9.26%	9.19%	9.00%	9.00%	9.00%	9.00%	9.08%
Average interest rate			6.00	%		6.00	%		6.00	%		6.00	%		6.00	%		6.00	%		6.00	%
Variable rate ($US)	40,024	43,426	47,117	51,122	55,468	421,384	658,542	658,542
Average interest rate	8.50%	8.50%	8.50%	8.50%	8.50%	8.50%	8.50%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Polydex Pharmaceuticals Limited Quarterly Financial Highlights January 31, ~~2005~~2008

		Fourth Quarter Fiscal Year						Third Quarter Fiscal Year						Second Quarter Fiscal Year					First Quarter Fiscal Year
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter
		2005			2004			2005			2004			2005		2004			2005		2004
	Fiscal Year		Fiscal Year		Fiscal Year		Fiscal Year
Sales from continuing operations			1,306,297			4,055,997			1,205,859			3,681,305			1,338,409		3,058,369			2,521,794		3,296,518
	2008	2007	2008	2007	2008	2007	2008	2007
Gross profit			415,636			1,022,550			219,969			863,653			473,860		685,005			875,165		778,288
Sales from continuing operations	1,525,679	1,842,706	1,357,681	1,366,190	1,504,365	1,856,718	1,347,133	1,433,673
Net income (loss) from continuing operations			107,036			721,802			(240,552	)		(201,426	)		12,759		(236,805	)		1,260,668		(289,570	)
Gross profit	(70,947)	72,472	137,947	208,536	99,103	231,413	208,961	320,022
Net income (loss) per common share			0.04			0.25			(0.08	)		(0.07	)		—		(0.08	)		0.42		(0.10	)
Net income (loss) from continuing operations	(285,076)	(132,304)	(237,544)	(147,981)	(228,353)	(219,814)	(134,238)	239,476
Net income (loss) per common share	(0.10)	(0.05)	(0.08)	(0.05)	(0.07)	(0.07)	(0.04)	0.08

~~MANAGEMENT’S REPORT~~27

~~The~~REPORT ~~accompanying~~OF ~~consolidated~~INDEPENDENT ~~financial~~REGISTERED ~~statements~~PUBLIC ~~are the~~ACCOUNTING ~~responsibility of management and have been prepared by management in~~FIRM conformity with United States generally accepted accounting principles and have been approved by the Board of Directors. In preparing these consolidated financial statements, management selects appropriate accounting policies and uses its judgement and best estimates to report events and transactions as they occur. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial data included throughout the Annual Report is prepared on a basis consistent with that of the consolidated financial statements.

In fulfilling its responsibilities, management has developed a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded from loss and unauthorized use and that the financial records are reliable for the purpose of preparing the consolidated financial statements. This system is supported by written policies and procedures for key business activities; the hiring of qualified, competent staff; and by a continuous planning and monitoring system.

Ernst & Young LLP, the independent auditors appointed by the shareholders of the Company, have audited the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and they provide an objective independent opinion regarding the fair presentation of reported operating results and financial position in accordance with generally accepted accounting principles.

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out the responsibility principally through its Audit Committee. The members of the Audit Committee are independent directors. The Audit Committee meets with financial management and the independent auditors to review accounting, auditing, internal accounting controls and financial reporting matters. Ernst & Young LLP has full and free access to the Audit Committee.

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

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Polydex Pharmaceuticals Limited

We have audited the accompanying consolidated balance sheets of Polydex Pharmaceuticals Limited as of January 31, ~~2005~~2008 and ~~2004~~2007 and the related consolidated statements of shareholders’' equity, operations and comprehensive income (loss) and cash flows for each of the years in the three-year period ended January 31, ~~2005~~ 2008. These ~~financial~~consolidated financial statements are the responsibility of the Company’'s management. ~~Our~~ Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The WeCompany ~~were~~is not required to have, nor were we engaged to perform, an audit of its ~~the Company’s~~ internal control over financial reporting. Our ~~audits~~audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’'s internal control over financial reporting. Accordingly, we express no such opinion. An audit ~~also~~ includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,. An audit also includes assessing the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the ~~consolidated~~ financial position of Polydex Pharmaceuticals Limited as of January 31, ~~2005~~2008 and ~~2004~~ 2007, and the consolidated results of its operations and its cash flows ~~for~~ each of the years in the three-year period ended January 31, ~~2005~~2008 in conformity with ~~United States~~ generally accepted accounting principles in the United States of America.

AsSince ~~described~~the inaccompanying ~~note~~consolidated 2financial tostatements have ~~the~~not ~~consolidated~~been ~~financial~~prepared ~~statements,~~in ~~the~~accordance ~~Company~~with ~~changed~~generally ~~its~~accepted accounting principles ~~policy~~and ~~for~~standards ~~stock-based~~in ~~compensation~~Canada, ~~effective~~they ~~February 1,~~may ~~2003~~not satisfy the reporting requirements of Canadian statutes and regulations.

Toronto, Canada, March 10, 2005. Chartered Accountants

	"SCHWARTZ LEVITSKY FELDMAN LLP"


Toronto, Ontario, Canada	Chartered Accountants
April 17, 2008	Licensed Public Accountants

F-1

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets

(Expressed in United States dollars)

		January 31		January 31
		2008		2007

Assets

Current assets:
Cash and cash equivalents (note 3)	$	468,570	$	1,384,995
Investments available for sale (note 7)		845,034		-
Trade accounts receivable (note 19)		611,975		1,139,186
(Allowance for doubtful accounts nil, 2007 nil)
Inventories (note 4)		1,350,490		1,338,857
Prepaid expenses and other current assets		116,172		100,780

Total current assets		3,392,241		3,963,818

Property, plant and equipment, net (note 5)		6,041,348		4,308,337
Patents and intangible assets, net (note 6)		45,511		53,551
Investments available for sale (note 7)		-		1,437,636
Due from estate of former shareholder (note 8)		284,170		363,956

	$	9,763,270	$	10,127,298

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	399,820	$	1,213,518
Accrued liabilities (note 11)		418,832		238,493
Customer deposits		92,932		92,757
Current portion of long-term debt (note 10a)		41,544		32,957
Current portion of capital lease obligations (note 10b)		6,071		4,657
Current portion of due to shareholder (note 8)		30,000		6,000

Total current liabilities		989,199		1,588,382

Long-term debt (note 10a)		398,540		374,624
Capital lease obligations (note 10b)		6,734		10,902
Due to shareholder (note 8)		628,569		673,309
Deferred income taxes (note 15)		55,962		121,767

		1,089,805		1,180,602

Total liabilities		2,079,004		2,768,984

Related party transactions (note 8)

Commitments and contingencies (note 21)

Shareholders' equity:
Capital stock (note 12)
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 (January 31, 2007 - 899,400)		15,010		15,010
3,072,846 common shares (January 31, 2007 - 3,072,846)		51,185		51,185
Contributed surplus		23,499,154		23,483,659
Deficit		(17,779,244)		(16,894,033)
Accumulated other comprehensive income (notes 20 & 7)		1,898,161		702,493

		7,684,266		7,358,314

	$	9,763,270	$	10,127,298

See accompanying notes.

On behalf of the Board:

Director Director

F-2

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Shareholders' Equity

(Expressed in United States dollars)

Years ended January 31, 2008, 2007 and 2006

					Accumulated
					Other	Total
	Preferred	Common	Contributed		Comprehensive	Shareholders'
	Shares	Shares	Surplus	Deficit	Income (Loss)	Equity
	$	$	$	$	$	$

Balance, January 31, 2005	15,010	50,676	23,303,718	(15,144,357)	325,842	8,550,889

Common share options exercised		277	82,517			82,794
Common share options issued			14,024			14,024
Comprehensive income:
Net loss for the year				(1,489,053)		(1,489,053)
Unrealized loss on investments
available for sale					(12,349)	(12,349)
Currency translation adjustment					631,757	631,757

Balance, January 31, 2006	15,010	50,953	23,400,259	(16,633,410)	945,250	7,778,062

Common share options exercised		232	38,879			39,111
Common share options issued			44,521			44,521
Comprehensive income:
Net loss for the year				(260,623)		(260,623)
Unrealized loss on investments
available for sale					(1,321)	(1,321)
Currency translation adjustment					(241,436)	(241,436)

Balance, January 31, 2007	15,010	51,185	23,483,659	(16,894,033)	702,493	7,358,314

Common share options issued			15,495			15,495
Comprehensive income:
Net loss for the year				(885,211)		(885,211)
Unrealized gain on investments
available for sale					3,702	3,702
Currency translation adjustment					1,191,966	1,191,966

Balance, January 31, 2008	15,010	51,185	23,499,154	(17,779,244)	1,898,161	7,684,266

See accompanying notes.

F-3

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Expressed in United States dollars)

Year ended January 31	2008	2007	2006
	$	$	$

Sales	5,734,858	6,499,287	5,265,209
Cost of goods sold	5,359,794	5,666,844	4,836,024

Gross profit	375,064	832,443	429,185

Expenses
General and administrative (note 12b)	1,126,269	1,205,874	1,421,159
Research and development (note 14)	135,821	214,865	205,801
Selling and promotion	84,903	171,086	129,576
Interest expense,net (note 8)	96,818	94,790	81,509
Depreciation	39,973	42,186	61,160
Foreign exchange loss (gain)	43,256	(22,857)	(18,139)
Loss (gain) on sale of assets	-	(20)	4,581
Cash surrender value of life insurance	(81,045)	-	-
Interest and other income (note 13)	(103,776)	(497,663)	(148,166)
Total expenses	1,342,219	1,208,261	1,737,481

Loss before income taxes	(967,155)	(375,818)	(1,308,296)

Provision for (recovery of) income taxes (note 15)	(81,944)	(115,195)	180,757

Loss for the year	(885,211)	(260,623)	(1,489,053)

Unrealized gain (loss) on investments available for sale	3,702	(1,321)	(12,349)

Currency translation adjustment	1,191,966	(241,436)	631,757

Comprehensive income (loss) for the period	310,457	(503,380)	(869,645)

Per share information:
Loss per common share:
Basic	(0.29)	(0.09)	(0.49)
Diluted	(0.29)	(0.09)	(0.49)

Weighted average number of common shares used in
computing net loss per share for the period:
Basic	3,072,846	3,063,884	3,052,296
Diluted	3,072,846	3,063,884	3,052,296

See accompanying notes.

F-4

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Cash Flows

(Expressed in United States dollars)

Year ended January 31 2008 2007 2006

$ $ $

Cash provided by (used in):

Operating activities:

Net loss for the period (885,211) (260,623) (1,489,053)

Add (deduct) items not affecting cash:

Depreciation and amortization

559,866

547,297

543,023

Imputed interest on long-term debt

-

-

1,363

Writedown of assets held for sale

-

4,410

-

Deferred income taxes (Recovery) (note 15)
(83,317) (69,140)
121,478

Amortization of premium on investments available for sale

-

471

28,005

(Gain) Loss on disposal of equipment

-
(4,430)
4,581

Licence fee charged to due from shareholder (note 14)

70,280

76,978

73,740

Interest on shareholder loan
(28,998)

Options issued in exchange for services (note 12b)

15,495

44,520

14,024

Net change in non-cash working capital balances

related to operations (note 16)

53,986

322,124

277,654

Cash provided by (used in) operating activities (297,899)
661,607
(425,185)

Investing activities:

Additions to property, plant and equipment and patents
(1,486,866) (1,724,440) (418,246)

Decrease in due from shareholder

38,504

47,777

77,718

Decrease in accrued interest on investments

3,020

57,580

-

Proceeds (Acquisition) of investments available for sale

805,582

1,123,669
(567,942)

Proceeds from sale of equipment

-

4,430

3,748

Cash used in investing activities (639,760) (490,985) (904,722)

Financing activities:

Repayment of long-term debt
(36,932) (21,876) (47,745)

Repayment of capital lease obligations
(5,220) (169,218) (162,873)

Increase (decrease) in due to shareholder
(20,740)
3,390
(5,385)

Increase (decrease) in long-term bank indebtedness

-

441,034
(24,170)

Exercise of common share options

-

39,113

82,794

Cash provided by (used in) financing activities (62,892)
292,443
(157,379)

Effect of exchange rate changes on cash
84,126
(49,521)
57,686

Net increase (decrease) in cash and cash equivalents (916,425)
413,544
(1,429,600)

Cash and cash equivalents, beginning of year
1,384,995

971,451

2,401,051

Cash and cash equivalents, end of year
468,570

1,384,995

971,451

Cash and cash equivalents is comprised of the following:

Cash

171,625

382,419

236,422

Short-term deposits

296,945

1,002,576

735,029

468,570

1,384,995

971,451

See accompanying notes.

F-5

Polydex Pharmaceuticals Limited

~~CONSOLIDATED BALANCE~~NOTES ~~SHEETS [Expressed~~TO inCONSOLIDATED ~~United~~FINANCIAL ~~States dollars]~~STATEMENTS
[Expressed in United States dollars]

As at January 31
2005 $ 2004 $
ASSETS [notes 9 and 10]
Current
Cash and cash equivalents [note 3] 2,401,051 59,455
Trade accounts receivable [note 19] 922,267 503,864
Interest receivable [note 12[a]] 41,511 —
Inventories [note 4] 1,516,893 1,226,439
Prepaid expenses and other current assets 115,542 42,730
Deferred tax assets [note 15] — 267,500
Assets subject to sale agreement [note 12[a]] — 4,285,666
Total current assets 4,997,264 6,385,654
Property, plant and equipment, net [note 5] 3,124,185 3,248,342
Patents and intangible assets, net [note 6] 68,959 85,511
Investments available for sale [note 7] 1,909,305 —
Due from shareholder [note 8] 643,867 791,006
Assets held for sale 12,085 —
Deferred tax assets [note 15] 56,208 —
10,811,873 10,510,513
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Bank indebtedness [note 9] 24,170 165,609
Accounts payable 463,579 515,092
Accrued liabilities 365,267 337,046
Customer deposits 97,859 100,925
Income taxes payable [note 15] 129,702 923
Liabilities subject to sale agreement [note 12[a]] — 880,564
Current portion of long-term debt [note 10[a]] 46,353 281,015
Current portion of capital lease obligations [note 10[b]] 157,531 161,253
Current portion of due to shareholder [note 8] 21,385 —
Total current liabilities 1,305,846 2,442,427
Long-term debt [note 10[a]] 4,368 45,517
Capital lease obligations [note 10[b]] 169,344 284,950
Due to shareholder [note 8] 659,919 683,234
Deferred tax liabilities [note 15] 121,507 147,054
Total long-term liabilities 955,138 1,160,755
Total liabilities 2,260,984 3,603,182
Shareholders’ equity
Capital stock [notes 11 and 12[b]]
Authorized
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding
899,400 Class B preferred shares 15,010 15,010
3,042,296 common shares [2004 - 3,027,796] 50,676 50,434
Contributed surplus 23,303,718 23,236,498
Deficit (15,144,357 ) (16,284,268 )
Accumulated other comprehensive income (loss) [note 20] 325,842 (110,343 )
Total shareholders’ equity 8,550,889 6,907,331
10,811,873 10,510,513
See accompanying notes
Polydex Pharmaceuticals Limited
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY [Expressed in United States dollars]
Years ended January 31, 2005, 2004 and 2003
Accumulated
other Total
Preferred Common Contributed comprehensive shareholders’
shares shares surplus Deficit income (loss) equity
$ $ $ $ $ $
Balance, January 31, 2002 15,010 50,434 23,224,128 (15,604,528 ) (1,199,627 ) 6,485,417
Comprehensive income (loss):
Net loss for the year — — — (673,741 ) — (673,741 )
Currency translation adjustment — — — — 212,851 212,851
Balance, January 31, 2003 15,010 50,434 23,224,128 (16,278,269 ) (986,776 ) 6,024,527
Common share options issued — — 12,370 — — 12,370
Comprehensive income (loss):
Net loss for the year — — — (5,999 ) — (5,999 )
Currency translation adjustment — — — — 876,433 876,433
Balance, January 31, 2004 15,010 50,434 23,236,498 (16,284,268 ) (110,343 ) 6,907,331
Common share options exercised — 242 53,008 — — 53,250
Common share options issued — — 14,212 — — 14,212
Comprehensive income (loss):
Net income for the year — — — 1,139,911 — 1,139,911
Unrealized loss on investments available for sale — — — — (15,760 ) (15,760 )
Currency translation adjustment — — — — 451,945 451,945
Balance, January 31, 2005 15,010 50,676 23,303,718 (15,144,357 ) 325,842 8,550,889
See accompanying notes
Polydex Pharmaceuticals Limited
CONSOLIDATED STATEMENTS OF OPERATIONS [Expressed in United States dollars]
Years ended January 31
2005 2004 2003
$ $ $
Sales 6,372,359 14,092,189 12,786,343
Cost of goods sold 4,387,729 10,742,693 9,528,959
Gross profit 1,984,630 3,349,496 3,257,384
Expenses
General and administrative [note 11[b][i]] 1,438,015 1,937,262 1,659,011
Depreciation 496,543 592,421 549,946
Selling and promotion 128,731 158,846 140,281
Research and development, net [note 13] 114,742 60,951 172,098
Interest, net [note 8] 91,210 133,382 150,527
Amortization 16,552 25,264 22,183
Foreign exchange (gain) loss (46,172 ) 447,602 113,602
2,239,621 3,355,728 2,807,648
Income (loss) before the following (254,991 ) (6,232 ) 449,736
Gain on sale of veterinary products assets [note12[a]] 1,859,471 — —
Other income (expense) [notes 12[a] and 14] 102,297 (389,735 ) (372,111 )
Income (loss) before income taxes 1,706,777 (395,967 ) 77,625
Provision for (recovery of) income taxes [note 15] 566,866 (389,968 ) 751,366
Net income (loss) for the year 1,139,911 (5,999 ) (673,741 )
Unrealized loss on investments available for sale (15,760 ) — —
Currency translation adjustment 451,945 876,433 212,851
Comprehensive income (loss) for the year 1,576,096 870,434 (460,890 )
Per share information
Earnings (loss) per common share
Basic 0.38 — (0.22 )
Diluted 0.37 — (0.22 )
See accompanying notes
Polydex Pharmaceuticals Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS [Expressed in United States dollars]
Years ended January 31
2005 2004 2003
$ $ $
OPERATING ACTIVITIES
Net income (loss) for the year 1,139,911 (5,999 ) (673,741 )
Add (deduct) items not affecting cash
Depreciation and amortization 513,095 617,685 572,129
Imputed interest on long-term debt 14,648 25,760 33,177
Deferred income taxes 417,003 (414,594 ) 684,474
Loss on disposal of equipment 3,586 — —
Gain on sale of veterinary products business [note 12[a]] (1,859,471 ) — —
License fee charged to due from shareholder 81,179 60,239 68,276
Provision for due from Sparhawk Laboratories, Inc. [note 14] — — 132,614
Options issued in exchange for services [note 11[b][i]] 14,212 12,370 —
Net change in non-cash working capital balances related to operations [note 16] (634,514 ) (74,036 ) 124,630
Cash provided by (used in) operating activities (310,351 ) 221,425 941,559
INVESTING ACTIVITIES
Additions to property, plant and equipment and patents (159,554 ) (183,124 ) (367,868 )
Proceeds from sale of veterinary products business [note 12[a]] 4,599,218 — —
Decrease in due from shareholder 65,960 129,908 48,713
Purchase of investments available for sale (1,841,854 ) — —
Acquisition of minority interest [note 12[b]] — (5,860 ) —
Proceeds from sale of equipment 5,148 — —
Cash provided by (used in) investing activities 2,668,918 (59,076 ) (319,155 )
FINANCING ACTIVITIES
Repayment of long-term debt (296,035 ) (453,805 ) (252,256 )
Proceeds from long-term debt 5,383 — —
Repayment of capital lease obligations (167,531 ) (126,703 ) (73,599 )
Increase (decrease) in due to shareholder (1,930 ) 1,009 262
Increase (decrease) in bank indebtedness (147,140 ) 165,609 (179,286 )
Exercise of common share options 53,250 — —
Cash used in financing activities (554,003 ) (413,890 ) (504,879 )
Effect of exchange rate changes on cash 224,959 342,321 39,805
Net increase in cash and cash equivalents during the year 2,029,523 90,780 157,330
Cash, beginning of year 371,528 280,748 123,418
Cash, end of year 2,401,051 371,528 280,748
Cash is comprised of the following
Cash 129,818 59,455 199,718
Cash equivalents 2,271,233 — —
Cash included in assets subject to sale agreement [note 12[a]] — 312,073 81,030
2,401,051 371,528 280,748
See accompanying notes
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
1. GENERAL

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

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned. The subsidiaries are: Dextran Products Limited; Chemdex, Inc.; Polydex Chemicals (Canada) Limited; and Novadex International Limited. All inter-company accounts and transactions have been eliminated on consolidation.

Cash and cash equivalents

These consist of cash and short-term deposits having maturities of less than three months.

Use of estimates

The preparation of financial statements in conformity ~~with~~ with United States generally accepted accounting principles requires management to to make estimates and assumptions that affect the reported amounts of assets ~~and~~ and liabilities and disclosure of contingent assets and liabilities at the date of of the consolidated financial statements and the reported amounts of revenue ~~and~~ and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates relate to the allowance for unrecoverable amounts, depreciation and amortization rates, and the fair value of stock options.

Inventories

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

Investments available for sale

Investments available for sale consist of medium-term ~~fixed~~ fixed income investments and mutual funds and are stated at fair ~~market~~ value based on quoted market prices. Interest income is included in other income in the consolidated statements of operations as it is earned. Changes in ~~market~~fair values during ~~the~~ the holding period are reported as unrealized gain (loss) on investments ~~available~~ available for sale and are included in other comprehensive income (loss). Realized gains (losses) are reclassified from accumulated other comprehensive income (loss) on a specific item basis when the security is sold or matured.

1F-6

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005
Property, plant and equipment and patents and intangible assets

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

Buildings	15 years
Machinery and equipment	3 to 10 years

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

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

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

Revenue recognition

All revenue is from sales of bulk ~~and finished dosage~~ manufactured products and is recognized when title and risk of ownership of products pass to the customer. ~~Title~~ Title and risk of ownership pass to the customer pursuant to the applicable ~~sales~~ sales contract, either upon shipment of product or upon receipt byof product by the customer.

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

NoComprehensive ~~testing~~income ~~and approval is required for finished dosage product because of its nature. Returns of finished dosage product are rare and generally are not accepted.~~

2The Company has adopted SFAS No. 130 Reporting Comprehensive Income. This standard requires companies to disclose comprehensive income in their financial statements. In addition to items included in net income, comprehensive income includes items currently charged or credited directly to shareholders' equity, such as foreign currency translation adjustments.

Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
Shipping and handling costs

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

Research and development

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

F-7

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in United States dollars]

Foreign currency translation

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

Derivative financial instruments

The Company’'s Canadian subsidiary enters into foreign exchange contracts from time to time, to manage exposure to currency rate fluctuations related to expected future cash flows. The Company does not engage in speculative trading of derivative financial instruments. The foreign exchange contracts are not designated as hedging instruments, and as a result all ~~foreign~~ foreign exchange contracts are marked to market and the resulting gains and losses are recorded in the consolidated statements of operations in each reporting period. Unrealized gains and losses are included in accrued liabilities in the consolidated balance sheets and in net change in non-cash working capital balances related to operations in the consolidated statements of cash flows.

Income taxes

The Company accounts for income tax under the provision of Statement of Financial Accounting Standards No. 109, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.

Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. Deferred tax assets may be reduced if deemed necessary based on a judgmental assessment of available evidence, by a valuation allowance for the amount of any tax benefits which are more likely, based on current circumstances, not expected to be realized.

Stock options

~~Effective~~The ~~February 1, 2003, the~~ Company ~~has,~~uses ~~in accordance with Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” [“SFAS 148”], prospectively adopted~~ the fair value accounting method provided for under Statement of Financial Accounting Standards No. 123, “"Accounting for Stock-Based Compensation”" [“("SFAS 123”]") to apply recognition provisions to its employee stock options granted, modified or settled ~~after February 1, 2003~~. ~~Previously,~~ ~~the~~Compensation ~~Company followed Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” [“APB 25”] and related interpretations. Under SFAS 123, compensation~~ expense is recorded at the date stock options are granted. The amount of compensation expense is determined by estimating the fair value of the options granted using the Black-Scholes option pricing model. ~~Previously,~~ ~~under APB 25, the Company recognized no compensation expense when stock options were granted if the exercise price of the stock options equaled or exceeded the market price of the~~

3Loss per common share

Basic loss per common share is computed using the weighted average number of shares outstanding of 3,072,846 for the year ended January 31, 2008 (2007 - 3,063,884; 2006 - 3,052,296). Diluted loss per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. No incremental shares in 2008, 2007 or 2006, were used in the calculation of diluted loss per common share. Options to purchase of 63,699, 37,725, and 42,175 common shares in 2008, 2007 and 2006, respectively, were not included in the computation of diluted loss per common share because their effect was anti-dilutive.

F-8

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005
underlying stock on the date of grant. This change in accounting policy reduced net income and increased contributed surplus by $14,212 [2004 - $12,370] and reduced earnings per common share by less than $0.01 [2004 - $0.01].
Earnings (loss) per common share
Basic earnings (loss) per common share is computed using the weighted average number of shares outstanding of 3,037,463 for the year ended January 31, 2005 [2004 - 3,027,796; 2003 - 3,027,777]. Diluted earnings (loss) per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of 26,265 in 2005 [2004 - nil; 2003 - nil] were used in the calculation of diluted earnings (loss) per common share. Options to purchase 18,250, 427,935 and 431,550 common shares in 2005, 2004 and 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 consist of the following:

		2005		2004
	2008	2007
	$	$		$
Cash	171,625	382,419	~~129,818~~		~~59,455~~
Short-term deposits			2,271,233		—
Short-term money market funds	296,945	1,002,576
			2,401,051		59,455
	468,570	1,384,995

Short-term ~~deposits~~money market funds in the amount of Cdn. $2298,~~803,675~~073 ~~have~~currently ~~maturities~~bear ofinterest ~~less~~at ~~than~~4.18%, ~~three~~and ~~months~~consists atof ~~the~~commercial ~~date~~paper ofand ~~purchase. Interest~~Canadian Government ~~rates~~treasury onbills, ~~the~~stated ~~short-term~~at ~~deposits range~~fair ~~from~~value ~~1.75%~~based toon 2quoted market prices.~~46%.~~

4
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
4. INVENTORIES

Inventories consist of the following:

		2005		2004
	2008	2007
	$	$		$
Finished goods	790,822	792,128	~~1,187,158~~		~~943,373~~
Work-in-process	380,855	364,338	~~123,730~~		~~107,008~~
Raw materials	178,813	182,391	~~206,005~~		~~176,058~~
			1,516,893		1,226,439
	1,350,490	1,338,857

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

		2005							2004
	2008			2007
			Net			Net	~~Net~~						~~Net~~
		Accumulated	book		Accumulated	book	~~book~~				~~Accumulated~~		~~book~~
	Cost	~~Cost~~depreciation	value	Cost	depreciation	value	~~value~~		~~Cost~~		~~depreciation~~		~~value~~
	$	$	$	$	$	$	$		$		$		$
Land and buildings	5,242,002	1,079,827	14,~~494~~162,~~166~~175	3,298,075	825,091	~~614~~2,~~974~~472,984		~~879,192~~		~~1,391,141~~		~~496,720~~		~~894,421~~
Machinery and equipment	9,908,157	8,028,984	71,~~564~~879,~~545~~173	8,292,772	6,457,419	51,~~319~~835,~~552~~353		~~2,244,993~~		~~6,982,088~~		~~4,628,167~~		~~2,353,921~~
			9,058,711			5,934,526		3,124,185		8,373,229		5,124,887		3,248,342
	15,150,159	9,108,811	6,041,348	11,590,847	7,282,510	4,308,337

Included in machinery and equipment are assets under ~~capital~~ capital lease with a total cost of $~~974~~1,~~472~~204,935 ~~[2004~~(2007 - $~~981~~1,~~925]~~025,707) and accumulated depreciation of $~~444~~919,~~550~~651 ~~[2004~~(2007 - $~~344~~678,~~348]~~429). Depreciation of assets under capital lease is included in cost of goods sold. Depreciation of $519,787 was charged to ~~depreciation~~cost ~~expense~~of sales in fiscal 2007 (2007- $505,111). Assets not available for use amounted to $3,496,281 (2007 - $1,943,142).

5F-9

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005
6. PATENTS AND INTANGIBLE ASSETS

Patents and intangible assets consist of the following:

		2005		2004
	2008	2007
	$	$		$
Cost	80,341	80,341	~~80,341~~		~~283,199~~
Less accumulated amortization	34,830	26,790	~~11,382~~		~~197,688~~
			68,959		85,511
	45,511	53,551

These patents and intangible assets will be amortized at approximately $8,100 per year over the next 5 years.

7. INVESTMENTS AVAILABLE FOR SALE

Investments available for sale, at ~~market~~fair value, consist of the following:

		2005		2004
	2008	2007
	$	$		$
Debt security in the amount of Cdn. $700,000 from the Province of Alberta bearing interest at 7.5% and maturing on December 1, 2005			588,375		—
44,458 units (2007–43,628) of DFA Fixed Income Fund yielding 2.65%	418,094	344,081
Debt security in the amount of Cdn. $718,000 from GE Capital Canada bearing interest at 4.35% and maturing on February 6, 2006			595,335		—
TD short term bond fund consisting of Canadian government and corporate bonds maturing in the next 1-5 years, yielding 3.09%	346,845	284,469
Debt security in the amount of Cdn. $750,000 from General Motors Acceptance Corp. maturing on June 7, 2007; floating rate interest is paid quarterly			599,305		—
4,000 preferred shares of Diversified 6% preferred share trust units	80,095	82,429
15,000 units of Barclays Top 100 Equal Weighted Income Fund			126,290		—
12,500 capital income trust index units	—	90,633
			1,909,305		—
Debt security in the amount of Cdn. $750,000 from General Motors Acceptance Corp., matured on June 7, 2007	—	636,024
	845,034	1,437,636
Current portion of investments available for sale	(845,034)	—
	—	1,437,636

As at January 31, ~~2005~~2008, accumulated other ~~comprehensive~~ comprehensive income includes unrealized losses on ~~debt~~short term bond fund securities available for sale of $21961 (2007 – $5,~~802~~391) and unrealized ~~gains~~losses on income fund trust units and mutual funds of $531,~~438~~781 (2007-$34,608 of unrealized losses).

6The Company expects that the investments available for sale will be used for working capital for fiscal 2009 and onwards. Accordingly the investments available for sale have been classified as part of current assets as at January 31, 2008.

F-10

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005
8. RELATED PARTY TRANSACTIONS

Amounts due from (to) shareholder consist of the following:

		2005			2004
	2008	2007
	$	$			$
Amounts due from shareholder [i]			643,867			791,006
Amounts due from estate of former shareholder [i]	284,170	363,956
Amounts due to shareholder [ii]	(658,569)	(679,309)	~~(681,304~~	)		~~(683,234~~	)

[i]

Amounts due from shareholder are due from an officer and director, who is also a major shareholder of the Company [the “Major Shareholder”], and bear interest at the Canadian banks’ prime lending rate plus 1.5% [2005 - 5.75%; 2004 - 5.75%], except for an amount of $535,037 [2004 - $616,216] which is non-interest bearing. Interest income on this loan is recognized when realized. These amounts have no fixed terms of repayment. The Major Shareholder has pledged 323,051 shares of the Company and has pledged future license fee payments from the Iron Dextran process license agreement [note 13] as collateral for this loan. During 2005, $78,168 [2004 - $60,239; 2003 - $66,727] of license fee payments were made. Subsequent to year end, the Major Shareholder passed away. The shares of the Company and the Iron Dextran process license agreement passed to the Major Shareholder’s estate, along with the loans due to the Company. The Company will continue to hold the pledged assets as collateral until the loan is repaid. The Company has a commitment to pay a death benefit of $110,000 to the estate of the Major Shareholder by February 2006.

[ii]

Amounts due to shareholder bear interest at the Canadian banks’ prime lending rate plus 1.5% [2005 - 5.75%; 2004 - 5.75%]. The Company is required to make monthly payments, inclusive of accrued interest, of $1,000. Upon the death of the Major Shareholder in February 2005, the required monthly payment increases to $5,000. Based on the current rate of interest, the principal repayment on this loan for fiscal 2006 would be approximately $21,000. This loan may not be called.

[i]

7Amounts due from estate of former shareholder (the "Estate") bear interest at the United States banks prime lending rate plus 1.5% (2008 – 8.48%; 2007 – 9.75%), except for an amount of $310,339 (2007 – $380,619) which is non-interest bearing. Interest income on this loan is recognized monthly. These amounts have no fixed terms of repayment. The Estate has pledged 270,763 shares of the Company and has pledged future license fee payments from the Iron Dextran process license agreement [note 13] as collateral for this loan. During 2008, $70,280 (2007 – $76,978; 2006 – $73,740) of license fee payments were made. The Company will continue to hold the pledged assets as collateral until the loan is repaid. The Company had a commitment to pay a death benefit of $110,000 to the Estate. At January 31, 2008, a balance of $36,908 is still to be paid to the Estate. See also "Iron Dextran Process" under Note 13.

~~Polydex Pharmaceuticals~~[ii] ~~Limited~~

~~NOTES~~Amounts due to TOshareholder ~~CONSOLIDATED~~bear ~~FINANCIAL~~interest ~~STATEMENTS [Expressed~~at inthe United States ~~dollars~~banks ~~except~~prime ~~where~~lending ~~otherwise~~rate plus ~~noted]~~1.5% (2008 – 8.48%; 2007 – 9.75%). The Company is making monthly payments, inclusive of accrued interest, of $8,000. Based on the current rate of interest, the principal repayment on this loan for fiscal 2009 would be approximately $30,000. This loan may not be called.

~~January~~Interest ~~31,~~expense ~~2005~~recorded with respect to amounts due to shareholder is as follows:

Interest recorded with respect to amounts due to shareholder is as follows:

	2008	2007	2006
	$	$	$

Interest expense	63,256	64,390	53,113

2005 2004 2003
$ $ $
Interest expense 37,569 42,006 39,263
9. BANK INDEBTEDNESS

The Company ~~has~~had a Canadian operating line of credit of Cdn. $1750,~~250,~~000 [(U.S. $1747,~~007,000]~~160; ~~[2004 -~~2007 ~~Cdn. $1,250,000;~~– U.S. $~~942~~636,~~000]~~024), none of which ~~Cdn. $30,000 [U.S. $24,000]~~ was utilized at January 31, ~~2005~~2008 ~~[2004~~(2007 -– ~~Cdn~~Nil). ~~$150,000; U.S. $113,000].~~ The Canadian line of credit bears interest at the Canadian banks’' prime lending rate plus 0.75% ~~[2005~~(2008 -– 56.50%; ~~2004~~2007 -– 6.00%). 5During March 2006, a term loan of Cdn $500,000 (U.S. $498,100) was obtained for the purchase of equipment, bearing interest of 6.95% (note 10[a]). ~~Bank~~ Bank indebtedness is collateralized by a general security agreement over the Company’'s assets and a collateral mortgage of Cdn $500,000 on the Dextran Products Limited [“("Dextran Products”]") building.

~~During~~Subsequent ~~November~~to ~~2004,~~ the ~~Company~~end ~~entered~~of ~~into~~fiscal ~~United States~~year ~~dollar~~2008, ~~forward~~the ~~foreign~~Company received ~~exchange~~notice ~~contracts~~from ~~with~~its ~~the~~Canadian bank tothat ~~lock~~it was in ~~an exchange~~default ~~rate~~of ~~for~~one ~~converting~~of ~~United~~its covenants, ~~States~~and ~~dollars~~that tothis ~~Canadian~~covenant ~~dollars. The Company~~ is ~~committed~~ to ~~selling~~be ~~$150,000 per~~met ~~month~~on ~~for~~a ~~the~~going ~~period~~forward ~~from~~basis. Subsequent ~~February~~to ~~2005~~the toyear ~~April 2005~~end atthe anbank ~~exchange rate~~has ofwaived $1this default.~~1772. At~~ ~~January~~The ~~31, 2005,~~Company's ~~the~~operating ~~net~~line ~~unrealized loss in respect~~ of ~~these~~credit ~~foreign~~was ~~currency~~also ~~contracts~~temporarily ~~amounted~~ reduced to Cdn. $23250,~~203,~~000 ~~which was included in the foreign exchange gain~~ (~~loss) on the~~U.S. ~~consolidated statements of operations~~$249,053).

8F-11

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~10. ~~31,~~LONG-TERM ~~2005~~DEBT AND CAPITAL LEASE OBLIGATIONS

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

[a]

	2005		2004
	$		$
Note payable in monthly payments of $5,860 maturing September 19, 2005. The total amount of repayments are presented at their net present value using a discount rate of 9%. The payments are non-interest bearing and are unsecured [note 12[b]]		45,517		108,862
Note payable in blended quarterly payments of Cdn. $419 [U.S. $338], bearing interest at a fixed rate of 10%		5,204		—
Share value guarantee payable, repaid on March 4, 2004. The total amount of repayments are presented at their net present value using a discount rate of 9%. The payments are non-interest bearing and were collateralized by theassets of Veterinary Laboratories, Inc.		—		217,670
		50,721		326,532
Less current portion		46,353		281,015
		4,368		45,517

Long-term debt consists of the following:

Repayments on the long-term debt are as follows:

	2008	2007
	$	$
Note payable in blended quarterly payments of Cdn. $419 (U.S. $417), bearing interest at a fixed rate of 10%, maturing September 10, 2010, with the vendor holding a security interest in the equipment	2,980	3,620
Bank term loan (note 9) payable in monthly installments of Cdn. $5,792 (U.S. $5,770) principal and interest at the Canadian banks' prime lending rate plus 0.75% (2008 - 6.95%), maturing May 2016	437,104	403,961
	440,084	407,581
Less current portion	41,544	32,957
	398,540	374,624

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

Interest expense for the year for long-term debt was $ 31,984 (2007 - $22,913)

9Principal repayments on the long-term debt are as follows:

Polydex Pharmaceuticals Limited

	$

2009	41,544
2010	44,577
2011	46,097
2012	49,405
2013	52,950
Thereafter	205,511
	440,084

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ [~~Expressed in United States dollars except where otherwise noted~~b]

~~January~~Capital ~~31,~~lease obligations ~~2005~~consist of the following:

[b] Capital lease obligations consist of the following:

	2008	2007
	$	$
Obligation (Cdn. $12,854) under a capital lease, repayable in quarterly installments, bearing interest at 10.43% and maturing December 2009. The Company has an option to purchase the asset for fair value at the end of the lease term	12,805	15,559
Less current portion	6,071	4,657
	6,734	10,902

	2005		2004
	$		$
Obligation [Cdn. $308,703] under a capital lease, repayable in monthly instalments, bearing interest at 9% and maturing November 2006. The Company has an option to purchase the asset for $89,800 [Cdn. $111,500] in April 2006, or at fair market value at the end of the lease term		248,714		339,217
Obligation [Cdn. $69,253] under a capital lease, repayable in monthly instalments, bearing interest at 7.59% and maturing November 2006. The Company has an option to purchase the asset for $1 at the end of the lease term		55,795		77,783
Obligation [Cdn. $27,761] under a capital lease, repayable in quarterly instalments, bearing interest at 10.43% and maturing December 2009. The Company has an option to purchase the asset for fair value at the end of the lease term		22,366		—
Obligation under a capital lease, repayable in monthly instalments, bearing interest at 6.65% and maturing December 2004. The Company purchased the asset for $1 at the end of the lease term		—		29,203
		326,875		446,203
Less current portion		157,531		161,253
		169,344		284,950

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]

January 31, 2005

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

	$	$
2006			180,300
2009	7,183
2007			163,034
2010	7,183
2008			5,809
Total minimum lease payments	14,366
2009			5,809
Less amount representing imputed interest	1,561
2010			5,809
	12,805
Total minimum lease payments			360,761
Less amount representing imputed interest			33,886
			326,875

~~11.~~Interest expense for the year for capital lease obligations ~~CAPITAL~~was ~~STOCK~~$1,711 (2007 - $9,199)

[a]	Share capital issued and outstanding
	[i]	Class A preferred shares
	The Class A preferred shares will carry dividends, will be convertible into common shares of the Company and will be redeemable, all at rates as shall be determined by resolution of the Board of Directors. No Class A preferred shares have been issued to date.
	[ii]	Class B preferred shares
	The Class B preferred shares carry no dividends, are non-convertible and entitle the holder to two votes per share.
	[iii]	Common shares
	During the year ended January 31, 2005, 14,500 common share options were exercised for $53,008 resulting in the issuance of 14,500 common shares.

F-12

11
Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~11. ~~31,~~ACCRUED ~~2005~~LIABILITIES

[b]	Share option plan
	2008	2007
	[i]	Options outstanding
	$	$
	The Company maintains an incentive share option plan for management personnel for 1,000,000 options to purchase common shares. The Company also issues options to certain consultants for services provided to the Company.
Plant refurbishment costs	129,508	-
	All options granted have a term of five years and vest immediately. At January 31, 2005, the Company has 86,300 options outstanding at exercise prices ranging from $2.50 to $7.72 and a weighted average exercise price of $4.75. The options, which are immediately exercisable and expire on dates between February 1, 2005 and January 31, 2010, entitle the holder of an option to acquire one common share of the Company.
Utilities and taxes	39,466	36,191
	During the year ended January 31, 2005, 4,365 common share options were issued to the independent directors of the Company. These options were valued at $14,212 and were charged to general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.71%; dividend yield of nil; volatility factor of the expected market price of the Company’s common stock of 0.681, and an expected life of the options of five years.
Professional fees payable	66,248	54,274
	During the year ended January 31, 2004, 3,885 common share options were issued to the independent directors of the Company. These options were valued at $12,370 and were charged to general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.12%; dividend yield of nil; volatility factor of the expected market price of the Company’s common stock of 0.701, and an expected life of the options of five years.
Death benefit payable	36,908	39,519
	12,000 common share options granted to the independent directors of the Company during 2003 were not expensed as the Company adopted SFAS 123 prospectively in fiscal 2004. The impact of these common share option grants on the earnings of the Company for 2003 if SFAS 123 had been adopted in that year is presented in note 11[b][ii].
Payroll and related taxes payable	98,736	49,624
Others	47,966	58,885
	418,832	238,493

12. CAPITAL STOCK

[a]

Share capital issued and outstanding

[i] Class A preferred shares

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

[ii] Class B preferred shares

The Class B preferred shares carry no dividends, are non-convertible and entitle the holder to two votes per share. 899,400 of the Class B preferred shares have been issued and are outstanding.

[iii] Common shares

During the year ended January 31, 2008, no common share options were exercised, and no common shares were issued.

During the year ended January 31, 2007, 13,950 common share options were exercised for $39,111 resulting in the issuance of 13,950 common shares.

During the year ended January 31, 2006, 16,600 common share options were exercised for $82,794 resulting in the issuance of 16,600 common shares.

[b]

Share option plan

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

All options granted have a term of five years and vest immediately. At January 31, 2008, the Company had 63,699 options outstanding at exercise prices ranging from $0.79 to $10.01 and a weighted average exercise price of $3.34. The options, which are immediately exercisable and expire on dates between January 31, 2009 and January 31, 2012, entitle the holder of an option to acquire one common share of the Company.

F-13

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

On January 31, ~~2005~~2008, 37,974 common share options were issued to the independent directors of the Company. These options were valued at $15,495 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.25%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.745, and an expected life of five years.

On July 8, 2006, 7,500 common share options were granted to employees and non-employees of the Company. These options were valued at $35,160 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.04%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.644, and an expected life of five years. On January 31, 2007, 6,000 common share options were issued to the independent directors of the Company. These options were valued at $9,361 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.25%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.754, and an expected life of five years.

During the year ended January 31, 2006, 3,975 common share options were issued to the independent directors of the Company. These options were valued at $14,024 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4.35%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.658, and an expected life of five years.

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

				Weighted average						~~Weighted average~~
	Share options	~~Share options~~		exercise price per share						~~exercise price per share~~
		2005			2004			2003		2005		2004		2003
	2008	2007	2006	2008	2007	2006
	#	#	#	$	#$	$		#		$		$		$
Options outstanding, beginning of year	37,725	42,175	~~427~~86,~~935~~300	5.64	4.24	~~431,550~~4.75			~~419,550~~		~~3.92~~		~~3.88~~		~~3.91~~
Granted	37,974	13,500	43,~~365~~975	0.79	6.89	~~3,885~~7.52			~~12,000~~		~~6.86~~		~~7.72~~		~~2.50~~
Exercised	—	(13,950)	(1416,~~500~~600)	)—	2.80	—4.99			—		~~3.67~~		—		—
Expired	(12,000)	(4,000)	(~~331~~31,500)	)2.50	5.00	~~(7,500~~5.66	)		—		~~3.75~~		~~3.50~~		—
Options outstanding, end of year	63,699	37,725	8642,~~300~~175	3.34	5.64	~~427,935~~4.24			~~431,550~~		~~4.75~~		~~3.92~~		~~3.88~~
Weighted average fair value of options granted during the year				$0.51	$4.12	$3.53				$	~~3.26~~	$	~~3.18~~	$	~~1.28~~

~~The following table summarizes information relating to the options outstanding at January 31, 2005:~~F-14

Weighted average
Exercise Number remaining
price outstanding contractual life
$ [months]
2.50 12,000 36
2.75 10,950 24
3.00 3,000 16
3.50 1,500 12
4.59 6,600 12
5.00 4,000 16
5.25 30,000 1
6.80 10,000 4
6.86 4,365 60
7.72 3,885 48
86,300 16
13
Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

The following table summarizes information relating to the options outstanding at January 31, ~~2005~~2008:

	[ii]	Pro forma information
		Weighted average
	As required by SFAS 123 [and modified by SFAS 148], pro forma information regarding net loss and net loss per common share has been determined as if the Company had accounted for its employee stock options under the fair value method for the year ended January 31, 2003. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 2.96%; dividend yield of nil; volatility factor of the expected market price of the Company’s common stock of 0.660; and an expected life of the options of five years. For purposes of pro forma disclosures, the estimated fair value of the options is expensed immediately.
Exercise	Number	remaining
	Since changes in subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the above pro forma adjustments for SFAS 123 are not necessarily a reliable single measure of the fair value of the Company’s employee stock options.
price	outstanding	contractual life
	The Company’s pro forma net loss and net loss per common share following SFAS 123 are as follows:
$		[months]
0.79	37,974	60
3.00	6,000	48
6.86	4,365	24
7.52	3,975	36
7.72	3,885	12
10.01	7,500	42
	63,699	50

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

14Sparhawk Laboratories, Inc.

In 1992, Veterinary Laboratories, Inc. ("Vet Labs") and Sparhawk Laboratories, Inc. ("Sparhawk") entered into the Vet Labs - Sparhawk Joint Venture (the "Joint Venture") for the manufacture and sale of veterinary pharmaceutical products. Vet Labs and Sparhawk each owned 50% of the Joint Venture. The Company controlled the Joint Venture through its control of the Joint Venture Policy Committee and therefore consolidated its assets, liabilities, revenue and expenses in its consolidated financial statements until March 4, 2004. The Company had funded the Joint Venture's losses since 1992 and, accordingly, has recorded 100% of these cumulative losses in the consolidated financial statements.

On January 13, 2004, the Company entered into an Asset Purchase Agreement with Sparhawk. Pursuant to this Asset Purchase Agreement, the Company agreed to sell the finished product veterinary pharmaceutical business, including substantially all of the assets of Vet Labs, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004, this sale was completed. Simultaneously, on March 4, 2004, Chemdex, Inc. ("Chemdex"), a wholly-owned subsidiary of the Company, advanced $350,000 to Sparhawk in exchange for a promissory note bearing interest at 13% per annum and a warrant to purchase 4% of the equity of Sparhawk for no additional consideration. The promissory note was due in full on March 4, 2009. On May 31, 2006, payment in full for principal and interest was received. Interest was payable annually on the anniversary date, but could be deferred and added to the principal balance of the promissory note each year at Sparhawk's discretion. At January 31, 2006, interest of $41,511 was accrued and reported as interest receivable on the consolidated balance sheet. The warrant expired at the earlier of payment in full of the promissory note or March 4, 2014 and therefore expired before it could be exercised. Pursuant to a definitive supply agreement (the "Supply Agreement") entered into on March 4, 2004, Chemdex agreed to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive basis in the United States for 10 years. Chemdex also granted to Sparhawk an exclusive license to use the drug master file to manufacture 10% bulk Iron Dextran for veterinary use, and the use of certain equipment during the 10-year period of the Supply Agreement. Pursuant to definitive agreements, the Company made customary representations, warranties and indemnities and agreed to a full release of all claims against Sparhawk arising from litigation related to the Joint Venture. Similarly, Sparhawk agreed to a full release of all claims against the Company arising from the Joint Venture litigation.

The sale resulted in a gain of $2,209,471, of which $1,859,471 was recognized in the consolidated statements of operations and $350,000 was deferred. The deferred gain of $350,000 related to the promissory note receivable from Sparhawk as Sparhawk was thinly capitalized and highly leveraged. Since payment in full on the promissory note was received on May 31, 2006, the deferred gain of $350,000 was recognized at April 30, 2006 and included in other income on the consolidated statement of operations.

F-15

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~14. ~~31,~~LICENSE ~~2005~~AGREEMENTS AND RESEARCH AND DEVELOPMENT

12.	VETERINARY LABORATORIES, INC.
[a]	Sparhawk Laboratories, Inc.
	In 1992, Veterinary Laboratories, Inc. [“Vet Labs”] and Sparhawk Laboratories, Inc. [“Sparhawk”] entered into the Vet Labs - Sparhawk Joint Venture [the “Joint Venture”] for the manufacture and sale of veterinary pharmaceutical products. Vet Labs and Sparhawk each owned 50% of the Joint Venture. The Company controlled the Joint Venture through its control of the Joint Venture Policy Committee and therefore consolidated its assets, liabilities, revenue and expenses in these consolidated financial statements until March 4, 2004. The Company had funded the Joint Venture’s losses since 1992 and, accordingly, has recorded 100% of these cumulative losses in the consolidated financial statements.
	On January 13, 2004, the Company entered into an Asset Purchase Agreement with Sparhawk. Pursuant to this Asset Purchase Agreement, the Company agreed to sell the finished product veterinary pharmaceutical business, including substantially all of the assets of Vet Labs, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004, this sale was completed. Simultaneously, on March 4, 2004, Chemdex, Inc. [“Chemdex”], a wholly-owned subsidiary of the Company, advanced $350,000 to Sparhawk in exchange for a promissory note bearing interest at 13% per annum and a warrant to purchase 4% of the equity of Sparhawk for no additional consideration. The promissory note is due in full on March 4, 2009. Interest is payable annually on the anniversary date, but can be deferred and added to the principal balance of the promissory note each year at Sparhawk’s discretion. The warrant expires at the earlier of payment in full of the promissory note or 10 years from date of issue. The warrant becomes exercisable the day after the fifth anniversary from the date of issue. Pursuant to a definitive supply agreement [the “Supply Agreement”] entered into on March 4, 2004, Chemdex agreed to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive basis in the United States for 10 years. Chemdex also granted to Sparhawk an exclusive license to use the drug master file to manufacture 10% bulk Iron Dextran for veterinary use, and the use of certain equipment during the 10-year period of the Supply Agreement. Pursuant to definitive agreements, the Company made customary representations, warranties and indemnities and agreed to a full release of all claims against Sparhawk arising from the Joint Venture litigation. Similarly, Sparhawk agreed to a full release of all claims against the Company arising from the Joint Venture litigation.
	The sale resulted in a gain of $2,209,471, of which $1,859,471 was recognized in the consolidated statements of operations and $350,000 was deferred. The deferred gain of $350,000 relates to the promissory note receivable from Sparhawk as Sparhawk is thinly capitalized and highly leveraged. The Company will monitor the financial position of Sparhawk and will recognize this deferred gain at such time as Sparhawk’s cash flows from operations are sufficient to fund debt service on a full accrual basis.

Assets that were included in the disposal were reclassified to assets subject to sale agreement in the accompanying consolidated balance sheets as at January 31 and are as follows:

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]

January 31, 2005

	2005		2004
	$		$
Assets subject to sale agreement
Cash		—		312,073
Trade accounts receivable		—		536,868
Inventories		—		1,466,873
Prepaid expenses and other current assets		—		84,786
Land and building		—		1,459,681
Machinery and equipment		—		136,258
Patents and intangible assets		—		56,627
Deferred income taxes		—		232,500
		—		4,285,666

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

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

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

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]

January 31, 2005

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

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

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]

January 31, 2005

[c]	Purchase obligation to ContiGroup Companies, Inc. [formerly Continental Grain Company] [“CGC”]
	In 1992, the Company acquired 100% of the issued and outstanding share capital of Vet Labs from CGC for a total purchase price of $3,894,980, which was satisfied by issuing 194,749 common shares of the Company. The Company had guaranteed that CGC would realize a value of $3,894,980 on the eventual sale of these shares or CGC could put its remaining shares to the Company at such price to bring CGC’s total consideration to $3,894,980. CGC disposed of all of the common shares of the Company and a shortfall resulted. On January 25, 2001, the terms of the purchase agreement were revised whereby the repayment terms for the outstanding repurchase obligation were extended. The revised agreement required the Company to make semi-annual payments of $90,000 on each of May 1 and November 1 until May 1, 2004 and a final payment of $105,343 on November 1, 2004. On April 9, 2003, the terms of the purchase agreement were revised to amend the repayment terms for the outstanding repurchase obligation. This revised agreement required the Company to make quarterly payments of $50,000 on each of May 1, August 1, November 1 and February 1 until August 1, 2004 and a final payment of $75,343 on November 1, 2004. This amount was included in long-term debt[note 10[a]]and was repaid on March 4, 2004 as described in note 12[a].
13.	LICENSE AGREEMENTS AND RESEARCH AND DEVELOPMENT

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

		2005			2004			2003
	2008	2007	2006
	$	$	$		$			$
Research and development expenditures	135,821	214,865	~~127~~215,~~847~~482			~~73,635~~			~~193,284~~
Investment tax credits	—	—	(139,~~105~~681)	)		~~(12,684~~	)		~~(21,186~~	)
Research and development expense	135,821	214,865	~~114~~205,~~742~~801			~~60,951~~			~~172,098~~

Iron Dextran process

The Company has an agreement with the ~~Major Shareholder~~Estate which grants the Company the exclusive worldwide license to use a certain process for producing Iron Dextran. This license agreement expires in 2014. The Company pays a license fee based on production volumes. The total license fee incurred during the ~~year~~ year was $7870,~~168~~280 [~~2004 -~~2007 – $6076,~~239~~978; ~~2003 -~~2006 – $6673,~~727~~740]. These payments are applied to the ~~balance~~ balance owing by the ~~Major~~Estate ~~Shareholder~~ [note 8[i]].

Cellulose Sulphate BV Clinical Evaluation Program

During September 2004, the Company entered into an ~~agreement~~ agreement with a research organization to conduct a pilot clinical study on the use of cellulose sulphate for the treatment of bacterial vaginosis. During the year ended January 31, 2008, the Company made final payments totaling $21,585. In March of 2006, the Company also entered into an agreement for the monitoring of the clinical trial, and a final payment of $26,563 was made during fiscal year 2008.

18F-16

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~15. ~~31,~~INCOME ~~2005~~TAXES

vaginosis. Payments of $43,112 were made to the research organization and the principal investigator upon execution of the agreement. The Company is committed to make an additional payment of $43,112 upon patient enrolment, which is expected to occur during the summer of 2005, and [a] ~~final payment of $21,556 upon completion of the clinical study, which is expected to be near the end of fiscal year 2006.~~

14Substantially all of the Company's activities are carried out through operating subsidiaries in Canada and the United States. ~~OTHER~~The ~~INCOME~~Company's ~~(EXPENSE)~~effective income tax rate is dependent on the tax legislation in each country and the operating results of each subsidiary and the parent company.

~~During~~The ~~the~~components ~~year~~of ~~ended~~loss ~~January~~before ~~31, 2003, an amount due~~income ~~from~~taxes ~~Sparhawk~~are ofas ~~$132,614~~follows: ~~was fully provided for and included in other income (expense).~~

15.	INCOME TAXES
	2008	2007	2006
[a]	Substantially all of the Company’s activities are carried out through operating subsidiaries in Canada and the United States. The Company’s effective income tax rate is dependent on the tax legislation in each country and the operating results of each subsidiary and the parent company.
	$	$	$
	The components of income (loss) before income taxes are as follows:
Bahamas	(111,208)	(244,022)	(185,653)
Canada	(878,468)	(510,970)	(1,088,398)
United States	22,521	379,174	(34,245)
	(967,155)	(375,818)	(1,308,296)

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

During fiscal 2006, the tax residency of the parent company, Polydex Pharmaceuticals Limited, was determined to be Canada, for the years 1999 to the present. Due to the losses incurred in the Company during that period, no income taxes payable were incurred. The provision for (recovery of) income taxes consists of the following:

	2008	2007	2006
	$	$	$
Foreign withholding taxes and other on Bahamian income	—	—	—
Provision for (recovery of) income taxes based on Canadian statutory income tax rates	(280,466)	(189,059)	(370,055)
Foreign withholding taxes	—	—	56,601
Decrease in tax reserve	—	(46,055)	—
Increase in valuation allowance	216,216	81,833	651,107
Tax and exchange rate changes on deferred tax items	22,823	(3,554)	(13,343)
Items not deductible for tax	(40,517)	41,640	(19,603)
	(81,944)	(115,195)	304,707

Provision for (recovery of) income taxes based on United States income tax rates	8,333	140,294	(12,671)
Utilization of previously unrecognized tax losses	(8,333)	(140,294)	—
Decrease in valuation allowance	—	—	(111,279)
	—	—	(123,950)
Provision for (recovery of) income taxes	(81,944)	(115,195)	180,757

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

	2008	2007	2006
	$	$	$

Canadian deferred tax recovery	(83,317)	(69,140)	(183,285)
Canadian deferred tax expense	—	—	304,763
Canadian current tax expense (recovery)	1,373	(46,055)	183,229
United States deferred tax expense	—	—	—
United States current tax expense	—	—	—
United States current tax recovery	—	—	(123,950)
	(81,944)	(115,195)	180,757

F-17

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~[b] ~~31, 2005~~

~~The~~Deferred ~~provision~~tax assets ~~for~~and ~~(recovery~~liabilities ~~of)~~have ~~income~~been ~~taxes~~provided ~~consists~~on temporary differences that consist of the following:

		2005$			2004$			2003$
	2008	2007	2006
Foreign withholding taxes and other on Bahamian income			123,000			—			—
	$	$	$
Provision for income taxes based on Canadian statutory income tax rates			92,819			22,933			311,357
Deferred tax assets
Increase (decrease) in tax reserve			(232,739	)		—			147,012
Canadian
Increase (decrease) in valuation allowance			(36,009	)		53,900			3,506
Non-capital losses	1,053,398	1,120,327	1,054,054
Tax rate changes on deferred tax items			4,654			(20,203	)		(21,612	)
Unclaimed research and development expenses	315,905	285,444	295,518
Items not deductible for tax			(21,859	)		53,402			(9,377	)
Net capital losses [note 15[c]]	200,055	164,976	188,353
			(193,134	)		110,032			430,886
Other items	14,414	15,160	27,733
Provision for (recovery of) income taxes based on United States income tax rates			776,550			(24,533	)		(185,666	)
United States
Tax recovery on Joint Venture partner’s share of income			(160,697	)		(132,282	)		(32,319	)
Net operating loss carryforwards	29,378	42,981	84,371
Tax on non-deductible items			(23,511	)		—			—
Allowance on Sparhawk note [note 13]	—	—	84,206
Increase (decrease) in valuation allowance			44,658			(343,185	)		538,465
	1,613,150	1,628,888	1,734,235
			637,000			(500,000	)		320,480
Less valuation allowance	1,613,150	1,628,888	1,734,235
Provision for (recovery of) income taxes			566,866			(389,968	)		751,366
	—	—	—
Significant components of the provision for (recovery of) income taxes attributable to continuing operations are as follows:
Deferred tax liabilities
		2005$			2004$			2003$
Excess of carrying value over tax value of depreciable assets	(47,120)	(119,097)	(185,353)
Canadian deferred tax recovery			(280,453	)		(38,083	)		(21,307	)
Investment tax credits and other items	(8,842)	(2,670)	(9,585)
Canadian deferred tax expense			197,456			128,440			385,301
Net deferred tax liabilities	(55,962)	(121,767)	(194,938)
Canadian current tax expense			12,863			19,675			66,892
United States deferred tax recovery			—			(500,000	)		—
United States deferred tax expense			500,000			—			320,480
United States current tax expense			137,000			—			—
			566,866			(389,968	)		751,366

20[c]

The Canadian subsidiaries have non-capital loss carryforwards available to reduce future years' income for tax purposes totaling approximately $3,882,000. These non-capital losses expire from 2009 to 2028 and are stated below.

Year of expiry	$
2009	384,000
2010	151,000
2011	265,000
2015	600,000
2026	710,000
2027	511,000
2028	1,261,000

Total	3,882,000

The Canadian subsidiaries also have deductions available to reduce future years' income for tax purposes on account of net temporary differences resulting from expense items reported for income tax purposes in different periods than for financial statement purposes totaling approximately $1,230,000 and $558,000 for federal and provincial purposes, respectively. Certain Canadian subsidiaries also have net capital losses available for carryforward of approximately $608,000 available to offset future taxable capital gains. These potential deductions and net capital losses have an indefinite carryforward period.

[d]

The Company has not recorded a deferred tax liability related to its investment in foreign subsidiaries. The Company has determined that its investment in these subsidiaries is permanent in nature and it does not intend to dispose of or realize dividends from these investments in the foreseeable future. However, if either of these events were to occur, the Company will be liable for withholding taxes. The amount of the deferred tax liability related to the Company's investment in foreign subsidiaries is not reasonably determinable.

F-18

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005
[b] Deferred tax assets and liabilities have been provided on temporary differences that consist of the following:
2005 2004 2003
$ $ $
Deferred tax assets
Canadian
Unclaimed research and development expenses 255,485 307,180 342,000
Net capital losses [note 15[c]] 140,173 102,800 81,000
Other items 84,566 90,200 9,000
United States
Net operating loss carryforwards — 580,000 600,000
Unpaid intercompany interest 149,706 150,000 —
Allowance on Sparhawk note [note 12[a]] 84,206 — —
714,136 1,230,180 1,032,000
Less valuation allowance 421,160 627,000 899,207
292,976 603,180 132,793
Deferred tax liabilities
Excess of carrying value over tax value of depreciable assets (214,560 ) (249,000 ) (160,000 )
Investment tax credits and other items (143,715 ) (1,234 ) (22,543 )
Net deferred tax assets (liabilities) (65,299 ) 352,946 (49,750 )
[c] The Canadian subsidiaries have deductions available to reduce future years’ income for tax purposes on account of net temporary differences resulting from expense items reported for income tax purposes in different periods than for financial statement purposes totalling approximately $974,000 and $424,000 for federal and provincial purposes, respectively. Certain Canadian subsidiaries also have net capital losses available for carryforward of approximately $405,000 available to offset future taxable capital gains. These potential deductions and net capital losses have an indefinite carryforward period.
[d] The Company has not recorded a deferred tax liability related to its investment in foreign subsidiaries. The Company has determined that its investment in these subsidiaries is permanent in nature and does not intend to dispose of or realize dividends from these investments in the foreseeable future. However, if either of these events were to occur, the Company will be liable for withholding taxes. The amount of the deferred tax liability related to the Company’s investment in foreign subsidiaries is not reasonably determinable.
21
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
16. CONSOLIDATED STATEMENTS OF CASH FLOWS

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

		2005			2004			2003
	2008	2007	2006
	$	$	$		$			$
Decrease (increase) in current assets
Trade accounts receivable	691,495	(436,313)	~~(371~~246,~~170~~607	)		~~402,848~~			~~(262,397~~	)
Interest receivable	—	41,511	~~(41,511~~—	)		—			—
Inventories	212,075	164,193	~~(196~~98,~~214~~154	)		~~(270,190~~	)		~~(111,260~~	)
Prepaid expenses and other current assets	(3,566)	26,287	(697,~~916~~926)	)		~~(45,350~~	)		~~594~~
			(678,811	)		87,308			(373,063	)
	900,004	(204,322)	336,835
Increase (decrease) in current liabilities
Accounts payable	(978,507)	685,309	~~(83~~66,~~326~~247	)		~~(171,739~~	)		~~254,664~~
Accrued liabilities	147,783	(117,143)	12(27,~~274~~892)			~~66,878~~			~~102,453~~
Customer deposits	(15,294)	3,113	(13,~~190~~006)	)		~~(20,660~~	)		~~131,744~~
Income taxes payable	—	(44,833)	~~128~~(84,~~539~~530)			~~(35,823~~	)		~~8,832~~
			(634,514	)		(74,036	)		124,630
	53,986	322,124	277,654

Cash paid during the year for interest was $3896,~~993 [2004~~818 -(2007 – $6589,~~616~~365; ~~2003~~2006 -– $7827,~~087]~~033). Cash paid during the year for income taxes was ~~$6,433~~Nil (2007 ~~[2004~~– - $~~44,024~~Nil; ~~2003~~2006 - – $113,~~699]~~891).

~~Capital~~There were no capital equipment ~~acquired~~acquisitions under capital ~~lease of~~ ~~$23,137~~leases ~~[2004~~for ~~- $78,978; 2003 - nil] were treated as non-cash additions. During~~ the ~~year~~years ended January 31, ~~2004~~2008, ~~assets~~ of2007 ~~$134,602,~~and ~~acquired through the acquisition of minority interest, less cash paid on date of closing of $5,860 [note 12[b]],were treated as non-cash additions~~2006.

17. SEGMENTED INFORMATION

All ~~of the~~ operations ~~of the Company~~ are carried on out through Dextran Products Limited ("Dextran") in Canada and through Chemdex in the United States. ~~The~~ ~~operations~~Each of ~~Chemdex~~ ~~represent~~Dextran ~~the~~and ~~veterinary~~Chemdex ~~products~~operated ~~business~~as ~~and~~separate ~~the~~strategic ~~operations~~business ~~were~~units ~~carried out~~offering ~~through~~different ~~its~~products, ~~wholly-owned~~until ~~subsidiary,~~the ~~Vet~~sale ~~Labs. Vet~~of ~~Labs~~the ~~carried~~finished onproduct ~~its~~veterinary pharmaceutical business ~~through~~on aMarch ~~Joint~~4, ~~Venture~~2004 ~~with~~[note13]. ~~Sparhawk until~~Until March 4, 2004, each subsidiary comprised a reportable segment as follows:

Dextran Products - manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies throughout the world.

Chemdex - manufactured and sold veterinary pharmaceutical products and specialty chemicals in the United States. The primary customers were distributors and private labelers, who in turn sold to the end user of these products.

22After March 4, 2004, Chemdex only sells bulk quantities of a specific dextran derivative to Sparhawk under the Supply Agreement, as described in note 13. Management has since determined that Polydex Pharmaceuticals does not operate differing segments, and that providing such information would not be informative to readers of these financial statements. The comparative information for 2006 has therefore been restated to conform to this basis of reporting.

F-19

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

January 31, 2005

	2008	2007	2006
	$	$	$
Total revenue by significant customer:
Customer A	1,106,972	1,296,702	1,111,402
Customer B	655,107	618,878	534,222
Customer C	578,120	275,200	346,605
Customer D	538,033	155,420	47,500
Customer E	427,206	668,001	379,342
Customer F	10,115	780,039	452,820
	3,315,553	3,794,240	2,871,891

	2008	2007	2006
	$	$	$
Sales by geographic destination:
Europe	$1,928,278	$2,796,710	$2,237,430
United States	1,475,295	1,283,251	1,086,243
Canada	1,035,040	893,977	512,031
Pacific Rim	844,217	581,581	794,015
Other	452,028	943,768	635,490
	$5,734,858	$6,499,287	$5,265,209

when the majority of this business was sold to Sparhawk [note 12[a]]. Each of Dextran Products and Chemdex operates as a strategic business unit offering different products. Each subsidiary comprises a reportable segment as follows:
• Dextran Products - manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies throughout the world.
• Chemdex - manufactured and sold veterinary pharmaceutical products and specialty chemicals in the United States until March 4, 2004. The primary customers were distributors and private labelers, who in turn sold to the end user of these products. Since March 4, 2004, the operations of Chemdex have been limited to the sale of bulk Iron Dextran to Sparhawk.
The Company evaluates segment performance based primarily on operating income, excluding unusual items. The Company accounts for intersegment sales as if the sales were to third parties at current market prices. The accounting policies of the segments are the same as those described in the significant accounting policies.
[a] The following is condensed segment financial information as at and for the years ended January 31:
2005
Dextran Chemdex Total
$ $ $
Gross sales 5,362,948 1,456,146 6,819,094
Intercompany sales 446,735 — 446,735
Interest expense 38,993 6,975 45,968
Depreciation and amortization 496,072 8,505 504,577
Income before income taxes 256,169 2,093,478 2,349,647
Interest income 91,563 41,554 133,117
Segment assets 9,933,254 233,539 10,166,793
Capital expenditures 182,691 — 182,691
23
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
2004
Dextran Chemdex Total
$ $ $
Gross sales 5,142,881 9,349,670 14,492,551
Intercompany sales 400,362 — 400,362
Interest expense 48,294 20,883 69,177
Depreciation and amortization 459,054 142,844 601,898
Income (loss) before income taxes 58,703 (63,029 ) (4,326 )
Interest income 445 — 445
Segment assets 5,045,899 4,281,084 9,326,983
Capital expenditures 218,859 177,845 396,704
2003
Dextran Chemdex Total
$ $ $
Gross sales 4,917,446 8,210,984 13,128,430
Intercompany sales 342,087 — 342,087
Interest expense 50,716 27,120 77,836
Depreciation and amortization 388,954 167,388 556,342
Income (loss) before income taxes 872,291 (247,682 ) 624,609
Interest income 1,667 395 2,062
Segment assets 4,918,829 3,569,090 8,487,919
Capital expenditures 340,203 27,665 367,868
[b] The following reconciles segment information presented above to the consolidated financial statements as at and for the years ended January 31:
2005 2004 2003
$ $ $
Gross sales
Gross sales from segments 6,819,094 14,492,551 13,128,430
Intercompany sales elimination (446,735 ) (400,362 ) (342,087 )
6,372,359 14,092,189 12,786,343
24
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
2005 2004 2003
$ $ $
Income (loss) before income taxes
Income (loss) before income taxes from segments 2,349,647 (4,326 ) 624,609
Unallocated corporate expenses (642,870 ) (391,641 ) (546,984 )
1,706,777 (395,967 ) 77,625
2005 2004
$ $
Assets
Segment 10,166,793 9,326,983
Corporate 645,080 1,183,530
10,811,873 10,510,513
2005
Total Consolidated
segments Corporate totals
$ $ $
Other significant items
Interest expense 45,968 45,242 91,210
Depreciation and amortization 504,577 8,518 513,095
Interest income 133,117 — 133,117
Capital expenditures 182,691 — 182,691
2004
Total Consolidated
segments Corporate totals
$ $ $
Other significant items
Interest expense 69,177 64,205 133,382
Depreciation and amortization 601,898 15,787 617,685
Interest income 445 — 445
Capital expenditures 396,704 — 396,704
25
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
2003
Total Consolidated
segments Corporate totals
$ $ $
Other significant items
Interest expense 77,836 72,691 150,527
Depreciation and amortization 556,342 15,787 572,129
Interest income 2,062 — 2,062
Capital expenditures 367,868 — 367,868
[c] Consolidated sales for the years ended January 31 by destination are as follows:
2005 2004 2003
$ $ $
Europe 2,130,180 2,207,104 1,991,107
United States 1,950,761 10,008,794 8,923,364
Pacific Rim 873,872 692,980 714,072
Canada 854,989 655,471 510,499
Other 562,557 527,840 647,301
6,372,359 14,092,189 12,786,343
[d] Long-lived assets by country of domicile are as follows:
2005 2004
$ $
Canada 3,135,872 3,247,473
United States 69,357 1,621,828
Bahamas — 8,518
3,205,229 4,877,819
26
Polydex Pharmaceuticals Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Expressed in United States dollars except where otherwise noted]
January 31, 2005
[e] The following summarizes significant customer sales information for the years ended January 31. Customer A is a Dextran customer, while the other customers were all customers of Chemdex.
2005 2004 2003
$ $ $
Customer A 886,749 762,330 815,907
Customer B 268,186 1,920,282 1,858,236
Customer C 246,296 2,133,597 1,590,126
Customer D 143,258 1,567,135 1,420,554
1,544,489 6,383,344 5,684,823
[f] The following summarizes significant enterprise-wide product group sales information of the Company for the years ended January 31:
2005 2004 2003
$ $ $
Bulk Dextran and derivatives 5,280,458 4,742,519 4,575,359
Sterile injectible veterinary products 663,629 5,697,292 4,480,327
Oral and topical veterinary products 428,272 3,652,378 3,730,657
6,372,359 14,092,189 12,786,343
18. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The carrying values of cash and cash equivalents, ~~trade~~ trade accounts receivable, interest receivable and accounts payable approximate ~~their~~ their fair values as at January 31, ~~2005~~2008 because of the short period to maturity of these financial instruments.

The estimated fair values of the bank indebtedness, due to shareholder, long-term debt and capital lease obligations are not ~~materially~~ materially different from the carrying values for financial statement purposes as at January 31, ~~2005~~2008 and ~~2004~~2007. The estimated fair value of the amount due from shareholder is not determinable because the amount has no fixed terms of repayment.

2719. OTHER DISCLOSURES

[a]

Concentration of accounts receivable

As at January 31, 2008, three (2007 - four) customers of the Company comprised 74% (2007 - 68%) of the trade accounts receivable balance. No other customers had trade accounts receivable outstanding at year end that represented more than 10% of the Company's trade accounts receivable balance.

[b]

Foreign currency risk

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

F-20

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~20. ~~31,~~ACCUMULATED ~~2005~~OTHER COMPREHENSIVE INCOME

19.	OTHER DISCLOSURES
[a]	Concentration of accounts receivable
	As at January 31, 2005, three [2004 - three] customers of the Company comprised 61% [2004 - 59%] of the trade accounts receivable balance. No other customers had trade accounts receivable outstanding at year end that represented more than 10% of the Company’s trade accounts receivable balance.
[b]	Foreign currency risk
	The Company is exposed to foreign currency risk through its net investment in its Canadian operations. The Company has not entered into hedging arrangements related to the foreign currency risk exposure. The Company has entered into foreign exchange contracts to manage exposure to currency fluctuations as described in note 9.
20.	COMPREHENSIVE INCOME (LOSS)

The components of other accumulated comprehensive income are as follows:

The components of other accumulated comprehensive income (loss) are as follows:

	2008	2007
	$	$

Unrealized losses on investments available for sale	(9,968)	(13,670)
Currency translation	1,908,129	716,163
Accumulated other comprehensive income	1,898,161	702,493

2005 2004
$ $
Unrealized loss on investments available for sale (15,760 ) —
Currency translation 341,602 (110,343 )
Accumulated other comprehensive income (loss) 325,842 (110,343 )
21. COMMITMENTS AND CONTINGENCIES

~~21.~~As ~~RECENT~~at ~~ACCOUNTING~~January ~~PRONOUNCEMENTS~~31, 2008, the Company had commitments of $20,024 for capital expenditures related to the plant refurbishment (2007 - $545,488) at Dextran Products in Toronto, and no additional other commitments (2007 – $53,542).

~~In December 2004, the Financial Accounting Standards Board [the “FASB”] issued FASB Statement No~~22. ~~123~~RECENT ~~(Revised~~ACCOUNTING ~~2004),~~PRONOUNCEMENTS “Share-Based Payment” [“Statement 123(R)”], which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” [“Statement 123”]. Statement 123(R) supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows”. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Effective February 1, 2003, the Company has adopted the fair value accounting method provided for under Statement 123 to apply recognition provisions to its employee stock options granted, modified or settled after February 1, 2003. Statement 123(R) will have no impact on the consolidated financial statements of the Company.

In ~~November~~March ~~2004~~2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement ~~151~~No. 140. SFAS No. 156 amends FASB Statement No. 140, Accounting for Transfers and ~~“Inventory~~Servicing ~~Costs”~~of Financial Assets and Extinguishments of Liabilities, ~~which~~with respect ~~clarifies~~to ~~that~~the ~~abnormal~~accounting ~~amounts~~for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective It the beginning of ~~idle~~the ~~facility~~first ~~expense,~~fiscal ~~freight~~year that begins after September 15, ~~handling~~2006. ~~costs~~The ~~and~~Company ~~wasted~~does ~~materials~~not anticipate ~~should~~that bethe application of SFAS 156 will have an impact on the consolidated financial statements of the Company.

28In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles '''GAAP''), and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of he fiscal year ending December 31, 2008. The Company is currently evaluating the impact of SFAS No. 157 on its financial statements.

In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48 "Accounting for Uncertainty in income Taxes." FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes." FIN No. 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Earlier application is encouraged if the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption. The adoption of FIN No. 48 will not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Management does not expect that SFAS No. 158 will have an impact on the consolidated financial statements of the Company.

F-21

Polydex Pharmaceuticals Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~[Expressed in United States dollars except where otherwise noted]~~
[Expressed in United States dollars]

~~January~~In 31September 2006, ~~2005~~the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The adoption of SAB 108 does not have an impact on our consolidated financial statements.

~~recognized~~In asFebruary ~~current-period~~2007, ~~charges~~the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and ~~requires~~Financial ~~the~~Liabilities-Including an ~~allocation~~amendment of ~~fixed~~FASB ~~production~~Statement ~~overheads~~No. 115. SFAS No. 159 permits entities to ~~inventory~~choose to ~~based~~measure onmany ~~the~~financial ~~normal~~instruments and certain other items at fair value. The ~~capacity~~objective ofis to improve financial reporting by providing entities with the opportunity ~~production~~to ~~facilities.~~ mitigate volatility in reported earnings caused by measuring ~~This~~related ~~guidance~~assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective ~~for~~as ~~inventory~~of ~~costs~~the ~~incurred~~beginning ~~during~~of ~~fiscal~~an ~~years~~entity's ~~beginning~~first fiscal year that begins after ~~June~~November 15, ~~2005~~2007. The ~~Company~~adoption of SFAS 159 does not ~~anticipate~~have ~~that~~an ~~this~~impact ~~guidance~~on ~~will~~our ~~impact the~~ consolidated financial statements ~~of the Company~~.

In December ~~2004~~2007, the FASB ~~issued~~revised ~~Statement~~SFAS ~~153~~No. 141, Business ~~“Exchanges~~Combinations. ofSFAS ~~Nonmonetary~~No. ~~Assets”,~~141 an(revised ~~amendment~~2007) ofimproves ~~APB~~the ~~Opinion No. 29~~relevance, ~~“Accounting~~representational ~~for~~faithfulness, ~~Nonmonetary~~and ~~Transactions”. Statement~~comparability ~~153~~of ~~is based on~~ the ~~principle~~information that ~~exchanges~~a reporting ofentity ~~nonmonetary assets~~provides ~~should~~in beits ~~measured~~financial ~~based~~reports onabout ~~the~~a ~~fair~~business ~~value~~combination and ofits ~~the~~effects. ~~assets~~SFAS ~~exchanged~~No. ~~Statement~~ ~~153~~141 ~~eliminates~~(revised ~~the~~2007) ~~narrow~~is effective for business ~~exception~~combinations for ~~nonmonetary~~which ~~exchanges~~the ofacquisition ~~similar~~date ~~productive~~is ~~assets~~on ~~and~~or ~~replaces it~~after ~~with~~the abeginning ~~broader~~of ~~exception~~the first ~~for~~annual ~~exchanges~~reporting ofperiod ~~nonmonetary~~beginning ~~assets~~on ~~that~~or doafter ~~not have~~December ~~commercial~~15, ~~substance~~2008. ~~Statement~~ ~~153~~Early application is ~~effective~~not ~~for~~permitted ~~nonmonetary~~before ~~asset~~that ~~exchanges~~date. ~~occurring~~As insuch, ~~fiscal~~the ~~periods beginning~~Company ~~after~~is ~~June~~required to ~~15,~~adopt ~~2005. The~~ these provisions ofduring ~~Statement~~the ~~153~~fiscal ~~should~~year beending ~~applied~~January ~~prospectively~~31, 2010. ~~The~~ The Company ~~does~~is ~~not~~currently ~~anticipate~~evaluating ~~that~~ the ~~application~~ impact of ~~Statement~~SFAS ~~153~~No. ~~will~~141 ~~have~~(revised an2007) ~~impact~~ on ~~the consolidated financial~~its ~~statements~~financial ~~of the Company~~statements.

22In December 2007, the FASB issued SFAS No. ~~COMPARATIVE~~160, ~~CONSOLIDATED~~ Noncontrolling ~~FINANCIAL~~Interests ~~STATEMENTS~~in Consolidated Financial Statements – an amendment of ARB No. 51. SFAS 160 improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, earlier adoption is prohibited. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending January 31, 2010. The Company is currently evaluating the impact of SFAS No. 160 on its financial statements.

~~The~~In ~~comparative~~March ~~consolidated~~2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial ~~statements~~reporting. ~~have~~SFAS ~~been~~No. ~~reclassified~~161 ~~from~~is ~~statements~~effective ~~previously~~for ~~presented~~fiscal toyears, ~~conform~~and interim periods within those fiscal years, beginning after November 15, 2008, with early adoption encouraged. As such, the Company is required to adopt these provisions at the ~~presentation~~ beginning of the fiscal ~~2005~~year ~~consolidated~~ended January 31, 2010. The Company is currently evaluating the impact of SFAS No. 161 on its financial statements.

29F-22

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

~~Not applicable.~~None

ITEM 9A. CONTROLS AND PROCEDURES

~~The Company~~Disclosure ~~completed~~Controls an evaluation as of the end of the period covered by this report under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them on a timely basis of material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic Securities and Exchange Commission filings.

~~There~~Disclosure controls and procedures ~~have~~are ~~been~~designed noto ~~changes~~ensure that information required to be disclosed in the ~~Company’~~reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's ~~internal~~rules ~~control~~and ~~over~~forms. Disclosure ~~financial~~controls ~~reporting~~and procedures include, without limitation, controls and ~~identified~~procedures designed to ensure that information required to be disclosed in ~~connection~~the reports ~~with~~filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, ~~discussed~~under ~~above~~the ~~that~~supervision ~~occurred~~and inwith the participation of the Company’'s ~~last~~management, ~~fiscal~~including ~~quarter~~the ~~that~~Company's ~~has~~Chief Executive ~~materially~~Officer ~~affected~~and Chief Financial Officer, orof isthe effectiveness of the ~~reasonably~~design ~~likely~~and tooperation ~~materially~~of ~~affect~~the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’'s ~~internal~~disclosure ~~control~~controls ~~over~~and procedures cannot be relied ~~financial~~upon ~~reporting~~to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

Management's Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of January 31, 2008.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing within the accounting operations of our company. The small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Due to this material weakness, management could not conclude that its internal control over financial reporting was effective as of January 31, 2008.

Our review also indicated the existence of certain high level procedures that might or might not serve to provide compensating control over these weaknesses. These procedures consisted of analytical review of key operating results by senior management of the Company, including preparation and review of monthly operating results, comparison of such results to budgets and to historical amounts, and comprehensive gross profit analysis. In addition, the Board of Directors received monthly updates on operations, and on a quarterly basis, reviews, investigates and discusses apparent inconsistencies and concerns with senior operating management.

Our review also revealed that although a number of controls appeared to exist, and indeed were observed to have been in operation, documentary evidence that such controls were operating throughout the period was found to be lacking. Such evidence as signatures indicating that a certain procedure had been carried out and affixing responsibility were lacking in the internal control system.

ITEM 9B. OTHER INFORMATION

~~Not~~In January of 2008, the Company ~~applicable~~received a NASDAQ Staff Deficiency Letter from The NASDAQ Stock Market notifying it that the Company's bid price per share for its common stock had closed below the $1.00 minimum bid price for 30 consecutive business days. As a result, the Company no longer met the requirements of Marketplace Rule 4310(c)(4) for continued listing on The NASDAQ Capital Market and had 180 calendar days, or until July 14, 2008, to regain compliance. During this 180-day period, Polydex shares will continue to trade on The NASDAQ Capital Market.

To regain compliance, the closing bid price of the Company's common stock must remain at or above $1.00 for a minimum of 10 consecutive business days prior to the end of the 180 calendar day compliance period. If the Company does not regain compliance by the end of the compliance period (or any extension thereof) and chooses not to appeal the decision of The NASDAQ Stock Market to delist its common stock, Polydex common stock will be delisted from The NASDAQ Capital Market.

The Company issued a news release regarding this matter on January 22, 2008.

PART III

~~ITEM~~ITEMS 10-14. ~~DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT~~

~~The information~~Pursuant ~~required~~to ~~under~~General ~~this~~Instruction ~~item~~G is(3) ~~incorporated~~of ~~herein~~Form by10-K, ~~reference~~Items ~~from~~10 ~~the~~through ~~material~~14, ~~contained~~inclusive, ~~under~~have ~~the~~not ~~captions~~been ~~“Board~~restated ofor ~~Directors,”~~answered ~~“Proposals,”~~in this annual report ~~“Executive~~on ~~Officers”~~Form ~~and~~10-K ~~“Section~~because ~~16(a)~~the ~~Beneficial~~Company ~~Ownership~~intends ~~Reporting~~to file within 120 days after the close ~~Compliance”~~of inits fiscal year with the ~~Company’s~~Securities ~~definitive~~and Exchange Commission a definitive proxy statement pursuant to beRegulation ~~filed~~14A ~~with~~under the Securities ~~and~~ Exchange ~~Commission~~Act of 1934, which proxy statement involves the election of directors. The information required in ~~connection~~these ~~with~~Items ~~its~~10 ~~2005~~through ~~Annual~~14, ~~Meeting~~inclusive is incorporated by reference to ofthat ~~Members~~proxy statement.

~~Code of Ethics~~29

The Company has adopted a code of ethics that applies to all of its directors, executive officers (including its chief executive officer, chief financial officer, other senior financial officers and any person performing similar functions). The Company has made the Code of Ethics available on its website at www.polydex.comunder the caption “Investor Relations.”

ITEM 11. EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference from the material contained under the captions “Board of Directors,” “Board Meetings and Committees,” “Compensation of Executive Officers,” “Employment Agreements” and “Company Stock Performance” in the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2005 Annual Meeting of Members.

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

The information required under this item is incorporated herein by reference from the material contained under the captions “Ownership of Voting Securities” and “Equity Compensation Plan Information” in the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2005 Annual Meeting of Members.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated herein by reference from the material contained under the captions “Compensation of Executive Officers,” “Compensation Committee Interlocks and Insider Participation” and “Transactions With the Company” in the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2005 Annual Meeting of Members.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated herein by reference from the material contained under the caption “Principal Accountant Fees and Services” in the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2005 Annual Meeting of Members.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

(1) Financial Statements of Polydex Pharmaceuticals

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

Report of Independent Auditors — Schwartz Levitsky Feldman LLP
Consolidated Balance Sheets
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

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

(2) Financial Statement Schedules

Schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.

* Management(3) ~~contract~~Exhibits ~~or compensatory plan or arrangement required to be included as an exhibit to this annual report on Form 10-K.~~

3.1

Memorandum of Association of Polydex Pharmaceuticals Limited, as amended (filed as Exhibit 3.1 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

3.2

Articles of Association of Polydex Pharmaceuticals Limited, as amended (filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q filed September 13, 1999, and incorporated herein by reference)

10.1

Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated December 22, 1993 (filed as Exhibit 10.2 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

10.2

Amendment to Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated February 1, 1999 (filed as Exhibit 10.4 to the Annual Report on Form 10-K filed April 29, 1999, and incorporated herein by reference)

10.3

Research Agreement among Dextran Products Limited, Canadian Microbiology Consortium, British Columbia's Children's Hospital and the University of British Columbia, dated April 1, 1996 (filed as Exhibit 10.4 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

10.4

Joint Venture Agreement among Chemdex, Inc., Veterinary Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992 (filed as Exhibit 10.5 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

10.5

Asset Purchase Agreement dated as of January 13, 2004, by and among Sparhawk Laboratories, Inc., Polydex Pharmaceuticals Limited, Chemdex, Inc. and Veterinary Laboratories, Inc. (filed as Exhibit 10.9 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

10.6

Supply Agreement, dated as of March 1, 2004, by and between Chemdex, Inc. and Sparhawk Laboratories, Inc. (filed as Exhibit 10.10 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

10.7

Unsecured Subordinated Promissory Note dated March 4, 2004 made by Sparhawk Laboratories, Inc. in favor of Chemdex, Inc. (filed as Exhibit 10.11 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

10.8

Warrant and Repurchase Agreement, dated March 4, 2004 issued by Sparhawk Laboratories, Inc. to Chemdex, Inc. (filed as Exhibit 10.12 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

Subsidiaries of Polydex Pharmaceuticals Limited (filed as Exhibit 21 to the Annual Report on Form 10-K filed April 28, 2000, and incorporated herein by reference)

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POLYDEX PHARMACEUTICALS LIMITED
Date: April 29, 2005	By:	/s/ George G. Usher
Date: April 30, 2008	By: /s/ George G. Usher
	George G. Usher, President and
	Chief Executive Officer
Date: April 30, 2008	/s/ John A. Luce
	Chief Financial Officer
	(Principal Financial and Accounting
	Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 29, 2005	/s/ George G. Usher
Date: April 30, 2008	/s/ George G. Usher
	George G. Usher, Director, President
	and Chief Executive Officer
	(Principal Executive Officer)
Date: April 29, 2005	/s/ Sharon Wardlaw
Date: April 30, 2008	/s/ Joseph Buchman
	Sharon Wardlaw, Treasurer, Secretary
	Joseph Buchman, Director
	and Chief Financial Officer
Date: April 30, 2008	/s/ Derek John Michael Lederer
	(Principal Financial and Accounting Officer)
	Derek John Michael Lederer, Director
Date: April 29, 2005	/s/ Joseph Buchman
Date: April 30, 2008	/s/ John L.E. Seidler
	Joseph Buchman, Director
	John L.E. Seidler, Director
Date: April 29, 2005	/s/ Derek John Michael Lederer
	Derek John Michael Lederer, Director
Date: April 29, 2005	/s/ John L.E. Seidler
	John L.E. Seidler, Director

EXHIBIT INDEX


31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, $.0167 par value		Boston Stock Exchange

	2005 $			2004 $
ASSETS [notes 9 and 10]
Current
Cash and cash equivalents [note 3]		2,401,051			59,455
Trade accounts receivable [note 19]		922,267			503,864
Interest receivable [note 12[a]]		41,511			—
Inventories [note 4]		1,516,893			1,226,439
Prepaid expenses and other current assets		115,542			42,730
Deferred tax assets [note 15]		—			267,500
Assets subject to sale agreement [note 12[a]]		—			4,285,666
Total current assets		4,997,264			6,385,654
Property, plant and equipment, net [note 5]		3,124,185			3,248,342
Patents and intangible assets, net [note 6]		68,959			85,511
Investments available for sale [note 7]		1,909,305			—
Due from shareholder [note 8]		643,867			791,006
Assets held for sale		12,085			—
Deferred tax assets [note 15]		56,208			—
		10,811,873			10,510,513
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Bank indebtedness [note 9]		24,170			165,609
Accounts payable		463,579			515,092
Accrued liabilities		365,267			337,046
Customer deposits		97,859			100,925
Income taxes payable [note 15]		129,702			923
Liabilities subject to sale agreement [note 12[a]]		—			880,564
Current portion of long-term debt [note 10[a]]		46,353			281,015
Current portion of capital lease obligations [note 10[b]]		157,531			161,253
Current portion of due to shareholder [note 8]		21,385			—
Total current liabilities		1,305,846			2,442,427
Long-term debt [note 10[a]]		4,368			45,517
Capital lease obligations [note 10[b]]		169,344			284,950
Due to shareholder [note 8]		659,919			683,234
Deferred tax liabilities [note 15]		121,507			147,054
Total long-term liabilities		955,138			1,160,755
Total liabilities		2,260,984			3,603,182
Shareholders’ equity
Capital stock [notes 11 and 12[b]]
Authorized
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding
899,400 Class B preferred shares		15,010			15,010
3,042,296 common shares [2004 - 3,027,796]		50,676			50,434
Contributed surplus		23,303,718			23,236,498
Deficit		(15,144,357	)		(16,284,268	)
Accumulated other comprehensive income (loss) [note 20]		325,842			(110,343	)
Total shareholders’ equity		8,550,889			6,907,331
		10,811,873			10,510,513

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

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

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

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

Filing Compare · POLYDEX PHARMACEUTICALS LTD/BAHAMAS