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

____________ FORM 10-Q

FORM 10-Q

(Mark One)

Q[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~ October 31, ~~2008~~ 2009

£[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to ____________________

Commission File Number 1-8366

POLYDEX PHARMACEUTICALS LIMITED

POLYDEX PHARMACEUTICALS LIMITED
(Exact Name of Registrant as Specified in Its Charter)

Commonwealth of the Bahamas	None
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer
	Identification No.)

421 Comstock Road, Toronto, Ontario, Canada	M1L 2H5
(Address of Principal Executive Offices)	(Zip Code)

(Exact Name of Registrant as Specified in Its Charter)

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

Registrant’s Telephone Number, Including Area Code (416) 755-2231

________________________________________________________________________________________________Former ~~Former~~ Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

Indicate by check mark whether ~~Yes Q~~ the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ____ No £ ____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £o Accelerated filer £o Non-accelerated filer £o Smaller reporting company Qx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X

Yes £ No Q

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

Common Shares, $.0167 Par Value	3,072,846
(Title of Class)	(Outstanding at ~~August~~November 3130, ~~2008~~2009)

POLYDEX PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
PART I	FINANCIAL INFORMATION
Item 1	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	(UNAUDITED)
	Consolidated Balance Sheets October 31, 2009 (Unaudited) and January 31, 2009 (Audited)	F-1
	Consolidated Balance Sheets
	Consolidated Statements of Operations and Comprehensive Income (Loss) Three months and nine months ended October 31, 2009 and 2008 (Unaudited)	F-3
	July 31, 2008 (Unaudited) and January 31, 2008 (Audited)	F-1
	Consolidated Statements of Shareholders’ Equity Nine months ended October 31, 2009 and 2008 (Unaudited)	F-4
	Consolidated Statements of Operations
	Consolidated Statements of Cash Flows Nine months ended October 31, 2009 and 2008 (Unaudited)	F-5
	and Comprehensive Income (Loss)
	Three months and six months ended July 31, 2008 and 2007 (Unaudited)	F-3
	Consolidated Statements of Shareholders’ Equity
	Six months ended July 31, 2008 and 2007 (Unaudited)	F-4
	Consolidated Statements of Cash Flows
	Six months ended July 31, 2008 and 2007 (Unaudited)	F-5
	Notes to Consolidated Financial Statements (Unaudited)	F-6
Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	12
Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES
Item 4	CONTROLS AND PROCEDURES	14
	ABOUT MARKET RISK	11
PART II	OTHER INFORMATION
Item 4	CONTROLS AND PROCEDURES	13
Item 1	LEGAL PROCEEDINGS	15
PART II OTHER INFORMATION
Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	15
Item 1	LEGAL PROCEEDINGS	14
Item 3	DEFAULTS UPON SENIOR SECURITIES	15
Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND
Item 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	15
	USE OF PROCEEDS	14
Item 5	OTHER INFORMATION	15
Item 3	DEFAULTS UPON SENIOR SECURITIES	14
Item 6	EXHIBITS	16
Item 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14
	Signatures and Certifications	17
Item 5	OTHER INFORMATION	14
Item 6	EXHIBITS	15
	Signatures and Certifications	16

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which represent the expectations or beliefs of Polydex Pharmaceuticals Limited (the ‘Company’) 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 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normally recurring accruals) considered necessary for a fair presentation have been included.

PART I FINANCIAL INFORMATION

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

POLYDEX PHARMACEUTICALS LIMITED
Consolidated Balance Sheets
(Expressed in United States dollars)
				July 31		January 31
				2008		2008
				(Unaudited)		(Audited)
Assets
Current assets:
	Cash and cash equivalents (note 3)		$	153,584	$	468,570
	Investments available for sale (note 4)			458,131		845,034
	Trade accounts receivable			951,381		611,975
	Inventories
		Finished goods		1,404,085		790,822
		Work in process		282,076		380,855
		Raw materials		314,780		178,813
				2,000,941		1,350,490
	Prepaid expenses and other current assets			108,565		116,172
Total current assets				3,672,602		3,392,241
Property, plant and equipment, net				5,654,438		6,041,348
Patents and intangible assets, net				41,491		45,511
Due from shareholder				294,412		284,170
			$	9,662,943	$	9,763,270

POLYDEX PHARMACEUTICALS LIMITED

F-Item 1. Consolidated Financial Statements (Unaudited)

			July 31		January 31
			2008		2008
			(Unaudited)		(Audited)
Liabilities and Shareholders' Equity
Current liabilities:
	Bank indebtedness	$	195,314	$	-
	Accounts payable		538,600		399,820
	Accrued liabilities		242,896		320,096
	Payroll and related taxes payable		121,447		98,736
	Customer deposits		92,932		92,932
	Current portion of long-term debt		41,455		41,544
	Current portion of capital lease obligations		6,104		6,071
	Current portion of due to shareholder		30,000		30,000
Total current liabilities			1,268,748		989,199
Long-term debt			369,812		398,540
Capital lease obligations			3,551		6,734
Due to shareholder			602,450		628,569
Deferred income taxes			-		55,962
			975,813		1,089,805
Total liabilities			2,244,561		2,079,004
Shareholders' equity:
	Capital stock
	Authorized:
	100,000 Class A preferred shares of $0.10 each
	899,400 Class B preferred shares of $0.0167 each
	10,000,000 common shares of $0.0167 each
	Issued and outstanding:
	899,400 Class B preferred shares		15,010		15,010
	3,072,846 common shares (January 31, 2008 - 3,072,846)		51,185		51,185
	Contributed surplus		23,499,154		23,499,154
	Deficit		(17,917,260)		(17,779,244)
	Accumulated other comprehensive income		1,770,293		1,898,161
			7,418,382		7,684,266
		$	9,662,943	$	9,763,270

Consolidated Balance Sheets
(Expressed in United States dollars)

See accompanying notes.

		October 31		January 31
		2009		2009
		(Unaudited)		(Audited)
Assets
Current assets:
Cash in banks	$	41,719	$	327,857
Investments available for sale (note 3)		451,030		381,457
Trade accounts receivable		698,604		161,858
Inventories
Finished goods		876,063		626,058
Work in progress		95,199		135,966
Raw materials		335,439		241,599
		1,306,701		1,003,623
Prepaid expenses and other current assets		90,286		106,221
Total current assets		2,588,340		1,981,016
Property, plant and equipment, net		4,321,922		4,057,959
Patents and intangible assets, net		31,441		37,471
Due from estate of former shareholder		257,470		257,470
	$	7,199,173	$	6,333,916

~~F-2~~See accompanying notes.

~~POLYDEX PHARMACEUTICALS LIMITED Consolidated Statements of Operations and Comprehensive Income (Loss) (Expressed in United States dollars)~~F-1

~~Three~~POLYDEX ~~Months~~PHARMACEUTICALS LIMITED

~~Three~~Consolidated ~~Months~~Balance Sheets (Expressed in United States dollars)

Six Months


		October 31		January 31
		2009		2009
		(Unaudited)		(Audited)
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness	$	207,967	$	--
Accounts payable		734,661		150,965
Accrued liabilities		435,393		296,538
Customer deposits		92,932		92,932
Current portion of long-term debt		41,649		35,336
Current portion of capital lease obligations		4,705		15,299
Current portion of due to shareholder		30,000		30,000
Total current liabilities		1,547,307		621,070
Long-term debt		298,708		291,305
Capital lease obligations		20,136		20,902
Due to shareholder		554,458		578,316
		873,302		890,523
Total liabilities		2,420,609		1,511,593

Six Months

Going concern (note 1)
Shareholders' equity:
Capital stock
Authorized:
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding:
899,400 Class B preferred shares (January 31, 2009 - 899,400)		15,010			15,010
3,072,846 common shares (January 31, 2009 - 3,072,846)		51,185			51,185
Contributed surplus		23,527,576			23,527,576
Deficit		(20,144,785	)		(19,370,714	)
Accumulated other comprehensive income		1,329,578			599,266
		4,778,564			4,822,323
	$	7,199,173		$	6,333,916

See accompanying notes.

~~Ended~~F-2

~~Ended~~POLYDEX PHARMACEUTICALS LIMITED

~~Ended~~Consolidated Statements of Operations and Comprehensive Income (Loss)(Expressed in United States dollars)

Ended

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	October 31		October 31		October 31		October 31
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales	1,153,776		1,373,963		3,416,736		3,890,452
Cost of goods sold	1,076,250		1,574,676		3,331,095		3,635,263
Gross profit (loss)	77,526		(200,713	)	85,641		255,189
Expenses
General and administrative	245,517		247,503		674,120		786,811
Selling and promotion	13,928		19,204		41,354		51,141
Interest expense,net	13,808		17,401		41,002		52,404
Depreciation	3,888		9,089		14,421		27,351
Research and development	1,140		4,474		3,460		32,521
Foreign exchange loss (gain)	17,824		(72,648	)	91,672		(80,735	)
Interest and other expense (income)	(2,137	)	(8,899	)	(6,317	)	(2,310	)
Total expenses	293,968		216,124		859,712		867,183
Loss before income taxes	(216,442	)	(416,837	)	(774,071	)	(611,994	)
Provision (recovery) of income taxes	-		1,843		-		(55,298	)
Net loss for the period	(216,442	)	(418,680	)	(774,071	)	(556,696	)
Unrealized gain (loss) on investments available for sale	4,664		(2,414	)	11,509		22,431
Currency translation adjustment	(25,524	)	(1,092,741	)	718,803		(1,245,454	)
Comprehensive loss for the period	(237,302	)	(1,513,835	)	(43,759	)	(1,779,719	)
Per share information:
Loss per common share:
Basic	(0.07	)	(0.14	)	(0.25	)	(0.18	)
Diluted	(0.07	)	(0.14	)	(0.25	)	(0.18	)

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


See accompanying notes.

~~July 31~~F-3

July 31

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Shareholders' Equity
(Expressed in United States dollars)

		Nine Months			Nine Months
		Ended			Ended
		October 31			October 31
		2009			2008
		(Unaudited)			(Unaudited)
Preferred Shares:
Balance, beginning and end of period	$	15,010		$	15,010
Common Shares:
Balance, beginning and end of period	$	51,185		$	51,185
Contributed Surplus:
Balance, beginning and end of period	$	23,527,576		$	23,499,154
Deficit:
Balance, beginning of period	$	(19,370,714	)	$	(17,779,244	)
Net loss for the period		(774,071	)		(556,696	)
Balance, end of period	$	(20,144,785	)	$	(18,335,940	)
Accumulated Other Comprehensive Income:
Balance, beginning of period	$	599,266		$	1,898,161
Unrealized gain on investments available for sale		11,509			22,431
Currency translation adjustment for the period		718,803			(1,245,454	)
Balance, end of period	$	1,329,578		$	675,138

See accompanying notes.

~~July 31~~ F-4

~~July~~POLYDEX 31PHARMACEUTICALS LIMITED

~~2008~~Consolidated Statements of Cash Flows (Expressed in United States dollars)

2008

	Nine Months	Nine Months
	Ended	Ended
	October 31	October 31
	2009	2008
	(Unaudited)	(Unaudited)
Cash provided by (used in):
Operating activities:
Net loss for the period	(774,071)	(556,696)
Add (deduct) items not affecting cash:
Depreciation and amortization	324,830	433,849
Interest on shareholder loan	-	(15,063)
Loss on investments available for sale	-	31,644
Loss on foreign exchange contract	-	26,097
Net change in non-cash working capital balances related to operations	148	(721,993)
Cash used in operating activities	(449,093)	(802,162)
Investing activities:
Additions to property, plant and equipment	(52,110)	(80,163)
Decrease in due from shareholder	-	16,500
Proceeds (acquisition) of investments available for sale	(7,114)	382,407
Cash provided by (used in) investing activities	(59,224)	318,744
Financing activities:
Repayment of long-term debt	(28,681)	(29,470)
Repayment of capital lease obligations	(15,518)	(3,892)
Decrease in due to shareholder	(23,858)	(40,130)
Increase in bank indebtedness	207,967	157,742
Cash provided by financing activities	139,910	84,250
Effect of exchange rate changes	82,269	(55,774)
Net decrease in cash and cash equivalents	(286,138)	(454,942)
Cash and cash equivalents, beginning of year	327,857	468,570
Cash and cash equivalents, end of year	41,719	13,628
Cash and cash equivalents is comprised of the following:
Cash	41,719	13,628

See accompanying notes.

~~2008~~F-5

~~2007~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~(Unaudited)~~1. Basis of Presentation:

The information contained in the interim consolidated financial statements is condensed from that which would appear in annual consolidated financial statements. The interim consolidated financial statements included herein should be read in conjunction with the audited financial statements, and notes thereto, and other financial information contained in the 2009 Annual Report on Form 10-K for the fiscal year ended January 31, 2009 as filed by Polydex Pharmaceuticals Limited (~~Unaudited~~the “Company”) with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of October 31, 2009 and 2008 include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire fiscal year. The interim consolidated financial statements include the accounts and transactions of the Company and its majority owned subsidiaries in which the Company has equal to or more than a 50% ownership interest and exercises control.

~~(Unaudited)~~Management has reviewed sugsequent events, and there were no material subsequent events since December 11, 2009 that would require recogntion or note disclosures in these financial statements.

~~(Unaudited)~~Going Concern

These consolidated financial statements have been prepared on going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future, For the fiscal year ended January 31, 2009, the Company generated a consolidated net loss of $1,591,470 (October 31, 2009-$774,071; January 31, 2008-$885,211) and realized a negative cash flow from operating activities of $251,128 (October 31, 2009-$449,093; January 31, 2008-$297,899). There was an accumulated deficit of $19,370,714 (October 31, 2009-$20,144,785; January 31, 2008 - $17,779,244) The Company, through its wholly owned subsidiary Dextran Products Limited, was also in violation of its debt service loan covenant related to the bank term loan of $324,893 (Cdn$398,481) (October 31, 2009-$338,608; Cdn$366,340), on which the Company subsequently received a waiver from its bank. The Company had positive working capital of $1,359,946 as at January 31, 2009 (October 31, 2009-$1,041,033; January 31, 2008 - $2,403,042).

~~1,296,704~~Management has undertaken the following initiatives that it believes will be instrumental in leading to more profitable operations:

$Continued close monitoring of direct cost areas, including raw material pricing, and tight control of plant hours of work.
~~1,504,365~~Increased focus on productivity related to plant operations
$Cost monitoring relating to administrative and overhead expenses, including administrative wages, insurance, and reporting costs.
~~2,516,489~~Increased efforts to reduce exposure to negative foreign exchange fluctuations.

$The Company’s ability to continue as a going concern is in doubt as it is dependent on the ability of the Company to attain profitable operations, enabling it to meet the Company’s liabilities as they become due and the realization of its business plans. The outcome of these matters is primarily dependent on factors outside the Company’s control and cannot be predicted at this time. Should the above expectations fail to occur or not achieve the levels required to meet the Company’s profitability and liquidity requirements, management will seek other sources of investment from new or existing investors, creditors and customers.

~~2,851,498~~P a g e |F-6

~~1,104,798~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~1,405,262~~The accompanying consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future. These financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2~~,060,587~~. Significant Accounting Policies:

~~2,543,434~~Basis of consolidation

~~191,906~~The interim consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated on consolidation.

~~99,103~~Use of estimates

~~455,902~~The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

~~308,064~~Cash and cash equivalents

~~General~~Cash and ~~administrative~~cash equivalents include cash and short-term deposits with maturities of less than three months at the date of purchase.

~~281,833~~Inventories

~~294~~Inventories of raw materials are stated at the lower of cost and net realizable value,~~955~~ 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 labor and fixed and variable overhead expenses.

~~539,308~~Investments available for sale

~~569~~Investments available for sale consist of medium-term fixed income instruments,~~188~~ trust income funds, 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 statement of operations as it is earned. Changes in market values during the holding period are reported as unrealized gain (loss) on investments 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.

~~Interest~~P ~~expense~~a g e |F-7

~~15,781~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

25Property,~~008~~ plant and equipment and patents and intangible assets

35Property,~~003~~ 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:

~~49,844~~Buildings 15 years Machinery and equipment 3 to 10 years

~~Selling~~Patents and ~~promotion~~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.

17Useful 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 value of such asset,~~958~~ an impairment loss is recognized for the difference between estimated fair value and carrying value.

~~27,081~~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.

~~31,937~~Revenue recognition

51Revenue results from sales of bulk manufactured products. Revenue 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,~~174~~ either upon shipment of product or upon receipt by the customer.

~~Research~~Product sold in bulk quantities is tested, prior to release for shipment, to ensure that it meets customer specifications, and ~~development~~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.

~~23,263~~Shipping and handling costs

~~54,520~~Shipping and handling costs incurred by the Company for shipment of products to customers are included in cost of goods sold.

~~28,047~~Research and development

~~75,847~~Research and development costs are expensed as incurred and are stated net of investment tax credits earned.

~~Depreciation~~P a g e |F-8

~~9,101~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~9,685~~Foreign currency translation

~~18,262~~The functional currency of the Company’s Canadian operations has been determined to be the Canadian dollar. All asset and liability accounts of the Company except capital stock have been translated into United States dollars using the current exchange rates at the interim consolidated balance sheet dates. Capital stock is recorded at historical rates. Revenue and expense items are translated using the average exchange rates for the period. The resulting gains and losses have been reported separately as accumulated other comprehensive income within shareholders’ equity.

~~19,556~~Stock options

~~Foreign~~The ~~exchange~~Company ~~loss~~follows ~~(gain)~~Statement of FASB ASC Topic 718 “Accounting for Stock-Based Compensation”, according to which compensation expense is recognized on the date of grant, based on the fair value of the options granted.

~~18,365~~Foreign exchange contracts

45From time to time,~~586~~ the Company enters into forward exchange contracts to mitigate its foreign currency exposure. The Company classifies derivative instruments such as forward exchange contracts, as held-for-trading, and the unrealized gains or losses on these contracts are recorded in the income statement.

~~Cash~~Earnings ~~surrender~~(loss) ~~value~~per ofcommon ~~life~~share ~~insurance~~

Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding of 3,072,846 for the three months ended October 31, 2009 (2008 - 3,072,846). Diluted earnings (loss) per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of nil at October 31, 2009 and October 31, 2008 were used in the calculation of diluted earnings (loss) per common share, as their effect was anti-dilutive. Options to purchase common shares of nil were included in the computation of diluted earnings (loss) per common share as at October 31, 2009. Options to purchase common shares of nil at October 31, 2008 were included in the computation of diluted earnings (loss) per common share.

P a g e |F-9

~~Interest~~NOTES ~~and~~TO ~~other~~CONSOLIDATED ~~expense~~FINANCIAL STATEMENTS (~~income~~Unaudited)

~~20,961~~3. Investments Available for Sale:

~~6,589~~Investments available for sale consist of the following:

361,441

		October 31		January 31
		2009		2009

Canadian short-term fixed income fund	$	245,429	$	205,934
Global fixed income bond fund	$	205,601	$	175,523
	$	451,030	$	381,457

~~327~~Canadian short-term fixed income bond fund is currently yielding 2.74% . The Global fixed income bond fund is currently yielding approximately 2.41% . Investments available for sale are stated at fair market value,~~456~~ based on quoted market prices. An unrealized gain of $11,509 has been included in accumulated other comprehensive income.

~~651,059~~4. Commitments and Contingencies:

~~670~~There are no material commitments or contingencies as at October 31,~~655~~ 2009. Subsequent to July 31, 2008, the Company installed a replacement copying system, and committed to 22 quarterly payments of Cdn $ 1,998 each.

5. Stock-based Employee Compensation:

-The Company maintains an incentive share option plan for management personnel for options to purchase up to 954,950 common shares. The Company also issues options to certain consultants for services provided to the Company.

24All options granted have terms of five years and vest immediately. At October 31,~~741~~ 2009, the Company had 138,761 options outstanding at exercise prices ranging from $0.79 to $10.01 and a weighted average exercise price of $1.53. The options, which are immediately exercisable and expire on dates between January 31, 2010 and January 31, 2014, entitle the holder of an option to acquire one common share of the Company.

3The Company uses the fair value method in accordance with FASB ASC Topic 718 to account for awards of stock-based employee compensation. No stock-based employee compensation expense was recorded during the period from February 1,~~332~~ 2009 to October 31, 2009, because there were no options granted during this period. Similarly, no stock-based employee compensation expense was recorded during the period from February 1, 2009 to October 31, 2009, because there were no options granted during that period.

~~24,845~~P a g e |F-10

~~397~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~296,573~~6. Segmented Information:

728,825

		Nine Months		Nine Months
		Ended		Ended
		October 31,		October 31,
		2009		2008

Total revenue by significant customer:
Customer A	$	808,151	$	746,620
Customer B	$	805,615	$	735,078
Customer C	$	352,078	$	674,550
Customer D	$	220,160	$	---
Customer E	$	68,350	$	53,960
Customer F	$	---	$	---
	$	2,254,354	$	2,210,208

		Nine Months		Nine Months
		Ended		Ended
		October 31,		October 31,
		2009		2008

Sales by geographic destination:
Europe	$	1,116,438	$	1,040,771
Canada	$	829,630	$	767,592
United States	$	693,329	$	1,329,247
Pacific Rim	$	408,115	$	354,510
Other	$	369,224	$	398,332
	$	3,416,736	$	3,890,452

$P a g e |F-11

71,552

366,631

Per share information:

Loss per common share:

Basic

Diluted

computing net earnings per share for the period:

Basic

3,072,846

Diluted

3,072,846

See accompanying notes.

F-3

POLYDEX PHARMACEUTICALS LIMITED
Consolidated Statements of Shareholders' Equity
(Expressed in United States dollars)
			Six Months		Six Months
			Ended		Ended
			July 31		July 31
			2008		2007
			(Unaudited)		(Unaudited)
Preferred Shares:
	Balance, beginning and end of period	$	15,010	$	15,010
Common Shares:
	Balance, beginning and end of period	$	51,185	$	51,185
Contributed Surplus:
	Balance, beginning and end of period	$	23,499,154	$	23,483,659
Deficit:
	Balance, beginning of period	$	(17,779,244)	$	(16,894,033)
	Net loss for the period		(138,016)		(362,591)
	Balance, end of period	$	(17,917,260)	$	(17,256,624)
Accumulated Other Comprehensive Income:
	Balance, beginning of period	$	1,898,161	$	702,493
	Unrealized loss reclassified on investments available for sale		24,845		397
	Currency translation adjustment for the period		(152,713)		728,825
	Balance, end of period	$	1,770,293	$	1,431,715

See accompanying notes.

F-4

POLYDEX PHARMACEUTICALS LIMITED
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
			Six Months		Six Months
			Ended		Ended
			July 31		July 31
			2008		2007
			(Unaudited)		(Unaudited)
Cash provided by (used in):
Operating activities:
	Net loss for the period	$	(138,016)	$	(362,591)
	Add (deduct) items not affecting cash:
	Depreciation and amortization		303,570		270,685
	Interest on shareholder loan		(10,242)		(15,040)
	Loss on investments available for sale		31,724		-
	Net change in non-cash working capital balances related to operations		(935,231)		(229,660)
			(748,195)		(336,606)
Investing activities:
	Additions to property, plant and equipment and patents		(27,913)		(1,089,321)
	Decrease in due from shareholder		-		23,431
	Decrease in accrued interest on investments		-		3,232
	Proceeds of investments available for sale		376,623		776,324
			348,710		(286,334)
Financing activities:
	Repayment of long-term debt		(20,428)		(17,193)
	Repayment of capital lease obligations		(2,941)		(2,418)
	Decrease in due to shareholder		(26,119)		(4,383)
	Increase in bank indebtedness		195,314		-
			145,826		(23,994)
	Effect of exchange rate changes on cash		(61,327)		56,684
Decrease in cash and cash equivalents			(314,986)		(590,250)
Cash and cash equivalents, beginning of period			468,570		1,384,995
Cash and cash equivalents, end of period		$	153,584	$	794,745
Cash and cash equivalents is comprised of the following:
	Cash	$	68,909	$	240,523
	Short-term deposits		84,675		554,222
		$	153,584	$	794,745
See accompanying notes.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation:

The information contained in the interim consolidated financial statements is condensed from that which would appear in annual consolidated financial statements. The interim consolidated financial statements included herein should be read in conjunction with the audited financial statements, and notes thereto, and other financial information contained in the 2008 Annual Report on Form 10-K for the fiscal year ended January 31, 2008 as filed by Polydex Pharmaceuticals Limited (the “Company”) with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of July 31, 2008 and 2007 include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire fiscal year. The interim consolidated financial statements include the accounts and transactions of the Company and its majority owned subsidiaries in which the Company has equal to or more than a 50% ownership interest and exercises control.

Significant Accounting Policies:

Basis of consolidation

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

Use of estimates

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

Cash and cash equivalents

Cash and cash equivalents include cash and short-term deposits with maturities of less than three months at the date of purchase.

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 labor and fixed and variable overhead expenses.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Investments available for sale

Investments available for sale consist of medium-term fixed income instruments, trust income funds, 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 statement of operations as it is earned. Changes in market values during the holding period are reported as unrealized gain (loss) on investments 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.

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 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

Revenue results from sales of bulk manufactured products. Revenue 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.

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.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Shipping and handling costs

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

Research and development

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

Foreign currency translation

The functional currency of the Company’s Canadian operations has been determined to be the Canadian dollar. All asset and liability accounts of the Company except capital stock have been translated into United States dollars using the current exchange rates at the interim 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 accumulated other comprehensive income within shareholders’ equity.

Stock options

The Company has elected to follow Statement of Financial Accounting Standards No. 123(R), “Accounting for Stock-Based Compensation” (“SFAS 123(R)”). Under SFAS 123(R), compensation expense is recognized on the date of grant, based on the fair value of the options granted.

Earnings (loss) per common share

Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding of 3,072,846 for the three months ended July 31, 2008 (2007 - 3,072,846). Diluted earnings (loss) per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of nil at July 31, 2008 and July 31, 2007 were used in the calculation of diluted earnings (loss) per common share, as their effect was anti-dilutive. Options to purchase common shares of nil were included in the computation of diluted earnings per share as at July 31, 2008.

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Cash and Cash Equivalents:

Cash and cash equivalents consist of the following:

		July 31		January 31
		2008		2008
Cash	$	68,909	$	171,625
Short-term deposit		84,675		296,945
	$	153,584	$	468,570

Short-term deposit consists of Canadian money market funds in the amount of Cdn. $86,707, and bears interest at 2.86%.

Investments Available For Sale:

Investments available for sale consist of the following:

		July 31		January 31
		2008		2008
Canadian short-term fixed income fund	$	252,246	$	346,845
Global fixed income bond fund	$	205,885	$	498,189
	$	458,131	$	845,034
Current portion of investments available for sale	$	(458,131)	$	(845,034)
	$	–	$	–

Canadian short-term fixed income bond fund is currently yielding 3.35%. The Global fixed income bond fund is curently yielding 3.1%. Investments available for sale are stated at fair market value, based on quoted market prices. An unrealized loss of $24,845 has been reclassified from Accumulated other comprehensive income.

Commitments and Contingencies:

Subsequent to July 31, 2008, the Company installed a replacement copying system, and is committed to 22 quarterly payments of Cdn $ 1,998. This contract replaced the existing capital lease and a portion of the existing long-term debt.

Stock-based Employee Compensation:

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

All options granted have terms of five years and vest immediately. At July 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, 2013, entitle the holder of an option to acquire one common share of the Company.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company uses the fair value method in accordance with SFAS 123 to account for awards of stock-based employee compensation. No stock-based employee compensation expense was recorded during the period from February 1, 2008 to July 31, 2008, because there were no options granted during this period.

Segmented Information:

	Six Months		Six Months
		Ended		Ended
		July 31,		July 31,
		2008		2007
Total revenue by significant customer:
Customer A	$	607,962	$	194,400
Customer B	$	491,026	$	588,945
Customer C	$	343,531	$	290,117
Customer D	$	110,080	$	103,600
Customer E	$	53,960	$	170,240
Customer F	$	–	$	258,091
	$	1,606,559	$1,605,393
	Six Months		Six Months
		Ended		Ended
		July 31,		July 31,
		2008		2007
Sales by geographic destination:
United States	$	872,103	$	523,037
Europe	$	743,343	$	1,214,033
Canada	$	627,596	$	483,494
Pacific Rim	$	77,350	$	370,056
Other	$	196,097	$	260,878
	$	2,516,489	$	2,851,498

F-10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s fiscal year ends on January 31st of each year. In this report, fiscal year ~~2009~~2010 refers to the Company’s fiscal year ended January 31, ~~2009~~2010. ~~The~~ The following discussion should be read in conjunction with the ~~July~~October 31, ~~2008~~ 2009 interim consolidated financial statements and notes thereto included elsewhere in this report. Operating results for the ~~six~~nine months ended ~~July~~October 31, ~~2008~~2009 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, ~~2009~~2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended January 31, ~~2008~~2009. 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.

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 wholly-owned subsidiaries, Dextran Products and Chemdex, Inc.

The manufacture and sale of bulk quantities of dextran and derivative products for sale to large pharmaceutical companies throughout the world is conducted through Dextran Products in Canada, and Chemdex in the United States. ~~which~~On ~~provides~~March 4,2004, Chemdex entered into a supply agreement with Sparhawk to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk ~~pursuant~~on toan aexclusive ~~definitive~~basis ~~supply~~in ~~agreement~~the United States for 10 years.

Management Objectives for Fiscal ~~2009~~2010.

~~The~~ In ~~past~~fiscal year ~~and~~2010, amanagement is ~~half~~continuing ~~has~~to ~~been~~focus ~~difficult~~on ~~for~~the ~~Polydex~~core ~~Pharmaceuticals~~products ~~Limited. As a Canadian based manufacturer~~ of ~~pharmaceutical~~Dextran ~~based~~Products ~~compounds~~that ~~exporting~~have historically ~~internationally,~~been the ~~increase~~backbone ~~in value~~ of the ~~Canadian~~Company. ~~dollar~~Opportunities byto ~~approximately 18%~~increase ~~compared~~distribution tochains ~~the~~for ~~United~~existing ~~States~~Dextran ~~dollar~~products ~~from~~in ~~January~~overseas ofmarkets ~~2007~~continue to ~~has~~be ~~severely~~explored ~~reduced~~by ~~the~~management. ~~profitability~~New ofcustomers ~~the~~have ~~Canadian~~also ~~operations,~~been ~~and~~identified ~~negatively~~in ~~impacted the Company’s cash flows~~Europe. ~~More~~ Expanding ~~recently,~~current ~~the~~market ~~world~~opportunities ~~wide~~and ~~increase in~~ the ~~price~~potential offor ~~commodities~~new ~~has~~market penetration ~~resulted~~led inmanagement ~~lowered~~to ~~pig~~make ~~production,~~plant ~~especially~~refurbishments inand ~~Europe, where~~ the ~~Company~~expansion ~~has~~of production ~~traditionally~~capacity ~~derived~~ a ~~substantial~~priority ~~portion~~with ofrespect ~~its~~to ~~sales. The cancellation of Phase III HIV clinical trials in January of 2007 for~~ the Company’s ~~cellulose~~manufacturing operations ~~sulphate~~located ~~compound known as Ushercell was very disappointing to the Company, and resulted~~ in ~~a drastic decline in our share price on NASDAQ, though it did not have an impact on our core operations~~Toronto. ~~Throughout~~The ~~this~~first ~~period,~~step ~~the Company~~ has been ~~investing~~construction ~~its~~of new ~~significant~~drying ~~cash~~facilities ~~reserves~~to inproduce ~~the~~increased ~~refurbishment~~quantities of ~~the~~higher ~~Toronto~~quality ~~plant,~~product. These inproducts ~~order~~have totraditionally ~~capitalize~~generated ~~on the~~ higher margins ~~available for its powdered products line~~. ~~With~~Production ~~all~~ of product ~~these~~utilizing ~~challenges~~this ~~occurring~~new atequipment ~~the~~is ~~same~~planned ~~time,~~following ~~management~~the ~~has~~completion ~~reacted~~of validation inand athe ~~number~~receipt of ~~effective~~ ~~ways,~~orders. ~~including:~~

Research and development of the •Company’s human pharmaceutical products is coordinated at Dextran Products. Ushercell 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. Further work in this area has been suspended pending a final investigative report which is expected during fiscal year 2010. The Company never received any financial gain from this project, and as a result, there is no immediate or direct effect on sales or revenues.

~~The~~1 ~~Company~~| ~~has~~P ~~managed to increase its pricing across all product lines to partially compensate for the increased value of the Canadian dollar. This has been~~ a ~~challenging~~g ~~process, as our sales quotes can be up to six months in advance, and with the lowered demand for our products has been met with resistance.~~ e

The Company’s profitability for 1the third quarter and the year to date was negatively impacted by a sales mix that did not include expected shipments of powdered product, which provides higher gross margin than its liquid products. Lowered powder sales were also a contributing factor that led to the large writedown of work in progress that occurred in the second quarter of fiscal year 2010. Management has devoted effort to improve the profitability of liquid product, and recent improvements to production processes are already showing positive results. Management has also taken steps to reduce the effect of negative currency changes on the Company’s profitability, which should also be evident going forward. This is a difficult area which is not always well received by our customers, but management will continue to pursue this wherever possible.

•

Cost reduction has been a hallmark throughout this period of struggle. All of Polydex’s personnel have contributed to the shrinking of everything from the cost of raw materials, plant repairs, and sludge removal, to overheads such as insurance, legal, consulting and reporting costs. Payroll reductions have been de rigeur, with management compensation being reduced and the implementation of shorter plant hours of work when appropriate. Cost control is an ongoing endeavor that will provide a stronger base for future earnings.

•

The Company has been actively striving to optimize its product mix, and the results of this effort are beginning to be seen in the last 6 months, with improved margins helping to reduce overall losses in spite of the decline in sales volumes. Management believes that this improvement will only increase when the plant refurbishment is operational.

•

The new plant equipment will also allow the Company to expand its markets, especially large international pharmaceutical companies who rely on production from high quality facilities.

•

The Company is continuing to investigate opportunities related to the contraceptive indication for Ushercell.

With all this in the past, there remain a number of challenges before us. Though rigorous cost cutting and careful price increases have been effective, our cash reserves have been significantly reduced, and the Company’s future will only be assured through meeting the increasingly competitive demands of our customers, who are experiencing their own pressures in the turbulence of the global marketplace.

Research and development of the Company’s human pharmaceutical products is coordinated at Dextran Products. Ushercell 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. However, Phase III HIV clinical trials were cancelled in January of 2007 due to a higher than expected incidence of HIV. The New England Journal of Medicine recently published a report on the Phase III trial data indicating that product adherence was low among participants and concluded that cellulose sulphate may not have increased HIV transmission after all but also may not have an HIV preventative effect. In an article published in Obstetrics and Gynecology in March 2008, the lead researchers were quoted by Reuters Health as affirming that “Cellulose sulphate gel appears to be an effective vaginal contraceptive without many side effects" with data showing an approximate 96% effectiveness rate of pregnancy prevention when the product was used as directed. The researchers added, “With time and further research, this vaginal contraceptive may become an alternative to the nonoxynol-9 based contraceptive gels currently available in the U.S.” The Company never received any financial gain from this project, and as a result, there is no immediate or direct effect on sales or revenues. Management intends to pursue the development of cellulose sulphate as a contraceptive.

Cellulose sulphate has also been tested for its effect on bacterial vaginosis (BV). In 2007, the report outlining results from a BV trial concluded that although efficacy of cellulose sulphate in prevention of BV was not significant, there were significant questions about patient behavior and product adherence in that trial as well. At this time management is not seeking to pursue continued development of cellulose sulphate for prevention of BV.

Results of Operations

~~Three~~

Three

Nine

~~Months~~

Months

~~Six Months~~

~~Six~~ Months

Months

~~Ended~~

Ended

~~Ended~~

Ended

July 31,

October 31,

2008

2007

Variance

2008

2007

Variance

2009

2008

Variance

2009

2008

Variance

Net loss

$~~(112,394)~~

$ (~~228~~216,~~353)~~442

~~51%~~)

$~~(138,016)~~

$(~~362~~418,~~591)~~680

~~62%~~)

48%

(774,071

)

(556,696

)

(39)%

Loss per Share

$~~(0.04)~~

$(0.07)

)

$~~(0.04)~~

$(0.~~12)~~14

)

(0.25

)

(0.18

)

The ~~decrease~~reduction in the net loss for the ~~second~~third quarter ~~and year to date~~ of fiscal year ~~2009~~2010, as compared to the ~~second~~third quarter ~~and year to date~~ of fiscal year ~~2008~~2009, is primarily a result of improved gross margins,. aThe ~~deferred income tax recovery,~~increased ~~and~~loss ~~decreased~~in ~~expenses partially offset by decreased investment income experienced during these periods. Expenses during~~ the ~~second quarter and~~ year to date of fiscal year ~~2008~~2010 ~~were~~as ~~reduced~~compared byto ~~$77,073,~~2009 ~~which~~is ~~was~~ due primarily to the ~~collection~~decrease ofin ~~the~~sales ~~cash~~and ~~surrender~~gross ~~value~~margin, ofas amentioned ~~life insurance policy during that period~~below.

~~Three~~

Three

Nine

~~Months~~

Months

~~Six Months~~

~~Six~~ Months

Months

~~Ended~~

Ended

~~Ended~~

Ended

July 31,

October 31,

2008

2007

Variance

2008

2007

Variance

2009

2008

Variance

2009

2008

Variance

Sales

$~~1,296,704~~

$1,~~504~~153,~~365~~776

~~(14)%~~

$~~2,516,489~~

$21,~~851~~373,~~498~~963

~~(12)%~~

(16)%

3,416,736

3,890,452

(12)%

~~The~~ Sales ~~sales decrease~~ for the ~~second~~third quarter and year to date of fiscal year ~~2009~~2010 ~~compared~~decreased toprimarily ~~the~~as ~~second~~a ~~quarter~~result ~~and~~of lower sales through our United States subsidiary, Chemdex, Inc. Overall year to date ofsales, including ~~fiscal~~those ~~year~~through ~~2008~~Chemdex, ~~was~~Inc., ~~primarily~~are lower than prior years due to decreased demand, ~~offset~~from customers affected by ~~price~~the ~~increases~~depressed ~~implemented~~hog bymarkets, ~~management~~and ~~subsequent~~the general toslowdown ~~those~~in ~~periods.~~ the world economy.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Gross profit	$191,906	$99,103	94%	$455,902	$308,064	48%
Percentage of sales	14.8%	6.6%		18.1%	10.8%

2 | P a g e

		Three		Three				Nine		Nine
		Months		Months				Months		Months
		Ended		Ended				Ended		Ended
		October 31,		October 31,				October 31,		October 31,
		2009		2008		Variance		2009		2008	Variance
Gross profit	$	77,526	$	(200,713	)	139%	$	85,641	$	255,189	(66	)%
Percentage of sales		6.7%		(14.6	)%			2.5%		6.6%

The significant increase in gross margin for the ~~second~~third quarter ~~and~~of ~~the~~fiscal year to2010 ~~date~~is ofprimarily ~~fiscal~~due ~~year~~to ~~2009~~production related ~~compared~~factors tothat occurred in the ~~second~~third quarter ~~and~~of fiscal year to2009, including ~~date~~an ofequipment ~~fiscal~~breakdown ~~year~~that ~~2008~~resulted isin ~~primarily~~the ~~due~~loss toof ~~several~~an ~~factors~~expensive ~~throughout~~raw material, ~~both~~the ~~quarters~~reworking of ~~fiscal~~a ~~year~~number ~~2009.~~of ~~First,~~batches asof ~~mentioned~~powdered ~~above~~product, ~~sales~~and ~~pricing~~the write ~~was~~off ~~increased~~of byunsatisfactory ~~management. Second~~product, ~~the~~all ~~Company~~of ~~experienced~~which ~~increased~~adversely ~~sales~~affected ofgross profit ~~higher~~in ~~margin~~that ~~powder~~quarter. ~~products~~These ~~during~~problems did not occur in the ~~first~~third quarter of fiscal year ~~2009~~2010. ~~Third,~~However ~~management~~the ~~has~~lower ~~been~~gross ~~successful~~profit in ~~continuing~~the year to ~~reduce~~date ~~various~~of ~~direct~~fiscal year ~~production~~2010 ~~costs,~~compared ~~especially~~to ~~utilities,~~the ~~equipment~~year ~~repairs~~to ~~and~~date ~~supplies,~~of ~~and~~fiscal ~~sludge~~year ~~removal~~2009 is primarily attributable to several factors. ~~These~~First, ~~improvements~~though ~~were~~overall ~~partially~~sales ~~offset~~declined by12%, the most ~~continued~~significant ~~rise~~decline ofhas been in the ~~Canadian~~sales ~~dollar~~of ~~relative~~powdered toproduct, ~~the~~which UShave much ~~dollar~~higher ~~throughout~~margins ~~this~~than ~~period~~our liquid products. Second, ~~since~~in ~~production~~the issecond ~~based~~quarter atof fiscal year 2010, the ~~Dextran~~Company ~~Products~~experienced ~~Limited~~a ~~facility~~large writedown of work in ~~Toronto,~~progress inventory ~~Canada~~that had reached its expiry date.

	~~Three~~	Three			Three					Nine		Nine
	~~Months~~	Months		~~Six Months~~	~~Six~~ Months					Months		Months
	~~Ended~~	Ended		~~Ended~~	Ended					Ended		Ended
	July 31,	July 31,		July 31,	July 31,
		October 31,			October 31,					October 31,		October 31,
	2008	2007	Variance	2008	2007	Variance
		2009			2008		Variance			2009		2008	Variance
Selling, promotion,
Selling, promotion, general and administrative expenses	$	259,445		$	266,707		(3	)%	$	715,474	$	837,952	(15	)%
general and
administrative expenses	$299,791	$322,036	(7)%	$571,245	$620,362	(8)%

The decrease during the ~~second~~ third quarter and year to date of fiscal year ~~2009~~2010 in selling, promotion, general and administrative expenses is primarily due to a general decrease in the expenses of the Company, ~~offset~~as bywell as the ~~continued~~reduction ~~increase~~ in ~~the~~ value of the Canadian dollar experienced asin ~~mentioned above, compared to~~ the ~~second quarter and~~ year to date of fiscal ~~2008~~year 2009. These reductions included legal, insurance, consulting and reporting costs, and are a result of the continued focus by management to minimize ~~this~~these ~~cost center~~costs.

	~~Three~~	Three			Three					Nine		Nine
	~~Months~~	Months		~~Six Months~~	~~Six~~ Months					Months		Months
	~~Ended~~	Ended		~~Ended~~	Ended					Ended		Ended
	July 31,	July 31,		July 31,	July 31,
		October 31,			October 31,					October 31,		October 31,
	2008	2007	Variance	2008	2007	Variance
		2009			2008		Variance			2009		2008	Variance
Research and development
Research and development expenditures	$	1,140		$	4,474		(75	)%	$	3,460	$	32,521	(89	)%
expenditures	$23,263	$54,520	(57)%	$28,047	$75,847	(63)%

Research and development expenditures ~~have~~continue ~~been~~to be reduced ~~considerably~~throughout in the ~~second~~third quarter and year to date of fiscal year ~~2009~~2010 compared to the same periods for fiscal year ~~2008~~2009, ~~primarily~~ as a result of the cessation of activities related to the Phase III clinical trials for Ushercell announced in January 2007. ~~Expenditures~~Included ~~incurred~~ in the ~~second~~research ~~quarter~~ and development ~~year~~expenditures tofor ~~date~~the nine months of fiscal year 2009 are ~~for~~ legal expenses related to maintaining protection for the Company’s various existing patents.

43 | P a g e

	~~Three~~	Three			Three					Nine		Nine
	~~Months~~	Months		~~Six Months~~	~~Six~~ Months					Months		Months
	~~Ended~~	Ended		~~Ended~~	Ended					Ended		Ended
	July 31,	July 31,		July 31,	July 31,
		October 31,			October 31,					October 31,		October 31,
	2008	2007	Variance	2008	2007	Variance
		2009			2008		Variance			2009		2008	Variance
Depreciation and
Depreciation and amortization expense	$	104,190		$	130,279		(20	)%	$	324,830	$	433,849	(25	)%
amortization expense	$151,100	$139,764	8%	$303,570	$270,685	12%

The ~~increase~~decrease in depreciation and amortization expense ~~for~~is a result of several factors. First, capital expenditures decreased in the ~~second~~third quarter and year to date of fiscal year ~~2009~~2010 compared to the ~~second~~third quarter and year to date of fiscal year ~~2008~~2009. ~~resulted~~Second, ~~primarily~~the ~~from~~impairment write ~~assets~~down ~~acquired~~that ~~subsequent~~occurred toin the ~~second~~fourth quarter of fiscal year ~~2008,~~2009 asresulted ~~well~~in lowered asvalues for the ~~increase~~Company’s plant and equipment, which in ~~the~~turn ~~Canadian~~has decreased ~~dollar~~ongoing ~~relative~~depreciation tocharges. Third, lower depreciation also resulted from the ~~United~~decreased ~~States~~value of the Canadian dollar during ~~that~~fiscal ~~same~~year ~~period~~2010. Significant asset acquisitions related to the plant refurbishment have not been put into service and are therefore not yet being depreciated.

~~Three~~

Three

Nine

~~Months~~

Months

~~Six Months~~

~~Six~~ Months

Months

~~Ended~~

Ended

~~Ended~~

Ended

July 31,

October 31,

2008

2007

Variance

2008

2007

Variance

2009

2008

Variance

2009

2008

Variance

Interest Expense

$~~15,781~~

~~$25~~13,~~008~~808

~~(37)%~~

$~~35,003~~

~~$49~~17,~~844~~401

~~(30)%~~

(21

41,002

52,404

(22

Interest expense for the ~~second~~ third quarter and year to date of fiscal year ~~2009~~2010 decreased from the comparative amounts for the ~~second~~third quarter and year to date of fiscal year ~~2008~~2009 primarily due to the lower interest rates incurred on the shareholder loan, as well as the decreasing balances due on the ~~longterm~~long term debt.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Foreign exchange (gain)
loss	$(7,456)	$18,365	141%	$(8,087)	$45,586	118%

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The foreign exchange gain for the second quarter and year to date of fiscal year 2009 compared to the loss for the second quarter and year to date of fiscal year 2008 was due to the small increase in value of the United States dollar compared to the Canadian dollar.

Three

Nine

Months

Ended

October 31,

2009

2008

Variance

2009

2008

Variance

Foreign exchange (gain) loss

17,824

(72,648

)

125%

91,672

(80,735

)

214%

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Interest and other
income (loss) and
cash surrender value
of life insurance	$(20,961)	$102,158	(121)%	$(6,589)	$140,540	(105)%

The foreign exchange loss for the third quarter and year to date of fiscal year 2010 compared to the gain for the third quarter and year to date of fiscal year 2009 was due to the decrease in value of the Canadian dollar compared to the United States dollar during the period.

Three

Nine

Months

Ended

October 31,

2009

2008

Variance

2009

2008

Variance

Interest and other income

(2,137

)

(8,899

)

(76

(6,317

)

(2,310

)

173%

The loss in interest and other income in the ~~second~~third quarter of fiscal year ~~2009~~2010 is primarily due to ~~recognition~~the increase in value of the ~~loss~~US ondollar ~~investments~~compared ~~that~~to ~~was~~the ~~previously~~Canadian ~~carried~~dollar induring ~~Accumulated~~this ~~and~~period. ~~other~~A decrease ~~comprehensive~~in ~~income.~~the ~~Investment~~value ~~income~~of ~~for~~ the ~~second~~Canadian ~~quarter~~dollar, ~~and~~compared to the ~~year~~United States dollar, translates to ~~date~~a oflesser ~~fiscal~~amount ~~year~~being ~~2009 also~~shown ~~decreased~~in ~~due~~these tofinancial ~~the~~statements. The decrease in ~~the~~interest ~~investments~~and ~~available~~other ~~for~~income ~~sale~~in ~~and~~the ~~cash~~year ~~equivalents.~~to ~~The~~date ~~second~~of ~~quarter~~fiscal ~~and~~year 2010 compared to the year to date of fiscal year ~~2008~~2009 ~~also~~is ~~included~~due to the ~~redemption~~increased value of the ~~cash~~US ~~surrender~~dollar ~~value~~compared ofto anthe ~~insurance~~Canadian ~~policy~~dollar ~~that~~throughout ~~was~~this noperiod ~~longer~~as mentioned ~~required.~~above, as well as the reduction in the investments available for sale that occurred during the year to date of fiscal year 2009.

~~Three~~

Three

Nine

~~Months~~

Months

~~Six Months~~

~~Six~~ Months

Months

~~Ended~~

Ended

~~Ended~~

Ended

July 31,

October 31,

2008

2007

Variance

2008

2007

Variance

2009

2008

Variance

2009

2008

Variance

Provision for

Provision for (recovery of) income taxes

---

1,843

100%

---

(55,298

)

100%

(recovery of) income

taxes

$(57,141)

–

$(57,141)

–

~~The~~5 ~~tax~~| ~~recovery~~P ~~for~~a ~~the~~g second quarter and year to date ended July 31, 2008 results from the reversal of the deferred tax provision previously carried as an other liability on the balance sheet, and which was no longer required due to the availability of the Company’s carryforward of unused tax losses, and tax credits arising from unused research and development expenditures. The Canadian operations continue to have significant research and development tax pools to offset current taxes payable.e

The tax recovery for the year to date of fiscal year 2009 resulted from the reversal of the deferred tax provision previously carried as an “other liability” on the balance sheet, and which was no longer required due to the availability of the Company’s carryforward of unused tax losses, and tax credits arising from unused research and development expenditures. The tax provision for the third quarter of fiscal year 2009 was due to tax payments related to Chemdex. The Canadian operations continue to have significant research and development tax pools to offset current taxes payable.

Liquidity and Capital Resources

As of ~~July~~October 31, ~~2008~~2009, the Company had cash and cash equivalents of $~~153~~41,~~584~~719, compared to cash and cash equivalents of $~~468~~327,~~570~~857 at January 31, 2009, and $13,628 at October 31, 2008. In the ~~second~~third quarter of fiscal year ~~2009,~~2010 the Company utilized cash of $~~268~~94,~~040~~884 in its operating activities, compared to ~~utilizing cash of~~ $~~619~~53,~~577~~967 for the ~~second~~third quarter of fiscal year ~~2008~~2009. The decrease in cash from operations during the ~~second~~third quarter of fiscal year 2009 was ~~primarily~~ due to the loss from operations during the period~~, as well as the increase in receivables and inventory~~. Depreciation continues to be a large non-cash expense of the Company.

The Company’s working capital ~~remained~~decreased ~~consistent~~to ~~with the year ended January 31, 2008 at~~ $21,~~403~~041,~~855,~~033 ~~while~~and ~~the~~a working capital ratio of 21.8967 to 1 as of ~~July~~October 31, ~~2008~~2009, ~~declined~~ compared to $1,359,946 and 3.4319 to 1 as of January 31, ~~2008~~2009.

~~Management~~ As ~~expects~~of October 31, 2009, the ~~primary~~Company ~~source~~had accounts receivable of ~~its~~$698,604 ~~future~~and ~~capital~~inventory ~~needs~~of $1,306,701, compared to be$161,858 aand ~~combination~~$1,003,623 ofrespectively ~~company~~at ~~earnings~~January 31, ~~cash~~2009 onand ~~hand~~$887,476 and $1,401,630 ~~borrowings~~respectively at October 31, 2008. The increase in accounts receivable and inventory is due to the very low amount of receivables and inventory as at January 31, 2009 that resulted from the plant shutdown in the fourth quarter of fiscal year 2009 and the timing of customer payments.

As At ofOctober ~~July~~ 31, ~~2008~~2009, the Company had accounts ~~receivable~~payable of $~~951~~734,~~381~~661 ~~and inventory of $2,000,941,~~ compared to $~~611~~150,~~975~~965 ~~and $1,350,490 respectively~~ at January 31, 2008 and $~~859~~375,~~308~~304 ~~and $1,530,111 respectively~~ at ~~July~~October 31, 2007. The increase in accounts ~~receivable~~payable iswas due to the ~~timing~~very low amount of payables ~~customer~~as ~~payments,~~at ~~while~~January ~~the~~31, ~~increase~~2009, inwhich ~~inventory~~was isalso due ~~primarily~~ to the ~~production~~plant ofshutdown ~~finished goods for shipment~~ in the ~~third~~fourth quarter of fiscal year 2009 and the timing of supplier payments.

6 During the third quarter of fiscal year 2009, capital expenditures totaled $8,886 as compared to $52,250 in the third quarter of fiscal year 2009. It is management’s intention to maintain a minimal level of capital expenditures to the extent possible.

At The ~~July~~change ~~31,~~in ~~2008,~~accumulated other comprehensive income of the Company ~~had~~is ~~accounts~~primarily ~~payable~~attributable to the currency translation adjustment of ~~$538~~Dextran Products. Dextran Products’ functional currency is the Canadian dollar,~~600~~ which has depreciated compared to ~~$399,820~~the atUnited ~~January~~States ~~31,~~dollar ~~2008~~during ~~and~~the ~~$721,298~~third atquarter ~~July~~of ~~31,~~fiscal ~~2007~~year 2010. ~~The~~ ~~increase~~This incurrency ~~accounts~~translation ~~payable~~adjustment ~~was~~arises ~~due~~from to the ~~timing~~translation of ~~supplier~~Dextran ~~payments~~Products’ financial statements to U. S. dollars.

~~During~~ Dextran ~~the~~Products ~~second~~has ~~quarter~~a ofCdn. ~~fiscal~~$250,000 ~~year~~(U.S. ~~2009~~$231,075) ~~capital~~operating ~~expenditures~~line ~~totaled~~of credit, of which Cdn. $22225,~~881~~000 (U.S.$207,967) aswas ~~compared~~utilized toat ~~$351~~October 31,~~578~~ in2009, ~~the~~and ~~second~~nil ~~quarter~~January 31, 2009. This line of ~~fiscal~~credit ~~year~~bears interest at the Canadian banks’ prime lending rate at plus 1.00% (October 31, 2009 – 3.25%; October 31, 2008 – 5. 00%; January 31, 2009 – 4.00%) . The ~~expenditures~~line ~~for~~of credit is used periodically by the ~~second~~Company ~~quarter~~to ofcover temporary ~~fiscal~~short-term ~~2008~~Canadian ~~were~~dollar ~~primarily~~cash ~~for~~needs. ~~construction~~For ~~costs~~these ~~relating~~short-term tocash needs, the ~~plant~~interest ~~refurbishment,~~expense ~~which~~on the credit line is ~~now~~typically ~~substantially~~less ~~complete~~than the transaction costs incurred in selling investments. In May 2006 a fixed rate term loan of Cdn. $500,000 ~~and~~(U.S. ~~expects~~$442,713) ~~capital~~was ~~expenditures~~obtained to ~~substantially~~fund ~~decrease~~capital ~~during~~purchases. The interest rate is 6.95% until 2011. Bank indebtedness is collateralized by a general security agreement over the ~~remainder~~Company’s assets and a collateral mortgage of ~~fiscal~~Cdn. ~~year~~$500,000 ~~2009~~on the Dextran Products building in Toronto.

~~The~~6 ~~change~~| inP ~~accumulated~~a ~~other~~g comprehensive income of the Company is primarily attributable to the currency translation adjustment of Dextran Products. Dextran Products’ functional currency is the Canadian dollar, which has slightly depreciated compared to the United States dollar during the second quarter and year to date of fiscal year 2008. This currency translation adjustment arises from the translation of Dextran Products’ financial statements to U.S. dollars.e

~~Dextran~~ The ~~Products~~increase ~~has~~in along-term ~~Cdn.~~debt from ~~$250,000 (U.S. $244,140) operating line of credit, of which Cdn $ 200,000 (U.S. $195,314) was utilized at July 31, 2008 and none as at~~ January 31, ~~2008. This~~2009 ~~line~~is ofdue ~~credit bears interest at the Canadian banks’ prime lending rate plus 0.75% (July 31, 2007 – 5.50.%; January 31, 2008 – 6.50%). Subsequent~~ to ~~July 31, 2008,~~ the ~~interest~~increase ~~rate~~in on the ~~line~~value of ~~credit~~the ~~was increased to prime plus 1%. In May 2006, a fixed term rate loan of Cdn. $500,000 (U.S. $468,700) was obtained to fund capital purchases. The interest rate is 0.75% over~~ Canadian ~~bank prime lending rate (6~~ dollar.~~95%).~~ ~~Bank~~Repayments ~~indebtedness~~during ~~is collateralized by a general security agreement over~~ the ~~Company’s~~period ~~assets~~have ~~and~~actually adecreased ~~collateral mortgage of Cdn. $500,000 on the Dextran Products building in Toronto. The line of credit is used periodically by the Company to cover temporary short~~long-term ~~Canadian~~debt ~~dollar~~and capital ~~cash~~leases ~~needs. For~~in ~~these~~accordance ~~short-term~~with ~~cash~~their ~~needs,~~repayment ~~the interest expense on the credit line is typically less than the transaction costs incurred in selling short-term investments~~terms.

The decrease in long-term debt and capital lease obligations from January 31, 2008 is due to repayments during the period.

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.

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

Related Party Transactions

In August 1997, the Company loaned the late Thomas C. Usher, 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 rate of Toronto Dominion Bank 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 periodic payments 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 ~~July~~October 31, ~~2008~~2009 was $~~307~~310,~~563~~534, as compared to $~~297~~299,~~321~~716 at January 31, ~~2008~~2009, including accrued interest. The Company has taken a cumulative provision of $~~323~~334,~~490~~308 against accrued interest on this loan at ~~July~~October 31, ~~2008~~2009 ($323,490 ~~and~~as at January 31, ~~2008~~ 2009). Obligations with respect to the Loan transferred to the estate of Thomas C. Usher upon his death in February 2005.

In August 1999, Thomas C. Usher 7personally 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 October 31, 2009 and January 31, 2009 was $31,244. The Company continues to be obligated to make royalty payments to Mr. Usher’s estate pursuant to intellectual property license agreements, and intends to continue to offset such payments against the Receivables. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of October 31, 2009, pursuant to a non-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2009. The amounts continue to remain owing from the estate of Thomas C. Usher, upon his death on February 26, 2005.

In7 ~~August~~| ~~1999,~~P 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 July 31, 2008 and January 31, 2008 was $60,339. The Company continues to be obligated to make royalty payments to Mr. Usher’s estate pursuant to intellectual property license agreements, and intends to continue to offset such payments against the Receivables. Thomas C. Usher also owed $250,000 to a ~~subsidiary~~g of the Company, Novadex International Limited, as of July 31, 2008, pursuant to a non-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2008. The amounts continue to remain owing from the estate of Thomas C. Usher upon his death on February 26, 2005.e

As of ~~July~~October 31, ~~2008~~2009, Thomas C. Usher, now through his estate, had pledged ~~270~~243,~~763~~263 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $~~186~~85,~~826~~ 575 at ~~July~~October 31, ~~2008~~2009, based on the closing price of the Company’s common shares as quoted on the ~~NASDAQ~~OTC ~~Capital~~Bulletin ~~Market~~Board on ~~July~~October 31, ~~2008~~2009. The Company intends to continue to hold the remaining pledged assets as collateral until the amounts owing discussed above are repaid.

The Company had a commitment to pay an amount equal to one year’s salary, $110,000, to Thomas C. Usher’s estate. The amount owing on this commitment as at ~~July~~October 31, ~~2008~~2009 is $3635,~~908~~703.

The Company also has an outstanding loan payable to Ruth Usher, a former director and the widow of Thomas C. Usher. The amount due from the Company pursuant to this loan decreased to $~~632~~584,~~450~~434 at ~~July~~October 31, ~~2008~~ 2009 from $~~658~~608,~~569~~293 at January 31, ~~2008~~2009 due to monthly payments by the Company, less interest charges.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

The Company’s interim 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~~and ~~accounting~~are ~~policies~~described ~~with~~in ~~respect~~more todetail ~~the~~in ~~Sparhawk~~Note ~~Joint~~2 ~~Venture~~to ~~and~~the ~~its~~interim ~~disposition~~consolidated ~~are~~financial ~~also~~statements ~~discussed~~and 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

~~Since~~ All ~~March~~of 4,the ~~2004,~~Company’s ~~all~~ revenue is from sales of bulk 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.

8 | P a g e

Allowance for Doubtful Accounts

Accounts receivable isare 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~~creditworthiness ~~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 two 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 future 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 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 (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets as well as other fair 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, a subsidiary of Chemdex, Inc. and Sparhawk entered into a 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.

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. On May 31, 2006, payment in full for principal and interest of the promissory note 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.

Since Sparhawk was thinly capitalized and highly leveraged, the Company had deferred $350,000 of the gain relating to the promissory note receivable from Sparhawk. 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 statement of operations.

Changes in Accounting Policies

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exchange Rate Sensitivity

The Company’s operations consist primarily of manufacturing activities located in Toronto, 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~~U.S. ~~States~~ dollars, the majority of its expenses are incurred in Canadian dollars. 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 consolidated financial statements of the Company contained in this report. When the Canadian dollar rises in value relative to the ~~United~~U.S. ~~States~~ dollar, the carrying value of the assets and liabilities of Dextran Products as stated in ~~United~~U.S. ~~States~~ dollars increases. A rise in the Canadian dollar relative to the ~~United~~U.S. ~~States~~ dollar also results in a decrease in gross margins and net income of Dextran Products. Dextran Products also experiences a foreign exchange loss when the Canadian dollar rises in relation to the ~~United~~U.S. ~~States~~ dollar because it has a net asset exposure to the ~~United States~~ U.S. dollar resulting from accounts receivables denominated in United States dollars exceeding ~~United~~U.S. ~~States~~ dollar denominated ~~payables~~accounts payable and customer deposits. Similarly, a decline in the Canadian dollar relative to the ~~United~~U.S. ~~States~~ dollar results in a foreign exchange gain and increased gross margins and net income at Dextran Products.

Management monitors currency fluctuations toand endeavors 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.

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~~	Expected Maturity Date
								~~Fair~~					Fair
	1/31/08	1/31/09	1/31/10	1/31/11	1/31/12	Thereafter	Total	Value
		10/31/10			10/31/11			10/31/12	10/31/13	10/31/14	Thereafter	Total	Value
	~~(US$ Equivalent)~~								(US$ Equivalent)
Assets:
Short-term
Short-term investments:
investments:
Fixed rate ($Cdn)		439,689			—			—	—	—	—	439,689	451,029
Fixed rate ($Cdn)	465,617	—	—	—	—	—	465,617	465,617
Average interest rate		2.58%			—			—	—	—	—	2.58%
Average interest
Liabilities:
rate	3.84%	—	—	—	—	—	3.84%
Long-term debt:
Liabilities:
Fixed rate ($Cdn)		45,190			48,700			52,446	56,492	54,983	92,027	349,839	322,143
Long-term debt:
Average interest rate		9.16%			9.16%			9.17%	9.18%	9.105%	9.00%	9.12%
Fixed rate ($Cdn)	23, 643	50,300	45,188	48,431	51,905	201,456	420,922	427,052
Average interest
rate	9.23%	9.23%	9.00%	9.00 %	9.00 %	9.00 %	9.08%

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Interest Rate Sensitivity

The Company has interest earning assets consisting of investment grade short-term ~~commercial paper and medium-term fixed income~~ instruments. A significant portion of the Company’s debt is at fixed rates. The variable rate debt represents the shareholder loan payable, which is partially offset by the shareholder loan receivable. Both of these financial instruments carry the same interest rate. As such, the Company has noa ~~significant~~reduced level of 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 average interest rates by expected maturity dates.

	~~Expected Maturity Date~~	Expected Maturity Date
								~~Fair~~					Fair
	1/31/08	1/31/09	1/31/10	1/31/11	1/31/12	Thereafter	Total	Value
		10/31/10			10/31/11			10/31/12	10/31/13	10/31/14	Thereafter	Total	Value
	~~(US$ Equivalent)~~								(US$ Equivalent)
Assets:
Short-term
Short-term investments:
investments:
Fixed rate ($Cdn)		439,689			—			—	—	—	—	439,689	451,029
Fixed rate
Average interest rate		2.58%			—			—	—	—	—	2.58%
($Cdn)	465,617	—	—	—	—	—	465,617	465,617
Notes receivable:
Average
Variable rate ($US)		22,813			22,508			23,578	24,698	25,871	187,378	306,845	306,845
interest rate	3.84%	—	—	—	—	—	3.84%
Average interest rate		4.75%			4.75%			4.75%	4.75%	4.75%	4.75%	4.75%
Notes receivable:
Liabilities:
Variable rate
Long-term debt:
($US)	76,008	80,949	86,211	60,080	4,315	—	307,563	307,563
Fixed rate ($Cdn)		45,190			48,700			52,446	56,492	54,983	92,027	349,839	322,143
Average
Average interest rate		9.16%			9.16%			9.17%	9.18%	9.05%	9.00%	9.12%
interest rate	6.50%	6.50 %	6.50%	6.50%	6.50%	—	6.50 %
Variable rate ($US)		32,239			33,771			35,375	37,055	38,815	407,179	584,435	584,435
Liabilities:
Average interest rate		4.75%			4.75%			4.75%	4.75%	4.75%	4.75%	4.75%
Long-term debt:
Fixed rate
($Cdn)	23, 643	50,300	45,188	48,431	51,905	201,456	420,922	427,052
Average
interest rate	9.23%	9.23%	9.23%	9.00%	9.00%	9.00%	9.08 %
Variable rate
($US)	15,446	31,897	33,970	36,178	38,529	476,402	632,423	632,423
Average
interest rate	9.75%	9.75%	9.75%	9.75%	9.75%	9.75%	9.75%

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Item 4. Controls and Procedures.

The Company completed 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-15(e) and 15d-15(e) of the Securities Exchange Act ofas ~~1934~~amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures ~~are~~cannot ~~effective~~be inrelied ~~alerting~~upon ~~them~~to onensure athat ~~timely~~information ~~basis~~required ofto ~~material~~be ~~information~~disclosed ~~relating~~in tothe reports the Company ~~(including~~files ~~its~~and ~~consolidated~~submits ~~subsidiaries)~~under the Exchange Act is recorded, processed, summarized and reported as an when required to beensure ~~included~~that ininformation ~~its~~is ~~periodic~~accumulated ~~Securities~~and communicated to our management to allow timely decisions regarding disclosure. Therefore disclosure controls and ~~Exchange~~procedures ~~Commission~~are ~~filings~~not effective for the three months and year to date ended October 31, 2009.

There have been no changes in the Company’s internal control over financial reporting that occurred in the ~~Company’s~~ fiscal quarter and year to date ended ~~July~~October 31, ~~2008~~2009 that has ~~materially~~ affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION

OTHER INFORMATION

Item 1.	Legal Proceedings
	The Company is not a party to any pending legal proceedings.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Not applicable.
Item 3.	Defaults Upon Senior Securities
	Not applicable.
Item 4.	Submission of Matters to a Vote of Security Holders.
	None
Item 5.	Other Information
	None.

~~Item~~13 1.| ~~Legal~~P ~~Proceedings~~a g e

The Company is not a party to any pending legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

At the July 11, 2008 Annual General Meeting of the Members of the Company, the vote of the Members entitled to notice of, and to vote at, the 2008 Annual General Meeting was as follows:

Election of Board Members
	Votes Cast
	For	Withheld
Derek John Michael Lederer	2,062,088	182,547
Ratification of Appointment of Schwartz Levitsky Feldman LLP
as Independent Registered Accounting Firm
	Votes Cast
For	Against	Abstain
2,059,183	104,141	Nil

Item 5. Other Information

Not applicable.

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

(a) Exhibits

(a)	Exhibits
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	3.1	Memorandum of Association of Polydex Pharmaceuticals Limited, as amended to date (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 to date (filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q filed September 13, 1999, and incorporated herein by reference)
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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(b) Reports on Form 8-K

Not applicable.

SIGNATURES

Pursuant to the requirements 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.

Date: ~~September~~ 12December 14, ~~2008~~2009

POLYDEX PHARMACEUTICALS LIMITED

(Registrant)

By /s/ George G. Usher

George G. Usher, Chairman, President and

Chief Executive Officer

(Principal Executive Officer)

By /s/ John A. Luce

John A. Luce, Chief Financial Officer

(Principal Financial Officer)

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Exhibit Index

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Filing Compare · POLYDEX PHARMACEUTICALS LTD/BAHAMAS